Strategic Plan; Mining Titles Registraton Bill; Petroleum Pipelines Bill: briefing

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Mineral Resources and Energy

16 April 2003
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Meeting report

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16 April 2003

Mr M Goniwe (ANC)

Documents handed out:
Department of Minerals and Energy: Strategic Plan 2003/04 to 2005/06
Mining Titles Registration Amendment Bill Powerpoint Presentation
The Petroleum Pipelines Bill Powerpoint Presentation

Since most of the information presented in the strategic plan for 2003/04 to 2005/06 had already been discussed during the budget briefing, nothing new was raised. With workshops on each of the two Bills planned for early in May 2003 in order to familiarise members with the issues concerned, discussion on the details of each Bill was limited. Public hearings on the Mining Titles Registration Amendment Bill and the Petroleum Pipelines Bill were scheduled for 28 and 29 May 2003 respectively.

The Chairman notified members of workshops tentatively arranged for Wednesday 7 May and Thursday 8 May 2003 aimed at familiarising them with the subject matter of the Mining Titles Registration Amendment Bill and the Petroleum Pipelines Bill respectively. It was anticipated that public hearings would take place on Tuesday 28 and Wednesday 29 May 2003. Formal deliberations would follow soon afterwards with a view to ensuring the promulgation of both Bills by the end of June 2003. The number of written submissions received and oral submissions requested would determine the amount of time allocated to public hearings on each Bill.

Department of Minerals and Energy: Strategic Plan 2003/04 to 2005/06
Noting an erroneous assumption on the part of the secretariat that the strategic plan had been included in a budget briefing conducted on 19 March 2003, the Chair advised members that separate deliberations on the plan were required. While committee members were already familiar with much of the information concerned, the briefing that followed nevertheless provided a welcomed opportunity for further discussion.

The Director General's absence was noted with regret, particularly since he had not been available for the budget briefing. Ms N Magubane, Deputy Director General, Electricity, explained that the Director General had been requested, at short notice, to attend another function on behalf of the Minister, assuring members that his absence from the two important briefings concerned had been unavoidable. She apologised on his behalf for an apparent oversight in notifying the secretariat accordingly.

Against the background of achievements during 2002/2003 Mrs N Poswa, Special Projects Manager, appraised committee members of the Department's strategic objectives, action plans and anticipated outcomes for the following three years in each of its four branches. Members were referred to the Departmental publication for more detail on the issues concerned.

During the three-year period covered by the plan, the Department would be judged in particular on its performance in respect of the ongoing roll-out of the Integrated National Electrification Programme (INEP) and the successful implementation of the Mineral and Petroleum Resources Development Act and related legislation. In this regard, the committee was referred to a breakdown of projected expenditure on INEP for each budget year until 2005/06 and to expenditure projections by branch programme and standard item. These gave context to the above-baseline allocations for 2003/04 already discussed at the previous briefing.

Before inviting comment and questions from the floor, the Chair reminded members of proposals for the formation of a committee cluster for each branch programme. This would facilitate a more structured approach to the committee's oversight role and enable members to contribute incisively towards the budget process. Political parties would be invited to nominate representatives for each cluster. While it was acknowledged that this might present difficulties for the smaller parties represented on the committee, the objective was to ensure ongoing interaction between each cluster and its respective departmental branch so that members could closely monitor output on stated objectives.

Mr I Davidson (DA) expressed concern that the proposed cluster system could disadvantage smaller parties, observing that this was the first time he had heard of it and enquiring why his party and others appeared not to have been consulted. In his view, the committee's oversight role applied to the portfolio as a whole rather than to specialised clusters. Asserting that, without the necessary knowledge, neither he nor any other member of the committee could be expected to make informed input on the highly technical issues concerned, he then appealed to the Chair to reconsider the committee cluster proposal. In response, the Chair invited Mr Davidson to propose any alternative approaches that, in his view, would be more workable.

Mr I Davidson (DA) referred to an undertaking on the part of the Minister of Public Enterprises, Mr J Radebe, that, in the context of the privatisation of basic services, electricity tariffs would not exceed acceptable limits. This appeared to contradict Eskom's view that the need for improved generating capacity would inevitably result in significantly higher electricity prices for consumers over time. He also enquired when the sale of thirty per cent of South Africa's power generating plants to black economic empowerment (BEE) consortiums was likely to take place. Noting that the old Diamond Act had needed urgent reform, he then enquired where, in the Mineral and Petroleum Resources Development Act, this had been addressed.

