Diamond Board of South Africa, Electricity Distribution Industry Holdings Company, National Electricity Regulator of South Afric

MINERALS AND ENERGY PORTFOLIO COMMITTEE
31 January 2007
DIAMOND BOARD OF SOUTH AFRICA, ELECTRICITY DISTRIBUTION INDUSTRY HOLDINGS COMPANY, NATIONAL ELECTRICITY REGULATOR OF SOUTH AFRICA ANNUAL REPORTS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
South African Diamond Board presentation
Electricity Distribution Industry Holdings Company presentation
National Electricity Regulator of South Africa Annual Report presentation
South African Diamond Board Annual Report (available shortly at www.sadb.co.za)
Electricity Distribution Industry Holdings Company Annual Report (available late www.ediholdings.co.za)
National Electricity Regulator of South Africa Annual Report ( available at www.ner.org.za)

SUMMARY
The South African Diamond Board limited their presentation to making responses to issues raised by the Auditor-General in his audit report for the financial year ending 31 March 2006. The Auditor-General had given the Diamond Board a qualified report on how its property, plants and machinery were being managed. In particular, in asset management, certain assets could not be traced from their location to the assets register and vice versa. Some assets were incorrectly classified in the assets register, not tagged or tagged incorrectly. In response to these findings, the Diamond Board tracked and accounted for all of their assets as at 31 July 2006. All assets were correctly classified; all missing tags were identified and corrected as at 31 August 2006.

The Electricity Distribution Industry Holdings Company said that their main object was to restructure the electricity distribution industry and invest in financially viable independent Regional Electricity Distributors. RED1 was launched in the City of Cape Town on 1 July and its creation represented an instructive pilot project for the overall Electricity Distribution Industry Holdings restructuring process. In line with the Cabinet decision of 14 September 2005, the company commenced with preparatory work for the establishment of Metro Regional Electricity Distributors.

With regard to their staff complement, Electricity Distribution Industry Holdings’ staff was 66% female (34% male), 66% black, 4% Asian, 2% coloured and 28% white. Its net assets and liabilities amounted to R25 858 000 in 2006, which was down from R45 039 000 in 2005. In general, the finances were being well managed.

With regards to the future; on 25 October 2006, Cabinet approved the implementation of six wall-to-wall Regional Electricity Distributors established as public entities and regulated according to the Public Finance Management Act and the Electricity Regulation Act. Eskom would become a shareholder in the respective Regional Electricity Distributors for a transitional period but reduce their shareholding over time.

The National Electricity Regulator of South Africa (NERSA) said that the National Electricity Regulator (NER) was established in 1995 to regulate the electricity industry. It discontinued its operations on 30 September 2005 but continued regulating the electricity industry until 16 July 2006 when it ceased to exist. Besides the regulation of the existing electricity industry, the NER had had to ensure appropriate preparation for effective regulation of the future reformed electricity industry.

Performance to date was that of their planned activities, 57% were executed as planned and 30% were on track. Some of the key factors that impacted on their execution were the Electricity Distribution Industry Restructuring process; slow responses from external participants; challenges in the effective management of projects and high staff turnover experienced during the year. Some of the highlights were that the Multi-Year Price Determination (MYPD) mechanism had been approved by the Board and published for stakeholder comments followed by a well-attended stakeholder workshop.

In terms of the financial analysis, the approved expenditure budget (excluding capital expenditure) for the period of 1 April 2005 to 30 September 2005 was R36.2 million. Actual Expenditure for the same period was R33.5 million, with a surplus of R2.8 million. Employee costs accounted for 49% of the expenditure, fees for services accounting for 6% and Board Member remuneration accounting for 3%. Capital expenditure amounted to 10% of the total expenditure.

NERSA consisted of nine Regulator Members and had eight sub-committees. The total staff complement was 143 people. The strategic objectives were to administer the Mozambique Gas Pipeline Agreement; to implement the Gas Act; to license existing and new activities in the piped-gas industry; to implement the Petroleum Pipelines Act; to license new and existing activities in the petroleum pipeline industry and to facilitate access to the petroleum pipeline infrastructure.

Activities that related to the regulation of the piped-gas and petroleum pipeline industries only started on the 1 November 2005 (seven months later than planned for in the Business Plan). Therefore it was expected that all projects relating to the regulation of piped-gas and petroleum pipelines would not be concluded as planned. Some of the key factors that impacted on their execution were a lack of ‘start-up momentum’ associated with a new Energy Regulator, especially for regulating piped-gas and petroleum pipelines industries for the first time.

