DMRE, MHSC, NERSA, SADPMR, SDT, Mintek 2021/21 Annual Report with AGSA & Ministry

Meeting report

The Chairperson acknowledged the presence of the Deputy Minister who would be joined later by the Minister. The Committee had come from Mpumalanga and would soon be heading to the North West on oversight visits. Members would be forthright about the presentations given the experiences encountered during the oversight visits.

Audit outcomes 2021/22 briefing by Auditor General South Africa (AGSA)
In the DMRE portfolio, AGSA audited 12 auditees, six (CGS, NERSA, NNR, NRWDI, Sanedi and SDT) received clean audits while five (DMRE, CEF, MHSC, Mintek and SADPMR) received unqualified audit opinions with findings. Only one entity (NECSA) received a disclaimer for three consecutive financial years. Half of the entities had credible performance reports but the other half had material misstatements with three of the them allowed to make corrections. CEF, DMRE and NECSA performance reports remained with material misstatements after the audit. AGSA had reservations about the going concern of NECSA given the repeated disclaimers.

In terms of material irregularities, DMRE experienced delays in finalizing the solar water heating programme, which resulted in it incurring additional storage fees as they did not take custody of the manufactured units from suppliers as per the contractual agreement. The department paid R310 million as of 31 March 2022 in storage costs to suppliers of which R110.8 million has been classified as fruitless and wasteful expenditure. After year-end, the department incurred R5.6 million in additional storage costs. AGSA issued a MI (material irregularity) to the accounting officer who has responded and it is reviewing the responses. Key personnel involved in the solar water heater project are no longer employed by DMRE which is still incurring storage costs.

Irregular expenditure amounted to R247.7 million. The top contributors were the CEF (R209 million); NECSA (R11.8 million); SADPMR (R10.2 million) and Mintek (R8.6 million). The total amount of irregular expenditure is not complete as CEF Group was still investigating to determine the full amount of its irregular expenditure.

The closing balance of irregular expenditure over the years that has not been submitted for condonation continues to increase. From R1.18 billion in 2018/19 to R1.74 billion in 2021/22. CEF is the biggest contributor with a closing balance of R1.1 billion followed by DMRE (R288 million); R222 million by NECSA and R37 million by Mintek. Consequence management remains a challenge as there is still a lack of investigations in DMRE, CEF and its subsidiary African Exploration Mining and Finance Corporation (AEMFC) and Mintek. This leads to inadequate disciplinary action being taken against staff who caused the irregular expenditure.

Discussion
Mr J Lorimer (DA) asked about the implementation of consequence management by NECSA for the prohibited awards to employees and amount written off. Does AGSA follow up on its recommendations for implementing consequence management? He suggested a schedule for specific areas identified in the audit reports which require consequence management for all the entities.

Ms P Madokwe (EFF) asked about NECSA’s improvement and the employee prohibited awards. On missing targets, it seemed there was no plan for monitoring targets. What can be done by the AG to ensure that this is done? Debt collection was also another challenge according to AGSA. Are these entities owed by the state or a department but are still conducting business with them? Was there a reason interest was not charged on the debt owed? It is imperative that implementation of consequence management is harsher because following up on it is not sufficient.

Mr M Mahlaule (ANC) asked AGSA if it is recommending that the draft annual performance plan (APP) should be provided before it is finalised by 31 January 2023. Did the AG review the 2021/22 APP of the Department? If so, why was AGSA unable to notice that some of the targets in its programme two were not consistent or well defined?

Mr M Wolmarans (ANC) said the presentation showed slight improvement in the performance of the portfolio. However, NECSA was still behind, it is not improving. There were no concrete recommendations on NECSA by AGSA. The current recommendations are the same as the previous financial years.

The 120 Social and Labour Plans (SLPs) target was over-achieved but AGSA was not pleased because there was no mechanism to indicate if it was indeed achieved. The recommendations by AGSA in Slide 26 are about reoccurring findings but nothing concrete is said about these reoccurrences. Every year, most of these findings reoccurred and there are no efforts to change, particularly NECSA. Thus, AGSA should outline how the findings can be stopped from reoccurring.

Ms V Malinga (ANC) asked what AGSA would recommend to address the reoccurring findings. Fruitless and wasteful expenditure related to the provision of geysers in the solar water heater programme was due to the liquidation of the service provider. What would AGSA recommend as DMRE may not be able to recoup the monies already paid over to the service provider for the execution of this programme?

Mr S Kula (ANC) said that the reasons provided by AGSA for the DMRE irregular expenditure were not satisfactory. What is its advice to DMRE to address it because recommending implementation of consequence management is not enough? Officials responsible for implementing consequence management should also be held accountable.

The Chairperson noted the five improved entities though he was disappointed by DMRE. These entities moved from qualified with findings to unqualified with no findings. The improvement is appreciated. Perhaps, AGSA could help Members understand its mandate. Previously, Members were concerned that AGSA lacked the teeth to bite. It merely ended with recommendations. However, AGSA now has teeth to hold people accountable. It seems quite polite in dealing with them. Is there a challenge for AGSA to hold these entities to account and implement the new provisions of the Public Audit Act, particularly on consequence management?

What is the benchmark used by AGSA for an auditee to get out from a disclaimer because there is a serious reduction in what NECSA in the current financial year? If the material misstatements are dealt with, would this lead to an improvement by NECSA and a better audit outcome? What would NECSA need to do to prevent obtaining another disclaimer? Slide 9 outlines the targets and commitments but are they still on course according to the analysis by AGSA? Some of those targets and commitments may not be dependent on DMRE solely – there may be external factors involved in meeting certain targets.

Is it possible to measure the Black Industrialist Programme in a manner that considers the external factors that may impact on DMRE to meet its targets under this programme?

On the target for issuing of mining rights, how many of these rights were issued?

He expected AGSA to be direct about the lack of a monitoring mechanism to monitor and evaluate the SLPs.

On the material irregularity for storage costs, AGSA was still assessing the provided response, yet the audit opinion has already been issued. How did AGSA conclude on the audit opinion without considering that response from the accounting officer?

Fruitless and wasteful expenditure includes the R52 000 ‘prohibited awards' to employees. What are these prohibited awards? Who are the people responsible for the issuing of these prohibited awards? Who were the people or their families or businesses that received these awards?

AGSA response
AGSA replied that when it assesses consequence management when it reviews the irregular expenditure and fruitless and wasteful expenditure (IFWE) and ascertains if anything was done to investigate prior year IFWE and the actions taken. AGSA is following up on the transgressions of the prior year. Every year, it assesses findings identified in the prior year and what actions have been taken to address those and if any consequence management was applied.

DMRE was extended the courtesy of the availability of AGSA to review the draft APP but it was not submitted to AGSA, both in the prior year and the current year. The draft APPs were not reviewed.

