Department of Energy 2018/19 Annual Performance Plan

Energy

17 April 2018
Chairperson: Mr F Majola (ANC)
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Meeting Summary

This much anticipated meeting, at which the Department of Energy was supposed to present its strategic plan and annual performance plan, was dampened by the absence of both the Minister of Energy, who was attending a Cabinet meeting, and the Deputy Minister, who was ill. It became apparent that some of the pressing issues that the Committee had hoped would be covered could not be conclusively discussed in the absence of the Ministers, who were the only ones who could give the official policy positions of Cabinet. Among the subjects that Members had hoped to discuss were the country’s strategic fuel reserves, the Grand Inga hydro-power project in the Democratic Republic of the Congo, the nuclear new build programme and the Integrated Resource Plan.

The Chairperson expressed concern at reports that Eskom might not be able to satisfy the power needs of the country, after having assured the country that there was excess power. The Department was asked whether the nuclear new build programme was still on course, after President Ramaphosa had indicated at the Economic Forum in Davos that the country did not need nuclear power, and could not afford it.

The Committee was concerned at the delay in the implementation of the Grand Inga Dam Project. Some Members felt that it was a bad investment, as the Congo was a politically unstable country and the R150 million that had already been spent would never be recouped. They wanted to know why no funds had been allocated for the solar water heater project, and were told that as most municipalities got their income from electricity, they were not in a hurry to install solar water heaters that would significantly reduce their revenue. There was also a challenge of personnel, as only one person was responsible for the project.

The Committee expressed frustration that the Department was always planning, but had a lot of outstanding issues that had not been resolved. Members argued that there was no point in planning without proper evaluations that could show how much had been achieved and what remained to be done. The large number of vacancies in the Department was a source of worry, as the unfilled vacancies could affect its performance and output. The Department’s budget had been reduced by R1.1 billion, so why was there an increased allocation for employees of R28.62 million?

Members were concerned that the lack of clarity on all the outstanding issues could affect the budget vote in Parliament, which was scheduled for May 16, and resolved to set up another meeting with the Department at which the Minister would be present.

Meeting report

Chairperson’s opening remarks

The Chairperson said the meeting was planned to take two days so that all matters on the agenda could be discussed exhaustively. Among the issues to be discussed were the nuclear build programme and the signing of the agreement, together with the opposition to the project; the investigations regarding the strategic fuel stock; the power purchase agreement and the Integrated Resource Plan (IRP). Another matter that was not on the initial agenda was electricity supply security.

He had been made to understand that there may be difficulties with Eskom’s capacity to meet the electricity needs of the country, after the power utility company had initially indicated that there was excess power, and he was concerned by what he had heard. When the Eskom acting chief executive last appeared before the Committee, he had said that the challenges that the entity was experiencing ranged from governance to finances. That was why Eskom had asked the Energy Regulator for a 30% tariff increase. There was a need to have a discussion with Eskom as soon as possible. A primary concern was that there should not be an interruption to the electricity supply. The position on electricity supply was unclear, and it needed to be clarified.

There was an apology from the new Minister, Mr Jeff Radebe, who had asked to be excused on account of Cabinet committee meetings that were taking place in Pretoria. He had initially been sympathetic when the Minister had offered excuses after his appointment, but this time he was not so sympathetic. His absence would make discussion of some topics such as the new build programme impossible, because officials from the Department of Energy (DoE) could say one thing and then later the Minister might come and say something else later. The matter could therefore be discussed only in his presence. The Deputy Minister had also sent in an apology, as she was sick.

Mr G Davis (DA) thanked the Chairperson for his comments, particularly those regarding the Minister’s absence. It was important that he had placed it on record. The Minister’s absence raised questions regarding the annual performance plan (APP). Was it the Minister’s APP? It was important the Committee got a sense of the Minister’s stance regarding important matters. He expressed the hope that the Minister would be able to find time to consult with the Committee before the budget vote.

The Chairperson said the budget vote would start on 9 May. The Committee had to have a meaningful debate between now and the budget vote on 16 May. It was crucial to have substantive debates on topics like the nuclear build programme in the presence of the Minister before the vote.

Annual Performance Plan: Department of Energy

Mr Thabane Zulu, Director General: DoE, gave an update on the approved organisational structure. The total number of posts on the DoE’s approved organisational structure was 846, of which 621 were funded and 225 unfunded. The number of filled posts was 499, which meant 122 were vacant.