The National Electricity Regulator formed a good basis for the establishment of NERSA. Electricity regulation existed since 1995 whilst hydrocarbons regulation was at its infancy. On the date of transfer of the assets and liabilities, the NER was a viable entity as a going concern and the transition from the NER to NERSA was being well managed.

MINUTES
South African Diamond Board (SADB) Presentation
Mr A Chikane, the SADB Chairman limited his presentation to making responses to issues raised by the Auditor-General (AG) in the SADB audit for the financial year ending on the 31^st of March 2006. The AG had given the SADB a qualified report on how its property, plants and machinery were being managed. In particular, in asset management, certain assets could not be traced from their location to the assets register and vice versa. Some assets were incorrectly classified in the assets register and some assets were not tagged, and others were tagged incorrectly. Also, assets which did not satisfy the definition of an asset as per AC123 were recognised as such in the financial statements and the useful lives and residual values of assets were not reviewed annually as required by AC123.

In response to these findings, the SADB tracked and accounted for all of their assets as at the 31^st of July 2006. All assets were correctly classified; all missing tags were identified and corrected as at 31 August 2006. All architecture fees and demolishing costs had, with the approval of the Board, been written off as at the 31^st of August. Also, an independent appraiser had been appointed to estimate the useful lives of assets and to revalue all fixed assets as required by AC123.

The AG had also given the SADB an emphasis of matter report for having a lack of documented policies and procedures such as cash management policies; revenue and receipt policies; purchases and accounts payable policies and procedures and accounts receivable policies. Mr Chikane said that at the time of the audit, these policies were in the draft stage and had been subsequently circulated to all Board members for approval. The policies and procedures for investments; fraud prevention; supply chain management; local and international travel; fleet management and fixed asset management were still being drafted.

The AG also raised the issue that there was no provision for bad debts. Mr Chikane said that ordinarily, the SADB did not carry debtors, but this issue referred to one debtor who owed the Board R60 000. The matter had since been handed over for legal action. A contract between the SADB and African Legend IT that had not been signed at the time of the audit was signed on the 31^st of July 2006.

Electricity Distribution Industry Holdings (EDIH) Company Presentation
In her overview, Ms D Mokgatle, the Chairperson, said that the annual report was presented in compliance with the Public Finance Management Act (PFMA) and fairly presented the state of affairs of the company, its business, its performance against predetermined objectives and its financial position at the end of the year in terms of the Generally Recognised Accounting Practice (GRAP).

The annual financial statements were the responsibility of the Accounting Authority, that is, the Board of Directors of EDIH and

The AG had issued an unqualified audit report.

The main object of EDIH was to restructure the electricity distribution industry and invest in financially viable independent Regional Electricity Distributors (REDs) in South Africa in accordance with Government policy in order to ensure a more effective and efficient electricity distribution industry capable of providing affordable and accessible electricity to consumers. RED1 was established in accordance with the Presidential deadline, as outlined in the President’ State of the Nation Address of 21 May 2004.

The Board directed and guided the business in compliance with applicable legislation and had instituted the necessary policies and monitoring procedures through the following Board Committees: the Audit and Risk Management Committee; the Human Capital and Remuneration Committee; the Finance and Procurement Committee and the Operations Management Committee.

EDIH maintained world class systems of corporate governance by subscribing to the principles of good governance; adhering to, and encouraging good governance practices and the highest ethical behaviour; continuing to comply with the broad principles set out in the King II Report and assessing its systems of governance for improvement on an ongoing basis. EDIH endeavoured to observe all principles of corporate governance in all dealings with its stakeholders and would continue to comply with relevant shareholder, statutory and treasury requirements. Also, regular compliance submissions were made to relevant authorities.

She said that RED1 was launched in the City of Cape Town (CCT) on the 1^st of July and its creation represented an instructive pilot project for the overall EDIH restructuring process. In line with the Cabinet decision of 14 September 2005, the company commenced with preparatory work for the establishment of Metro REDs; established a multi stakeholder forum, and developed a model to determine the viability of establishing a National RED and or other REDs. The outcome of the modelling exercise would assist Cabinet in deciding the optimal end state of the industry to ensure the establishment of financially viable and sustainable REDs.

