Minister and Deputy Minister of Energy on 2nd/3rd Quarter 2015 performance

Energy

19 April 2016
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Department of Energy (DOE) presented the performance of its six programmes of the Department: Administration, Energy Policy and Planning; Petroleum and Petroleum Products Regulation; Electrification Programs and Projects; Nuclear Energy and Clean Energy. It gave a comparative performance review of the two quarters, noted the targets that had not been achieved and the remedial action taken. It then looked at highlights followed by the challenges and outstanding matters facing the Department, ending off with a look at its financial performance.

Amongst the targets that were not achieved was its vacancy rate of 12.16% which was above the 10% target; only 44 000 households were electrified as compared to a target of 90 000; the nuclear programme plan had not been implemented; the Radioactive Waste Management Fund Bill participation process had not been completed; and solar water heater installations had not commenced because feasibility assessments were still required.

Amongst the challenges and outstanding matters were the filling of executive positions in the state owned entities, outstanding legislative and regulatory items such as the National Radioactive Waste Management Fund Bill and the National Nuclear Regulator Amendment Bill; the restructuring of the Nuclear Liability Coordination Committee (NLCC).

The Minister of Energy, Tina Joemat-Pettersson, said the Department was strengthening the processes of integration within the DOE and in government but in this process other departments impacted on the DOE. The DOE was working very closely with the Department of Public Enterprises (DPE) on Eskom and with the Department of Mineral Resources on the Mineral Policy Mineral and Petroleum Resources Development Act (MPRDA). Integration though, also had to occur at the implementation level. The first priority of the DOE was the integration of decisions and the strengthening of the timeframes aspect so that one department did not have to wait for another department to act because departments accounted to Parliament individually and not collectively. She said the establishment and streamlining of functional structures for implementation became more difficult at an administrative level than at the political level. The President had already pronounced on the Review Commission on State-Owned Entities (SOEs) and that should be filtering down. The review gave an outline as to what the DOE had to do with the different SOEs. The DOE led strategic infrastructure programmes through the Presidential Infrastructure Coordinating Commission (PICC), amongst them Green Energy. These interventions on integration, implementation and infrastructure had made the Five Point Plan Energy Plan a reality. The infrastructure from now on would have to be done in conjunction with the private sector, with the Renewable Energy Independent Power Producer Procurement programme (REIPPP) being a case in point.

She remarked that the integrity of the procurement process on the nuclear new build programme had to be protected. There was no need to rush to meet deadlines which could compromise the scale, pace and affordability of the programme.

The DOE needed to give a written report to the Committee on the interventions made to SOEs as well as interventions made on investments as they had made a significant impact on Eskom. Currently renewable energy was the biggest space for foreign direct investment into the country and was the single most successful programme for foreign direct investment, yet the Committee had no oversight over it. At some stage the DOE would have to zoom into the Industrial Policy Action Plan (IPAP) and look at the industrialisation of energy, as well as energy’s contribution to industrialisation..

The Chairperson noted a list of questions for the DOE to answer in writing because questions were not limited to the topic under discussion. The answers would assist the Committee to compile its report on the DOE budget which had to be relevant to the challenges of the moment and which responded to items that had been promised , in the past, to be completed by the DOE. These included:
- What were the current challenges of the DOE, with reference to the directives of SONA and especially on the nuclear issue and on the issues of pace and scale and affordability as enunciated by the President?
- Funding of the DoE, given the decrease in budget due to fiscal constraints
- Progress on the implementation of the five point plan
- Funding of posts
- Prioritisation of legislation and policy documents
- The integrated energy plan and timelines for it to be finalised
- How far was the DOE on the energy efficiency champion
- Where was the DOE with regard to the biofuel strategy?
- The disaster risk master plan
- Slow progress being made on the solar water heater programme which would not meet its initial targets
- At what point was the national electrification programme. Were the targets being met?
- Backlog in distribution infrastructure maintenance
- DOE should declare where it was on nuclear as the Minister had said DOE would not meet the set targets
- Restructuring of entities especially the Central Energy Fund (CEF)
- Radioactive waste institute fund
- Relationship between the Mineral and Petroleum Resources Development Act (MPRDA) and the Committee
- At what stage is the process to clarify what the end state of electricity is?
- Why were recommendations not implemented and the Committee not kept up to date on implementation?

Members were angry at having to ask the same questions time and again and that it appeared that nothing was happening at the DOE, or it was happening at a snail's pace. If one looked at previous reports they appeared to be the same report as the current one. When would Eskom move from the DPE to the DoE? What was the DOE’s relationship with the Eskom board? Would the Mini-Adam programme benefit the country and its rural areas? When would the DOE complete the strategy it claimed was near completion? What were the challenges DOE was facing? Members wanted to know about the R140 billion to CEF and if the radioactive patrol monitors project at airports to monitor nuclear goods was delayed and what was the reason for the delay. Members asked what the 6th meeting of Iran and South Africa Joint Political Commission was all about. Were any deals signed to get crude oil?

