NERSA &Strategic Fuel Fund 2016/17 Annual Report, with Deputy Minister

NCOP Economic and Business Development

04 October 2017
Chairperson: Mr M Rayi (ANC, Eastern Cape)
Share this page:

Meeting Summary

Annual Reports 2016/17
The Strategic Fuel Fund (SFF) briefed the Committee on its Annual Report 2016/17. The SFF had tank rentals revenue growth of over 400% over the past three years. The SFF also had cash balances in excess of R7bn amidst many State Owned Enterprises (SOEs) being insolvent. In addition the SFF’s female employee component was growing by over 200% over the past three years. However the SFF faced strategic challenges and these included that there was no strategic stock holding since December 2015. Another challenge was that the Department of Energy’s Draft Strategic Stocks Policy was still sitting with cabinet. To make things further difficult the SFF had a seasonal business model given that the crude storage business was crude oil price sensitive. Members were informed that when crude oil prices increased then the revenue of the SFF decreased. On the SFF’s business performance against predetermined objectives, targets on security of supply and on stakeholders were not met. Targets were however met on finance, risk and compliance as well as on governance and transformation. Members were given insight into the SFF’s key audit findings and what corrective measures had been put in place to address them. The SFF also provided clarity on the controversial issue of the sale of 10m barrels of crude oil stock that had taken place.

A great deal of discussion ensued over the controversial sale of the crude oil stock. Members felt that the Committee and parliament had been misled over the issue when the matter had first come to light. The crude stock had been sold and had not been rotated as was initially alleged. The facts were that the crude stock had been sold without anyone being held accountable. Members felt that an internal investigation was needed and asked whether legal action had been taken. Members further felt that the Department was hiding behind litigation processes which meant that information could not be divulged. The Committee seemed to have more questions than answers even though members were supposed to have been enlightened on the matter. The Committee asked for detail on the sale in terms of who bought what and how much. The Committee also asked for a written explanation on why procedures had not been followed. The SFF was asked whether the public’s perception was incorrect that the crude stock was sold at a low price and bought back at a high price. Members observed that the presentation was sparse on information and requested as such. No specifics were provided in relation to targets and no time lines were specified on remedial actions taken. Detail on the SFF’s irregular and fruitless & wasteful expenditure was also requested. Members were concerned about the apparent collapse of corporate governance at the SFF. The SFF was asked whether there was consequence management when there was none compliance with prescripts. Was disciplinary action taken? A further concern was that transformation in the energy/fuel sector was taking place at a snail’s pace. How was fuel prices calculated? A written explanation to the Committee would suffice. Members observed that PetroSA found itself in a dire financial situation yet it paid out bonuses to the tune of millions. Had PetroSA been placed under business rescue?

In addition, the National Energy Regulator of SA (NERSA) briefed the Committee on its Annual Report for 2016/17. NERSA had received a clean audit for its financial performance and performance against predetermined objectives. It was the NERSA’s fourth consecutive clean audit. NERSA had achieved 98% ie 57 of 58 planned annual targets. The NERSA had also maintained a healthy financial management system and maintained a cash flow risk mitigation reserve to bridge the gap between the start of the financial year and the start of levy payments by industries. Key achievements for 2016/17 were that on Electricity Industry Regulation, Piped-Gas Industry Regulation, Petroleum Pipelines Industry Regulation and Transversal Regulatory 100% of targets had been met. Only Organisational Performance sat at 83% which averaged out to the aforementioned 98% performance. For 2017/18 to date vacancies sat at 43 with the staff complement sitting at 203.Staff demographics were 90%-Black, 7%-White, 2%-Coloured and 1%-Indian. Along gender lines 44% of staff were male and 56% female. Even though 98% of targets had been achieved there was under spending. The NERSA was funded by licence fees from the Electricity Industry as well as by levies from the Piped-Gas Industry and the Petroleum Pipelines Industry.