The National Energy Regulator Amendment Bill had been drafted. Its objective was to ensure that the energy sector promoted social equity through expanded access to electricity at affordable tariffs through targeted sustainable subsidies for needy households.

The Gas Amendment Bill was meant to provide for the construction of infrastructure to import liquefied natural gas, as well as increased exploration for domestic gas feedstock.

The Department had been allocated R7.045 billion for the 2018/19 financial year, of which 91.24% was meant for transfers to the entities, with the remaining 8.76% for the operational costs of the Department. The 2018/19 budget saw a reduction of R1.1 billion compared to the 2017/18 allocation, which had been R8.145 billion. The final budget allocation reflected an overall budget reduction of R1.425 billion, which was equivalent to 16.82%, in comparison with the indicative baseline. The changes in the allocation were attributed to the following factors:

  • Compensation of employees was adjusted upwards by R28.62 million from an indicative baseline of R331.9 million, to R360.52 million -- an 8.62% increase. The additional funds would enable augmentation of the budget shortfall of R6.02 million for the current head count which has been recurring from the prior year due to the budget reduction by National Treasury, and would make R22.6 million available in estimated funding to fill priority positions.
  • Goods and services saw a net reduction of R27.13 million (9.71%) which was implemented from the indicative baseline of R279.44 million, to a final allocation of R252.31 million. The net reduction was due to a decrease of R41.07 million in the budget of the Solar Water Heater Programme (SWHP), and an increase of R13.93 million in the budget for property payments and operating leases.
  • The final budget for transfer payments was R6.43 billion, with a net reduction of R1.43 billion (18.16%) of the baseline. This included budget reductions of R700 million in the Integrated National Electrification Programme (INEP)-Eskom grant; R300 million in the INEP-Municipalities grant; R434.93 in the SWHP, resulting in zero earmarked funds; and a R19.98 million budget reduction in the Nuclear Energy Corporation of South Africa’s (NECSA’s) operational funding

Budget increases had been simultaneously implemented for the National Radioactive Waste Disposal Institute (NRWDI) of R12.53 million, the South African National Energy Development Institute (SANEDI) of R7 million, and additional funding of R8.97 million for international membership fees.

Regarding the nuclear energy targets, 70% of the authorisation applications had been processed within the eight-week period, and a decommissioning and decontamination policy had been produced. The National Nuclear Regulatory Amendment Bill had been submitted for Cabinet approval and public consultation, and the draft Radioactive Waste Management Fund Bill had been sent to the Chief State Law Advisor.

Highlights of the DoE’s clean energy targets were the realisation of 0.5 terawatt hours (TWh) of energy savings, verified from energy efficiency and demand side management (EEDSM) projects; the post-2015 national energy efficiency strategy had been finalised and promulgated; the draft Renewable Energy Technology Roadmap (RETRM) had been drafted and completed; the SWHP was being implementation monitored and quarterly progress reports submitted; and the annual compliance report on the third environmental management plan had been approved.

The Department’s electrification targets for 2018/19 were the electrification and connection to the national grid of 200 000 households, the upgrading of electrification infrastructure projects, as contracted by Eskom and municipalities, and non-grid electrification and connection of 20 000 households.

In the petroleum sector, targets included the inspection of 1 500 retail sites for compliance, the testing of 1 080 fuel samples, publication of an audit report of Broad-based Black Economic Empowerment (B-BBEE) in the petroleum retail sector, and publication of the Petroleum and Liquified Fuel Sector Code

Discussion

Mr Davis made reference to Vision 2025, which highlighted the objective of improving the energy mix by having 30% clean energy by the year 2025. Given that this was such a high priority, he wondered why only 5% of the budget had been allocated for clean energy, and whether that was sufficient to achieve that target. What was even more concerning was that the clean energy budget had been decreased from R742 million to R370 million. How did the DoE expect to achieve its target when it was cutting its budget?

It had been disclosed in other committees that the Cabinet was going back on the Integrated Resource Plan (IRP), and he requested an update on that, as it concerned the energy mix. When would the new IRP be ready? The former Minister, Ms Mmamoloko Kubayi, had promised it would be ready by the end of February 2017, but that had never materialised, and there had been another promise made by another former Minister, Mr David Mhlobo, that it would be ready by December 2017, but nothing had happened.

He asked whether the vacancies at Branch Energy Programmes and Projects; Clean Energy; Branch Corporate Services; and Branch Governance and Compliance were at the level of Deputy Director General (DDG). When the answer was in the affirmative, he pointed out that four out of the eight branches that were led by DDGs were vacant, and he asked why there was such a high turnover of senior staff. What was the root cause of the problem -- it was important know so that there was no recurrence of the same situation? What progress had been made in filling those vacancies? He observed that out of a total of 846 posts in the approved organisational structure of the DoE, 225 posts -- equivalent to 26% -- were unfunded. He was not sure what was meant by unfunded. He wondered whether that meant that somebody was already occupying the post, but there was no money in the budget to pay them. Where would the money come from to pay them? There were 122 vacant posts in the DoE which he thought was very high, as that accounted for one-fifth of all the positions, and he asked why that was the case.

He asked what the purpose of the National Nuclear Amendment Bill was, as he had not seen it before.

Overall, the budget allocation for 2018/19 had seen a reduction of R1.1 billion from the 2017/18, which was concerning. He wondered why a budget which had been reduced by R1.1 billion, had seen an increased allocation for employees of R28.62 million. Since the allocation for the overall budget had been reduced, the allocation for employees should have also seen a corresponding reduction. The human resource allocation was growing, but the output was not growing, and this would create a problem in the future. They would end up with a bloated Department that would achieve less and less. He asked what trajectory the department was on in this regard and how they could justify cutting the budget but spending more on employees. There obviously increases due to inflation, but it seemed strange to increase compensation for employees with such a budget cut.

Mr Davis said one of the objectives of the nuclear programme was to coordinate all the activities of the new nuclear build programme. He recalled that the President had stated at the Economic Forum at Davos that the country did not need nuclear energy, and could not afford it. Since the nuclear new build programme was not budgeted for and since it did not exist as far as he was aware, he asked whether there was a nuclear programme that he was not aware of. If there was no nuclear programme, why was it there as an objective? It was very confusing. There were mixed messages being communicated. There was also an increase for consultancy services involving the nuclear programme, and he asked why this was so. It was curious that money for consultants for a nuclear programme which did not exist was being doubled.

There was a concern that R17 million had been shifted from the SWHP last year to other programmes. R2.1 million of the diverted money had gone to pay former Energy Minister, Ms Tina Joemat-Pettersson, as her gratuity in what some people might call a “golden handshake.”

In the 2017/18 financial year, R394 million had been budgeted for the Solar Water Heater Programme but for the upcoming financial year of 2018/19 there was just a dash indicated. He asked whether that meant that no money had been budgeted for the programme. It was a huge concern, because he had received a letter from a constituent in Atlantis who ran a company called iSolar, which had grown in the last five years from 11 employees to 85. All were supporting dependants, which meant four to five hundred people were reliant on the company, and its sole business was to provide solar water heaters as part of the DoE’s programme. The way they worked was that they waited for tranches of work from the Department. They normally got a signal from the Department that a certain amount of money had been allocated and then they could go on to complete those projects. He had not received any communication from the DoE for six months, and all his letters and correspondence had not been answered. This was a huge concern, because of all the jobs that were at risk. He asked for an update on what was happening with this programme and why the Department was not responding to the constituent’s correspondence.

Mr M Dlamini (EFF) said the DoE could not just go on planning without addressing pressing issues. It did not make sense to continue planning when issues remained unresolved. It was important to have a meeting where all outstanding issues could be discussed and resolved. They had been planning each year, but things kept deteriorating. There was a need for a report on what had been achieved and what had not been achieved. The Department was planning as if it was a new department with no outstanding issues, and the Committee would be taking a risk if they went ahead to vote on the budget without settling the burning issues. Planning for the sake of compliance did not make sense. He recommended having a meeting with the Minister and the Department before voting on the budget.

Mr J Esterhuizen (IFP) said R1.1 billion was a lot of money from a budget of R8 billion. He asked who signed for such huge sums and wondered whether the board made recommendations and signed off the budget. Every year, millions were spent on nuclear energy, and he was not sure what actually happened to that money or how it was used. Millions had been lost through mismanagement and incompetence.

85% of the budget on renewable energy -- about R220 million -- had not been spent, and he asked why this was so. He wondered whether it was because renewable energy was a threat to Eskom’s monopoly. He complained that Eskom was overstaffed, and the executives were among the most highly paid in Africa and most probably in the world. Mr Jabu Mabuza, Eskom’s chairperson, had said that the new chief executive officer had indicated that Eskom needed only 14 200 employees, but it had 41 000 employees. It was completely overstaffed. In 2009, Eskom had produced 7.26 GWh, and it was now down to 5.3GWh and was dropping every day. They had now increased employees’ compensation, and he asked when all this was going to end.

The Chairperson asked Mr Zulu whether he had heard what Mr. Dlamini had said. The bureaucratic response would be he was reporting on the APP, and it was a requirement to do so. He asked the Department to dispense with the format. The Committee wanted to know where the DoE was concerning the unresolved issues that had been on the agenda for the past five years. The Department had to report on where they were with the energy mix, and what was happening with the refining capacity. It was the last budget for the Committee, and it wanted to know how much progress had been made. When the Fifth Parliament rises, they want to know what had been achieved and how much was yet to be achieved. The problems that were currently being witnessed with the coal mines in Mpumalanga would escalate if the issue of gas was not resolved, and there would be ghost towns. There was a need to have certainty on projects such as the Grand Inga power project in the Democratic Republic of Congo (DRC).

DoE’s response

Mr Zulu began by responding to the question on clean energy. The Department dealt with clean energy from different areas. Some of the funding came from international investors, while other sources included partnerships with non-governmental organisations (NGOs) and sponsorships from other multi-national organisations. The Development Bank of Southern Africa (DBSA) was also involved in the project. The figure that was quoted in the budget concerned only the costs that were incurred by the Department, and did not reflect the cost of the project. The DoE was, therefore, on course concerning the achievement of Vision 2025.

A clear programme on the IRP would be presented to the Committee.

The Department had been unable to fill the vacancies because of budget cuts, but the positions had already been advertised and applications had been received. The process of short-listing was currently being conducted. The positions of DDGs would soon be filled, but in the meantime senior managers were acting in those positions. Once the DDG positions were filled, the successful candidates would take part in the process of recruiting new employees for the vacant positions.

Mr Tseliso Maqubela, Deputy Director General: DoE, asserted that nuclear energy was still part of the energy mix. He corrected the impression that had been created that the information regarding nuclear energy in the report concerned the new build nuclear project. On the contrary, it concerned the coordination of nuclear programmes regarding the existing nuclear facilities and projects such as nuclear medicine. Regarding the R816 million that had been allocated for nuclear energy in the budget, the bulk of that was for transfers which were meant to sustain entities that were operational, with close to R700 million going to the Nuclear Energy Corporation of South Africa (NECSA), which was responsible for nuclear energy production. R20 million went to the National Energy Regulator (NERSA) and R45 million to the National Radioactive Waste Disposal Institute (NRWDI). The Department was left with only about R72 million for coordinating all nuclear activities in the country.

The aim of the Amendment Act was to strengthen regulation following lessons learnt from the Fukushima disaster in Japan, and followed international trends and recommendations from international bodies concerned with the management of nuclear facilities. The Act had been drawn up in 1999, and there were areas which had been identified by the Regulator that needed to be changed. The main objective was to improve oversight by the Regulator.

Unfunded posts simply meant that there were no employees and no budget.

The reduction in the budget for the solar water heater programme was necessitated by the slow progress of the municipalities in installing the heaters. A decision had been made to give priority to other programmes that were on track. The main challenge regarding the installation was that municipalities were required to pass resolutions to undertake the process of installation. Unfortunately, most municipalities got their income from electricity, so they were not in a hurry to install solar water heaters that would significantly reduce their revenue. The Department could have done better, however. There was also a challenge of personnel, as only one person was responsible for the water heater project.

On the Grand Inga Project, there were challenges in the DRC.

The Chairperson said there was conflicting information concerning the Grand Inga electricity project, with some saying that South Africa was responsible for the slow pace of the project. There was a need to have more open conversations about the project, but with diplomatic sensitivity, as the DRC had its own challenges.

Ms Camagwini Ntshinga, Chief Director: Finance, DoE, explained the reduction of R1.1 billion in the budget, saying the cut had been effected by the National Treasury as part of the austerity measures that were being implemented in every department in the country. The Department had had no option in the matter. Answering the question concerning the increase in the allocation for consultants, she informed the Committee that the National Nuclear Regulator (NNR) had had challenges and money had been advanced to them which they would return, and Treasury had even increased its budget for this same purpose.

The Chairperson asked the DG when the department could come back to address all the questions that had been raised by the Committee on outstanding issues before the budget vote on 16 May.

Mr Zulu replied that he could not commit himself without consulting the Minister on the date, because the Minister would have to be there as well. He promised to get in touch with the Chairperson before the end of the week.

Mr Davis said he had a few more questions before the Chairperson closed the meeting. It was important for the Committee to have absolute clarity on the relevant issues before the budget vote in Parliament. The DG had given a comprehensive answer on clean energy, indicating that the budgetary allocation had been only 5% for clean energy, but that a lot more money came from sponsorship and partnerships. However, that he had not been in a position to give the figures for the total amount of money available for clean energy. It was strange that the senior leadership of the Department did not know exactly how much money was available for a programme which had been identified as a flagship programme. He had expected them to know that. Taking into account that the budget had been cut in half from R700 million in the previous financial year to R370 million in the current financial year, the question was whether the Department had managed to raise enough money to offset the budget cut. It was important for it to disclose how much money had been raised from external sources or at least give an assurance that the budget cut would be offset by that external funding.

On the IRP, the Department had indicated that they would need to complete some activities before they presented the new IRP to Cabinet. He asked what those activities were and to give a timeline.

Regarding the vacant posts, the Department had said that there had been a cut in personnel, but that did not explain why the staff budget had been increased by R28.62 million.

Regarding nuclear energy, the DG’s answer had been disingenuous. He had said nuclear power remained part of the nuclear mix, but that it did not refer to a nuclear programme. It was well known that there was Koeberg and there was nuclear research, but a document from Treasury called Vote 26 stated that one of the objectives of the nuclear programme was to coordinate all the activities of the new nuclear build programme, but it did not say coordinating all nuclear activities. He asked why this was an objective of the Department if there was no nuclear build programme, and why it was part of the budget. The South African public needed clarity on the matter.

The solar water heater project budget had gone from R394 million to zero, and the DG’s explanation had been that all the water heaters had been manufactured, and the DoE was now focusing on the installation. Why could the Department not manufacture and install at the same time? He could not understand the logic in manufacturing and not installing. Subject to correction, he understood that the DG had said that only one person was in charge of the water heater project. If that was correct, how could one person be entrusted with a project that was costing almost R400 million? If that was the case, then the DoE was not committed to implementing the solar water heater project. It was not surprising that the project had stalled, because it had not been taken seriously.

Regarding the nuclear programme consultants, the reason advanced for increasing the expenditure had been that there was a reduction last year, and now the situation had returned to normality. That did not explain why the Department had spent R205 million on consultants in the previous four years. R205 million was to be spent on a programme that did not exist. He asked the Department to give a breakdown of what the consultants did, and whether there was a return on that investment.

Mr Esterhuizen said nothing would come from the R150 million that the country had already paid towards the Grand Inga Dam hydro-power project. It was a still-born project and a ridiculous investment, because there was so much instability in the DRC. The project was located in the conflict zone, and nothing would ever come of it. The rebels run the whole region where the project is located.

Mr R Mavunda (ANC) said he was puzzled by Mr Maqubela’s response to the questions on solar heating. Why was the DoE manufacturing the heaters without installing them? Where would the municipalities get the capacity to install the heaters? He asked whether the Department was linked to the ‘Back to Basics’ programme that had been initiated by Minister Pravin Gordhan, as its objective was to improve the capacity of municipalities. At what point could the country pull out of the the Grand Inga project, because the public had been fed lies, indicating that it was working when the opposite was the case. He advised that the country should not get stuck with the crises of other countries.

Mr Zulu said he was not in a position to give the exact figure of how much had been raised from external sources towards clean energy. He would send the information to the Committee, because he did not want to risk being charged with misleading Parliament. The Independent Power Producers were part of the project, but he could not discuss the details. On the IRP, he said that some of the activities were outside of the Department’s control, as other stakeholders were involved.

The Chairperson asked Mr Maqubela to prepare answers for Mr Davis -- he expected comprehensive answers that had been properly prepared.

The meeting was adjourned.

 

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