Future of Regional Electricity Distributors; City of Cape Town; Department Annual Report & Financial Statements 2005/6: briefing

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Mineral Resources and Energy

28 February 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

28 February 2007

Mr E Mthethwa (ANC)

Documents handed out:
City of Cape Town Report – Restructuring the Electricity Industry
City of Cape Town Briefing – Progress with RED1 and Way Forward for REDs
Presentation Annual Report 2005/6 Department of Minerals and Energy
Department of Minerals and Energy Annual Report 2005/6 (available www.dme.gov.za)


Audio Recording of the Meeting

The meeting was divided into two sessions. The first dealt with the way forward for Regional Electricity Distributors in view of the City of Cape Town’s perspective on the issue. In the second session the Department of Minerals and Energy presented their Annual Report and Financial Statements for the period 2005 – 2006. The meeting was a continuation of the Committee’s meeting held on 14 February 2007, a meeting the City had not attended. The Department’s Report was also an issue that had been carried over from the previous year.

Members asked questions about the non-payment of RED1 staff and for clarity concerning the City’s motives and why their position on the REDs had changed. Members made it clear that further deliberations regarding the future of REDs were needed. The Committee was not satisfied with the City’s unilateral decision to dissolve RED1.

In the second session, Members raised concerns about alternative sources of energy; decreased dependence on coal as a source of energy and its replacement by uranium; the implementation of the Nuclear Waste Management plan and mining and prospecting licences for the Camden Power Station was raised. Overall the Committee was satisfied with the Department’s performance and Annual Report.

City of Cape Town Briefings
The Chair reminded those present that the meeting was a continuation from the previous meeting held on 14th February 2007. He invited Councillor Ian Nielson and his colleagues from the City of Cape Town to give their presentation on the state and future of REDs. He mentioned that other stakeholders such as Eskom and RED1 had presented to the Committee in the previous meeting.

Councillor Nielson, the Mayoral Committee Member for Finance, introduced the City’s representatives, Councillor Lionel Roelf (Mayoral Committee Member for Utility Services) and Ms Louise Muller, the Director of the Shareholder Management Unit. He apologised that the City had not attended the previous meeting. This was attributed to miscommunication amongst the City’s representatives. The City’s presentation would consist of two parts. The first would be presented by him and would be a broad overview of Electricity Restructuring. Ms Muller would then present on the issues surrounding RED1 specifically.

Broad Overview of Electricity Restructuring
Councillor Nielson asked why the process of Electricity Distribution Industry (EDI) restructuring had become such a protracted process. Analysis of the issue required that the Constitutional framework for Electricity Restructuring and for Local Government financing be understood. If these frameworks were understood, the difficulties of restructuring would be better addressed.

Councillor Nielson mentioned that Electricity Restructuring had taken place across the country at the Local Government level. Prior to 1995 local electricity authorities had been small and existed in isolation because some rural land was not part of Local Government. Post democracy, wall to wall municipalities across the country had been established while Local Government had been consolidated into much bigger units. The Constitutional plan for Local Government was based on the idea that benefits would flow through larger municipal entities. As such the Local Government area of electricity supply had been consolidated into bigger and more functional units, especially in the metropolitan areas, through which many benefits had accrued mostly to the poor.

He could not speak on behalf of other municipalities but in Cape Town, users who consumed less than 450KW hours received 50KW hours free per month. Such benefits would have been impossible outside of the current form of Local Government. The benefits were however confined to areas where the Municipality supplied electricity. Eskom had not been able to provide these benefits especially in the rural areas where municipal pockets were small and not linked to Eskom; in fact Eskom had been given subsidies by Local Government for electricity supply in some areas.

The Constitutional plan was a package deal that saw larger units at Local Government level that allowed new areas to be explored, for example amalgamated budgets, life employment and a better paid yet broader range of staff, which intended the municipalities ran more effectively. The effect of removing a significant portion of the total package such as electricity would affect the overall viability of the rest of the Local Government package. He emphasised that Local Government had to be understood in terms of this process.

