NECSA, NNR, NRWDI, NERSA, CEF & SDT 2022/23 Annual Performance Plans

This premium content has been made freely available

Mineral Resources and Energy

06 May 2022
Chairperson: Mr S Luzipo (ANC)
Share this page:

Meeting Summary

Video

SA State Diamond and Precious Minerals Regulator                                           

National Nuclear Regulator

National Radioactive Waste Disposal Institute                                                      

National Energy Regulator of South Africa (NERSA)

In a virtual meeting, the Portfolio Committee on Mineral Resources and Energy was briefed by the Nuclear Energy Corporation of South Africa, the National Nuclear Regulator, the National Radioactive Waste Disposal Institute, the National Energy Regulator of South Africa, the Central Energy Fund, the South African Diamonds and Precious Metals Regulator and the State Diamond Trader on their Annual Performance Plans and budgets for the 2022/23 financial year.

The Nuclear Energy Corporation of South Africa reported that it had made significant progress on its turnaround plans. For example, losses for 2021/22 had turned out to be below R100 million, against projections of R200 million, while projected losses for the current financial year were just R23 million. It presented medium-term key performance indicators, finances and key projects such as the replacement of the SAFARI-1 reactor with a new multi-purpose reactor.

The National Nuclear Regulator presented its strategy map and regulatory priorities for 2022/23 as well as medium-term expenditure projections. Its finances were stable, with cash reserves of R104 million, R58 million of which would be used for the construction of new offices in Cape Town.

Members of the Committee asked about the processing of nuclear site licences, safety issues at Koeberg Nuclear Power Plant, the necessity of building new offices, sharply rising employee compensation costs and risks to the Regulator arising from the liquidation of certain licence holders.

The National Radioactive Waste Disposal Institute discussed its key strategic initiatives, which included the Centralised Interim Storage Facility and the transfer of the operation of the Vaalputs Radioactive Waste Disposal Facility from the Nuclear Energy Corporation of South Africa. It presented its medium-term key performance indicators and budget projections including and excluding the Vaalputs facility. Although it was currently financially stable, its long-term sustainability was highly dependent on the timely processing of the Waste Management Fund Bill.

Members of the Committee asked about progress on the transfer of the Vaalputs licence, plans for long-term storage of high-level radioactive waste, recent media reports about lack of consultation with communities near the Vaalputs site, and changes in the budgets for goods and services and science, engineering and technology.

The National Energy Regulator of South Africa discussed its key activities, along with the strategic outcomes and envisaged impact of these activities. It highlighted the need for policy and legislative development in the electricity and petroleum pipeline industries, and the need for government intervention to arrest the decline in the supply of piped gas. A projected budget deficit of R59 million in 2022/23 would be covered by accumulated surpluses.

Members of the Committee called for easing the regulatory burden for independent power producers, especially sub-100 MW generators. They asked about the predicted cost of litigation related to the
 

electricity price in the next few years and how the Regulator balanced the competing interests of all stakeholders when determining electricity tariffs.

The Central Energy Fund Group reported that the board of directors was taking consequence management very seriously and it had suspended a number of executives. It had to retrench staff at the struggling PetroSA, its largest subsidiary. It was still looking at expansion opportunities, however, such as the Republic of Mozambique Pipeline Company (ROMPCO) project, to raise its revenue. Dwindling local oil-refining capacity was an emerging threat on downstream industrial activity, while internal threats to the Group’s financial sustainability included its reliance on Eskom as a customer, the financial crisis at PetroSA, inefficiency and poor leadership. The Group presented performance targets for 2022/23 to 2026/27 and measures being undertaken to stabilise the finances of PetroSA. The Group was expecting an average net loss of R436 million per year in 2022/23 and 2023/24, and an average net profit of R1.3 billion per year in 2024/25 and 2025/26, thanks to the planned turnaround of PetroSA and ROMPCO dividends

Members of the Committee welcomed the optimistic outlook for the turnaround of PetroSA but warned that similarly optimistic projections had come to nothing in the past. They suggested possible synergies among state companies related to the upgrade of PetroSA’s Mossel Bay refinery, and asked about progress and risks related to the merger of PetroSA with two of the Group’s other subsidiaries.