The Committee had through prior correspondence requested the NERSA to shed light on amongst other issues why Eskom resisted connecting independent power producers, what the electricity sector’s structure was and what the effect of electricity tariff increases on the economy was. Members also asked about transformation in the petroleum and piped gas industry. Members were concerned about Eskom’s periodic requests for increases in electricity tariffs. The DA wished the NERSA to send a clear message to Eskom that it should not rely on state bail outs ie electricity tariff increases. Competition in the energy sector was considered to be a possible solution. As long as Eskom had a monopoly there would be no competition. Not all members were convinced that bringing in independent power producers was necessarily a good thing. Yes competition was good but in the South African context affordability was more of a priority. Some members felt that increases in electricity tariffs were more about making money than about affordability. Members were however in agreement that the independent power producer issue was more complex and that further discussion was needed. Concern was raised by members about the failure of Eskom and municipalities to collect tariffs. There was huge unfairness around cross subsidisation since those who were paying were subsidising those who were not. Failure by Eskom and municipalities to collect tariffs did not mean that the burden should be passed on to consumers who paid. Some members on the other hand felt that some people did not pay because they simply could not afford to. The NERSA was asked whether it felt public hearings to be useful. The public perception was that the NERSA did not take the public’s inputs into consideration. Members suggested assisting the NERSA in the legislative and regulatory environment since the Committee regularly dealt with departments which dealt with issues that the NERSA was concerned about.

 

Meeting report

Deputy Minister of Energy, Ms Thembisile Majola, honoured the meeting with her presence. She extended the apologies of Minister of Energy, Ms Mmamoloko Kubayi, for not being able to attend the meeting as she was booked off sick.

The Chairperson said that the Committee had observed that it took long for documents from the Department of Energy and its entities to reach the Committee. The Committee as such did not feel that it was taken seriously by the Department given the late provision of documents and by virtue of representation at meetings. The Committee further observed that at portfolio committee level representation was good and documents were timeously provided. He pointed out that just the previous day the Committee had sent the Department of Transport packing for not being adequately represented at executive and departmental official level at the meeting in question. The point being made was that the documents were only received after 4pm on Monday 2 October 2017. The Committee had asked that documents be provided at least seven days before a meeting.

Deputy Minister Majola apologised for the documentation being late but responded that notice of the meeting had only been received on Thursday 28 September 2017.

The Chairperson was surprised that notice of the meeting had only been sent out on 28 September 2017. He remarked that perhaps an apology was in order for the lateness of the notice.

Briefing by the Strategic Fuel Fund (SFF) on its Annual Report 2016/17
The delegation amongst others comprised of Mr Neville Mompati Chairperson SFF Board, Mr Mojalefa Moagi Acting Group Chief Executive Officer(CEO): Central Energy Fund (CEF), Mr Thabane Zulu (Department of Energy Director General) Acting CEO SFF, Mr Sivuyile Ngqonqwa Chief Financial Officer(CFO) SFF and Ms Marion De Wet General Manager: Corporate Services SFF.

Mr Sivuyile Ngqonqwa, Chief Financial Officer (CFO), explained that the SFF was a subsidiary of the CEF. The SFF did not receive funding from the state but generated its own cash flows. The SFF had tank rentals revenue growth of over 400% over the past three years. The SFF also had cash balances in excess of R7bn amidst many State Owned Enterprises (SOEs) being insolvent. In addition the SFF’s female employee component was growing by over 200% over the past three years.

However the SFF faced strategic challenges and these included that there was no strategic stock holding since December 2015. Another challenge was that the Department of Energy’s Draft Strategic Stocks Policy was still sitting with cabinet. To make things further difficult the SFF had a seasonal business model given that the crude storage business was crude oil price sensitive. Members were informed that when crude oil prices increased then the revenue of the SFF decreased.

On the SFF’s business performance against predetermined objectives, targets on security of supply and stakeholders were not met. Targets were however met on finance, risk and compliance as well as on governance and transformation.

The Committee was also provided with an overview of the SFF’s income statement, balance sheet and cash flow statement as at 31 March 2017. Key audit findings by the Auditor General of SA (AGSA) were that shareholder’s compact had not been signed timeously. The administrative function of signing off of the compact was ignored whilst the focus was on the approval of the corporate plan. A planned management intervention for 2017/18 was that the CEF and SFF Board would be requested to pass a resolution to specifically approve the compact and not only the corporate plan. Another key audit finding was that three quotations had not been obtained in relation to procurement. The issue was around training spend where a deviation had not been requested as per National Treasury Regulation 16A6.4. The management intervention planned for 2017/18 was that all training needs were to be procured by the procurement department. For 2017 irregular expenditure amounted to R619 000. Corrective action had been taken. On fruitless and wasteful expenditure the total for 2017 was R97 000. R94 000 had been recouped and R3000 balance was still outstanding. The SFF Board had approved a Fruitless and Wasteful Expenditure Policy that made it a policy transgression if a line manager did not mete out corrective action in a case where incurrence of these types of expenses were made.