He noted some sources of Local Government financing such as property rates although from 1st July 2006, the City of Cape Town had lost Regional Services Council (RSC) levies as an income, which loss was in the region of R1 billion. National Treasury had temporarily supplemented the loss. Property rates provided a significant income but were poorly linked to economic growth rates and did not translate into real benefits. On the service charges, water was a static service and because South Africa was a water stressed country the City continued to implement reductions on water consumption. Water supply did not yield overall benefits, a phenomenon for all Local Governments, and as Local Government expanded income from water supply would decline. Sewage also posed a financial challenge because of the high costs of treatment. A great deal of investment into the administration and control of sewage was needed so that the quality of the service could be improved upon. The associated costs for the country’s expectations and needs to be met with regard to sewage were high. In the case of solid waste disposal there were difficulties faced to generate the required income because significant funds were required for disposal sites.

As such electricity remained the only significant source of income for Local Government because it contributed to economic growth and provided a return on the initial investment. Growth in the electricity sector came about with electricity being supplied to an area where there had been none before. Only through the sale of this electricity, general tariffs on electricity, and investment in electricity were significant returns made while investment in other services such as roads etc. did not yield returns. Local Government was faced with the difficulty that the circle of investment into services was closing mainly because they had limited income-generating ability. This meant that electricity was the key means through which to get money back into Local Government coffers.

There were direct parallels between the City’s financial structures and those of other electricity supply entities like Eskom that would have been shown in their presentation because the organisations had some of the same challenges in common. There were two ways that these structures could be analysed. One was a vertical view that looked at the whole electricity industry and another was a horizontal view, focused on Local Government. Some areas of commonality were the size of the organisation, efficiency, financial size, asset size and the ability to go out into the market which would become difficult if a chunk of the business was taken away. The one difference between the electricity companies and Local Government was that the municipality did not see a surplus from the electricity sales as belonging to business but to Local Government as a type of energy tax. In the same way that surplus income in the fuel industry went into the National Fiscus, surplus income from electricity should be directed into the Local Government Fiscus so that its core activities could be funded.

The City’s stand point was that there was a choice that had to be made. Either the constitutional route would have to be taken where a broad package that ensured self funding would be adopted or the narrow industry route that went against the Constitution; this route meant that electricity supply must be downsized. If the second route were opted for it would be absolutely necessary that Local Government funding be completely reorganised before any changes were made in order to prevent serious financial difficulties for Local Government. The funding issue was not the only important one to Local Government; a crucial aspect was ownership and control of electricity supply. The implications for spatial and economic development if control over some responsibilities and services were relinquished were very negative. The City’s stance was that public entities were not the best option for EDI restructuring.

Progress with Regional Electricity Distributor One (RED1) and Way Forward for Regional Electricity Distributors (REDs)
Ms Muller began her presentation with a background to RED1. She detailed the history of how it came into existence as well as its makeup in terms of staff and Board Membership.

In terms of functional arrangements RED1 was appointed the City’s service provider for electricity reticulation but there had been no transfer of assets and staff and as such electricity supply in Cape Town had remained “a ring-fenced internal business unit” with no municipal functions being carried over to the RED. In addition all of RED1’s funding came from the City in the form of a management fee owing to the oversight role played by the City in electricity distribution.

At a meeting on 28 August 2006, a mandate previously issued by the Council that the City of Cape Town acquires RED1 was confirmed. A Cabinet decision on 25 October 2006 approved the creation of six REDs and that they be established as public entities under the auspices of the Electricity Distribution Industry (EDI) Holdings (Ltd). These entities would be accountable to the Ministry of Minerals and Energy. Ms Muller noted that following Cabinet’s decision, the City of Cape Town sought legal counsel because contradictions regarding the City’s role had been identified in the two documents of 28th August and 25th October. In a Council Resolution of 7 December 2006 it was decided that contractual arrangements with RED1 would be terminated on 31 December 3006. It was noted that the Council remained willing that the issue be negotiated.

