Department of Energy on its 2014/15 Annual Report; Committee report on Protection of Investment Bill and Protocol on TRIPS

NCOP Economic and Business Development

25 November 2015
Chairperson: Mr E Makue (ANC, Free State) (Acting)
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Meeting Summary

The Department of Energy (DoE) briefed the Committee on its 2014/15 Annual Report. The Committee was provided with insight into the DoE’s non financial performance in relation to its service delivery environment, its service delivery improvement plan, its organisational environment and key policy development and legislative changes. Some key areas for the DoE’s service delivery was its energy mix implementation, energy efficiency implementation, the Integrated National Electrification Programme, regulation of the petroleum sector as well as oversight over state-owned enterprises.

The year 2014/15 had been beset with energy challenges, particularly in electricity, which had unfortunately negatively impacted upon SA’s economic development. In relation to electricity supply the DoE participated in various forums to seek short, medium and long term energy solutions. Detail on the DoE’s efforts on nuclear energy, energy efficiency, its solar water heater programme, petroleum and electrification programme was provided to Members. Specifics on its six programmes were outlined. It was noted that in this year, DoE had lost its Director General and two Executive Committee Members. However, it had achieved policy development and legislative change. On 20 March 2015 the Inga Treaty had come into force, so that conditions to ratify the long term agreement between SA and DRC were satisfied and commercial regulations could be concluded to procure power from Phase 1 of the Inga Hydropower Project. Other regional projects were being explored. DoE also participated fully in BRICS endeavours in the energy field

The DoE had achieved a clean audit and had formulated an action plan and virtually finalised all matters raised by the Auditor-General. It had resolved the challenges around timely appointment of service providers with sector skills. Its revenue had been R7.5 billion, and expenditure R6.5 billion, because a transfer to Eskom of R1.1 billion had not happened. If this had been done its spending would have been 98% but it currently amounted to 83.6%. Breakdowns by line item were given. Challenges highlighted included the Municipal Electricity Demand Side Management Programme, which was hindered by poor proposals submitted by municipalities, who lacked the technical skills and capacity to manage, and lack of accountability with reports not being signed off. There were also Integrated National Electrification Programme challenges, for the same reason, and slow delivery of projects by municipalities and Eskom.

Members asked how many megawatts of electricity were being generated by the Northern Cape Province and how many solar energy stations were connected to the national grid. They were concerned about and asked if the huge impairment by PetroSA was being investigated. They asked about the impact of the massive electrification programme on production of black business, whether performance had improved, when the work of the Task Team on Cleaner Fuels would start, and asked for the Integrated Energy Plan and the International Atomic Agency Report on the readiness for nuclear energy in SA. They called for updates on the solar energy heater project, provision for nett metering, progress on the water crisis for fracking, and its work with and assistance to municipalities and on upskilling, and how proposals for sales of electricity to generate revenue for municipalities would be resolved. Members commended the strides made in Mozambique and asked if SA was working with Mozambique, how the Grand Inga Project was progressing, what was done about retrofitting of government buildings, who was doing oversight over Sasol and the current state of finance at the Nuclear Energy Corporation of SA.

The Chairperson announced that the Select Committee on Trade and International Relations had, on the previous day, taken decisions to approve the Protection of Investment Bill and the Protocol on Trade Related Aspects of Intellectual Property Rights (TRIPS), but Members disagreed on whether that meeting had been properly quorated and thus whether the decision was valid. The opposition parties indicated that they intended to challenge the decision and suggested that it be referred to the Chair of Chairs. 

Meeting report

Department of Energy on its 2014/15 Annual Report

The Department of Energy (DoE of the Department) briefed the Committee on its 2014/15 Annual Report. The delegation included:

-  Dr Wolsey Barnard, Deputy Director General: Projects and Programmes
- Ms Yvonne Chetty, Chief Financial Officer
- Mr Sidiso Makhubela, Deputy Director General: Petroleum Regulation
- Mr Lloyd Ganta Acting Deputy Director General: Governance and Compliance
- Ms Caroline Nobevu Director.

Dr Wolsey Barnard started the briefing and said that some of the key areas for the DoE’s service delivery were its energy mix implementation, energy efficiency implementation, the Integrated National Electrification Programme, regulation of the petroleum sector as well as oversight over state owned enterprises (SOEs).

The year 2014/15 had been beset with energy challenges, especially in electricity, and this had unfortunately negatively impacted upon South Africa's (SA) economic development. In respect of electricity supply the DoE had, during the year under review, participated in various forums to seek out short, medium and long term energy solutions. The DoE’s efforts on nuclear energy, energy efficiency, its solar water heater programme, petroleum and electrification programmes were set out in the presentation documents (see attached presentation). Specifics on the DoE’s organisational environment, including its six Programmes of Administration, Energy Policy and Planning, Petroleum and Petroleum Products Regulation, Electrification and Energy Programme and Project Management, Nuclear Energy and Clean Energy were also given in the Annual Report.

Dr Barnard said that the past year had also been a difficult one for the DoE as it had lost its Director General and two Executive Committee Members.

He outlined some of the key policy developments and legislative changes that were in line with the National Development Plan (NDP). For 2014/15, these included the Electricity Regulation Second Amendment Bill, the National Energy Regulator Amendment Bill and the Integrated Energy Plan. On the international front, the Inga Treaty had come into force on the 20 March 2015. This meant that all the conditions for ratifying the long term agreement between SA and the Democratic Republic of Congo were satisfied, effectively paving the way for commercial regulations to be concluded in respect of the power to be procured from Phase 1 of the Inga Hydropower Project. SA was also exploring other regional projects with countries like Mozambique and Lesotho. The DoE had also participated in all energy related and general activities of the Brazil, Russia, India, China and SA (BRICS) alliance.

Some of the performance highlights of the DoE under the individual programmes were described in more detail in the presentation (see attached documentation).

Ms Yvonne Chetty, Chief Financial Officer, DoE, gave more detail on the financial statements of the DoE for this period. The DoE had managed to obtain a clean audit report. One challenge at the time had been the timely appointment of service providers with the requisite sector skills, but this issue had subsequently been resolved. The final appropriation of the DoE changed from R6.5bn in 2013/14  to R7.4bn in 2014/15.

She noted that the total revenue was R7.5bn and its total expenditure sat at R6.3bn, which meant that there was a surplus of R1.2bn. The reason for the surplus was that a transfer to Eskom of R1.1bn had not happened. The funds had been returned to National Treasury. The total spend of the DoE thus sat at 83.6%. It would have been 98% if the Eskom transfer had taken place.

Details on the financial performance of the DoE in relation to compensation of employees, goods and services and transfer payments were provided. Challenges with the Municipal Energy Efficiency Demand Side Management (EEDSM) Programme were highlighted. These included poor EEDSM proposals submitted by municipalities due to their inadequate technical skills and/or capacity to manage and implement the project. There was lack of accountability on reports provided, as most of the reports were not officially signed off by an authorised person. There had been poor expenditure by most municipalities, which was evident from the amounts that were requested for roll over. Integrated National Electrification Programme (INEP) challenges relating to municipalities and Eskom included  slow delivery of electrification projects by both. There was also a lack of skills here, and there were high vacancy rates in municipalities.

She repeated that the DoE's unqualified audit opinion with emphasis of matter essentially meant that it had a clean audit. In addition the DoE had compiled an action plan to address all the outstanding findings by the Auditor-General and most of these had been addressed by 31 July 2015.

Discussion

Mr W Faber (DA, Northern Cape) observed that many solar energy stations had mushroomed all over the Northern Cape. There was one in Upington that he had visited. He asked how many megawatts of electricity were being generated by the Northern Cape, and how many of these stations in the Northern Cape were connected to the power grid. He asked if it would not be better to have more of the power plants set up and operating.

Mr Faber pointed out that PetroSA had an impairment of R14.5bn which was huge. He asked the DoE why it had not done better oversight over PetroSA, and asked if this impairment was being investigated. 

Dr Barnard commented on the Renewable Energy Programme and said that the solar energy station in Upington had not yet been completed. The technology was new and was not yet supplying energy full time. It would be supplying energy not only when the sun was shining, but stored energy for later use. Up until the present time, a total of 92 contracts had been signed on the Renewable Energy Programme. The solar power stations were at different stages. 40 of them were operating. Just over 2200 megawatts of energy was produced. He explained that the energy was more expensive at ground level, and although it was cheap when it was supplied, it became more expensive when it was not supplying and when generators were being used. The difference between SA and Europe was that SA was “like an island”. SA did not receive electricity, but mostly supplied. Germany by contrast was connected to a mega grid throughout Europe where it received and supplied electricity. SA’s systems were very different. 

Mr Lloyd Ganta, Acting Deputy Director General: Governance and Compliance, DoE, explained that the PetroSA impairment of R14.4bn happened mainly for two reasons. The first was that PetroSA had an impairment in Ghana to the value of R2.7bn. The fluctuations in the price of oil per barrel had made a huge impact when, in the last financial year, the price fell from $110 per barrel to $50 per barrel. The second reason was due to Project Ikwezi where not enough gas was being extracted from the ocean, being far lower than had been expected when the Project started in 2011. At the end of the financial year only 10% of the expected amounts of gas had been extracted.

Mr Sidiso Makhubela, Deputy Director General: Petroleum Regulation, DoE, said that in 2014 oil companies globally had an impairment of $35bn. Essentially, drilling was not yielding what was expected. The PetroSA project, when approved, required fracking to be done in order to release the gas. During the project it was decided not to do fracking. The gas was there but it needed to be extracted. He noted that the Board of Petro SA would make a decision at the right time.  

Mr S Mthimunye (ANC, Mpumalanga) referred to slide 12 of the presentation and asked why some provinces had scored zero. In relation to the massive electrification programme, he asked what the impact was on the means of production of black owners of businesses. Commenting on the financial statements of the DoE, he said that the assets and liabilities were almost the same. He asked whether the performance of the DoE had improved when comparing the last few financial years.

Dr Barnard said that the figures on slide 12 referred to the first round of students that had been sent for training. More students were to be trained. He gave some of the figures for progress made on government’s electrification programme and he noted that just over 6.6m houses had been electrified. Every 35 seconds, a new connection was being made. The private sector also did electrification work, for instance, when a person built a new house. To date, SA was 87% electrified. As of 2014 a great deal of infrastructure had been built. Answering the question on contributions to black industrialists, he noted that communities did share in projects. Shareholding was often financed by loans from banks. More information was available on the DoE’s website.

Ms Chetty said that the DoE had received R7.4bn from the fiscus. The DoE was judged according to the extent to which it had met its targets. The DoE’s processes had matured. The disbursement of funds had improved and so too had the asset base. The DoE worked on a cash basis. Unspent funds were akin to the “profit” that the DoE might make. She noted that the DoE had improved year on year. Some unspent funds had been rolled over. The DoE’s balance sheet was drawn on a cash basis and was not like the balance sheet of a normal business.

Ms M Dikgale (ANC, Limpopo) referred to slide 59, where the DoE had highlighted challenges on the Municipal Energy Efficiency Demand Side Management (EEDSM) Programme but the DoE had also said that there was improvement in municipalities. She also referred to slide 15 which stated that the DoE was investing in new refining capacity. She asked when the Task Team on Cleaner Fuels was to start its work.

Mr Makhubela pointed out that the clean fuels sector in SA was undergoing changes. SA had become an importing country and this was a reality that South Africa, in the short term, would have to recognise. The National Development Plan stated that a new refinery was needed. He said that work was ongoing. The Task Team on Cleaner Fuels was busy. He noted that there were various issues to consider, including who was to pay for the upgrade to existing refineries? The cost would be around R53bn. Oil companies in SA were of the view that motorists should foot the bill. The problem was that if the end user was to foot the bill, then the growth of the economy would be affected. The matter was still being discussed. Another issue to consider was whether perhaps to do the upgrading in a phased manner, and whether this would result in a lower cost. Another option was to import clean fuel, but it must be remembered that South Africa did have refineries. A balance needed to be struck. At present traders had applied to the DoE for licenses to construct import facilities. There were two sites, one in Durban and one in Cape Town. The traders intended to bring in clean fuels. It was therefore important for the Task Team on Cleaner Fuels to come to a conclusion as these imports would impact on existing refineries in SA. He noted that the whole petroleum sector was changing. The Liquid Petroleum Gas situation was different, for here, there were not enough production and import facilities.   

Dr Barnard pointed out that technical skills were required to perform energy audits. This function was in the hands of private companies. Municipalities did not have the funds to do audits. Time was needed to do analysis.

Ms E Van Lingen (DA, Eastern Cape) asked the DoE whether the Integrated Energy Plan was available to the Committee. She also asked for the International Atomic Agency Report on the readiness of nuclear energy in SA. She asked for an update on what was happening on the solar energy heater project, which had apparently been transferred back to the DoE from Eskom. She referred to the gas station at Coega and said that it had started off as diesel but now it was gas. The DoE was asked what provision had it made in the last year for net metering, and whether any progress had been made. Finally she asked whether the water crisis on fracking had been sorted out.

Dr Barnard said that the Integrated Energy Plan was part of the DoE’s commitment and had to be completed by the end of March 2016, as this was given as a specific target in the Annual Performance Plan (APP) of the DoE. On the Atomic Energy Report, he said that a response report had been prepared by the DoE and was on its way to Cabinet. In relation to renewable energy and on the solar heater project, he conceded that funds had gone back to National Treasury. The Eskom rebate model simply required a supplier of solar geyser heaters to register on DoE’s website. There were no checks and balances on suppliers of the solar geyser heaters so this raised questions as to how safe and reliable these products were , resulting in the process consequently being changed. The solar water geysers were now to be manufactured in SA, for South African conditions. The products would be approved by the South African Bureau of Standards (SABS). The SABS approval process would, however, take some time. National Treasury said that funds could not simply lie around and hence had to be transferred back to the Treasury in the meantime.

Dr Barnard agreed that diesel had been used initially at Coega because there had been no infrastructure for gas. The DoE was looking at the process for conversion structures. He pointed out that net metering was a developing technology. There was progress and good development. The National Energy Regulator of SA (NERSA) had put out draft regulations. There were huge technical issues to consider, and the issue was not as simple as it may initially seem.

Mr Makhubela responded to the questions on fracking and said that government was taking a conservative approach. The DoE felt that it was the correct approach. A strategic environmental assessment had been commissioned. The issue of fracking and the issues related to water were being looked at. Waterless fracking technology was perhaps on the books.

Ms Z Ncitha (ANC, Eastern Cape) noted that slide 63 pointed out that the municipalities were not performing as expected. She asked whether the work that the DoE was doing on capacitating municipalities was bringing about any improvements. She also asked what the plan was moving forward, given that there was under spending due to these municipalities not performing as expected.

Dr Barnard stated that assistance to municipalities was continuous. It could be in the form of training or in the simplification of processes.

Mr B Nthebe (ANC, North West) emphasised that the reality was that Mozambique was going to be one of the booming countries in respect of gas and coal production. China had already taken advantage of this fact. He asked how then SA was going to tap into gas production. He asked if SA was working with Mozambique? He also asked whether the Grand Inga Project was on track. SA was supposed to tap into the energy generated. The DoE was asked what it was doing to up-skill service providers in respect of NDP objectives. He noted that municipalities complained that they needed to sell electricity and to generate revenue, and the question must be asked how this could be resolved? What was the practical solution? He felt that the expenditure on the administration programme was very high.

Dr Barnard explained that the Grand Inga Project was on track. There were political, technical and financial issues to consider. He pointed out that there were only 35 municipalities that made a profit out of electricity. It was not an easy business to be in, and municipalities did not realise this. There were not only issues pertaining to NERSA but also constitutional issues.

Mr Makhubela stated that Mozambique was a good story for SA. More than 85% of gas that was produced in Mozambique came to SA, and there was thus a benefit to SA. The intention was to build on this cooperation. The pipeline from Mozambique was being expanded.

Ms Chetty noted that the budget for the Administration Programme was approximately R260m. Expenditure had amounted to around 98% of the budget. She pointed out that the amount being spent on Administration might seem large, but there were a number of support functions under the Administration Programme.

The Acting Chairperson said that the briefing had not spoken to the progress on retrofitting government buildings. He also enquired who did oversight over Sasol. He was hugely impressed by the skills development and training programmes that the Nuclear Energy Corporation of SA (NECSA) had.

Mr Faber pointed out that the finances of NECSA were something that needed to be looked at.

The Acting Chairperson agreed that the finances of NECSA were a concern.

Protection of Investment Bill; TRIPS amending Protocol: Update

The Acting Chairperson referred to the meeting of the Select Committee on Trade and International Relations on the previous day. In this meeting, this committee had agreed to present the Protection of Investment Bill and the Protocol on Amending the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement to the NCOP once they were adopted. The permanent members of the committee had cast their votes and the decision was taken to present these documents to the NCOP. He made the point that there was a quorum at the meeting.

Mr L Londt (DA, Western Cape) took issue with that and believed that the meeting of the previous day had not quorated. The Select Committee on Trade and International Relations had eleven members and only five members had been present in the meeting.

The Acting Chairperson pointed out that the Select Committee on Trade and International Relations only had ten members.

Mr Londt insisted that no quorum of members had been attained, and said that that the committee’s decision would be challenged.

Mr Mthimunye was also of the opinion that the meeting the previous day had quorated. He felt that the matter was concluded. He said that the Chair of Chairs would look into the matter. The opposition was welcome to challenge the decision taken by the Select Committee on Trade and International Relations.

Ms Dikgale said that she supported the Protection of Investment Bill and the Protocol on Amending the TRIPS Agreement and agreed to the Committee presenting them to the NCOP.

Mr Londt responded that Ms Dikgale could not give her support now, and that she should have been present at, and given her support at that meeting.

The Acting Chairperson said that the matter was closed and that he had ruled on it.

The meeting was adjourned. 

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