The achievements for the year had laid a foundation for the attainment of EDI Restructuring objectives. Key challenges were to work closer with their stakeholders, enacting enabling legislation and the development of a shared vision among their stakeholders.

She then expressed her appreciation for the leadership and guidance of the then Minister Ms Lindiwe Hendricks and Deputy Minister Ms Lulu Xingwana; the leadership and support of the Director General of the Department of Minerals and Energy (DME), Advocate Sandile Nogxina; the Board of Directors of EDIH; the EDIH

CEO, Ms Phindile Nzimande; the management and staff of EDIH and all of their stakeholders.

Ms P Nzimande, the CEO, went into more detail about the creation of the RED1. The CCT followed the required legislative prescriptions prior to choosing the RED as the vehicle for electricity service provision. It was registered by EDIH as company on the 2^nd of November 2004 and the RED was established as a Municipal Entity by the CCT on the 31^st May 2005. It was then licensed by the National Energy Regulator of South Africa and commenced operations on the 1^st of July 2005.

Various agreements were concluded between the CCT and RED1 including an operating and transitional plan for transfer agreements. Other agreements were concluded between RED1 and CCT Electricity and RED1 and Eskom. The RED1 Board had been appointed and business plans and the budget had been approved.

EDIH embarked on an intensive stakeholder engagement process to brief various stakeholders about the EDI Restructuring process and the 14^th of September 2005 Cabinet decision with an aim to clarify the revised restructuring approach; minimise uncertainty in the industry; continue to debate issues relating to staff within EDIH and the completion of industry modelling within the stipulated time frame.

A representative Multi Stakeholder Forum (MSF) was established with a peer review and independent validation of the model. Preparatory work towards the creation of other Metro REDs had been completed and they had developed a generic Day-One definition (of what had to be in place on the first day of operation), which had been agreed upon by all stakeholders. They had also developed regional roadmaps for Metro RED creation and created governance structures for the establishment of Metro REDs.

She said that EDIH was a flexible learning organisation that was highly responsive to changes in the restructuring environment. Having been in existence for three years and armed with the practical experience of launching RED1, it was necessary to review the company’s strategic approach, owing to complexities brought about by a lack of enabling legislation, varying stakeholder interests and uncertainty regarding the desired industry end-state.

With regard to their staff compliment, Ms Nzimande said that EDIH’s staff was 66% female (34% male), 66% black, 4% Asian, 2% coloured and 28% white. In terms of employment equity, they had targeted having 70% of their workforce being African, coloured or Asian. They had succeeded this target as they were currently at 72%. They also had a target of having 50% of the staff being female. This figure was at 66% at present. They had also targeted having 10% of their staff being disabled but this figure was only at 4. All EDIH posts had been evaluated according to the T.A.S.K. grading systems. This system had been used to update job profiles and to benchmark the salary structure.

Mr T Mokoto, the CFO then went through the financial statements. EDIH’s net assets and liabilities amounted to R25 858 000 in 2006, which was down from R45 039 000 in 2005. Total income and expenditure was also down from R103 281 000 in 2005 to R65 958 000 in 2006. In general, he said that the finances of EDIH were being well managed.

With regards to the future, Ms Nzimande said that on the 25^th of October 2006, Cabinet approved the implementation of six wall-to-wall REDs and they should be established as public entities and be regulated according to the PFMA and the Electricity Regulation Act. Eskom should become a shareholder in the respective REDs for a transitional period and it should reduce their shareholding over time. The DME, through EDIH, would oversee and control the REDs. A roadmap had be put in place to move from the current scenario into the future industry structure and a strategy needed to be developed to deal with capital investment requirements for the REDs. Cabinet also decided that EDI Restructuring legislation had to be introduced; and that a national electricity pricing system be developed.

The six-Wall-to-Wall REDs would be geographically anchored by the metropolitan cities, covering the whole of South Africa, in both the rural and urban areas. They would be financially viable entities with a business strategy as well an asset investment strategy that would ensure sustainable and reliable quality of supply and revenue flow while serving all South Africans. The REDs were to be setup seamlessly with minimum disruption to service delivery for the consumers.

The consolidation of RED1 would ensure the full transfer of distribution businesses and staff and EDIH would continue to provide leadership and strategic advice on EDI Restructuring in order to influence policy and strategic direction.