On transformation and black economic empowerment corporate social investment over the past three years the SFF’s workforce profile had changed 243% in favour of female personnel at mostly middle management level positions. The intention was that over time these female employees would grow through the ranks to an executive level. Additionally, dependants of SFF employees who earned below R400 000 per annum received full bursaries. The SFF had a risk management system in place for managing and monitoring strategic risks as well as identifying emerging risks that could threaten the achievement of strategic objectives. Looking ahead some of the plans of the SFF were to move from a no strategic stock holding situation to strategic stock holding of both crude oil and refined products. The SFF was also currently without a permanent CEO a situation that would be rectified in due course.

Mr Mojalefa Moagi Acting Group Chief Executive Officer(CEO): Central Energy Fund (CEF), proceeded to speak to the sale of the 10m barrels of crude oil stock issue as was requested by the Committee . In December of 2015 7m barrels of crude stock had been sold to two traders. In January 2016 3m barrels had been sold to a third trader. At the time the directive was to rotate stock. As stock was sold one also had to buy stock. The latter part of buying stock was not done. Fresh stock had to be bought to refill the storage tanks. The stock sold was still in its storage tanks and had not been moved. A Ministerial instruction received in July 2016 gave the instruction to review all contracts from the present retrospectively till 2014/15. In total there were 52 contracts. The issue was whether contracts had followed compliance processes. A report had been submitted to the CEF Board. What was the financial impact on the CEF and the SFF? In 2017 the auditing firm KPMG was tasked with looking at the financial impact. The KPMG report purely looked at the financials and did not look at the legality of the contracts. The CEF Board had recently briefed the Minister of Energy and the Minister asked that the focus should be on non compliance with respect to the contracts. Another development was that the Minister of Finance had asked that the validity of the report by KPMG be looked at considering recent allegations around KPMG’s activities. Once the process was complete the Committee would be updated.

Discussion
Mr W Faber (DA, Northern Cape) said that for a long time everyone was well aware that there was no need to rotate crude oil. He had even told the then Minister of Energy, Ms Tina Joemat-Pietersen, and her officials that there was no need to rotate crude oil. Officials from the Department of Energy had responded that what he saying about rotation was incorrect. The current Minister of Energy had given him the undertaking that the matter would be looked into. He noted that Minister Kubayi had admitted that the 10m barrels of crude oil had not been rotated but that it had in fact been sold at a low price. He felt that the Committee had been misled. If the Committee was misled then Parliament was misled. He asked what legal action was being taken in relation to the 10m barrel crude oil deal. He also felt that an internal investigation was needed. He maintained that if there was no stock in storage then there was nothing with which to trade. He pointed out that PetroSA paid R17.3m in bonuses to its directors in the last financial year. PetroSA was plagued with issues and he asked whether it had been placed under business rescue.

Mr Ngqonqwa responded that consequence management was present at the SFF. Information would be provided to the Committee. Some of the information was however of a confidential nature. Disciplinary matters could be pending or were being implemented. Contract review actions were also being taken. When reports were finalised then measures would be put in place. Once again there were issues of confidentiality and the SFF by no means would deliberately withhold information from the Committee. Members would be kept informed on processes.

Mr M Chabangu (EFF, Free State) added that PetroSA had made a loss of R14.5bn and was on the brink of collapse. Contractors were awarded contracts without even tendering. He asked what the SFF’s take on these things were. If the shareholders compact was not signed timeously he asked how the SFF’s interventions were assisting.

Mr L Magwebu (DA, Eastern Cape) said that if it was the SFF’s intention to diversify income streams to not only rely on Saldanha the Committee needed timelines when this was to happen. One of the strategic challenges faced by the SFF was that the Draft Strategic Stocks Policy was still in draft form since 2013. A timeline was needed as to when the Draft was to become policy. He felt that not enough was being done by the SFF. On business performance against predetermined objectives, the SFF had not met its targets on security of supply. The Committee needed to be provided with specifics on why targets were not met. What interventions had been put in place? In the same vein, the audit findings had pointed towards administrative errors and that management had put interventions in place to address them. Members had to be provided with greater information on what these interventions were. If prescripts had required three quotes and it was not done what was the consequence. Was the person guilty of misconduct or was criminal proceedings instituted? It was important that supply chain management processes had to be adhered to.

