Minister of Energy on government’s plans in energy sector Day 2; with Deputy Minister present

Energy

22 November 2017
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Portfolio Committee on Energy continued its consideration of the government’s plans for the energy sector, with the Minister of Energy having to face tough questioning on the sale of the country’s strategic oil stocks and his involvement in PetroSA’s large oil and gas deal with the Russian exploration company, Rosgeo.

The Minister said the Department of Energy (DoE) needed a firm policy position on the combination of independent and public power producers and what percentage share each one had. The repositioning of the Central Energy Fund was important in the light of State Owned Enterprise (SOE) reform. The immediate issue was to stabilise governance and leadership by appointing permanent board members and including a mixture of skills. He asked how the Department could minimise the losses from the sale of the oil reserves and ensure security of supply. The longer a decision was not made, the more prices of crude oil increased, meaning that the government and people of South Africa would lose money.

Members asked about the delay in restructuring the Central Energy Fund, a process which had started in 2013. They said the balance sheet of PetroSA posed challenges, and questioned if it had a future and whether it was sustainable. They expressed interest in the Rosgeo contract, and asked about the strategic importance of the contract itself, and its intentions. They wanted to know when the high number of acting boards at the DoE’s entities would be made permanent, saying that the boards could not operate properly with the constant threat of being removed. They also asked who owned the oil that was in the Strategic Fuel Fund (SFF), whether it was in the tanks, whether it would stay there and if there was a plan to replace the fuel stocks. There had been an indication that the next budget would include the recapitalisation of the strategic fuel stock.

The Chairperson said the Minister had stated the Department would finalise the Integrated Resource Plan (IRP) at the end of the month, and the Committee wanted to see what it would say. The IRP would come back to the Committee for further engagement once the Cabinet had completed its processes. The question of the nuclear new build programme would be answered by the IRP. The Committee must return to the discussion about public hearings into nuclear. Energy costs would be a difficult discussion. It was clear the Committee would have to do something about energy costs, especially the price of electricity and its impact on households and the cost of doing business.

Meeting report

Minister’s introduction

Mr David Mahlobo, Minister of Energy, said that the main strategic issues had been dealt with in the previous meeting. However, there remained two fundamental issues -- the state’s capacity to plan, implement and do oversight, as well as the issue of independent power producers in relation to public power producers.

The Department should have a firm policy position on the combination of independent and public power producers and what percentage share each one had. The repositioning of the Central Energy Fund was important in the light of State Owned Enterprise (SOE) reform. The immediate issue was to stabilise governance and leadership by appointing permanent board members and including a mixture of skills. The Department was looking at timelines for vacancies to be filled.

Mr Mahlobo addressed the issue of stability in administration, noting that the prominence of ‘acting’ positions created an element of uncertainty. He asked how the Department looked in terms of transformation and gender representation, noting that over the last 23 years many high calibre women had been produced who must be given opportunities. It needed to appraise how best to handle the secondment of the Acting Director-General, and that it could not be looked at outside of the stabilisation of administration.

He continued by discussing oil reserves and crude oil security. It was a matter of record there had been a process where more than 10 million barrels of crude oil had been taken out of the state, and the Department and Committee must be guided on whether the process had followed the law. An investigation should have been completed last year, but the investigation had been flawed, with the process not being followed and some people not being spoken to. The service provider had claimed a conflict of interest, which had thrown the investigation out. He asked what the Committee should do. The investigation had a legal and financial component, and the report had been done by KPMG. He questioned the credibility and integrity of KPMG, stating that a reliance audit should have been done.

He asked how the Department could minimise the losses from the sale of the oil reserves and ensure security of supply. The longer a decision was not made, the more prices of crude oil increased, meaning that the government and people of South Africa would lose money. He concluded by reiterating the need to stabilise administration through permanent appointees.

