Stakeholder Engagement: SAOGA, SAREC, EIUG & SAPIA pm

Meeting report

Discussion

South African Petroleum Industry Association (SAPIA)

Mr K Mileham (DA) commented that refineries were privately owned -- they were not government entities. In the SAPIA presentation, they had said that the refineries were up to date, modern and had state of art technology. However, they had also said that they were not able to meet the Euro 5 fuel standards. Were they really up to date, and if not, why?

They were saying the government must invest in those refineries, but he does not see the rationale behind this. If they were going to sell fuel products in South Africa, then they had to produce what South Africa needed. If they were going to need Euro 5 fuels in South Africa, then the refineries must produce them, otherwise they were going to out of business. Therefore, this was not for the government to decide, but for them to decide for themselves. He did not see why the government should invest billions into privately-owned refineries.

He had not heard them speak about licensing issues for fuel retailers. Did they think South Africa’s licensing system was functional, fair and efficient? If not, what did they think should be done?

He said there was a huge increase in fuel prices and the finger was always pointed at the oil price and the rand-dollar exchange rate. However, if one mapped the rand-dollar exchange rate against the price per barrel, one could see that it was relatively stable. What were they doing to mitigate the fuel price rises to ensure that the cost to consumers was as low as possible?

He also wanted to know what was preventing the roll-out of the biofuel mix into liquid fuel.

Mr M Mahlaule (ANC) said that the Department had offered to host the Committee so that they could interact specifically for enhancing transformation. Whilst making those preparations, they should also prepare statistics of transformation, especially in the area of licensing. He needed a breakdown of garage ownership by race and gender.

He also asked what SAPIA’s view was on the government designating PetroSA as a gas and oil company in South Africa.

Mr D Mthenjane (EFF) commented that in their presentation, SAPIA had focused mostly on the making of profits. He asked why fuel was so expensive, and what their plan to deal with that was.

People living in areas surrounding where refineries were situated were not benefiting from anything. SAPIA had mentioned the discovery of gas somewhere in Gauteng, but they had not spoken more about it and had not conveyed how they were going to create more jobs. Instead, what they had been talking about was 150 000 jobs, which one could clearly see was not true. The job creation they were talking about were mostly short-term contracts -- for example, if a person was given a tender, they were only going to hire people for about three weeks, and then the job would be done. This was not the job creation envisaged for South Africa.

Lastly, he asked why fuel in Swaziland was cheaper than South Africa, given that it buys its fuel from South Africa. 

Ms V Malinga (ANC) said SAPIA had indicated in their presentation that building a new refinery was not going to assist in resolving the current challenges. However, they had not put forward any solutions as to what should be done to improve the current situation.

SAPIA’s response

Mr Avhapfani Tshifularo, Executive Director, SAPIA, said that the refineries were producing products according to the specifications that had been gazetted in January 2006, so they were complying with the current legislated specifications. However, there was a pathway to the future. These were the Clean Fuels 2 (CF2) specifications which had been gazetted and were supposed to have been implemented in July 2018. However, they had been put on hold because the physical framework was not complete in terms of how companies were going to be competing for investments.

The companies were not the ones that decided on fuel prices -- that was the Minister of Energy’s prerogative. Companies could not decide how they would recover their costs by setting prices. There were regulative frameworks.

On the question of complying with the bunker fuels sulphur cap that was coming in 2020, he said that SAPIA members who were responsible to selling the bunker fuels to shipping companies would ensure that they sold them compliant fuel.

Regarding licensing, he said there were organisations that represented retailers, such as the South Africa Petroleum Retailers Association (SAPRA). He added that people were raising concerns, especially when there was an opportunity to change hands -- for example, by bringing in a black player to participate. The system itself was very rigid, as it did not allow for such a quick turnaround. He therefore rated the licensing system at seven out of 10.