Following the Resolution the City had lodged an application to take back RED1’s electricity distribution license from 1 January 2007 and the presentation outlined the basis of this application. The City as the main shareholder of RED1 had requested a meeting with RED1 directors. A Mayoral Committee meeting held 23 February 2007 concluded that RED1 be voluntarily wound up. The City maintained that a public entity was not a viable vehicle to provide municipal services. Senior Counsel supported this stance and the only viable way forward would be a change in the Constitution with regard to the City’s service delivery role. The way forward for EDI restructuring was to clarify the constitutional and legal obligations of Local Government.

The Chair stated that the whole process of EDI restructuring was a presidential project since the President referred to it in his 2004 State of the Nation Address. It would therefore only be fair that concurrence be sought from RED1. RED1 had an opportunity to respond to the issues and criticisms of the restructuring process raised by the City and then Members would contribute.

Mr Saleem Mowzer, RED1 Chief Executive Officer (CEO), restated the work RED1 had undertaken since 1st July 2005. Cabinet had chosen RED1 as a pilot RED to restructure electricity distribution. RED1 developed a three-year business plan which included operational strategies, vision and mission plan as well as financial budget. Due diligence had been undertaken in several areas as well as a Transfer and Migration Policy for transfer of assets from the City to RED1. Given the operational agreement between the City of Cape Town and RED1 when confronted with problems at Koeberg and power outages, RED1 worked in a co-ordinating role with the City. RED1 had also entered into agreements with the City and Eskom to supply free basic electricity in Cape Town. For the first time, free basic electricity was provided to communities in Eskom supply areas.

The asset transfer framework had been presented to the City but was yet to be promulgated and National Treasury was expected to have it ready by June 2007. Thus staff and asset transfer had not happened. The City agreed to a systems strategy implemented in July 2006 but the City had not been willing to give RED1 the funding despite the fact that RED1 had adhered to all the stipulations of the Municipal Financial Management Act. RED1 was committed to improving business strategies. Some of the work they had done included work towards Rationalisation of Tariffs for the City of Cape Town customers. They had also been involved in two National Energy Regulator of SA (NERSA) audits and had been preparing for the assets and staff to be transferred. In May 2006 the City had notified RED1 that its existence would be reviewed. After the 25 October Cabinet decision the City decided RED1’s license would not be renewed and a request was made that RED1’s licence be revoked by NERSA. No business had been transferred from the City or Eskom to RED1 and given that there had been no agreement that EDI Holdings would take over RED1, RED1 would be wound up.

In Ms Phindile Nzimande’s, CEO of EDI Holdings, response to the City she agreed with the City that indeed consolidation of Local Government had achieved some economies of scale but National Government did not view it as sufficient. In terms of the overall National Growth Strategy the fragmentation of the industry had hampered progress. Local Government revenue protection was a fundamental stipulation in the EDI restructuring blueprint. A surcharge had been calculated by EDI Holdings and factored into the REDs cost structure which ensured they remained viable. The REDs would be able to pay the existing surpluses Municipalities took out of the services and would ensure the Municipalities remained viable. These and other services would not be compromised.

National Treasury had been working on a Bill called the Municipal Finance and Fiscal Powers Bill in which Local Government’s right to tax services would be entrenched and thus Local Government revenue would be protected. EDI Holdings had worked on a proposal for a Municipal Compensation Package; this package ensured sufficient compensation for Local Government’s standard costs if electricity supply was taken out. Credit ratings were based on proper general and financial management of an entity and not its size. The proposed EDI restructuring process dealt with the issue of Local Government control in terms of the Service Delivery Agreement outlined in Section 81 of the Municipal Systems Act which allowed certain rights over its entities or entities which operated within its space. The understanding had been that Local Government would have structured control over the REDs as time went on. With regard to constitutionality, although Local Government was given the mandate to ensure service provision, it did not necessarily mean the service had to be performed by Local Government. It was suggested that the Constitution be interpreted that Local Government had the imperative to choose service providers. This would enable REDs or other private sector entities to be chosen as service providers. Therefore issues of ownership and control could not hinder EDI restructuring as Local Government could select providers. In fact EDI Holdings had also obtained legal opinion that indicated that REDs as public entities would not necessarily undermine Local Government’s ability to provide services. An optimal solution would be that the Constitution should be re-evaluated.

The Chair asked the Members to respond.

Based on the City of Cape Town’s argument that the income generated from electricity would be insufficient, Mr J Combrinck (ANC) wanted to know the amount of money the City made from electricity sales and if there was a big difference between how much they currently made and how much they would get from Treasury. If the difference was not big, why was the City stalling the process; was it a political issue?

Advocate H Schmidt (DA) commented that the legal position seemed unclear, and developments at EDI Holdings presented numerous ways to take the issue forward. In light of the fact that nothing appeared to be finalised, more deliberation had to take place. He asked if RED1 staff and Board Members had been paid.

Mr E Lucas (IFP) was concerned about financial dependence on electricity sales. He wanted to know how the Municipalities’ other services would have been financed had electricity not been available for sale. Was it therefore fair to be paying such high tariffs for electricity so that other services could be subsidised? The City had initially agreed to the REDs; what constituted their sudden change? He found it odd that having agreed to the pilot process the City had sought legal counsel that explored loopholes in the Constitutional mandate. Why had they done this? Did they have a political agenda? He urged that a middle road solution be found because if the issue became one of Constitutional amendments, the entire issue would be rehashed. The issue should be approached as a national one and not simply as one that applied to Cape Town.

Mr S Vundisa (ANC) commented that the City was unclear about its intentions with regard to asset transfer. He wanted clarity with regard to Recommendation 12 of the Blueprint for Asset Transfer and evaluation of assets as well as Recommendation 4 which dealt with compensation for asset transfer. It seemed the City was beating about the bush, and seemed to have used the Constitution as a means to avert and/ or sabotage EDI restructuring. The City needed to be clear on their position with regard to EDI restructuring.

Mr S Louw (ANC) said the process of EDI restructuring reflected Cabinet’s desire that equality for all be ensured. He emphasised consideration of other stakeholders, like the poor. RED1 was a pilot project and in his estimation had not failed to deliver on any agreement that had been signed. The problem with the RED arose in 2005 when there was a change in Municipal government and as such RED1 became the victim. There was a need for unanimity in order that the country moved forward. The numerous rights enshrined in the Constitution should not be abused. Mr Louw said he was shocked to learn that the whole issue was about the approximately R400 million that had to be shared between the City and RED1. The City needed to consider carefully their contribution to the future of South Africa and the plight of those who had never before had electricity.

Mr W Spies (FF+) requested clarity on the City’s equating EDI restructuring to redistribution and helping poor people. Was it possible to electrify impoverished areas and had the city done so in the last five years? Secondly had any of the parties considered taking the issue beyond an advocate’s advice to the Constitutional Court for a declarative of some kind? Thirdly, if payments had been made to RED1staff were they once off payments or had sustainable agreements been arranged with regard to their futures?

