NERSA, SDT & SADPMR 2020/21 Annual Performance Plans

This premium content has been made freely available

Mineral Resources and Energy

20 May 2020
Chairperson: Mr S Luzipo (ANC)
Share this page:

Meeting Summary

Audio: NERSA, SDT & SADPMR 2020/21 Annual Performance Plans 

Annual Performance Plan (APP) of Government Departments & Entities 20/2021

The meeting considered the 2020-21 Annual Performance Plans of three entities for which the Department of Mineral Resources and Energy is responsible: the South African Diamond and Precious Metals Regulator, the State Diamond Trader and the National Energy Regulator South Africa.

The Diamond and Precious Metals Regulator and the State Diamond Trader are currently operating without boards of directors. The Chief Executive Officer of the National Energy Regulator was put on precautionary suspension in April after a whistleblower’s report was referred to the Minister by the board of the energy regulator. The Minister has directed the board to deal with the matter and submit recommendations. 

All three of the entities discussed how they were being affected by the Covid-19 crisis and outlined some of the steps they were taking to manage the disruption – and sometimes the complete halting – of activities.

Members were concerned that Diamond and Precious Metals Regulator had no board of directors and asked how the entity planned on improving its audit outcomes for future financial years.

The State Diamond Trader said that the term of their board of directors had ended, but that this had not affected strategic planning as the Public Finance Management Act provides that the Chief Executive Officer takes on the role of the board if there is no board in place. The Trader has been operating on its reserves because the Covid-19 lockdown had cut revenue. If the reserves run out, funding will be requested from the National Treasury.

Members were concerned about the regulations faced by the diamond industry and that the State Diamond Trader had no board.

The Chairperson of the National Energy Regulator said that its governing legislation was not up to date with current energy developments. This is Parliament’s responsibility and there have been engagements on the issue with the Department.

Members were interested in the reasons for the suspension of the Chief Executive Officer. The Energy Regulator was questioned on the distinctions between prices and tariffs and on its relationship with Eskom.   

.

Meeting report

The meeting considered the 2020-21 Annual Performance Plans (APPs) of the South African Diamond and Precious Metals Regulator (SADPMR), the State Diamond Trader (SDT) and the National Energy Regulator South Africa (NERSA). Officials of the Department of Mineral Resources and Energy (DMRE) attended and apologised for the absence of the Minister.

South African Diamond and Precious Metals Regulator (SADPMR)

Mr Cecil Khosa, Chief Executive Officer (CEO): SADPMR, summarised the mandate of the SADPMR which is to regulate the diamonds and precious metals industries and the contributions of these commodities to the economy. Diamonds, gold and platinum contribute considerably to employment in the economy. In creating jobs, the SADPMR issued 1 274 licenses in the past 5 years, assisted 47 new entrepreneurs and facilitated 5 skills initiatives. 248 licenses had been assessed against their commitments as per Mining Charter. 15 170 clients were given assistance to access the trading platform. The strategic plan targets the completion of 8 400 inspections over five years.

Mr Khosa recalled that the SADPMR had received unqualified audit reports with findings for the previous three years. The major challenges faced by the SADPMR are access to the Diamond Exchange and Export Centre (DEEC) as well as meeting the 60-day time frames. The challenges were evaluated and solutions were drafted in the Strategic Plan. On challenges caused by the COVID-19 outbreak, he mentioned that VAT on imports contributes 15% to the cashflow and that discussions were underway with the South African Revenue Service (SARS) to deal with the problems this caused. Diamonds from other countries in the Southern African Development Community (SADC) have to be attracted to increase trade in South Africa.  The review and introduction of new quota requirements was underway to build the diamond sector. He mentioned that the SADPMR was looking for a way to introduce export levies and services after the lockdown to maximize the country’s benefits. Before the amendment of the Diamond Act, 15% duty was charged on exports. This was later reduced to 5% and Mr Khosa said that the Act needs to be re-evaluated to promote local business.

The SADPMR did not trade in the first quarter (March to May 2020) because of COVID-19. This has impacted both revenue and the budget. The SA Reserve Bank (SARB) would be approached in order to obtain a quota of gold through refineries to increase reserves. The quota will require the amendment of the legislation to expand mandates. The inclusion and determination of other strategic minerals has to be evaluated by the Minister.