Discussion

The Chairperson thanked the Minister and asked Members of the Committee for questions. He said that according to the budgetary review and recommendations report (BRRR), the Department was meant to return to discuss ‘electricity and the state,’ which had not been discussed. The Committee must return to discuss the structure of the electricity industry in the future, as this would resolve many of the questions around implementation. He asked about the hiving off of African Exploration, saying that the Committee had been told it would be finalised by the end of the financial year, and what the implications of the hiving off would be.

Mr S Mbuyane (ANC) asked the Minister when he would come back and make up his mind about the Central Energy Fund (CEF) report. The Minister had indicated that there were challenges around restructuring, and he requested a timeline for the resolution of those challenges.

Mr G Davis (DA) commented that restructuring of the CEF had started in 2013, and asked why it had taken so long. Previous Minister Kubayi had mentioned a company being appointed to deal with the restructuring. He asked if a company had been appointed, what the name of the company was, and what the terms of reference were. He mentioned the ROSGEO gas agreement story in the Sunday Times, stating that the Minister had an opportunity to make a statement on record to deal with the rumours around the deal. He asked if Kenny Kunene and Gayton Mackenzie had accompanied him on a trip to Russia, whether he had introduced them to the CEO of ROSGEO, and if they had had any role in this deal.

Mr Davis addressed the strategic oil reserves, saying that he understood the Minister’s position and the difficulty he faced with the flawed report, but asked whether this had been reported to law enforcement agencies and why the matter was being left to a private company. The previous Minister, Tina Joemat-Peterson, had initially said that the sale had not taken place, but Minister Kubayi had said that it did. Taking into account that the Deputy-Minister at the time was still in the position, he asked her if there had been a sale, if she knew about it, what she knew and what she had done to try and stop it.

Minister’s response

Mr Mahlobo said that he had been briefed on African Exploration, and that the intention was to take the asset to the Department of Minerals, although that decision had not been implemented. The implications were going to be very big for the work done by the energy sector and the Department’s own entities. The Department had an asset which could be utilised to secure investment, but it not being available created issues.

Regarding the energy mix, he said that the issue was bigger than the mix. He asked if the Department could say with certainty what its resource endowment was, noting that the Ministry of Mineral Resources (DMR) was the custodian of the people in terms of mineral endowments. He asked whether South Africa could say how much coal it had, and if it burned the coal at the rate it did, how long the coal would be there. That same question had to be asked of uranium and other minerals, including African Exploration. He asked what the country’s capacity to generate knowledge and undertake research and development was, noting that at the African Oil Week, many of the presenters were not African. This was something that needed to be addressed.

Mr Mahlobo said he would have to apply his mind to Mr Mbuyane’s question, as he was dealing only with immediate issues such as stabilising governance. He had not been appraised on whether there was a company or not, but the Committee would discuss the entities in the first quarter of 2018.

Regarding the questions about ROSGEO, he said he would not respond to stories he had not read, and that he would hate coming to a meeting to discuss media articles, since he had responded in the media. He knew the right approvals had been given by the relevant authorities, and stated on record that he had been to Russia and all over the world. Russian people were very serious about government, and if people planted stories, let them finish them. The Department must account on plans and processes. not articles. The report said the right decisions were made.

Addressing the oil reserves question, he said that there were challenges. The company that was doing the work had not done a good job. It had submitted a report with a five-page disclaimer, which was abnormal. The company should be brought to book, because it was governed by certain legislation. The Department had instructed the CEF board to get people to conclude the work. If the finished report said that here had been criminality or corruption, the Department would refer to it, but a private company could not decide. Reports should be used to enforce discipline, but legal issues should be solved by law enforcement. He did not speculate and was more evidence-based, and he could not report what the previous ministers had said. If there was an issue, it must be investigated and action must be taken.

Mr Mahlobo felt that the question about whether the Deputy Minister knew about the sale of the oil reserves was unfair, saying that it was about the organisation, not the individual. He asked Members not to try and break the team. She would respond, but cautioned Members against trying to plant a cat among the pigeons. The Department’s position was that an investigation must be concluded, then action must be taken. The decision on the stock must be made based on energy security and supply.