Discussion
Mr Morkel (ANC) said that it seemed as though the CCT had changed its position on RED1. This may be because of a change in the political leadership of the city or because of technical or economic reasons. RED1 would appreciate input from EDIH as to what those technical reasons may be. For example, was the service level agreement still in place? Had there been any work done according to that agreement? If not, why not? Was the Cabinet decision “set in stone?” Some would argue that the RED1 model was not the best one, and while the process was still in a transitory stage, could some remodelling take place, or was the model going to be imposed on municipalities as it was?

Ms Nzimande replied that there were contracts that were linked to each other, but delivery by one party was dependent on one of the other parties delivering first. Deadlines were set for delivery (1 July 2006), but by May it was evident that the deadline was going to be missed as some parties did not move as fast as they should. Some stakeholders unfortunately let some of the agreements lapse at the end of December 2006. This meant that the licence had to go back to the CCT from RED1. The Board of RED1 and EDIH were currently in talks with the CCT about how RED1 was going to be handled.

Mr J Combrink (ANC) asked if the senior manager and directors were employed on a contract basis or if they were permanently employed.

Mr C Molefe (ANC) asked if EDIH faced any difficulties in raising funds. He said that he had thought that Eskom was going to be relieved of the responsibility of distributing electricity but now it was going to be a shareholder in the REDs. What exactly was Eskom’s role?

Ms Nzimande replied that that when they reported to the Committee last year there was a funding challenge, but this problem had been resolved as the Regulator made an allowance of R1.2 billion available for the restructuring process over the next three years. This money was being handled at present by Eskom. Eskom was going to be relived of the distribution task but this would be done in an orderly way, so as not to disrupt its activities.

Mr E Lucas (IFP) asked what lessons had been learned from RED1. The lack of a smooth transition from municipalities to the REDs was also a problem.

Ms Mokgatle said that some of members’ other questions would be answered in greater detail in a later presentation as there was not sufficient time to do so now. However, she did say that in terms of the restructuring process and the establishment of RED1, they should have waited for the enabling legislation. Some of the experiences in dealing with RED1 had unfortunately impacted negatively on the image of the industry and the delivery process. They had learned that if a certain structure was not in place, the whole restructuring process was in danger.

Mr S Mowzer, the CEO of RED1, added that RED1 had to operate in an environment where there was no legislation so municipalities were co-operating voluntarily. Due diligence was completed on the city’s infrastructure, assets and staff. There were 27 ‘conditions of service’ in Cape Town alone with over 80 across the rest of the country. They made agreements with the CCT to deliver free basic electricity for the city, as well as electrification programs in informal settlements under the jurisdiction of Eskom.

National Treasury had to approve an asset transfer framework and this was critical for the transfer of assets from the municipalities to the REDs. In view of the Cabinet decision of the 25 October, the CCT said that it would review its decision to participate in the RED as Cabinet had taken the decision on behalf of the six REDs as public entities. They raised the issue of the financial impact of the RED on the city and this is a matter that had to be addressed. The lack of co-operation with Eskom in some aspects was also an issue.

The Chairperson said that a meeting where RED1 would be discussed in detail would be arranged and all the relevant parties involved would have to come before the Committee.

National Electricity Regulator of South Africa (NERSA) Presentation
Mr S Mokoena, the CEO, said that the National Electricity Regulator (NER) was established in 1995 to regulate the electricity industry. It discontinued its operations on the 30^th of September 2005 but continued regulating the electricity industry until the 16^th July 2006 when it ceased to exist. Therefore the NER annual report covered the period of 1 April 2005 to 30 September 2005. The electricity regulation report continued until the 31^st March 2006.

The National Energy Regulator (NERSA) was established on the 1^st of October 2005 and the Regulator members were appointed with effect from that date. NERSA took over all of the assets and liabilities of the NER as well as all personnel and other resources on its establishment date. Therefore the NERSA annual report covered the period of 1 October 2005 to 31 March 2006.

NERSA started regulating piped-gas and petroleum pipeline industries on the 1^st of November 2005 and the electricity industry on the 17^th of July 2006. The NER Board consisted of 9 Board Members and had seven committees. The total staff complement 115 people.

Its strategic objectives were to ensure the effective and efficient regulation of the existing electricity industry; ensure that the NER was appropriately prepared and able to effectively regulate the future reformed electricity industry; promoting appropriate procurement mechanisms and regulatory frameworks for new generation capacity; developing and retaining requisite skills and competencies within the NER; improving and sustaining the good image of the NER; enhancing the integrity of the NER by improving internal management systems and procedures; effectively contributing to the socio-economic development programmes of government and establishing a single energy regulator (which would incorporate gas and petroleum pipelines regulation, in addition to electricity regulation) on the foundation of the experience of the NER.

Its performance to date was that of their planned activities, 57% were executed as planned and 30% were on track. Some of the key factors that impacted on their execution were the EDI Restructuring process; slow responses from external participants; challenges in the effective management of projects and high staff turnover experienced during the year.

Some of the highlights were that the Multi-Year Price Determination (MYPD) mechanism had been approved by the Board and published for stakeholder comments followed by a well-attended stakeholder workshop and the Board also approved the MYPD for Eskom. RED1 was licensed before it was formally launched on the 1^st of July 2005 and the findings of an independent technical audit of City Power were announced. Independent technical audits in eleven municipalities and Eskom electricity distributors were conducted and the second National Integrated Resource Plan (NIRP2) was launched while the development of NIRP3 under the guidance and approval of the NIRP Advisory and Review Committee had been commenced. An investigation was also carried out on the Western Cape power outages and there was a tariff review of 157 municipalities.

The NER participated in the “Take a girl-child to work” programme where the Board members, the CEO and the Executive Managers mentored six girls from Khayelitsha, Mitchell’s Plain and Langa. The NER Staff also raised R17 000 for the Schaaphok School near Entabeni Game Farm in Limpopo. NERSA was launched on the 22^nd of November 2005 and the NER participated in, and contributed to regional and continental initiatives.

In terms of the composition of its staff, the NER was 78% African, 15% white, 4% Asian and 3% coloured while 52% of them were women.

In terms of the financial analysis, the PFMA, Treasury Regulations and the Generally Accepted Accounting Practices (GAAP) governed the financial management and accounting at the NER. The approved expenditure budget (excluding capital expenditure) for the period of 1 April 2005 to 30 September 2005 was R36.2 million. Actual Expenditure for the same period was R33.5 million, with a surplus of R2.8 million.

Employee costs accounted for 49% of the expenditure, fees for services accounting for 6% and Board Member remuneration accounting for 3%. Capital expenditure amounted to 10% of the total expenditure. The NER received an unqualified audit opinion from the AG but the audit did however raise emphases of matter for payroll (salary) fraud and the transfer of operational activities to NERSA.

In terms of its operational results, total assets increased by 24% to R54.8 from the 31^st of March 2005. There was R23 million in the NER’s main bank account and deposits held at the Reserve Bank in terms of the Co-operation of Public Deposit. Other operating expenditure included rentals under operating leases for office equipment, variable costs and notional depreciation charges. 12% of the capital expenditure was spent on the acquisition of computer hardware and accessories, 14% on computer software and 16% on office equipment and the balance on the building. Land and building costs were fully paid up and owned by NERSA with a carrying value of R20 million as at the 30^th of September 2005. The ratio for current assets to current liabilities was 6:1 which indicated that the NER was a ‘viable entity as a going concern’ on the 30^th of September 2005 when all the assets and liabilities were transferred to NERSA and the NER discontinued its operations.

NERSA consisted of nine Regulator Members and had eight sub-committees. The total staff compliment was 143 people. The strategic objectives were to administer the Mozambique Gas Pipeline Agreement; to implement the Gas Act; to license existing and new activities in the piped-gas industry; to implement the Petroleum Pipelines Act; to license new and existing activities in the petroleum pipeline industry and to facilitate access to the petroleum pipeline infrastructure.

Other objectives were to develop and implement appropriate pricing and tariff methodologies for the petroleum pipeline industry; to implement the National Energy Regulator Act, especially in areas of public hearings, enquiries, tribunals and resolution of disputes; effectively contributing to the socio-economic development programmes of government; to establish and maintain a comprehensive database for the energy industry; to promote competition and BEE in the three industries and to ensure that the requirements of the industry acts on safety, environmental, health and security in the industry were complied with.

The NERSA Strategic Plan (2005/06–2007/08) and Business Plan (2005/06) had been developed under the assumption that NERSA would be established on the 1^st of April 2005, but this only took place on the 1^st of October 2005. The Gas Act; Petroleum Pipelines Act; Gas Regulator Levies Act and the Petroleum Pipeline Levies Act came into operation on the 1^st of November 2005.

Activities that related to the regulation of the piped-gas and petroleum pipeline industries only started on the 1^st of November 2005 (seven months later than planned for in the Business Plan). Therefore it was expected that all projects relating to the regulation of piped-gas and petroleum pipelines would not be concluded as planned. Of the 35 planned projects, work on only seven (20%) had commenced. 84% of the activities had been executed as planned, and of the 56 planned activities, 73% were on track.

Some of the key factors that impacted on their execution were a lack of ‘start-up momentum’ associated with a new Energy Regulator, especially for regulating piped-gas and petroleum pipelines industries for the first time. There was high staff turnover and a number of secondments due to the establishment of NERSA.

Some of the regulatory highlights were the inaugural meeting of the Energy Regulator on the 9^th of November 2005. Gas Act Rules Part One: Licensing 2006 and Petroleum Pipelines Act Rules Part One: Licensing 2006 were approved by the Energy Regulator and promulgated. The Energy Regulator also submitted comments on the draft Piped-Gas and Petroleum Pipeline Regulations to the Minister of Minerals and Energy.

Some of the governance highlights were the appointment of the Members of the Energy Regulator with effect from the 1st October 2005. As required by the National Energy Regulator Act all staff in the employment of the NER on 30 September 2005, were transferred to the employment of NERSA with effect from the 1^st of October 2005. NER assets and liabilities were also transferred to NERSA on the 1st of October 2005.

Ring-fencing methodology was implemented as part of National Energy Regulator Act requirement for financial reporting structure. The proposed piped-gas and petroleum pipeline levies were gazetted in November 2005 and representations were received, analysed and taken into account in revising the 2006/07 budget. The Revised Strategic Plan (2006/07–2008/09) and Business Plan with Budgets (2006/07) were then submitted to the Minister of Minerals and Energy for approval.

In terms of the composition of its staff, NERSA was 78% African, 15% white, 2% Asian and 5% coloured while 54% of them were women.

With regards to NERSA’s financial performance, the approved expenditure budget (excluding capital expenditure) for the period of 1 October 2005 to 31 March 2006 was R53.5 million. Actual Expenditure for the period of 1 October 2005 to 31 March 2006 was R49.3 million with a deficit of R15.6 million. According to Section 13 of the National Energy Regulator Act, all direct costs were allocated directly to the three regulated industries. The common costs would be apportioned based on the direct employment costs for each industry and all common costs would be allocated based on the following ratio: 60% for the electricity industry, 20% for the piped-gas industry and 20% for petroleum pipeline industry.

Employee costs accounted for 34% of the expenditure, fees for services accounting for 13% and Regulator Member remuneration accounting for 4%. Capital expenditure amounted to 5% of the total expenditure. The NER received an unqualified audit opinion from the AG but the audit did however raise emphases of matter for payroll (salary) fraud and the establishment of NERSA. The implementation of the audit findings were being addressed and monitored by the Operational Risk Committee at staff level and reported on to the Audit and Risk Subcommittee of the Energy Regulator to ensure compliance.

The Net deficit for NERSA for the year ended 31 March 2006 was R15.6 million. R30.9 million was collected as levies from the electricity industry for the period of 1 October 2005 to 31 March 2006 but no levies were received from the piped-gas and petroleum pipeline industries. Expenditure of R49.3 million was incurred and this was within the approved budget. Fees for services included AG Remuneration and technical consultancy costs for projects. It was pleasing to note that more than 50% of NERSA purchases were made through BEE companies. Total assets had increased to R47.8 million which was an increase of 8.4% from the 31^st of March 2005. The ratio of current assets to current liabilities was 6:1, which indicated that NERSA was a ‘viable entity as a going concern.’

In conclusion, NER formed a good basis for the establishment of NERSA. Electricity regulation existed since 1995 whilst hydrocarbons regulation was at its infancy. On the date of transfer of the assets and liabilities, NER was a viable entity as a going concern and the transition from NER to NERSA was being well managed. Cash flow mitigating strategies and (piped-gas and petroleum pipelines) levies collection mechanisms were being developed, formalised and implemented. Licensing in particular, was a challenge and staff recruitment, development, motivation and retention also remained challenging.

Discussion
Ms N Mathibela (ANC) asked how the issue of the payroll fraud was handled.

Mr Mokoena replied that the parties concerned were brought before a disciplinary hearing and were dismissed. A recovery process was then instituted to get back the money (about R700 000). The Commercial Crimes Unit was also investigating matter and the outcome thereof would lead to prosecution and recovery.

The meeting was adjourned.