Councillor Nielson responded that (i) Finance was a key issue that appeared in different forms. One form was the R400 million surplus that had been mentioned while another was overhead costs dispersed into accounts controlled by the City. (ii)The ability to control development was key to the City. If control were relinquished to an entity that possessed its own authority, the City would lose its ability to control spatial and economic development. (iii) Members mistakenly thought the City followed a political agenda on the issue. The City changed its stance on REDs because the Municipal control of REDs would be lost in a change from Municipal Entities to Public Entities. The decision simply did not take Local Government into account. (iv) Contrary to Members’ beliefs the City was dedicated to redistribution and uplifting the poor. Approximately R600 million in free basic services were being given per year. (v) The City’s main priority was to serve the people according to its Constitutional mandate as such finances needed to come from the National Fiscus and not service and property rates as these were unsustainable. The City regarded its Constitutional mandate highly and would not use the Constitution as a stumbling block. The City needed to have control of service delivery and Local Government needed to be free to make decisions that enabled service delivery. (vi) There was no view that the Consitutional mandate was unclear but rather that EDI restructuring needed clarity. The City did not want to go to the Constitutional Court but preferred dialogue. (vii) The outstanding salaries of RED1 staff had been paid. The issuing of payments had required that the RED1 Board agreed to a supplementary budget and since the RED was to be wound down, termination of contracts would be subject to negotiations.

The Chair interjected and asked when exactly the RED1 staff had been paid.

Councillor Nielson replied that a decision had been made on the 13th February 2007 and payments effected on 14th February 2007.

Mr C Molefe (ANC) felt that questions related to surcharges had not been sufficiently answered. The City contradicted itself because though they claimed to be dedicated supporters of service delivery, a decision had already been made to wind up the RED. Since the project was a pilot project with many partners including Parliament and Eskom, why had the City taken a unilateral decision and singled itself out? He urged that valid reservations to the process not be used as impediments to the process at large.

Ms D Seadimo (ANC) sought clarification on the issue of payments and asked if there was truth to the report that RED1 staff had not been paid for 18 months.

Mr C Kekana (ANC) was confused by Councillor Nielson’s presentation of the conflict and how it had been dealt with. In terms of the salaries payment it appeared the City had to first be pressurised before payments could be made. This set a bad precedent and meant political games were being played. Such games posed problems for democracy and the developmental state that South Africa was and in these kinds of power plays ordinary people bore the brunt and suffered.

Mr Vundisa charged that the City had not been honest with the Committee and that protection of Municipal Revenue was spelt out in the Blueprint. It was clear that the City was highly concerned about the R400 million.

The Chair invited RED1 to make their closing remarks.

Mr Mowzer stated that most issues had been dealt with at the 14th February meeting. The City had decided to wind up the entity and communication of the move would be made to RED1 Board and staff. He thanked the Committee for their assistance and noted that they had worked well with Members and the Department of Minerals and Energy (DME). EDI restructuring however remained a fundamental priority for National Government and all parties needed to remain dedicated to its achievement.

Councillor Nielson clarified that the staff had been fully paid in the lifetime of the contract; January and February were the months in question and this discrepancy had been caused by the need to adjust the budget. The City had waited for RED1 to carry out the adjustment and had to do so in order that correct procedures were adhered to according to the Municipal Financial Management Act.

The Chair noted that the information concerning payments given by Councillor Nielson was different from that communicated by RED1 at the previous meeting. He would take particular exception with RED1 if they had misled the Committee into believing the City had not paid staff Members and an apology from RED1 would be required.

Mr Mowzer replied that he respected every office of government and would never lie to Parliament. At the time of the previous meeting staff had not been paid. At two meetings with the City, RED1 had been informed that salaries would not be paid as agreements between the two entities had lapsed and payments would only be made up to the 31st December 2006. This was contrary to an approved three-year budget that made room for payment of salaries up until June 2007. The issue of budget adjustments arose at a later stage. The Mayor then got involved and declared that the staff of RED1 be paid and this was eventually done on the 16th of February before which a budget adjustment for salaries and a supplementary budget for outstanding creditors etc. had been agreed upon by the Board.

Ms Nzimande added that although agreements had lapsed on 31st December the City had given the Board instructions which could only be carried out with the assistance of management. The Company continued to exist and addressed issues way beyond the confines of the lapsed agreements. This meant that as long as the Board continued to exist all the previously approved budgets and documents remained valid and only when the Board was discharged would all documentation revert back to the City. The Committee had been notified of non-payment of salaries on that basis.

Councillor Nielson said that the City and RED1 had a difference of opinion regarding procedural issues. The City wore two hats; one being the sole shareholder and owner of RED1 and the other as the contracting party. Budgets prior to termination of agreements had been drafted with the understanding of the City as a contracting party. Upon lapse of the City as a contracting party these new circumstances meant new budgets had to be drafted that considered the City as the Shareholder supporting the Company. However, despite the differences of opinion, the salaries had been paid. With regard to payment of Board Members, these had not been paid since July 2005 because Council had not approved their salaries. The salaries were since approved and the Board Members would be paid dating back to July 2005.

In answer to Mr Molefe, he said the City had to fund RED1 alone. Eskom had financial difficulties that prevented their involvement with the RED1 pilot. Funding sources had to be secured in order that the Municipality retained ownership of the RED. The City was more than willing to discuss a way forward for restructuring that ensured Municipal control. The Committee were invited to look at Cape Town’s Local Government financial situation. The financial situations of Local Government’s countrywide were critical so the City could not be accused of dishonesty. Electricity outages in the city had not been because of the City’s distribution system and subsidised electricity supply exceeded R500 million for the City of Cape Town. The Department of Water Affairs and Forestry (DWAF) had sent a letter to the City that informed them that they would not supply the City with water from the new Berg River Dam despite the City’s funding of the dam. This was because DWAF said the City had not adequately dealt with issues that pertained to water treatment.

The Chair outlined a way forward and noted that the City had raised gaps concerning legislative frameworks that enabled processes such as asset transfer or EDI restructuring. The Committee would have to call the Department and the Treasury to discuss how the process would be facilitated. Members were reminded that when restructuring was announced in 2004, 2007 had been flagged as a deadline to discuss the final stages of the REDs process. There was a need to remain committed to this.

The City had not raised any new points not included in the Restructuring Blueprint regarding finances. The issue of funding was a recurring issue which had been previously dealt with. Ms Muller mentioned the Mayor’s reference to unpreparedness and unwillingness on the part of the new leadership. Was she referring to the new Cabinet installed on 25th October; she needed to clarify?

There would be no transfer of assets from the City to the RED because the Executive branch of Government had not decided on the model of transfer by the 25th October 2006. This meant that though the City had initially agreed to the process, there was a particular sentiment by the City that they had not communicated at the time for the sudden change to have happened. Fragmentation in the industry had to be done away with. Mr Spies had made a philosophical statement in the previous meeting about tampering with the Constitution as a last resort. Upon further reflection this seemed to give truth to the notion that the process had been undermined. Sections 152 and 156 of the Constitution when read in conjunction with Section 155(7) revealed the possibility to interpret the duties mandated to the City.

The Chair had reservations about the veracity of what had been presented to the Committee. He assured those present that the Committee would sit on the necks of all involved; the majority of the population needed electricity supply. If the notion of a ‘voluntary’ decision meant that parties would thwart or frustrate processes that ensured this, then the term would be reconsidered.

Department of Minerals and Energy Annual Report 2006
The Chair reminded Members that the report being dealt with should have been considered in September of the previous year but other pressing Committee business had made it impossible.

Director General of Minerals and Energy Presentation
The Director General (DG), Advocate Sandile Nogxina, tabled the Department’s 2006 Annual Report and noted that some data was outdated as they were already ten months into the new year. He gave the Department’s performance overview and highlighted plans that involved the widespread and comprehensive support of SMMEs. 2005/6 also saw the Department implement three pieces of important legislation: the Minerals and Petroleum Resources Development Act (MPRDA), the Petroleum Products Amendment Act of 2003 and the Petroleum Pipeline Act also of 2003.

