Department of Mineral Resources & Energy 2019/20 Annual Report

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the virtual meeting, welcoming the Members and the delegation from the Department of Mineral Resources and Energy (DMRE).

He said that the Committee has no right to instruct entities as it speaks through the Department. There might be issues that might relate to the entities, in order for smooth running of the meeting; the Department might have to consult those entities. In the interest of the smooth running of the meeting, the entities might have to link themselves with the Department so that if there are issues that relate to them, they will answer maybe via WhatsApp. The fact that they will not be present as individual entities does not mean that there will not be issues that relate to them.

Department of Mineral Resources and Energy Annual Report 2019/20

Adv. Thabo Mokoena, Director-General, DMRE, recounted that in May 2019, the President announced the reconfiguration of government and this culminated in the merger of the former Department of Mineral Resources and the former Department of Energy to form a new department which is now the Department of Mineral Resources and Energy, with effect from 01 April 2020. But the ministry started in 2019. A significant part of this financial year was dedicated to managing the merger and putting in place a transitional arrangement. The merger process affected the filling of critical vacancies as a decision was taken that the Department needs to be alert to the fact that there will be excess staff members; that is the case, and so the necessary processes and measures are being undertaken. The new DMRE will be conducting a reorganisation exercise as it has concluded this amalgamation successfully. The Department of Labour is also important in this exercise and the DMRE has consulted thoroughly with the department.  

The presentation is divided into two parts: the first part focuses on the former Department of Energy (DoE).The former DMRE will deal with slide 48 to 77. After the Department sent its report, there were changes made by the Auditor-General (AG). These changes do not have a material effect on the report itself. There are also outstanding audits within the DMRE, particularly the former DoE and this matter was dealt with yesterday. The Department will continue to engage the office of the AG.

On outstanding investigation for irregular and wasteful expenditure, the Department has commenced with the process of disciplinary action against those that are implicated. An audit improvement plan is being developed to strengthen the governance environment to prevent a repeat of such findings.

On supply chain management (SCM) challenges, he said that the Department is strengthening the SCM process which will include the training of all end users.

Presentations by the Department branches

Part A: Department of Energy (DoE)

Mr Lucas Mulaudzi took the Committee through the presentation. The Department obtained an unqualified audit opinion with findings in 2019/20 financial year and had the following highlights:

- 98 approved invoices were paid within 30 days of receipt,

- Annual Energy Balance report for 2017 data was published,

- Biofuels regulatory framework was gazetted; 1 080 Fuel samples were collected and tested, 1 367 Retail site inspections were conducted.

- A total of 91 85 733 798 of licence applications approved.

-  have a minimum of 50% Historically Disadvantaged South Africans (HDSA) ownership,

- About 214 517 newly electrified households, exceeding a target of 195 000,

- Three new substations were built; three substations were upgraded 174 87 km; new MegaVolt (MV) powerlines constructed and 11 km of existing MegaVolt powerlines upgraded,

- Two reports on interventions and support provided to municipalities regarding electricity were produced.

- Authorisation applications were consistently processed within eight weeks to achieve the target of 70%.

- 6.3 Tera-Watts (TW) per hour energy savings realised and verified from Energy Efficiency Demand Side Management (EEDSM projects) and;

- 2018/19 Annual Compliance Report on the third Environmental Management Plan Edition was approved.

Challenges

- Only 14 out of 20 Izimbizo were conducted due to budget constraints.

- Proposals of the electricity sector were delayed by the production of the overarching electricity policy.

- Offtake agreement on the Grand Inga Project was not negotiated due to delays in the appointment of the project developer by the Democratic Republic of Congo.

- Appointment of panel of contractors for the non-grid electrification was delayed.

- The Draft National Nuclear Regulator Amendment Bill was not submitted to Cabinet due to engagements with the relevant stakeholders on the outstanding issues taking longer than expected.

- Radioactive Waste Management Fund Bill could not be submitted to Cabinet due to delays in stakeholder consultation.

