Minister of Energy Mahlobo on Department Performance

Energy

20 February 2018
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Minister of Energy, David Mahlobo, spoke about the performance of the Department for Quarter 2 and 3 (June to December 2017). There have been delays with the finalisation of the renewable energy independent producers contracts for Bid Windows 3.5 and 4. The Minister had signed a Section 34 declaration after consultations with the Ministers of Finance and Public Enterprises. The Integrated Resource Plan has been concluded when it was finally approved by Cabinet in December 2017. The Plan will guide the Department on how use energy and under what conditions and over what time period. Eskom had submitted a tariff application to NERSA. NERSA has since briefed the Minister, Deputy Minister and the President on the outcome of the NERSA application. The Strategic Fuel Stock investigation has not been concluded yet because the international law firm that was appointed declared a conflict of interest. The Pelindaba nuclear plant in Pretoria was closed due to safety matters.

The Department of Energy (DoE) did not achieve their desired unqualified audit for 2016/17 due to misstatements in the annual financial statements and irregular expenditure. The delay in the Integrated Resource Plan approval caused delays in other targets, such as the increase of the generation capacity through cogeneration in line with the updated IRP. Due to internal consultations still needing to be concluded before further stakeholder engagement can take place, the Nuclear Expansion Programme Governance Framework was not achieved. The monitoring and reduction of energy consumption was only achieved during Quarter 3, however in Quarter 2, the request for quotations (RFQ) was advertised numerous times to negative responses from the market. A further delay in data collection meant the Annual Compliance Report on the Third Environmental Management Plan was not approved. The Implementation of the Carbon Offset Administrative System was delayed due to delayed agreements between the World Bank and Treasury.

Members asked for the full report from the South African Nuclear Energy Corporation (NECSA) about the shutdown of the Pelindaba nuclear plant and why four senior staff members were suspended; the Minister suggested that nuclear has remained in the IRP but did DoE consider the CSIR and Eskom research that South Africa should not be investing in new nuclear plants but rather in renewable energy and gas because those are the least costly options; the Eskom tariff application to NERSA; time-frames for the outstanding 27 renewable energy projects; when the Strategic Fuel Stock investigation is expected to be concluded and at what stage is the investigation; whether the Minister agrees with President Ramaphosa that South Africa cannot afford nuclear power, to which Minister Mahlobo replied that at this stage there is no plan for a nuclear deal but he refused to answer whether he agrees with the President that South Africa cannot afford nuclear.
 

Meeting report

The Chairperson said the 2018 Committee Programme would have to be revised to accommodate the joint meetings with the Cooperative Governance and Traditional Affairs Portfolio Committee to find a resolution to the debt owed by municipalities to Eskom. The Minister has indicated that the policy papers are ready for the Committee’s cognisance in 2018, so the programme will have to be revised to accommodate these meetings.  

Minister of Energy Introductory Remarks
David Mahlobo, Minister of Energy, thanked the Committee for their input at the Energy Indaba in December 2017 which was aimed at assisting the industry develop and increase employment. The success of the Energy Indaba can also be attributed to the number of industry stakeholders who took part in the discussions – the industry stakeholders that have been in the industry for years, and those that are new. One of the other issues discussed is the delays in the finalisation of the Renewable Energy Independent Power Producer contracts, especially in the bid windows 3.5 and 4, which is said to contribute more than R53 billion to the industry. After consulting with Eskom, the Minister of Finance and the Minister of Public Enterprises, he can confirm that he has signed a Section 34 determination. One of the concerns raised about the Renewable Energy Independent Power Producers is the price of bid windows 3.5 and 4; the prices of these windows will differ due to technological issues.

The Department has concluded the Integrated Resource Plan (IRP) and it was approved by Cabinet in December 2017. The Department will need to communicate to the public what an IRP is because some think it is a policy. An IRP is a plan that helps guide DoE on how to sustainably use a resource, under what conditions the resource should be used and over what time-period. A matter which DoE has not yet dealt with is the Integrated Energy Plan (IEP) which is a master plan in determining how the energy footprint would look like; taking into consideration the energy resource and current energy balance.  The tariff application by Eskom to NERSA has been concluded. NERSA has briefed Minister Mahlobo, the Deputy Minister and the President on the outcome of the NERSA application. He suggested that the Committee invite NERSA to brief the Committee on the application and what matters were taken into consideration.

The Strategic Fuel Stock investigation has not been concluded yet. An international law firm has been conducting the investigation, however the investigation has not been concluded due to a conflict of interest matter. The Pelindaba nuclear plant in Pretoria has halted its operations because of safety issues.

The Department incurred a number of instances of irregular expenditure in these two quarters and it intends to hold the individuals involved accountable for the mismanagement of funds. Also, all the boards of entities under DoE will be audited. Both he and the Deputy Minister are not satisfied with the structure of the Department Annual Performance Plan (APP) as it does not correctly stipulate what DoE’s future plans are, nor does it indicate the challenges within DoE.

Some of the highlights for DoE for these two quarters were the Integrated Energy Plan (IEP) that was updated based on the public comments; 69 nuclear authorisations were issued, where 61 met the target and 8 did not meet the target of issuance within the planned 6-8 weeks; 406 petroleum licence applications were processed; supplier invoices were paid within the prescribed 30 days; and the Integrated Resource Plan (IRP) was presented to Cabinet and approved.

On the other hand, there were also challenges faced by DoE during these two quarters. Minister Mahlobo said critical vacant positions were not able to be filled owing to the financial constraints; the legal and stakeholder inputs to the nuclear expansion programme are still pending; fuel samples could not be tested due to delays in appointing a service provider; and the feedback mechanism from quarterly reporting on the performance of the two quarters needs improvement.

Discussion
The Chairperson said the matter between NERSA and Eskom is still ongoing. However, Eskom must firstly deal with its financial challenges. He had received a letter from Mr Gavin Davis, DA MP, about the shutdown of the Pelindaba nuclear plant. The Member requested an urgent meeting because the shutdown had led to the loss of money and suspension of staff members. 

Mr G Davis (DA) suggested that the Department present only the targets that were not achieved in order to save time. He asked if the 27 Independent Power Producer (IPP) planned projects will commence in 2018, and what their time-frames are as well plans to mitigate the delay in the renewable energy projects. He asked for clarity on when the IRP will be gazetted for public comment. He argued that if the IRP’s purpose is about managing demand and keeping the proportions the same why has there been a seven-year delay. The Minister has suggested that nuclear has remained in the IRP, however this would seem to contradict the Council for Scientific and Industrial Research (CSIR) and Eskom’s own research, which seem to have the view that South Africa should not be investing in new nuclear builds, but rather invested in new renewables and gas because that is the least costly option. He asked if DoE had considered the CSIR and Eskom research when the IRP was drafted.

He asked if the Minister agrees with President Cyril Ramaphosa that SA cannot afford nuclear. He asked for the full report from South African Nuclear Energy Corporation (NECSA) about the shutdown of the Pelindaba nuclear plant and why four senior staff members were suspended. The Minister said the Strategic Fuel Stock investigation would be concluded in December 2017 but the Committee has not yet received a full report on the outcome. He asked when the investigated is expected to be concluded and at what stage is the investigation.  

Mr J Esterhuizen (IFP) said the public participation on the IRP was not satisfactory.  He did not believe that DoE achieved paying all their service providers within the prescribed 30 days.

Mr Mahlobo replied that the meeting between DoE and Eskom was for getting clarity on when the Independent Power Producer (IPP) power purchase agreements would be signed. Mr Mahlobo said at this stage there is no plan for a nuclear deal. The IRP is about the rebalancing of resource scales. He refuted the claims that DoE did not pay its suppliers within 30 days – all the payments for the Quarter 2 and 3 have been paid as at 30 September 2017. The international law firm conducting the investigation submitted a report with an disclaimer attached. He had questioned the law firm a number of times on why they had not declared that there was a conflict of interest up front. DoE is unable to make the report public because it has a disclaimer. There are legal and ethical matters that DoE has to consider firstly.    

Department of Energy Quarter 2 and 3 performance
Minister Mahlobo presented those targets that were not achieved:

Programme One: An unqualified audit for 2016/17 was not achieved due to misstatements in the Annual Financial Statements (AFS), which also resulted in the understatement of irregular expenditure in the AFS. The Department did not achieve its 10% vacancy rate. Currently, the vacancy rate sits at 15.74% in Quarter 2 because only three DDG posts were filled during the quarter.

Programme Two: The finalisation of the Gas Development Plan and initiating negotiations with Mozambique were not achieved due to the Gas Infrastructure Development and Negotiations being integrated into the Energy Agreement between SA and Mozambique. The increase of the generation capacity through cogeneration in line with the updated IRP was not achieved due to the IRP still being in the process of approval. The increase in the generation capacity projects was also not achieved due to the IRP awaiting approval.

Programme Five: During Quarter 3, the Nuclear Expansion Programme Governance Framework was not achieved due to internal consultation that needed to be concluded before further engagements with external stakeholders and the Framework could not be sent to stakeholders prior to the finalisation of the policy direction on nuclear expansion. DoE will propose a new approach to nuclear expansion taking into account the updated IRP and policy direction. The inter-governmental implementation of the Protocol for Nuclear Build Programme was not approved as planned.

The increase of the generation capacity through cogeneration in line with the updated IRP was not achieved due to the IRP still being in the process of approval. The increase of the generation capacity projects was also not achieved due to the IRP awaiting approval. The Department is still awaiting legal and stakeholder participation. The Amendment Bill was not submitted to the Forum of South African Directors-General (FOSAD) cluster as consultations with affected stakeholders were not completed due for a concurrence on the comments of the draft Bill.

Programme Six
The Solar Energy Technology Roadmap was not included in the IEP. The Deputy Minister has previously requested a presentation on the Roadmap. This has been prepared and submitted to the Office of the DDG for consideration. Once the approval is granted by the Minister, public engagements would then follow for comments. The monitoring and reduction of energy consumption in government buildings was only achieved during the Quarter 3. During Quarter 2 the RFQ was advertised numerous times to negative response from the market. When it was advertised in the Government Bulletin five proposals were received. The delays in data collection meant the Annual Compliance Report on the Third Environmental Management Plan was not approved. In Quarter 3, the implementation of the Carbon Offset Administrative System to support the Carbon Tax Policy programme was delayed because agreements between the World Bank and National Treasury took longer to the finalised.   

Discussion

Mr Esterhuizen asked if stakeholders were given enough time to submit comments on the IRP. He repeated that the claim of 100% of invoice payments made on time is not true. There are a number of small businesses that have shut down because Eskom has not paid them on time.

Ms Thembi Majola, Deputy Minister of Energy, replied that Eskom is not accountable to DoE. Eskom falls under the Department of Public Enterprises.

Mr Mahlobo added that the Auditor-General (AG) audits their finances and checks whether suppliers have been paid on time. The AG has approved that payments were done on time.

Mr Esterhuizen said Eskom is accountable to DoE. DoE should see to it that Eskom invoices are paid on time.

Mr Davis said NECSA and NTP Radioisotopes must report to the Committee on what took place at the Pelindaba nuclear plant. The Minister is giving the Committee contradicting views from what former Minister Khubayi told the Committee about the finalisation of the Strategic Fuel Stock investigation. The former Minister said the investigation was near completion, but Minister Mahlobo is saying that the investigation has been stopped because reportedly the investigating firm has a conflict of interest. He asked why the investigation was stopped, and why were law enforcers not approached instead of hiring consultants.

Deputy Minister Majola replied that when DoE does its planning, it puts in different elements for an input and output. One of the elements put in by DoE is the projection of demand, which has not yet materialised. The CSIR had withdrawn its research because it was based on a particular planned projection, which is nowhere near what they had anticipated. The Renewable Energy programme has been a great success, however the major problem with the programme is localisation. 

Minister Mahlobo replied that the IRP will look at a number of things: the demand, affordability and who is responsible for making the technology used for controlling demand and scales. He refused to answer whether he agrees or disagrees with President Ramaphosa that South Africa cannot afford nuclear. The Minister had responded to an article that was brought to his attention by a Departmental official, written by Linda Ensor from Business Day, saying that the Minister had said he has abandoned the fuel reserves investigation. He said the Strategic Fuel Stock investigation has not been abandoned and he hopes Business Day will retract the article.

Deputy Minister Majola replied that the pipeline between SA and Mozambique is an ongoing matter that is led by NERSA, and NERSA will present the report to the Committee. The South African Local Government Association (SALGA) is set to convene a workshop on how municipalities will deal with their Eskom debts.

Mr Davis said the Minister should apologise to the journalist for the manner in which he spoke to her. There are channels that the Minister can take to dispute what the journalist has written.

Mr M Matlala (ANC) disagreed with Mr Davis and said the journalist must apologise to the Minister for misquoting him.

Ms Z Faku (ANC) agreed that the Minister had been misquoted. The journalist is misleading the country.

The Chairperson replied that the members of the media are privileged to attend Committee meetings, therefore they should not misquote any Member of Parliament.

Minister Mahlobo replied that the journalist has concluded that he has abandoned the investigation, which is not true. He went on to say that the media continue to calls him a Gupta stooge, although his name was not found in any of the leaked Gupta emails and he has never been to Dubai as stated by the media. He repeated that DoE has not abandoned the Strategic Fuel Stock investigation.

The Chairperson asked for clarity on what the targets are under Nuclear Energy, and an explanation on what the Solar Energy Technology Roadmap (SETRM) is.

Mr Esterhuizen said DoE has incurred a lot of underspending and overspending in its programmes. In the Administration programme DoE had an overspending of R9.17 million due to the compensation of employees, property payments and travel and subsistence. The Energy Policy and Planning programme has an underspending of R3.73 million, also on compensation of employees. The Nuclear Energy programme has a net overspending of R7 million, and this is due to invoices carried over from the 2016/17 financial year.

Mr Tseliso Maqubela, DoE Acting Director-General, replied that the Gas Act needs to be updated because currently only one gas from Mozambique is mentioned in the Act. For example, the power and energy gas are not mentioned. The Gas Utilisation Master Plan (GUMP) is a roadmap for the development of a gas economy. It analyses the potential and opportunity for the development of SA’s gas economy and sets out a plan on how this could be achieved. GUMP also creates a framework for independent producers.

Minister Mahlobo added that the National Solar Programme was not managed properly, hence there was an underspending on the programme.

Mr Esterhuizen said Sasol pays $2/USD for the mega gas in Mozambique but eGoli gas sells it in South Africa pays R270. He asked who the Mozambique pipeline belongs to and why there is a difference in what Sasol pays for the gas. [This question appears to have been unanswered]

The meeting was adjourned.
 

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