The briefing on the Mining sector dealt with the Mineral Regulation Branch and the challenges faced in industry regulation, application processing and dealing with backlogs. The Department had paid attention to Small Scale Mining as part of rural upliftment and job creation projects. The DG also touched on the Department’s international obligations, women’s empowerment in the industry and the industry’s safety performance.

With regard to energy, the DG addressed the Integrated National Electrification Programme (INEP), free basic electricity and its link to EDI restructuring, security of electricity supply and briefly commented on the interruptions in the Petroleum sector. The report dealt with hydrocarbon and energy planning, and looked specifically at petroleum licensing and enforcement, petroleum and gas operations, renewable energy linked to energy efficiency, the security of liquid fuels supply, Black Economic Empowerment (BEE), the National Nuclear Disaster Management Plan, radioactive waste management policy and strategy and finally the physical security of nuclear installations.

The third section of the presentation addressed the Department’s policy implementation initiatives. Several Bills had been submitted to Parliament and were being reviewed. On a Departmental level, Human Resource Management had come under scrutiny, the 2005/6 financial performance of the Department had been considered as well as oversight of state owned entities.

Mr L Greyling (ID) had several questions. He asked: (i) When the draft of the Integrated Energy Planning Bill would be presented to Parliament. Since the Bill had been sent back for revisions, he wanted clarity on progress made. (ii) Had the study on externalised costs of electricity been done? (iii)The DG had referred to the gas turbines in Atlantis, could he clarify whether these were gas powered or diesel powered turbines? (iv) At the World Summit on Sustainable Development, a commitment to a 10% reduction on coal dependence by 2012 had been made. Mr Vali Moosa, Chair of Eskom had also reiterated this commitment. What progress had been made in this regard and how did the Department plan on achieving the goal? (v) How many schools had been electrified in view that the number of unelectrified schools stood at about 4500? In KZN there was a school that had raised its own funds for electricity but had had no feed back from Eskom. The school had since waited for electrification for a year and a half. How was this possible? What was the position of off grid electrification and why had Eskom appeared reluctant to implement it? Was it a cost related issue? (vi) With regard to Integrated Energy Centres (IeCs) how far did their reach extend? Mr Greyling had seen a man in the Eastern Cape who had put solar power in his hut but had no support. Had a list of IeCs been made available because far more information dissemination was required? (vii) What was South Africa’s position with regard to Uranium Enrichment and was it economically viable?

Mr Combrinck commended the Department on the Report. He wanted to know why revenue had increased from R6 million to R79 million. Why had debts of R894 000 been written off and was there a policy in this regard? Typing and calculation errors were noted.

Mr Spies referred to the country’s power crisis. The television documentary series Carte Blanch had featured Camden Power Station. He queried the delay in Camden’s mining licence being processed. While all other power stations in South Africa had been built near coal mines, Camden had not and coal was transported to the station by road. There had been numerous knock on effects, for example environmental degradation and health defects all linked to the supposed delayed mining licence. Could the Department comment on this delay?

Mr Louw did not share Mr Spies’ sentiments that there had been delays in mining licences being processed. He commended the Department’s process. He had attended a meeting where the South African Chamber of Mines had expressed satisfaction with the process. He wondered whether there were issues of compliance on Camden’s part. Could the Department explain the task team’s findings in Camden’s licence process? Clarity was needed with regard to BEE compliance in the Liquid Fuel Industry, what were the details of almost R400 million being given to BEE firms? Why were the BEE firms benefiting from this money in the mining sector and not the core business of Liquid Fuel industry; the crude sector? Companies that had presented to the Committee were mostly marketing sector companies. He expressed shock at the discovery that a major player in the crude field only had two BEE Shareholders. The situation was unacceptable. The Auditor General’s Report needed to be tightened and better presented.