On debt collection, the nature of the services rendered by entities in the portfolio is mainly the provision of licences and collection of fees – there were many impairments on this by DMRE. There is still more that needs to be done for the collection of fees.

As for interest charged, a policy is currently being developed on how interest may be charged on entities that do not pay within the prescribed period.

On performance information, AGSA did not audit all the programmes but assessed the overall programmes reported by DMRE and its entities to assist the Committee on what audit findings and root causes required further Committee engagement with the portfolio. Though some findings might be areas dependent on external factors, those that were highlighted to the Committee were not. AGSA ensured that the information provided to the Committee required further engagement that the Committee would want to engage DMRE and its entities on.

The Department had planned to rehabilitate three mines, but AGSA thinks that DMRE could still do more instead of three.

On irregular expenditure, R247.7 million was incurred in 2021/22. The cumulative irregular expenditure totalled R1.6 billion.

On the audit disclaimer for NERSA, the reoccurrence stemmed from a lack of submission of financial statements and the audit process not being finalized timeously. There is a reduction in the identified items for NERSA but there is still work that management is currently doing to improve.

On the material irregularity, processes have been applied to address it and management was requested to conduct more work on what needs to be done. AGSA provides an opportunity for a response after management has been tasked to conduct further investigation. If consequence management is not implemented, AGSA has the power to refer the material irregularity to law enforcement agencies.

Minister of Mineral Resources and Energy remarks
Minister Gwede Mantashe said that the technical team would make the presentation because DMRE is investing in the Japanese concept of continuous improvement on an ongoing basis. Several entities have shown levels of improvement. DMRE visits its entities and assists them. Hence, it is disappointing that NERSA has not gotten out of a disclaimer yet. A new CEO has been appointed as well as a board chairperson. It is unfortunate that the CEO was not present to answer the question of completing the shareholder compact without involving the executive authority.

DMRE was pleased with the five entities that have improved their audit outcomes. DMRE obtained an unqualified audit opinion.

Department of Mineral Resources and Energy 2021/22 Annual Report
Mr Jacob Mbele, DMRE Director-General, outlined the governance structure; human resources; operations; operational performance; strategic performance and financial information. The presentation further outlined the 2021/22 performance which stood at 72%.

The summary of achievements included 100% resolution of reported incidents of corruption; 8 451 jobs enabled through the issuing of mining rights; 128 SLP development projects completed; 100% participation in district planning forums; 21 black industrialists created through the mining and petroleum charters. The reasons for the 28% unachieved targets were outlined.

DMRE spent 96.3% or R8.9 billion of its R9.24 billion budget. R4.83 billion was disbursed to Eskom and various municipalities for the Integrated National Electrification Programme, with 147 013 grid electricity connections achieved during 2021/22.

DMRE obtained an unqualified audit opinion with material findings in 2021/22. The summary of audit findings noted material misstatements in performance information included the number of jobs created through the issuing of mining rights and petroleum licences; the number of SLP development projects completed; the number of black industrialists created through mining and petroleum charters and number of rights / permits granted / issued to HDSA controlled entities.

The Department has 11 public entities reporting to the Minister; of the 11 entities, 10 submitted their audited 2021/22 financial statements on 31 July 2022. Only CEF did not submit its on time.

[See the presentation for more details]

Discussion
The Chairperson asked the Minister to tell the CEO that she did not have to fear someone who was not present in the meeting.

He said that there was no indication of who was paid a bonus and what was done about it – it is just referred to as 'consequence management'. Officials are covered by parliamentary privilege; therefore, they can share openly with the Committee who the perpetrators are about the bonuses.

Mr Wolmarans asked DMRE about the under-expenditure under programme one which was caused by the delay in the procurement of ICT systems. Is this on track to be finalized and done? The system was envisaged to be procured some time ago and given the ever-changing ICT environment; will the ICT system still be up to date?

The figures reported by the Mine Health and Safety Council (MHSC) and DMRE on fatalities in the same financial year are different.

Mr Mahlaule said the underspending in programme two was attributed to delays in the appointment of a service provider to design and develop a monitoring, evaluation and reporting system for transformation in the petroleum and fuel sector. No measures were mentioned to ensure that there were no delays in the next financial year ­– simply taking it to the next financial year without addressing the delay will be problematic.

Secondly, the Beneficiation Master Plan and National Nuclear Regulator Amendment Bill were meant to be submitted to cabinet. This did not happen because of a lack of consensus in stakeholder consultations. Why is DMRE certain that by moving it to 2021/22, the target will be met and consensus with the stakeholders will be met?

Thirdly, the National Energy Regulator Amendment (NERA) Bill was due for submission to the cabinet. This did not happen because the allocated resources were reprioritized to the electricity pricing policy programme. What was the rationale for the reprioritization of the allocated resources given the interdependence of the NERA Bill and the electricity pricing policy? Why did DMRE add the NERA Bill as a performance target in 2021/22?

On the issuing of an RFP for 1500 megawatts from coal, which was not achieved, despite the abundance of coal in the country. What is the DMRE plan to ensure that the private sector is encouraged to reconsider investments in the coal industry?

On the issuing of an RFP for 3000 megawatts from gas, which also did not happen, it seems to have been decided that this would only follow once developing the gas infrastructure at the Coega Industrial Zone is finalized. Carrying this target into 2022/23 may suggest that the Coega gas infrastructure has successfully been finalized. If not, what factors are causing these significant delays?

On the shareholder compact, it was clear that there was no evidence provided that the APP was approved in consultation with the executive authority. How many shareholder compacts and corporate plans were signed during 2021/22 without consultation with the executive authority?

Ms Madokwe asked about the missed targets by DMRE and when the irregular expenditure was picked up by DMRE. Are there no measures to detect such expenditure? Some of the factors that led to the IFWE were reoccurring. What measures were being put in place to mitigate these? Why is the budget expenditure not speaking to the targets met?

She asked both the Mine Health and Safety Council and DMRE if all the families of employees who died while on duty had been properly compensated.

She asked for more details on the irregular expenditure. Was the might of consequence management exerted on those responsible for prior year irregular expenditure?

AGSA reported that MHSC did not achieve most of its targets and she asked why. What percentage of the MHSC budget was used if only 20% of the targets were met? Secondly, does MHSC have responsibility to the mining communities resulting from the activities of the mines? She asked for more details on the MHSC irregular expenditure compared to the previous year.

Does MHSC assist communities close to mines with access to health care because people who fall sick from the surrounding mining activity should be provided with medical assistance?

Mr Lorimer said the DMRE Annual Report makes “good reading” especially the ministerial contribution in the beginning. In fact, looking at that one would conclude that the Minister is an optimist. It writes about brilliant projects but most of them seem to be a wish list rather than a report back on what DMRE has done. It talks about plans to use gas from the PetroSA facility; is this signed yet? Similarly, in Lephalale (Tungelo Gas Projects) it talks about 3.5 TCF of gas, has this been signed yet? There is also Afro Energy going to supply underground gas to Eskom power stations, has this materialized yet? Has any gas equipment been installed yet?

