Department Response to 2014 Budgetary Review and Recommendations Report, with Minister and Deputy present

Meeting report

Chairperson’s Opening remarks

The Chairperson welcomed members of the committee and the delegation to the meeting. He noted it was the first meeting of the year and hoped it would go quickly and smoothly. He complained about the size of the room.

The Chairperson informed the Committee that the Minister of Energy would be late and the first item on the agenda – a briefing by the Minister on the implications of SONA on the energy sector- would be suspended till the arrival of the Minister.

The Chairperson asked the Committee Secretary to read out the apologies and this was duly done.

The Chairperson noted that this was the first time the recently appointed DG was appearing before the Committee and asked him to introduce himself.

Mr Thabane Zulu thanked the Chairperson for the opportunity.

The Chairperson recalled that when the Committee had adopted the Budgetary Review and Recommendations Report (BRRR) recommendations last year, there were issues that were urgent and some of the deadlines for these items had passed. The Committee still intended to revisit the 2015 recommendations but would first deal with the 2014 BRRR. The 2015 recommendations would be considered the next time. The Committee had agreed with the Department that it would make recommendations with the understanding that they were going to be implemented and if not, there had to be an explanantion for this.

The Chairperson welcomed the Deputy Minister.

Ms Thembisile Majola, Deputy Minister of Energy, apologised for arriving late. She had lost track of time. She was glad the DG had introduced himself. He had started working at the Department on 1 October 2015. He was brand new but had hit the ground running. He had spent a lot of time getting on top of the issues that the Department was tackling. The appointment of the DG was significant because this was one of the issues the Department needed to implement. It had taken some time to get someone to take the position on a permanent basis as the Department had a number of acting/rotational DGs and this had an adverse impact on the working of the Department.

The Deputy Minister said that the presentation on the 2014 BRRR was good because the SONA was pushing the Department in terms of looking at the way forward. The Committee and the Department could look at the 2014 and 2015 reports together and plan the way forward.The participation of the DG was appropriate to help address the hurdles the Department was having in terms of implementation. The Department was looing forward to this and the subsequent meeting on the 2015 recommendations. The SONA had already given a way forward in terms of what needed to be done. Apart from the actual issues that were raised by the Committee, a key issue that was continually raised (and which will be addressed) is the matter of having time frames. On a number of ocassions, the Department had brought things but was unable to put clear time frames. The Department would be able to speak to those matters at the next meeting. There were other issues that were out of the Department’s hands because they needed intervention from other departments, or coordintation at a political level and were out of the hands of the officals.

Mr Zulu thanked the Minister for her comments and for providing a background on the matter. He explained that the Department had prepared a response on the recommendations as per request by the Committee. The CFO would take the Committee through the document.

Mr P Van Dalen (DA) complained about not receiving the report prior to the meeting so that he could prepare and be in a position to ask questions. The Committee made a recommendation previously that it should receive documents in advance and not on the day of the meeting.

The Chairperson acknowledged that the standard procedure was that documents to be presented were supposed to be sent 72 hours before the meeting but the documents were received just the night before the meeting.

Mr Zulu apologised and told the Committee it was an administrative problem which he would look into.

Mr Van Dalen accepted the explanation but cautioned the Department not to repeat this.

Briefing on the recommendations of the Committee’s budgetary review and recommendations report 2014

Ms Yvone Chetty, CFO, Department of Energy, stated that the presentation was a response to the earlier recommendations made by the Committee to the Department. There were a total of 31 recommendations. The recommendations and response to each of them are highlighted below.

• Expedite the finalisation of the energy planning policies with specific reference to the Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP). The DoE in its stated it had finalized and circulated for review and comment to the Ministerial Advisory Committee on Energy (MACE) and other government Departments. The finalization of updating of the IRP is in progress and it is expected to be tabled at DG cluster in April 2016 and thereafter the promulgation process will begin.
• Expedite all outstanding legislation, which covers the energy sector.  To achieve this, the DoE has received from the State Law Advisor (SLA) the final pre-certification of the draft Gas Amendment Bill (GAB) and this will be submitted to Cabinet. The draft GAB has not yet been processed since it is still under review and it has to be delinked from the National Energy Regulator Amendment Bill (NERAB). This bill will be tabled in Cabinet in the second quarter of this financial year.
• Develop initiatives in conjunction with other national government Departments and entities to ensure security of supply with regard to electricity. In response to this, the Department developed a five-point Plan Departmental initiative.
• In conjunction with the Department of Co-operative Governance and Traditional Affairs and National Treasury develop a strategy to address the backlog related to the distribution network. The DoE has done an assessment of the asset refurbishment backlogs in the electricity distribution sector, covering Eskom and various municipalities. The pilot project regarding the Approach to Distribution Asset Management (ADAM) is almost completed and the report will be submitted in March 2016. In collaboration with the National Treasury, Municipal Infrastructure Support Agency and National Energy Regulator of South Africa (NERSA) the DoE is developing the norms and standards for municipal asset management.
• In conjunction with the Department of Co-operative Governance and Traditional Affairs, assess and develop strategies for the effective implementation of Free Basic Electricity (FBE) and Free Basic Alternative Energy (FBAE) policies. The FBE and FBAE implementation framework had critical shortcomings relating to the ability of the government o enforce the rollout of the FBE since this is a municipal mandate, the DoE instead tracks the extent of FBE rollout in Eskom licensed areas.
• Identify and empower an energy efficiency champion for South Africa who will take ownership of all current initiatives in South Africa, conduct assessments on effectiveness of current initiatives and develop strategies going forward.  South African National Energy Development Institute (SANEDI) is empowered by the Energy Act to play the role of an energy efficient agent and is also mandated under the Income Tax Amendment Act to implement the energy efficiency tax incentive scheme by verifying the savings claimed by various entities.
• In terms of the Integrated National Electification Programme (INEP), develop strategies to address the problems experienced at municipal level relating to slow delivery, skills, budgeting and project management. The INEP cannot conduct basic monitoring and oversight functions and provide assistance to licensed municipalities in managing their own infrastructure development projects in line with the INEP funding agreement. This is as a result of paucity of funds, irrespective of this, regional and national officers assist on a daily basis in various municipalities with guidance, oversight and monitoring of INEP projects. The INEP has also put in place a number of programs to achieve this recommendation.
• Assess and develop interventions for the development of key and critical skills in the various areas of energy including, among others engineering, nuclear and electricity distribution. The DoE in following this recommendation recruited 32 interns during the period under review. Seven internal bursaries were awarded to seven officials to study energy related studies and electrical engineering, 13 youths were awarded full time bursaries to study chemical engineering abroad. Several other human resources capacity building policies were formulated and implemented.
• Enhance the oversight capacity of the DoE, specifically with reference to the State owned entities that account to it. The Minister is to ensure the DoE develops a robust oversight model as various problems were noted at some State owned entities in terms of financial management and project delivery. To address this, the Department developed a five-point action plan to enhance the oversight of State owned entities.
• Develop mechanisms and strategies to expedite the transformation of the liquid fuels sector. The Department enhanced the human resource capacity to deal with the transformation issues. Bilateral sessions with signatories to the Petroleum and Liquid Fuels Charter to discuss progress updates on economic transformation were concluded with Chevron; Shell downstream; Sasol and BP with Engen and Total South Africa are due for engagement by end of February 2016.
• Fast track the biofuels strategy and finalize the regulatory instruments that the Department is working on, to facilitate the introduction of biofuels into the South African liquid fuels market. This recommendation has been put on hold due to the prevailing drought in the counry as well as the sharp decrease in the global prices of oil. The DoE meanwhile, is assisting in the development of a framework that could supply South African Airways with bio jet.
• Reassess the funding of the National Nuclear Regulator (NNR) and the South African Nuclear Energy Corporation (NECSA) in conjunction with National treasury, considering the envisaged nuclear roll out programme, that the NNR and NECSA be empowered financially to develop the critical skills needed for the envisaged programme. In implementing this recommendation, NECSA has implemented initiatives, which were able to achieve an effective reduction in operational and administrative expenditure of approximately R30 million between 2013/14 and 2014/15.
• Address the challenges identified at the Renewable Energy Independent Power Procurement Programme (REIPPP) that includes ensuring that the transmission grid is available to the programme as and when needed, local communities are empowered and benefit from the programme and that aspects of localisation of technology and skills transfer is assessed to ensure it is occurring. In achieving this over 12 policies were formulated and implemented
• Roll out the co-generation independent power procurement programme to ensure South Africa benefits from the programme. The DoE released the procurement document in 2015 and the roll out is ongoing.
• Ensure that the negotiations for the proposed nuclear build programme be conducted in a fair and transparent manner, to ensure that maximum benefit is derived for South Africa. The success of the nuclear new build procurement process is very dependent on the quality of the management of the procurement process and the documentation thereof. The process will be fully compliant with the South Africa’s supply chain management legislative framework.
• Finalise the Gas Utilization Master Plan to ensure investment in and development of this sector. In response to this, the Gas Utilization Master Plan was submitted for approval but it has been deemed prudent to put it aside and focus on the Gas to Power procurement Process.
• Closely monitor and where necessary, direct developments related to shale gas and other oil and gas exploration in and around South Africa. The DoE is taking part in the Project Executive Committee (PEC), which oversees the development of the Strategic Environmental Assessment (SEA) for Shale gas in South Africa. The Department of Environmental Affairs (DEA) chairs the PEC.
• Ensure that the Central Energy Fund (CEF) and its entities are urgently restructured to more effectively meet South Africa’s energy needs, focusing on the hiving off of entities should be fast tracked to ensure the organization restructures urgently. The CEF set up a company to look into that is believed to be the future of renewable and clean energy. CEF has started to invest into renewable energy with the main focus being concentrated solar power.
• PetroSA should develop a clear strategy to ensure that gas supply constraints, current and going forward, at its Gas to Liquid (GTL) plant in Mossel Bay be addressed and a long term strategy with clear objectives, targets and deliverables be developed.  The PetroSA operating model is being reviewed to optimize return during this period of persistent gas shortage and alternative feedstock is being re-looked at to address the issue of dwindling gas reserves in Mossel Bay. At the end of March 2016, the report of the Apollo team which was set up to focus on developing the overall strategy to address all the issues mentioned will be submitted to the Department.
• That Petroleum Agency South Africa (PASA), until it is transferred to the Department of Mineral resources, the issue of financial sustainability and retention of key and critical skills be addressed.  After discussions between DMR and National treasury, a funding allocation has been obtained which addresses financial sustainability of the organization beyond 2017 and PASA currently has sufficient resources to retain skills until 2017.
• The Department with the Central Energy Fund and the Strategic Fuel Fund (SFF) address the issue of strategic reserves, including increasing the current reserve capacity from the current 25 days to the proposed 42 days.  Responding to this, currently the SFF is compliant with the Ministerial directive in place, which instructs them to keep 10.3 million barrel of crude as strategic stock. The future expected Strategic Stock Policy has not yet been proclaimed, once this is done it will specify the funding mechanism and optimal number of days stock for the proposed stock cover.
• With regard to the African Exploration and Mining Finance Corporation (AEMFC), the issue of financial sustainability and growth at the entity, especially with regard to coal contracts should be addressed. This issue was addressed; AEMFC secured a five-year coal contract with a credible buyer that will assist with financial sustainability and growth.
• Explore and promote mechanisms to ensure NECSA is able, via its companies and technology created, generate most of its own funds and become financially independent of the state. The Department responded by reiterating the long term vision of NECSA which is to be a self dependent and self reliant organization, it still needs government grants and funding to execute specific mandates. NECSA has also through the establishment of technology platforms through R&D identified areas such as nuclear manufacturing to leverage localization opportunities that would arise out of South Africa.
• Further, there are contingent liabilities related to the decommissioning and decontamination of NECSA past operational facilities and the disposal of low and intermediate level waste at Vaalputs. The minister is to urgently assess this situation including where the liability resides. The Department through its legal directorate requested a legal opinion from the State Attorney’s on the matter of the decommissioning and decontamination. Consultations have taken place with senior counsel and all requested documentation in regards to this has been submitted.
• The minister is to ensure that the National Radioactive Waste Disposal Institute (NRWDI) begins operating as a functional entity as soon as possible.  A proposal has been made by NECSA to second a senior manager of NECSA to NRWDI to assist with the initiation process to obtain a new license to operate the Vaalputs facility.
• Ensure that NNR has the requisite skills and resources to be able to perform robust regulatory oversight on the proposed nuclear new build programme. With regards to this, the NNR is more concerned with the funding and decision on aspect of technology to be chosen, as this will have a bearing on the licensing of the Nuclear New Build Programme.
• The Minister of Energy should ensure that the ownerless legacy sites be identified and managed to protect South Africans from accidental exposure. This issue is being addressed through a working group organized by NNR to ascertain its role and responsibility.
• The Minister should also ensure that fragmented regulatory framework be urgently addressed to ensure that the NNR is empowered to manage category three and four radioactive sources which are currently handled by the Department of Health. To achieve this, the DoE is working closely with the NNR and DoH to ensure the harmonization of the regulatory systems by shifting the function to NNR. A memorandum of understanding was also drafted to address the interim measures.
• Assess the legislative mandate of NERSA and ensure it is comprehensive and robust to fully empower NERSA to execute their duties.  The response of the DoE to this is that the Regulator is empowered under section 4b and 32 of the Electricity Regulation Act 4 of 2006 as amended to carry out investigations.
• Ensure that SANEDI has a robust plan to ensure projects meet all specified deadlines and that mechanisms are in place to convert the R&D projects into commercial ventures.  To achieve this, regular meetings with stakeholders such as DoE help to ensure alignment of project deliverables with shareholders expectations. SANEDI has established an Energy Industry Development Division which will work closely with industry to assist in the commercialization of technologies
• Address the staffing challenges at SANEDI as majority of staff are on a contract basis with very few permanent staff. The management has put plans in place to move most if not all its staff to five year contract

Discussion

Mr M Mackay (DA) sought clarity on why the Committee was looking at the 2014 report and not the 2015 one considering that the latter document had very specific timelines for the Department and the Minister that had to be met by the end of February. Some of the recommendations related to the PetroSA turnaround strategy and the Nuclear New Build programme and the expectation that various documents would be provided to the Committee by the end of this month. He was therefore confused as to why the Committee was dealing with a document that was finalised in October 2014 at a time when it was not clear on its mandate or its work. The recommendations in the 2014 report were messy and all over the place whereas the 2015 document was more tight, articulate and accurate in reflecting the very specific needs of the Committee. Reviewing the 2014 document seemed like a pointless and historic exercise as the “meat” was in the 2015 document,

The Chairperson explained that the programme had changed as a result of what had happened in the first of week of February. The Committee was supposed to go on oversight but this had been cancelled. The Committee was originally supposed to consider both reports on the same agenda but the agenda had changed because of the cancelled trip. There were things raised in the 2014 report that were not implemented and completed and that’s why he wanted to start there.

Mr J Esterhuizen (IFP) welcomed the new DG and greeted the Deputy Minister. He recalled that he saw the DG many years ago when he was the city manager in Pietermarizburg but joked that the DG would not have remembered him. He noted that Department’s mandate was to formulate energy policy, create a regulatory framework, draft legislaton and oversee implemnetion to ensure that energy security and access is affordable and reliable energy for all South Africans. In his view, the country did not have affordable and reliable energy.

He referred to page 6 of the document and questioned if the Department had the capacity to see that its entities were also responsible. The South African economy depended heavily on energy.  It was a big concern to see that according to Eskom’s own annual report, its net debt for the last year was more than R250 billion. Eskom took up the largest share of this government's guarantee. This was a very big concern. Did the Department have the capacity to prevent this?

Mr Esterhuizen referred to page 8 and commented that the proposal for a nuclear build should be supported by an extensive and detailed cost benefit analysis providing irrefutable proof that this is a long term benefit that will outweight the cost in this country. He had yet to see such a document.

Mr Esterhuizen pointed to page 9 and said that every year this country had a gas shortage.  Again, this went back to the question of oversight.

On page 13, he stated that last year the National Energy Regulator had rejected a higher than 8% unjustified increase but it also allowed a 3% real return on the additional capital to be invested by Eskom in Medupi and elsewhere. This was a concern as public money was being used.

Mr Mackay posed two questions to the Chairperson. First, he asked when the Committee would be discussing the 2015 report – he wanted to know the date and time of this meeting. In his view, it was of importance to the people in the room and South Africans. Two, he reminded the Chairperson that the Committee decided its agenda collectively and today it felt like it had been “pistol-whipped” by the executive in terms of meeting its agenda. It appeared as if the Department and the Minister were not ready to deal with the stark recommendations that the Committee put down in 2015. They were not able to respond to the issues and had not come forward with a document that the Committee had asked for. “What we have in front of us is a mickey mouse exercise - a review of a 2014 document which relevance is questionable to the current debate”.

The Chairperson replied that Mr Mckay was making a very serious allegation. There would be a meeting on Thursday to discuss the programme. He repeated his earlier explaination that the Committee was supposed to go on oversight on 2 February but this had been cancelled. This had brought about a change in the programme. He understood Mr Mckay’s views on the 2014 report but maintained that some of those recommendations had not been completed and the Committee should still be interested in the outcomes. The initial idea was to do both reports at the same time and for this exercise to have logic;  this would be the best approach to track progress and cross-reference. This can be done next Tuesday at the earliest.

Mr M Dlamini (EFF) agreed with the position taken by Mr Mackay and asked that the documents be set aside till the following week when the 2015 document would be considered as well. He highlighted that fundamental issues, such as transformation had been raised in the 2015 report.

Mr P Van Dalen (DA) commented that the presented document was very thin on timelines. He assumed that if somebody brought an old report they would have some hindsight and add this sort of detail. In addition, he had 2 questions for clarity. First, he mentioned point 3, where it talked about the releasing documents for the relaunch of the revised solar water heater programme. This programme was good and he sought clarity when it would be implemented again. There should be a date when it will be up and running so that people could work to it and upskill their workers to start implenenting the programme. Second, he referred to point 22, and noted that the African Exploration and Mining Finance Cooporation Company had secured a five year coal contract with a “credible buyer”. Who or what was a credible buyer? What did the term credible buyer mean?

The Chairperson reiterated that it would benefit the Committee to consider the Department’s response to the 2014 report. However, he agreed that the reports should be considered the following week. The Department must work on responses in relation to the 2015 BRRR and send this to the Committee by the latest on Friday so that there could be a proper discussion at the next meeting.

The Chairperson said that the Committee had decided to wait for the Minister to deal with the first item on the agenda.

Ms Tina Joemat-Pettersson, Minister of Energy, was apologetic to the Committee for been late and informed them it was not intentional. She was in a meeting with the Deputy President and some investors. She was supposed to make a presentation to the Committee on the impact of the President’s SONA speech on energy in South Africa but she would not do so because she would be addressing Parliament the next day on the same issue during the debate on the SONA. She asked the Members of the Portfolio Committee to wait till after the debate.

Mr Mackay asked if the Minister could share with the Committee some insight on what she will communicate during the debate the next day. The Committee was keen to hear how she would respond to some of the key issues raised during SONA. Any information would be available.

Mr Esterhuizen, reacting to comments by the President during his SONA about the improvement in energy supply, disagreed and stated that the current stability being enjoyed in the supply of electricity was a result of decreased demand. He was of the view that Nuclear power was a very expensive project for South African and wanted the programme reviewed. He believed the government should instead spend money on the development of wind and solar energy.

The Chairperson said that the Committee would tackle both the President’s and the Minister’s remarks next week.

The Mnister reiterated that she would participate in debate the next day and the President’s response would be on Thursday. Everyone would be in a better postiion to then discuss the entire debate when the Committee met the following Tuesday.

The Chairperson urged Members to accept this. He did not want the Committee to be fightng over procedure.

Mr Mackay expressed disappointed. It was a total waste of money and time for the Minister to come to the Committee without addressing them. This was essentially a meeting about having a meeting. Two Ministers and so many officals were present for nothing. The Committee had to work together to tighthen its planning.

Mr Dlamini said that as far as he was concerned there was no meeting because the issues the Members had in mind to deliberate on were not listed. He also accused the Executive of being wasteful. He saw no reason why the Minister and Deputy Minister would come to the Committee and they made no presentation.

The Chairperson asked all Members to sheath their swords and adjourned the meeting.