The South African Diamonds and Precious Metals Regulator noted the 2021 High Court judgement that had set aside certain transformation provisions of the Mining Charter, but said that it would continue to foster good relationships with its clients, and to nudge and persuade them that transformation was in the interests of the industry as a whole. It presented a brief overview of its role in the precious metals value chain. It summarised its performance over the past five years and outlined its APP and medium-term targets in terms of its six programmes. Some of its challenges included its engagement with the South African Revenue Service on the possibility of a value-added tax exemption for imported diamonds, and an export levy on precious metals to encourage local beneficiation, which would require amendments to key precious metals legislation.

Members of the Committee asked about progress on the Regulator’s engagement on the tax exemption and its move to new premises, and commended it for speeding up the processing of licence applications.

The State Diamond Trader discussed its Annual Performance Plan, key risks such as policy delays, illegal mining, fraud and corruption, the decline in local diamond production, and synthetic diamonds, and the measures being taken to mitigate them. It shared a summary of its projected income statement over the period 2022/23-2026/27, predicting revenue increasing from R827 million to R895 million and net profits decreasing from R4.3 million to R815 000.

Members of the Committee asked about the sustainability of the current business model, the current supply and demand of diamonds, and the volume and nature of the State Diamond Trader’s trade.

The Committee discussed the possibility of adding to its legislative processing programme.
 

Meeting report

The Chairperson accepted apologies from the Minister of Mineral Resources and Energy, Mr Gwede Mantashe and the Deputy Minister of Mineral Resources and Energy, Dr Nobuhle Nkabane.
 

SA Nuclear Energy Corporation Annual Performance Plan 2022/23

Mr David Nicholls, Chairperson of the Board, NECSA, apologised for his absence from the recent visit to NECSA by the Portfolio Committee. He reported that NECSA had done a lot of work to turn the organisation around over the last few years and their efforts were starting to bear fruit. For example, losses for 2021/22 had turned out to be below R100 million, against projections of R200 million, while projected losses for the current financial year were just R23 million. NECSA expected to running at a profit by next year. The new corporate strategy had been approved and many of the corporate activities of NECSA’s three subsidiaries (NTP Radioisotopes, Pelchem and Pelindaba Enterprises) had been collapsed together, resulting in significant savings. He believed the new organisational structure gave NECSA greater agility and that the National Infrastructure Plan 2050 would provide major opportunities. NECSA continued to pursue its transformation goals, although this had been difficult while recruitment had been frozen. NECSA had absorbed the shocks of COVID-19 and he believed it had turned a corner.

Mr Loyiso Tyabashe, Group Chief Executive Officer (CEO), NECSA, summarised the Corporation’s Political, Economic, Social, Technological Environmental and Legal (PESTEL) and Strengths, Weaknesses, Opportunities and Threats (SWOT) situational analyses. He outlined the timeline of the rationalisation process at NECSA since it had begun in earnest in December 2020. The corporate strategy had been approved in August 2021, and the current year was being regarded as the year of implementation. He discussed the Corporation’s medium-term key performance indicators (KPIs) in five strategic focus areas:

Financial recovery and sustainability
Research and innovation
Profitable commercial enterprises
Business continuity and efficiency
Talent excellence and high performance culture

Ms Precious Hawadi, Chief Financial Officer (CFO), NECSA, explained that NECSA was trying to diversify its income while minimising expenses, particularly on the salary bill. Projections for when it would become profitable had been brought forward to 2023/24.

Mr Tyabashe observed that NECSA had been surviving through cutting costs but this strategy could not continue indefinitely. Projects being undertaken to diversify revenue included a multi-purpose reactor to replace the SAFARI-1 reactor and the development of Ketlaphela Pharmaceuticals. He stressed the positive financial outlook for NECSA.

See attached for further details.

National Nuclear Regulator (NNR) Annual Performance Plan 2022/23

Ms Ntsikie Kote, Head: Strategy, Governance & Organisational Performance, NNR, explained that the regulator had developed a set of twelve strategic goals on the basis of situational planning done in 2019. She presented the NNR’s strategy map for 2022/23 and outlined eight regulatory priorities:

The nuclear installation site licence for Thyspunt
The long-term operation of Koeberg Nuclear Power Station
Regulatory engagements with NECSA
The steam generator replacement project
The Cape Town site office construction project
Regulatory concerns around the NTP Radioisotopes complex
The regulation of additional storage of spent nuclear fuel

Mr Dakalo Netshivhazwaulu, CFO, NNR, reported that the Regulator’s finances were stable. It had cash reserves of R104 million, R58 million of which would be used for the construction of new offices in Cape Town. The bulk of its non-current assets were made up by its building in Centurion, which would be fully paid off by June 2022. He outlined the NNR’s medium-term expenditure projections.