The key issue with fuel price increases was that even if the exchange rate was viewed as stable, the movement of the rand by just 50c within a short space of time was significant, considering that oil was priced in dollars per barrel. Even with the current prevailing exchange rate, the international component price that one paid to the seller in an international market was always going to be over 50% of the retail price. Also, about 35% went to the government for tax. This left less than 20%, but the big chunks were the ones influencing the movement.

What was hindering the rollout of biofuels in South Africa was that the Department had put a stop to it because they believed that the regulatory framework was not complete, particularly the transfer price between the biofuels manufacturer and the oil companies.

On the issue of PetroSA, he pointed out that it was a member of SAPIA, and as he was the representative of the Association, he could not present his personal view.

On why fuel was cheaper in Swaziland than South Africa, he said that the base price was the same. Swaziland used the landed price in Durban. The price differentiation was only due to the difference in tax.

South African Renewable Energy Council (SAREC)

Mr Terence Govender, Chairperson: SAREC, said the Council was the point of contact for the renewable energy industry for managing the constraints in the energy sector and the implementation of renewable energy in various sectors involving small and large scale operations, energy storage and energy efficiency based on local and international experiences.

He described a number of opportunities, such as:

• The contribution to the energy mix -- large scale and small scale -- together with storage and upstream benefits;
• Driving down the cost of electricity for all sectors to benefit, such as mining, agriculture, manufacturing and transport;
• Contributing to job creation and reskilling, news skills development, industrialisation and power generation;
• Quick timelines for the integration of power into the grid;
• Storage options, such as batteries and high-temperature heat-transfer fluids (HTF)-concentrated solar power (CSP) involving oils and salts;
• Benefits from the worldwide implementation of renewable energy, such as lower costs and mining solutions;
• A levelling of the cost of energy due to international demand and implementation

Challenges that they were facing included the fact that the mining and the manufacturing sectors had been affected by the high cost of electricity since 2008. Approximately 75% of gold mines were not profitable. There needed to be a just energy transition, with a balance between the coal sector and renewable energy structures. Other challenges were the delayed policy approvals in South Africa, inconsistent procurement and the fact that Eskom was a single buyer.

Worldwide, a total of 181 GW of renewable power had been added in 2018, which had resulted in renewable energy becoming increasingly cost-competitive compared to conventional thermal generation. Renewables had provided an estimated 26% of global electricity by year-end. Developing and emerging economies had also continued to increase their deployment of renewables and distributed renewable energy systems had further helped to spread energy access to households in remote areas. In 2018, renewable energy accounted for an estimated 23% of total final energy consumption.

He then described SAREC’s future expectations. (See presentation)

Discussion

Ms Malinga asked whether the use of technology in the ghost towns would address the issue of labour, because technology meant machines would be doing the work of people. She asked how the community was going to benefit.

Mr Mahlaule said they were actively participating in making sure that renewables became the solution. In doing so, they had established relationships with the banking sector. He asked which banks were involved and the kind of relationships they had, because he had heard that some of the banks were refusing to fund the coal sector. Were they the ones who influenced the banks in favour of renewables instead of coal? Coal was an important resource, so they should not be negotiating just renewable plans.

Mr Mileham referred to their just energy transition, and asked about the role of renewables with regard to baseload supply. Who would bear the cost of storage and the responsibility for operating and maintaining storage, because it was becoming clear that storage was going to be an essential part of a renewable energy solution? Lastly, he commented that concentrated solar power was arguably the most expensive form of electricity supply available, at almost three times the cost of anything else. Why should South Africa continue to support it, since its price was not coming down in the same way that wind-generated power had come down?

SAREC’s response

Mr Govender responded on the question about ghost towns and technology, and said that when a mine was closed, a ghost town was formed. SAREC was saying that they could extend the life of such towns by implementing other business opportunities. One of the things that mines could do was to manage the water levels in tunnels. This could be done by using renewable energy technology, and people from the community could be hired to run it. Another option could be to create a mini-grid system, and thereby they could create a procurement system to extend the life of that town.

On the issue of the banking sector, and if renewable energy investment was having an effect on the funding of coal, he said they were not forcing banks to choose them over other options. They were not in the business of promoting renewables. They believed in the Integrated Resource Plan (IRP), and any sector that they dealt with was not at the risk of shutting down another sector. Therefore his answer was no, they were not influencing the banks.

On the question of baseloads, he said that the definition of baseload was going to change, and in future it was going to be gas, modular nuclear and renewables. There were various types of renewables that could play a part in baseload, be it batteries at substations or large-scale projects with inherent storage, like batteries or CSP for solar thermal storage. Therefore, if one could procure renewables for the baseload, that was how the projects would get designed. The problem that they had with the country’s procurement programme was that they had limited the size of photo-voltaic (PV), wind and biomass energy provision. Also, the issue with CSP was that it could generate only up to 10 pm, and after that it would shut its plant. It could also generate only around 100 megawatts. These were the factors that influenced why CSP was more expensive. They believed that continued support for CSP might see a different way of procuring it. In China they had produced 1 000 megawatts with CSP. Europe was also starting to invest in it, because it also helped in other sectors like car manufacturing.

On the issue of storage, they needed to start thinking outside the box. For example, they could use hydro pump storage where a mine was closed.

Energy Intensive Users Group (EIUG)

Mr Muzi Dlamini, EIUG, said the organisation was dedicated to the promotion of the interests of energy-intensive users in South Africa. Their members currently account for over 40% of the electrical energy consumed in South Africa. They also collectively contributed over 20% to the country’s gross domestic product (GDP). They also employed over 650 000 people across multiple sectors including mining, quarrying, manufacturing, electricity, transportation and water.

He commented that South Africa had lost its competitive advantage of being a low-cost country for energy-intensive industries. Eskom’s prices had increased by 545% when prices started to increase above inflation since 2008. They were already beyond the tipping point for many sectors. Eskom’s industry sales were down by 18% from 2011 and mining sales were down by 11.2% from 2011. Eskom at the moment was in a death spiral where higher prices and lower sales were feeding on each other.

He then proposed what they though should be done. (See presentation)

Discussion

Mr Mileham observed that EIUG had said they wanted to restructure Eskom in line with the 2019State of the Nation Address (SONA) message. Did they think that went far enough in addressing the challenges of Eskom and if not, what should be done instead? They had also spoken about a world-class system operator. However, he thought that Eskom was far beyond being called a world-class operator. There was a need to be realistic about the situation and say it was dysfunctional. Therefore, as an organisation, they needed to review that.

Mr V Zungula (ATM) referred to restructuring, stressing that he was opposed to anything that led to privatisation because one could not have the power utility being privatised those who wanted to distribute such an important service for the purpose of making a profit. He said they had talked about cutting operational services, particularly staff. Were they looking at the top executives, because when they want to cut staff they focus on the junior personnel who were not earning much, and leave the high-earning executives? What was EIUG’s view on corruption at Eskom, which had led it to be dysfunctional?

Mr Mahlaule observed that their presentation had been more focused on Eskom, which fell under Public Enterprises, not Mineral Resources. However, they had made a point that the National Energy Regulator of South Africa (NERSA) should strike a delicate balance in the tariff determination policy that would ensure competitiveness in South Africa. This was a point that the Committee was prepared to accept, but the rest fells under a different committee.

Ms Malinga commented that the cutting of staff they were talking about was not assisting with the current unemployment rate.

EIUG’s response

Mr Dlamini said the restructuring would be a success.  The challenges were only the implementation and the time to make sure that it was safe.

On the issue raised about privatisation, he said that it was not part of their plan.

Regarding the cutting jobs, EIUG recognised that the unemployment rate was high. There were plans on the table which they would try to balance, and look at what had already been executed in the reduction of the executives.

Referring to whether Eskom fitted in this Committee, he said that energy did lie in two different departments. The things they were trying to highlight to the Committee were about policy in the Department of Energy which must be clarified. It involved the overall energy mix and the building of sustainable energy. The two were closely linked, because the main executing entity now was Eskom, but the policy and what the future looks like was determined by the Department of Energy.

He said that he supported the drive that the current leadership at Eskom was doing to deal with corruption.

South African Oil and Gas Alliance (SAOGA)

The SAOGA representative said the Alliance was an upstream body set up to promote the attractiveness of South Africa for oil and gas exploration and importation, so their focus was to act among the public and the private sectors and promote investment. They had managed to link the private and public sector by working with both government and industry to develop a sustainable oil and gas industry. They also did capacity development, especially in the skills area. SAOGA represented 250 companies across the value chain. They were not trying to solve the current problems, but were trying to envisage a future that could be underpinned by something very big.

In South Africa, oil and gas were now part of the Industrial Policy Action Plan (IPAP). There was a need for legislation that would facilitate the development of a robust oil and gas industry. He said some of the challenges they used to face included “policy constipation” for the past eight years, where the Acts had been contested backward and forward. There was a need to develop legislation that investors could trust and rely on.

Since its establishment, SAOGA had managed to raise the profile of oil and gas in South Africa and sub-Saharan Africa. They had also geared up South Africans ports such as Cape Town and Saldanha Bay, to service the oil and gas industry. They had created awareness of the oil and gas industry and its potential for development in sub-Saharan African countries.

What they needed from the Committee was to help them envisage a positive future. He went on to describe how the Committee could assist them, and their future focus area. (See presentation)

Discussion

Mr Mileham asked if gasification of coal fell under their organisation, because it seemed like it was a potential route to creating a gas supply in South Africa. Did they think that fracking could be done in South Africa in an environmentally sustainable manner? What would need to be done to ensure that it was contained? SAOGA had spoken about how PetroSA should not be drilling and exploring -- what should their role be then? They had said the office of the Independent Power Producers (IPP) should be tasked with gas procurement, and he asked why that should be the case.

Mr Zungula said he was not comfortable with the over-reliance on multinationals. In their presentation, it seemed as if the only way in which there would be success was through the involvement of multinationals, but this might not benefit the lives of South Africans.

Mr S Kula (ANC) asked why they continued to rely on multinationals. This was an approach they had been using for a long which had not been working. He was not saying that multinationals should not be playing a role in the economy of South Africa, but rather that they should not be playing a leading role. Although SAOGA had said they going to present a picture of gas in the future, in their presentation he did not quite get what kind of future that they envisaged.

Mr Mahlaule commented that 45% of Brulpadda’s offshore gas licensing rights were not with South Africa, so how could South Africans benefit from being the custodians as per the preamble of the Constitution, which stated that the resources should belong to South Africans?

Ms Malinga said that the issue of drilling had started as far back as 1994. Now that there was a crisis and the government did not have money, what did they expect the Committee to say to the ministry?

The Chairperson suggested that due to time constraints, SAOGA should just answer a few questions that they saw as more important.

SAGOA’s response

The SAGOA representative said that the gasification of coal did not fall under SAOGA.

On the issue of multinationals, he said that South Africa did not have the necessary skills and expertise that the multinationals had. They did not have to like them, but frankly right now they were the only people who could do it. He understood that South Africans needed to benefit, but the problem was the policy issues which were usually set in the fiscal terms.

Committee matters

The secretary then briefed the Committee on the oversight they were going to undertake, which would start on 25 August. On the Monday, they would get a briefing from the Petroleum Agency South Africa (PASA), then they would move to the Council of Geoscience. On Tuesday, they would be visiting the National Energy Regulator of South Africa (NERSA) and also the National Nuclear Regulator (NNR). On Wednesday they would visit the South African Nuclear Energy Corporation (NECSA) and the National Radioactive Waste Disposal Institute. On Thursday, they would visit the State Diamond Trader and the South African Diamond and Precious Metals Regulator. On Friday they would visit the South African National Development Institute, the Central Energy Fund and the Health and Safety Council.

The meeting was adjourned.