Follow-up discussion

The Chairperson asked the Committee to find agreement when it posed follow-up questions. By the end of the first quarter of 2018, the Committee should return to a discussion on the CEF and its subsidiaries for a more complete discussion. Addressing the restructuring of CEF, he said that everyone agreed that some restructuring must happen, and asked if this restructuring could be concluded so that there was certainty.

He asked the Minister to provide the Committee with something more concrete on the work being done to change PetroSA. He felt that the balance sheet of PetroSA posed challenges, asking if it had a future and whether it was sustainable. He suggested that Members make the time to see the workers at PetroSA, commenting that the workers were very professional, with very good ideas. He expressed interest in the Rosgeo contract, and asked about the strategic importance of the contract itself, and its intentions. He said that, on behalf of the Committee, it thought African Exploration was a bad idea, based on the discussions the Committee had had.  

Mr Davis again asked the Minister if he had travelled to Russia with Gayton Mackenzie and Kenny Kunene to meet the CEO of ROSGEO, stating that if he did not clear the air, the rumours would persist. He said that he had asked the Deputy Minister about the sale of the oil reserves, and the Minister was not there to speak or cover up for her. This was not the portfolio of cover ups.

Mr Mahlobo raised a point of order, saying that using the term ‘cover up’ cast aspersions on another member, and asked Mr Davis to withdraw and apologise.

The Chairperson asked Members and the Minister not to disrupt the meeting, because the Committee had an agenda to complete. He asked Mr Davis not to cast aspersions on other members and to take care of the language he used. Members must be as robust as possible when asking questions without casting aspersions, and must follow up if not satisfied with answers.

Mr Mahlobo asked Mr Davis to accept the point of order.

Mr Davis replied that he did not say there was a cover up, but rather that this was not the portfolio of cover ups.

Mr Matlala (ANC) said that Mr Davis must withdraw and apologise, and that if the Chairperson did not rule on it he would be allowing Mr Davis to continue insulting the Deputy Minister, the Minister and the former Minister.

Mr Mahlobo said that Members could not get into rule 87 when the Chairperson was present to make a determination. He cautioned Mr Davis that if he became personal outside the rules it would make engagement difficult.

The Chairperson asked Mr Matlala not to force him on to difficult terrain, and not to turn the Committee into the National Assembly with a rule book etc, because this would cause disruptions. He asked Mr Davis not to do what he had done, adding that he had not asked him to withdraw his comment in the hope that he would not repeat it. He asked Mr Davis to withdraw the comment about cover ups and not to cast aspersions, saying that this was the first time he had encountered this in the Committee.

Mr Davis commented that it was the first time in the Committee that a minister had evoked the rules of the National Assembly, but that he would withdraw the comment in the interests of peace and getting answers. He said that he was looking forward to the Deputy Minister’s answer.

Dr B Nzimande (ANC) said he wanted to pick up on a point the Minister had emphasised. When the Committee had met the South African National Energy Development Institute (SANEDI), he had realised the work it did was important, but its research work was pedestrian. SANEDI was doing well considering the resources available to them, which he described as a pittance. He felt that if the Committee was identifying work that needed to be done, this was one of them. It reflected a broader problem in South Africa, with the percentage of gross domestic product (GDP) spent on research and innovation being described as shameful. The Department should prioritise research and innovation. He mentioned the example of Sasol, which used to be the single largest employer of PhD graduates. It had been privatised and listed in London and New York, and had embarked on the single largest investment in the US economy, taking South Africa’s PhD graduates along with it. He said that South Africa had been weakened by Sasol being privatised, and asked if the Department was investing in the critical areas of energy, such as assisting professors to support the Department.

Dr Nzimande asked what kind of research was happening within the entities, and whether it was sponsored or supported by other entities. He asked how the government could mobilise resources for crucial research in the public and private sectors, and whether the government was weak at planning because of this. He asked if the Department could plan for energy if research was not done, and suggested that this be taken seriously. When he was a backbencher between 1994 and 1999, Parliamentarians had complained of very little research support, and some MPs had not engaged because they were not informed. There had been some improvement, but not much change, and the state needed to be strengthened in this area.

