Department Budget and Strategic Plans: briefing

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
13 April 2005
DEPARTMENT BUDGET AND STRATEGIC PLANS: BRIEFING

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Mineral Development Branch strategic objectives
Hydrocarbons and Energy Planning Branch Presentation
Electricity and Nuclear Energy Branch Presentation

SUMMARY
The Committee heard presentations from three branches of the Department of Minerals and Energy (DME) on their strategic objectives and main activities for the 2005/06 financial year. The branches were Mineral Development, Hydrocarbons and Energy Planning and Electricity and Nuclear Energy.

Members raised concerns that the Department had not provided the Committee with specific timeframes for the achievement of its strategic objectives. However, the Department pointed out that its presentation documents and Strategic Plan contained specific targets. Other issues raised included the looming shortage in electricity generation capacity by 2008; South Africa’s coal reserves; the future use of renewable energy sources; the success of the Liquid Fuels Empowerment Charter, and mining co-operation with other African countries.

MINUTES

Mineral Development briefing
Mr J Rocha, Chief Director: Mineral Development informed the Committee that the branch had six strategic objectives, namely investment promotion; bridging the gap between the First and Second Economies; regulating the mining industry to achieve transformation; contributing to sustainable development; reviewing and aligning administrative systems and controls for good governance and meeting South Africa’s international obligations. Each of these objectives was then explained in more detail.

Investment promotion: This goal would be achieved by promoting direct foreign and local investment in the mining industry; collecting and publishing promotional material focussing on the mining industry and collecting and distributing statistical inform ation on the mining industry to interested parties and relevant stakeholders. The main expected outcome of these activities would be an increase in the number of new entrants into the local mining industry.

Bridging the economic gap: This goal would be achieved by encouraging the development of small, micro and medium sized enterprises (SMMEs), by providing support to SMME projects and by facilitating partnerships between small and major players in the mining industry. The expected outcome would be the creation of sustainable SMMEs.

Regulating the mining industry: This would be achieved through the implementation of the Mineral and Petroleum Resources Development Act, 2004; processing new mining rights and old mining rights conversion applications in an equitable manner to ensure meaningful participation in the mining industry by historically-disadvantaged South Africans; ensuring compliance with the Mining Industry Empowerment Charter and its Social Plan; creating integrated management information systems; assessing available data and reviewing and amending policy and legislation where necessary. The expected outcome would be a representative mining industry at all levels.

Sustainable development: This objective would be achieved through rural development and urban renewal; ensuring responsible environmental management and rehabilitating ownerless and derelict mines and ensuring viable work programmes. These activities would lead to community upliftment, skills development, sound environmental practises and optimal utilisation of mineral resources.

Good governance: The key activities to achieve this goal would be developing and maintaining management information and administrative systems; identifying training and skills requirements; implementing an environmental compliance audit system and restructuring the branch structure to meet its mandate. This would lead to effective and efficient administrative systems and an appropriate structure for improved governance.

International obligations: This goal would be achieved by providing services to the Kimberley Process aimed at ending the illegal diamond trade; regional African co-operation and support services to the African Mining Partnership; co-operation with the Global Mining Dialogue and monitoring progress on South Africa’s claim for the extension of the continental shelf. These would lead to harmonisation of mining policy with the African continent and internationally and a successful claim to extend the continental shelf.

Hydrocarbons and Energy Planning briefing
Dr R Crompton, Deputy Director-General: Hydrocarbons and Energy Planning said his branch’s main purpose was to promote the sustainable use of energy resources through integrated energy planning and the promotion and regulation of petroleum products, gas, coal and renewable energy sources. The branch’s measurable objective was whether integrated energy planning led to the sustainable use of the country’s energy resources, internationally competitive energy prices and an increase in energy efficiency.

Key focus areas for the forthcoming financial year would be:
- economic regulation through the implementation of the National Energy Regulator Act and the Petroleum Products Amendment Act;
- redressing past imbalances through household energisation with LPG (Liquid Petroleum and Gas), improving paraffin safety and implementing the Liquid Fuels Empowerment Charter (LFEC);
- promoting renewable energy and energy efficiency through the distribution of subsidies, operation of the Designated National Authority to permit carbon trading and implementing an energy efficiency strategy;
- providing cleaner, safer fuels through roll-out of the low-smoke coal programme, regulation of unleaded petrol and instituting cleaner transport fuels specifications.

The branch’s five-year strategic targets were, among others, for renewable energy to achieve a greater share of the energy mix; implementing economic sector plans to achieve energy efficiency; increasing access to affordable energy for low-income households; ensuring compliance with the LFEC; licensing petroleum product facilities; revising the country’s strategic crude oil stock policy to provide for 10, 5 million barrels; increasing the crude oil stock held by major oil companies; conducting a coal reserves audit; diversification of energy sources through a gas policy and implementing gas agreements with neighbouring countries; review of the White Paper on Energy Policy; and conducting a skills and requirements audit and gap analysis.

Electricity and Nuclear Energy briefing
Ms N Magubane, Deputy Director-General: Electricity and Nuclear Energy, stated that the branch derived its mandate from the White Paper on Energy Policy, the Electricity Act, the Nuclear Energy Act and the National Nuclear Regulator Act. It had a nominal budget of some R1, 370 billion, but R1, 312 billion of this consisted of transfer payments to the Nuclear Energy Corporation of SA (NECSA), the National Nuclear Regulator (NNR), EDI Holdings and the National Electrification Programme (NEP). The branch therefore retained only R56 million for its own internal expenditure.

The branch had four strategic objectives, namely contributing to sustainable development; redressing past imbalances; implementing policy and legislation and governing the minerals and energy sector to be healthier, cleaner and safer. More detail was provided on the four strategic objectives.

Sustainable development: This would be achieved by ensuring security of electricity supply; rationalisation of the electricity industry; diversification of primary energy sources; optimisation of coal and uranium usage and procurement of new electricity generation from Independent Power Producers (IPPs).

Redressing past imbalances: This would be accomplished by providing universal access to electricity; monitoring and evaluating the impact of the government’s free basic electricity policy and increasing the participation of historically-disadvantaged South Africans in new electricity generation projects.
Policy and legislation: An electricity importation policy would be formulated and the electricity regulatory framework would be strengthened.

Improved governance: This would be achieved by promoting public safety; the creation of a disaster management plan for the nuclear energy sector; executing the country’s international nuclear obligations; monitoring electricity and nuclear safety; reviewing and improving the security of nuclear installations and by establishing the agency that would be responsible for radioactive waste management.

Discussion
Mr C Molefe (ANC) expressed concern that the presentations had not specified exact timeframes for the completion of the Department’s various activities and projects. He argued that that omission meant that the Department could not be held accountable in a clearly measurable manner and would allow it to simply re-state the same projects and activities during the following financial year. He pointedly asked if detailed timeframes existed and if they did, where they could be accessed. Mr C Kekana (ANC) echoed this concern.

The Department was surprised by the sharp criticism. Mr Rocha pointed out that exact timeframes for the completion of the Mineral Development branch’s activities were listed in the presentation document he had submitted to the Committee, but that he had not mentioned them because of time constraints. He again drew Members’ attention to the document and added that a distinction should be made between activities listed for completion during the current financial year and activities listed for completion in the ensuing years of the Department’s Strategic Plan up to 2009 / 2010.

Ms M Hermanus, Chief Inspector of Mines, added that the Department’s Strategic Plan that had been submitted to Parliament (and therefore the Committee), contained detailed and specific targets and measurable objectives for the period up to and including 2010. Dr Crompton commented that the current Strategic Plan contained the most detailed and specific timeframes, targets and measurable objectives that had ever existed during his long service with the Department. These had been formulated during a two-day Strategic Plan workshop.

Prof I Mohammed (ANC) asked if heavy metals would be used as a replacement for lead in petrol; whether it was ESKOM’s fault that Johannesburg and surrounding areas suffered regular electricity "black-outs" and to what extent the government and ESKOM were responsible for the looming shortage in electricity generation capacity.

Dr Crompton responded that Cabinet had recently taken a decision to allow a three-octane structure for petrol when leaded petrol was phased out on 1 January 2006. One of these would be a lead replacement fuel that would contain some heavy metals in the form of additives.

Ms Magubane said the Johannesburg "black-outs" were not the result of electricity generation problems, but were due to a lack of supply and distribution infrastructure maintenance and renewal over a long period. ESKOM was not responsible for supply and distribution in the greater Johannesburg area. The expected shortage in electricity generation by 2008 was due to a lack of new investment in generation capacity and higher than expected electricity demand fuelled by economic growth. However, ESKOM was currently busy re-commissioning three of its coal-fired power stations that had been mothballed some years ago and that would satisfy demand until new power stations had been built.

The Chairperson asked what the DME’s strategy was to meet increased electricity generation demand in light of "coal reserves being exhausted by 2008". He also asked how close SA was to using renewable sources of energy on a large scale.

The first question led to confusion among the DME delegation as SA had abundant reserves of coal that would last well beyond 2008. Dr Crompton attempted to clear up the confusion by stating that SA was currently heavily dependent on coal for electricity generation as it was abundant and very cheap. This would remain the case for many years to come.

Ms Magubane explained that coal reserves would not be exhausted by 2008, but that electricity generation might be because of the lack of new power stations and not the lack of coal feedstock. SA had coal reserves for about fifty years at last count.

Dr Crompton added that renewable energy technologies were currently very expensive and with the DME’s small subsidies would not become viable on a large-scale soon. The Department was actively searching for foreign funding, and for commitments from the local private sector to invest in the technology.

The Chairperson asked whether the Department was satisfied with the implementation of the LFEC.

Dr Crompton answered that the Department was satisfied with the achievements on equity ownership, but that procurement by the major oil companies from Black Economic Empowerment companies was lagging badly. This would be the Department’s new focus and it was hoped that the establishment of the Supply Development Agency would lead to meaningful transformation in procurement. The Department was also somewhat concerned about the long-term sustainability of some of the equity deals that had been reached in the liquid fuels sector.

The Chairperson asked whether the Department had any plans to create new mining opportunities in stable African countries. Mr Rocha responded that the African Mining Partnership was designed for exactly this purpose as its focus was to foster mining co-operation among African countries with the ultimate objective of assisting NEPAD. This would be done through harmonising the legislative and regulatory framework of African countries to attract new mining investment, providing financial and other assistance to mining companies and by assisting small-scale miners to play a more prominent role.

The meeting was adjourned.