Department of Minerals & Energy’s Vision: Minister’s briefing; Electricity Regulation Amendment Bill: deliberations

MINERALS AND ENERGY PORTFOLIO COMMITTEE
7 November 2006
DEPARTMENT OF MINERALS AND ENERGY’S VISION: MINISTER’S BRIEFING; ELECTRICITY REGULATION AMENDMENT BILL: DELIBERATIONS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
Minister’s Vision for the Department of Minerals and Energy
Electricity Regulation Amendment Bill [B20-2006]
Proposed Changes to the Electricity Regulation Amendment Bill
Electricity Regulation Amendment Bill [B20A-2006]

SUMMARY

The Minister of Minerals and Energy shared her vision for the Department of Minerals and Energy with the Committee. This included ensuring security of supply by implementing a biofuel strategy and a nuclear enrichment strategy. The beneficiation of the minerals industry was a concern and the State Diamond Trader had been established to encourage this. The growth of the mining and energy sectors was a priority, as was the transformation of the electricity generation and liquid fuel sectors

The Committee was concerned that the public and Parliament would not have time to voice their opinions on the biofuels and nuclear enrichment strategies. The Minister assured them that they would. The Committee was also concerned about the beneficiation process. They wondered whether it would happen in sectors other than diamond mining and were concerned that the skills needed to keep South Africa’s resources in the country would be insufficient. The Minister said that they were aiming for beneficiation in all sectors and that skills development was focused on training people outside the country. Safety in the mines was another concern which the Minister said would always be an unfortunate consequence of the mining industry, but that research was being done to reduce the rate of accidents.

The Department also briefed the Committee on the main proposed amendments to the Electricity Regulation Amendment Bill which were that the definition of reticulation was simplified, reticulation had been moved to the jurisdiction of the regulating authority, the regulating authority now had the authority to prescribe reticulation norms and standards and reference to section 139 of the Constitution in the case of a major crisis in a municipality had been removed.

The Committee was concerned that municipalities would have to ringfence their reticulation activities and financial statements. They felt that this would be difficult and questioned its necessity. The Department felt that ringfencing was necessary in order to establish the exact costs of reticulation and that it would not be a challenge to municipalities. The Committee was also concerned that the deletion of the section relating to municipalities in crisis would be detrimental to the consumer as there would be no serious consequences for not complying with the regulator. The Department clarified that section 139 of the Constitution would still apply to municipalities in crisis, but that it should be used only as a last resort. Other consequences of non-compliance, as referred to in the principal act, should first be used.

MINUTES

Briefing by the Minister of Minerals and Energy on her vision for the Department

Ms B Sonjica (Minister of Minerals and Energy) said that the Department of Minerals and Energy’s (DME) vision and priorities were derived from government’s vision and priorities to transform society and the economy, poverty alleviation, job creation, redress of imbalances and development, including the development of infrastructure. This translates into the vision of the department which is outlined in both the white papers on energy and minerals respectively. Their vision is the minerals and energy sectors’ true sustainable development. The department’s mandate is the provision of services for the effective transformation and governance of the minerals and energy industries for economic growth and development, thereby improving the quality of life. This is the context in which the Department’s own vision has been crafted.

With regards to energy, the Department will be focusing on the implementation of legislation to achieve self-sufficiency and universal access to clean, affordable energy. With this aim in mind, the Department’s priorities are security of supply, energy efficiency, diversification of energy carriers, building refinery capacity with the help of the private sector, infrastructure development, increased use of biofuels, implementation of the electricity restructuring process, holding an energy summit in 2007, preparation for the 2010 Soccer World Cup, transformation of the electricity generation sector, tabling a strategy on nuclear enrichment, distribution of wealth created by mining to all South Africans, increased safety and security in mines, diversification of economic activities based on mining, engendering both the mining and energy sectors and ensuring that the Liquid Fuels Charter is compliant with Black Economic Empowerment (BEE).

Discussion
Mr L Greyling (ID) asked what the parameters for the energy summit would be and when it would be held. He was particularly concerned with the nuclear enrichment plans and hoped that this would be discussed at the summit so that the public could voice their opinions about it.

Adv S Nogxina (DME Director General) said that the summit would be held in March 2007, depending on the availability of stakeholders. He added that South Africans had been consulted in 1999 on the content of the white paper on energy and that South Africans had been consulted when translating the white paper into legislation. However, South Africans had not been consulted about challenges experienced while implementing the policies. The purpose of the summit was to touch base with the public and determine what some of the challenges to implementation are.

The Minister said that South Africans and parliament would be consulted on the Nuclear Enrichment Strategy. She stressed that nuclear enrichment would only be used as a clean energy source; it would never go beyond that. She assured the Committee that there were laws to protect the environment that would have to be abided by.