The Chairperson asked whether disciplinary processes had been instituted. He asked that the Committee be provided with a breakdown of the SFF’s irregular expenditure.

Mr Magwebu continued that information on fruitless and wasteful expenditure by the SFF also needed to be provided to the Committee. Members needed to know who the guilty officials were and what the consequences of their actions were. Officials needed to be held accountable. On the review of contracts relating to crude oil there was the legality thereof that was done by lawyers and the firm KPMG had looked at the financials thereof. Were the contracts legally binding? Page 23 stated that the SFF had a risk management system in place to mitigate risks. What were the timelines? The Committee needed greater information.

Mr Ngqonqwa apologised for the presentation being sparse on information. He understood that Members needed greater information. It would assist if the SFF could have greater interaction with the Committee. The SFF would provide whatever documentation the Committee needed. On how stock to be held by the SFF was to be funded he said that the SFF would find a way. There were however competing projects that had to be funded but the SFF would have to stand back and reprioritise projects. He pointed out that the AGSA had picked up irregular expenditure to the tune of R53 000. Irregular and wasteful expenditure were legislated issues. The SFF had imbedded disciplinary processes into the organisation. Fruitless expenditure amounted to R97 000 but R94 000 had been recovered. He emphasised that it was not as if there was no consequence management at the SFF. One of the disciplinary actions taken was that employees were given warnings. The disciplinary action taken depended upon the severity of the offence committed.

Deputy Minister Majola added that the person who had committed the offence was given a warning because there was no personal benefit gained.

The Chairperson asked that the Committee be provided with greater information in writing around irregular and fruitless expenditure. Employees should be aware that National Treasury regulations required of them to obtain three quotations.

Mr Ngqonqwa stated that the issue was about whether there was malicious intent or an honest error. The Committee would be provided with a breakdown of its irregular and fruitless expenditure.

The Chairperson said that corrective measures taken by the SFF should also be included in the information to be provided.

Mr M Khawula (IFF, Kwa-Zulu Natal) referred to the report and pointed out that the SFF on its social responsibility programme provided bursaries to its employees who earned less than R400 000 per annum. What about bursaries to youth whose parents were poor and unemployed. On the controversial issue of the crude oil that was supposedly rotated there were allegations that the crude oil had been sold to traders at low prices but then bought back at higher prices. What were the names of the traders to whom the crude oil was sold?

Mr Ngqonqwa noted that the SFF like many entities had limited resources. Perhaps in the future bursaries could be provided to persons outside of the organisation.

Mr B Nthebe (ANC, North West) asked who gave the directive to rotate the crude oil stock. An investigation had found that the stock had been sold but that the stock was still in storage with the SFF. Did the SFF know who the owners of the stock were? It did not make sense that the SFF had kept the stock in storage when they did not even know who the new owners of it were. He asked that if there was irregular expenditure due to an administrative error how the SFF in terms of its governance can give a green light that all was okay. The SFF Board had to ensure that corporate governance had to exist. If there was an administrative error then there had to be consequence management. He assumed that the SFF had no day to day policy on the running of its business. Crude oil stock had been sold without anyone being held accountable. He felt that the SFF and the Department was hiding behind litigation processes and that information apparently could not be divulged. He asked what the SFF intended to do. The Committee seemed to have more questions than answers even though members were supposed to have been enlightened on the matter.

Mr Ngqonqwa said that the risk matrix of the organisation would be provided to the Committee.

Mr Neville Mompati, Chairperson, SFF Board, on the apparent collapse of corporate governance at the SFF said that management was in place. The team at the SFF was managing governance issues. When lapses in governance occurred then it would be dealt with. The SFF Board was also focused on a number of policy changes. Loopholes were being closed.

Mr Moagi explained that there were three traders involved in the 10m barrels crude oil stock deal. They were Taleveras, Vitol/Vesquin and Venas Trade/ Glencore. On whether it was a rotation versus a sale of stock, the then Minister of Energy said that it was a rotation of stock with conditions. The conditions were firstly that there should be due diligence and secondly that the strategic stock position of SA should not be compromised. At the time officials could only refer to information that was at hand. As the review continued more information came to light. Lawyers had found the deal to be a sale and not a rotation of stock. He said that it was a timing issue. The CEF was well aware of who bought the stock. The stock had not been transferred to the traders who had purchased it. The stock was still sitting in its storage tanks at Saldanha .

The Chairperson asked that the Committee be provided with full information on who the traders were and what amounts of crude stock were sold to each.

Mr Faber asked that a written explanation be provided to the Committee on why procedures had not been followed.

Mr Nthebe stated that the public discourse perception was that the crude oil stock was sold at a low price and bought back at a high price.

Mr Moagi continued that the business model of the SFF was to rent out storage. There was still an additional 35m barrels of crude oil stock. No stock had been bought and the 10m barrels had not yet left its storage tanks.

Mr Nthebe asked whether the public perception was a fallacy.

The Chairperson asked why the Director General of the Department was appointed as the Acting Chief Executive Officer (CEO) of the SFF. He felt it to be a drastic measure.

Mr Mompati stated that Mr Thabane Zulu was brought on board to oversee implementation.

Mr E Makue (ANC, Gauteng) said that in the interest of time he would rather make comments than ask questions. He noted that on oversight the Committee had visited two filling stations i- one in Mpumalanga Province and one in the Free State Province. The Committee had received complaints that transformation was at a snail’s pace in the sector. Members had on oversight to Saldanha tried to get access to storage tanks but were unsuccessful. He had his own suspicions why members were not given access. There was a liquid petroleum gas project at the Saldanha Industrial Development Zone (IDZ) that had great potential. He urged the Department to support the project. At present only the Western Cape was being supplied but the intention was to expand. He pointed out that the Committee had not been informed about oil being produced in Mozambique. He was concerned about the rail corridor in Mpumalanga. Referring to the recent fuel price increase he asked how the fuel price was calculated. A written explanation could be provided to the Committee. The possible oil deal with Iran also had to be monitored.

Mr Ngqonqwa said that on the East Coast the SFF wished to provide a facility for stored product. He conceded that transformation in the energy sector was still a challenge. Capital was one such obstacle limiting access to the industry. At Saldanha there were two LPG projects and the SFF would support and work with them. Mozambique was huge in terms of gas but had limited oil. Regarding fuel price increases he stated SA was not well resourced on crude oil. Crude oil had to be imported. Crude was sold in US dollars and exchange rates affected prices.

Mr Zulu agreed to provide a written response to the Committee on fuel price increases.

Mr Faber stated that if there was no need to have rotated the stock then why it was sold. He asked when the Committee would be informed of the outcome of the investigation. What would the consequences be and who would be blamed?

The Chairperson stated that in the interest of time there would not be a second round of questions. The Committee would rather schedule a follow up meeting with the SFF. Answers to questions not provided should be done in writing and forwarded to the Committee.

Deputy Minister Majola in closing noted that detail about the bonuses at Eskom would also be provided in writing. The policy on strategic stock required a massive investment. The policy needed to be matched with what was needed. On LPG infrastructure at Saldanha, the Department and its entities would provide whatever support that it could. The intention was to build storage capacity inland. On the investigation into the 10m crude oil stock issue she said that the process had just started. The matter had not been dragging for years. The Minister of Finance had also requested that the outcomes provided by KPMG be reviewed for reasons well known to everyone.

The Chairperson said that it was evident that the Committee needed to interact more often with the Department and the SFF.

Briefing by the National Energy Regulator of SA (NERSA) on its Annual Report 2016/17
The delegation comprised of Mr Jacob Modise Chairperson of the NERSA Board and Part Time Regulator Member, Mr Christopher Forlee Chief Executive Officer (CEO)NERSA, Mr Mbulelo Ncetezo Regulator Member: Electricity Regulation NERSA, Mr Willie Strauss Chief Financial Officer NERSA and Ms Zethu Kapika Senior Manager: CEO’s Office NERSA. Mr Modise provided some background on the NERSA. Mr Forlee kicked off the briefing with an overview of the NERSA’s performance. The NERSA had received a clean audit for its financial performance and performance against predetermined objectives. It was NERSA’s fourth consecutive clean audit. NERSA had achieved 98% ie 57 of 58 planned annual targets. The NERSA had also maintained a healthy financial management system and maintained a cash flow risk mitigation reserve to bridge the gap between the start of the financial year and the start of levy payments by industries. Some detail was also provided on corporate governance. Key achievements for 2016/17 were that on Electricity Industry Regulation, Piped-Gas Industry Regulation, Petroleum Pipelines Industry Regulation and Transversal Regulatory 100% of targets had been met. Only Organisational Performance sat at 83% which averaged out to the aforementioned 98% performance. Detail was provided to the Committee on specific achievements. On the human resources side the NERSA had concluded an organisational review in July 2016 and a new organisational structure was approved with a total of 246 positions. The implementation of the new structure commenced with the start of the 2017/18 financial year. For 2017/18 to date vacancies sat at 43 with the staff complement sitting at 203.Staff demographics were 90%-Black, 7%-White, 2%-Coloured and 1%-Indian. Along gender lines 44% of staff were male and 56% female.

Mr Strauss continued with detail into the financial performance of the NERSA. As at 31 March 2017 there was a surplus of R17.4m. Even though 98% of targets had been achieved there was under spending. The NERSA was funded by licence fees from the Electricity Industry as well as by levies from the Piped-Gas Industry and the Petroleum Pipelines Industry.

Report Back to the Committee
Before Members could engage NERSA on the briefing the Committee was provided with insight into issues that the Committee had in writing raised with the NERSA. Mr Ncetezo provided most of the responses with Ms Maseti also assisting. On financial governance, Mr Ncetezo stated that when Eskom applied for tariffs, NERSA ensured that the tariffs would cover costs. Eskom usually forecasted the tariffs. NERSA utilised audited statements in making its decisions.

On Eskom’s resistance to connect independent power producers, he explained that the Minister of Energy assessed the independent power producers. The independent power producers applied to NERSA for licences. There was reluctance by Eskom to connect them. NERSA had undertaken an investigation into the matter. The matter would be finalised. If the NERSA found contraventions of licence regulations then penalties would be imposed upon Eskom.

On the matter of risk exposure to the industry, NERSA did recognise that entities were critical to the industry. NERSA managed entities. If entities performed badly then it could impact upon the economy. NERSA did audit licences in order to ensure compliance.

On the industry structure of electricity, the sector was dominated by Eskom. Distribution was partly done by municipalities. Eskom had a monopoly over transmission systems. Customers did not have a choice on where to source power. There was no competition for Eskom. If independent power producers were to be introduced then Eskom would be both the referee and player. NERSA had to ensure that in such an instance there was no monopoly.

Another issue that the Committee raised was the effect that electricity tariff increases had on the economy. NERSA noted that consumers simply could not afford tariff increases. It did economic impact assessments when tariff increases were being considered. For the indigent NERSA had pro poor regulation. NERSA tried its best to protect the poor. There was free basic electricity.

The final issue that members wished to have clarified was on transformation in the petroleum and piped gas industry. Ms Maseti pointed out that the NERSA’s role was in terms of its mandate. The issue was about how NERSA came in on transformation issues. The mandate of NERSA only articulated policy imperatives. NERSA needed to place licence conditions in place that would promote transformation by making companies more competitive. NERSA needed to question licence applicants how their activities would promote the policy objective. At present it was easiest for blacks to compete at trading level in the petroleum and piped gas industry.

Discussion
Mr Faber pointed out that in 2016 the Gauteng High Court had set aside NERSA’s decision to grant Eskom a 9.6% tariff increase. Eskom had a bonus bill of R4.2bn. There was also irregular expenditure of R3bn. Eskom was currently proposing a tariff increase of 25.3%.He asked that NERSA send a message to Eskom that they should not rely on state bail outs. He felt that competition in the energy sector could save SA. It was something that NERSA needed to consider. As long as Eskom had a monopoly then there would be no competitors. It was unacceptable that Eskom should be given bailouts by way of tariff increases.

Mr Modise, in regards to sending a clear message to Eskom, explained that when NERSA made decisions it was based on regulatory principles. There were methodologies that were followed. NERSA did not punish anyone and did not send messages. The irregular expenditure by Eskom as well as other factors was taken into consideration when decisions were made.

