Minister's update on Energy matters; with Deputy Minister present

Energy

08 May 2018
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Minister of Energy met the Portfolio Committee on Energy for the first time, noting that it was precisely eight days before he would present his first budget speech for the Department of Energy.

He stated that in addressing energy challenges, the core national interest was the provision of sufficient energy to support economic growth and social development. There was an urgent need for diversification in the energy mix in order to meet the current and future energy demands of the country.

In line with the National Development Plan (NDP), government would, in the next 12 months, make definitive decisions on the petroleum refining capacity in South Africa.  The Department was currently reviewing the Nuclear New Build Programme to address the issues raised by the Western Cape High Court judgement of 26 April 2017. Consequently, the way forward on the Nuclear New Build Programme would be determined by the updated Integrated Resource Plan (IRP), once it was promulgated. The Department was steadily working towards concluding the review of the IRP by no later than Mid-August 2018. The IRP was a subset of the National Integrated Energy Plan (IEP), thus the IEP could only be concluded once the IRP review process had been concluded.

He had signed off 27 Independent Power Producer projects on 04 April 2018, which was a major milestone in the renewables programmes as that process alone should unlock investment of over R56 billion in the economy of the country, as well as add over 2 300 Mega Watts into the grid in the next three to five years.

The Minister noted that Black participants would play a substantial part in the achievements of the project and black participation would be included in during the construction phase, and commitments for skills transfer to the black participants, which would enable their participation and the transformation of the sector within the first five years of the operation phase.

Members asked when Eskom was going to be transferred from the Department of Public Enterprises to the Department of Energy. Had nuclear been taken off the table completely, and if not, why not? If nuclear was on the table, what was the timetable for a new nuclear plant to be built?  What was the estimated cost of the new plant? What was the current cost of nuclear energy compared to renewable energy?

Members also asked about the solar water heater programme and whether transferring the programme to the Central Energy Fund would get it off the ground. A Member asked for the Minister’s response to the challenge by the National Union of Mineworkers that 25 00 jobs would be lost as a result of the signing of the IPP agreements. Did the Minister have plans to resuscitate the Grand Inga Hydro Colossus project between South Africa and the Democratic Republic of Congo?

What were the Minister’s plans to turn the loss-making PetroSA around? Would the PetroSA and CEF Boards be restructured? Would there be prosecutions for executive members of CEF involved in the risky decisions on the liquidity?

Meeting report


Opening remarks
The Chairperson welcomed the Minister of Energy, the Deputy Minister, Members, and the Director-General and senior officials of the Department of Energy. There were time constraints. The Committee had been keen to get the Minister to meet with him and so he would hand over immediately.

Minister of Energy
Minister Jeff Radebe thanked the Committee for the opportunity to share key programmes in his Department. He noted that his first meeting with the Portfolio Committee was taking place eight days before his inaugural budget speech to Parliament as Minister of Energy on 16 May 2018.

Energy was the lifeblood of any economy. Energy security was national security, and energy insecurity was a constraint to growth and development. In addressing energy challenges, the core national interest was the provision of sufficient energy to support economic growth and social development. There was an urgent need for diversification in the energy mix in order to meet the current and future energy demands of the country.
 
In line with the National Development Plan (NDP), government would, in the next 12 months, make definitive decisions on the petroleum refining capacity in South Africa.  The Department was currently reviewing the Nuclear New Build Programme to address the issues raised by the Western Cape High Court judgement of 26 April 2017. Consequently, the way forward on the Nuclear New Build Programme would be determined by the updated Integrated Resource Plan (IRP) once it was promulgated. The Department was steadily working towards concluding the review of the IRP by no later than mid-August 2018. The IRP was a subset of the National Integrated Energy Plan (IEP), thus the IEP could only be concluded once the IRP review process had been concluded.

In developing the IEP and the associated sector plans (IRP, Liquid Fuels Plan and the Gas Plan) the Department would achieve one important milestone, and that was to provide policy certainty geared towards stimulating much-needed investment in the economy.

He had announced that he would conclude the signing of 27 projects for Bid Windows 3.5 and 4 on 13 March 2018, but he had had to respect the decision of the North Gauteng High Court following the urgent application brought by TransformSA and NUMSA to seek a stay of the signing of the Power Purchase Agreements for the IPPs. Following Judge Fourie's decision to strike the application off the roll, he had concluded the signing of those 27 IPP projects on 04 April 2018. That was a major milestone in the renewables programmes as that process alone should unlock over R56 billion of investment into the country’s economy as well as add over 2 300 Mega Watts into the grid in the next three to five years.

The Minister concluded saying that Black participants would play a substantial part in the projects achievements and black participation would be evident during the construction phase. There had been commitments to skills transfer to the black participants, which would enable their participation, and the transformation of the sector, within the first five years of the operational phase.

He was pleased to be working with Members of the Committee towards an energy transition path.

Discussion
Mr M Matlala (ANC) informed the Minister that that he had a very serious issue that did not sit well with him. He had asked the same question at a couple of previous meetings. He was from Limpopo and had never had an answer for his constituents around the issue of ESKOM. When was Eskom going to be transferred from Public Enterprises to the Department of Energy (DoE)? When Members of the Portfolio Committee on Energy asked Eskom to account, the Board and officials said that they accounted to Public Enterprises, but DoE gave Eskom funds.

If one compared Sekhukhune in Limpopo to Sandton in Gauteng, there were no problems in Sandton and Eskom took care of the people there, but when he returned to Limpopo, people asked him what was happening because when old people were watching the television soapies, or the soccer between Kaiser Chiefs and Orlando Pirates, the power went off. Eskom’s reason was that the municipalities owed a lot of money to Eskom. Eskom had said that it was doing the people of Sekhukhune a favour by letting them have some electricity, but Eskom was wrong. It was not a favour to give energy to the country. Eskom was supposed to have been at the meeting that day because some of the questions were interlinked with the Minister’s presentation but the entity was not at the meeting. When would the Minister transfer Eskom so that Members could get answers to their questions? When Parliament went into recess on 15 June 2018, he wanted to tell his constituents that that he had the answers and that he had got the answers from the horse’s mouth.

Ms Z Faku (ANC) registered her concern. As it was the Minister’s first meeting, she had thought that he would spend more time answering political questions that the Department could not answer. She requested direction from the Chairperson. Should she ask questions on the presentation by the Minister only or could she ask general questions? She had prepared questions on all the presentations handed out but only the Minister had presented.

The Chairperson noted that, in previous meetings, Members had complained that the Minister had not been there, so they should ask the Minister anything they wanted to know. She could also ask on all the presentations handed out. Members should use their time well and ask everything that they wanted to know.

Ms Faku asked about the Nuclear New Build Programme, noting that South Africa’s nuclear capacity had been eroded over time. There was no capacity or structure, nor the skills, to run a successful nuclear programme.  Staff and managers had been fired from Koeberg, reducing the nuclear staff, while the National Nuclear Regulator was understaffed for a project of that magnitude. Had nuclear been taken off the table completely, and if not, why not? If nuclear was on table, what was the timetable for a new nuclear plant to be built?  What was the estimated cost of the new plant? What was the current cost of nuclear energy compared to Concentrated Solar Power, Solar PV and Wind Power? What was the Mega Watts (MW) amount for nuclear in the latest IRP? Had the Minister met with any Russian ministers regarding the promise of nuclear?

She noted that, in terms of the IPPs (Independent Power Producers) and PPAs (Power Purchase Agreements), 27 IPP projects had been signed on 4 April 2018, bringing onboard R56 billion in investments and over 2 300 MW into the grid. To date 6 376 MW had been procured and 4 100 MW had been signed. Investments of R194 billion had been secured, of which 27.5% was foreign direct investment and the balance had been secured from South African financial institutions. On the move of the IPP Office to the Central Energy Fund (CEF), she honestly did not understand why it was necessary as the IPP had been running so well. Guidance to, and oversight of PetroSA had cost the country millions of Rand but the IPPs had run efficiently with no Board.  What were the reasons for moving the IPP Office to the CEF when it had done so well on its own? That was something that she really could not understand.

Ms Faku also had a question on the IRP. When would the latest IRP be finalised and approved by Cabinet? Was nuclear included in the IRP? Was the IRP based on the so-called ‘optimal approach’?  Would the Minister entertain further engagement on the IRP by the public and Parliament? Had independent studies been conducted? If not, why not? 

Mr R Mavunda (ANC) asked about the solar water heater programme.  He did not get satisfactory responses and kept hearing about budgetary problems from DoE. The last time he had asked a question, he had not been satisfied with the response. He understood that the DoE had found the programme for the implementation of the solar water programme in place. There was a need for an agreement between DoE and municipalities about the programme, but the municipalities did not have the capacity to install solar water heaters. At what point would DoE say whether there would a termination of the programme or not? One might have a good programme but if one could not implement it, there was no point.

The solar water heater programme was put into Eskom’s programme so that the power utility would facilitate it, but the programme had gone back to the Department. There was a little progress, but the progress was not yielding the desired results because of the lack of capacity of the municipalities. So, DoE had decided to hand the programme over to the CEF. Would the programme get off the ground because another entity was running it?  Would that get it off the ground?  Were there people to account for the programme? The question he was asking was why the Department would fund a programme that did not yield the desired results.

Ms G Nobande (ANC) asked for the Minister’s response to the National Union of Mineworkers claim that 25 00 jobs would be lost as a result of the signing of the IPP agreements.

Mr J Esterhuizen (IFP) advised the Minister that the public sector had lost trust in Eskom and its management to provide reliable, affordable electricity, and one could not blame the public. Policy certainty was critical, and South Africa did not have it. Ten million barrels of strategic stock were sold when the price was at its lowest and that was just one example of the CEF’s leadership and governance challenges.  And then there were the Medupi and Kusile power stations, and another R52 billion had to be spent on them. There was incompetence from management and the board and from the ministerial side and the board at Eskom. How could they justify the billions of Rand? Eskom had over-spent by 931.6%.  Government did not make money. That was the taxpayers’ money. It was their money that was being wasted. Projects were given money, but nothing was achieved on the projects. The Minister had to give answers to people, public and taxpayers.

The Chairperson thanked Members for their questions.

The Minister responded to his colleague who was nearly beaten up in Limpopo. On the question of when Eskom would be coming back to DoE, he wanted to explain why Eskom was in the Department of Public Enterprises. During President de Klerk’s last years, he had created a department called Public Enterprises, but it was actually an office of privatisation. The Chairperson would remember that situation from when he was in COSATU. Eskom, Denel, Transnet etc. were hived off from line function departments. Executive Authority was vested in the President, so he appointed the Boards. The Minister was aware of an interim Steering Commission that was dealing with State-Owned Enterprises. So, there could be changes in store for Eskom. There had been many changes of responsibility. For example, South African Airways (SAA) now reported to Treasury. So, only the President could say who Eskom should report to.

Regarding the IPP agreements, there had been a decision in the Western Cape High Court that set aside several of the agreements with Russia, China and the United States and had declared them unconstitutional. Going forward, the DoE was finalising the IRP, which would probably look at the role of nuclear, but he did not want to pre-empt the document. As far as consultation was concerned, the Committee, NEDLAC, Parliament, the public and the Department would be invited to comment. Regarding the timeframe, he was looking at submitting the energy plan to Cabinet in mid-August 2018. The issue of the cost would be determined when the document had been finalised and a decision had been taken as to whether to proceed or not. He had no intention to move the IPP to the Central Energy Fund. The IPP Office in South Africa was one of the best in the world and he would not tinker with something that was working, but he would encourage competition and drive the IPP to its fullest extent so that, at the end of the day, users of energy would benefit from low-cost energy.

Solar water heaters posed a challenge. He had conversed with officials and the Central Energy Fund to accelerate the programme. The incapacity of municipalities was evident to everyone, but the people would benefit from the programme. He hoped that Mr Esterhuizen’s pessimistic view would change.
 
The claim that 25 000 jobs would be lost was the wrong perception. IPP had nothing to do with job losses in the energy sector.  Introducing renewables in South Africa was the right thing to do to and would reduce carbon emissions. South Africa also had obligations about carbon emissions in terms of the Paris Accord. Job losses were occurring because some coal mines had reached the end of their lives. 

He had responded to questions about Eskom. Should Members want more details about Eskom, they would have to ask for those details from Eskom itself as the entity did not report to him, but to the Department of Public Enterprises, even though DoE played a key role in Eskom. He did not know why the Energy Committee could not summons Eskom to appear before the Committee because in terms of the Constitution, the Committee could call anyone to provide any information the Committee sought from a person or organisation.

The Chairperson called for further questions.

Ms T Mahambehlala (ANC) welcomed the Minister. In 2014, Cabinet had approved the ratification of the treaty on the Grand Inga Hydropower Colossus project between South Africa and the Democratic Republic of Congo (DRC) but that project was dead or dying after the World Bank had decided not to give any money to it following a disagreement on the strategic direction. Did the Minister have plans to resuscitate the project? It would contribute 40 000 MW of electricity. The Ambassador had visited the Portfolio Committee in 2014 to discuss the project. As the project was very important to South Africa, how would the Minister resuscitate it and deal with the DRC?

Mr Esterhuizen thanked the Minister for signing the IPP PPAs. It was going to be good for sustainable, clean energy in South Africa. The country had got R200 billion in investment for the IPPs but then things had changed. Eskom had wanted to protect its monopoly and had said that there was no room on the grid for IPPs. There had never been any plans made for IPPs to put energy on the grid, despite the fact 5.5 Terra Watts had been generated by IPPs.

In Mpumalanga, 11 power stations out of 13 were running out of coal. South Africa was paying more than anyone in the world for coal, even compared to those countries that paid export costs. What was coal going to cost, and what were the costs to transport coal via truck? The World Bank had wanted to call in Eskom’s loan and that would have crippled and collapsed South Africa. That was all because of the incompetence of management at Eskom. Now Eskom wanted to force NERSA to allow a price increase. For every percentage increase, Eskom would lose the same percentage of business. People simply could not even afford electricity any more.  NERSA was considering giving a 19% increase. That plus local government costs would mean an increase of 35% for the public.

Ms Faku had a follow-up question. The Minister had given timeframes for the IPP, but when did the Minister want to see it finalised, taking into account that there were other processes to take place? Could the Minister please update the Committee on PetroSA as Members had heard lots of news about the entity? What were the Minister’s plans to turn around the loss-making PetroSA? Would the PetroSA and CEF Boards be restructured? Would there be prosecutions for executive members at CEF involved in the risky decisions regarding their liquidity? What was the situation regarding liquidity at PetroSA?

The Chairperson commented that Minister Radebe was the longest-serving Minister in government and a well-trained lawyer, so he was giving very careful answers, and when he had finished speaking, one had no choice but to accept the answers. However, the Chairperson had some verification questions.

The Chairperson noted that the Minister had answered the nuclear question twice, but had not said anything about how many gigawatts would be provided or any such detail. When those questions arose, the issue actually being addressed was the government’s position on nuclear.  Was the government going ahead or not? One could look at it that way: The Court had pronounced on the matter and government could address the matters that the Court had addressed, but that did not answer the question of whether nuclear was going ahead or not.  So, when the question arose, he had said that the Committee would have to ask the new Minister. The President had recently said in Davos that there was no money for “that thing”, so nuclear would not happen. When Members had asked if that was the position of government, he had told them that they could not ask that question of officials. So, it was necessary to clarify that thing. It was not about the figures in the IRP, but the intent. The question was one for the new Minister.  Was South Africa going ahead or not?

There had been questions about the re-structuring of the PetroSA Board but there was the critical question of fuel stock and how fuel had been sold and now stocks were so low. The Committee had been asking questions about PetroSA but, for him, it was not about the details. He was looking for a medium- to long-term position. He had been hoping to hear the new government’s position from the Minister.  The overriding question was whether PetroSA was sustainable. Or, to put it differently, was government prepared to support PetroSA and keep it going and do whatever it took to keep the company going as an oil and gas company? Those were the questions about the future that had to be answered before one could talk about structures and detail.

There had been a question on solar water heaters. There had been a problem with the solar water heaters. The Minister had overseen the writing of the policy on solar heaters and he knew the figures, and where the country was at that time, so the Chairperson would not go into that.

African Minerals Exploration was another matter that concerned the Committee. Some time ago, the Committee had been told that Cabinet had had a presentation on African Minerals Exploration and that it might be hived off. The Members had had a discussion and agreed that it might not be wise to make a move at that stage. He agreed that as a mining company, it belonged to the Department of Minerals, but what was government’s position on African Minerals Exploration?

The vacant positions for DDG’s in DoE was a matter of extreme concern for the Committee. When would the positions be filled?

That was all that the Chairperson had.

Concerning the Grand Inga project, the Minister replied that he was an eternal optimist. He hoped that it would happen. The DRC had recently appointed two construction companies: one Spanish and one Chinese.  DoE intended to ensure that South Africa participated in the programme. The Department wanted to ensure that it became a reality as South Africa, plus the whole of Southern Africa, needed the hydro power. It was important to Nigeria, but it was also important for Africa to become the Africa that everyone wanted. The President of the African Development Bank, Dr Akinwu Adesina, was very passionate about energy, in general, and particularly about Grand Inga which would light up the African continent.  The continent of African should not be at the bottom of the sea.

Concerning the issue of the renewables, the Minister assured Mr Esterhuizen that IPPs were generating electricity and that their electricity was on the national grid. He also assured him that the misgivings that the World Bank had had about Eskom had been resolved.

He reiterated that the IRP would be submitted to Cabinet by mid-August 2018.

PetroSA had to be moved from the ICU ward to a normal ward, and so he supported the CEF group that would work on a turnaround strategy. The CEF Group had appointed the ECG Group to assist with turnaround strategies. DOE would assist. Consequence management was critical, and it would be important to be very decisive and, where there was wrong-doing, consequences had to follow.

The Minister stated that he was not answering anymore questions on nuclear power as he did not want to pre-empt the IRP process.   When the IRP was promulgated, the issue of nuclear would be evident. The Committee should let the process that was unfolding be concluded.  The African Mineral Exploration company was doing very well and would be making a handsome profit. It would not be hived off but would be included in the strategy and would assist the Central Energy Fund greatly.

The Minister assured the Committee that the DDG posts would be filled shortly and, in fact, the Minister and Deputy Minister were meeting to discuss the shortlist the following week.  All vacant posts in DOE and in the state-owned enterprises would be filled. The government did not want people to be acting.

He thanked the Chairperson for the opportunity to respond to the questions.

The Chairperson called for further questions.

Mr Esterhuizen wished the Minister all the best in turning around PetroSA. He really hoped for the sake of South Africa that the problems could be solved.  Concerning the IRP, he stated that the Minister’s predecessor had tried to turn the screws on IPPs but prior to that, from 2010 to 2013, it had been a completely different programme. If the IRP was properly drafted, it would result in a completely different way of managing energy and the country would not have only a few big power generators, but lots of little sources.

As far as the DRC Project was concerned, he was afraid that the Minister would have to face the fact that it was not going to happen. Everyone had tried, including the Germans and the Chinese, but nothing happened. The Minister had been misinformed if he thought that the project was going ahead. Nothing would come of the DRC project.

Closing remarks
The Chairperson had thought that there would be many questions, but as there were no further questions, he closed meeting.

He thanked the Minister for his response to the Committee Members’ questions. He thanked officials for attending.

The meeting was adjourned.

 

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