Mr Greyling asked if there would be time for Parliament and stakeholders to engage with the Department on the consequences of biofuels before the strategy was implemented.

The Minister answered that stakeholder participation had already occurred. The strategy was supposed to be presented to cabinet in November and it had been, so the Department was on time.

Mr Greyling asked when the renewable energy strategy would be tabled.

The Minister answered that there was a report that had been compiled on the renewable energy strategy that would be available to Parliament quite soon.

Mr Greyling asked if the R600 million allocated to increase energy efficiency would be transferred from Eskom to the Central Energy Fund as planned.

The Minister said that the energy efficiency campaign would be heightened because security of supply needed to begin with efficiency.

Mr W Spies (FFP) asked if mining sectors other than diamond mining were really going to be beneficiated, considering that most of South Africa’s minerals leave the country, while the people in the areas that the minerals come from are still poor.

Mr E Lucas (IFP) said that beneficiation was an important process and it required the Department’s attention. He said that something was not being done properly as commodities like steel were getting so expensive that some manufacturers were thinking of importing steel as it would be cheaper than buying it locally.

The Minister said that all minerals would be beneficiated. All exports of raw materials would be discouraged. A challenge to this was the skills shortage in the country; beneficiation could not happen immediately because the skills needed to do this were absent.

Adv Nogxina added that they would like all minerals to be beneficiated, but the market would determine which minerals would be more beneficiated than others.

Mr Spies asked if small or big companies would be supported in the mineral beneficiation process.

Adv Nogxina said that the size of companies had not been specified. The Department expected that there would be both small and big companies involved in beneficiation. The only problem they had identified in the past was that access to rough diamonds was restricted. The establishment of the State Diamond Trader would open up access to diamonds, irrespective of the size of the company.

Mr Lucas said that the mining and electricity sectors were doing well, but something needed to be done about liquid fuels. He suggested that the Committee go on a tour to study liquid fuels so that they could provide educated input on the matter. He added that the people responsible for the implementation of the Liquid Fuels Charter were dragging their feet and something needed to be done about it.

The Minister said liquid fuel was an important focus of the Department in order to ensure self-sufficiency. Ensuring regular oil supplies from countries in Africa like Nigeria, Sudan and Egypt was being examined. However, obstacles to this are capacity problems, such as storage and transportation capacity. She agreed that the Liquid Fuels Charter needed to be implemented.

Ms N Mathibela (ANC) was concerned about the safety in mines, particularly in Carltonville. The Carltonville mine is 3km deep and there were plans to make it even deeper. The deeper a mine goes, the hotter it gets. At the moment it is 55˚C in the mine: was it wise to go deeper when the safety of miners is at stake? She said that the Department wanted more women in the industry but asked how women could work in such hot conditions.

Mr S Vundisa (ANC) asked about the safety of women in mines and their chances of contracting breast cancer.

The Minister said that safety would always be a concern in the mining industry. She said that tremors were very common in the mines and since they usually did not cause rock falls, miners were used to them and did not respond to them. Research was being done that indicated that backfilling old shafts would reduce the number of tremors, so this was being implemented. However, an ideal solution would be an early warning system, so this was being focused on. The choice between suspending mining because of safety and going deeper was a difficult one. If activities are suspended 4900 people will lose their jobs. The harsh conditions in mines would be no worse for women than for men. Health problems associated with mining are a focus of the Department.

Ms Mathibela asked about safety at Sasol. The Committee had been promised that safety at Sasol was fine, but then every now and again there was an incident and lives were lost.

The Minister said the question should be answered by the Department of Labour.

Mr S Louw (ANC) asked if there was some kind of interaction between the Department of Education and the Department of Minerals and Energy in order to ensure that the correct skills were being imparted in order to encourage beneficiation. This was especially relevant because there were places, such as India, where some of these skills already existed and South Africa’s skills would have to be quite developed in order to compete with existing skills. He also wondered why people were being sent to Senegal to be trained when it was not a developed country.

The Minister answered that people were being trained outside of the country in order to access these existing skills in order to train them properly. However, the Department of Education was not being consulted. She assured Mr Louw that the quality of work in Senegal was very high.

Mr Vundisa said that the Liquid Fuels Charter was the first to be launched which would lead him to expect that it should be the most advanced. However, there was not one BEE company that was involved in the liquid fuels industry. He added that there was a need for a correct and progress report on the charter.

The Chair said that the Committee was going to engage each company involved in the liquid fuels industry and confront them about the implementation of the charter.

The Minister added that the Committee should call for hearings on the Liquid Fuels Charter. She was then informed that they had had hearings. She said that the Committee must have got some kind of commitment from the industry and they should check that the industry was honouring their commitments.

Mr Vundisa asked about the progress of two biofuel projects in Cradock and the North West.

The Minister said the progress of the projects was going to be presented to the Department very soon, but they seemed to be going well. Some technical problems had arisen, such as problems with blending fuels. Luckily Brazil was providing guidance for the projects. A taskforce from South Africa, Brazil and the United Kingdom was going to be established to guide the biofuels program.

Mr Vundisa asked how effective water purification systems at mines are at purifying water.

The Minister answered that there would be cooperation with the Department of Water Affairs and Forestry to deal with this. She said she was more concerned about the management of old, disused mines that were a danger to the public. Provincial and local government would have to liase in order to ensure that there would be bylaws to prohibit people settling in such areas. R24 million had also been allocated to fill the mines. It is a big challenge as there are close to 6000 mines that have to be filled.

Mr Vundisa said that it was very costly to participate in real mining and the capital was not available to small companies who wanted to be involved. He suggested an amendment to the Mineral and Petroleum Resources Development Act to safeguard and help people who wanted to be involved in mining. He suggested that no more than 30% of profits should go to the permit holder and 70% should go to the miner.

The Minister said that the cost of entry into mining was a problem, but the Department offered certain services in order to make this easier for BEE entrants. For instance, they would pay for the cost of exploration. And in areas, such as the Northern Cape, where more assistance was needed because people were very poor, it would be given.

Mr Vundisa asked why there were no sector offices in the mining areas. These offices are there to help small miners, so they should not be in Johannesburg, but in places where miners needed assistance.

The Minister said that regional offices did exist and in large provinces like the Eastern Cape and the Northern Cape, two offices would be established.

The Chair said that there should be a more targeted way of measuring universal access to electricity in order to measure and monitor performance.

The Minister said electrification of schools was a priority. 7000 schools still needed to be electrified. Electrifying 400 clinics was also a priority. Certain nodal points that were without infrastructure were also a priority. This would help to alleviate poverty and the nodal points were in poverty pockets. She added that they were strengthening regional ties and continental relationships within Africa.

Briefing by DME on the proposed changes to the Electricity Regulation Amendment Bill

Ms N Magubane (DME Deputy Director General: Electricity and Nuclear) said that the new bill would be much shorter than the last one.

Mr O Aphane (Chief Director: Electricity Regulation) started to explain the changes that would be made to the bill.

The Chair interrupted Mr Aphane and suggested that he explain each page individually and then answer questions on the issues raised on that page in order to facilitate the smooth running of the discussion.

Mr Aphane then began to explain the changes again. The definition of reticulation would be changed to “trading with or distribution of electricity and include services associated therewith”. Previously reticulation was the trading with or distribution of electricity from a municipality to the community within its area of jurisdiction. The alteration of this definition has resulted in many other changes in the bill, such as the deletion of the definitions of community, municipality and light industry.

Mr Louw said that when they had discussed the amendments to the bill there was some disagreement about the figures that limited the definition of community and so limited the definition of reticulation. He asked if this had been resolved.

Ms Magubane explained that certain figures were being used to limit the definition of community. Since the word community had been removed from the definition, the limiting figures no longer applied and the definition was now as neutral as possible.

Mr Aphane explained that the section titled ‘powers and duties of municipalities’ had been changed to ‘duties of municipalities.’ This is because reticulation has been brought under the jurisdiction of the regulator and not the municipalities so they have no powers when it comes to reticulation. This has resulted in the removal of the previous clause three and the insertion of a new clause which brings reticulation under the jurisdiction of the regulator. In order to strengthen the regulation capacity of the regulator, electricity provision is going to be ringfenced. This explains the need for clause 5(l) which requires municipalities to keep separate financial statements for reticulation.

Ms Magubane added that there were certain consequential changes throughout the bill because of the changed definition of reticulation.

The Chair asked why there was a need to add clause 5(l).

Mr Aphane explained that previously the regulator was not responsible for reticulation. Now that the regulator will be responsible for it, its capacity to regulate reticulation must be strengthened. Ringfencing reticulation will allow for this.

Ms Magubane explained that often electricity provision overlapped with many other municipal services like water and sanitation, thus some of the same resources are used for reticulation and other services. Ringfencing financial statements will allow proper economic regulation of reticulation and ensure sustainability.

Mr Lucas was concerned that this would complicate the way municipalities functioned.

Ms Magubane assured Mr Lucas that ringfencing did not mean that different resources would have to be used for providing different services, but the specific cost of reticulation would have to be separated from the other costs. It was also good management practice to know exactly how much a service costs in order to ensure its sustainability.

Mr Aphane added that it was necessary to have a uniform method of establishing costs. Since electricity provision was ringfenced from the beginning of the supply chain, it should be ringfenced at the end of the supply chain. This would allow Eskom to better determine what the real costs of providing electricity are.

Mr H Schmidt (DA) was confused about the definition of reticulation because it included distribution of electricity, but clause three draws attention to the differences between reticulation and distribution.

Mr Aphane said that reticulation and distribution were basically the same thing, even though the bill refers to it separately.

Ms Magubane added that when they were deciding how to define reticulation there were many different options open to them. It was decided that it was necessary to define reticulation, even though it was tantamount to distribution.

Mr Schmidt asked about clause 4(3) which said that ‘each municipality must perform its duty…’ He was not sure if this meant that each municipality has to appoint a service provider.

Ms Magubane said that the municipality could still be the service provider and the ringfencing of financial statements would allow for a reticulation license to be issued to the municipality.

Mr Aphane added that the clause was not saying that it was mandatory for the municipality to appoint a service provider. The Municipal Systems Act deals with the appointment of service providers; the clause in question deals with municipal duties once the service provider has been appointed.

Mr Schmidt said that the bill should indicate that it is not mandatory to facilitate clarity.

The Chair suggested referring to the Municipal Systems Act if the provision already existed in that act, rather than repeating or contradicting the legislation.

Mr Aphane continued to explain the changes to the bill. The next deletion was clause 29 on policies and bylaws.

Ms B Tinto (ANC) wanted to know how municipalities would be able to work without being able to make their own policies and bylaws.

Mr Aphane assured her that this was not what the legislation was saying. There were existing legislation that covered the creation of policies and bylaws. Since it was not the purpose of the bill to regulate municipal policies and bylaws, it was deemed unnecessary to include it. The clause was also deleted because regulation of reticulation is no longer under municipal jurisdiction. Thus, municipalities no longer have to make policies and bylaws concerning reticulation. This means that the clause is no longer relevant.

Ms Magubane added that clause 29 was very confusing during the public hearings. People did not know if they were meant to be regulating the municipality or regulating reticulation services. The latter is applicable and therefore the clause was deleted.

Mr Schmidt asked for clarity on the consequences of deleting clause 28(3-8).

The Chair asked members not to ask questions on clauses that had already been dealt with.

Mr Aphane explained again that municipalities no longer have powers because the responsibility for regulation of reticulation now lay with the regulator and not the municipality. Clause 31 said that the regulator now has the power to prescribe reticulation norms and standards in consultation with the Minister and not the other way round as it stood previously.

Ms Magubane added that this allowed the Minister to confine herself to creating policy and regulations. When it comes to the creation of norms and standards, the regulator is more knowledgeable and experienced in the field. The regulator is more agile when creating norms and standards.

The Chair asked for more clarity.

Ms Magubane said that norms and standards would be proposed by the regulator, the Minister’s approval would then be sought and if it is obtained, the norm or standard will become nationally required.

Mr Aphane said that clauses 33-41 had been omitted. Section 139 of the Constitution deals with what should happen in the absence of the jurisdiction of the regulator. The deleted part of the bill referred to emergency situations when section 139 would be invoked. Some of the deleted clause was removed because it limited the power of the regulator.

Mr Schmidt said that section 139 dealt with major crises in local government management. The deleted section attempted to deal with crises that were not quite so major. He asked about municipalities who had not entered into service delivery agreements and who were in crisis, but not major crisis, but who are still not complying with what the regulator wants.

Mr Aphane said that the principal act provided for recourse to action if municipalities are non-compliant, including fines and tribunals.

Mr Shmidt asked if section 139 of the Constitution was not applicable to local governments that had breached regulations.

Ms Magubane said that the processes associated with section 139 were cumbersome and should be a last resort. It was preferable to impose the penalties referred to by the principal act first.

Mr Aphane said that clause 44 had been removed because reticulation was now under the jurisdiction of the regulator and not the municipality. He said that clause 47 had been rewritten in order to make the phrase more elegant.

Mr Schmidt asked about clause 47(b) which seemed to say that the Minister was responsible for creating regulations when one of the changes said that the regulator was responsible for regulations.

Mr Aphane said that the Minister did have the authority to create regulations and the regulator had the authority to prescribe norms and standards that had to be approved by the Minister.

The Chair said he was still confused and the two things seemed to contradict each other.

Mr Aphane repeated that laws and regulations were still the Minister’s mandate, but the regulator prescribed the norms and standards on technical issues that would be provided for in law by the Minister. The rest of the changes to the bill were to ensure continuity, such as changes to the table of contents.

The Chair adjourned the meeting.