Members repeated that the current report was a rehashed version of the 2015 report. There was nothing new. There was nothing on the Energy Master Plan and the figures for electrification were decreasing. The report did not reflect that municipalities were redirecting funds for their own projects. Why were monies allocated to an external media contractor to demystify nuclear power when the DOE had a in house communications section. Was the South African International Renewable Energy Conference (SAIREC) a programme of the DOE? Why was it a challenge to fill vacant executive positions? There was no explanation on the overspend on compensation of employees. There was no report on NECSA and no audited financial statements. Members said a meeting was needed on the solar water heating programme, on electrification, on nuclear waste and on all the big issues. With all these shortcomings of the part of DOE, it made it difficult for the Committee to perform its oversight role.

Meeting report

Department of Energy on its 2nd/3rd Quarter 2015 performance
Mr Thabane Zulu, DOE Director General, said the focus of the presentation would be on the targets that had not been achieved and the remedial action that was taken as well as the challenges facing the DOE.

Mr Muzi Shange, COO, said the vacancy rate was at 12.16% which was above the target of 10%. Moving forward many positions had been filled including that of the Director General and Chief Operating Officer.
The Mini-ADAM (Approach to Distribution Asset Management) pilot project, to inform norms and standards, had not been completed. The development of the electricity price path was also not done. Since then this had been completed in line with the Integrated Resource Plan (IRP). There had been delays in the issuing of enforcement notices but this had been corrected. Only 44 000 households had been electrified against a target of 90 000 households. The nuclear programme plan was not implemented. The National Radioactive Waste Management Fund Bill (NRWFM) participatory process was not completed because of concerns raised by Treasury on the Bill. The DOE was having continuous workshops to address the issue. The installation of solar water heaters had not commenced because feasibility assessments were required. There were issues about water quality. The solar water heaters system baseline programme had been advertised in December and bidding had closed and appointments had been made.

The challenges and outstanding issues were: conducting advocacy on the petroleum sector transformation, the filling of executive positions in SOEs, the movement of staff from Vaalputs to the National Radioactive Waste Disposal Institute (NRWRDI) and outstanding legislative and regulatory matters namely the NRWMF Bill and the NNR Amendment Bill.

Ms Yvonne Chetty, CFO, Department of Energy, said the DOE had underspent by R132m mainly due to transfers. The performance in payment transfers had been delayed because of logistical arrangements. There had been overspend on employee compensation because of a once off gratuity to an employee that was unfunded and because of contracts that were above the staff establishment.

Discussion
The Chairperson noted a list of questions for the DOE to answer in writing because questions were not limited to the topic under discussion. The answers would assist the Committee to compile its report on the DOE budget which had to be relevant to the challenges of the moment and which responded to items that had been promised , in the past, to be completed by the DOE. These included:
- What were the current challenges of the DOE, with reference to the directives of SONA and especially on the nuclear issue and on the issues of pace and scale and affordability as enunciated by the President?
- Funding of the DoE, given the decrease in budget due to fiscal constraints
- Progress on the implementation of the five point plan
- Funding of posts
- Prioritisation of legislation and policy documents
- The integrated energy plan and timelines for it to be finalised
- How far was the DOE on the energy efficiency champion
- Where was the DOE with regard to the biofuel strategy?
- The disaster risk master plan
- Slow progress being made on the solar water heater programme which would not meet its initial targets
- At what point was the national electrification programme. Were the targets being met?
- Backlog in distribution infrastructure maintenance
- DOE should declare where it was on nuclear as the Minister had said DOE would not meet the set targets
- Restructuring of entities especially the Central Energy Fund (CEF)
- Radioactive waste institute fund
- Relationship between the Mineral and Petroleum Resources Development Act (MPRDA) and Committee
- At what stage is the process to clarify what the end state of electricity is?
- Why were recommendations not implemented and the Committee not kept up to date on implementation?

Mr Zulu said it would be proper to respond to all the issues in a comprehensive written response and asked for clarity on when it would be due.

The Chairperson said that he expected the written replies by Friday 22 April.

Ms Thembisile Majola, Deputy Minister of Energy, said the report needed to reflect more than an analysis but also an update.  At some stage one needed to look at the mandate and compare it to the budget because more than 80% of the budget was transfers. On the electrification rate, she pointed out that what was done five years ago was not feasible currently because the DOE was operating in a different terrain. It was not electrifying townships but rather working in rural areas so the numbers would change.

Ms Tina Joemat-Pettersson, Minister of Energy, said the DOE was strengthening the processes of integration within the DOE and in government but in this process, other departments impacted on the DOE. The DOE was working very closely with the Department of Public Enterprises (DPE) on Eskom and the Department of Minerals on the MPRDA. Integration though, also had to occur at the implementation level. The first priority of the DOE was the integration of decisions and the strengthening of the timeframes aspect so that one department did not have to wait for another department to act because departments accounted to Parliament individually and not collectively. The establishment and streamlining of functional structures for implementation became more difficult at an administrative level than at the political level.

The President had already pronounced on the Review Commission on State-Owned Entities (SOEs) and that should be filtering down. The review gave an outline as to what the DOE had to do with the different SOEs. The DOE led strategic infrastructure programmes through the Presidential Infrastructure Coordinating Commission (PICC), amongst them Green Energy. These interventions on integration, implementation and infrastructure had made the Five Point Plan Energy Plan a reality. The infrastructure from now on would have to be done in conjunction with the private sector, with the Renewable Energy Independent Power Producer Procurement programme (REIPPP) being a case in point. She suggested that a dedicated time be made to report to the Committee on the Independent Power Producers (IPP) Office.

She remarked that the integrity of the procurement process on the nuclear new build programme had to be protected. There was no need to rush to meet deadlines which could compromise the scale, pace and affordability of the programme. The DOE needed to give a written report to the Committee on the interventions made to SOEs as well as interventions made on investments as they had made a significant impact on Eskom. Currently renewable energy was the biggest space for foreign direct investment into the country and was the single most successful programme for foreign direct investment, yet the Committee had no oversight over it. At some stage the DOE would have to zoom into the Industrial Policy Action Plan (IPAP) and look at the industrialisation of energy, as well as energy’s contribution towards industrialisation. This would be included in the written document.

Mr M Matlala (ANC) said he was angry at having to ask the same questions and that it appeared that nothing was happening at the DOE or it was happening at a snail's pace. He said that if one looked at the previous report, it appeared to be the same report as the current one and this made him sick. When would Eskom move from the DPE to the DoE? What was the DOE’s relationship with the Eskom board? Would the Mini-ADAM programme, the municipal infrastructure rehabilitation programme benefit the country and its rural areas? When would the DOE complete the strategy it claimed was near completion? What were the challenges the DOE was facing?

Mr P van Dalen (DA) wanted to know about the R140 billion to CEF. He said there appeared to be no resolution to the National Energy Corporation of South Africa (NECSA) issue. No audited financial statements had been seen and this was needed because the DOE had oversight and had to account for the funds being spent prudently. It was not just a conduit to transfer funds. The DOE should lump together the achieved and partially achieved targets as he could not make comparison with the previous year's outcomes. How much of the budget had been used to do the achieved targets? Regarding the radioactive patrol monitors project at airports to monitor nuclear goods, he asked whether this project was delayed and what was the reason for the delays. He asked what the 6th meeting between South Africa and Iran was all about. Were any deals signed to get crude oil?

Ms T Mahambehlala (ANC) said that the quarterly report was a rehashed version of the 2015 report. There was nothing new. It did not report on the Energy Master Plan and she noted the figures for electrification were decreasing. The report did not reflect that municipalities were redirecting funds for their own projects. Why was there a need to allocate monies to an external media contractor to demystify nuclear power when the DOE had a communications section in-house? What was the disputed payment with regard to Thompson Reuters where R1.1m was payable? R2.8m was given to the South Africa International Renewable Energy Conference 2015 (SAIREC) activities. Was SAIREC a programme of the DOE? Why was R776 000 underspent on venues? Why was it a challenge to fill outstanding executive positions.? A service provider had been appointed and yet soon after, it was liquidated. This did not reflect well on the DOE. She said the Director General’s presence was not being felt in the DOE. There was no explanation on the overspend on compensation of employees. There was no report on NECSA and no audited financial statements. The Auditor-General had raised the issue of municipalities, what plans did the DOE have to avoid such outcomes and secondly the AG had said that quarterly reports were always submitted late. With all these shortcomings, the DOE it made it difficult for the Committee to do its oversight role.

The Chairperson commented on the continuous need to build capacity to communicate the nuclear diversification programme. The second issue was that of NECSA and its outstanding annual financial statements from 30 September 2015 which still had to be dealt with.

Mr Zulu, DOE Director General, replied that it would be proper to respond to all the issues in a comprehensive written response. He said the DOE needed to do its homework on the setting of targets. He said some issues were sub judice because they were before the courts. The court outcomes would be communicated to the Committee as soon as the court cases were finalised. Some boards had been stabilised, including NECSA. The format of the reports would be reviewed and adjusted. Currently the DOE was using the standardised format prescribed by Treasury.

On the filling of executive positions, Mr Shange, DOE COO, replied the CEO position at the CEF Group and the CEO and CFO positions at PETROSA were not filled and the DOE had expedited the process to fill the positions. At NERSA, the CEO position was currently being finalised.

He said the DOE would give the first and fourth quarter results when reporting on the second and third quarter results in future. In the 4th quarter the adjudication and appointment of nine service providers was completed, so the DOE had made progress on the solar water heater programme. The DOE had made appointments on the feasibility of the contracts of the programme. The solar water heater also had a load reduction component and the agreement entered into with Treasury was at an advanced stage.

Regarding the report information being repeated, Ms Chetty replied the reporting added on to what was reported in the previous quarters to reach the year-to-date figures. It was in other words cumulative figures.

On SAIREC, she said the transfers were to the Government Communication and Information System (GCIS) for the SAIREC conference. On the compensation of employees, there would always be different employees mentioned in the report.

On municipalities redirecting funds, she said the DOE had engaged with the Auditor-General (AG) and there were increased controls to ensure money was used as intended. Municipalities had signed an agreement with the DOE and all transfers were done with verification processes in place.

Regarding conditional grants, the DOE had engaged with the AG and the DOE had extended its audit to the municipalities to ensure that the monies were used for their intended purpose.

Mr Sidiso Makhubela, DDG: Petroleum Regulation, said that Thompson Reuters was one of three companies charged with monitoring price movements of petroleum from pricing agencies. It also provided a live feed of where vessels were. The service was paid for but there was a dispute over whether VAT was included in the price. A second issue was on the exchange rate used for calculations, however the contract was very clear and the DOE was waiting to see if the matter would be escalated. The payment to Thompson Reuters was a fraction of what private companies paid.

On the Mini-ADAM, Dr Wolsey Barnard, DDG: Energy Programs and Projects, said it was about how it would benefit rural communities. The Mini-ADAM looked at the refurbishment of current infrastructure already in an electricity distribution system.

Electrification concerned new installations, where there was no existing infrastructure. There were not enough connections being made but this was because of the money allocated to the programme. For the current year the number to date was around 200 000 new connections. 6.75m households had received new connections and Statistics SA figures put the country at 86% electrified. Electrification was now doing deep rural areas which presented the challenge of an absence of roads. The costs of electrifying rural areas had gone up dramatically by 50%, yet it had only received a five per cent increase in its MTEF budget. Rural areas had no networks which could be tapped, so the DOE had to consider non grid options which could be implemented more easily. The current electrification backlog was three million households and to address that would cost R100 billion while the DOE only received R6 billion for the year. Hence the DOE could not reach all areas. It had to do a fine balancing act and was using other agencies like Municipal Infrastructure Support Agent (MISA). It was working with the AG to assist the DOE in ensuring that the money allocated to municipalities was utilised as required. Eskom had fallen behind on their delivery and two months ago the DOE established an executive forum and he received a weekly report on the connections made in the previous week.

On the Mini-ADAM, he said the current challenges in the distribution infrastructure was that for a number of years there had been a lack of investment made into infrastructure. The DOE had started a process of assisting municipalities to address these backlogs. The refurbishment of existing networks would require R70b. The DOE had received R320m for a pilot to assist municipalities to upgrade their networks. Some of the municipalities that had not been completed in this pilot were rural municipalities.

Mr van Dalen wanted to know what the partially achieved targets achievements were in percentage terms.

Ms Mahambehlala noted that the COO had responded that Committee should not mind what the targets were on the solar water heaters because the DOE had appointed service providers. She said there were serious contradictions in the numbers provided on the electrification programme. Why were Statistics SA figures not reflected in the DOE report? The DOE needed to go back and respond in writing. She would not seek to the respond to the CFO’s comments on demand side management because one could talk until dawn.

The Chairperson said the DOE had a big problem with its impact which was a scandal. He said a meeting was needed on the solar water heater programme, on electrification, on nuclear waste and on all the big issues. The Committee did not have enough information to make a good assessment on DOE progress.

Deputy Minister Majola said the issue of where Eskom was located was not for the Department to decide. She said THE key issue was electrification which received the biggest allocation of the DOE budget and there had not been a Committee meeting on that, so she welcomed the suggestion of a meeting on that. Once detailed discussions took place then one could go beyond looking at the financials and whether DOE over or underspent but rather begin to look at whether DOE was getting value for money. She said the DOE would look at the format for quarterly reports. She said the discrepancy in figures was because the one number was figures for the quarter and the other number was figures for the year.

The meeting was adjourned.

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