Department of Energy 2019/20 Annual Performance Plan; with Minister and Deputy

Meeting report

Remarks of Minister Mantashe
After mentioning apologies of Committee Members, the Chairperson welcomed the Minister of Mineral Resources and Energy, Mr Gwede Mantashe and Deputy Minister, Ms Bavelile Hlongwa.

Minister Mantashe thanked the Chairperson, Members of the Committee and the team from Department of Mineral Resources and Energy (DMRE). Minister Mantashe defended his trip to Namibia which some Members of the Committee had taken issue with. Nationally and internationally, the Department was very serious about its work in all the seven priorities outlined by the President in his State of the Nation Address (SONA). One of the priorities is achieving a better Africa – this imposes an obligation on undertaking international work. In Namibia, the Department was working on Africa’s diamond trading. The Minister did not see the NCOP as less important. He implored that the Committee not demand its importance. The NCOP and the Committee was respected. If the Minister was not able to attend, the Director-General could attend – the importance of the Committee is not understated in such event. He asked that the Committee stop asking where the Minister is because it is not correct.

With due respect, the Chairperson stated that the Committee never said the Minister did not take it seriously because he was not present at the meeting. The Committee asked about the whereabouts of the Minister and it was explained the Minister was on important business in Namibia. The Committee did not have an issue with this.

Minister Mantashe said he was now correcting matters.      

Minister Mantashe stated the first focus of the Annual Performance Plan (APP) is the Integrated Resource Plan (IRP). He called it a summary of what the Department should do and a framework for the future of energy policy. The Minister hoped that by September 2019, the IRP would be ready for public comment. One of the biggest concerns in the IRP is transforming coal energy into renewable energy. The Department is not a lobby group; it is a regulating group. He said the main focus of the Department is energy supply security for all people of South Africa. There would be a mix of energy sources in the IRP.

The Minister mentioned that the Koeberg Nuclear Power Station comes to the end of its life in 2024. Talks of extension would be tabled for discussion but the Minister planned to extend its life pass 2050. Most of the coal-fired power stations come to the end of their lives between 2030 and 2040. He stressed the need to talk about the build program immediately to address these resources before the end of their life cycle and not waiting for the tail end of matters as was done with Medupi and Kusile.

In regards to petroleum and petroleum products, Minister Mantashe said investing in a new crude oil refinery in Richards Bay is necessary and the proposal from Saudi Aramco should be accepted for work to start immediately. The Minister received many angry messages regarding the move of the refinery to Richards Bay. If SA did not move quickly, the investment would quickly move to another African country where it was easier to do business in the country. It is also important to have liquid to gas facilities to develop this industry in SA.

Mr Mantashe stressed the need to look into and revise the Fuel Price Mechanism. It is important to be sure that petrol and fuel prices were not hurting the poor. One of the questions was whether petrol price movements should be announced each month or whether it should be managed over a period of time and announced from time to time. This is not policy but is on the radar of the Department.

Mr Mantashe wanted to finalise the regulatory framework for biofuels. He argued it would re-vitalise the sugar cane industry and sugar-beet industry around the Great Fish River. If movement around this matter was quick, a critical industry could be revived.

In regards to the integrated electrification programme, the budget has not been executed. The money should go to Eskom or local government for implementation of the programme. Transferring the budgets to these implementing agents directly would cut out the middle person.

Minister Mantashe then spoke to scales and education noting that DMRE has offered 57 bursaries and could hopefully provide more. To give a student R160 000 a year is quite extraordinary. The Minister spoke of experience where if a child was given more money than required, a problem could be created of a child who would drink and be exposed to drugs. The allocation of funds to students must be tighter. The Department was contributing tremendously in this regard.

Minister Mantashe said there are gaps in the board of State-Owned Entities (SOEs) where almost all of the boards have acting CEOs – it was akin to a soap opera. Advertisements were put out to permanent fill this positions so there is movement in this regard. It is important to have functioning boards to mitigate operational and financial risks. This would also correct governance.     

The outstanding forensic audit on strategic stock was being finalised and the final report would be acted on – it is still being studied. As a “heads up”, the Minister said the South African Nuclear Energy Corporation (Necsa) has two subsidiaries producing two isotopes and ARVs. The reformer does well when it is not closed for long periods. The Minister was of the opinion that when an entity was closed which produced strategic products, it creates an environment for competitors to look for substitutes or have new developers and this affects the market share.  

Mr Mantashe argued that not having a full-time regulator for the electricity sector is an extreme weakness. There is working being done on carbon capture and deposit in a move toward cleaner energy technology.

Presentation of APP

Mr Thabane Zulu, DMRE Director-General, stressed the main strategic objective of the DMRE is to promote energy security through reliable, clean, and affordable resources. The Integrated Resource Plan will help the Department plan and achieve these objectives.

Mr Lucas Mulaudzi, DMRE Chief Director: Renewable Energy, presented Programme 1: Administration, Programme 2: Energy Policy and Planning, Programme 3: Petroleum and Petroleum Products Regulation, Programme 4: Electrification & Energy Projects, Programme 5: Nuclear Energy, Programme 6: Clean Energy

Ms Elizabeth Marabwa, Acting CFO of DMRE, presented the financial information of the Department as contained in the APP.  

The Department of Mineral Resources and Energy has allocated R7.4 billion towards the six programmes for 2019/20. Over 90% of the budget is dedicated to entities, municipalities and Eskom for service delivery purposes with regards to Electrification and Electricity Projects. The budget is down R133 million from the 2018/19 budget allocation due to reductions of the INEP Municipality Grant and INEP Eskom Grant. Going forward, the budget would be increasing at a decreasing rate, due to the prevailing economic environment. The Acting CFO concluded by presenting future budget figures.

Discussion

Mr C Smit (DA; Limpopo) apologised for being late. He questioned the budget allocation towards municipalities. Can the Department explain the spending, control, and accountability of conditional grants given to municipalities? Are there problem areas? He then asked if the full Integrated Resource Plan was available to review. He asked about the probe into the National Fuel Reserves that had been sold off. What is the status of that? How far away is SA from establishing a sufficient fuel reserve?

Mr J Nyambi (ANC; Mpumalanga) was mindful that the Minister and Deputy Minister might not always be available to the Select Committee. Last week, the apology of the Minister, as tendered by the Deputy Minister, was well received so there was no issue taken by the Committee. The Committee would continue with its work, whether the Executive was present or not. The NCOP would not simply duplicate what the National Assembly was doing – the Select Committee was representing provinces. The Select Committee would review information critically and raise problems where there are.

Mr Nyambi wanted to know which provinces the 57 students that received bursaries came from. He hoped that students came from all over the country. In regards to SOE boards, he asked about the timeframe for completion of said SOE boards – the Committee could assist if the timeline was clear. When will the outstanding Forensic Audit, as mentioned by Mr Smit, be available for the public? He asked why Mpumalanga and Free State were not included in the National Solar Water Heater Programme.  He emphasised the importance of information transparency between the NCOP and the Department.

Mr M Nhanha (DA; Eastern Cape), looking at the cost of energy in municipalities, explained that it is virtually impossible for small business to succeed due to the energy markup from Eskom. He expanded on previous questions on the Integrated Resource Plan. What are the intentions of the IPPs? He felt the cost of electricity would be lowered if the energy market were opened up to independent producers and competition. He suggested that energy could also be sold directly to the municipalities instead of through Eskom.

Mr A Cloete (FF+; Free State) asked questions in regard to the Integrated National Electrification Programme (INEP) - what is the aim of INEP? Have the business plans already been implemented or are they in the process of implementation? He then inquired into the degree of wasteful spending by Eskom and municipalities.

Ms W Ngwenya (ANC; Gauteng) thanked the Minister and officials for the presentation. She asked about the Koeberg Nuclear Power Station, which will reach the end of its design life by 2024. Are there any plans to extend the plant life past 2024? How long has the acting board been acting?

Ms Ngwenya asked Mr Zulu about the energy sector. How did the energy sector contribute to the overall economic growth and GDP of the first quarter this year? Did the incorporation of the energy sector increase or decrease GDP? If there was a decline, what are the plans of the Department to increase?

Mr A Arnolds (EFF; Western Cape) was concerned that there is no fulltime electricity regulator. He also raised an issue with Programme 5: Nuclear Energy. Where is the timeframe for completing theses goals and bills?  Mr Arnolds also raised issue with Page 17: Key Challenges, specifically the lack of specific skills within the Department. He asked the Department how it would deal with unqualified officials within data collection and integrated modeling.

Ms N Koni (EFF; Northern Cape) said there are communities which have never had electricity in their lives and these were not new areas. She implored the Minister to visit these wards. She appreciated the presence of the Minister and Deputy Minister. The Executive must embrace the Committee and not only send the officials of the Department. It was a norm during the Fifth Parliament that the Select Committees of the NCOP were not taken seriously – the Executive would always find excuses not to attend meetings of the Select Committee. She appreciated that the Minister and Deputy Minister were present.

The Chairperson asked questions regarding slide 37: Participation in National Solar Water Heater Programme. She asked why municipalities in the rural areas of the North West province are not participating and receiving funding from the programme. The Department needed to improve on its legislative performance because in the previous Parliament, the Department did not do well. The Department must speed up the process of policies and Bills. In regards to Slide 30 and 31 of the APP, she wondered why the budget was high but connections were low for example, in the North West province. The budget in the North West is R103 million but there are only 3 900 connections. Clarity on this was needed.

The Chairperson asked the Minister to improve service delivery overall. In the past, policy had been enacted but nothing was getting done.

Response by Deputy Minister

Deputy Minister of Mineral Resources and Energy, Ms Bavelile Hlongwa, thanked the Chairperson and Members for their questions. In regards to legislation, she outlined that the Department has many policies in place to ensure that deadlines are met.

Deputy Minister Hlongwa clarified the budget allocation and connections from Eskom and municipalities come from households as well as the establishment of businesses. The cost of connection per household is hard to measure but is under investigation.

On the INEP program, there is too much money lost in third party party transactions between the energy supplier and customer. The cost-per-connection varies greatly across the provinces as well. The Deputy Minister felt that at some point, the INEP must end, or reduce, and only deal with the establishment of new connections with new establishments. At some point, the apartheid backlog must die a natural death. Acting with speed in this space is important along with getting value for money. 

The plan was to have the IRP Gazetted by September 2019. The nuclear power station would come to the end of its life in 2024 but the plan was to extend this life further. If one was serious about energy security, there is a need to increase the nuclear capacity along with cleaning up coal so that there is a mixed energy mix. There is already technology to deal with cleaning coal. IPPs are another energy source and the Department was looking into this closely to enable the IPPs to contribute. SA assisted neighboring country with electricity so it is important that this was concerned when putting together plans etc. The emphasis was on a mix of energy sources, at an affordable rate, to ensure energy security. 

Deputy Minister Hlongwa said the Department funds student bursaries and their participation in Science Week. The 57 students come from the various provinces: 22 from KZN, 11 from the Eastern Cape, 10 from the Western Cape, 10 from the Northern Cape and 10 from Gauteng.
Each year the students are taken from five provinces - next year, the students will be taken from a different set. She ensured every single province gets an opportunity and even the most rural students are considered.

On the issue of SOE boards and administrative titles, the Deputy Minister stated that by the end of the year, no official would be in an “acting” position within the Department. It has been happening for some time, with some officials “acting for two years”, and caused much instability because those in acting positions were limited in the decisions they could take. She ensured the Committee that everyone would be given a specific role and responsibility to adequately respond to matters.

Deputy Minister Hlongwa echoed the advice of Minister Mantashe to take full advantage of opportunities before they pass. Investors do not care for current arrangements; they just look at areas where money can be made. The Committee should accept Aramco’s investment in SA because it would be easy for them to connect directly to the petroleum pipeline in Durban, effectively lowing import costs. The investment would contribute 21 000 new construction jobs and 5 000 permanent jobs. The Aramco investment would also create a connection between Durban and Richards Bay, improving relations between the two.

Response by the Department

Mr Zulu responded on the matter of allocation to municipalities by stating that a large portion of the budget, R1.8 billion, is allocated to municipalities, and R3 billion is allocated to Eskom. There is concern with the current financial modeling of simply giving the money however, it is currently under review. There are however mechanisms and systems in place to monitor implementation of the projects.

The DG clarified that before the money is transferred, Accounting Officers of the respective entities must sign a business plan that is tested, approved, and monitored on a monthly basis. The plan must be in line with the intended objectives of the programme. A similar system is in place with Eskom. Matters arise after the money is transferred, when the Department is no longer involved with the execution of the project. The Department is now allowed to interfere and re-direct resources to ensure completion of projects. This applies to both municipalities and Eskom. There would be a dashboard system to monitor these projects remotely and physically.

On nuclear energy timeframes, there is a full timeframe document located on page 75, Implementation Phases, of the First Quarter Report. The timelines are also located in the Executive Summary of the APP.

On the lack of specific skills, the DG noted the matter is very complex. The Minister asked all members of the Department, including the DG himself, to detail the skills they possess with relevance to execution of job responsibilities. The Department is actively identifying and addressing weaknesses in training.

Ms Mokgadi Modise, DMRE Acting DDG: Clean Energy, replied to the question on the participation of municipalities in the Solar Water Heater Programme indicating that the programme is allocated differently from INEP and Energy Efficiency and Demand Site Management as it is not allocated through the Division of Revenue Act. However, in terms of the project planning, before the end of August, there is a request for information that was issued to municipalities to respond, address and determine the state of readiness for municipalities to participate.

The main limiting factor for participation was household water reticulation. Especially in rural or small municipalities, if the households were not reticulated, they cannot participate. Based on limited budget allocation, the Department has been working closely with the Department of Human Settlements and municipalities themselves to ensure the mandate of providing water.

Municipalities that responded to the request for information in 2013/14 are the ones participating in the programme. Municipalities were asked to request that Councils approve the participation. Municipalities have to produce a Council resolution to participate in the programme, identify areas within jurisdiction to be part of the programme and identify students to participate. By the end of the 2010/21 financial year, municipalities would be expected to produce an RFI. There would be wide advertisement to ensure many participants. She reiterated the main limiting factor of water reticulation in the households.

Response by the Minister

Minister Mantashe called upon the Department to be relevant, responsive, and act on the matters that directly affect people. He added that when the IRP comes out in September, everyone will have access to it and all can work together. At this point in time, it is only a draft policy document.

On the forensic audit for strategic fuels, the Department is still going through it to determine action to take. There might be requirements for litigation in certain instances which is why it is not being released to the public.

On student bursaries, every year, the programme alternates coastal provinces hosted by an inland province, with inland provinces hosted by a coastal province. The aim was to consolidate the work of the Department of Mineral Resources and Department of Energy to offer more and bigger bursaries. The bursaries targeted the skills the Department was short of.

Regarding acting Boards, the Minister said advertisements have been placed. It cannot be that serious institutions, under the jurisdiction of the Department, could not take firm decisions because of acting boards. Good governance is an immediate focus of the Department.

Minister Mantashe stated there is a meeting scheduled with the Nersa Board to ask them about the cost of electricity for the end user. What is the point of connecting everybody if they cannot afford to use the electricity? He gave an example of a village he recently visited that is entirely connected, but the villagers use paraffin to cook and keep the lights on.

Minister Mantashe responded to questions about IRP and IPPs and said the literal interpretation of markets do not work when dealing with public goods. Electricity is a public good and everyone should have access to it. The state must be able to regulate the price of electricity along with Eskom in the bigger economic debate. The concept of IPPs is a possibility. The transmission should not be sold off from Eskom – it should be controlled by the state. The most efficient, reliable, and cost effective energy producer is the Koeberg Nuclear Power Station - it is only expensive when commissioning and decommissioning. This is why the life of Koeberg would be extended by 20 years. Nuclear can be brought in in modular form in a pace and price which the country could afford. There is no one solution so nuclear cannot be ruled out. An example of the dangers of using one energy source is Germany who now relies on its neighbor, France.

In the first quarter of this year, the energy sector declined by 6.6% contributing 0.1% to the overall 3.2% decline in the GDP. The mining sector declined by 10.8%, contributing 0.8% to the overall 3.2% decline of the GDP. The economic performance of these sectors remains a priority.

Minister Mantashe assured the Committee that he takes the NCOP seriously. However, he complained that in the budget debate, the National Assembly gives the Department 70 minutes, but the NCOP only gives 25 minutes.

Further Discussion

Mr Smit followed up and asked to know where the problem areas in spending are located. He wanted to know which municipalities the Committee needed to investigate.

Mr Zulu replied that assessments would be conducted on a quarterly basis. He added that the Department was relaxed during implementation in the first quarter, but will be much stricter in the second quarter.

The Chairperson thanked the Minister, Deputy Minister, Members, and the team from the Department for the presentations and discussions. She added that people are crying out on the matter and cost of energy. She appreciated the information presented by the various Department officials which she will take back to her province.

Consideration and adoption of Committee Minutes dated 9 July 2019

Mr Nyambi moved to adopt the minutes as a true reflection of what was discussed in the meeting on 9 July 2019.

Ms L Bebee (ANC, KZN) seconded the adoption.

Committee Minutes dated 9 July 2019 were adopted without amendments.

The meeting was adjourned