Department of Energy on its 2015/16 Annual Performance & Strategic Plans, with Minister

NCOP Economic and Business Development

05 May 2015
Chairperson: Mr L Suka (ANC, Eastern Cape)
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Meeting Summary

The Department of Energy (DoE) briefed the Committee on its annual performance plan (APP) and its strategic plan for 2015/16-2019/20. It had been experiencing a number of challenges, including generation capacity, distribution infrastructure, poor access to energy and volatility of petroleum prices. Other challenges concerned the aging energy infrastructure, escalating cost of energy and budget baseline reductions. The Department had identified seven key priority areas to focus on in the implementation of the strategic plan and APP, and these involved mainly electricity supply, petroleum and gas infrastructure, and effective and efficient energy utilisation. It would also give priority to policy and legislation, oversight of State-Owned Entities (SOEs), and targeted training involving the Department and sector Skills Education Training Authorities (SETAs).

The DoE was made up of the following programmes: Programme1: Administration, Programme 2: Energy policy and Planning, Programme 3:, Programme 4:Energy Programme and Projects, and Programme 5: Nuclear energy and Programme 6:Clean energy

The five-year targets for the DOE’s programmes were described. Energy policy and planning focused mainly on the Electronic Regulation Amendment Bill and National Energy Regulation Bill being introduced for consideration, and their promulgation being supported if approved by Cabinet and Parliament. Petroleum and petroleum products regulation aimed to ensure there was compliance in monitoring and enforcement in the petroleum sector, with enforcement notices being issued in 90% of the cases where inspections revealed non-compliance. Energy programmes and projects were focused on ensuring there was access to electricity by households, and the target was to connect to 1 080 000 rural households to the grid by March 2019, which was 75% of the 1 452 000 total grid target. There would also be non-grid connections to 115 000 households by March 2019, of which 88 250 (75%) were in the rural areas.

The five-year target for the nuclear energy programme was to improve nuclear security through the amendment of both the National Nuclear Regulation Act, 1999 (Act No.47) and promulgation of the Radioactive Waste Management Fund Bill. The clean energy targets were to coordinate and monitor the implementation of energy related climate change responses, and to measure environmental compliance. The Department planned to develop renewable energy of 42% (12 800 MW) and imports of 6% (2 600 MW) of hydro-electric power by 2030.

An overview of budget was also given, indicating that an overall budget of R7.48 billion had been allocated to the Department for 2015/16. Earmarked for transfer payments to public entities, municipalities and other implementing institutions was an amount to R6.98 billion -- equivalent to 93.35% of the Department’s total budget. About 76.51% of the allocated budget would be going to the Integrated National Electrification Programme (INEP) and 7.76% to the Nuclear Energy Corporation of South Africa (NECSA). Budget reductions that had been implemented required a review of the DoE’s performance targets, so that they were aligned with the funding received.

Members requested more information on the Grand Inga Hydro-electric project, in order to establish the amount of electricity to be generated to assist the country to deal with the energy crisis. They also expressed concern about the under-spending on almost all of the programmes, considering that the country had been downgraded mostly on account of energy security.  Had cross-subsidisation of electricity prices been considered in order to assist the poor? Members also expressed disappointment that the Department had been silent on the how to mitigate the volatility of petroleum product prices. The aging energy infrastructure was indeed a historical problem, but it was important to know how long the country would take to address it. The Department was asked about the factors that inhibited the country from procuring petroleum products from other African countries, particularly in light of Agenda 21. What had been done by the Department to prevent a shortfall of energy in the future?

Owing to time constraints, the Department would provide written responses to Members’ questions.

Meeting report

Minister’s opening remarks

Ms Tina Joemat-Pettersson, Minister of Energy, said the plan of the Department was to prioritise the Independent Power Producer Programme (IPPP) as it provided the opportunity to leverage state funding for the promotion of energy security. Approximately 7 761 MW could be generated from base load energy sources like coal, natural gas and hydro energy if the Department were to meet some of the limitations in the current electrification programme. The presentation would provide detailed information on some of the programmes that would be undertaken to ensure that there was sustainable provision of electricity in the country. The Minister had apologised for not attending the discussion on energy in Oudtshoorn, as she had been requested to be in the National Assembly (NA), but she had promised the Committee to return to Oudtshoorn and various other provinces to attend energy summits.

The Minister emphasised that the Department took the oversight visits very seriously, as it was important to consider the comments and suggestions that had been forwarded by the Members. Load shedding continued to be a challenge to the economy, but there was a concerted effort to deal with energy constraints. She referred to the Consol solar jar, a safe and sustainable solar-powered light supply, and an innovation which was a proudly South African product.

Briefing by Department of Energy

Dr Wolsey Barnard, Acting Director-General (DG), Department of Energy (DoE), said the DoE had been established in 2009 after the split of the Department of Minerals and Energy into two ministries. The Department had been experiencing a number of challenges, including generating capacity, distribution infrastructure, poor access to energy and volatility of petroleum prices. The other additional challenges comprised of ageing energy infrastructure, cost of energy and budget baseline reductions. The Department had identified seven key priority areas to focus on in the implementation of the strategic plan and APP which mainly involved electricity supply, petroleum and gas infrastructure, and effective and efficient energy utilisation. The Department would also prioritise policy and legislation, oversight of State-Owned Entities (SOEs), and targeted training between the Department and sector SETAs.

The DoE was made up of the following programmes:

  • Programme 1: Administration
  • Programme 2: Energy policy and Planning
  • Programme 3: Petroleum and Petroleum Products Regulation
  • Programme 4: Energy Programme and Projects
  • Programme 5: Nuclear energy
  • Programme 6: Clean energy

Programme 2 aimed to ensure evidence-based planning, policy setting and investment in the energy sector through supply-and demand-side management options and increased competition through regulation. The five-year target in programme 2 focused mainly on the Electronic Regulation Amendment Bill and National Energy Regulation Bill being introduced for consideration, and supporting their promulgation if approved by Cabinet and Parliament. The Department also planned to develop a national coal policy with regulations that would include a strategy to secure coal supply and that was aligned with the Mining Beneficiation Action Plan by 2016. It would be crucial also to develop an electricity price path in line with the Integrated Resource Plan (IRP) and Transmission Resource Plan (TRP) in the process of reviewing the bulk electrical infrastructure required for universal access to electricity.

Mr Tseliso Maqhubela, DDG: Petroleum and Products Regulation; said that the purpose of Programme 3 was to manage the regulation of petroleum products to ensure optimum and orderly functioning of the petroleum industry, and to achieve government’s developmental goals. The five-year target was to ensure there was compliance in monitoring and enforcement in the petroleum sector, and enforcement notices should be issued in 90% of the cases where non-compliance was found through inspections. The target was for 1 200 retail site compliance inspections to be conducted. The other plan was to prioritise transformation of the South African petroleum and liquid industry, and the Department aimed to ensure that 45% of the approved licence applications had 50% of Black Economic Empowerment (BEE) ownership. There was also a plan to ensure that there was transparent fuel pricing of petroleum products, as this was a mechanism that rewarded investors in the liquid fuels sector throughout the value chain. The target was to report on the fuel prices and margin adjustments using the Regulatory Accounting System (RAS) model.

Dr Barnard said that Programme 4 aimed to manage, coordinate and monitor programmes and projects that focused on access to energy. The five-year target was focused on ensuring there was access to electricity by households. The target was to connect to 1 080 000 rural households to the grid by March 2019, which was 75% of 1 452 000 total grid target. There would also be non-grid connections to 115 000 households by March 2019, of which 88 250 (75%) were in the rural areas. There would also be a concerted effort to enhance programmes and project management by developing a coherent project management business process and the development of rural energy centres. The Department would focus on monitoring energy infrastructure development by ensuring there was a quarterly progress report on the number of successfully implemented projects and monitoring and reporting on the quantity of Solar Water Heating (SWH) units installed. It was important to determine the amount of energy to be saved by the rollout of SWH, as well as the training conducted through the National Solar Water Heating Programme (NSWHP), pending availability of resources.

Mr Zizamele Mbambo, DDG: Nuclear Energy, said the purpose of Programme 5 was to manage the South African nuclear energy industry and control nuclear material in terms of international obligations, nuclear legislation and policies, to ensure safe and peaceful use of nuclear energy. The five-year target was to improve nuclear security with the amendment of both the promulgation of the National Nuclear Regulation Act, 1999 (Act No.47) and promulgation of the Radioactive Waste Management Fund Bill. The Department aimed to strengthen the control of nuclear material management by ensuring that 70% of authorisation applications were processed within the eight-week time period, and that 20 nuclear security compliance reports were submitted to the relevant decision-making structures. There would be a need to increase nuclear awareness through 31 targeted public awareness campaigns and community outreach events. This was important, as it ensured compliance with international nuclear obligations by developing, maintaining and implementing an appropriate statutory framework on an on-going basis.

Dr Barnard said that the purpose of Programme 6 was to manage and facilitate the development and implementation of clean and renewable energy initiatives, Energy Efficiency and Demand Side Management (EEDSM) initiatives, as well as to coordinate climate change initiatives within the energy sector. The five-year target was to coordinate and monitor the implementation of energy-related climate change responses and measure environmental compliance. The Department planned to develop renewable energy of 42% (12 800 MW) by 2030 and develop imports of 6% (2 600 MW) hydropower by 2030. It was also critically important for the Department to coordinate and monitor the implementation of the EEDSM measures across all sectors, and this would be done by developing energy consumption baselines for an additional 100 municipalities. It was important to have effective renewable energy so as to ensure the integration of renewable energy into the mainstream energy supply. There was a target to deploy 15 MW of renewable energy off-grid and to install 105 000 solar home systems and one million SWHs, to increase biogas uptake and the use of solar Photovoltaic (PV) rooftops.

Dr Barnard said that the APP target for Programme 2 was to publish the annual energy balances to support compilation of the Greenhouse Gas (GHG) inventory by March 2016, and the Department was then planning to send the 2013 energy balance to the Director General (DG) for approval via a submission by the end of the fourth quarter. The Department was targeting to submit the draft Gas Amendment Bill for Ministerial approval and submission to Cabinet, and then submission to the state law advisers for certification of the draft Gas Amendment Bill, by the end of the fourth quarter. The APP targets for Programme 3 included issuing enforcement notices in 90% of cases where non-compliance was identified during routine compliance inspections. The Department aimed to ensure that 40% of licence applications had BEE ownership, and this was throughout the financial year. The targets for Programme 4 included 260 000 households to be electrified with grid electrification, and the building and upgrading of six new bulk substations, eight additional substations and 150 km of new MV power lines constructed.

Mr Mbambo said that the APP target for Programme 5 was to complete an updated draft National Nuclear Disaster Management Plan and commission and supply an additional 9 600 MW of nuclear energy into the grid by 2030.The Department was also planning to develop a nuclear new build programme roadmap, based on Integrated Resource Plan (IRP) 2010-30 and the implementation of the optimised programme plan. It was important to prioritise implementation of the nuclear localisation strategy, if approved, and then to submit the implementation plan to support the Nuclear Fuel Complex (NFC) strategy to Cabinet for approval.

The APP target for Programme 6 was to develop projects to achieve 0.5TWh of energy savings per annum, with these savings realised from EEDSM projects. There would also be a concerted effort to develop an energy consumption baseline for an additional 20 municipalities, with compilation of baseline reports and implementation lessons from 20 municipalities by the fourth quarter. The Department was targeting to draft a national biogas strategy and to host the South African International Renewable Energy Conference (SAIREC).

Ms Yvonne Chetty, Chief Financial Officer (CFO), DoE, said the Department had been allocated R7.48 billion for the 2015/16 financial year. Earmarked for transfer payments to public entities, municipalities and other implementing institutions was an amount to R6.98 billion, which was equivalent to 93.35% of the Department’s total budget. The remaining budget was R498 million, or 6.65%, for operational expenditure, inclusive of transfer payments in respect of retirement benefits and Skills Education Training Authorities (SETA) contributions. This had been the trend of the budget for the past five years. It was important to highlight that about 76.51% of the budget would be going to the Integrated National Electrification Programme (INEP), followed by 7.76% for the Nuclear Energy Corporation of South Africa (NECSA). The 2015 Medium Term Expenditure Framework (MTEF) final allocation letter, after deliberations by the Ministers’ Committee on the Budget (MinComBud), was released by National Treasury (NT) on 21 November 2014. The original indicative allocation over the MTEF period of R7.98 billion in 2015/16, R8.38 billion in 2016/17 and R8.81 billion in 2017/18, had been adjusted downward by incorporating reductions in the compensation of employees (R71.8 million), goods and services (R102.5 million), payment of capital assets (R1.3 million) and transfer payments (R1.4 billion). The reductions had brought the final baseline to R7.48 billion in 2015/16, R7.69 billion in 2016/17 and R8.33 billion in 2017/18.

Ms Chetty concluded that these reductions required a review of the DoE’s performance targets to be aligned with the funding received. The compensation of employees’ reduction would impact on the Department with its natural attrition over the MTEF period, and a freeze on vacant positions had been recommended by NT. The condition placed on the SWH project’s funding was that the Department must provide a quarterly report to the Urban Development Infrastructure (UDI) unit of Public Finance within NT by the 15th of every month, indicating progress on the SWH project.

Discussion

Mr S Mthimunye (ANC, Mpumalanga) said it was important for the Department to spread the projects on renewable energy to other provinces, as energy was a national crisis. The Department seemed to be particularly silent on the issue of transformation, especially in the petroleum industry, as aggression was needed to drive policies that would enforce transformation in the country. What were the problems in the rollout of SWH programmes? He expressed disappointment that the subject of nuclear energy seemed like a taboo, as not enough information was being given on the matter. He wished that nuclear energy could be rolled out aggressively to address the energy crisis in the country. It would be important for the Committee to get a semester report on the Grand Inga hydro-electric project in the Democratic Republic of the Congo, and perform a site visit so that the Members could really see progress on the project.

Mr Mthimunye said that the under-spending on almost all of the programmes was also concerning, considering that the country had been downgraded mostly over the issue of energy security. Was cross-subsidisation of electricity prices to assist the poor being considered? Why was there a review of the fuel price almost every second week of the month?

Mr B Nthebe (ANC, North West) commended the Department for its sterling job in infrastructural development and distribution, as this was reaching out to the most vulnerable sections in society. It addressed access to energy to those who were vulnerable and also struck a balance between supply and demand. The Department had been silent on how to mitigate the volatility of petroleum product prices. The aging energy infrastructure was indeed a historical problem but it was important to know how long the county would take to address it. Energy was increasingly becoming a commodity in South Africa, but one of the priorities of Government was to ensure that energy reached the most vulnerable sections of society. How would it accommodate the commodification of energy against the access to energy? Was there enough capacity to produce the 26 billion litres of fuel gas that was required by the country? He expressed concern that the Department would be spending about R51.3 million on decommissioning and decontamination, and wondered whether there was any particular reason why this contamination had not been prevented in the first place.

Mr E Makue (ANC, Gauteng) said it was worrying to hear that about a company that had been awarded a contract to build wind turbines in the Coega Industrial Development Zone (IDZ), despite the fact that the company was buying imported steel. There were many who found it absurd that the country had not been utilising petroleum products from other African countries, considering the volatility of petroleum product prices. What had been inhibiting the country from procuring petroleum products from other African countries, particularly in light of the Agenda 21? It was painful to see most of those who were vulnerable continue to see their lives being destroyed because of the lack of safe access to energy, as most of those who were poor continued to be dependent on paraffin and flame stoves. He urged the Department to look at sources of energy that were safe and secure, especially in long-term planning, so as to accommodate those people that still did not have access to electricity. What would be the impact of off-grid suppliers, supplying to the national grid, on the price of electricity?

The Chairperson indicated that the Minister had asked to be excused, as she had to go to an urgent meeting. He clarified that the questions of Mr J Londt (DA, Western Cape) had been given to the present Member of the DA.

Mr W Faber (DA, Northern Cape) said that Mr Londt had wanted to know about the dates for the second trip to Oudtshoorn. What had been the cost involved in sending 50 people to China for training? What would be the duration of the training? How many South Africans had been taken to Russia for nuclear energy training? What would be the cost implications for those South Africans? He said that South African steel was more expensive than the complete imported product from South Korea because of subsidisation in most Asian countries. The National Development Plan (NDP) highlighted the importance of clean energy, and he wondered whether nuclear energy fell under clean energy, considering the risks involved. He asked for more information on the nuclear deal between Russia and South Africa in order to be clear on the country’s stance regarding nuclear energy.

He said there should be a focus on renewable energy, as the country had favourable conditions for wind turbines and solar-powered energy. How was Sasol connected to the barrel prices of oil, considering the fluctuation of petrol prices in the country? How were the petrol prices regulated? The presentation had too much information on each of the programmes, but it was difficult to interrogate all the programmes thoroughly due to time constraints. What was the amount of energy that the country would get from the Inga Dam hydro-electric project? How many years would it take for South Africa to be able to start tapping into this project?

Ms M Dikgale (ANC, Limpopo) said she accepted the apology of the Minister regarding her absence at Oudtshoorn, and requested that future summits should also be taken to Limpopo. What was the breakdown of the 50 learners that had been taken to China for training in terms of provinces and gender?

Dr Y Vawda (EFF, Mpumalanga) asked whether the Department had been engaging with the Department of Higher Education (DHE) to ensure that skills training would also take place at the two new universities in the country. The DoE was a dynamic and growing Department, with a lot of new technology involved, and it was therefore important for this training to take place in South Africa. What was the reason for the involvement of the Department in Mozambique? What was the Department doing to ensure that there was sufficient regulation of other forms of renewable energy, especially to ensure that there was broader participation from previously disadvantaged communities? How many megawatts were being fed into the grid at the moment to avoid power shortages? It was important to ascertain whether the two new power stations would be able to fill the gap in the supply of electricity in the country, especially when taking into consideration that South Africa was a growing country and the need for energy was increasing all the time. What had been done by the Department to prevent an energy shortfall in the future?

The Chairperson accepted the request by the Members for the Department to provide all the responses in writing, as some of the Members had to attend an urgent study group meeting. The Department agreed to provide all the responses by 21 May 2015. The Chairperson said that the Committee report on the strategic plan and the APP, and outstanding minutes, would be adopted the following day.

The meeting was adjourned. 

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