- Reports on the installation of National Solar Water Heaters were produced. However, installation was not achieved due to under-delivery of geysers to participating municipalities, and the training of installers

Part B: Department of Mineral Resources (DMR)

The overall audited performance attained by the Department for the year under review was 85.8%, which compared favourably to 84% achieved during the previous financial year. The increased performance is attributable to an improved control environment with management ensuring that all targets within their area of control are achieved in accordance with the plan.

The Department obtained an unqualified audit for 2019/20 financial year, with irregular expenditure reported as proper SCM procedures were not followed. The audit report shows that there were material misstatements regarding the contingent liability and provisions, lease commitments, movable assets and performance information. In the prior year, irregular expenditure was condoned by National Treasury; irregular expenditure of R358 000 was incurred in 2019/20. The tax status of the supplier awarded a tender changed to non-compliant before the procurement process was finalised. Wasteful expenditure of R551 000 was recorded under travel claims and once the investigation is finalised the Department will implement consequence management.

The branch attained an overall 73% on all performance indicators for the year under review. The following is the only target that was partially achieved and negatively contributed resulting in the final score of 73%:

- Percentage achievement of service-level agreement (target 95% vs. actual 94%)

- Customer Satisfaction Index (15) (target three v actual zero)

- Percentage of financial reports delivered on schedule (target 100% vs. actual 98.22%)

- Percentage of fully implemented, agreed upon, management action plans internal audit (target 100% vs. actual 87%)

Management remains committed to achieving planned goals and has committed to corrective action going into the future. Management had attributed weaker performance to weak capacity within the ICT helpdesk and had introduced automated help desk facility which will contribute to increased performance going into the future.

Discussion

Ms V Malinga (ANC) welcomed the presentation and applauded the empowerment of women in South Africa, and South Sudanese agreement and gender-based violence (GBV) subcommittee that was established.

Ms Malinga then asked about the wasteful expenditure of R551 000 on travel claims; was the Department’s decision in line with the Labour Relations Act (LRA) that it could not suspend a person who is being investigated, has done wrong and has incurred such an exorbitant amount? Was its decision to then move the person to head office in line LRA?

When departments send requests to Treasury for aspirant budget, and when it underspends, what does that say about the institution? Can it not cut its budget in areas where it is underspending and give more money to service delivery areas? The Department might spend more money on policy issues such as Nuclear Policy targets where it only achieved four. How will competency in terms of valuation be handled? She had heard that it was the Council for Geoscience (CGS) competency though CGS and Mintek, but these entities are not in the meeting, although they submitted.  How does the Department use service providers even though their performance is not to its satisfaction? The issue of the service provider in terms of valuation is not yet concluded.

Ms C Phillips (DA) said that in 2018/19 performance plan, there are projects and plans that were only partially completed. What happens to those plans? Are they deemed completed in the next year or do they fall away? How does one know that they were actually completed? There is only a four-percent increase to projects that were actually completed.

On Energy Policy and Planning, she said that the status quo is very sad because it is an important Department and yet the Department has only completed two out of eight targets.

On community engagement, the plan was about 157 and the Department did far more than that, which is wonderful. But does that not indicate that planned targets were incorrect?

On the R36 millions of missing Solar Water Heater Units, she asked how many units that equates to. What was the original budget for the Solar Water Heater Project because it appears that more money was spent in storage fees than what the project was actually worth? Why was there a payment for a feasibility study in 2019/20 when these geysers have been in storage for years? What measures are taken against people who approved these geysers without the project commencing when it was supposed to?  

On employment decrease in mining sector due to a decrease in ore commodities, she said that this is not true if one talks about price, especially the platinum metal basket price – which has increased.  Are you talking about the demand or are you talking about the price?

Mr M Wolmarans (ANC) said that he agrees with Ms Malinga in the progressive stance that the Department has taken in empowering women. Generally, in the picture of the two departments, because they were reporting separately, there have been good aspects and, in some respects, a regression. There are footnotes that explain some of the challenges. On the financial overview, 2018/19 reflects 99.4% and the following year the report reflects 96.4%; what is the reason for such regression? On underspending, she noted that there is some 50.3% which is payment to capital projects; what was this for and what is the status? Would be it be the same for 2020/21 financial year?

On the summary of audit outcomes, there seems to be an improvement to unqualified findings.  On the key audit findings, there are contingent assets and the litigation of R36 million; there is also an accrual for prior years and errors that were not disclosed, and the understatement of amounts and with the Solar Water Heater Programme. From these findings, what is the current status? Will the litigations be carried over because one will find that in the next report there will still be conversations about these litigations?

There is a regression in DMR in 2019/20 as well as in creditor payment period; can an explanation on the discrepancy between the Department and the AG assertion that it is not 11 days but 30 days be provided? The Department has to accept what the AG says but one would find that it feels strongly about the work it has done.

Mr M Mahlaule (ANC) said that there is a legislative programme on the energy side which has been put in the performance targets since 2015 and when time comes to report they are moved to the next financial year. On September 13, the Committee received a comprehensive legislative programme which said that the National Energy Regulator Amendment Bill will be submitted to Cabinet on the final quarter of 2019/20 and was subsequently submitted to Parliament on the first quarter of 2020/21. There are quite a number of Amendment Bills, i.e. Gas Amendment Bill, Petroleum Product Bill, National Energy Regulator Amendment Bill; are these Bills going to be submitted to Parliament and not move to the next financial year? Because if one looks at annual reports dating back to 2015, they have been there as performance targets but there seems to not be a movement on that. The Department had planned to put in 20 000 households and out of that it put zero. You cannot plan for 20 000 and put zero; there has to be an explanation. This is a service delivery programme that people are waiting for but they never receive it. The Committee needs an explanation to give to people.

Mr S Kula (ANC) said it is encouraging to hear the DG say that the Department will implement consequence management. It is our failure to ensure there is consequence management that casts a negative aspersion on government and various entities.

On the annual performance plan (APP) there is a concern around Energy Policy and Planning that the Department has achieved on only two targets and partially achieved three, and there is an underspend of R7.6 million. What is the Department doing to ensure that it moves swiftly in this area?

He congratulated the Department for exceeding its target on the electrification of households. It did well on approval of licensing as 50% covers historically disadvantaged groups. On rights and permits granted, the initial target was 120 and the Department delivered 176; this is commendable.

The Committee has consistently raised the issue of transformation and the Department is gradually adhering to it and for that the Committee must commend them.

Responses

Ms Disietsi Morabe, the acting CFO, responded that on the budget cuts, saying that the Department does look at slow moving projects. The National Treasury has access to financial results of the Department; so when it approaches the Department for budget reductions, it is already aware of the slow-moving programmes. The Department also reports to Treasury on a monthly basis. Projects are identified for budget reduction and if they relate to service delivery, there is a push back at times and the Department engages with Treasury, consults and then makes a collective decision.

On the missing water units, the acting CFO responded that the actual number has not been ascertained; it is only components that are missing. That is what is being litigated because for installation, the full unit has to be there.

The original budget for solar water was R62.8 million. There was underspending in compensation. The total underspending was of R256 million and of that amount, R 208 million related to transfers.  The capital assets had an underspending of R2.2 million and the Department monitored it due to the merger. It hopes to identify the actual capital requirements so spending will be done accordingly.

On the summary of audit outcomes, the acting CFO said that the Committee will get an update on some of these and if the investigation has not been concluded it will fall over to the next financial year. For example, on solar units the investigation is underway, and outcome might be given in the next financial year. The findings under the Nuclear New Bill programme are accepted as irregular but have to go through due processes one of which is the investigation.

There were procurement delays in finalising the bids and the lockdown period contributed to the delay and the constant closing of the Matimba House due to Covid-19 cases impacted the bid committees. However, as it stands, the bid has been concluded and the contracts are being drawn up; allocations are being attended to so there should no longer be a delay in the administrative part.  The branch will engage the service providers to ensure implementation happens speedily.

On the discrepancy with AG regarding the creditors payment period, the acting CFO said that if there is a disagreement, the Department shares its calculation methods with the AG and if there is still a disagreement, the Department takes what the AG presents. If one looks at the presentation, the Department put the 30 days from AG, but in actual fact it is 11 days. There was not sufficient time to engage and the 30 days was noticed at the presentation of the final management letter. Going forward, the Department will give it time to discuss these matters before audit. The calculation method is that the Department ages the number of days for each invoice and then averages. Most of the items rage between 11 days and five days and very few 30 days; this confirms the Department’s calculations.

Ms Ntokozo Ngcwabe, Deputy Director-General (DDG): Mineral Policy and Promotion, DMRE, said that with the merger of the two departments she had taken over policies of Bills and is moving to finalise those that are at an advanced stage. As a matter of fact, the previous Department tabled at the Economic Cluster of Ministers the Nuclear Fund Waste Management Bill and the Gas Amendment Bill and both received approval and will be presented to Cabinet secretariat on 06 November 2020 for circulation to Cabinet Members.

On the Electricity Regulations Bill and the National Energy Regulator of South Africa (NERSA), she said that the two have to do with regulation of electricity and pricing. Delays are foreseen due to the conversations around restructuring Eskom and the need to regulate the space in terms of new structure, as well as the discussions that were before this Committee on the Bill that talks to the regulation. These developments have a direct impact on these Bills. The rest of the Bills have been prioritised and they will go through Cabinet and be tabled before the end of the financial year.

Ms Patricia Gumede, DDG: Corporate Services, DMRE, said that the money that was incurred by an employee raises two issues. It is a legal matter that is handled by state attorney with the legal chief director. So, whilst the matter was investigated, that is when the employee was transferred to head office and that is when the matter of the claim emanated. Internal audit is also trying to investigate.

Mr Mulaudzi responded that the partially or unachieved targets have a negative impact on service delivery. A missed target is equivalent to a failed module. What the Department is doing in terms of that is in several approaches. The first approach is that on a quarterly basis, management is subjected to performance review and see what initiatives to be put in place. The second part is that the Department presents to the Committee. The intervention list is for every branch and branches are encouraged to conduct strategic planning sessions. The Department is optimistic that as it will be looking into performance of the current year, Members will see a significant change.

Mr Mosa Mabuza, Chief Executive Officer, CGS, said that on derelict and ownerless mines and expertise required in calculation of the financial figure and contingent liability, the actuarial skill is not used in the ordinary course of business. It is only required in the calculation of contingent liability. It did not make sense to develop it in house when it is used once a year. The Department has been calculating it for many years and never had a problem with calculating it. What made this year peculiar was that the service provider requires information which is consolidated for it to calculate, but the transition of management of derelict and ownerless mines meant that it necessarily had to depend on secondary and tertiary sources of information in order for it to consolidate its calculation. This presented a delay which was compounded by the lockdown which is not an excuse. Liability cannot be calculated until the last day of the financial year, so all information is assembled after the 31 of March. The difficulty in accessing colleagues furthered this. The report was finalised much later. It is an anomaly and, on this basis, the Department has landed itself in this particular case and can correct this matter, and the financials will not be negatively affected.

Follow-up questions

Ms Malinga expressed that she is confused because the former CFO said that the skill for valuation was going to be harnessed in the Department but Mr Mabuza is saying that it is peculiar and critical. Will the Department employ that person or will it continue outsourcing it?  In the Department, are there internal audit and legal units?  

She is not happy that the state attorney is still busy with the case that went from 2012 to 2019. The AG said something about senior managers and Mr Mulaudzi said that performance is reviewed quarterly but still there are performances that are not yielding any result. Are senior managers not up to the task?

The Chairperson said that looking at the standards, it is not worse off but there is a high risk that he will regret this statement and hoped that the Committee will find a way to explain the report. First is the dilemma brought by AG?  There is almost 90% of outstanding audit outcomes in the Energy Portfolio, which has had the difficulty of having outcomes tabled. The Committee has nothing to bring it to a contrary belief to what is still outstanding.

Making an opinion on an annual report that does not have all the information will result in the Committee giving report that is half baked. By the Committee’s very nature it should be dealing with something that it knows does not exist because it has not been tabled. However, there is a dilemma of entities and the Department having been confirmed to have tabled on time. Most of the report forces the Members to believe what was said by the Department, with the hopes that it will be complemented by the outcomes of the AG at a later stage.

Overall, in the last financial year, it has been evident that the more the Department explains certain things, the more problems it creates. The Committee can see an audit query coming and must have that discussion again as it deliberate on the report. Must Members keep quiet and wait for something to be raised by AG? The Committee must be proactive and raise the risk of being unpopular. The AG report speaks well about the accounting officer and executive authority but shaky when it comes to senior management. There is no doubt that somebody’s head should roll. People should not preside over money of the state and think they can do as they wish. If sending someone to the head office was correct, there would be no audit query. If there is prima facie evidence of a case of misconduct, that person cannot be transferred and incur additional cost. Instead, the person should be put on special leave. If this person commits further misconduct in the head office, what is the Department going to do? The name of the official who initiated the transfer should be provided and he/she should state which section of labour law was used. What type of misconduct could allow an individual person to accumulate so much money? He said that he cannot preside over meetings where the Committee condones irregular things.

In the coming days the Department must be able to tell the Committee what action has been taken. That decision could have been taken on senior management; why was that approved? If one thinks he has a case, labour law and labour relations tell you which steps to follow. Simply put, it was an indirect promotion to the head office. Why? If you read the AG report it says a lot because most of the Department’s entities are far better than the Department in terms of leadership.

Responses

The acting CFO says at the time of the project, there was absolute compliance until service provider made different demands towards the end. Please explain that because if everything was done right why would there be room to negotiate towards the end? The Department is doing relatively well. There was once a case where people paid double for an office and also paid for a non-existent office. Such has to end, and it will not end if the Committee is not harsh.

The DG indicated, on skills to be harnessed, that the Department agreed to build internal capacity. Whenever it engages with external stakeholders it needs to have an appreciation of what it is dealing with or else it will have a problem. It continues to engage with CGS as an entity but as a Department, it needs to have capacity to build its own competency. There is an internal audit unit and the AG has commended its performance. There is also a need to have a legal services chief directorate. The Department has taken note of the affected official here and this is a matter where the stakeholders had little appetite to conclude. The Department will give a full report on where the matter started and a status update. The point that the Committee has raised is very important because someone has to take responsibility. If he, as a DG, fails to discharge his responsibilities in terms of the regulations, there should be consequences for that. On the performance of senior managers, he explained that the Department deliberates on the challenges that it is faced with and consequence management is always raised even by the AG. So, all these things are a result of a lack of consequence management.

The Department has taken note of the outstanding audits and will get guidance from the Committee. Without blaming anyone, the entities did submit on time. The Committee will guide on how to move forward and the Department will take it through on outstanding committees. It is important that when the Department and Committee reconvene, the Department gives a comprehensive update on those outstanding entities and on what has been raised.

Closing Remarks by the Chairperson

The Chairperson said that the Committee will deliberate on these issues and it is necessary that where credit is due, it is stated; where there is underperformance, it must be rectified. If we continue to deal with issues in a manner that has no consequence, even those who are doing well will stop. Certain things should not be allowed to continue. When people are given the responsibility of leadership, especially at senior level, certain things should be automatic. Most entities for now are within the category of unqualified outcome with findings and not adverse findings. If more pressure is put, things that have never been achieved will be achieved. Issues of labour law and labour relations will be improved on, and the Committee will observe how it can assist the Department.

The Chairperson announced that the Committee is scheduled to go to Mossel Bay on 13 November 2020. Members will leave Cape Town and they can each decide where they go after the trip. There are many reports to be finalised by 24 November; this includes the oversight report to Mpumalanga, Limpopo and Gauteng. This is a high priority, including the Mossel Bay visit.

The meeting was adjourned.