Mr N Middleton (IFP) asked for details on the social plan being negotiated with Mozambique for returning mineworkers.

Mr G Oliphant (ANC) expressed a hope for tangible evidence of practical outcomes well in advance of the next election. He requested that copies of a review of the Mine Health and Safety branch programme conducted by international consultants be made available to members, noting its relevance to issues raised in respect of the capacity of the Inspectorate and the need for an opportunity to engage with representatives of the Department on these. While the number of accidents and fatalities might well have decreased when compared with previous years, this needed to be viewed against the background of the numbers of people employed in the industry each year during the period concerned. Referring to Mr Davidson's question about the old Diamond Act, he appealed for urgent attention to the reforms in question so that the considerable problems facing the diamond industry could be addressed. When was the 'mining week' scheduled to take place.

Professor I Mohamed (ANC) enquired whether renewable energy technologies had been incorporated into plans for the electrification of rural areas, particularly those outside the national grid where conventional technology tended not to be reliable. Referring to questions at the previous briefing, he asked whether pebble bed modular reactor (PBMR) technology was likely to be utilised and, if so, when. He also enquired about the future of the South African Nuclear Energy Corporation (NECSA) and asked whether the issue of nuclear waste disposal had been resolved.

Noting BEE and gender percentage targets set by the Mining Charter, Ms L Xingawana (ANC) asked how the Department had arrived at its comparatively lower target of ten per cent participation by women in five years. She appealed for the speedy finalisation of all legislation impacting upon the Mineral and Petroleum Resources Development Act.

Ms F Mathibela (ANC) enquired what progress had been made regarding issues raised by the South African Women in Mining Association (SAWIMA) at its recent hearing. What did the Department mean by its reference to steps that would be taken to "manage political risk" in respect of positioning the minerals and energy sectors for global competitiveness.

Noting the serious implications of privatising essential services, the Chair enquired how the Department had arrived at its decision to sell thirty per cent of Eskom's power generating plants to BEE consortiums. When advised by Ms N Magubane that the target was, in fact, ten per cent, he observed that the vision and principles informing this objective nevertheless needed to be explained.

Mr G Oliphant (ANC) endorsed this view.

The Chair then enquired what progress was being made in creating opportunities for the development of smaller BEE initiatives in the sector, appealing for a more broad-based approach to BEE focusing on real economic empowerment rather than the enrichment of a privileged few. In this regard, he asked who, in the Department, was responsible for ensuring that the vitally important issues of poor institutional capacity and opportunities for meaningful entry to the industry were being addressed in respect of SAWIMA and similar initiatives. Linked to this was the need for more detail on the rationale underpinning the Department's ten per cent gender-representivity target for the industry. With these and related issues in mind, he respectfully suggested that the Department avoid political risk rather than attempt to manage it since this was not its mandate.

Ms N Poswa undertook to revert to the committee with answers to questions on mine health and safety since these could not be addressed adequately in the absence of the technical information entailed.

Ms N Magubane advised members that the issue of under-capacity in respect of power generation needed to be addressed and new capacity financed whether Eskom remained responsible for this aspect of the industry or whether it was privatised and BEE consortiums involved. However, a decision had been taken at Cabinet level to privatise electricity generation, leaving Eskom and local government responsible for transmission and distribution respectively. This was a sensitive issue and the undertaking made by the Minister of Public Enterprises to keep electricity prices as low as possible had been made against that background.

A ten per cent BEE involvement in creating new generating capacity was envisaged for 2003/04, based on the results of a study conducted by the Department into private and BEE interest in that aspect of the industry. The interim results of this study would be made available shortly. With the ten per cent target for the current year in mind, the merits of management contracts, joint ventures with established experts in the field and other mechanisms for facilitating BEE were being explored. This process would inform planning aimed at maximising BEE involvement in electricity generation as well as consumer benefits. Nevertheless, price increases were inevitable.

Mr I Davidson (DA) enquired whether the ten per cent target for BEE involvement in electricity generation had been informed by the capacity of 'mothballed' power stations to meet ten per cent of medium-term energy requirements if re-commissioned. While conceding that it had, Ms Magubane advised members that the viability of re-commissioning the power plants concerned would nevertheless need to be explored before a decision was reached on upgrading them and making them available as BEE options.

Ms Magubane assured members that renewable energy technologies would be utilised wherever practically possible in diversifying primary energy sources, which would also address the need to reduce emissions. In response to an observation by Mr J Nash (ANC) that these technologies might be too expensive for rural areas, she advised that the provision of electricity to these and off-grid areas would be expensive regardless of the technology used. However, extending the national grid appeared to be the most cost-effective delivery mechanism at this stage. Expenditure on this aspect of the electrification programme would be met, in large part, from external funding while consumption by poor households would be subsidised by Government.

The seven hundred million rand allocated to upgrading the distribution grid remained largely unspent pending the finalisation of plans for restructuring the industry. Promulgation of the Electricity Supply Industry (ESI) and Electricity Distribution Industry (EDI) Bills during the current year would create the legislative framework for establishing the necessary structures and formalising implementation mechanisms. Ms Magubane assured members that the INEP roll-out would continue to provide construction, procurement and maintenance opportunities for small and medium enterprises (SMEs). Responding to a concern expressed by the Chair about high levels of fronting in the SME sector, she advised the committee that SME involvement would continue to be monitored and audited to ensure that opportunities for genuine BEE participation were maximised.

A decision on PBMR technology was expected in June, pending input from the Department of Environmental Affairs and Tourism. This would have implications for NECSA which, in the Department's view, needed to be strengthened and would be corporatised with this in mind. Cabinet was in the process of considering recommendations on the disposal of nuclear waste.

Regarding reforms to the old Diamond Act, Ms S Bopape-Dlomo advised members that provision had been made for this and related trading issues in the Beneficiation Bill. The social plan being negotiated with Mozambique would seek to address the full scope of interventions necessary in dealing with retrenchments and mine closures, including re-training. Both the Mining Charter and the Mineral and Petroleum Resources Development Act took into account the need for a broad-based approach to BEE involving SME development.

The Chair advised members that submissions had been invited from stakeholders and other interested parties on the Money Bill, which was expected to be promulgated in August. The Portfolio Committee on Finance would drive this process. However, noting the Bill's implications for the implementation of the Mining and Petroleum Resources Development Act in respect of royalty payments in particular, every effort would be made to ensure that members were given an opportunity to influence the rationale underpinning amendments.

On the issue of women's involvement in mining and the ten per cent target set for this over the next five years, Ms N Poswa advised members that this constituted more than half the twenty-five per cent target set by the Mining Charter. Noting that, historically, women had tended to be excluded from operational involvement in the industry, it was the Department's view that ten per cent over the next five years was a realistic target. Ms L Xingawana (ANC) suggested that the reference to ten per cent might need to be re-drafted in order to avoid further confusion, particularly among BEE entities themselves.

Notifying members that the proposed 'mining week' was scheduled for September, Ms Poswa undertook to provide the committee with details of all public functions envisaged for the year, including those planned specifically for SAWIMA and Women in Oil and Energy South Africa (WOESA).

Ms N Cindi (ANC) expressed concern that this information was not reaching women on the ground.

Mining Titles Registration Amendment Bill
Ms S Bopape-Dlomo summarised important changes aimed at accommodating the requirements of the Mining and Petroleum Resources Development Act. Please refer to attached Powerpoint Presentation.

Mr I Davidson (DA) enquired whether stakeholders had been involved in arriving at the proposed amendments and was advised by the Chair that, in view of the need to speed up the process, a decision had been taken outside the committee to invite written submissions. These had already started to arrive. The Chamber of Mines had requested an extension of the deadline concerned and had been given until the end of April to prepare its submission.

Mr Davidson commented that, while this was understood, the process had nevertheless been short-circuited without consultation with all parties represented on the committee. Since the proposed amendments dealt with the mechanics of implementation, members would need sight of the submissions prior to the hearings as well as recommendations from the Department on an appropriate response to the technical detail underpinning each one. Submissions would automatically be copied to the Department whose representatives would be present during the hearings.

Petroleum Pipelines Bill
Apologising for Dr R Crompton's absence, Mr M Singh, Director: Petroleum Policy, then appraised members of the objectives of the Bill and the strategic and economic imperatives underpinning it. When promulgated, the Bill would promote competition between and within petroleum carriers, facilitate investment in the industry and its ongoing regulation, and protect the country's strategic interests. This would help to create a low-cost platform for economic development in the industrial heartland. Building on the contents of the White Paper on Energy Policy of 1998, the Bill would establish a national regulatory and licensing framework for crude oil and petroleum products and pipelines, as well as for the storage and off-loading facilities entailed.

Mr J Nash (ANC) enquired why separate gas, petroleum, nuclear energy and electricity regulators were necessary in the short-to-medium term in view of the Department's stated longer-term commitment to a single regulator.

The Chair endorsed his concerns, asking whether the eventual amalgamation of industry-based regulators was likely to result in the retrenchment of large numbers of operational staff.

Professor I Mohamed (ANC) commented that a single regulator might create a conflict of interests between competing technologies within the energy sector as a whole.

Mr J Nash (ANC) asked for clarity on the reference to cross-subsidisation in respect of licence conditions.

Mr I Davidson (DA) enquired whether there was, in fact, any difference between the licensing and registration of petroleum-related activities.

The Chair asked whether there had been a collective industry submission from the South African Petroleum Industries Association (SAPIA). In anticipation of a workshop on the Bill, he suggested that a diagram indicating what would be regulated and how might be useful when explaining its broader implications. He also enquired whether the role of the Minister in appointing a chairman for the regulatory body envisaged might compromise its independence, suggesting that other models for selection might need to be considered.

Mr Singh advised members that the decision to establish separate industry-based regulators had been informed by the need to manage the transition in the sector as a whole as efficiently as possible. The gas industry, in particular, needed fresh legislation and a separate regulator was seen to be pivotal to this. It was anticipated that, in the short-to-medium term, separate regulators would more effectively ensure compliance within each industry. Once this had been achieved, the integration of the separate regulators into a single entity would be less disruptive to the strategic assets entailed.

He apologised for all erroneous references in the presentation to the term 'registration' and advised members that there had been no collective industry submission received from SAPIA.

Undertaking to provide an organogram at the workshop illustrating the regulator's management structure, Mr Singh advised members that the board as a whole would oversee the functioning of the regulator and would be selected with an appropriate mix of skills in mind. This should ensure the required level of independence. On the issue of cross-subsidisation in respect of licence conditions, Mr Singh advised committee members that the Bill sought to create an environment in which the state, as a carrier, would be required to compete with other carriers with a view to lowering intermediate energy input costs. Ultimately, this would mean that state pipelines would no longer be subsidised.

Ms F Mathibela (ANC) asked for clarity on a statement in the presentation suggesting that, currently, not all pipeline tariffs were market-related. She also enquired whether there were any plans for taking the existing pipeline beyond Gauteng.

Ms N Mtsweni (ANC) asked for clarity on the relationship between the regulator and the Competition Commission Board.

Mr S Louw (ANC) enquired about the rationale underpinning the appointment of five part-time board members for four years.

In response, Mr Singh again assured members that the establishment of separate stand-alone regulators as an interim arrangement was generally accepted as being the most responsible and efficient way of managing industry-based regulation during the transition period, and that this would not compromise plans for a single regulator in the longer term. He nevertheless invited members to table any ideas they might have for an alternative approach at the forthcoming workshop. On the issue of market-related tariffs, he advised that the calculation of tariffs was often driven by a need for adequate rates of return on the investment entailed and might not, therefore, necessarily be market-related. This had obvious implications for consumers. There were no plans to extend the existing pipeline network at this stage. Since members of the board would serve in an advisory capacity and would not be responsible for the day-to-day operations of the regulatory body, a part-time commitment was considered appropriate.

The Chair asked members to follow up on unanswered questions at the forthcoming workshop. In anticipation of this and the next meeting of the committee later in May, he appealed to committee members to look carefully at their minutes and also to give thought to the issue of cluster committees. The comment was noted from Mr J Nash (ANC) that the choice of facilitator for the workshops was crucial to ensuring a balanced view of the issues entailed.

The meeting was adjourned.


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