State Diamond Trader (SDT)

Mr Mandla Mnguni, CEO: SDT, said the SDT’s board term ended in November 2019, [so the entity is presently operating without a board of directors]. He outlined the background of the SDT and its mandate. He mentioned that the SDT does not receive funding from government, so revenue has to be generated.

The APP for the current financial year and the five-year strategic plan were completed in January 2020. An analysis was also done to check the circumstances that the SDT operates in. In the previous financial year, the SDT had challenges with production because there were low sales in the industry. A SWOT analysis of strengths, weaknesses, opportunities and threats informed the strategic plan goals of the SDT. The strategic outcomes are aligned with the National Development Plan (NDP) and government’s priorities.

Mr Mnguni highlighted the strategic objectives and targets that had been fixed on to develop the diamond industry. He said that there was currently no production because of the lockdown and that the SDT has been using reserves. Funding will be requested if reserves run out.

The SDT summarised financial aspects of the APP and the effect of the COVID-19 on its financial position. Profitability was expected to decline in 2021.

National Energy Regulator of South Africa (NERSA)

Mr Jacob Modise, Chairperson: NERSA, said that the CEO was not present because of suspension. [Mr Chris Forlee was placed on precautionary suspension by the Mineral Resources & Energy Minister in April 2020 after an investigation by the NERSA board into allegations of impropriety. Executive head of corporate affairs Ms Nomalanga Sithole was appointed acting CEO].

NERSA is self-funded from the levies it receives. Mr Modise said that its governing legislation was not up to date with the current energy developments. NERSA faces particular challenges when it has to regulate and handle appeals. NERSA has had multiple court cases involving Eskom and piped gas matters which the Cabinet has not challenged. There is a need for alignment between petroleum legislation and regulations and government policies on petroleum pipelines.  The current legislative framework provides weak enforcement powers. There is an ability to improve compliance but not to implement the changes needed in the industries. There are problems with the high municipal debts and bulk determinations in the petroleum pipelines. Another issue facing NERSA is that there are no long-term frameworks on the negotiated pricing agreements. This is challenging when negotiating prices with stakeholders.

Mr Modise said that the finalisation of the Liquid Fuels Charter is key in guiding NERSA for economic transformation. Targets in the annual performance plan support key government priorities. Some of NERSA’s functions cannot be performed, such as public participation, because of the Covid-19 lockdown.   NERSA may have to reprioritise some of its targets, without compromising our regulatory responsibilities. NERSA’s balance sheet is strong but the Covid-19 pandemic could lead to an adjustment of the proposed budget.

Discussion

SADPMR

Mr MG Mahlaule (ANC) welcomed the presentation but said that it included slides that Members did not have. He expressed his satisfaction with the overall presentation of the report.

Mr K Mileham (DA) thanked SADPMR for the presentation and asked what was being done to bring back the board and what was the progress on the actions. He asked if the SADPMR’s request on receiving COVID-19 relief from the National Treasury was realistic considering that the outbreak is affecting every governmental department. He suggested that the SADPMR reduces expenditure. He said that foreign revenue needs to be maximized instead of being cut-off in hopes of promoting local business. He also asked for clarity on why the SARB should use internal funds to purchase gold.

Mr D Mthenjane (EFF) thanked the SADPMR for the presentation and highlighted that issuing licenses to new entrepreneurs does not result in employment and that more businesses that cut and polish diamonds should be established to create employment.

Ms V Malinga (ANC) welcomed the presentation and asked how the SADPMR was planning on addressing the issue of small-scale licenses and how the Committee could assist in addressing the issue. She also asked what the plan was for receiving a clean audit in future.

Mr M Nxumalo (IFP) welcomed the presentation and applauded the SADPMR on its quick response to COVID-19.

Ms C Phillips (DA) thanked the SADPMR for the presentation and mentioned that there have been companies with complaints against the SADPMR. She requested a document that outlines all the companies under the SADPMR and how much of the Gross Domestic Product (GDP) the companies are contributing to the country.

