The Department of Energy (DoE) said that the year 2014/15 has been beset with a number of challenges for energy supply, especially around electricity, challenges which have unfortunately had a negative impact on the country’s economic development. The DoE's response to electricity challenges included the Integrated Energy Plan (IEP) which would prioritize policy intervention for future programmes within the energy sector, the Integrated Resource Plan (IRP) which would ensure sufficient capacity was added to the network on time, but also additional capacity through an energy mix - as espoused in the National Development Plan (NDP). The DoE has also contributed to the Five Point Plan to normalize the electricity supply/demand in the country; the plan would be implemented through improved Eskom maintenance and operational practices, co-generation, coal, gas, Demand Side Management (DSM) and through Independent Power Producers (IPPs). A comprehensive IPP procurement portfolio has been developed.
In preparation for the rollout of the nuclear build programme, the DoE has commenced with the Nuclear Skills Development and Training Programme; 50 students were selected to attend nuclear training programmes in countries such as South Korea, China and Russia. With regard to electrification, the Integrated National Electrification Programme (INEP) programme was allocated R4.15 billion in 2014/15 to expand connections and non-grid solutions in areas where infrastructure was inadequate; Eskom was allocated R2.95 billion and it targeted to connect 180 031 households, 160 938 were connected. Municipalities were allocated R1.10 billion and they had planned to connect 70 979 households, 72 517 were connected. Non-grid was allocated R96.62 million and they had planned to connect 15 000 households, 14 030 were connected.
With regard to international activities, the DoE led the process of signing a treaty on a hydropower project with the Democratic Republic of Congo (DRC). The Treaty was signed in 2013 and the project has an estimated generation capacity of 40 000 MW and would be constructed in phases, with Inga 3 Low being phase one. The Inga Hydropower project has the potential to provide up to 15 000 MW of clean energy, specifically to South Africa, the first phase would generate 4800 MW.
DoE has continued to provide oversight to the State Owned Entities (SOEs) reporting to the Minister of Energy through the SOE Oversight Unit, by ensuring engagements on and timely approval of their Corporate Plans, Strategic Plans, Annual Performance Plans and budgetary recommendations regarding board positions. The Central Energy Fund (CEF), the National Energy Regulator of South Africa (NERSA), the National Nuclear Regulator (NNR) and SANEDI obtained unqualified audit opinions from the Auditor General of South Africa (AGSA). The Necsa audit has still not been completed. Although the CEF Group suffered a huge loss due to the impairment of the gas-to-liquids (GTL) refinery as a result of the poor gas recoveries from the Ikhwezi project, the Group still managed to increase cash generated from its operations by approximately 36% while cutting operational costs by 12%.
The DoE achieved a clean audit status from the Auditor General regardless. The final appropriation of the DoE changed from R6.5 billion in 2013/14 to R7.4 billion in 2014/15. As at 31 March 2015 the DoEs total expenditure was at R6.3 billion, with a R1.2 billion surplus. A rollover motivation totaling R1.2 billion was submitted to National Treasury for consideration. The major contributors to the under-spending were
- R35.53 million from the INEP non-grid electrification programme due to the late start of the projects in 2014/15 as a result of delays in the finalizing implementation agreements.
- The R1.14 billion for Eskom’s Solar Water Heater programme could not be transferred to Eskom due to challenges in implementing the project by Eskom. The MOU agreement with Eskom was terminated.
There was slow roll-out of non-grid connections due to negative perceptions about non-grid technologies and practical short comings. Non-grid service providers therefore struggled to survive due to the small customer base and the challenges in the implementation of non-grid projects in rural areas, where most connections were being done. During the implementation phase, projects were monitored and evaluated and the oversight role has been strengthened. However not all projects were regularly monitored and audited due to financial and human capacity constraints. Projects allocated over R5 million were prioritised for technical audits.
Some of the questions raised by Members were: Why was PetroSA not mentioned in the briefing, and the R14.5 billion lost by it? What was the DoE doing to help with this loss? Was the loss due to the drop in oil prices and the Ikhwezi Project? Who were the advisors and consultants at CEF? Who would be held accountable and did the DoE have measures in place to detect early warning signs to prevent such a situation happening again? What measures were in place to ensure that the 50 students trained overseas were retained by the DoE after training? What was the status of the National Energy Efficiency Strategy and action plan, has it been completed? How did the DoE monitor the budgets it transferred to its entities; what measures were in place? How far was the DoE in reaching its 1.8 million target for the rollout of SWHs by 2020? What impact would the DoE under-spending have on future targets for the Energy Efficiency Strategy? Did DoE not have capacity to build its own offices and how much was the rent for office space regionally? What were the reasons for the resignation of the Chairperson of PetroSA? Why was the budget for under-spending not itemized? What version of the IRP was the DoE working on? When would the Integrated Nuclear Infrastructure Review (INIR) Report and the Emergency Review be presented to the Committee? What were the recommendations contained in these reports? The Minister wanted to complete nuclear procurement by the end of March 2015 yet the Committee was yet to see any of these documents. The DoE spent R56 million on travel and expenses last year. What was the explanation for this? What was the breakdown of costs? What plans did the DoE have in place to develop technical skills? When would the Committee be presented with upcoming legislation? What would the energy mix look like?