The Chairperson said that Sasol had the largest concentration of PhDs in one company in the southern hemisphere. Research support for Parliament had to be taken up in other meetings. With insufficient technical capacity, it was hard to carry out oversight on entities and the executive.

Mr G Mackay (DA) commented on the changing membership in the Committee and high turnover since he had started. He felt that the robust engagement with the executive in the Committee was a strength, and had always been well regulated by the Chairperson. The previous minister had always engaged robustly with the Committee and he felt it was not useful when the executive came to the Committee and invoked all sorts of rules. It did not instil confidence in the Parliamentary process when the executive hid behind rules. He pointed out that of the 55 questions submitted to the Department of Energy by the DA on nuclear, fewer than half had been answered, and that when Mr Davis had talked about potential cover ups, it had not been without basis.

Mr Mahlobo raised a point of information, saying that Mr Mackay was on the same road and the Committee had made a ruling. He was not scared of a proper discussion if Mr Mackay wanted to ask a question.

Mr Mackay stressed that he had used the word ‘potential’ -- that there was the potential for the perception of a coverup. He was aware the PetroSA-Rosgeo agreement had been signed, and asked whether the Minister had been present at the signing of the agreement, whether it was a framework agreement, or whether it bound the state

Mr Matlala said that these were questions Mr Mackay had raised before leaving the previous day’s meeting. He asked the Chairperson to rule on that, stating that rules of the National Assembly did apply to the Committee’s meetings, and suggested throwing him out of the meeting.

The Chairperson said that Mr Mackay had asked to be excused and had requested clarity on a question which he had repeated, to be sure that the Minister responded.

Mr Matlala said that Mr Mackay had asked about the Russia meeting the previous day.

The Chairperson asked the Committee to be careful. He remembered the question, but Mr Mackay was asking about the Rosgeo contract, which was a different question.

Mr Mackay said Mr Matlala should be ruled out for a silly, incoherent point of order.

The Chairperson said that he did not need to apologise -- he had been incorrect.  He asked Mr Mackay to focus on the question.

Mr Mackay, addressing the Rosgeo-PetroSA agreement, asked whether it was a framework/cooperation agreement in which negotiations would continue, or a binding agreement with a liability on the state in terms of contingent liability. He had read a report which had been circulated by the board of PetroSA, and reminded Members of the Committee that he was protected under the Rules and Privileges Act to read the report. He said that if it was a signed agreement, it was unaffordable, with PetroSA being a contingent liability.

The report stated:

The above table clearly shows the disparity between ROSGEO’s expectations of a reasonable gas price compared to what PETROSA was able to afford for new gas. It was also evident that the ROSGEO gas price formula was totally oil price dependant, and does not take into account the gas to liquid operating model or the rand-dollar exchange rate. The last observation with respect to ROSGEO’s gas price formula was that it yields a single gas price per energy unit to PetroSA at higher delivery rates (ie. the 3 times 3 operating model) at a 90 dollar oil price or higher.

PetroSA had explained that the gas price had to be in the company’s affordability range or else it would erode value for PetroSA. He asked how the Department had signed a deal which would bankrupt PetroSA and how it was going to negotiate a new gas price. He warned that if PetroSA went, the CEF would go as well. He asked the Minister to clarify the situation to the Committee, stating that PetroSA would not survive if it was paying too much for gas.

Mr Mackay asked when the high number of acting boards would be made permanent, saying that the boards could not operate properly with the constant threat of being removed. He also asked who owned the oil that was in the Strategic Fuel Fund, and whether it was in the tanks, whether it would stay there and if there was a plan to replace the fuel stocks. There had been an indication that the next budget would include the recapitalisation of the strategic fuel stock.