Mr M Wolmarans (ANC) welcomed the presentation and highlighted that on the Committee’s last oversight visit to SADMPR there were discussions on relocation and the relocation costs for the SADPMR. He asked for information on the progress with relocating. He also asked for clarity on the pending litigation with employees who earn between R1 million- R1.5 million annual salaries. He asked if the SADPMR was collaborating with mine health institutions on inspections or if it was independent. What were the challenges in conducting the inspections?

The Chairperson highlighted that the SADPMR’s presentation had missing slides which was concerning because Members of the Committee did not receive the amended document of the presentation. He requested that in future presentations should be updated match the actual presentation.

SDT

Mr Wolmarans welcomed the presentation and said that if the diamond industry is over-regulated then it is a challenge. He asked if the Committee could provide assistance to the SDT and if allowing intervention from the Department would help. He also asked for clarity on the SDT’s mandates to grow the cutting and polishing industry in the country as well as plans to increase beneficiation.

Ms Phillips asked what the decline of the diamond industry was and why there is an over- regulation in the industry and how the issue could be resolved. She also asked for the revenue predictions of the decline.

Ms Malinga welcomed the presentation and asked how SDT plans on achieving their mandate.

Mr Mthenjane welcomed the presentation and highlighted that the SDT’s mandate is not achievable if there is no board and suggested that the SDT merges with other entities to avoid money being wasted.

Mr Mileham asked about the reconstitution of the board of directors and the progress of this process. He asked which legislation and which regulations are creating weaknesses in the SDT and how the issues could be resolved. He asked why the SDT listed bringing stakeholders together as a weakness. On the threats, he asked why stakeholders were not brought together to discuss the diamond strategy. He expressed concern with the SDT’s proposed way forward to trade in other precious metals, because the SDT was established under the Diamonds Act.

Mr Mahlaule asked how historically disadvantaged citizens would be guaranteed participation in beneficiation and how trading in other precious metals will assist the SDT. He also asked when the new enterprise hub is expected to be completed. 

NERSA

Mr Mahlaule asked why the NERSA CEO was on precautionary suspension. Was the agreement by NERSA on the Eskom price hike the reason for the court case? Had there been any changes in the agreement?

Mr Mileham asked whether charges have been laid against the CEO. He asked about the status of the investigation into the matter, if the allegations have been investigated and when the investigation would be concluded. He asked for the findings of the investigations. He expressed concern on the long periods required for NERSA’s processes and asked what was being done to speed up processes of issuing licenses. He asked if NERSA’s budget had been re-evaluated and if savings were available to cover the deficits [shown on slide 11]. He also asked if the public participation processes could be conducted virtually with stakeholders.

Mr Mthenjane said he presented questions that are asked by the communities. Firstly, what was the difference between a tariff and price.  If the standard of determining a tariff and price was the same, what elements are used to test whether prices/tariffs were excessive. Has NERSA has identified the causes for the unreasonable prices and tariffs? What contribution has NERSA has made during COVID-19 to lower prices and tariffs.

Ms Malinga welcomed the presentation and asked whose responsibility it was to ensure that the legislation was up to date with energy developments and why the necessary adjustments have not been made. She asked why the issue with Eskom had to go to court? Could the solution consider the disadvantaged who cannot afford to pay the hiked prices?

The Chairperson asked for clarity on the definition of a regulator based on the executive summary and NERSA’s mandate. The Chairperson emphasised that NERSA has a regulatory relationship to manage internal issues and asked about NERSA’s capacity to increase or decrease base prices.   

Responses

SADPMR

Mr Khosa apologised for the inconvenience caused by the presentation not being the same as the slides that had been distributed to Members. He said the information on the companies that are regulated by the SADPMR is available and will be forwarded to the Committee.

On the COVID-19 relief, he explained that various streams of revenue have been looked at but for the current quarter intervention is needed from the National Department. The process of increasing fees annually has been stopped temporarily as it will impact the SADPMR clients. On the issue of reconstituting the board, he explained that follow ups on the issue have been made with the Department. [The Minister is responsible for appointing the SADPMR board of directors].

Ms Clarinda Simpson, Chief Financial Officer (CFO): SADPMR, said that the SADPMR is not fully funded by government so there is reliance on revenue. Currently, the COVID-19 lockdown has resulted in the SADPMR not generating revenue. The SADPMR’s budget expenditure is allocated to 75% Employee Compensation and 25% for Goods and Services, so cutting expenditure will not be a benefit. A revenue strategy plan was drafted and plans to maximize interest have been discussed. Cashflow projections are currently being performed to ensure the SADPMR remains sustainable. The accounts income was currently R1 million and funding is also sourced from the SADPMR’s reserves which are meant for disaster relief. Public entities have been encouraged by National Treasury to apply for additional funding which is why the funding was requested.

Mr Khosa said SADPMR aims to reach a balance between exports and local beneficiation because there is a high export of raw materials. On the purchasing of gold by the SARB, he explained that it was a recent suggestion of an intervention strategy and that other institutions use the sales of gold and precious minerals to improve economies, but discussions with local refineries will determine the possibility of the plan.

On the issuing of licenses for new entrepreneurs, he explained that the SADPMR has programmes for skills development.

A SADPMR representative mentioned that internal training has been implemented by the Regulator to train new industry entrants and that special tenders were introduced for local beneficiators. The reduction of diamond dealer competition with beneficiators has been resolved so that beneficiators compete amongst themselves. The skill being lost in the country is based on a type of diamond produced which cannot be cut profitably so they are sent to emerging markets. Diamond beneficiator programmes are intended to retain the skill in the country.

Mr Khosa said that the Industrialist Programme is a multi-agency programme between the Mineworkers Qualifications Authority (MQA), DMRE, SDT, Department of Trade & Industry (DTI) and the Industrial Development Corporation (IDC) to find solutions to help clients. On the issue of small-scale licenses, he explained that special tenders have been implemented and the license fee structure has been evaluated. He mentioned that the SADPMR was working with the DMRE and the South African Police Services (SAPS) on the inspections. On the unfavourable audit outcomes, he explained that the SADPMR has looked at what went wrong and that independent service providers have been appointed to investigate problems from the previous financial year. Gaps have been identified and addressed. The relocation process [of the SADPMR head office in Johannesburg] is underway but had to be moved to a different date because of the COVID-19 disruptions. A request for a new occupation date had been submitted.

On the issue of the litigation, two structures for employees have been created. He explained that unions are included in the processes of salary adjustments for bargaining unit employees. Collective bargaining ended in an agreement that lasted for 3 years (2017-2019). Those employees who receive an annual salary between R1 million- R1.5 million received an adjustment of 2.8%. Senior employees who receive an annual salary over R1.5 million did not receive any salary adjustments. Board resolutions have been received and the matter is still at the labour court. 

SDT

Mr Mnguni said that the SDT has been communicating with the Department on the issue of the board. [The Minister is responsible for appointing the SDT board of directors]. SDT operates under the Public Finance Management Act which indicates that if there is no board then the CEO takes on the role of the board. The strategic plan was compiled without the presence of a board.

SDT has started the process of appointing service providers to assist on the legislation. A document will be submitted to the Department on all legislative challenges and proposals on how the these should be resolved. He mentioned that the Diamond Strategy is an external strategy so all the entities involved should come together and discuss the strategy. SDT cannot order the entities to gather. When the SDT hosted the Diamond Indaba, some stakeholders were not present. The Department needs to lead the processes. Mr Mnguni said that the Department should assist the SDT in bringing all stakeholders together especially because the SDT is limited to certain stakeholders.

Mr Conrad van der Ross, Chief Operations Manager: SDT, said that the diamond production decline is global, and it results from the lack of demand in the previous financial year.

The CFO mentioned that the budget on the relocation has been submitted to the Department and that the building improvements are not for the current SDT premises.

Mr Mnguni said the relocation also covers the issue of the hub. The hub strategy will be implemented after the relocation has happened. On the IDC loan, he mentioned that the IDC has been utilized by the SDT for a long time - since its establishment. When there is a financial shortage, the IDC provides short-term funding for the SDT to purchase diamonds. After the purchase, the IDC is paid within 10 days. The loan is given within 48 hours after the request is made by the SDT. SDT is financially stable. SDT depends on its clients ability to purchase and this is why there is a request for a guarantee from the government for clients so they can still buy diamonds from the SDT during the COVID-19 lockdown.