Mr Ncetezo, on the court matter referred to, said that the NERSA had taken the decision on appeal and had won. NERSA had followed its methodologies. On all the issues of purported corruption at Eskom all that NERSA did was to look at the figures. The NERSA disallowed inefficiency and took efficiency seriously.

Mr Magwebu pointed out that it seemed as though the NERSA was funded mainly through levies. However there was an under-recovery of levies to the tune of R12m. There was also R28m in liabilities on performance bonuses. What was the total for performance bonuses for the previous financial year? There was also under expenditure on a whole range of issues. One of the issues was vacancies due to posts not being filled. Another was under expenditure caused by the late implementation of the refurbishment of the NERSA’s offices. What was the issue around under expenditure?

Mr Strauss, on the R19.9m for bonuses. said that R14.5m in bonuses had already been paid to staff. Managers’ bonuses had not yet been finalised. There were 43 vacancies in total. The percentage figure was 17.5%. On the 1 April 2017 the NERSA implemented a new staff structure. Some positions were yet to be filled. The initial refurbishment was only for air-conditioning but it ended up being a full refurbishment.

Mr Khawula said that Eskom and municipalities were collecting tariffs from clients who were complying. What about persons who were receiving services but did not comply? He felt that there was huge unfairness around cross subsidisation. There was a failure by Eskom and municipalities to collect tariffs. They should bear the brunt of their own inabilities. It should not be passed on to the consumer.

Mr Ncetezo said that NERSA had methodologies that guided it. There were benchmarks for municipalities. A different methodology was used. Costs to municipalities were taken into account.

Mr Modise stated that there was no doubt also cross subsidisation from other services like water etc. He pointed out that NERSA did not compensate any licensee that did not collect tariffs.

Mr Makue felt that the Committee could assist the NERSA on the legislative and regulatory environment. The Committee regularly dealt with departments which dealt with issues that NERSA was concerned about. Which mechanism could ensure that the environment in which the NERSA operated was conducive? Unlike Mr Faber he was not too convinced about it being a good thing to bring on board independent power producers. Mr Faber’s argument was that it was good for competition to bring in independent power producers. He on the other hand felt it a priority to provide electricity that was affordable. He did concede that there were complexities around the independent power producer issue and that further discussion was needed. Eskom had its reasons. Why did Eskom prefer to use coal? He was concerned that even though there was a solar energy plant producing electricity in Upington people in the surrounding area were complaining that they were not benefitting. In the Western Cape there were wind energy farms producing electricity yet companies that manufactured the turbines had to retrench staff.

Mr Makue asked NERSA if public hearings were useful. On tariffs that Eskom charged municipalities vis a vis the tariffs that municipalities charged consumers, he asked whether the NERSA also regulated the latter tariffs. He was aware that there were persons who did not pay but it could be that they could not afford to pay. There seemed to be a discrepancy. He pointed out that in the petroleum industry many of the major players offered franchises to distributors.

Mr Modise agreed that greater discussion was needed over the issue of independent power producers.

Ms Maseti noted that public hearings were part of the process of engagement. NERSA was bound by four pieces of legislation. Public hearings were useful as it provided facts that assisted in making decisions. NERSA had to check whether the tariff increases impacted negatively on end users. On petroleum, NERSA could only regulate infrastructure by way of licensing and imposition of tariffs. The NERSA needed to create a conducive environment for competition.

Mr Nthebe, on public hearings, said that the public’s perception was that the NERSA did not take their inputs into consideration. NERSA needed to contribute towards the socio economic emancipation in this space. The increases in electricity tariffs were more about making money than about affordability.
Mr Ncetezo, on NERSA not taking the issue of affordability to consumers of tariff increases into consideration, explained that the entity was guided by legislation. There needed to be a fine balance between competition and affordability in the electricity sector.

Mr Modise stated that in the last three years the NERSA had rejected tariff increase proposals by Eskom. The last tariff increase was only 2%. Public perceptions were taken into account.
Deputy Minister Majola, on public participation, stated that the energy sector was a very technical sector. She felt that this was where members of the Committee could come in to assist members of the public to come on board. The issue was about giving the ordinary person access. Energy needed to be made affordable so that there could be increased activity in the economy. Why was there never a tariff decrease?

Committee Minutes
Minutes dated 12 September 2017 was adopted unamended.

The meeting was adjourned


 

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: