Energy budget: Committee Report

Energy

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

The Portfolio Committee on Energy reviewed their report on the budget vote of the Department of Energy. One of the main issues of concern was the reduction in the budget by R1.1 billion or 13% less than the previous year. The Members of the Portfolio Committee were aggrieved about the budget cuts which need to be addressed, although it was acknowledged that external factors such as political and administrative instability have played a role in this regard. Furthermore, the Committee was concerned with the situation regarding the Nuclear Energy Programme as the budget for that programme had been significantly increased, with much of the increase going to pay for consultants. The Department had explained that the increase was for the coordination of nuclear activities.

The delays with outstanding bills and in finalising critical energy policies by the Department of Energy was a concern as there had been no legislative progress in the previous Parliament either. In terms of legislation the Department was not faring well in executing its mandate or the purpose for which it had been created. As soon as the Interpretative Resource Planner process was completed in August, it had to come back to the Portfolio Committee. That was a key recommendation in the Committee’s Report. The Committee Members were unhappy about the lack of service delivery affecting the poor and a lack of implementation of key programs. There was a huge reduction in the budget for the National Solar Water Heater programme, although there were a number of donors outside of the Department paying for the solar water heaters.

The Committee also raised the fact that strategic stock had been sold off and that needed to be dealt with to ensure that South Africa had access to strategic stock. Another confusing situation was with the Central Energy Fund and the Committee was unclear about the restructuring process at the Fund. Eskom’s budget had increased, and the personnel had expanded from 32 000 to 48 000, yet their productivity has not increased. The Committee was concerned about reports of low coal stocks and increased diesel usage.

As the term of office of the fourth Parliament was ending, the Portfolio Committee decided that all outstanding matters would be listed under recommendations, with the recommendation being that the Committee receive a report on each matter in either the third or fourth quarter. The Committee was not happy with the progress and plans of the Department of Energy and most of its entities. Members also felt that the Minister had not provided full details of proposed plans and solutions when he had met with the Committee. After a difficult deliberation, it was finally agreed that the report should be adopted once the final additions had been made. The Committee also decided that it would be necessary to raise their concerns during the Budget Vote for Energy.

Meeting report

The Chairperson thanked all Members present at the meeting and noted the apologies.

The observations, recommendations and findings were presented by Mr Siyavuyile Madoda, Committee Researcher at Parliament.

Briefing by the Parliamentary Researcher on Observations and Findings in the Portfolio Committee Report

The budget of the Department of Energy had been reduced by R1.1. bn or 13% when compared to the previous financial year. The previous financial year, the Department of Energy had been allocated R8.1 bn and in the current year the Department of Energy had been allocated R7.045 bn. That would have an impact on the filling of the vacant posts. Whilst the budget had been reduced, the compensation of employees’ budget had increased by almost nine percent, in line with adjustments related to inflation. The Department had indicated that the process of filling critical vacant posts was underway.

The Clean Energy Program was the biggest program and its budget had been decreased by over 50%. The decrease was mainly in the Energy Efficiency sub-programme which had decrease of over 57%. That sub-programme also made transfers in respect of the Solar Water Heater Projects, hence the substantial reduction in budget allocation. The Committee was concerned about the significant cut in budget in light of the fact that the Department had a vision of improving the country’s energy mix by having 30 percent of clean energy by 2025. However, the Solar Water Heater Project did not only receive funds from the Department. Funding was sourced from various sources, such as international donors, sponsorships, Development Bank of South Africa, the Independent Power Producer Office, etc. 

The Committee was concerned about the increase in budget for the Nuclear Energy Programme. The budget for the programme had increased from R790.1 million in 2017/18 to R816.6 million in 2018/19. That represented an increase of 3.2% in nominal terms. The main concern was the budget for consultants and advisory services which had increased from R10.8 million in 2017/18 to R21.1 million in 2018/19. The Department stated that the increase was for the coordination of nuclear activities, not necessarily for the New Nuclear Build Programme (NNBP). That coordination included activities relating to the Western Cape High Court judgement on the processes followed regarding the NNBP, areas that dealt with the South African Nuclear Energy Corporation (NECSA), the National Nuclear Regulator (NNR) and Eskom (Koeberg Nuclear Plant).

­­As with the delays in the submission of Bills to Parliament, the same could be argued on the poor performance of the Department in finalising critical energy policies. For instance, the Integrated Resource Plan and Integrated Energy Plan were long overdue. Those policies were key in the energy sector; they provided direction for the energy sector and all the many industries that relied on energy availability for their own planning. The Minister indicated that the IRP would be financed by August 2018.

Whilst the impasse between Eskom and the IPPs had been resolved, there needed to be a regulatory framework or legislation, which permanently addressed the participation of IPPs in electricity generation. Thus, the Department should expedite the finalisation of the Electricity Regulation Amendment Bill

The Committee was concerned about the poor performance of the National Solar Water Heater programme. Initially, the programme had a target of installing 1 million solar water heaters (SWHs) by 2014. However, the programme has installed just over 400 000 units so far. That meant that the target had not been realised. Despite the failure to meet the target of one million, the current administration had set a cumulative target of 1,75 million SWH installations by 2019 and further established a long-term target through the National Development Plan - a cumulative target of 5 million solar water heaters by 2030. Considering the implementation challenges experienced thus far, the Committee was of the view that reaching the set target was not possible. The Department had manufactured 80 000 solar water heaters to date. The next phase, which was proving to be difficult, was the installation phase. That phase required partnership with the municipalities. The Department stated that municipalities derived their revenue from electricity, thus installing solar water heaters for its customers was not beneficial to them. It seemed that the Department did not have a clear strategy on how to implement the programme. In the APP, the Department stated that the installation phase of the programme would be moved to the Central Energy Fund (CEF) and the IPP Office.

Despite the challenges PetroSA faced, the Minister had indicated that Government was committed to making the entity sustainable as an oil and gas company for the country.

On the Grand Inga Project, the Department had indicated that the project was not progressing as fast as anticipated, due to internal challenges within the Democratic Republic of Congo (DRC). The DoE could only move as fast as its partners moved.

The Content Advisor referred to eleven recommendations for the Minister of Energy to carry out within the current financial year:

1. Update the Committee on the Solar Water Heater Implementation Plan, including transfer of the installation phase to the Central Energy Fund, in the 4th Quarter of 2018/2019.  

2. Once the judgement on the investigation into the sale of strategic fuel stock had been passed, update the Committee.

3. Present to the Committee the finalised Integrated Resource Plan (IRP), in the 4th Quarter of 2018/19.

4. Present the end-state of electricity report to the Committee, in the 4th Quarter of 2018/19.

5. Regarding the Grand Inga Project, update the Committee on the Intergovernmental Memorandum of Understanding (IGMoU) with transit countries, in the 4th Quarter of 2018/19.

6.Update the Committee on the Nuclear New Build Programme, in the 4th Quarter of 2018/19.

7. Update the Committee on the filling of vacant posts, including vacant posts in State-Owned Entities, in the 3rd Quarter of 2018/19.

8. Submit and present the Inter-Ministerial Task Team Report on the Electricity Distribution Industry, in the 3rd Quarter of 2018/19.

9. Update the Committee on the restructuring of the Central Energy Fund, in the 3rd Quarter of 2018/19.

10. Update the Committee on Eskom governance challenges and the status of the coal power stations, in the 3rd Quarter of 2018/19.

11. Update the Committee on the decision to build a new refinery, in the 3rd Quarter of 2018/19.

Discussion

The Chairperson asked Mr Maboda when the 4th Quarter was ending. Mr Maboda replied that it would end in March the following year. The Chairperson asked the Committee Secretary to confirm the dates for recess in the current year.

The Chairperson had several concerns about the recommendations. They did not include everything that the Committee wanted to know. There were things that required clarity before the end of the 4th Quarter and the elections. He reminded the Committee of what the Minister had said and that a decision had to be taken on the Nuclear New-Build Programme. There had to be finality by the end of the year and he did not want to go away without an update on the Nuclear New-Build Programme. The fifth Parliament needed to know where the country stood in relation to nuclear power.

He accepted that there were problems with the solar water heaters. 80 000 solar water heaters had already been manufactured were in some warehouse. What was being done there? In terms of transferring implementation of the programme to the Central Energy Fund, he knew that it was not so easy. What was being done to arrange matter so that CEF implemented? It was important that the Committee did not just prioritise as that report was the last report for the term of office. Therefore, by the 3rd and 4th Quarter all the outstanding things had to be reported on by the Department of Energy. All the outstanding things had to be added to the recommendations.

Mr M Matlala (ANC) referred to the finalisation of the appointment of the Deputy Director-General by 14 May 2018. There was no talk of other vacant posts in the Department but 26% of the posts were vacant. The Department had said that appointments could not happen because of the budget cuts. Instead the Department of Energy wanted to implement programs. He was concerned because a lot of money had been cut. How would that be dealt with in terms of the outstanding programmes? Some programmes might not be completed. How would the vacant posts be dealt with, as individuals needed to be employed to help the Department of Energy implement programs? How could programmes be implemented with budget cuts?

He suggested that perhaps the Portfolio Committee had to highlight the challenges the Department faced and ask National Treasury to increase the budget, so that the outstanding challenges could be dealt with. For example, the solar water heaters were a problem. Page 6 of the Report referred to the program which had been moved back from Eskom in with 80 000 units which had been manufactured. There was no progress on the installation. The Department had taken a decision to move the installation phase of the programme to the Central Energy Fund (CEF) and IPP Office. It was a merry-go-round. The Committee had to engage with the National Treasury. In some places, there was no electricity, food or basic needs for people. The Committee had to solve those problems for the people of South Africa, and the Department of Energy was central in that.

Mr SH Mbuyane (ANC) wanted clarity about the national solar heating program. The municipalities were struggling to implement the program. Perhaps the legislature could take the matter forward in the implementation of those programs. That could help in finding out why those processes were being stalled. The municipalities were mandated to deliver services to people. Municipalities that were not taking resolutions were not assisting poor people. It was important for that to be verified. It had been proposed that the national solar heating program be transferred to the Independent Power Producers’ Office(IPPO). Could the Committee be given an implementation strategy or framework? What did they intend to do? Every program had been shifted to IPPO. What were the Department of Energy officials appointed to do?

The increase in the budget for the nuclear programme was a serious challenge. The Department had said that the nuclear programme was no longer functional. Consultation costs had been increased from R790 million to R816 million. Why had that budget been increased if the programme had not been implemented? He was not sure he could support it. He asked the Chief Whip whether the budget should not be taken to the various caucuses to deal with it. He had questions about it.

Mr J Esterhuizen (IFP) stated that the report was comprehensive. Eskom’s task force had grown from 32 000 to 48 000 employees, but production had not increased. The employee benefits had increased by 30.4% or R33.2 bn. The budget has grown every term. The operating costs had increased as well.

He referred to page 5 of the Report and asked about the progress on the integrated energy and resource plan. Public participation and transparency was needed. That was crucial for the Department of Energy. The water heating programme had been a failure. A target had been set of R1.5 million units by 2019. Half of that had not been done. The Department of Energy was failing poor and rural people. The cause of that might be a lack of oversight.

Quality and planning had a budget of R53.1 million but what was happening with policy and planning? There were serious concerns about planning and policy so why had the money increased here? Every year, a lot of money had been budgeted for the nuclear programme. How was that justified? The court had ruled that the agreements were unlawful and unconstitutional in terms of section 231 of the Constitution. There was nothing from this nuclear development coming.

Ms T Gqada (DA) stated that she could not have a say on the budget until she had consulted her caucus, as authorised by law, which she would do before giving her final decision. She had noted that even the Minister of Energy had not given the Portfolio Committee clear answers, especially regarding the nuclear programme. One of the things highlighted was the outstanding bills that were not submitted on time. One thing that the Department of Energy did not understand was the fact that poor people were suffering. The budget was bad and could not assist the Portfolio Committee. The political climate for the past few months had contributed to that. The Democratic Alliance would not have a say on the draft budget, but she would take it back to her structures.

Ms Z Faku (ANC) stated that things had not been good because of changes both politically and within the Department of Energy. There was no assistance and the fundamental issue was the non-economic growth. If the economy did not grow, there would be no changes to the lives of poor people. She was hopeful that things were changing. There were signs that that might be happening. However, that was beyond the control of the Portfolio Committee. The budget and the report should be adopted with all the challenges. There was no time and there would not be another meeting. She proposed that the Portfolio Committee adopt the vote and budget with all the challenges and the additions.

The Chairperson asked if he could accept that the budget and report be accepted. The Committee could agree on the changes. He suggested that all outstanding matters be included as recommendations for reporting in the third and fourth Quarter. The Report would be revised to include the suggested changes and the final copy would be sent to Members that afternoon. He suggested that during the Budget Vote, Committee Members could raise all of the challenges.

The Chairperson stated that budget problems arose from the state of the economy and instability within government. That instability within government was both political and administrative. It was caused by changes within government. That was tantamount to the destruction of capacity in government. Furthermore, that had frustrated the legislature’s ability to have an effective oversight role. He suggested that the 3rd and 4th Quarter should be used to ensure that all updates were reported on. The proposal on the solar water heater programme should be accepted and an update should occur in the 4th quarter.

Once the strategic stock court case had been finalised, there had to be an update. The fundamental issue was how the stock was going to be replaced. As things stood, there was no strategic stockpile as per policy. After the court case, that issue had to be returned to. The country had to have strategic stock, but it was currently privately held.

As soon as the Interpretative Resource Planner process was completed in August, it had to come back to the Portfolio Committee. By the end of that year, it would be finalised. By the end of the 3rd Quarter a report should be made on appointments with specific reference to acting board members and the DDG. Appointments had to be made as soon as possible. A solution had to be found for the electricity distribution industry that had been discussed and a report had to be made by the end of the 3rd Quarter. Eskom had governance issues and operational challenges that had to be addressed. However, the real issue was the generation and supply of electricity. He indicated that that had to receive attention. Eskom should give an update on those issues before the 4th Quarter as the Minister of Energy would take time to deal with the matters. On the issue of restructuring of CEF, the Minister of Energy had stated that he needed a year to resolve that matter but that PetroSA would be engaged in a turnaround strategy immediately. There had to be an update on CEF and PetroSA. He was happy that they were not hiving off African Exploration

The budget was an important issue and the Committee’s concerns had been raised. The Chairperson suggested that the additional recommendations be added to the Report. The Budget Vote would be on Wednesday 16 May 2018.

For the sake of progress, and because there was nothing more that the Committee could do, Ms Gqada agreed to support the report, with the proposed additional recommendations as proposed by Ms Faku.

Ms Faku agreed that her proposal was to support the budget and report, with the proposed additional recommendations as discussed by the Chairperson.

The Chairperson thanked them and noted that Members had to feel free to raise challenges during the debate on the Energy Vote in the House of Assembly.

Lastly, Mr Esterhuizen stated that he agreed with the additions and supported the report. However, there were problems in the Department of Energy and answers were needed. He did not want the people to think that the Committee would not approve the budget for water heaters, but something was wrong with the programme. In terms of clean energy, he noted a mistake on page 12, where the underspending was incorrectly indicated.

The Chairperson thanked the Committee but wanted Members to note that something was happening under the surface with specific reference to Eskom and he felt very uncomfortable about it.

The meeting was adjourned.

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