Dr B. Ndzimande asked which document Mackay was quoting.

Mr Mackay responded that it was a document called “New Ventures Upstream: A progress update on Block 9 and 11A.”

Mr Mahlobo stated that Mr Mackay was giving an abridged version of the introduction and asked Members to check the records.

Mr Mackay responded that the Minister was misleading the Committee by saying he had the document from the Strategic Fuel Fund, but that was not what he said. In terms of the Rules and Privileges Act, he did not have to disclose how he got the document.

The Chairperson asked Members to ask questions and stop being personal.

Ms Z Faku (ANC) said she had also heard it was the meeting of the board.

Mr Mackay asked which board Ms Faku was referring to.

Ms Faku asked why Mr Mackay had said he was ‘protected’ by the privileges of Parliament, and challenged him to say what he owned and where he got the information.

The Chairperson said that the Committee had the recording and would check it.

Ms Thembi Majola, Deputy Minister of Energy, said it was unfortunate when the Portfolio Committee became a terrain for cheap politics. The Committee had had discussions around the sale or rotation of the SFF, and when it had happened she had been absent from the Committee, not at work for a month and a half. She said that there was a narrative the DA wanted to project. She clarified the issue of executive authority, stating that when the minister made a determination, it was made, and that she did not sign off on anything. Her discussions with the Minister were not for this Committee.

She expressed concern that there was a trend in the Committee for Members to bring pieces of information to push a narrative, instead of developing the energy sector. State entities were meant to compete, and she questioned how far the discussion should go in a public and open forum. She was concerned that ‘naked’ transparency was making state entities unable to compete with private sector entities which did not have their records available to the public, describing it as “unpatriotic.”

The Chairperson expressed concern that the meeting was going backwards and forwards. The Committee had discussed the SFF, and he asked if the Department was finding finality on the issues. The Committee wanted to make progress, and it was not helpful to degenerate into this kind of discussion. He asked Dr Nzimande what he heard.

Dr Nzimande said that he was confused by Mr Mackay saying he was protected by privilege. He asked about the quote, because it sounded like an analysis rather than a fact, and he was not sure if it was from the media or a minute from somewhere. He also asked where it was from, because he had not heard Mr Mackay properly.

Minister’s response

Mr Mahlobo thanked the Chairperson for assisting, and said there was no question the Department would not answer. He stressed that energy was a national matter, and asked Members to throw away politics and concentrate on the matters which affected millions of people. He had answered some of the questions in the morning, when he had done a recap.

The Minister asked Members to circulate the documents so the Committee could engage with them, saying that he could not answer about a document which had not been circulated. He asked for the source of the document, and reiterated that the Committee should get a copy of it.

Responding to the allegation of not answering over half of the DA’s 55 questions, he said that if there were unanswered questions, the Department would respond since it was an obligation. He was unaware of unanswered questions, saying that a report on unanswered questions had found nine by the DoE. Clear instructions were given to the DG for the Department to respond to questions. He did not want to create the impression of an executive which did not account.

Regarding the question of acting boards, he said he was stabilising governance and leadership.

He said that a framework agreement with Rosgeo had been signed on the sidelines of the BRICS summit, and that the final contract would be concluded by the end of the year, subject to section 54 and section 11 approvals.

He responded to the questions on the state-owned entities by stating that the SOEs were not where they were meant to be. The Department had to present a corporate plan to hold them accountable, and that this plan would be finalised and presented to the Committee, along with a restructuring roadmap.

Mr Mahlobo asked whether South Africa could have its sovereignty without cutting edge skills. The country had lost capacity when it lost Sasol, but it would have to find a way to adapt. Bright people were a national asset the country could not afford to lose. If the country did know where those people were, they could become a national security risk. He gave the example of Hitler losing good scientists. He asked where the apartheid era scientists were, and whether they would be prepared to come home.

Mr Mahlobo stressed that SANEDI must become a ‘real’ institute—one that was exciting and could help build energy security and knowledge systems. He agreed that research was important, and that it made Members more knowledgeable. He noted a business bias in news, and asked whether the researchers could help without influencing.