On the service delivery improvement plan, many stakeholders have said that DMRE does not respond to queries. Yet DMRE states that it has responded to all the complaints and concerns from the public. A wide variety of people across the country do not get responses from DMRE to queries and complaints.

Has DMRE communicated with all the communities who were called to discuss the Gas Amendment Bill and has them the Bill has been dropped and why it has been dropped? What is a mining economic inspection?

He referred to slide 8 on the fatalities. Members were told during the oversight visit about the illegal mining in Welkom that the amount of cash offered as bribes meant that anybody could and was being bribed. He was informed by a mining source that people suffered fatalities that were involved in illegal mining. Therefore, how many of those 539 accident inspections involved people who were engaged in illegal mining?

On minerals regulation, he did not see anything about any money allocated for the creation of the empowerment scorecard in the mining industry. This has been around for years. Does DMRE have any plans to create an empowerment scorecard?

As for the black industrialist programme, its description is wide open which means that it could be wide open for corruption. What is DMRE doing to define this programme and set down the exact markers for measurement? Is there a set target for the issuing of mineral rights? There is very little mention of the backlog in issuing of mining rights. Given that this is one of the biggest problems in mining now, DMRE should reveal what it is doing to fix it.

Mr K Mileham (DA) said that the Committee spent a lot of resources going around the country for consultations on the Gas Amendment Bill. Thereafter, the Bill was withdrawn and no reasons were provided. Why was the Bill withdrawn and is DMRE going to pick up the tab for the wasteful expenditure incurred by the Committee?

On slide 9 on ministerial performance agreements, why is the energy availability factor included in the DMRE report and the Minister’s performance agreement if it is outside the Minister’s scope as he had indicated?

The reason for the unachieved target for the RFP for 3000 gas megawatts in slide 19 was this depended on the finalization of the gas infrastructure at Coega. The supply of natural gas globally is very tight and the price of LNG is increasing significantly. Thus is not fair to say it is not economically viable to pursue gas-to-power projects?

Why is DMRE spending R4.8 billion adding new households to the electricity grid when there is no electricity to supply to them? This is creating a wider gap between the supply of electricity and the bigger demand – it increases that shortfall. It is understandable that there are social needs that must be met by the government, but the capacity must be able to meet the demand before more households can be added to the grid.

Is the solar water heater programme ever going to be finalized? If not, it should be scrapped because DMRE is spending millions on storage costs at R322 million for 2021/22.

PetroSA has been incurring maintenance at its Mossel Bay plant since October 2020, but where is the gas coming from to supply that plant? The Minister had indicated that the gas was expected to flow from 2024/25 but how did the Ministry arrive at that timeline? It seems that this will only ever be done by 2030/32 and the industry people are saying the same thing. What is happening to all the staff working at that PetroSA plant?

NECSA has received its fourth disclaimed audit report. For four years there have been doubts about its ability to remain a going concern. Its deficit seems to read R72 billion. At what point is the Minister going to cut off the funding because it is not getting any better and use the money more effectively? Why is DMRE spending so much money on an entity that is not a going concern?

Mr T Langa (EFF) also commented that the Solar Water Heating programme was costing DMRE too much money just for storage costs. He referended the R5.5 million in additional costs. This is a lot of money, and it is taxpayers’ money used for something else that will not benefit the people. What is the status update on the solar geysers? Are the people responsible for this material irregularity held accountable?

Mr Langa asked what DMRE had done about CEF not submitting its annual financial statements on time.

Mr Langa noted on slide 19 that MHSC operational costs almost doubled in 2021/22 and this did not add up.

Ms Malinga said that DMRE had prepaid for services that it had not received at the recorded cost and what the reason for that was. AGSA seems to be happy when departments are underspending, and this is not a correct posture. If this is the case, the AG must hammer this underspending. How is DMRE to recoup the money already paid to the service provider going through liquidation? AGSA said there is no consequence management in DMRE, why do the same findings reoccur every year, yet no one is held to account? Is there no willingness to rectify this? Lastly, DMRE has not been able to fill the vacancies related to the merger. Why is it taking DMRE so long to fill these vacancies?

Mr S Kula (ANC) said AGSA indicated that more could have been done by DMRE in achieving its targets. The Department alluded to limited funding but there is no improvement in its debt collection. The CFO said the issue is with the revenue collection unit, especially on mining rights. He agreed with AGSA that more could be done by DMRE to collect more. How much is DMRE owed and how long will it take to recoup it? The Department underspent by R337 million. The reasons given were due to vacancies that were not filled for funded posts. How long will the process take to fill these vacancies and what is holding it back now when these posts are funded? The underspending cannot be justifiable.

He asked MHSC if the fatalities factored in the illegal miners because that is where most of the fatalities occur.

The Chairperson said more resources are needed but at times these resources are available, the problem is how they are used. He was concerned that the fruitless and wasteful expenditure seemed to be taken lightly given this comment: “wasteful and fruitless expenditure were recorded during the year under review as a result of unavoidable expenditure incurred. All fruitless and wasteful expenditures will be investigated, and corrective measures will be applied.” If there are strong management systems and personnel – whether through the internal audit or management, it is easy to address fruitless and wasteful expenditure, it does not need to be an audit finding.

Secondly, money has been pumped into the electrification programme for Eskom. When we ask how Eskom spends this money, we continue to be told that it will be monitored by the Department of Public Enterprises.

The question to DMRE was if it has considered seeking buy-in from COGTA and Human Settlements to cut what was not supposed to happen in the first place, which was paying a service provider to keep geysers in storage.

Where is the Mining Health and Safety Amendment Bill and the Mine and Health Safety conference?

DMRE response
DMRE replied that NNR Amendment Bill was delayed mainly due to consultations with NEDLAC but DMRE has since gone through the NEDLAC process and should proceed to Cabinet. Nuclear is always highly contested and for anything that has to do with nuclear, there are always challenges and opposition from stakeholders. The Department cannot proceed until a consensus is reached with the stakeholders.

The Nuclear Waste Fund Amendment Bill went through the entire process, consultations were held, submissions were received and reviewed and incorporated and then it was taken to the Cabinet. However, when DMRE got to Cabinet it was asked to redraft some areas in the Bill because at the time the Bill was conceived, the Nuclear Waste Management Fund was to have an entity of its own. So the Bill was drafted in such a way that it creates an entity that will manage funds payable by the polluters in the nuclear space. Given the current financial state of the country, Cabinet said that it cannot establish a new SOE and DMRE had to redraft the Bill in such a way that the Fund takes shape as a rehabilitation trust that is managed by the Department. This was done late last year but because of the nature of the major changes, the Bill had to be taken back to the State Law Advisor for certification. It was also re-gazetted for public comments and has gone to NEDLAC. The stakeholder and NEDLAC processes are nearing the end and there are not any objections at this point.

The [NERA?] Bill has been in the system since 2014/15. When DMRE was merged it reviewed this Bill. It does not make sense to proceed with it given the current discussions taking place in both the electricity and petroleum sectors and the discussions between NERSA and the Competition Commission which is giving NERSA support. DMRE resolved to withdraw the Bill and reconsider and align processes and consider what shape and form the structure should take. Currently, the proposals are that it should take a similar shape as the Competition Commission. It will re-work on this from scratch once finished with the pre-consultation.

To support its investments, the Department has a number of investment promotion activities and it also engages the financial services sector. DMRE has two large banks. Firstly, ABSA has pronounced publicly that it continues to fund coal projects with conditionalities and if it had to fund a new project, it would require a strong environmental, social and governance (ESG) framework from the mining company. Nedbank has moved with speed to ensure that it supports its clients in their just transition journey. One of the interventions is the listing of green bonds as the first bank to do that in South Africa. This will allow companies to tap into some sustainable financial solutions using green bonds because they come with conditionalities that are geared towards sustainability supporting the transition to a low-carbon economy.

MHSC response
The Health Council does ensure there are proper interventions for health and safety in the sector. One of the matters identified is that generally there are more emerging risks as a result of the changing landscape in mining. In improving the health and safety measures in the sector. The Council has issued directives to work in all these old areas. This directive resulted in an 80% reduction in fall-of-ground accidents. Secondly, there is consensus to focus on technology to say there might be areas where appropriate technologies are adopted by the mines to improve the prevention of fatalities and accidents. There is now an improvement in fatalities and injuries in the sector since the implementation of the Council’s interventions.

Compensation is a challenge in the sector – unfortunately, the sector has legacy challenges. Before the Mining and Safety Act, no appropriate measures were in place to ensure less exposure to health and safety hazards. Currently we are dealing with the latency effect of that exposure. Though asbestos mines were decommissioned more than 20 years ago, the health hazard effects are being seen now. There are still asbestos cases being reported. Those people complaining about compensation may have worked on the mines or their relatives worked on the mines. However, the Council works closely with the Departments of Health and Employment and Labour because they administer the Occupational Diseases in Mines and Works Act (ODIMWA) and Compensation for Occupational Injuries and Diseases Act (COIDA).

MHSC noted the reporting on spending issue as the activities reported do not reflect the spending and this would be rectified by the Council.

DMRE response
DMRE explained the monitoring system on sector codes. It negotiated a petroleum sector code with stakeholders but in terms of the BBBEE Act, when that negotiation was completed, the Minister had to make recommendations to the Minister of Trade and Industry. When that target was put in the APP, it was anticipated that the process would have been completed by now. He confirmed that the submission was not back from DTIC yet, but follow-ups will be made. DTIC also had to consult all stakeholders listed in the sector code. This is the cause of the delay and DMRE cannot procure a system before the final approved sector code is completed.

DMRE explained the term 'mine economic inspection' saying when a mining right is issued there are commitments that go through a contract between the state and the investor. The investor then commits which mineral they will be mining. The Department must assess if what is being mined is consistent with the commitments. It also reviews if there is sufficient capacity through the committed mining period.

As for the empowerment scorecard, this matter has been delayed because DMRE decided to wait for the outcome of the court case. Now, the department must regroup because the outcome exists.

On the black industrialist programme, DMRE had a productive conversation with AGSA on this and a decision was taken that there will not be any more audits without the standard operating procedures in place. That will minimise any chances of any activities that are untoward.

The backlog would be best responded to in writing. In the last 15 months, we have processed over 1 200 prospecting rights. More could have been done but the resources would not allow it. A comprehensive report on the matter will be submitted to the Committee. There is still more that must be done in the Northern Cape.

It takes on average about three months to fill a vacancy but DMRE noticed that for the lower-level applications, it takes longer. The Department acknowledges that it has challenges with the ICT system. Gaps have been identified and there are interventions taking place to modernise all the ICT systems including infrastructure and software. An off the shelf system will be procured. They are confident about this as there are countries that use the same off the shelf system.

The DMRE CFO replied that the fruitless expenditure was R20 million in 2020/21 and it was R3.9 million in 2021/22. Both related to the solar water heater project. If this project is still with DMRE, the storage or litigation costs incurred will be classified as a fruitless expenditure if there is no implementation. Irregular expenditure was R11.4 million last year, and R3.8 million in 2021/22. Measures are in place to decrease. For example, before payments are processed, they must follow due process. If not, it will be classified as irregular and will be immediately investigated by the internal audit function and referred for any consequence management that must be implemented.

The R284 million not included in the slide was from the previous financial year for irregular expenditure and it relates to nuclear – for the system and consultants that occurred. This is also under investigation. For the nuclear matter, a service provider was appointed, however, it pulled out amid the investigation. A new one has been appointed.

On the pre-payment for services, the service level agreement signed between DMRE and the service provider states that if it is not the fault of the manufacturer, DMRE has to pay for the warranty and the training. The service provider agreed to provide this but DMRE was not in a position to be able to take possession of those units and install them. This was then classified as a pre-payment as per accounting standards. The CFO took it on legal review and has just learnt it can reclassify and no longer treat it as pre-payment and DMRE can write it off as the cost occurs. This matter has been referred to legal services and DMRE is hoping to recoup the monies from the service provider as its liquidation was voluntary.

Debt collection is not limited to the director responsible but it is because DMRE is under-capacitated – there is one person per region. However, this is being addressed.

Mr Mbele, DMRE Director-General, replied that the implementation model for electrification is through licenced entities which implement the electrification programme in the areas where Eskom is licenced to distribute. Thus the funding is directed to those municipalities and Eskom because they are licenced. There has been deviation where in an agreement between Eskom and the municipality, the funding will go to the municipality and it will do the electrification but there is an SLA between those two entities.

On the R4.8 billion expenditure for the electrification programme, there is recognition that the landscape is changing and there are discussions for mini-grids or localized solutions. There is a consideration for alternate thinking, but the programme cannot be scrapped because there are people who need energy and do not have access to it. A chunk of the money goes into bulk infrastructure. The reason there is a backlog on electrification is that some of the infrastructure gets overloaded. A large part of the budget goes into the infrastructure and beefing it up in certain areas. The money is not only going to direct house connections but also infrastructure.

On gas, with any conventional power station, you cannot procure a coal fire power station if you are not firmed up on the coal supply. The approach is not to wait for the infrastructure to be on the ground but to ensure the contracting is back-to-back. The Department had the privilege of engaging different stakeholders on how gas may be priced. Total Gas was approached and engaged by DMRE on this. There are different approaches to pricing of gas. The spot market price gives a sense of what is happening in the market and most of the contracts are not even aligned with the spot market price. They are different based on the usage and tenure that has been agreed to.

On solar water heaters, alternative ways are being explored but there are constraints in the programme. There are a lot of issues with the units that have been supplied and legal processes were underway with suppliers as some units have parts that are faulty or missing. The reality is that if these were dumped in municipalities, it would be a transfer of liabilities. The R320 million for storage was money incurred in 2018/19. Around 2020 a decision was made to move the units and cut costs. Compared to now this amount was [Tape 2 - 1:45 inaudible] million for storage costs and it was R200m in 2020/21. It has come down significantly. There was a clear approach to stopping the bleed and progress has been made. On consequence management, we all have our views on who was wrong, but we have the responsibility to ensure that if any disciplinary action starts, there are no comebacks. That is why DMRE is waiting for the forensic report by KPMG. All recommendations that will come out of the report will be implemented.

As for the Gas Amendment Bill, the main reason for the withdrawal of the Bill is when DMRE was reviewing the final Bill and with some of the questions that came up during consultation, it became clear that this Bill is one of those that has been in the system for a long time. The amendments were initiated in 2013 and the delays at NEDLAC went up to five years. A lot of the matters in the Bill have been overtaken by events. There is a lot of development happening that is shaping South Africa’s future energy systems. Thus, it made sense to withdraw it so that it is aligned. For example, there are discoveries of domestic gas in the country and renegotiating on more gas coming from the Mozambique market. These developments threw a lot of dynamics into the situation. The Bill must first be aligned with the Upstream Petroleum Resources Development Bill and factor in these recent developments. This was cited in the withdrawal letter sent by the Minister to Parliament.

On the Mine Health and Safety Amendment Bill, DMRE picked it up this financial year. It was reworked and on 15 June it was gazetted for public comment. The comment period closed a month later and the comments were incorporated. It was sent to NEDLAC in September and those consultations have closed. It was agreed with NEDLAC that the final version will be submitted by mid-November to get to cluster and Cabinet by the end of November 2022.

All the corporate plans were signed on time. The issue with the CEF Group was due to the information that had to be provided about PetroSA, which led to it missing the timeline. They have since submitted on 1 October but CEF will surely account to the Committee next week.

Minister's response
Minister Mantashe suggested that a Committee oversight visit to dead mines should be conducted because Members will have a sense of what is going on. In 2018, there were 73 fatalities and in 2019 that dropped to 51 and in 2020 it picked up to 59. In 2021 it went up to 68. These are issues that must be discussed with the industry, hence the summits. When dealing with mining fatality statistics, one must not lose sight of the classifications.

We must always assist people in how they must do their work instead of firing people without giving them an opportunity to grow and improve. However, if you can see that the person is not improving, only then a decision can be taken about what is to happen going forward.

The matter of the health and safety of surrounding mine communities is an issue that should be dealt with under the communities, not in the mining space. Someone once asked if the fatalities of illegal miners are included in the statistics of fatalities, these fatalities cannot be included in those statistics.

The establishment of a second power generation company belonging to the state is his wish list. Focusing only on renewables is a mistake that will cost the country heavily in the future. Renewables work better when they are partnered with a baseload. If we get rid of baseload and continue with renewables alone, we are going to be in trouble and Germany has learnt this the hard way. Germany buys coal from South Africa because it does not get gas from Russia. It has enough renewables but not sufficient baseload. We must manage the integration of technologies to lower carbon emissions while at the same time dealing with energy poverty.

Our discussions with Total are that we will partner with it for PetroSA to become productive around 2024/25. By then, we want to produce the gas for PetroSA. The gas will be sourced domestically – gas deposits will be explored an exploited in the country. The gas in the Karoo has been confirmed to be economical and it will also be explored.

There is a gap between what Eskom avails and what is connected. We have 20 000 megawatts of energy that are not decommissioned. Thus we have a duty to ensure that those megawatts give the country energy.

He agreed that the gas supply was tight but the gas deposits that are being discovered must be fully exploited.

Just because there is a shortage of electricity supply, we cannot deprive the 13% of South Africans who do not have access to electricity supply. Ironically, this 13% are in black communities. Therefore, any advice that says 13% must not be connected is a continuation of depriving people of access to electricity like the apartheid government did.

As for the merging of the Minerals and Energy departments, DMRE has been merged in terms of the structure, but the operations were still outstanding.

Follow up questions
Mr Mileham asked about the status of the PetroSA workers at the Mossel Bay plant. Secondly, at what point does DMRE draw the line on NECSA – the deficit in the presentation states R72 billion and this was not clarified.

Mr Lorimer asked DMRE to elaborate on the Cadastral System.

Mr Langa sought clarity on operational costs that shot up high in the current financial year.

Mr Mahlaule asked if the country was not faced with a problematic situation of a highly specialized department having too many vacant posts, for whatever the reasons are. Are there efforts by DMRE to source these skills and expertise outside the country as a temporary measure to fill those vacant posts? Are these not being filled because these skills are scarce?

Mr Wolmarans asked if the solar water heater project has been stopped or paused while DMRE was dealing with the current challenges related to it.

Minister & DMRE response
Minister Mantashe replied that the workers at PetroSA are workers of the entity and those who were retrenched were done so within the prescripts of the law. They will remain in employment until the prospects of PetroSA are revitalized. CEF Group must indicate to the Committee that in fact PetroSA has registered a profit and it is turning the tide around. Those employees are crucial to that. As for NECSA, DMRE cannot draw a line on it yet and the skilled managers employed are responsible for turning it around. However, DMRE has ensured that the entity has a stable board and executive management. NECSA is turning itself around. That process is underway.

As for the many vacancies, when he arrived at DMRE every key vacancy was acting. Now at the top management level, no one was acting. All those key and critical vacancies have since been filled. Acting persons do not act for more than three months.

DG Mbele replied that the vacancy rate was sitting under 10%. The reality is that people get recruited, especially with skills and expertise, from DMRE. Most of the staff in DMRE are poached by the private sector because mining skills are quite scarce. We try to ensure that the recruitment processes move speedily.

The Solar Water programme is continuing and currently is being implemented.

As for the Cadastral system, the commitment is that the procurement will be done no later than this 2022/23 financial year. A team going to Namibia and Botswana to learn about the system. The rollout of the system will be determined by the service provider. The procurement process may be finalized by the end of this financial year.

Mr Langa interjected that the Committee has been told so many times that the solar water heater programme is continuing and that suppliers and service providers are appointed all the time. What are the timelines to finish the installations?

The DG replied that he was committed to coming before the Committee especially to brief it on this programme. Installers have been appointed and will be working within the space of 12 months.

The Minister concluded that the solar water heater project was a terrible one. It was badly structured.

The DG referred to the skyrocketing operational costs which were attributed to the increase in ICT equipment, promotional material and the internal audit expense. The internal audit assurance as well as the legal fees were a result of the implementation of consequence management for 2018/19, 2019/20 and 2020/21 irregular expenditure investigations. This also included matters before the CCMA and the Labour Court, hence the increase.

The Chairperson said that the Committee would still need to deliberate on the DMRE Annual Report. The Committee will engage on how processes can be fast-tracked and to engage stakeholders to obtain their buy-in.

Mintek Annual Report
Dr Molefi Motuku, Mintek CEO, highlighted Mintek’s integrated value chain; performance information; employment equity; staff qualifications; research and development KPIs; research published in top journals and books; invention disclosures; patents and designs; industry development; establishing eWaste processing capacity in SA; rehabilitation of abandoned mines and financial performance.

[See the presentation for details]

Discussion
Mr Mileham asked about Mintek's source of revenue. It looks like it is moving towards the government but how sustainable would this be in the long run? What does its current asset base look like for Mintek?

Mr Lorimer said that the commercial activities were up 22% and asked for a detailed explanation. Secondly, what is Mintek’s biggest earning project as well as in the medium-term future? How is Mintek going to work with the Steenkampskraal?

A lot of work has been done on illegal mining lately. One of the problems is identifying if the gold is material or not. Would Mintek be able to analyse this more quickly than the police laboratories? If Mintek were to receive R50 million, how would it spend it?

When the Committee went to Welkom, it saw that it had been very successful in filling mining shafts with rubble. What is Mintek’s assessment of filling shafts with rubble versus concrete or flooding the mines? Lastly, the acid mine drainage (AMD) projects sound great but are they cost-effective?

Ms P Madokwe (EFF) asked about the ratio of top management with four males to one female. It does not look as if there is black African representation in the female ratio. Mintek stated that part of its value chain is small-scale mining and urban mining. Apart from rehabilitation for mine closures, what work does Mintek do in assisting small-scale miners, notwithstanding the legislative challenges?

What will be the implications for the expiry of patents? As for its research, what are the research prospects for Mintek in developing industries and assisting the state in creating manufacturing plants? Is Mintek doing any work currently in partnership with Eskom to address load shedding? Lastly, are we experiencing an influx of illegal miners in asbestos mines in comparison to other types of mines?

Mr Wolmarans noted that Mintek previously indicated that it was in the process of developing, testing and obtaining approvals for the test kits. The results came back on 7 October that the product was ready for the market. It indicated that these kits would be procured by the Department of Health but what happens if Mintek does not get that tender? Will the costs incurred in the production of the test kits be an irregular expenditure? Why is Mintek not exploring partnering with the Department of Health as in that way it would be a sustainable revenue stream for Mintek?

Mr Kula asked about the 54 people that were classified as unskilled and the plan for ensuring they were upskilled. Most of the staff complement is constituted by those having university degrees.

On financial performance, its commercial activity increased by 22%. What is needed to make Mintek more economically viable? We are not doing enough to empower entities like Mintek to play a bigger role in the sector. What role is Mintek playing on water treatment plant challenges?

Ms Malinga said the CEO indicated that Mintek was recruiting beyond the borders for the required skills at Mintek. Has this been shared with DMRE to attract and obtain skills and expertise?

Mintek response
Dr Motuku replied that the state grant was not sustainable for Mintek. This matter has been raised for many years. The question of the capitalization or commercialization of Mintek has been raised. The 22% increase in commercial activities was a concerted effort by the type of people recruited. They were able to write proposals to industries and if Mintek could present its pipeline of proposals and potential projects the Committee would see that these have increased significantly. We are seeing a lot of enquiries from mining houses. It has also received feedback on the confidence in the quality of Mintek’s work. There are divisions that had to be rebuilt in Mintek to accommodate these changes.

On the current asset base of Mintek, there is just above R400 million in reserves. The annual salary bill is just below R300 million plus a few fixed costs. This should allow Mintek to operate with ease over the next eight months to a year.

As for the 20% increase in commercial activities, historically Mintek used to sign contracts of R5 million, and it has recently started signing bigger contracts. The same effort goes for the bigger contracts, but the issue was capacity, which has been addressed. As for big-earning projects, there are quite a few big contracts that Mintek is signing.

Mintek has been working with Anglo American over the past two/three years and the project is for research as well so it is not just service work. This project is to the tune of R50 million. There are also other contract research projects with the EU and some of these are as large as R35 million. Mintek recently signed one for R12 million. Another contract in the US. These typically run for a period of about three years.

As for the Steenkampskraal collaboration, Mintek had a forum with SADC rare earth producers three months ago. Everyone is excited to get into this space but unfortunately there are no operating mines yet. Currently, the situation is fundraising at Steenkampskraal and they want to start mining again. The idea is to extend refining as well over time. It is doing research on rare earth as well as on water treatment and efficiency. There is a lot of interest from the mining industry and in lower cost technologies. Tongela plant

If Mintek would get R50 million, it would take it but the demonstration plant would cost R500 million. South Africa needs to look at localizing fuel cell manufacturing value chains. Requests have been submitted to National Treasury for R390 million to assist on this and it has asked Technology Innovation Agency for R30 million. We see great opportunities in South Africa for localizing energy storage value chains.

As for the filling up of shafts with rubble, initially, people re-attempted to reopen even concrete fields and they were successful in a few. Mintek redesigned the filling of the structure to make it very difficult. However, if there are valuable minerals to mine, that rubble can be dug up.

Mintek does not have black African females at the top management level, however, there are a few within executive management. There are two vacancies coming up and management will consider ensuring that that is resolved.

On small-scale mining, Mintek does provide training to retrenched miners and aspiring artisanal small-scale miners. The target this year is for women is to train about 200. Last year, Mintek trained more than 500 people in different regions on artisanal and small-scale mining.

Currently, Mintek has secured dossiers of 18 products that can be done. This will soon be incubated.

On upskilling of the work force, most of the maintenance employees have been trained and are qualified artisans. A combination of trade and specific skills such as instrumentation will be considered for the upskilling of these employees.

The old asbestos mines near communities is a health and environmental hazard. They need attention as well as the old gold mines.

On the coal industry, emissions and initiatives - coal is a difficult one - one talks about carbon capture and what can you do with those capture initiatives making products such as generating hydrogen from coal. Mintek is looking at coal gasification. Its role is to de-risk. On fuel cell and battery storage, Mintek has all these programmes.

About 16% of the patents would expire in 2029 and patents normally last for a period of 20 years. To keep them alive, Mintek developed some aspects of that technology and patented it to not lose that technology completely. After 20 years anybody may have access to that technology. They are focusing on an innovation pipeline. We need innovative minds that will start building the pipeline of new patents. Research is a very risky business and one out of 10 of these research projects succeed. The failure rate is 90% and some would constitute this as wasteful expenditure but that is Mintek's role – it de-risks.

National Energy Regulator of South Africa
Ms Nomalanga Sithole, NERSA CEO, noted it obtained a clean audit. It achieved 90% of its annual targets. This signified an overall increase of 1% in performance compared to 2020/21. The overall improvement is because all measures put in place in 2020 to deal with the impact of the Covid-19 pandemic restrictions, have been implemented successfully. The decrease in the performance in electricity regulation was due to external factors such as the timely submission of applications and reports from licencees or from dependencies on other key role players to progress with key targets.

[See the presentation for details]

Discussion
Mr Mileham congratulated NERSA for reducing its deficit from R49 million to R3.7 million. This is what we need to see from all our entities to make them more viable. He asked for insight into the electricity pricing tariff methodology and when it can be expected to be finalized. South Africans need to know that this will be resolved where NERSA and Eskom reach an agreement going forward. Secondly, how much was spent on litigation in 2021/22? Thirdly, on public outreach and awareness, one of the focal public participation points is on electricity tariff increases but he noticed that at those events people seemed to be all over the place. There is no structure in the public participation process. Perhaps there is room for improvement? Does NERSA give any feedback on those public participation processes?

Mr Mileham noted that when the President announced the electricity emergency response plan in July, he spoke about the streamlining of processes and one of the areas identified was the licencing and regulatory processes that are “owned” by NERSA. What is NERSA doing to streamline those processes to make it easier to address the energy crisis?

Ms Madokwe referred to the NERSA vacancy rate as the vacancies were not yet fully filled. Did this not affect its overall work? What percentage of the budget was used to meet the 90% target achievement by NERSA? Previous reports have indicated fuel and cable theft is escalating but DMRE did not have plans on how to address this. Has this been stabilized yet? Does NERSA have any programmes to address those crimes specifically?

She asked about the learnership programme and if NERSA had plans to ensure the learners were absorbed.

On litigation, it is worrisome to see government entities taking each other to court. Why are matters that could be attended to internally dealt with in the courts?

Ms Madokwe noted that the Minister said that DMRE was in discussion with Total Gas for provision of gas, but the NERSA report is speaking about something else. Is NERSA part of those discussions? She believed that some of the amendments in the Gas Amendment Bill were going to assist NERSA in meeting some of the targets. What are the implications of the withdrawal of that Gas Amendment Bill and what is the way forward in meeting the legislative shortcomings that NERSA experiences?

Mr Mahlaule said that NERSA reported a deficit of R3.25 million against a budgeted deficit of R49.2 million. NERSA fund the budgeted deficit from accumulated surpluses from the previous year. What does this mean? Secondly, on revenue performance, what is meant by “electricity volumes were 4.7% above budget”?

The Chairperson asked how long the posts have been vacant and are they critical or can NERSA live without them. Secondly, NERSA is supposed to be an independent regulator with no bias or influence.

NERSA response
The CEO replied on the electricity pricing methodology that NERSA is currently considering Eskom’s application through the current methodology (MYPD 5). However, a methodology review is underway and public hearings have been held. The team is considering those comments with an intention to submit recommendations to the energy regulator for approval.

When we review the methodology a public hearing process is conducted. Those comments would be considered in the decision-making process, but NERSA may not have capacity to get back to each of the commentators on those comments. Some of the comments are not relevant to the subject matter but they are noted and recorded accordingly for record keeping purposes.

On streamlining the licences and regulatory processes, NERSA has moved from 90 days for processing registration to 30 days. Some of the applicants do not complete the forms in the required manner and the information submitted is inadequate. However, measures are in place in the entity to assist those applicants. The turnaround times have also improved.

NERSA is facing the challenge of staff leaving for greener pastures, hence the current vacancy rate. However, management ensures that those vacancies are filled swiftly to close gaps that may affect the overall functioning of NERSA.

On fuel theft and vandalism of infrastructure, NERSA regulates the industry and it engages the entities affected by these crimes to understand what measures they are putting in place to address these crimes. For example, when Transnet infrastructure was damaged and fuel stolen, it had an impact on the tariff it wanted to apply for. NERSA engaged with it about the insurance of the infrastructure but even though it was insured, it was still a cost to the entity.

NERSA does its best to absorb learners when there are vacancies, but the issue is that some of these learners cannot be absorbed in permanent positions as they are still acquiring the skill.

NERSA decisions are always taken on review, but we need to formalize alternative dispute resolutions that will not be costly. It is difficult to try minimizing for now because the Act makes it clear that anyone who is not happy with the decision of the regulator can take that decision on review.

The CFO replied that NERSA spent R16.8 million on litigation in 2021/22 which is a decline from the previous financial year of R21 million. The percentage of the budget versus the targets meeting the budget spent was around 70%. NERSA saw an underspending but met 90% of its targets. This showed that NERSA can do more with its budget.

On the deficit reduction, most of the accumulated surplus of R290 million is made up of cash balances. NERSA is not funded by DMRE but by licence fees by electricity generators and levies for gas and petroleum pipelines. When NERSA determines its levy rates and licence fees, it does so during the budget cycle and obtains estimated volumes for licence fees. During the financial year the actual volumes NERSA receives are at times above what was budgeted, hence over-recoveries and vice versa. This explains the 4% above budget which meant that the volumes were slightly higher than the budget.

NERSA collects the licence fees and levies and when it underspends, this becomes cash in the bank. It would apply to retain this surplus from Treasury. The following year, NERSA would take a decision not to collect much from the licence fees and levies but utilize the accumulated surplus to reduce the impact on licence fees and levies. Permission from Treasury is often obtained. In the current year, NERSA spent less than it budgeted and did not reach the deficit of R49 million.

The Chairperson said that the Committee only heard today that the Gas Amendment Bill has been withdrawn. The Department must go back and find a way to manage this because NERSA as a DMRE entity would have been assisted a great deal by the Bill.

SADPMR
SADPMR outlined its legal framework; general information; annual performance information; office relocation; legal matters; human resources information; audited annual financial statements and finance highlights; audit outcome for the 2021/22 financial year and challenges and interventions.

Its annual performance stood at 88% with 42 out of 48 targets achieved. The two targets that were not achieved were due to the High Court judgment. However, management has put measures in place to address the areas of non-achievement.

The Diamond Exchange and Export Centre (DEEC) realised an increase in diamonds traded in 2021/22 compared to the 2020/21; the target to issue licences within the prescribed time-frame was surpassed by 30%; collaborations between SADPMR and various licence holders to foster enterprise development were created; during 2021/22 jewellery fabrication showed signs of resurgence post-Covid-19 as compared to the previous year; 30 policies were approved by the SADPMR Board to streamline and strengthen corporate governance and the Optimal Utilization of Human Resources project was approved by the Board to ensure existing human resources are fully utilized.

State Diamond Trader
The State Diamond Trader was able to exceed its budgeted purchases by R654 million by purchasing rough diamonds to the value of R1.352 billion. It exceeded sales by R719.9 million by achieving a sales value of R1.443 billion and achieving a gross margin of R84.6 million.

There was an increase of both carats (volume) and value inspected by 8.16% and 33.64% respectively, presented to the State Diamond Trader by 13 producers compared to the previous year. The average price per carat also increased by 24% in this period.

SDT achieved 15 of its 17 targets. It received an unqualified audit outcome with no material findings. The audit improved from an unqualified audit opinion with findings on compliance and performance information to an unqualified audit opinion with no findings. This was the result of continued efforts by management to maintain a sound control environment and financial discipline.

Discussion
Ms Malinga commented that in senior management there were only two females at SADPMR. The question of the internship programme had been raised before but why only choose the four – what is the rationale for that? Senior managers took SADPMR to court because of bonuses. Are these managers still employed by it or were these bonuses due to them? She was pleased with the financial turnaround that SDT has now realised.

Mr Wolmarans said that SADPMR was visited previously by the Committee and the Board Chairperson was at pains about the importance of relocating to the Gauteng Industrial
Development Zone (GIDZ) near OR Tambo International Airport. He assumed it has moved to its new infrastructure. He asked for more details about the synthetic diamond matter. The target was at zero as it was later realised in another country that the diamonds were synthetic. What does this mean for the entity?

Mr Mahlaule asked about the inspectorate of mines and who was responsible for inspecting illegal mines. SAPS has indicated that it is not its role to conduct inspections but will act when called to reinforce. How is DMRE planning to capacitate inspectors who do not have the capacity to inspect illegal mines or the equipment to defend themselves when necessary? The Minister responded to this by saying that DMRE cannot inspect a crime scene. Everyone is trying to ascertain who is responsible for dealing with the zama zamas?

Ms Madakwe asked about the high court judgment on the Mining Charter and why SADPMR did not petition the Department and relevant stakeholders to appeal that judgment considering what would be at stake. How much did it spend on litigation or legal costs? Thirdly, what was the percentage target for employing people with disabilities and what is the target for 2022/23?

She asked SDT about illegal mining and the sale of diamonds on the black market. What is the country losing because of diamonds being illegally mined and those that are sold on the black market? What measures are put in place to curtail these activities?

Mr Lorimer asked why SADPMR only achieved 60% of its target for licences and why that is the case. He asked about the engagements with SARS and National Treasury on the VAT matter. What is the policy on demographic representativity for staff recruitment as the regulator did not meet its 1% with just one white person recorded in the presentation?

He asked SDT about the percentage of diamonds cut locally and what percentage is re-exported.

The Chairperson asked about the recommended consequence management by National Treasury on the non-compliance with the SADPMR policy and legislation. The presentation reported that procurement of more advanced synthetic detecting equipment has been concluded but it did not say it has been commissioned. He asked SADPMR to unpack this.

He asked about the departure of the SDT CEO as the Committee was never informed about this but only learnt today that there is an acting CEO and CFO. What happened with the two?

SADPMR response
The CEO replied that there is an interface between the various entities involved in regulating the mining activities in the country and who should be in possession of diamonds and if they have permits for them. Through the Precious Metals Act, there were various players in this space but the functions that were previously with the SAPS had been moved to the SADMPR. However, SAPS is still involved in enforcing the law. If a person is in possession of precious metals without the proper permit, SAPS is mandated to enforce the law.

As for the three senior managers who took SADPMR to court in May 2020, the board took a decision informed by the directive from Treasury and the letter from the Minister that implored it to implement the 2.8% increase in salaries for managers earning up to R1.5 million. For officials earning above R1.5 million, there was a zero increase. The term of the board ended in November 2019. Between the board resolution and the term of the board ending, there was no issue. When the board left in November, the officials came to his office and demanded that he reverse the board decision. They demanded bonuses as well. During this process, they got hold of sensitive information and used it to go to court and force the regulator to pay the money. At that time, there was no board and they refused to engage DMRE on this matter. They went ahead with the court case. CCMA ruled in SADPMR’s favour and they were dismissed.

On the diamond sent back to the country, the law requires clients to declare if the diamonds they are bringing to the regulator are synthetic or not. It is difficult to distinguish a polished diamond from a natural diamond. SADPMR has developed an standard operating procedures (SOPs) that outlines all the steps that government evaluators must take to determine if a diamond is synthetic or natural. The USGIA picked it up and sent it back to SADMPR but there were no legal or financial issues that resulted.

The CFO replied that the procurement of the latest technology was finalised. It is awaiting delivery by January 2023 but there were delays in the manufacturing of the machine. There are few role players in the market who manufacture these machines.

On the high court judgment, DMRE is better positioned to explain why it did not petition the outcome of the judgment. SADPMR was cited as a second respondent as an entity that implements the law. The litigation costs incurred for 2021/22 were R1.462 million. There were four cases in total but those cases were no longer active.

On the VAT exemption, the intention is to ensure that SADPMR promotes local trade by attracting producers in Africa. These producers have indicated that the biggest bottleneck is the VAT and it is kept for a lengthy period. There are clients that wait for six months to a year for their VAT tax returns. This is an administrative issue and SARS and Treasury have been engaged on this. The policy position on VAT on imports of diamonds is an old issue. The motor industry is exempted but when that issue came, diamonds were excluded because at that time it was because diamonds formed part of the pillars of the economy at that time, as such, it was important to generate income from them. There is a willingness for Treasury to engage on this matter.

In the applications received, he could not recall potential candidates that were white.

The consequence management that was implemented was disciplinary action, warning letters and training. The evidence was provided to Treasury, hence the condonement.

State Diamond Trader response
The SDT Board Chairperson replied that the SDT had two critical resignations which included the CFO and the CEO. The CFO had been with the entity for two years and she did very well, but she moved on to greener pastures and resigned. The CEO contract was coming to an end in February 2022 and the board resolved that it was not renewing that contract but to seek another candidate. Quite justifiably, the CEO started looking around and he got something. When he found a job at Steve Tshwete Municipality, they needed him urgently. He then resigned with immediate effect without notice. Communication was issued to all stakeholders about the CEO resignation.

The Acting CEO replied that there is a forecast slump in the market and prices could be seen going up. The increasing energy costs and inflation could mean cooling down in terms of demand. The response to this is to target directly the overseas market as our diamonds appeal to overseas clients.

On illegal mining, SDT is legally allowed to procure only from registered miners with the SADPMR and DMRE. He was uncertain about how the SADPMR deals with confiscated diamonds.

The Chairperson thanked the stakeholders and indicated that bonuses have been paid and the same principle must apply when the entities perform poorly. It is often those who occupy the top positions that get bonuses but the lower staff that works very hard do not get those bonuses in some instances.

The meeting was adjourned.