NERSA

Mr Modise said that the matter of the suspension of the CEO is ongoing. The Minister received a report from a whistleblower, which led to the suspension. It would be unfair to discuss the matter publicly. COVID-19 has affected the process to lay charges against the CEO and the start of an investigation. Timelines have been affected because legal representatives are not considered an essential service [under the Level 4 lockdown regulations] so legal processes cannot proceed. He also mentioned that the allegations against the CEO are process based.

Mr Nhlanhla Gumede, Full Time Regulator of Electricity: NERSA, said the Eskom price hikes issue was not a directive by the court but a matter of processes and tariff methodologies. When tariffs are applied for, there are a lot of assumptions on what will happen.

Mr Modise said the Regulatory Clearing Account (RCA) is part of the tariff methodology that allows NERSA to reflect on its assumptions and if they happened. The RCA application process allows for certain adjustments to tariffs that were given by Eskom. The interests of the public and NERSA have to be balanced, which includes consultation with the public. If a stakeholder applies for a license, there has to be public consultation and this is guided by [time lines set in] the legislation. NERSA has made attempts to shorten the process.

There are plans to try and conduct virtual public consultations. The ‘loss’ in the balance sheet [shown as a deficit on slide 11] is not a loss but a deliberate exercise to limit levies so that NERSA can return some of the tariffs that have been charged over the years.

Mr Nthupheni Ragimana, Acting CFO: NERSA, mentioned the allocated budget for travel and accommodation consists of three elements: The Compliance audits budget, Public Participation budget and the Training and Development budget. There would be a need to complete all the work that should have been done during the lost time of the lockdown, so the first two budgets would have no savings. There are training interventions and conferences that should be taking place but are not which means this budget would have savings. Revenue collection goals will be reviewed considering the impact of COVID-19.

Ms Nomfundo Maseti, NERSA, explained that a price is the charge for the gas molecule and a tariff is the charge for the network services such as transportation, infrastructure and storage. She mentioned that NERSA regulates both the price and tariff. The standards of the price and tariff are different in the legislation and regulations because there are different regulatory measures and approaches. NERSA does not have the power to set prices but to approve them. The methodologies had to consider the limited powers of NERSA. She mentioned that the elements to test prices and tariffs are different because of the legal mandate. Internationally recognized methods had to be developed. The Gas Act has to be amended to support NERSA’s tariff methodologies. Prices need to be competitive as a form of bench-marking so restructuring is important. The methods used are different because of the different approaches in the legislation when approving prices.

Mr Modise said the contribution to COVID-19 was still being explored. He also stated that the responsibility to ensure that legislation is up to date with the industry is Parliament’s responsibility. He said that there are engagements with the Department.

Mr Gumede explained that balancing of conflicts of interest is important and that industry entities are required to be sustainable while maintaining a reasonable, affordable price for consumers. There had been no change with Eskom and NERSA except for the ability to engage. This will assist in managing future relationships. He added that NERSA acts as a middleman between Eskom and customers.

Mr Modise said NERSA is an economic regulator that regulates internal policies of the state. There is a balance to ensure affordability.

The Chairperson thanked the different entities for their responses to questions and highlighted two important questions that were asked by members that require clarity: the first question being the issue of the status of the SDT board and the second question being the suspension of the NERSA CEO. The Chairperson asked the Director-General to provide responses to the questions.

Mr Thabo Mokoena, Director-General: Department of Mineral Resources and Energy, was satisfied with the questions asked by members. He explained that the Department has compiled a document with requirements meant for advertising to ensure that the two vacancies in the board are filled. He mentioned that some information regarding the board is confidential and is between entities and clients.

On the NERSA CEO, he explained that a full report was received by the Minister from the NERSA board with recommendations after preliminary investigations were conducted by NERSA on the allegations against the CEO. The Minister agreed for the CEO to be put on precautionary suspension. The NERSA board has been directed by the Minister to deal with the matter and submit recommendations. 

The Chairperson said the Portfolio Committee would deliberate on the draft report and make recommendations. The Chairperson said that a meeting with the Department is scheduled for 26 May and thanked the entities, Committee Members and the Department for attending the meeting.

The meeting was adjourned.

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: