Solar Geysers Rollout Programme: Opportunities for SMMEs and Cooperatives

Meeting report

The Chairperson noted the apologies, and also accepted an apology from Ms Mokgadi Modise, Chief Director, Department of Energy (DOE) for the presenters' late arrival, due to flight delays.

The Chairperson then recalled that on 5 November 2014 the Department of Energy, ESKOM and South African Bureau of Standards (SABS) had been invited to make presentations and certain resolutions were taken, which she circulated in the attached document. She summarised that the purpose of this meeting was to:
- assess the progress made by the Department of Small Business Development (DSBD) in signing the transversal agreements with the Department of Energy, aimed at opening the market for the provision of Solar Water Heaters (SWHs or geysers) and at ensuring that the roll out strategy for solar heated geysers addressed those issues of poverty, unemployment and inequality
- address the issues in the model adopted by the Portfolio Committee, with a focus on poverty reduction and job creation. The long term objective was to make poor families self-sufficient and enable them to pay for services rendered by municipalities, resulting in a broader revenue base for municipalities.

She summarised that  the resolution of the ANC 53rd Conference, held in Manguang in 2012 ,was to develop small medium and micro enterprises (SMMEs) and cooperatives through public procurement and infrastructure spending. The National Development Plan (NDP) targets said that 80% of those jobs would be created by SMMEs and cooperatives. This would be 586   667 jobs per year by 2030.

The Preferential Procurement Policy envisaged 70% local content policy and 30% procurement for SMMEs and cooperatives and the targeting of 27 poverty districts. The youth and women empowerment policy would also inform this development approach. The government was committed to using an integrated development approach similar to that used for the 2010 Soccer World Cup.

Several opportunities in energy were identified by this Portfolio Committee, such as manufacturing, assembly, installation, maintenance and repair. Solar power could be specifically used in identified areas for solar street lighting and traffic lights, along with use of energy saving bulbs and a switch to using SWHs in hospitals, universities, clinics and correctional centres.

She summarised that the expectation of this Committee was to see a common and broader approach between the two Departments on participation of SMMEs and cooperatives, with a clearer understanding of the target markets for development. A development strategy for the small manufacturers would be teased out.

Discussion
Mr R Chance (DA) noted that he understood the purpose of the meeting, but he questioned the agenda which gave no indication of the input from the DSBD, and felt there was insufficient time available.

The Chairperson replied that she had not written the agenda. The DSBD was fully aware that it had been tasked with making a presentation to the Portfolio Committee. The Chairperson noted that when a policy of government was announced, as in this case, then the work of the relevant Department began immediately from that day so this was all work in progress. The Chairperson emphasized that a strategy did not begin  only when the Department was summoned to appear for a briefing by the Portfolio Committee.

Mr Chance (DA) noted that the agenda was incorrect.

The Chairperson replied that the agenda had been agreed to by all others.

Ms Pumla Ncapayi, Acting Director-General, Department Small Business Development, stated that there was a misunderstanding and her Department was not informed it would need to do a presentation.

The Chairperson refused to accept this, and claimed that it was discussed with the Department that a presentation would have to be given.

The two continued to debate the position until Mr X Mabasa (ANC) proposed that the Department of Energy start its presentation.

The Chairperson maintained that she had communicated with the Department about doing a presentation and then asked the DG to agree to this.

Ms Ncapayi then agreed that she would give a presentation.

Mr H Kruger (DA) wanted clarity whether all the public policies discussed were ready.

The Chairperson replied that the Departments should have made themselves ready once the public policies were announced.

Roll out strategy for SWHs: Department of Small Business Development briefing
Ms Ncapayi proceeded to discuss the Roll out Strategy for the Solar Water Heater Programme (see attached document. She noted that the DSBD sought to ensure that SMMEs and cooperatives were given the space to participate in the programme. The Department highlighted four key elements in the programme: manufacturing, distribution, installation and maintenance. The programme was required to have a 70% local content but only seven South African companies were currently certified to be able to produce 600   000 panels over a two year period. The budget for this was R4 billion.

The Department of Energy would upscale the number of companies from seven to sixteen. Of the current seven, five were SMMEs. There were no local content solar panel manufacturing companies in the two provinces of Limpopo and Mpumalanga, and these provinces' needs would be served by other provinces.

A target of 200 SMMEs had been set for manufacturing and installation over two years. The DSBD and Sector Education and Training Authority (SETA) would provide the training skills necessary for the participating companies. It was agreed that the DSBD would work through local municipalities who would identify and procure 5 000 people designated to carry out repairs on the programme. This Department would be giving priority in the programme to youth, women and military veterans in the 27 districts.

The Department of Energy had signed a service level agreement with South African Local Government Association (SALGA) requiring the implementation of this programme and the SA Bureau of Standards (SABS) would provide training.

In conclusion, she stated that the Development Bank of South Africa (DBSA) would look at the model of identifying 200 SMMEs and address the issues of unemployment, poverty and inequality. The DSBD would sign transversal agreements with the Department of Energy to open the market for SMMEs and cooperatives and would extend and engage with the Department of Higher Education and Training (DHET) and SETAs on training for the installations of the solar water heaters.

Department of Energy briefing
Ms Modise, Chief Director, Department of Energy, noted that most of the information in her presentation was the same as that presented on 5 November 2014. The Department of Energy was still awaiting Cabinet approval on the proposed development model which would then identify all the outstanding issues.

She outlined the rollout strategy (see attached document for full details). Having run through slides on the background and context, she explained that the National Solar Water Heater Programme (NSWHP) was  implemented within the broader scope of South Africa’s energy plans and strategies. The objectives were a reduction of electricity demand, mitigation of the carbon footprint, cushioning the poor from rising electricity tariffs and job creation in the local manufacturing industry.

The previous SWH delivery model raised several challenges, including the small impact on electricity demand, the challenge around an import led programme with low local production content, inadequate measurement of local production and complaints of poor quality of installation and maintenance and no support from municipalities.

These had been addressed and the future implementation was to be based on a revised and detailed contractual model that would be submitted to Cabinet for its approval. The SWH implementation approach would consist of social upliftment and the reduction of electricity consumption. The NSWHP would be able to offer training skills, installation services and aftersales service to the 5 000 installers and 200 SMMEs participating.

The progress of the programme was that it was currently at the stage of increasing local manufacturing content, and replacing  the rebate programme with a new contracting model. The National Treasury (NT) had  allocated a budget of R700 million for 2015/16, to allow local manufacturers to increase production capacity to meet local demand. 

The report concluded that poor installation and workmanship had been one of the crucial determinates of the nationwide programme. It confirmed that small businesses were the backbone of a successful NSWHP.

Ms Ncapayi concluded that the DSBD would not work in a silo approach and was prepared to work with all the shareholders to make a success of the Programme.

Discussion
Ms N November (ANC) thanked both departments for their presentations but was worried how each of the Departments intended to ensure full participation of women and youth. She also commented that the timeframes were very vague, particularly given that this programme had started in 2009, and it was now 2015. There was a lack of visible implementation, and people could not see the training that the Department had referred to. The Portfolio Committee wanted to be apprised of the exact situation, and the public wanted full accountability.

Mr T Malaudzi (EFF) thanked the Department for their presentation and asked how many cooperatives were targeted. He asked about the links between the two departments, and whether they were able to monitor how many SMMEs and cooperatives there were who were becoming involved. He further asked what type of factors informed the departments' allocation of money per province.

Mr X Mabasa (ANC) thanked the departments for their input. He questioned the SWHs that could not adjust to weather conditions, and he wanted clarity on whether money had been spent on something that could not work. He wondered also if the current monitoring and evaluation of installed units provided any feedback on quality. He asked for more detail on the level of education or training being given. He also wanted to know whether the approach of acquiring SWHs from other provinces was a long term or a stop-gap solution.

Mr R Chance (DA) thanked the departments for the presentations. On 5 November it was noted that Eskomwas responsible for the roll out, but now it was stated that this responsibility lay with the DSBD. Mr A Etzinger from Eskom had stated that the cost implications for local units were R6 000, but R2 000 for imported units, which suggested a figure of R17 million per job.  He asked if the Department of Trade and Industry (dti) was driving the job creation, and at what cost. He also wanted to know what the DOE was doing to ensure local content costs were not too steep. He noted that the emphasis was on social upliftment and reducing electricity consumption.

He stated that the core of this policy was based on local content and developing small business. However, in terms of the rollout, he noted that government was still the owner of the RDP houses. He thus questioned what the costs of maintaining SWHs were, and what the long term solution for electricity consumption was.

Mr Chance also wanted to know what had changed in the solar panel manufacturers' working arrangements, that they could now make tubes and flat panels.

Mr Chance asked exactly how many  jobs had been created and of what nature. More clarity was needed on the impact of energy demand reduction and why the programme had been transferred from Eskom to the Department of Energy. He asked how many jobs had been lost and businesses closed due to the interruption of the supply chain and movement of the programme and whether the industry had been incentivised to look at the export markets, noting that if there was only one customer, and that was government, there was a problem. He also asked if the current focus was on low or high pressure SWHs.

Mr S Mncwabe (NFP) thanked the Departments for the presentation, but mentioned that he found it too generalised, and stated that he was unhappy about the presentation because it was too general and it did not reflect how the departments were resolving the problems. The departments must take their cue from the resolutions of the ruling party, and their actions must be relevant. He noted that much money had been spent, in line with plans, but pointed out that there was in some cases cause to regret the expenditure. He asked if the research into the SWHs had been satisfactory. Any poor decisions had to be explained to communities and he urged that a new approach must be followed. The rural areas had not been properly serviced in this roll out programme, and the Department must change this. He considered that the monitoring and evaluation had been inadequate and that the policy had failed for five years because of this, so now urged the Department to ensure that monitoring should be done annually. In addition, he noted that a more specific plan was necessary. He added that the community must feel that the roll out was beneficial and that communities were experiencing the benefits. Smaller groups were far more favourable towards achieving participation, and he also stressed that in the second phase of transition, changes were going to have to be made so that the programme moved quickly and easily.

Mr S Nkomo (ANC) noted that two provinces had no local manufacturing base for producing the solar panels, and also questioned how in the longer term the departments were going to address this concern. Before implementation, there must be a proper policy and plan to carry out.The training was a problem and coordination needed to be improved.

The Chairperson reiterated Mr Mabasa's point about SWHs that were not ble to adjust to local weather conditions and demanded to know how much was spent and what recourse there was.

The Chairperson pointed out that in November 2014 the SABS had approved products, so she wanted to know how the situation of faulty heaters arose if the SABS and Council for Scientific and Industrial Research (CSIR) did not approve them.

Referring to comments from Mr Chance, the Chairperson suggested that it was necessary to draw the distinction between comments on social issues generally, and specific responses to current problems of electricity supply and demands leading to load shedding.

The Chairperson added that South Africa followed a policy of energy mix, but no such solutions were given in any of the presentations. The implementation of an energy mix policy could be successful, by creating solutions to the issues of supply and consumption, since reducing demand at domestic level, such as encouraging use of gas, would improve the situation as it would lead to freeing up electricity for business consumption.

She noted, in answer to another question that the installation of high pressure geysers was for middle and high income domestic users, and the installation of low pressure geysers / solar panels was intended to address social issues. She agreed that the issue of local content was important and that if government could do away with social grants it would be reducing costs and government expenditure to poor people. The response must look at the target market for high pressure SWHs and low pressure SWHs and introduce the correct mix, balanced so that  number of jobs created and people helped were the measurement of success.

Ms Ncapayi answered the questions directed to the DSBD. She noted that her Department envisaged the  time frame for the transversal programme at three years. It would pay special attention to the training and proritise the deliverables, and was fully committed to the local content programme of 70%, which would be met.

Through this roll out programme the DSBD would address job creation in the 27 nodal points. The Department agreed to appoint a steering committee to focus on teasing out and implementing the monitoring and evaluation of the programme. It was committed to ensuring that a manufacturing base would be established in all provinces and would use black business and engage with the dti in starting this manufacturing base.

Market access was a primary responsibility and she recognised South Africa's need to have exports to international markets in Africa and Europe. Engagement projects must fully benefit people on the ground and her Department would engage with the DHET with a view to offering training programmes on entrepreneurship. The SABS would be involved in training programmes and quality control.

The figure of 200 quoted was a breakdown of SMMEs and cooperatives. The relevant energy mix policy would be endorsed and followed by the Department of Energy.

Ms Modise responded to questions directed to the Department of Energy. Again, she noted that the Department's submission to Cabinet was awaiting approval and the Department had committed itself to presenting a detailed plan on how it would do implementation in due course. The Department believed that this plan was not a failure, and there were pockets of excellence. There was some detail that awaited approval and the questions on this would then be answered.

She gave an undertaking that the Department would provide the statistics for jobs in writing.

Ms Modise noted that the Department of Economic Development (EDD) had led the training programme and in future the SABS would take over. In terms of the local content programme, the dti had done a study on local content and had engaged with the Department of Energy and National Treasury.

She noted that the DOE could not respond to statements made by Mr Etzinger. The Department of Energy and Eskom had an implementation policy and DOE's proposal was based on what Eskom in turn had proposed. The Department had requested Cabinet approval in order to answer some of the questions. Questions that could not be answered until such approval had been given included the disclosure of  cost implications around local content, and the rebate programme, questions on maintenance issues, the costs of dysfunctional solar geysers, and questions around the numbers of low or high pressure SWHs.

The Chairperson replied that this was unsatisfactory. Approval from Cabinet was not required in order to answer those questions. This was the Department of Energy's own target market and the Committee needed to be told of the outcomes.

Ms Modise responded that the low pressure programme was the social component and decisions about the low or high pressure focus must be still be taken. This programme was focusing only on low pressure SWHs, and how small business would be involved in that. She reiterated that the DOE had to await the decision of Cabinet. It was incorrect to suggest that the whole programme had been a failure.

She conceded that the DOE would engage with Mr Etzinger regarding the questions that Mr Chance had raised earlier, and then provide further feedback.

The Chairperson reminded the departments that one question not answered was how many businesses in manufacturing had closed, and how many jobs were lost due to certain manufacturers being unable to be certified to produce local content.

The DSBD responded by stating it had been unable to monitor this because there was no complete database on the Eskom rebate program. There were only 20 companies verified, of which only seven were able to comply with the requirements for certification.

The Chairperson replied that if only seven out of 20 companies qualified, then the question was what incentive strategy was being followed to resuscitate those companies who did not meet local content requirements, and whether they would be able to remain open with these job losses. It was important to know what steps were taken to ensure all the tubes were produced locally.

Mr Chance (DA) responded that it was very disappointing that not one of his questions had been answered, and reminded Members that the Department had also been present during the meeting with Mr Etzinger in November. He felt that this was a case of "passing the buck" to the implementing agency.  There was a policy stasis in the Department, which was bogged down by turf wars and a lack of priorities. He asked what exactly the Department was waiting on Cabinet to decide. The Committe had been waiting for over seven years for a definitive answer. He reiterated that he wanted to know what the comparative local content was and why there was such a lack of information. He would be submitting a set of written questions on behalf of the Portfolio Committee and if no answers were forthcoming, he would refer this matter to Ministers Lindiwe Zulu and Dr Rob Davies.

The Chairperson stated that there was a need for a follow up meeting on the issues raised and that the Departments needed to respond to them in detail. There must be a clear indication of what each programme was addressing and what the end results were to be. She thanked both Departments for the presentations and added that the making of a submission did not signify the end of an event, but it must be considered as work in progress. She added that the Departments must now prepare immediately to answer issues on service delivery. Both Departments needed to clarify the issues raised and also needed to meet one another to discuss and agree upon a collaborative approach. The Committee wanted to know what changes had each department effected and whether all those issues that had been raised had since been corrected.

Adoption of Committee programme
The Committee agreed that the programme of the Committee for the term be adopted.

The meeting was adjourned.