See attached for further details.

Discussion
 

 

Mr K Mileham (DA) observed that the NNR seemed to be pursuing the nuclear installation site licence for Thyspunt, despite the fact that Duynefontein had been identified as the preferred site from the point of view of environmental impact. What was the reason?

Mr Bismark Tyobeka, CEO, NNR, explained that progress on the licences for the two sites was dependent on the information provided. It so happened that information on Thyspunt had been received earlier. He anticipated that a record of decision on the suitability of the Thyspunt site would be issued by the end of May 2022.

Mr Mileham recalled that the late submission of the safety case had been given as a reason for the delayed steam generator replacement at Koeberg. He requested clarity on this major issue.

Mr Tyobeka replied that he was not aware of any delay in the submission of the safety case. He understood that the delay was caused by disagreements between Eskom and certain foreign business partners, which had led Eskom to postpone the replacement until after winter.

Mr Mileham said there seemed to be numerous safety incidents occurring at Koeberg. For example, a potentially devastating accident had been only narrowly averted in March 2022 after a technician cut a wrong valve. What was the NNR doing to respond to this particular incident?

Mr Tyobeka replied that the NNR was also very concerned about safety lapses. When they occurred, the NNR demanded corrective action from licensees. In this case, Eskom had halted the maintenance process and sent the staff for training. The NNR was continuing to increase the visibility of its inspectors. However, it could not possibly maintain a continuous presence at Koeberg and the ultimate responsibility lay with Eskom, the operator.

Mr Mileham questioned the need for the NNR to spend R58 million on a new office while the Department had a number of under-utilised offices, in Bellville for instance. How many people would the office accommodate and where exactly would it be located?

Ms V Malinga (ANC) also questioned the logic of building new offices.

The Chairperson shared the Members’ concerns about this matter. He also asked the NNR to comment on the cost of buying its building in Centurion. What were its maintenance obligations on that building and what was the advantage of buying it rather than renting?

Mr Tyobeka explained that it was the prevailing international practice for nuclear regulators to have a site office near to nuclear power plants. The NNR had had offices on the site since the 1980s which it had considered renovating, but in the end it had been decided that this would not be feasible because of the age and size of the building, given the expected increase in staff required. A National Treasury grant had been made for the renovation and this grant was being used to partly fund the new construction.

Mr Netshivhazwaulu added that the NNR had raised a bond of R80 million to buy the Centurion building, although its current value stood at about R120 million because of renovations undertaken by the NNR. The NNR had calculated that because it was a new building its maintenance costs would be relatively low, so it would make sense to buy it outright.

Mr Mileham drew attention to a sharp rise in compensation of employee costs from 2020/21 to 2021/22. What was the cause of this jump?

The Chairperson asked whether the quoted amounts on compensation of employees included related costs such as travel, which would have been expected to decrease during the pandemic.

Mr Netshivhazwaulu replied that a staff rationalisation process had been completed in 2018/19. It had included a five-year human resources plan, the implementation of which had been delayed due to COVID-19. From 2021/22 the NNR had started catching up with recruitment. It was also continuously capacitating its new Centre for Nuclear Safety and Security at the University of Pretoria.
 

The Chairperson recalled that the NNR had said that some of the companies from which it derived revenue were facing liquidation. Was it able to share the identity of these companies, or were there some privacy issues? Were any of them state-owned entities?

Mr Netshivhazwaulu assured the Chairperson that this situation was under control, and that no government entities owed the NNR any money. There were various bankruptcies and acquisitions taking place in the mining industry that needed to pan out before the NNR could decide that any debts were not recoverable. He added that the amounts involved were quite small.

National Radioactive Waste Disposal Institute (NRWDI) Annual Performance Plan 2022/23

Mr Alan Carolissen, COO, NRWDI, outlined the Institute’s key strategic initiatives, which included the Centralised Interim Storage Facility (CISF) and the transfer of the operation of the Vaalputs Radioactive Waste Disposal Facility from the NECSA. He summarised the Institute’s medium-term KPIs in each of its four programmes:

Administration
Radioactive Waste Disposal Operations
Science, Engineering and Technology
Radioactive Waste Management Compliance

Mr Justin Daniel, CFO, NRWDI, reported that the NRWDI was financially stable. It was currently funded entirely through government grants but after taking over operation of Vaalputs it would also be able to generate revenue from waste disposal fees. He drew attention to the high percentage of the NRWDI’s budget that went to employee compensation. This would fall once it took over Vaalputs. He presented theoretical budget estimates over the medium-term based on the assumption that the NRWDI was operating Vaalputs. He emphasised that although it was currently financially stable, its long-term sustainability was highly dependent on the timely processing of the Waste Management Fund Bill, which was based on the “polluter pays” principle. The NRWDI was also hopeful that funding for the CISF would be made available by the Department in this financial year, as recommended by National Treasury.

See attached for further details.

Discussion

Mr Mileham asked how far along the process of transferring the Vaalputs licence from the NECSA to the NRWDI was. When would it be complete?

Dr Margaret Mkhosi, CEO, NRWDI, replied that the transfer was in its final stages. The safety case documents had been approved and the public consultation process had been concluded by November 2021. The registration of Vaalputs farms had also been completed. The NRWDI was now finalising its responses to clarity-seeking questions from the NNR.

Mr Mileham observed that if the government was going to build new nuclear power stations, more high-level waste would be generated in the future, and asked if the NRWDI had any plans for the long-term storage of high-level nuclear waste.

Dr Mkhosi replied that the NRWDI was currently finishing off the feasibility report for the CISF, which would provide storage for 50 to 70 years. The international consensus was that permanent storage of high-level nuclear waste such as spent nuclear fuel could be done in a deep geological repository.
The NRWDI was looking into permanent storage solutions but the current focus was on the waste at Koeberg that needed immediate attention.

Mr Mileham asked for a timeline for the long-term storage of high-level waste.

Dr Mkhosi estimated that, contingent on receiving the necessary funding and human resources capacity, the CISF would be operational by around 2030.
 

Mr Mileham asked the NRWDI to comment on recent news reports claiming that it had not been consulting with communities in the Vaalputs area.

Dr Mkhosi replied that these reports were inaccurate insofar as they implied that the NRWDI was already taking high-level waste to Vaalputs. It had released media statements clarifying the issue. The NRWDI’s community engagement had been hampered by COVID-19 but it had released presentations to the communities, and since February 2022 it had begun visiting them. She stressed that there had been public consultation with respect to the storage of low-level waste.

Ms Malinga commended the NRWDI on achieving a clean audit once again, but observed that it had only taken on two interns. Why so few?

Dr Mkhosi explained that the scope of the internship programme had been based on the NRWDI’s financial situation at the time. It was looking to work with other organisations that might be able to support internship programmes.

Ms Malinga asked for clarity on changes in the budgets for goods and services and in the science, engineering and technology programme over the medium term.

Mr Daniel explained that the NRWDI was correcting the baseline budget for goods and services. The budget for the science, engineering and technology programme had also been underfunded over the last few years and the extra money would go to research and development.

National Energy Regulator of South Africa (NERSA) Annual Performance Plan 2022/23

Adv Nomalanga Sithole, CEO, NERSA, said that NERSA had developed its Annual Performance Plans (APPs) for the years 2021/22 to 2023/24 against the backdrop of three key factors: the impact of COVID-19, South Africa’s strained economy and the transition to a more inclusive, sustainable, affordable and secure global energy system. She discussed the Regulator’s key activities, along with the strategic outcomes and envisaged impact of these activities, in each of its five programmes:

Regulatory service delivery in the electricity, piped gas and petroleum pipeline industries
Advocacy and engagement
Innovation
Operational efficiency and quality management
people and organisational culture

Adv Sithole gave an overview of human resources at the Regulator and highlighted the need for policy and legislative development in the electricity and petroleum pipeline industries, and the need for government intervention to arrest the decline in the supply of piped gas.

Ms Bulelwa Pono, CFO, NERSA, summarised the Regulator’s budget for 2022/23. She drew attention to the marginal projected increases in revenue from R335 million to R337 million and in expenditure from R384 Million to R395 million. The deficit of R59 million would be covered by accumulated surpluses. One significant expense was R45.7 million on professional fees, the bulk of which was made up of legal costs.

See attached for further details.

Discussion

Mr Mileham reported that the electricity sector still believed that the regulatory environment for independent power producers, municipal electricity procurement and sub-100MW generation was too onerous. Was anything being done to streamline the regulatory environment? In particular, there seemed to be some time-wasting requirements for companies that wanted to generate less than 100MW for their own use, such as the requirement for a signed offtake agreement and the public participation requirement.
 

Adv Sithole replied that NERSA had reduced the requirement to process registration applications from 60 to 45 days. It would also publish its requests for public comments on an electricity generation application at the same time as the applicant. It was also working on automating regulatory processes.

Mr Zingisa Mavuso, Executive Manager: Electricity Generation, NERSA, added that the easing of these regulations was being discussed with the Presidency and he was confident that the offtake agreement requirement would be withdrawn.

Mr Mileham observed that there had been a number of electricity pricing challenges over the past few years. How much had NERSA spent on litigation in this area and how much did it expect to spend in the forthcoming year?

Ms Pono replied that legal costs related to electricity pricing had totalled R22 million in 2019/2020, R17.7 million in 2020/2021, and R14 million in 2021/2022. The projection for 2022/23 was around R10 million.

Mr Mileham observed that the interests of various stakeholders needed to be taken into account when determining electricity prices, and asked whose interests took priority.

Adv Sithole replied that the interests of all stakeholders were taken into account, including end-users and electricity generators.

The Chairperson asked NERSA to explain the role of the Minister in the determination of tariffs. It was his understanding that NERSA determined the tariffs independently of the Minister, whose role was merely to approve them.

Mr Tyobeka said that, in the case of the NNR, the law was clear: the board determined authorisation fees, which were sent to the Minister of Mineral Resources and Energy for approval. The Minister must then get concurrence from the Minister of Finance. The NNR generally made provision for the final approved fees being lower than the fees it submitted.

Central Energy Fund (CEF) Group Annual Performance Plan 2022/23

Ms Ayanda Noah, Chairperson of the board, CEF, emphasised that the CEF’s operations were deeply affected by global factors such as COVID-19 and the conflict in Ukraine. She noted that PetroSA had a new acting CEO, Ms Sandisiwe Ncemane. The CEF board of directors was taking consequence management very seriously across the Group and it had suspended a number of executives. She emphasised that the Group’s developmental mandate was dependent on its commercial viability as it did not receive grants from the Treasury. This had unfortunately led to the necessity of retrenchments at PetroSA, and retrenchment discussions at African Exploration Mining and Finance Corporation (AEMFC) were also taking place. The Group was still looking at expansion opportunities, however, such as the Republic of Mozambique Pipeline Company (ROMPCO) project, to raise its revenue.
Another ongoing project was the merger of PetroSA, the Strategic Fuel Fund (SFF) and the South African Gas Development Company (iGAS).

Dr Tshepo Mokoka, Group Chief Operating Officer (GCOO), CEF, gave an overview of the Group’s activities, drawing attention to the emerging threat posed by dwindling local refining capacity on downstream industrial activity. He discussed the internal threats to the Group’s financial sustainability, such as its reliance on Eskom as a customer, the financial crisis at PetroSA, inefficiency and poor leadership.

The Committee heard that the Group’s response to the changing global energy climate involved nine strategic strategic drivers and three strategic horizons:

Reset (2022/23): complete the merger, among other initiatives
Scale for growth (2023/2026): diversification, new partnerships and new operating models
 

 

Sustain (2026-2030): Optimisation, further diversification and automation

Members were also given an overview of the Group’s performance targets for 2022/23 to 2026/27.

Mr Mojalefa Moagi, acting CEO, SFF, summarised the strategic outlook of the CEF and its subsidiaries AEMFC, iGAS, SFF and the Petroleum Agency of South Africa (PASA) in terms of their strategic objectives, strategic plays and key enablers.

Ms Sandisiwe Ncemane, acting CEO, PetroSA, provided a more detailed summary of the strategic outlook of PetroSA, the CEF’s largest subsidiary. Among the key interventions to stabilise the company were:

Cost cutting and organisational rationalisation
Office and budget optimisation
Disposal of non-core assets
Finding feedstock alternatives for the Mossel Bay gas-to-liquid refinery.

Ms Ncemane emphasised that the financial outlook remained challenging for the next three years.

Ms Ditsietsi Morabe, acting Group CFO, CEF, reported that the Group was expecting an average net loss of R436 million per year in 2022/23 and 2023/24, and an average net profit of R1.3 billion per year in 2024/25 and 2025/26, thanks to the planned turnaround of PetroSA and ROMPCO dividends. The Group’s cash balance was expected to increase from R11.8 billion to R13.14 billion from 2021/22 to 2025/26, thanks mainly to ROMPCO dividends, and the Group was expected to remain solvent over the same period.

See attached for further details.

Discussion

Mr Mileham welcomed the presentation but urged caution. Many similar presentations on the turnaround had been made over the years but the financial situation remained precarious at best. Everything possible needed to be done to turn the entities around but at some point a decision would have to be made to stop throwing good money after bad. He urged the CEF management to see that their plans came to fruition.

Ms Noah noted the comment. She said that the board would ensure that CEF management was stable and accountable.

Mr Mileham recalled that PetroSA was planning a major refurbishment of its Mossel Bay refinery and suggested that there might be a synergy with the precision manufacturing capabilities of Pelindaba Enterprises that the Group could exploit.

Ms Ncemane replied that PetroSA would leverage partnerships within the state ecosystem to ensure that the refinery was returned to optimal operation.

Ms Malinga recalled that the CEF had provided the Committee with timelines for the
PetroSA-iGAS-SFF merger. How far had the merger progressed and when would it be concluded?

Dr Mokoka replied that the Cabinet had instructed the CEF to seek second opinions on the legal and financial aspects of the merger the previous year. This had since been done. The next step was to present the merger strategy to the Cabinet once more.

Ms Malinga also observed that the SFF and iGAS had strong balance sheets, while PetroSA was having serious financial difficulties. How did the CEF intend to make the merger work?

Mr Moagi replied that the CEF was aware of the risks posed by PetroSA’s financial difficulties to the SFF and iGAS. It was working hard to restore PetroSA’s finances to minimise these risks.

Ms Malinga asked the CEF to confirm which of its subsidiaries did not receive grants.
 

Ms Noah replied that the PASA was the only subsidiary that received a grant.

The Chairperson welcomed the news that the Group was acting against executives accused of malfeasance, but at the same time this was simply what leadership ought to do. It ought to act when there were underhand activities going on. He urged the Group not to sweep these matters under the carpet. People must face consequences. He commended the women in leadership at the CEF for taking on the challenges there, and observed that there definitely seemed to be determination to turn things around. He assured the CEF that the Committee would provide all the necessary support.

South African Diamonds and Precious Metals Regulator (SADPMR) Annual Performance Plan 2022/23

Mr Abiel Mngomezulu, chairperson of the board, SADPMR, said that the Regulator was aiming to exceed legislative requirements for its core business of licensing, while also looking to support small, medium and micro enterprises (SMMEs) through partnerships with licensees and other stakeholders. The Regulator had not thrown up its hands after the High Court had set aside certain transformation provisions of the Mining Charter last year, but it would continue to foster good relationships with its clients, and to nudge and persuade them that transformation was in the interests of the industry as a whole.

Mr Cecil Khosa, CEO, SADPMR, gave a brief overview of the Regulator’s role in the precious metals value chain. He summarised its performance over the last five years, and outlined its APP and medium-term targets in terms of its six programmes, drawing attention to important changes:

Regulatory compliance
Diamond trade
Corporate services
Legal, security, risk and governance
Internal audit
Finance

Mr Khosa confirmed that the High Court judgement had set the Regulator’s transformation objects back but it had continued to engage with the industry and the response had been positive. He presented a preliminary budget over the medium term, and outlined a few key challenges and interventions. These included its engagement with the South African Revenue Service (SARS) on the possibility of a value-added tax (VAT) exemption for imported diamonds, and an export levy on precious metals to encourage local beneficiation, which would require amendments to key precious metals legislation.

See attached for further details.

Discussion

Mr J Lorimer (DA) said that the industry would welcome a VAT exemption on diamond imports. What progress had been made in the engagement with SARS?

Mr Khosa replied that the SADPMR had had meetings with and made submissions to SARS on this matter but was yet to receive a positive response. SARS was a very complex organisation and it seemed that the issue had not yet reached the appropriate office. He was hopeful that a solution would be found.

The Chairperson asked if there would be a need to expedite legislative amendments in the event that nothing came of the engagement with SARS on this matter.

Mr Khosa replied that the legislative issues related to the Diamond Export Levy Act and the Diamond Export Levy (Administration) Act. They needed serious consideration by all stakeholders and the final decision lay with the National Treasury.

The Chairperson asked what if anything other entities could learn from improvements in the
 

Regulator’s licensing regime. Perhaps the SADPMR could send a written response to this question or do a presentation to the Portfolio Committee.

Mr Khosa replied that some of the greatest improvements had been made in processing licence applications at early stages. A helpdesk had been set up to help applicants and ensure that they provided all the required information. This had reduced the number of refused applications. It had also made internal processing more efficient by dismantling “silos” within the Regulator.

The Chairperson asked if there was now clarity on the SADPMR’s new premises at OR Tambo International Airport.

Mr Khosa replied that the lease agreement on the SADPMR’s move to the new premises was still being finalised.

State Diamond Trader (SDT) Annual Performance Plan 2022/23

Mr Sihle Mhlangu, Company Secretary, SDT, provided a broad overview of the SDT’s operations. He summarised its PESTEL and SWOT situational analyses, its APP and key challenges. He indicated eleven key risks facing the SDT, which included policy delays, illegal mining, fraud and corruption, the decline in local diamond production and synthetic diamonds, and the measures being taken to mitigate them. He observed that the diamond industry was a volatile one and listed some of the most important factors affecting the market.

Ms Nelisile Mncwango, CFO, SDT, shared a summary of the SDT’s projected income statement over the period 2022/23-2026/27, predicting revenue increasing from R827 million to R895 million and net profits decreasing from R4.3million to R815 000.

See attached for further details.

Discussion
Mr Lorimer wondered why carbon emissions related to diamond transport had been cited as a key environmental problem. Weren’t diamonds small enough to be transported by hand?

Mr Mandla Mnguni, CEO, SDT, explained that this referred to emissions by diamond producers as well as transport.

Mr Lorimer observed that the unsustainability of the current business model was indicated as a weakness. What exactly was wrong with it and what needed to be done to change it?

Mr Mnguni observed that the SDT had a dual commercial and developmental mandate, but also did not receive state funding. This was the model it was looking at.

Mr Lorimer observed that the SDT had identified “run of mine provisions” as a reason for its clients not receiving suitable rough diamonds. Could the SDT explain this further? What percentage of run of mine diamonds did it actually buy?

Mr Mnguni explained that it did not choose the actual diamonds that it received from producers. It took what was given to it.

Mr Lorimer asked if the SDT’s claim that paying a fair market value for diamonds did not support a transformation agenda was meant to mean that if the SDT paid a fair market value then its clients would not be able to afford to buy from it.

Mr Conrad van der Ross, Operations Manager, SDT, explained that the majority of diamonds were sold either through a tender or auction process. The reality was that there could be a difference between the winning offer and the second best offer of as much as 30%, which made it difficult to calculate what the fair market value was.

Mr Lorimer acknowledged that it was difficult to predict profit in a volatile market such as diamonds,
 

but asked why the SDT was predicting a decline in profit over the medium term.

Mr Lorimer asked how many local beneficiators the SDT was currently selling diamonds to, and what percentage of their sales went to each of the top three buyers.

Mr Mnguni replied that the SDT currently had about 85 clients. It was unable to obtain enough diamonds to serve all of them. About 65 to 70 percent of its sales went to its top three clients.

Mr van der Ross explained that the demand was for the 15 percent of production that comprised higher-quality stones.

Mr Lorimer asked what percentage of its rough diamond sales were exported without being beneficiated?

Mr Mnguni suggested that the Regulator would be better placed to respond to this question.

General discussion

Mr Mileham observed that there were a number of pieces of legislation that needed to be amended. Could the Department provide the Committee with a timeline of when it could expect them to be tabled?

The Chairperson observed that the Upstream Petroleum Resources Bill was the only Bill currently on the Committee’s programme. Perhaps extra time could be allocated to the Committee to allow it to process another Bill at the same time. He reported that he had instructed the Committee researcher to study the Zondo Report for issues that the Committee might need to look into. He welcomed all the presentations but observed that they were generally vague and it was hard to extract from them the information that would enable the Committee to assist the entities.

The meeting was adjourned.

Share this page: