Briefing on 2021/2022 Annual Report: NECSA, CEF, CGS, SANEDI, NNR and NRWDI

Meeting report

Ms Ayanda Mona, CEF chairperson, in her introductory remarks, stated the environment they operate in is volatile, and complex and depends on the global and domestic events taking place.

On the exploration value chain, a lot of litigation has to be contended with and it is impacting the delivery of services. The Ukraine-Russia war was bringing challenges to energy requirements. Europe is looking for coal from Africa. The Transnet strike could also put a damper on the efforts of CEF.

She stated they were relying on importing finished products, leading to the export of expertise. This was due to the dwindling funding capacity of the country.

The entity has achieved an unqualified opinion and has advanced on the growth strategy and increased investment in Aqua.

Dr Ishmael Poolo, CEF Group CEO, informed the Committee the CEF Group received an unqualified audit opinion with findings. The findings were, amongst other things, a result of an annual shareholder’s compact not concluded in consultation with the executive authority as required by treasury regulation; failure to prevent irregular expenditure; not all goods, works or services were procured through a procurement process that is fair, equitable, transparent and competitive; and there were material adjustments and misstatements on the financial statements. The Group made a net profit of R63 million, less than that of prior year.

Key matters that kept the CEF Board awake and engaged were governance and oversight; the group growth agenda; the merger project; and the CEF SOC repositioning.

On governance and oversight, burning issues were around the PetroSA financial crisis and slow progress from the PetroSA board, establishment of the War Room to turnaround initiatives, stabilisation of management structures and institution of consequence management, and dissolution of the PetroSA board and putting in place a new structure.

On the group growth agenda, the entity has embarked on an aggressive group growth agenda through acquisition of operating assets, and to focus on key targets across the value chain.

On the merger, Cabinet in 2020 approved the merger of the three subsidiaries of CEF to establish a South African National Petroleum Company. CEF is working with the DMRE to progress final approval.

The board approved the repositioning of CEF SOC to play a key role in three specific areas. These are to support government broader economic and developmental objectives.

Dr Poolo reported the 2021/22 period was driven by many global trends that influenced their planning assumptions. Among the global forces shaping the future operating environment, CEF identified six generating particularly significant strategic uncertainty. All of this is on the back of a fragile economy groaning under the burden of the energy crisis. These were the geo-political transitions, geo-economic disruption, socio-demographic shift, Covid-19 pandemic, technological revolution, and environmental and resource system disruption.

Internally, the financial PetroSA crisis, governance challenges, group commercial sustainability, value proposition and group capabilities emerged as key drivers of the desired strategic direction.

Based on the external and internal analysis that was undertaken, the CEF Group's strategic response had identified four key focus areas or pillars to the CEF Group strategic and Corporate Plan for the 2020/21-2024/25 planning horizon.

The pillars are:

• Stabilising the CEF Group and improving long-term commercial sustainability and strategic relevance;

• Drive growth and increase market share through diversification of Income streams and product portfolio;

• Development of key energy infrastructure programmes in support of economic development and growth; and

• Group consolidation to exploit synergies and improve scale for strategic relevance, turning around struggling entities.

However, during Q3 and Q4 of the period under review, there were a number of events that had significant impact on the delivery against predetermined objectives. The geo-political dynamics have had a significant impact on the plans of the CEF Group across the value chain. The rate of uncertainty still remains because the duration and scale of the Ukraine-Russia conflict is unknown.

Dr Poolo stated there were a number of notable key highlights and lowlights during the period under review:

 • The PetroSA financial crisis and financial support given in aid of working capital commitments for three months;

• Establishment of PetroSA War Room to fast-track key stabilisation and growth initiatives;

• Appointment of women in senior roles across the Group;

• 15% acquisition of Sasol shares in ROMPCO, making CEF through iGas and CMG the majority shareholders; and

• CEF SOC concluding the legal and commercial validation of merger project as directed by the cabinet committee.

Ms Ditsietsi Morabe, CEF CFO, reported that the CEF Group made a net profit of R63 million during the year under review compared to the net profit of R540 million prior year. The decrease in profit is mainly due to the decrease in impairments reversals from the R1.4 billion reported in the prior year to R375 million in the current year. PetroSA’s net loss is attributed to high fixed cost of maintaining the GTL refinery that has stopped operating as it is still under care and maintenance. PetroSA’s losses were reduced by CEF SOC’s financial support of R189.9 million in the 2021/22 financial year. Included in the CEF SOC loss of R110.5 million is impairment of the PetroSA loan, the CCE loan and impairment of trade receivables with subsidiaries totalling R199 million. Excluding this impairment, the entity would have made a profit of R88.7 million. The net loss recorded under renewable energy is attributed to interest expense on the intercompany loan from CEF SOC to CEF Carbon for ACWA and the storage costs for the CCE equipment.

She stated that, as part of corrective measures, they would continue investigating and taking appropriate action to recover any losses and address areas of weaknesses in the systems. The Group has also established loss control functions and committees across its subsidiaries to prevent irregular, fruitless and wasteful expenditure, conduct investigations, recover losses suffered by the Group related to such expenditure, as well as enforcing consequence management.

Some disciplinary processes were undertaken during the year and consequence management was implemented, but it must be noted that the consequence management process is lengthy, and management and the board are committed to ensuring compliance.

Dr Poolo reported that, as part of the CEF Group integrated Enterprise Governance and Risk Framework that looks to continuously strengthen the various lines of defence, which ultimately result in improved business performance and organisational reputation, some of the initiatives executed during the period under and those planed are as follows:
 
• Creation of a Finance Investment
• Procurement and Project Committee
• Instituting the Chairperson’s Forum for group alignment and oversight
• Consequence management
• Vetting of officials

Looking ahead, the CEF SOC would continue with the execution of key strategic initiatives with a view of progressing the following focus areas:

• The turnaround of PetroSA: provide oversight and support on the critical initiatives planned for the new financial period for continuities turnaround of PetroSA and bringing the refinery back into production.

• Phase 2 of the merger project: advance the merger of iGas, PetroSA and SFF to form the SANPC to pursue R95 billion market opportunities identifies and R3.5 billion in synergy optimisation. Phase 2 would entail the incorporation of the SANPC and a number critical transitional initiatives.

• Legacy Entity Oversight: as an outcome of the merger archetype, some components of the merging entities would not move across immediately and such will need to be managed as legacy entities to enable certain legal processes to unfold.

• Growth Projects: continue to drive the group growth agenda and progress and a number of key investments that are being considered or undergoing a due diligence process.

Pertaining to the responses of the management on key audit findings, Dr Poolo reported all cases of irregular expenditure that are concluded would be taken through the condonation process. Those that are not concluded would be taken to Loss Control Committee to determine the disciplinary/corrective actions to be taken. The entity would continue raising awareness around prevention of irregular expenditure.

CEF would expedite the process of finalising the shareholders’ compact with the Minister. The management would ensure consistency between the corporate plan and annual results. This would be done during the cascading of performance objectives and contracting at the start of each financial year.

He concluded by stating over the planning period, guided by the CEF SOC parenting strategy, that the CEF Group would migrate over three strategic horizons supporting the delivery of the Group’s strategic objectives with the view of value-creation and improving its value proposition.

See attached for full presentation

NECSA Annual Report 2021/22

Mr David Nicholls, NECSA chairperson, stated that the board operates at full capacity and has approved a strategy and organisational structure fully capacitated at the top.

There are improvements in governance, financial performance and stability; these were being cemented by the new strategy with accountable leadership.

Despite the negative audit outcome, the entity is positive it is well on its way to a clean audit with the right support and stable leadership.

The board continues to give support to the executives while exercising the necessary oversight.

Support of the shareholder and guidance have been important factors in the improvements that have been seen.

The entity is capacitating and ensuring that nuclear technology plays its role in industrialising and decarbonising our economy, which has become rather urgent. NECSA is gearing itself to play its part in nuclear power generation, especially SMRs.

Mr Loyiso Tyabashe, NECSA Group CEO, stated that the entity had achieved 63% on the performance of predetermined objectives. This includes the commercial programme, growth initiatives, infrastructure programme, and research capability, support services and compliance.

The 2021/22 financial year was a period of transition where NECSA moved from the old strategy and corporate plan (different set of KPAs) to a new strategy for growth. The new strategy comprises five pillars supported 15 KPAs – a reduction from 26 the previous year.

The downward trend in financial performance is being arrested with a marked improvement seen from the 2020/21 financial year to the 2021/22 financial year. The total profit for the year under review is R23.2 million versus projections of -R155 million, which gives confidence that financial performance is turning.

The positive trajectory is fully supported by the current approved strategy and corporate plan and calls for a focus on more and diversified revenue streams. This would see NECSA reducing its reliance on the fiscus and playing its rightful role in contributing towards achieving the country’s socio-economic goals in support of the National Development Plan.

Ms Precious Hawadi, NECSA CFO, reported the entity had made a profit of R939 million before adjustments. The Group shows a turnaround, evidenced in the net profit before adjustments at +R54 million eroded by accounting adjustments. There is an overall improvement at group level with a comprehensive loss of -R23 million versus a budget of –R155 million.

The 2021/22 audit report shows a significant reduction in material issues. There are no supply chain issues – Focus is to stay on course for sustaining the elimination of supply chain issues. NECSA plans to build on this improvement going forward. The audit recovery has started. Irregular, fruitless and wasteful expenditure has been on the downward trend over the last three years. NECSA would continue to improve on PFMA compliance as part of strengthening governance, and as it heads for an unqualified audit opinion, the focus would be on clearing the slate.

Mr Tyabashe stated the turnaround requires an internal culture shift compacted on high performance. NECSA has maintained good and mutually-beneficial relationships with its various stakeholders while managing a myriad of issues that are important to these stakeholders.

He stated there had been improvements in governance, finances and leadership stability. There are marginal improvements in KPAs with a renewed focus on new KPAs based on the five strategic pillars. Audit findings have been reduced to 14 and the focus is to get a clean audit.

The new strategy for growth is anchored in the entity’s founding mandate in nuclear research and new revenue-generating programmes from their commercial entities, advanced manufacturing and involvement in nuclear power generation value chain.

See attached for full presentation

CGS Annual Report 2021/22

Dr Humphrey Mathe, CGS Chairperson, reported that the entity had recorded an unqualified audit opinion with no material findings. The organisation has 450 employees and is operating at full capacity.

This is the third year the annual report has been translated into local African languages like isiZulu, Sesotho and SePedi. The organisation has invested a lot in personnel and has enough reserves to sustain itself. The revenue baseline has been consistently growing, especially since 2019.

Mr Mona Mabuza, CGS CEO, informed the Committee that the CGS has achieved a clean audit for the financial year 2021/2022. This is a second clean audit for the CGS with no audit qualifications over the past 20 years. Controls were constantly being reviewed for enhancement to maintain the clean audit status.

Moreover, through the effective implementation of the strategic programmes, the organisation realised an overall performance of 86.4%. Of the 22 set targets on organisational performance per programme, the entity did not achieve three targets on programmes 3, 4 and 5. These relate to targets on female representation, offshore geoscience map coverage, and stakeholder satisfaction levels, respectively.

Pertaining to contributions to the economic recovery and reconstruction plan, he stated the Geoscience Technical Programme of the CGS has focused on accelerated economic recovery projects that included the ongoing detailed geoscience mapping at a scale of 1:50 000 and key projects focusing on the critical minerals of the future including base and precious metals (for example, nickel, cobalt, chromium and gold), rare-earth elements and coal. The onshore map coverage has increased to 10.7% from below 5% since implementing the IMMP (Integrated and Multidisciplinary Geoscience Mapping Programme).

The CGS officially launched its survey boat known as the R/V (Research Vessel) Nkosi. The boat was acquired to augment the CGS’s marine geoscience programme which aims to map the South African continental shelf (offshore) in the highest resolution based on modern technology, at various depth scales.

The CGS is proud to report on publishing the one-of-a-kind Orange River Pegmatite Prospectivity Map. This area is a known source of lithium and rare earths in the Northern Cape Province. This map would contribute significantly to the much-needed intervention for the battery industry and renewable energy.

By the end of October 2021, the Karoo Deep Drilling Programme has completed the drilling of the KDD-01 ultra-deep vertical stratigraphic borehole down to the depth of 2 978 meters. The borehole intersected the carbonaceous shales of the Ecca Group earmarked for shale gas potential.

A suite of gas measurements was undertaken on these shales in an effort to model the gas potential. A comprehensive report detailing the findings from the drilling and the rest of the baseline study is currently being concluded. In addition, the two shallow boreholes drilled and donated by the CGS to the Beaufort West Municipality in February 2018 continue to provide water to the municipality. To date, the municipality has extracted and distributed well over 835 million litres of water, equivalent to 10% of the municipality’s monthly capacity.

The CGS has further implemented various infrastructure and land use thematic projects supporting the MTSF priorities 5 (spatial integration, human settlements and local government) and 6 (social cohesion and safe communities).

These programmes further seek to enhance the deployment of the recently adopted One Plan District Development Model approach. In these efforts, the CGS has also produced a crushed aggregate potential map of southern KwaZulu-Natal, indicating most prospective areas for aggregate exploitation.

In addition, several microzonation models have been produced which serve as a basis for evaluating site-specific risk analysis essential for critical infrastructure safety.

On contributions to energy security and the just transition to low carbon economy, the CGS, as an implementing agency for the Carbon Capture, Utilisation and Storage Project for South Africa, has, in the year under review, secured a state-owned piece of land in Mpumalanga for the proposed pilot plant. The site selection was supported by a Basic Assessment Report and detailed structure, seismic and subsurface geological characterisation. Samples collected from existing boreholes were also analysed for their mineralogical, petrological, geochemical, and, importantly, reservoir properties.

The Exploration Strategy for the Mining Industry of South Africa and its Implementation Plan 2022 was published in April 2022 by the Minister of Mineral Resources and Energy. These policy documents seek to attract investment through a reinvigorated mining exploration strategy encouraging mineral exploration, clean technology, processing and mining supply and services sectors.

To further support the exploration activities in South Africa and the ERRP, the Department of Mineral Resources and Energy has allocated additional funds to the tune of R500 million to the CGS to support the proposed exploration work. The funds will be transferred to the CGS in two tranches, R200 million during the financial year 2023/24 and R300 million in the financial year 2024/25.

Concerning established strategic partnerships for a better Africa and the world, Mr Mabuza reported the CGS recognises and implements its role as a geo-scientific instrument for foreign policy predisposition of the Republic of South Africa. In this regard, the CGS has assumed a role of Permanent Secretariat of the Organisation of African Geological Surveys, which promotes close relations among African member states in geoscience research.

The CGS has renewed its collaboration with the Namibian and Malawian geological surveys to implement high-resolution geological mapping projects. In 2021/22, the CGS signed an agreement with the Kingdom of Eswatini to conduct a regional airborne geophysical survey for geoscience mapping. Other collaborative opportunities are a subject of continuous assessment with counterparts from peer jurisdictions, while existing partnerships are sustained with partners such as the United States Geological Survey, the Chinese Geological Survey, the Geological Survey of Canada and the Nigerian Geological Survey Agency.

Mr Leonard Matsepe, CGS CFO, reported that the government grant consists of the baseline grant funding for the MTEF. The baseline grant funding of R484.5 million has been allocated for geological mapping for exploration of mining over the MTEF. Additional baseline allocations of R813.4 million have been allocated for the geoscience activities over the MTEF. Technical adjustments were implemented on the MTEF projects where funding for the Rehabilitation of derelict and ownerless mines and the Water Ingress Solutions was moved to commercial revenue to align with the DMRE’s budget classification. The CGS has secured the Development of Carbon Capture Storage Project with the World Bank. A capital renewal plan is developed annually to address the infrastructure requirements.

In 2020, additional funding was spent in respect of lab infrastructure and implementation of an ERP system. The aging research infrastructure of the CGS is of great concern to the organisation and attention is given to the replacement of infrastructure.

Additional baseline allocations to the amount of R813 million (R200 million in 2023/24; R300 million in 2024/25 and R313 million in 2025/26) have been made available to the CGS over the 2023 MTEF period.

The additional allocations are to be used for the geoscience activities, including the onshore and offshore map coverage in support of the National Exploration Strategy.

Mr Mabuza pointed out some mitigation strategies that would be employed to address key challenges that might hamper service delivery.

The entity has increased investment in geosciences to promote sustainable mineral and energy development, and has developed a financial model to augment and sustain the organisation.

The CGS has focused on streamlining projects, collaboration and formulating a clear understanding of mandates; and has instituted a technical amendment to the Geoscience Act to provide unimpeded land access in line with international best practice for geological surveys.

In conclusion, he stated the CGS would continue to create a critical mass of young, diversified World Class geoscientists at the CGS; find a healthy balance between implementing the mandate and executing income-generating projects; produce innovative geoscience products for commercial and knowledge purposes; and continue collaborations with key stakeholders.

See attached for full presentation

NRWDI Annual Report 2021/22
Dr Margaret Mkhosi, NRWDI CEO, reported that 90% (9 of 10) of the targets have been achieved for the period under review.

The planned target that could not be achieved on programme two relates to the SHEQ audit that the accredited provider could not conduct due to the Covid-19 pandemic.

She further indicated an institutionalised culture of accountability, trust, honesty and responsibility prevails in NRWDI. This demonstrated a resilient commitment to good governance, prudent financial management, operational excellence and leadership based on the highest ethical and moral standards.

The long-term sustainability of NRWDI remains a risk for NRWDI.

With the competing priorities faced by NRWDI and the need to deliver its mandate, the funding over the MTEF cycle is inadequate to cover both the operational and project-related costs.

The NRWDI would never compromise on safety and security, taking full accountability for our social and environmental responsibilities, always seeking value for money and actively engaging with stakeholders openly, transparently and respectfully.

She stated the NRWDI remains fully committed to fulfilling the vast expectations of South Africans that radioactive waste could be safely managed in a manner that meets, or exceeds, all applicable regulatory standards and requirements for protecting the health, safety and security of our people and the environment, both now and in the future.

Mr Justin Daniel, NRWDI CFO, stated the NRWDI received a clean audit for the 2021-2022 financial year.

The financial statements presented fairly, in all material respects, the financial position, financial performance and cash flows of NRWDI, as at 31 March 2022, and the financial statements were free of any misstatements.

There were no findings on the finance and procurement matters.

There were no findings on the usefulness and reliability of the reported performance information.

All high-level vacancies have been filled. The budget for expenditure was R50 891 000 and the actual expenditure for the year was R47 178 042. The savings on expenditure were largely due to savings in personnel costs due to vacant positions (approximately R3,7 million).

No wasteful and fruitless expenditure was incurred for the past five years. However, in the 2021/22 financial year, irregular expenditure to R102 250 was incurred due to a variation to an order that was not approved prior to the additional services being rendered.

See attached for full presentation

NNR Annual Report 2021/22
Dr Thapelo Motshudi, NNR chairperson, stated that the annual performance plans of the NNR contained 16 outcomes and 18 output indicators.

Based on the PoE verified, the organisation achieved a performance score of 98.39%. Two indicators were not achieved. One indicator was partially achieved, and 15 indicators were achieved.

The NNR operating environment was stable as the country’s economy was in the recovery process, which impacted the NORM-regulated facilities the most.

The core business such as inspections and site visits to regulated facilities, were conducted as planned.

The Regulator also processed the reviews and assessments of various applications and change requests from operators as per the annual performance plan.

The public engagement sessions for the Nuclear Installation Site License (NISL) project in Thyspunt were successfully concluded during 2021/22.

Ms Ditebogo Kgomo, NNR Acting-CEO, reported that the NNR continued to work on a hybrid system to manage the COVID-19 spread, i.e., three days in the office and two days working from home.

The resignation of the CEO towards the end of the financial year, somehow shielded the organisation from any disturbance that could hamper the organisation’s goals.

The entity continued with the payment of suppliers and vendors below ten days. The media focus on the entity was mainly on the ongoing matter in court regarding the suspension and subsequent dismissal of one board member by the Minister of Mineral Resources and Energy.

Concerning progress towards achievement of institutional impact and outcomes, SANAS  reviewed the laboratory quality manuals as part of the    accreditation assessment for the Gamma Spectrometry: Water Matrices. The NNR planned 199 inspections across the three programmes and 204 inspections were conducted. Additional 166 reviews and assessments were undertaken; this can be attributed to improvements in turnaround times.

The development of the compliance assurance programme process was reviewed to ensure alignment. The NNR developed the Indoor Radon Regulatory Framework which contains practical approaches for South Africa to effectively control indoor radon with the aim to reduce public exposure. The framework would be finalised during the 2022/23 financial year.

A CNSS Sustainability Strategy was developed to crystalise the sustainability objectives and incorporate pilot projects and proposals aligned to the mandate of the CNSS.

The Cape Town office construction project plan was revised to mitigate the delays experienced in the prior year to make way for the construction of the site office during the 2022/23 financial year.

Mr Dakalo Netshivhazwaulu, NNR CFO, reported that the cash balances of the entity for the year increased to R142 million due to reserves built up to provide for Cape Town office construction.

R28 million of receivables were impaired in line with the accounting policy, but efforts to collect continue where prospects for success are legally permissible.

The NNR’s revenue has been growing at a modest rate over the MTEF period. The compensation of employees increased by about 16% from the previous financial year. 12% of this is performance incentive paid while the remaining 4% is the marginal increase of salaries through cost of living adjustments and additional positions filled. Expenditure on goods and services increased by about 13% as the operations gained momentum from COVID-19 constraints. The entity has received an unqualified audit opinion with no finding.

See attached for full presentation

SANEDI Annual Report 2021/22
Mr Lungile Mtiya, SANEDI Deputy Chairperson, informed Members that several successes for the organisation characterised the financial year of 2021/22, namely: the international awards and industry accolades, achievement of targets, and a clean audit outcome. All high-level vacancies have been filled. A sustainable funding model has been ensured and 97% of targets have been achieved for two consecutive years. The board was busy reviewing the strategy to further align with national priorities.

Ms Lethabo Manamela, SANEDI CFO, reporting on organisational performance, stated that all targets were met 100% on programmes one and two, while 86% achievement was recorded on programme three. Programmes two and three which deal with applied energy research and development and energy efficiency, have seen consistent results over the past two years because of high performance culture.

In partnership with the Department of Defense, the entity deployed two bio-gas plants at the two military bases using kitchen waste to produce Gas (Replaced LPG gas). It provided a demonstration of a water heating project at Air Force Base Hoedspruit (AFBH) through (SOLTRAIN) Solar. It provided training of military staff to operate biogas plants and maintain the solar heating systems, and deployed 120 000 m2 of cool surface paint. Other deliverables included: CSIR/SANEDI Thermal Lab, Sanedi/NERSA Plaswen prototype, Micro Digester, and Wind Atlas.

Pertaining to challenges around financial distress, high maintenance costs, ageing infrastructure, operational inefficiency, high customer dissatisfaction, and high electricity tariffs, SANEDI has made a number of interventions in many municipalities. The smart revenue system design study has been provided to all municipalities, especially distressed ones. This would help sustainable municipalities with revenue collection mechanisms and tariff design.

The electric transportation on the power distribution network has been provided to municipal electricity distribution departments. This would impact strategies to manage the penetration of EVs on the grid. The smart asset management framework, roadmap and toolbox have been provided to all service providers to implement asset management within municipalities. This would impact the MS Excel-based tool for calculating asset management maturity levels and improve service delivery with the reticulation of electricity.

On energy performance certificates, Ms Manamela stated the Minister, under section 19(1)(b) of the National Energy Act, promulgated the regulation for the mandatory display and submission of Energy Performance Certificates in non-residential public buildings with a net floor area of over 1 000m² and private sector building with a net floor area of over 2 000m² on 8 December 2020.

The Regulation mandates SANEDI to maintain a National Building Energy Performance Register (NBEPR), which must include the particulars of all buildings that fall within the regulated classification and relevant energy performance certificate data.

SANEDI ensures awareness and stakeholder engagement for service industry and building owners/accounting officers and hosting of the NBEPR.

Further, the entity needs to support the Department of Mineral Resources and Energy with compliance and monitoring, provide continuous development of the Regulation and Standards with  SABS and SANAS, and provide EPC Guideline with all relevant information for a broad array of stakeholders. These would impact job creation and youth and women empowerment and provide access to building energy performance data sets for research and policy development.

About finances, she stated the National Treasury has approved surplus funds for projects in 2022. 87% of income is from government grants. Surplus is mainly from interest and other income generated. SANEDI has received an unqualified clean audit opinion with no material adjustments and no non-compliance with regulations.

Dr Titus Mathe, SANEDI CEO, concluded by saying SANEDI would strive to maintain a clean audit and collaborate with other state entities to ensure the entity is capacitated to deliver on its mandate.

Clean coal is still going to be with us in the next few years to ensure power stations run in a clean manner. The entity is moving away from technologies affecting climate change, and energy skills would be developed for the energy sector.

Discussion

Deliberations with CEF

Mr M Mahlaule (ANC) wanted to understand who is responsible for deliberately eroding the capacity of the state mining company because it applies and all its applications get withdrawn.

He enquired from which percentage the group footprint moved to 15% share in ROMPCO and Ghana.

He asked about the nature of the dismissal of the CEO and if he received a golden handshake.

He asked for clarity on phase 2 of the project of emerging the three companies.

He also asked why CEF was not moving in the direction of refined products because refineries were closing down in SA.

Mr Nkululeko Poya, CEF Chairperson, said that the suspension of the CEO is a confidential and sensitive matter and the company would respond to the Committee in writing.

Ms Nombulelo Tyandela, CEF CFO, stated that the entity has recorded reductions in profit. The currently held 3.8% from Ghana would be increased by 3.5%, and negotiations continued with Ghana. The entity had improved its revenue reported in the previous year and tried to minimise the costs incurred in the refinery.

Mr Godfrey Moagi, CEF CEO, explained that the market has changed significantly. The key issue is infrastructure. In the last financial year, SFF acquired 50% of the terminal in Cape Town. The approach is to use the infrastructure for suppliers. Other departments were being engaged in regulatory matters to be able to deal with stock.

Mr Lemogang Pitsoe, AE CEO, admitted there were withdrawals of applications. Working in conjunction with sister companies, they were now reclaiming the mining companies that were withdrawing.

Ms Mona said the merger would be accelerated to ensure the activities were part of phase two.

Mr S Kula (ANC) stated that the entity is a repeat offender. There was no assurance the entity would do better in something it has not done in the past five years and asked how the Committee was going to trust the entity; asked when would the rehabilitation of PetroSA be completed; wanted to know why improvements in accountability were not done on irregular, fruitless and wasteful expenditure; enquired who constitutes the tripartite war room at PetroSA and what its role was; asked what plans were in place to secure funds for liabilities; and wanted to find out when improvements were going to be seen because Covid-19 cannot be an excuse for not delivering on the mandate.

Dr Poolo said the tripartite war room was made up of representatives from the department, chairpersons of PetroSA and CEF.

Ms Tyandela added that the war room was there to assist PetroSA technically so that it does not come to the parent company for money. For the remainder of the year, no money would be paid to PetroSA because between the months of May and June, it received financial assistance of R189 million.

Ms Mona said the activities of the war room have seen PetroSA managing its costs.

Mr V Zungula (ATM) asked if PetroSA salaries would depend on funding from the Group because it appeared there was no plan to comply with prescripts on irregular expenditure. There must be clear timelines for seeing profit at PetroSA. He asked for clarity on the need to drive exports to make a profit. He wanted to understand the plan to produce in our own country instead of exporting raw products and then importing them when it is finished.

Ms Tyandela said losses and salaries were supported within the Group. The Ghana investment is yielding dividends and PetroSA would benefit from that. The entity is looking at possibilities of bringing back the refinery.

Mr Poya said the losses were coming from GTL refinery and FTL platform which were not generating any revenue. He said they were working diligently on how to improve the costs and have employed strategies to ensure the entity is profitable. It is hoped the merger would also make a profit for PetroSA.

Dr Poolo explained that they do not just apply for condonation regarding irregular expenditure. Only after they have taken corrective steps do they apply for condonation from National Treasury. He also pointed out the importation of products is for mid-term purposes and in the long term, the plan was to withhold refining capacity in the country.

Ms V Malinga (ANC) remarked that PetroSA was in difficulties because of litigations on explorations. She asked for clarity on the shareholders’ compact, and also on why performance indicators were not useful and reliable and in non-compliance with procurement. She asked if the entity has managed to incorporate strategies from the unions that were brought to the attention of PetroSA.

Mr Poya stated unions were involved in the strategic plans of the entity and their input had been incorporated into the turnaround strategies. The proposals from the unions get tested to ensure viability.

Ms P Madokwe (EFF) asked why the audit committee was not constituted in terms of the PFMA. She wanted to know the exact challenges because the corporate plan was not done in consultation with the executive authority.

She asked what exactly are the issues at PetroSA and how they were going to be addressed, including the retrenchment of workers.

She asked what the proportion of recovery was on irregular expenditure and if any referrals to external agencies had been made.

She wanted to understand why the country has substandard coal whilst sending top quality coal to China.

She asked how Eskom understood the energy crisis, and asked what would happen to the state mining company because by 2030, there would be a stoppage in the use of coal.

She asked for clarity regarding allegations that the organigram was changed without the approval of the board and, that there were no advertisements of posts for people who had been employed and that most of them come from Alexxor.

Ms Poya said there were engagements with Eskom on gas generation to address electricity supply in the country.

She further said they have to get support from the employees and shareholders to address a number of challenges. The key challenge is to get a supplier for indigenous stock. The significant work would be on the gas economy and look at where the immediate focus should be. There is a business case the team is working on.

The teams that are in Mossel Bay have been bolstered. The CFS is also looking at bolstering its capacity storage. There is a partnership between the CEF group and government to government to advance opportunities, and the Ghana market is experiencing growth.

Dr Poolo explained that the shareholder did not approve the corporate plan because it wanted a plan about PetroSA. Many changes have been made and there is a credible plan that would be tabled to the Cabinet. The Cabinet wanted the entity to address the toxic challenges of PetroSA. That was the reason for the back and forth with the plan. He further stated that the term of one of the audit committee members came to an end and the Committee did not have a quorum.

Ms Tyandela said R53 million had been recovered from irregular expenditure. The investigation process would tell whether they have received benefits of value.

Mr Pitsoe explained the only person who was from Alexxor was the CFO. All posts were advertised. Some mandatory positions had to be filled and they had to get rid of ghost employees. He further stated when they supply Eskom with coal, they have to meet the specifications of the power stations. There has only been one mistake that happened in July. He went on to say the reason why underground coal was not produced was because it produced hydrogen. But now that this has been reconsidered, hydrogen is now needed.

Ms Mona said the board was currently investigating the allegations that were being made.

The Chairperson denied PetroSA the request for responding in writing. He said the Committee wanted to know if the CEO had been dismissed with a golden handshake or suspended.

In the previous meeting, the Committee was told the CEO had voluntarily resigned and had joined another company. He wanted to know the nature of trade between PetroSA and Eskom because it appeared CEF had a problem with Eskom. PetroSA was supposed to be profitable because it was selling diesel to Eskom. When it comes to trade, the story seems to be different.

He also stated there was an allegation that one of the reasons Eskom was not commissioned was because PetroSA lost its BEE status. He stressed entities must not come to Parliament to tell Members what they want to hear, but must state the barriers they want members to break. The CEF must assure Parliament that decisions taken on investment would be accounted for. The private company commissioned to work on the merger was given six months to finalise things. He wanted to know what would happen when the six months expired and if there were any accumulated costs; and he enquired if CEF had ever considered having a chief investment officer.

Mr Pitsoe said they pitch themselves as an SOE because they are mandated to look after the interests of the country. He stated it is difficult to engage with Transnet, and Eskom only calls AE when it has no coal.

Ms Tyandela said PetroSA has a contractual agreement to supply diesel to Eskom.

Mr Poya said there was an agreement between PetroSA board and suspended CEO Mr Naidoo and it came with costs.

Dr Poolo explained they had to develop a strategy for the merger and a funding plan. The validation work had been started. Phase two means day-one readiness and a transition phase with structures. On the BEE matter, he stated CEF was an entity that would never ask for bailouts. The entity has made submissions for exclusion from other categories. He said they should be pushed in terms of value and delivery instead of being pushed to compete on BEE.

He further indicated for most of the products they were importing, the refineries were not working. Currently, the challenge was that departments were buying from just anyone and that was the space they were competing in on the coal side. But on diesel, they were doing better.

Ms Mona stated they had thought about the idea of an investment officer, which would materialise when the board was restructured. She further pointed out there was a stage when PetroSA wanted to be weaned from CEF. When the plans were interrogated, CEF saw value in the assets PetroSA wanted to get rid of. It was then they had to make sure PetroSA was up and running again.

Ms Madokwe asked what the final estimated time was for the completion of the merger. She asked how much still needed to be recovered from irregular, fruitless and wasteful expenditure. She asked what the stance of CEF was on the decommissioning of coal. She also asked for clarity on the changes to the organogram without the consultation of the board and jobs that were not advertised.

Mr Pitsoe stated there were no people issues done without the board's approval. The process started in March, went through the remuneration process, and then tabled everything before the board. There is a recruitment that is being followed in which advertisements for posts are done internally and then externally. He said there was a high headcount which consisted of ghost employees and low-level skills. A skills audit was done and others were retained while some were laid off. He said the AE was not involved in mineral diversification at national level where decommissioning of coal is discussed.

Dr Poolo stated the delays in the corporate plan had to do with CEF because it had to deal with historic challenges at PetroSA. The commencement of activities is at a sensitive stage.

Ms Malinga wanted to understand the terms of payment for the R110 million loss that went to PetroSA. She enquired why PASA has not revised its regulation fees. She asked why there has been no consequence management on AE business practices. She also asked if the plant parked by PetroSA was reserved because of no availability of funds.

Dr Phindile Masangane, PASA CEO, stated the department agreed to revise their fees. The department wanted the entity to take an extensive benchmarking exercise to see what other countries were doing.

Mr Poya explained that the reason why the plant was parked since 2020 is because they were looking for feedstock resources.

Dr Poolo said they have tried to be prudent on the output. The payment contract is for three years. It is output-based. When PetroSA makes profit, the repayments would commence.

Ms Mona added there is a repayment plan and PetroSA has committed to repay the money when it makes a profit.

She also requested to respond in writing to the allegations that CEF does not want to buy from SAPREF.

The Committee would then decide what to do when it gets that written response. She said they have negotiated with the sellers over six months but they were negotiating in bad faith. The interest to buy has been there, but SAPREF keeps on shifting the goal post and their plant in Durban was affected by the floods.

Mr Mahlaule commended CEF for the initiatives it undertook towards improving AE and PetroSA. A turnaround strategy on PetroSA was presented to the Committee. He wanted to know why there was a positive change of heart towards Ghana and Tzaneen terminal because they were seen to be useless, but now they were useful and a 3% stake would be added to Ghana.

Ms Mona stated they had to expand to different markets to achieve growth. The downstream strategy includes the Tzaneen terminal.

Ms Tyandela added in Ghana, they were conducting a reserve audit that determines the value of reserves on the ground. R69 billion during 2020 increased to R72 billion, and the dividend received from Ghana was $62 million. There is a good performance from the asset, which is why it was retained.

Mr Poya added the original strategy was to expose PetroSA to Ghana. PetroSA felt it was a good move to keep the Ghana asset and reap benefits. The whole thing is about a change in strategy.

Deliberations with NECSA

Ms Madokwe asked for clarity on the recorded 63% for achievements, while the AG came with 58%.

She asked why awarding tenders to friends and family members was not detected at an early stage.

She also asked what measures would be put in place to ensure the money goes back to the entity because the AG has found that the entity has not used its resources adequately and not collected revenue.

Mr Tyabashe stated the AG ticked the measure correctly – the AG agreed with the entity’s 63%. R51 000 was awarded to an employee who resigned and ran away. The investigation is continuing. Their preliminary evidence is that it is the director of other companies that got business from NECSA, not NECSA directors. The achievement of 63% on performance indicates the entity was using its resources adequately.

Ms Hawadi said revenue was being collected diligently. This pertains to adjustments made to the debt. She further said there is an audit action plan to address prior year's findings.

Ms Malinga wanted to understand why the entity was BBBEE non-compliant and why its distribution of assets was skewed. She enquired why the failure to collect revenue was not reported as a deviation, and wanted to know how NECSA was going to meet the 90/10 scorecard for the Q Trailer tender seeing that it is BBBEE non-compliant.

Ms Hawadi stated there was not much money going to enterprise development regarding BBBEE. The main matter was around financial constraints. However, they do provide skills training. She said the Q Trailer project is flawed with many delays. Progress would be accelerated at the end of the current financial year.

Mr Tyabashe said they always place the right skills at the right place. He stated they had a person who was in the CFO space but was not an accountant and they had to move that person to a suitable position and get an accountant.

Mr M Wolmarans (ANC) welcomed the significant improvements done to reduce the findings because when NECSA presented its plans, they appeared difficult, but its presentation paints a positive picture.

Mr Nicholls said they have changed the people. They are different from what they were 18 months ago. The targets were achievable when looking at where they were in the previous year.

Mr Kula asked if the board understood the key role of NECSA in the country's economic development. He asked why there were no submissions of three quotes for the procurement of goods under goods and services. He asked what steps have been taken to improve on consequence management because the AG indicated senior management had not developed proper action plans. He also asked how feasible were the ambitious projects.

Ms Hawadi said the AG indicated there no issues in the current audit report, but they only existed in the prior year, and audit action plans were in place to address findings.

Mr Tyabashe said more measures would be put in place on procurement processes to tighten controls, and culture change is a fundamental aspect and would be effected.

Mr Mahlaule wanted to find out the volume of investments needed to realise the projects because it appears the entity took time to understand that economic recovery would happen through infrastructure growth. He commented when people do wrong things, there must be consequences to change the bad culture in the organisation like the awarding of tenders to employees and family members.

Mr Nicholls stated there have been no bailouts for the past two years. Investments are a big issue because they drive growth. He said there were investigation processes on procurement. Debts were written off when Pelcan was closed down because it survived on loans.

Ms Hawadi said they would meet the projections, especially when they look at their progress. She also stated they were seeking funding for some of the projects and trying to get government guarantees for infrastructure projects.

Mr Nicholls added the challenge was to get external investment for most of the small projects because they were part of a larger company.

The Chairperson stated when the AG has made an opinion or finding, it is important to approach the AG to correct what it asked to be corrected. The AG would judge you on what it has found. Then, you can respond to the Committee and state what the findings could not dispute.

Mr M Wolmarans (ANC) remarked the BBBEE was under threat. The entity has not improved from the level where it has been. The entity advertises the bid and states it would be subject to preferential procurement. This whole thing is about job creation.

Mr Tyabashe stated they were supporting the transformation agenda in all aspects and would look at that much closer, and they would leave no stone unturned for people who were not disclosing properly.

Ms Malinga wanted to know the mitigation strategy for the entity to meet its funding needs.

Mr Nicholls stated each project has its value to the company and requires funding. The targets would be met. There have been discussions with shareholders on how the projects would be funded.

Mr M Langa (EFF) wanted to know if internal processes were followed for awarding a tender to an employee.

Ms Hawadi said the processes were followed for the R52 000. Employees have to declare. The employee in question did not declare it was doing business with the state.

Deliberations with CGS

Mr K Mileham (DA) congratulated the entity on its clean audit. His concerns were around finances because the budget is a guideline. He remarked that a R12 million loss is not enough. He asked the entity to unpack how the Afribusiness court case impacted the organisation. He asked for clarity on the personnel costs that were R21 million over the budget; and if commercial revenue was significant enough.

Mr Mabuza explained that the correlation between the expenditure of today and return is not always one-to-one. The costs of projects cannot be correlated with revenue.

Mr Leonard Matsepe, CGS CFO, explained they were not budgeting for a loss because they have serious things to attend to. The loss was not there because of poor planning but there was work of a month that was lost. That had an adverse impact. The court handed down a judgement and it ruled in favour of Afribusiness. National Treasury advised the entity to use PPPFA and not to advertise tenders. An application for exemption was filed to Treasury. Profit would have been made from the month when there was no work. He also stated Treasury pronounced salary increases. There were guidelines to incentivise performers. That was a one-time affair, but not a perpetual salary payment. It was for boosting the morale of the employees. The commercial side is for making profit to augment the baseline grant.

Mr Zungula wanted to know if a partnership has been created with municipalities and other relevant government departments regarding disasters because they destroy infrastructure. He wanted to understand how the ageing research infrastructure is balanced while the entity continues to produce work.

Mr Mabuza stated there was a formalised relationship with the Department of Human Settlement – nationally and provincially – for collaboration even though it has not yet been concluded. The focus is on spatial planning. There are engagements with five district municipalities to explore how to support them with the district development model.

The entity has been invited to the National Disaster Management Committee to see to the development of an early warning mechanism. Those are the conversations that have started. He further indicated they have differentiated the lives of infrastructure. The bulk of the equipment consists of the old air fleet but it is going to be combined with droves. The entity has not participated in the disasters nor has it extended its knowledge on Lily Mine.

Mr Mahlaule wanted to find out what classification had been given to junior drillers because they are more powerful than those in the boardrooms because the entity has acquired a national key point status and there is information control in most organisations.

Dr Mathe explained that when they started drilling in Beaufort West, he addressed members about the importance of data and how to collect and store coal. They ensured there was no leak in terms of information security because people were told what to do.

Deliberations with NRWDI, NNR and SANEDI

Mr Mileham commented the NRWDI has done a lot with very little resources.

He wanted to know about timelines on CIFS and radioactive waste; and he stated he had been inundated with emails and affidavits regarding the toxic work environment that has developed in the last eight months.

The Committee needs to do an oversight and engage with staff members.

He asked the NNR to comment on its progress on the site licence in Duinefontein because the EIA has been approved for that; and he wanted to know what work had been done by NNR to ensure long-term safety operations were addressed.

He asked for clarity on the 10% increase in salaries from 2021 to 2022 and on the R9 million paid for performance bonuses during 2021 and it went up to R21 million during 2022; and remarked that core business salaries were 15% lower than administration, something that was showing the priorities were not right. He wanted to find out what SANEDI was doing to commercialise its research or to make money from it.

Mr Mtiya said they needed to think about how they were going to make a move in another direction.

Ms Lethabo Manamela, SANEDI CFO, stated that they have to look at commercialisation during a strategic planning session.

Dr Motshudi said they deal with what is presented in front of them as a regulator, and no work has been done on Duinefontein.

Mr Dakalo Netshivhazwaulu, NNR CFO, stated that support staff salaries constitute one-third of the budget while those of the technical staff make up two-thirds of the budget. He said there was only one chief in the organisation in the past, but now we have many different chiefs of something and something, and so on. The spectrum of compliance does not shrink. The NNR is a specialised area. The entity is growing its own timber and developing its own skills. The heart is always on the core business. The matter of bonuses is a policy issue which gets to be reviewed from time to time. The bonus is approved and determined by the board. If the entity cannot afford it, it is not paid. There is a three-tier bonus system. There has been no 20% across-the-board bonus. The performance is commensurate with the reward.

Mr Mogwera Khoathane, NRWDI deputy chairperson, stated this has got to do with people and they all depend on the knowledge to do their work. The board is aware of the red flag and has tried to attend to the matter. It has engaged the Minister as well on the matter. The board has applied its mind as part of its fiduciary duties. Many committees were formulated to address the issues and recommendations have been forwarded.

Mr Mahlaule asked NRWDI what the implications would be for not meeting SHEQ targets on compliance. He wanted to know why non-compliance for two consecutive years due to COVID-19 has been put as a target that has to be achieved, and why the entity did not wait until the COVID-19 regulations were lifted; and asked why there was no correlation between what was achieved and 98% of money spent on programme two because out of three targets, only one was achieved.

He asked what the NNR had done in the last five years to ensure it attracted black scientists, how many universities the entity had funded students; and who prepared the SATO report. He advised SANEDI to start finding ways of dealing with clean coal or low-carbon technologies using modern technologies.

Dr Mkhosi, on SHEQ, stated the primary responsibility for safety lies with the licence holder. The licence was expiring this year. That is why there is one achievement. Self-assessment of activities was done. She said non-performance on programme 3 had to do with the CIFS project. 20% of that was completed. 40% has got to do with feasibility studies. The review would be done once the study is completed. The CIFS project is not funded and relies on surplus funds and would be completed by 2030.

Regarding programme two, Mr Justin Daniel, NRWDI CFO, stated there is no direct correlation between the budget and the targets. He further said they have approached National Treasury for condonation on irregular expenditure.

Mr Mtiya said there has to be an energy mix in the country going forward. The strategy is to find clean coal technologies.

Ms Kgomo stated on average, the NNR always has 12 interns and research associates. The entity has absorbed students it has funded. She said Eskom prepares the SATO Report and it is a corrective action plan.

Mr Zungula commented to the NRWDI that there should be a balance between employee salaries and maintenance because personnel expenses made up 74% of the total budget, and he wanted to know if procurement of the machinery was taken care of. He then wanted to know the position of NNR on fracking. He also asked SANEDI for clarity on the services rendered and consulting fees because the figure of 634 in 2021 rose to 694 in 2022.

Ms Manamela said the entity charges a fee for services rendered.

Dr Motshudi stated fracking was not the mandate of the NNR. The entity has no view on it.

Mr Wolmarans wanted to know what the risk elements were that the NRWDI was talking of because it is reported in the report the entity remains at risk with competing priorities. He then wanted to understand the strategy to review the positioning of SANEDI entailed. He asked what the plans of the entity were on commercialisation. He wanted to know the relationship between SANEDI and Mintek on technologies towards cleaner coals. He finally enquired if there were any possibilities of collaboration with Mintek because it is in an environment of cleaner mobility/emissions.

Dr Mkhosi said some measures have to be taken to be sustainable. They have put together a plan for a funding model. The entity is collaborating with various organisations like tertiary institutions and sister organisations.

Mr Mtiya said repositioning has to do with addressing pinpoints affecting the entity, not changing the mandate of the entity.

Ms Manamela stated there is a need to partner with other SOEs like Mintek to look at the clean coal technologies and see which could be commercialised. On cleaner mobility, the entity was working with the DBSA. They were piloting electric buses within the metros. Two phases have been developed: the pilot and rollout phases to different municipalities nationally.

Ms Malinga wanted to understand if the process of re-drafting the bill on radioactive waste management was not going to hamper NRWDI. She asked if the NNR has sorted out non-compliance matters at other entities it overlooked. She remarked he was unhappy with SANEDI on replacing a woman with a man for the CEO position. She wanted to know the SOEs SANEDI was collaborating with on the clean coal development at Medupi and when it was planning to start on the clean coal technology; she remarked that SANEDI is not felt when it comes to loadshedding challenges.

Mr Daniel, concerning timelines on radioactive waste, said the bill had been tabled at Nedlac and would be finalised by March 2025 because it has to go through a number of processes.

Ms Manamela said they were trying to approach loadshedding from the energy efficiency point of view by looking at different interventions. She further stated they collaborated with Eskom on research, NECSA and DBSA. There is an agreement on these collaborations.

She also indicated the entity was not doing enough on energy efficiency measures. It needed to exhaust whatever opportunity with other SOEs and government departments. EPC could have been a national drive or campaign to comply with regulations. The entity was working on a campaign to make households aware of energy consumption so that they become energy efficient.

Dr Mathe stated they would continue to work on clean coal technologies. They need to remove sulphur from many power stations. Many power stations were producing a lot of ash and the entity needed to know what to do with the ash and find ways of collaborating with Mintek. As the country moves from coal, it is important to find a balanced approach.

Dr Motshudi stated the NNR sets the guidelines for the licence holders who in turn set the standard for themselves. The NNR is not prescriptive in its setting of guidelines. When the licence holder identifies the aggressor, the licence holder must let the Regulator know.

Ms Madokwe wanted to find out from the NRWDI what ownerless waste was. She wanted to know what measures were in place to mitigate radioactive waste in the absence of legislation and what the financial implications of the pollution would be.

She enquired about the timelines and estimated costs of decommissioning nuclear waste. She asked what the challenges were in working with Eskom because some entities have a shaky relationship with it.

She asked the NNR when it would finalise the Indoor Radon Regulatory Framework. She wanted to know from SANEDI if other municipalities were earmarked for the Smart Grid venture except for Cape Agulhas municipality. She asked how the SANEDI research would see the light of the day if funding was proving to be a challenge, and she enquired about the role of SANEDI in capacitating the state and public on climate change.

Dr Makhosi stated they would be managing waste that would be coming from Koeberg and NECSA. They have abandoned the radioactive waste, but not the one coming from the mines. She said their relationship with Eskom is on discussions around disposing of waste. For now, there is no licence to proceed with the idea.

Mr Khoathane informed the Committee they would ask the chairperson of the board to write a letter to the Committee and detail how the allegations that have surfaced would be addressed.

Ms Manamela said there were tools they were using to assist municipalities with asset management systems. Concerning climate change, the entity is working on cleaner fossil fuels. This is a response to climate change. They were also looking at the amount of carbon dioxide that is mitigated against.

Dr Motshudi stated that NNR has a good relationship with Eskom because the entity regulates Eskom and Eskom has to comply. He said the regulatory framework sought to create a coordinated effort to involve all stakeholders and talk about regulations, guidelines and registrations. The Indoor Radon Regulatory Framework would be completed during this financial year.

The acting Director-General of the department said she noted the challenges and concerns raised by the entities, including the written responses the Committee had requested from the entities.

The meeting was adjourned.