Department of Energy on its Annual Performance Plan, with Minister and Deputy Minister

Meeting report

The Chairperson of the Committee, Mr M Rayi (ANC, Eastern Cape), had extended his apologies to the Committee for not being able to attend the meeting due to illness.

Mr E Makue (ANC, Gauteng) took the reigns as Acting Chairperson.

Both the Minister of Energy, Ms Mmamoloko Kubayi and Deputy Minister of Energy, Ms Thembisile Majola. availed themselves to attend the meeting.

Opening remarks by Minister
Minister Kubayi informed the Committee that she had presented the Department of Energy’s (DoE’s) Annual Performance Plan and delivered her Budget Vote to the National Assembly the previous Friday 19 May 2017. The DoE had complied with all the requests that the Auditor General of SA had asked of it. The Department’s targets had to comply with the SMART Principle. The Principle required that targets had to be specific, measurable, accurate, realistic and time bound. The DoE realised that it needed to intensify its work and acknowledged that there was room for improvement. There were two critical issues that had to be seen to. The first was on the operations and effectiveness of the DoE’s entities. The second was that there were challenges attached to the Strategic Fuel Fund (SFF) Group. Progress was being made in this regard.

The Minister admitted that there were also problems at PetroSA. There was wrongdoing at PetroSA in that bonuses had been paid even though projects had failed. Investigations were being done. Project Ikhwezi had failed dismally. The DoE was trying to learn from its mistakes. There were lessons that could be learnt. On the work of the SFF there was an investigation into the oil stock that had been sold instead of it being rotated. The DoE had started the process to rectify the situation. There needed to be consequence management.
In her Budget Vote address, she announced that the SFF Group would be restructured. The DoE had to also look at the Independent Power Producer’s (IPP) Office. The problem was that there was no governance model in place. The DoE had moved the IPP Office under the SFF Group in terms of restructuring. The SFF Group worked well with the private sector. There was a need for entities to operate effectively.

She noted that there were also matters relating to the Nuclear Build Programme. There was a Court judgement on the matter of nuclear that was given against the Minister of Energy. The decision was taken by the DoE not to appeal against the court’s decision. On reflection it seemed that the DoE was in agreement with the court. The DoE should have submitted Intergovernmental Agreements (IGAs) to both Houses of Parliament. The decision was taken to look at all IGAs. The issue was about standardisation. The DoE hoped to start the process by June 2017. The court judgement had spoken about determinations and that public consultation was needed. The Minister stressed that the DoE did do consultations when it came to policy. The court however required that there should be consultation on both policy and determinations. The DoE had reviewed all its section 34 determinations to comply with the court judgement. The DoE would start afresh on its Nuclear Build Programme and do new determinations. The question by the public was why the DoE wished to continue with its Nuclear Build Programme. The simple answer was that nuclear was part of SA’s energy mix. There were renewable energies like solar and wind but these were unreliable. Renewables only provided 26% of energy. With nuclear there would be 86% of energy. The idea was to reduce carbon emissions. By 2020 the intention was to reduce carbon emissions by 34%. The DoE had in the National Assembly called for public engagement. Public hearings might be required. Experts could be called to speak to the pros and cons of nuclear. The DoE tried to do more with less.
 
Briefing by the Department of Energy (DoE) on its Strategic Plan, Annual Performance Plan and Budget
The delegation comprised of amongst others Mr Thabane Zulu Director General, Mr Tseliso Maqubela Deputy Director General, Mr Lloyd Ganta Acting Chief Operations Officer (COO), Mr Jacob Mbele Acting Deputy Director General, Mr Zizamele Mbambo Deputy Director General and Ms Camagwini Ntshinga Acting Chief Financial Officer (CFO).

Mr Ganta kicked off the briefing by providing insight into the contents of the Annual Performance Plan 2017/18.

Programme 1: Administration
Mr Lloyd Ganta Acting Chief Operations Officer (COO), DoE, explained that the purpose of the Programme was to provide strategic leadership, management and support services to the DoE. On sound corporate governance practices, the 2017/18 annual target was to have an MPAT score of at least 2.8. On sound financial resource management, the 2017/18 annual target was to have 100% approved invoices paid within 30 days of receipt. On sound corporate resource management, the 2017 annual target was to keep the DoE’s vacancy rate below 10%. 

Programme 2: Energy Policy and Planning
The purpose of the Programme was to ensure evidence-based planning, policy setting and investment decisions in the energy sector to improve energy security through supply and demand side options and to increase competition through regulation. On improved energy security the annual target 2017/18 was to have the Annual Energy Balance 2015 to be published by March 2018. On improving liquid fuels energy security, the idea was to have a cabinet memo on the need for a new oil refinery. The annual target 2017/18 was to finalise the decision on the need for new oil refinery capacity and to finalise the recommendation on Clean Fuels 2.

Programme 3: Petroleum and Petroleum Products Regulation
The purpose of the Programme was to regulate the petroleum and petroleum products industry to ensure optimum and orderly functioning of the petroleum industry to achieve government’s development goals. On compliance, monitoring and enforcement in the petroleum sector the annual target 2017/18 was to have 1500 retail site compliance inspections conducted and to have 1080 fuel samples tested. With the idea of promoting petroleum licensing the DoE had an annual target 2017/18 to ensure that 50% of licence applications that were approved had 50% Black Economic Empowerment (BEE) ownership.

Programme 4: Electrification and Energy Programme and Project Management
The purpose of the Programme was to manage, coordinate and monitor programmes and projects focussed on access to energy. On access to electricity by households the annual target 2017/18 was to have four quarterly reports on additional households to be electrified with grid electrification towards the 2017/18 target of 235 000 in the National Electrification Plan. Also to have four quarterly reports on building/upgrading of electrification infrastructure projects toward the 2017/18 targets as contracted with Eskom and municipalities.

Programme 5: Nuclear Energy
The purpose of the Programme was to manage, coordinate and monitor programmes and projects focussed on access to energy. On improving security of energy supply the DoE would ensure that the Amended National Nuclear Disaster Management Plan and the Nuclear Build Programme Governance Framework would be approved. The DoE would also ensure that the Inter-Governmental Implementation Protocol for the Nuclear Build Programme would be approved.

Programme 6: Clean Energy
The purpose of the Programme was to manage and facilitate the development and implementation of clean and renewable energy initiatives, as well as Energy Efficient and Demand Side Management (EEDSM) initiatives. On renewable energy the annual target 2017/18 was to update the Renewable Energy Implementation Report, to finalise the Biomass/Biogas to Energy Strategy and Plan, also to ensure that there was a functional Renewable Energy Data Information System (REDIS) as well as to conclude the Solar Energy Technology Roadmap (SETRM) included in the Integrated Energy Plan.

Ms Camagwini Ntshinga, Acting Chief Financial Officer (CFO), elaborated on the financial information.  For 2017/18, the allocated budget was R8.1bn. On the compensation of employees the budgeted amount was R318m. The actual wage bill sat at R338m which meant there was a shortfall of R20.6m. The amount of R20.6m would be an over-expenditure which would ultimately be classified as unauthorised expenditure. A total of 93% of the DoE’s budget went towards transfer payments. In 2017/18 there was a 7.5% increase in the budget allocated towards transfer payments.

Discussion
Mr S Mthimunye (ANC, Mpumalanga) asked how the DoE dealt with Eskom when it fell under the responsibility of the Department of Public Enterprises. He pointed out that it seemed as if the DoE was carrying on with business as usual even though it had not met its 2014 target of having universal access to electricity by all households. What did the DoE have to say on the matter?

Mr Mthimunye stated that he needed to understand the Grand Inga Project in detail and would appreciate a separate report from the DoE on it. The briefing had mentioned IPPs but he felt that they were not transformed. How was radical economic transformation to take place in relation to IPPs? Minister Kubayi had in her opening address spoken about the court judgement on the issue of nuclear. He asked whether the court judgement had put the DoE’s nuclear programme on ice, pointing out that the briefing still mentioned programmes on nuclear.

Minister Kubayi responded that Eskom was the DoE’s implementing agent. The DoE and the Department of Public Enterprises tried to work together on Eskom. Efforts were being made to improve on how state entities could work better. There was concern about the target of universal access to electricity not being met.

Minister Kubayi said the DoE would provide the Committee with a comprehensive document which explained the Grand Inga Programme.  On IPPs, she agreed that transformation could not be compromised. The IPP was a critical programme. It was a concern that sustainable jobs were not being created. Companies were not meeting the transformation agenda. Perhaps there was a need to ring-fence funds for SA’s Small Medium and Micro Enterprises (SMMEs) in order to ensure that transformation would take place. There should be such guarantee by government. This was the approach of the DoE on IPPs. On transformation the discussion should be about ownership. She conceded that the DoE had to revise its work on the Nuclear Build Programme. The information on the nuclear programme in the APP was preparatory work. The DoE had to do preliminary work. 

Deputy Minister Majola stated that the DoE was doing its best on the Integrated Resource Plan (IRP) and the Integrated Energy Plan (IEP) to correct past mistakes. The idea was to look ahead. There had been issues with the Kusile and Medupi Power Stations. The Grand Inga Project was also a long term project. It was a good idea to present the process on the Grand Inga Project to the Committee. SA had signed a treaty with the Democratic Republic of Congo (DRC). There were bilateral agreements between SA and the DRC. The Grand Inga Project had seven phases with the first being the most critical. It was technically challenging and very costly. It was a key project to develop and sustain the Southern Africa power pool. The treaty outlined all the stages. SA was an off-taker and a key partner. The idea was for the power that was generated not to be more expensive than what costs in SA currently were. If the Project took off there would be a transformative impact. The DRC had legislation on the Grand Inga Project that was currently before its Parliament. At Southern African Development Community (SADC) level, SA had introduced a Memorandum of Understanding (MOU). The issue of transmission lines through the DRC, Zambia, Zimbabwe, and Botswana was currently being dealt with. 

Mr Jacob Mbele, Acting Deputy Director General, DoE, explained that targets set on universal access of electricity were determined by cost per connection. Sometimes capacity was lacking in infrastructure. The DoE depended on municipalities to execute projects. Municipalities sometimes lacked capacity. Discussions were ongoing but limited budgets were by far the biggest constraint.
 
Mr Thabane Zulu, Director-General, DoE, stated that National Treasury had to put mechanisms in place to monitor transfers that the DoE made.

The Acting Chairperson said that the Committee had on oversight realised that the issue of women owners of petroleum retail sites in the sector needed to be looked at. There was a need to address the issue.

Minister Kubayi agreed that transformation in the petroleum sector was needed.

Mr Tseliso Maqubela, Deputy Director General, DoE, said that the target for participation of women at retail space was set by the Minister. In reality the figure sat at 10%. The intention was to double the figure by 2020. Participation by black Africans sat at 15%. All the major petroleum companies had Black Economic Empowerment (BEE) partners and the figure sat at 25%. There was a need to see transformation at retail level. He added that there were land issues attached to service stations. The land owners could dictate to the petroleum company to whom they should give the service station to. Petroleum companies had approached the DoE about the issue. 

Mr W Faber (DA, Northern Cape) said that in her opening remarks the Minister had spoken to the issue of the solid oil stock that had been moved. He recalled that in a previous meeting, the former Minister had denied that the stock had been sold. The former Minister had told members that the oil stock had been rotated. He asked who was to be held accountable for the matter. He felt that the Committee had been lied to. He added that the oil stock had been sold at ridiculously low prices. Who was supposed to have kept watch over the oil stock? On renewable energy sources, he stated that there were cheaper options than nuclear. The Integrated Resource Plan (IRP) had made it clear that there were alternatives and that nuclear power would perhaps only be needed after 2038. What was the rush to get nuclear? He noted that SA could not afford nuclear as it had a junk status credit rating. He asked Minister Kubayi to comment.

Minister Kubayi responded that she did not think that anybody had lied. The report that had come out after the investigation into the oil stock issue had to be read by the Committee. Everyone was under the belief that the oil stock had been rotated. The report had been compiled at the request of ex-Minister. It was best to deal with the content of the report. The report outlined the investigation into the oil stock rotation matter. She agreed that there needed to be accountability. There also had to be consequence management. Checks and balances needed to be put in place. The report would speak to what had happened. The report did not however speak to what action needed to be taken. The Director General would take the requisite steps on what needed to be done. On nuclear, the DoE looked at projections for instance on what costs might run into. SA was just above junk status. SA was at sub investment level. All South Africans no matter their political affiliations should put the country first. People needed to say and do what was in the interests of SA. Information was key to knowing what was happening. Public hearings on the nuclear issue would take place. The idea was to be open about engagement. The DoE was open to criticism as well. The IRP was a document of the DoE. Consultations were taking place. The DoE would come back to the Committee to speak on what projections were. It all depended upon what came out of consultations.

The Acting Chairperson, on the issue of whether ex-Minister Joemat-Pettersson had lied to the Committee about the oil stock, asked Mr Faber to provide the Committee with the date of the meeting in which she had apparently made the statement.

Mr L Magwebu (DA, Eastern Cape) said that he wished to touch on the issues of good governance and sound financial management. Minister Kubayi had conceded that there were challenges with PetroSA but that there were investigations that were underway. Minister Kubayi had given assurances that there would be consequences. He was a bit wary because in SA investigations by government tend to take long. He consequently asked when had the investigations been initiated and when they would end. On the issue of the sale of crude oil by the SFF which had in the end not been a rotation after all, he asked Minister Kubayi to elaborate on processes that had been started to correct the sale. When would the process be finalised? He also asked the DoE to elaborate on how it intended to pay its suppliers within 30 days as was required. How many of DoE’s invoices had not been paid within 30 days and what was the monetary value of such invoices. How much did the DoE owe its service providers?

Minister Kubayi clarified that at PetroSA the DoE had no investigation. The investigation had taken place at the SFF. The SFF was engaging with the Board of PetroSA on a regular basis as there were many issues that had to be dealt with at PetroSA. PetroSA had many people in acting positions and there were many vacancies. The major issue was that there were huge financial losses. One of the financial losses was the failure of the Ikhwezi Project. There had to be consequences for what had happened. She had given a directive to the SFF to deal with the issues at Eskom. She pointed out that the DoE did its best to improve on the payment of its service providers within 30 days. Exact figures could be provided to the Committee. Everything that was contained in the APP had to be accounted for. 

Mr Zulu explained that in 2016/17 the DoE managed to pay 99.9% of its invoices within 30 days. It was something that government monitored. The DoE would provide specifics to the Committee. The DoE committed itself to pay invoices within 30 days. It aspired to reach the 100% mark.

The Acting Chairperson said that statistics could always be forwarded to the Committee if the information was not at hand. The Committee did not wish to be given guesstimates. He stated that the Committee had just returned from oversight and had visited the Kusile Power Plant. The Committee had made recommendations pertaining to the Plant. On transfers and financial accountability he said that members had attended a meeting with the Office of the Auditor General. One of the suggestions made by members was that a meeting should be held with municipalities that were defaulting on their payments to Eskom. Municipalities struggled to generate enough revenue to pay Eskom. Mechanisms needed to be put in place to allow for monitoring. He added that a session was needed with the DoE to speak about the issue of transformation in the petroleum industry. The issue of the Grand Inga Project also had to be covered. The DoE in addition needed to provide the Committee with information around the concerns on whether there was a rotation of oil stock or in fact there was the sale there of.

Committee Minutes
Minutes dated 21 February 2017 was adopted unamended. Minutes dated 14 March 2017 was adopted as amended.

Second Term Committee Programme
The Committee adopted its Second Term Committee Programme unamended. 

The meeting was adjourned