The Minister concluded by stating that he had responded to the questions about the SFF and oil stocks, and unfortunately Mr Mackay had come late, but he would be happy to assist him over a cup of coffee.

The Chairperson asked about the secondary interdict

Mr Mahlobo said that the fuel stock was in the government’s storage facility, though that did not mean it was government stock. He said that if Mr Mackay knew the details of the secondary interdict then he could respond, but the Department had not instituted one themselves. He asked for the court name, reference number, applicants and defendants, and stated on record that no entity reporting to him had sought an interdict.

Mr Mackay thanked the Minister for pursuing the questions, saying that an MP’s job was to ask questions. He asked if there was an intention to issue a secondary interdict, or whether the government was supporting the lifting of the oil. The Committee did not have all the facts, which was why Members asked for clarity. The possession was not as important as how it would be replaced. By law, there needed to be 20 days of oil coverage, which the state did not have.

The Chairperson said that the questions were not malicious at all, and excused Dr Nzimande from the meeting.

Mr Mahlobo said that he was happy with the manner Mr Mackay had asked the follow-up questions and suggested that in future when he did not have full information to say so, and then the Department would know how to respond. The Department was finalising the investigation into the SFF urgently, and a KPMG reliance audit had been finalised. The CEF had to solve the legal part. If a report needed law enforcement, the CEF would come in. The stock belonged to those who took it, but the money was with the Department. He stressed that the value of the crude oil changed all the time, and asked how much stock the state could buy back and at what cost. The issue was being discussed, and there had to be a replacement of stock. Due to how long it had taken, the state would lose money. He asked how to reduce the negative impact on the country, but did not want to pre-empt the question of the next step. When one negotiated with people, they reserved their rights. He could not disclose details and expose the state, but the negotiations were reaching finality. What had happened had put the state in a bad position, and South Africa would pay in one way or another.

Concluding comments

The Chairperson recapped the key aspects of the meeting. The Minister had said the Department would finalise the Integrated Resource Plan (IRP) at the end of the month, and the Committee wanted to see what it would say. The IRP would come back to the Committee for further engagement once the Cabinet had completed its processes. The question of the nuclear new build programme would be answered by the IRP. The Committee must return to the discussion about public hearings into nuclear. Energy costs would be a difficult discussion. It was clear the Committee would have to do something about energy costs, especially the price of electricity and its impact on households and the cost of doing business. The Committee would have to return to this. He had heard the Department on independent power producers (IPPs), and would hold them to their word. The Committee would deal with the CEF restructuring in the next quarter.

The Chairperson said that there were many questions about the strategic fuel stock, and asked whether the state could comply with the requirements that there should always be a level of strategic fuel stock. It was clear it would come at a loss to the state. He asked that a decision to consider what was more strategic for the state and the public, and said that once a rational decision had been made, the Committee would get a report. The Minister had said it was necessary to build refining capacity, but the DoE had not had a lot of discussion on this. The Committee would come back to this question, along with knowledge and knowledge management.

The Chairperson said he had had a tip-off from the ANC whip that Mr Mackay was leaving the Committee.

Ms Faku wished Mackay the best in his new endeavours on behalf of the ANC.

Mr Mackay thanked the Committee for the opportunity to serve over the last three years, stating that while the Committee did not always agree, there was a strong sense of collegiality. He thanked the Committee for its support and guidance and wished it luck in its work. He said that the portfolio was complicated and if it got things wrong, people would suffer, but he praised the skill sets in the Committee. He hoped Members would remain critical but loyal to the country.

Mr Mahlobo joined other well-wishers, stating that he hoped Mr Mackay would become a champion for nuclear energy in a responsible way.

The Chairperson said that there were meant to be follow up discussions with the inter-ministerial committee on electricity, and the money to address that. He had been told some progress had been made, but that it had not been finalised.

The meeting adjourned. 

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