Department of Energy on its Annual Report for 2014/15
Dr Wolsey Barnard, DoE Acting Director-General, said the purpose of the briefing was to reflect on the DoEs non-financial and financial performance for 2014/15 as contained in the audited Annual Report as well as to respond to additional briefing requests from the Portfolio Committee on Energy.
In carrying out its mandate, the DoE formulates energy policies, regulatory frameworks and legislation, and it fulfills a regulatory function in the petroleum industry. It also oversaw the implementation of projects to ensure energy security, promoting environmentally friendly carriers, promoting access to affordable and reliable energy for all South Africans. The DoE was responsible for the following key areas under its service delivery mandate:
•Energy mix implementation
•Energy Efficiency implementation
•Integrated National Electrification Programme (INEP)
•Establishment of Energy centres
•Opportunities in Energy space
•Regulation of the petroleum sector
•Regulation for the safe use of the nuclear products
•Oversight over State Owned Entities (SOEs).
With regard to energy supply he indicated that the year 2014/15 has been beset with a number of challenges, especially around electricity, challenges which have unfortunately had a negative impact on the country’s economic development. The DoE's response to electricity challenges included the Integrated Energy Plan (IEP) which would prioritize policy intervention for future programmes within the energy sector, the Integrated Resource Plan (IRP) which would ensure sufficient capacity was added to the network on time, but also additional capacity through an energy mix - as espoused in the National Development Plan (NDP). The DoE has also contributed to the Five Point Plan to normalize the electricity supply/demand in the country; the plan would be implemented through improved Eskom maintenance and operational practices, co-generation, coal, gas, Demand Side Management (DSM) and through Independent Power Producers (IPPs). A comprehensive IPP procurement portfolio has been developed.
▪ On nuclear, he informed the Committee that South Africa has signed various inter-governmental agreements (IGAs) which laid the foundation for cooperation trade and exchange for nuclear technology, as well as procurement of 9500 Megawatts of electricity as part of the energy mix initiative. In preparation for the rollout of the nuclear build programme, the DoE has commenced with the Nuclear Skills Development and Training Programme; 50 students were selected to attend nuclear training programmes in countries such as South Korea, China and Russia.
▪ On the Solar Water Heater (SWH) programme, he said the programme has changed effectively during the year under review, with the implementation of projects now led by the DoE. The planned new contracting model has been submitted to Cabinet for approval. In partnership with the Department of Labour and the Energy and Water SETA, a comprehensive training programme would be implemented.
▪ On petroleum, the DoE has refined the proposed Biofuels Subsidy Model and the risks posed to the fiscus and National Revenue Fund by utilizing the Industrial Development Corporation (IDC) to run an independent modeling analysis. Proposals have been developed on how to deal with identified regulatory shortcomings that were hampering the Liquid Petroleum Gas (LPG) usage.
▪ On electrification, the INEP programme was allocated R4.15 billion during the financial year under review to expand connections and non-grid solutions in areas where infrastructure was inadequate; Eskom was allocated R2.95 billion it had planned to connect 180 031 households, 160 938 were connected, municipalities were allocated R1.10 billion and they had planned to connect 70 979 households, 72 517 were connected and non-grid was allocated R96.62 million and had planned to connect 15 000 households, 14 030 were connected.
▪ On DoE's organisational environment, he indicated that the DoE suffered the loss of key top management members during 2014/15 which included the contract of the Director General coming to an end. Although the DoE immediately commenced with the recruitment process, there have been delays in filling the Director General position due to the requirements for filling this position. The Deputy Director General: Corporate Services also retired and the Deputy Director General: Governance and Compliance retired due to ill health. As at the end of 2014/15, the DoE had a staff component of 583 with 83 exits. The additional funding of R18 million received from the Medium Term Strategic Framework (MTSF) would enable the DoE to increase staff capacity. As part of the Workplace Skills Development Plan (WSP), a number of training and development interventions were identified and 384 officials were trained. The DoE also offered 39 new bursaries to serving employees. In its quest to improve and bring service delivery closer to the people, the DoE has managed to secure permanent office space for its regional offices in Mpumalanga and KwaZulu Natal.
▪ On the NDP requirements and policy and legislative developments, the DoE has completed/developed:
- The Electricity Regulation Second Amendment Bill
- National Energy Regulator Amendment Bill
- The National Energy Regulator Amendment Bill
- Nuclear Financial modeling process
- Radioactive Waste Fund Bill was initiated with National Treasury to develop the institution’s funding model
- Gas Utilisation Master Plan (GUMP)
- Integrated Energy Plan
- Integrated Resource Plan to implement energy mix options
- Bio-fuels implementation strategy
- Petroleum Road Map
▪ On DoE's international activities, it led the process of signing a treaty on a hydropower project with the Democratic Republic of Congo (DRC). The treaty was signed in 2013 and the project has an estimated generation capacity of 40 000 MW and would be constructed in phases, with Inga 3 Low being phase one. The Inga Hydropower project has the potential to provide up to 15 000 MW of clean energy, specifically to South Africa, the first phase would generate 4800 MW. South Africa was exploring other regional projects within the SADC region in countries such as Mozambique and Lesotho.
Additional points made by Dr Barnard was that municipal electricity distribution infrastructure had an estimated backlog of R70 billion. A funding model that entailed revamped institutional, regulatory and structural adjustments to the status quo was needed. In this regard the Approach to Distribution Asset Management (ADAM) was initiated, targeting metropolitan and suburban areas for piloting. On the implementation of the energy efficiency measures, the National Energy Efficiency and Action Plan was near completion and the Draft Regulations had already been published for compulsory energy management which would be put in place by targeted end users. The South African National Energy Development Institute (SANEDI) continued to play a leading role with respect to a variety of energy efficiency initiatives. The Cool Surface pilot programme, with a particular focus on schools and low income households, would mobilize the youth to form part of the energy efficiency initiatives. Both the IEP and IRP were in the process of being finalised and updated respectively and would be submitted to Cabinet for approval after which they would be released for public comment and inputs made by the end of the current financial cycle.
DoE State Owned Entities oversight
Mr Lloyd Ganta, DoE Director: SOE Oversight, indicated that the DoE has continued to provide oversight to the State Owned Entities (SOEs) reporting to the Minister of Energy through the SOE Oversight Unit. It ensured engagements on and timely approval of their Corporate Plans, Strategic Plans, Annual Performance Plans and budgetary recommendations regarding board positions. The Central Energy Fund (CEF), the National Energy Regulator of South Africa (NERSA), the National Nuclear Regulator (NNR) and SANEDI obtained unqualified audit opinions from the Auditor General of South Africa (AGSA). The NECSA audit has still not been completed. He said although the CEF Group suffered a huge loss due to the impairment of the GLT Refinery as a result of the poor gas recoveries from the Ikhwezi project, the Group still managed to increase cash generated from its operations by approximately 36% while cutting operational costs by 12%.
Ms Yvonne Chetty, DoE Chief Financial Officer, indicated that the financial statements have been prepared on the modified cash basis as required in terms of the Departmental Financial Reporting Framework Guide by National Treasury. The timely appointment of service providers with the requisite sector skills, however, has been a serious challenge. The DoE achieved a clean audit status from the Auditor General regardless. The final appropriation of the DoE changed from R6.5 billion in 2013/14 to R7.4 billion in 2014/15. As at 31 March 2015, DoE total expenditure was at R6.3 billion, with a R1.2 billion surplus. She outlined programme expenditure: Administration had spent 83.6% of its budget, Energy Policy and Planning spent 98.7%, Petroleum and Petroleum Products Regulation spent 82.5%, Electricity and Energy Programme Management 99.1%, Nuclear Energy spent 99.9% and Clean Energy spent 41.9% of its budget allocation.
As at 31 March 2014 the DoE spent R6.22 billion (83.6%) of its allocated budget, the R1.22 billion (16.4%) of the adjusted budget was unspent. A total of R5.74 billion was disbursed to public entities and municipalities. A rollover motivation for the R1.2 billion was submitted to National Treasury for consideration. The major contribution to the under-spending was R35.53 million from the INEP non-grid electrification programme due to the late start of the projects in 2014/15 as a result of delays in the finalizing implementation agreements. The R1.14 billion for Eskom’s SWH programme could not be transferred due to challenges in implementing the project by Eskom in the current financial year. The DoE has initiated the process of obtaining Cabinet’s approval for the programme’s revised SWH Contracting Model. With the Municipal Energy Efficiency Demand Side Management (EEDSM) programme, since the inception of the programme in 2009/10 there have been improvements in its management and administration; however the following still remained as challenges:
•Poor EEDSM proposals submitted by municipalities due inadequate technical skills and/or capacity to manage and implement the project
•Signing of the Agreements and submission of the business plans as required by the Division of Revenue Act.
•Monthly, quarterly and annual progress reports not being submitted on time as required by the Division of Revenue Act
•Lack of accountability on reports provided. Most of these reports are not officially signed off by an authorized person within the municipality
•Poor expenditure by most municipalities, this was evident in the amount being requested as roll-over.
She said there was slow roll-out of non-grid connections due to negative perceptions about non-grid technologies and practical short comings. Non-grid service providers therefore struggled to survive due to the small customer base and the challenges in the implementation of non-grid projects in rural areas, where most connections were being done. During the implementation phase, projects were monitored and evaluated and the oversight role has been strengthened. However not all projects were regularly monitored and audited due to financial and human capacity constraints. Projects allocated over R5 million were prioritised for technical audits.
On DoE's financial position, she noted that there was no actual unauthorized expenditure incurred during 2014/15. The unauthorized expenditure of R14.86 million noted here was due to a late May 2010 infrastructure grant transfer payment paid to the Mthonjeni Municipality. A request for condonation was submitted to National Treasury. Condonation was approved without funding. This was being appealed. The DoE had irregular expenditure of R55 000 due to non-compliance in the procurement process.
Dr Barnard indicated that the DoE received an unqualified audit opinion without emphasis of matter. The DoE has completed an action plan to address all outstanding findings from the Auditor General of South Africa (AGSA). Most of the audit findings were addressed as at 31 July 2015.
Mr P van Dalen (DA) indicated that the Committee paid a visit to Sasol and Members were informed that South African had enough capacity to produce the fuels and the by-products needed within the country. He said it was worrisome that PetroSA was not mentioned in the briefing; R14.5 billion was lost by the entity. What was the DoE doing to help with this loss? Was the loss due to the drop in oil prices and the Ikhwezi Project? Who were the advisors and consultants at CEF? Who would be held accountable and did the DoE have measures in place to detect early warning signs to prevent such a situation happening again? Where was the CEF board when the R14.5 billion was being lost? He said many of the DoE targets have not been met; what was the corrective plan in place? It reflected badly on the Committee when the DoE did not meet its targets because of the Committee's oversight role. He noted that Eskom has halted the renewable energy process because of its own internal issues of sustainability; how was this going to affect the work DoE has been doing around renewables?
The Chairperson indicated that DOE entities would be coming to the brief the Committee, therefore some of the questions should be directed at them. However the DoE still had to be held accountable for what happened in these entities because the entities reported to DoE.
Mr M Matlala (ANC) asked about the 50 students who were selected to attend the nuclear training programme in Russia and China; what measures were in place to ensure that these students were retained by the DoE after the training? Were the any disabled students who were part of training? How far was the DoE in the SWH programme? He asked about concessionaires; was it a similar structure to the IPP programme which was there to manage power generated to the grid. What was the status of the National Energy Efficiency Strategy and action plan, has it been completed?
Ms T Mahambehlala (ANC) asked about service delivery and the establishment of energy centres; the DoE had planned to establish two centres, yet only one was established, what were the reasons for this? How did the DoE monitor the budgets it transferred to its entities; what measures were in place? On the rollout of SWHs, how far was the DoE in reaching its 1.8 million target of 2020? If the DoE has not started with the rollout now how was it going to achieve this target? She said there was serious under-spending under the non-grid electrification programme, some reasons cited being around delays in appointing contractors. This under-spending resulted in the delay of some projects and the under-spending under the Policy and Planning Programme; what impact would this have on future targets on the Energy Efficiency Strategy? She was one of the Members who attended the South African Renewable Energy Conference which was held by the DoE in Cape Town, what were the reasons for some of the energy efficiency campaigns which have never materialized?
Mr R Mavunda (ANC) asked about the decision to move DoE offices in Durban from one location to another; what was the reason for this? Did DoE not have capacity to build its own offices and how much was the rent for office space regionally? What were the reasons for the resignation of the Chairperson of PetroSA? Why was the budget for under-spending not itemized? How clean was the audit if there was still money which the DoE had not used?
Mr M Mackay (DA) said the document presented to the Committee was very vague; there were no clear timeframes, targets or deadlines. Looking back at the Committee's recommendations previously to the DoE very little has been achieved in the last 12 months. The Committee was still waiting on GUMP. He said this report was meaningless with no useful information. The report presented to the Committee was an insult. The DoE should stick to clear action plans which were what was required by the Committee. On the IRP, he said the report by the Department of Monitoring and Evaluation (DPME) indicated that public consultation on the plan had been completed; what IRP was the DoE working on? The DoE has not answered any of the Members’ questions on what form the IRP would take and whether further public consultation would be necessary in determining South Africa’s energy mix. There could be no planning if the IRP was not finalised; the DoE was working with an outdated 2010 IRP. Where were these documents, the Committee could not wait any longer. The Committee also had no idea what legislation to expect from the DoE. These were grave problems which the DoE needed to address with utter seriousness.
He asked about the Integrated Nuclear Infrastructure Review (INIR) Report and the Emergency Review, the DoE has refused to make these documents publicly available even though the DoE committed to doing so in 2013. The DoE was yet to provide this information to the Committee. What were the recommendations contained in these reports and when would they be made available to the Committee? These actions from the DoE further highlighted the secrecy around the nuclear build programme. What were these action plans planning to address and when would they be implemented. The Minister wanted to finish nuclear procurement by the end of March 2015 yet the Committee was yet to see any of these documents. He argued that this was ridiculous. The Committee was told that there were two reports currently being done by the DoE in conjunction with the Department of Public Enterprises and National Treasury on financing options and localisation; when would the Committee get to see these documents? Procurement was supposed to end on 31 March 2016 yet the Committee has not seen these documents. The DoE could not continuously hide behind the fact that the information could not be made available.
With regard to the cost drivers, Mr Mackay said DoE spent R56 million on travel and expenses last year. What was the explanation for this? What was the breakdown of the costs, R56 million seemed obscene in terms of the overall budget. Last year after the budget process DoE hosted various individuals at Shimmy Beach Club in Cape Town; who paid for this? According to the Minister there was no budgetary impact for DoE as it was a donation from the renewables community. Why was this not reflected as a donation on the DoE finances, how was this captured in the DoE financials? People were not donating money for fun; they were donating money for influence. The money donated was a significant amount. He also raised significant concerns about the SWH programme. DoE knew at the end of 2014 that they were going to be getting this programme from Eskom, yet R1.1 billion was going back to National Treasury because the programme has not been run, directly impacting on the people who need these services the most. This was a direct failure of the DoE. The programme has not been operational for almost a year. Did DoE expect National Treasury to grant the roll-over? What were the timelines?
Ms Z Faku (ANC) appreciated the clean audit received by the DoE. How were DoE strategic outcomes impacting the lives of ordinary South Africans? What plans did DoE have in place to develop technical skills? When would the Committee be presented with upcoming legislation? What would the energy mix look like?
Chairperson Majola asked about what the energy mix look like three to 10 years from now. Do we know where we are going to be as a country and were we going to meet the targets? That was a big issue.
Ms Thembisile Majola, Deputy Minister of Energy, said the questions specific to DoE line functions would be responded to by the various heads responsible within the DoE.
Dr Barnard thanked Members for the questions.
Mr Tseliso Maqubela, DoE Deputy Director-General: Petroleum Products, replied in 2014 the country imported over 6 billion litres of refined product, the equivalent of one of the biggest refineries in the country. The existing refineries within the country simply could not meet the demand. There have also been applications by commodity traders to come into the country because they see that there is a gap within the market and they want to service the market. Currently the country was importing 20% of its needs. The country was therefore reaching the point where it had to start constructing another refinery, however this could take up to 6 years to complete. Sasol was one of the companies which were given licences to import finished products.
Mr van Dalen said when the Committee went on an oversight visit to Sasol, Members spoke to the Chief Executive Officer at Sasol, who assured Members that South Africa had enough capacity to meet its fuel needs. However imported fuels were cheaper. DoE was misleading the Committee.
The Deputy Minister replied it was important that stakeholders all have different interests. It was not in the interest of Sasol that there be an alternative refinery because there would be more competition. Sasol was a private entity which was looking to protect its own interests. Secondly DoE knew how much forex it needed to spend, and this was increasing as the value of the land depreciated, however DoE continued to import because there was not enough capacity within the country. Today if one of the refineries shut down unplanned there would be a serious crisis around fuel shortage. This was the reality.
Mr Maqubela said the Annual Report of the South African Petroleum Industry Association (SAPIA) reflected import figures which were no different from those reflected in the DoE Annual Report. The reason DoE was reporting was because the demand was higher than what refineries could produce; this was a well known fact. On PetroSA, he said 2014 was a very difficult year for oil companies globally, however this was not to justify the performance at PetroSA. What happened at PetroSA was they drilled with experts believing that there was a certain amount of gas but this did not turn out to be the case, they only found 10% of what they were expecting. The drilling programme was not completed; PetroSA had envisioned drilling five wells but they only drilled three. After the three, a decision was taken that the drilling should not continue. In exploration and production, the project is sometimes stopped and re-evaluated. The majority of this R14 billion impairment was because the gas which was expected was not realised. There were three options PetroSA had: one was to shut down the Mossel Bay plant, second was to import Liquified Natural Gas (LNG) and the third option was to drill and PetroSA opted for the third option. Drilling was usually undertaken by companies which had strong balance sheets and a 30% success rate was considered very good, one company in 2014 wrote off over R100 billion and this information was published. PetroSA would need to come to the Committee and explain why they did not reassess earlier.
Mr Ganta added that the decline in oil prices accounted for about 20% of the impairment, with the rest being from Ikhwezi. The CEF Group together with PetroSA were working on a project to look at why some steps were not done earlier. Some of the reasons however were beyond the control of the company. Once the findings of the project were out, DoE would return and brief the Committee.
Dr Barnard responded to the questions on the targets which were not reached. The Management Performance Assessment Tool (MPAT) was very new and there were a lot of issues which DoE wanted to take up with the Department of Performance Monitoring and Evaluation. The DPME report scored DoE negatively for making payments within 30 days, yet the same department scored DoE as the number one department when it came to the payment of invoices within 30 days. The MPAT was a different way of reporting and DoE wanted to get to the bottom of it. On dealing with the target challenges, there were a couple of things DoE was doing. The environment around energy changed significantly this last year and DoE needed to re-look at how to structure itself to address the challenges. The SWH programme was a big infrastructure programme. The decision to move the programme from Eskom to DoE was only made in the current financial year and DoE could not claim any money for that. There was also a change in the way the rebate programme was being done, 58 000 households received imported products which were not of good quality. A decision was then taken to follow a local manufacturing process, this process has been completed and a local company has been identified. There were also serious challenges around the installations of these systems. In response DoE was making sure that there were people who had enough training to do the installations. In some instances the SWH was installed in areas for which the geyser was not designed in line with the water specifications, this resulted in water reticulation problems. There were however different training structures around the country which needed to be consulted before any training took place, local authorities need to be consulted. There were 26 different departments involved in the SWH programme. The SWH was not only a social programme but it was also an energy efficiency programme which went beyond some of the government structures. It was not only government who carried the burden, insurance companies were also involved. Each year around 150 000 - 200 000 geysers were replaced as a result of natural causes; this was therefore a huge opportunity to partner with the private sector. All these processes took time.
Chairperson Majola said he understood the complex processes DoE was talking about however it was important for DoE to indicate what its roll out plan was and when it would be implemented.
Mr Zizamele Mlambo, DoE Deputy Director-General: Nuclear, replied that DoE had a National Nuclear Training Programme; the first intake took 50 trainees to China to be trained in various institutions. These students were mainly drawn from government, municipalities and state owned nuclear entities. Upon completing their training they were then absorbed within these entities. Going forward DoE would be sending 250 students drawn from across the country; students with disabilities would also be absorbed.
On when the INIR report would be released, Mr Mlambo replied that the report was undertaken to assess the country’s readiness to implement the nuclear new build programme. South Africa was commended by International Atomic Energy Agency (IAEA) as the only country which had an operational nuclear plant which has been successfully running for years. In 2012 the country also undertook a self assessment to identify what areas needed to be addressed before expanding the nuclear build programme. DoE created sub structures to develop an action plan to address all the recommendations of the INIR report. It was however important to highlight that the report needed to go into various avenues within government for adoption and implementation of the recommendations. There was no question in terms of transparency however the report needed to go through government approval processes, once these processes have been finalised, it would be made available to the public. DoE has taken extensive measures to de-mystify nuclear. DoE has commissioned two studies, one was on the economic impact of localisation of the nuclear new build and the other was on the funding model. To address the expansion of the new build, the NDP indicated that for a procurement decision to be taken, thorough investigation was needed on the various aspects of the nuclear build, including localisation aspects and costs. All these aspects form a framework upon which government would be able to take a decision on. Recommendations would be drawn from these studies which would then form part of the technical review to the Energy Security Sub-Committee in Cabinet. The procurement process however has not started. Releasing these studies prematurely would compromise the procurement process, the studies were therefore classified. They have not even been seen by Cabinet.
Chairperson Majola asked that DoE officials remember that they were not coming to the Committee for the first time; there was therefore no need to repeat information which has been given before. Members were simply looking for clarity on the questions they were asking. Members wanted to know about the financial model, they wanted information on where progress was currently.
Ms Chetty responded to the question on non-grid service providers and the delays in appointments. The appointment of the providers was delayed after they were awarded the contracts. One of the biggest delays was verification of banking details which were not submitted on time. As of 1 April 2015 all issues have been resolved and their 2016 process will avoid a repeat. On the donation for the function in May 2015, this would fall under the 2015/16 financial year and would therefore be reported on in the coming financial statements. The donation was received in kind, it was not physical cash. On the rollover she said DoE applied for a rollover of R1.2 billion and the biggest one was for the transfer to Eskom’s SWH programme which was not approved. DoE received R35 million for non-grid projects from National Treasury only. Travel was indeed R56 million but the breakdown was local R41 million and international R15 million. Local travel was the nature of the DoE’s job which comprised of meetings, site visits and monitoring and evaluation of projects and vetting. On the question of the monies transferred to entities, there were quarterly meetings scheduled with all entities and funds were earmarked and reported on. Any deviation was dealt with accordingly. In terms of the unspent budget, all funds were allocated per line item, but they were added up and totaled into Goods and Services, budgeting was therefore done according to projects per programme. This information was available within the DoE.
Chairperson Majola thanked Ms Chetty for the concise response, when someone’s has done their job the answers were not convoluted, when there was a long explanation there was a problem.
Mr Jacob Mbele, DoE Chief Director: Electricity, responded to the question on regional offices. He said when DoE split from the Department of Mineral Resources they had been sharing offices. Now DoE was engaging with the Department of Public Works to obtain their own regional offices.
Mr Sandile Ntanzi, DOE Chief Director: Office of the Director General, responded to the question on what DoE was doing to assist Eskom. He said DoE has engaged with Eskom and there was an ongoing process to resolve the matter by the end of the week. In terms of the grid code, if Eskom wanted to deviate from the code requirements they had to notify the regulator. On the SWH, the development of the IRP was centralized and it would be released not later than November 2015; DoE has already released a tender for social facilitation and technical assessments for members of the panels.
Dr Barnard responded to the question on the Integrated Energy Centres, saying when the process started there were land claims happening and DoE was dealing with this in collaboration with the Department of Rural Development and Land Reform. On the IRP and IEP, he said by the end of the current financial cycle these would be completed and available. On legislative planning, during DoE's Annual Performance Plan session the information was presented to the Committee; however it would be brought back to the Committee again. On the question of how the DoE strategic objectives were improving lives of ordinary South Africans, he said energy had a knock-on effect on the whole country. Therefore not delivering access to electricity, the consequences would be dire. Yearly, DoE made 280 000 new connections.
A DoE official replied that DoE had a workplace skills development plan which fell within the DoE Human Resources Plan. This came from a skills audit conducted by DoE to address issues of competencies and skills development, with special emphasis on critical skills because DoE operated in a technical environment. As far as bursaries were concerned, DoE continued to set aside funds for staff to develop their skills in line with the targeted areas where DoE needed to capacitate skills development.
Ms Mahambehlala asked about the impairment at PetroSA, DoE should not try to justify the impairment and mislead the Committee. The finalization of the first well was in 2013. The former Chief Executive Officer at PetroSA reported that they were not happy with that particular well. DoE was now telling the Committee they drilled three out of five wells when this was not the case. The report by the former executive at PetroSA was that they drilled three out of five as a result of budgetary constraints. DoE was responding as if the impairment was something normal, that attitude needs to be addressed. The very same impairment in 2014 was referred to as irregular expenditure by the Auditor General. Now DoE was responding as if the impairment was business as usual. That could not be tolerated. In 2014 the impairment was R3.4 billion; today the impairment was R14.4 billion. DoE should not respond as if they were responding to their friends. Was this impairment in dollars or in rands? She argued that it was not true that three wells were drilled. During the last oversight by DoE the regional offices in Johannesburg were housed in the Head Office, when was DoE going to find space for regional offices?
Mr van Dalen agreed with Ms Mahambehlala that the response given on PetroSA was not satisfactory, the response was very worrisome. On refineries, he said the import of subsidized goods was not good for the country’s localisation objectives. Sasol was the biggest tax payer in the country, paying around R48 billion in tax every year. When the country was in crisis with electricity, Sasol built a power station within 12 months to supply power to the grid and they were an asset to the country. When the Committee spoke to the Chairperson of Refineries and they indicated that there was enough refining capacity in the country he indicated that the country was not doing enough to supply local industries, instead DoE was planning to license 12 more depots to import fuel into the country because imports were cheaper. He suggested that these stakeholders be invited in a meeting with DoE so that the department could learn from them.
Mr Mackay also echoed the concerns around PetroSA. One of the comments made by Mr Maqubela was that it has been a bad year for oil companies globally and the impairment needed to be understood in that context. However PetroSA was a state oil company, using taxpayers’ money so when it made bad decisions it affected the whole country. South Africans did not have a risk appetite for R15 billion. Therefore making a comparison to other global oil companies was disingenuous and misleading.
On the nuclear report, Mr Mackay said National Treasury indicated that there were no decisions taken without these reports having come before Parliament. Yet DoE kept indicating that it was not the right time to release these reports. The reports were completed in 2012, how could it take three years to go through the process of making these reports publicly available? When would it be the right time to share these reports? These were very important input documents that would affect decision making on nuclear procurement. The excuse that the reports would not be made available was completely unacceptable. Was DoE planning to make the reports available after a decision has been taken? Parliament needed to have a say on the nuclear procurement deal. Mr Mbambo was encouraged to re-word his response on when the Committee would get hold of these reports. Other countries have gone through the same process and their reports were publicly available. What were Ministerial travel expenses and what was the breakdown for local and international travel for the Minister? DoE has admitted that the rollover for SWH was not approved by National Treasury, so what contingency plans would be put in place for next year’s budget?
Mr M Plouamma (AGANG) said there was an allegation that the three wells were a lie. Was this allegation true?
Chairperson Majola said the Standing Committee on Finance was having a discussion on the matter of the nuclear build programme and what the costs would be and this Committee was in discussion with the Finance Committee to bring synergy to the process. There needed to be a streamlined process between the DoE, National Treasury and the Department of Public Enterprises, hopefully the finance model would be completed by that time. Also the Committee needed to recognize that DoE did not have capacity to oversee State Owned Entities and this was a structural issue which needed to be addressed. It was important to address the capacity issues within DoE at a strategic level so that DoE could be able to provide strategic oversight to its entities, some of the things which have happened within the entities should not have happened; they should have been foreseen by the DoE.
Mr Maqubela apologized that he came across as trivializing the PetroSA matter; that was not the intention. He said over and above the three wells there was also a pilot well. At the time the CEO for PetroSA was around, three wells had been drilled.
A DoE official responded about the regional offices, saying discussions were at an advanced stage with the Department of Public Works on the layout and design of the office space. DoE was confident that the regional offices in Gauteng would be based in Johannesburg and would be completed and occupied by the end of 2015.
Ms Chetty responded about the SWH budget and said for 2016/17 it was R372 million, 2017/18 R481 million, 2018/19 R580 million. In the 2017/18 financial year there was additional funding.
In response to Ms Mahambehlala again asking if the impairment at PetroSA was in rands or dollars, Ms Chetty said the figure was in rands.
Chairperson Majola said DoE was doing well with regards to the electrification programme, the rest however were concerning and the SWH programme was of serious concern. DoE needed to be conscious of the fact that this programme needed to be addressed with urgency. Also there needed to be discussion on the entire petroleum value chain, including the strategic questions on the extent to which the country could build refineries. Another issue was around gas. What was the progress on Grand Inga?
Deputy Minister Majola said a lot of the questions raised by Members were very pertinent. She agreed with the Chairperson that DoE was faced with serious capacity challenges, both in numbers and around skills. As a result DoE was forced to take up consultants. DoE was however operating in a highly technical environment but there were not enough numbers for DoE to be able to do all that it wanted to do simultaneously. She said the structure was a challenge, for instance the people who did oversight were doing well around issues of finances and auditing but they were not necessarily the people with the technical skills needed on the ground. DoE defined itself as a policy department but everything has been clumped into one. On oversight, she said the Chairpersons of both PetroSA and CEF have left for different reasons however there were a number of reasons which were common. At government level, a process was led by the Minister of Public Enterprises to look at SOEs in general because there were a number of similarities, among those were governance challenges. There was a real challenge with board members not understanding where their responsibilities started and ended. There was also overlap between the responsibilities of the board and of management and so consequence management has therefore not been implemented the way it should have been. On whether DoE would reach its 1.8 million SWH target, there were a number of challenges which impacted that, one being the budget. The budget not only included the units but also training and all other elements. Eskom has made a call for people in the sector to go back and look at how they are connecting renewables nationwide. Renewables however had unique challenges. She said a key challenge DoE was facing was that the budget was being cut every year and this affected DoE abilities to acquire skills.
Ms Mahambehlala asked about progress on Grand Inga. She suggested that DoE compile a report on Grand Inga and come back to present it to the Committee. What was Cabinet hoping to achieve by assigning Minister Lynne Brown to deal with SOEs when the Department of Public Enterprises was in trouble itself, Eskom was unstable as we speak.
Chairperson Majola said the members of the board had enough knowledge on board management; the problem was around discipline and self-interest among members of the board.
The meeting was adjourned.