Mr Lucas addressed challenges to the Small Scale Mining sector first. There was a gap between a mining and prospecting licence being obtained and financing seemed unattainable. Secondly South Africa had a large coal endowment, how could new technologies that minimised pollution in burning coal be incorporated in the industry? Third, a great deal of education had to be done in terms of nuclear waste management. A fourth issue was the refinery in Durban that was uncooperative because of its monopoly and as such caused problems in the industry. Transformation in the fuel industry was far from where it needed to be and this needed to be taken up by the relevant Departments and Institutions.

The Chair said the 19th and 20th of March 2007 were earmarked for Committee visits to individual fuel companies, Sasol on the 19th and Shell on the 20th.

Mr E Ngcobo (ANC) stated that there were serious issues surrounding waste management policies on a broad scale. Examples of Scandanavian countries that had done well with waste management should be noted. As such there was an urgency to circulate the Waste Management document. It was positive that there was a Nuclear Disaster Management Plan but Members had to know exactly what it entailed. There was a need to see the establishment of a Nuclear Energy Research Institute which coordinated issues related to energy. Although the South African Nuclear Energy Research Institute (SANERI) existed there was confusion as to its objectives. Initially it was to be housed in the Central Energy Fund (CEF) but was presently housed in the Department of Science and Technology (DST) in Sandton. Either a new institute needed to be formed or SANERI had to be separated from CEF as it had no research component. The Council for Scientific and Industrial Research (CSIR) used to do this kind of research through the National Institute of Science and Technology but it had been an issue beyond their scope. The Bio-fuel strategy was one that could benefit from a Research Institute. Lastly care had to be taken when the Annual Appropriation Bill was under consideration. It should not be assumed that the total tabled of R2, 2522 billion had been spent in its entirety as budgets disseminated did not always match the output of that entity.

The Chair clarified that on the issue of Radioactive Waste Management, the Committee had a policy on which expert opinion would be sought once Members had revisited it. He asked if Eskom’s energy efficiency issues from the previous year had been resolved.

Mr Greyling asked if Energy Efficiency Plans were underway. He wanted to know if funds that had been made available through Eskom had been transferred as Energy Efficiency groups had not as yet secured the said funds from Eskom.

Professor I Mohamed (ANC) confirmed that a nuclear waste policy existed but how was it being put into action? When he had asked the individual in charge of Nuclear Waste at DST regarding waste he had responded that waste could be disposed off in any mine dump which reflected a serious lack of understanding of the policy. Such behaviour was evidence that the policy needed to be better understood and implemented.

The DG referred to the White Paper that guaranteed that energy sources would be diversified in order to fall in line with sustainable development goals and to see a reduction in the dependence on coal. In addition reliance on environmentally unfriendly carriers and providers had to be excluded from the country’s energy needs. The Department had not implemented their Integrated Energy Plan for a number of reasons such as power outages, Kyoto stipulations, and difficulties associated with moving from coal dependence. This was particularly difficult because a large percentage of South Africa’s energy and petroleum products were derived from coal. As a result there were major socioeconomic implications on employment etc. that had to be considered if coal was abandoned. As such the Minister of Minerals and Energy had referred to uranium as a source of energy. Value needed to be locally added to the country’s reserves. Programmes were being developed for new strategies for dealing with coal especially in view of the worldwide shift to nuclear energy. This shift also held implications for South Africa’s uranium endowment in terms of the increased prices for the mineral facilitated by increased demand. A strategy with regard to uranium, the Uranium Enrichment Plan, would be presented to the Committee and the DG predicted a decreased use of coal in favour of renewable energy or bio-fuel.

With regard to Camden Power Station, the DG noted a trend where managers blamed the Department for areas where they themselves had failed. If Camden previously had a license, said licence would still be valid and the procedure in this case was to simply convert from an old order mining right to a new order. Had the mine applied for a completely new licence this meant they had applied for a prospecting licence that permitted them to explore the area and make any discoveries public. However, there was no record of an application lodged with the Department and therefore Camden was using the issue of a license as an excuse for lack of progress.

The Chair emphasised to the DG and his Department that the Camden issue needed to be seriously followed up and the licence issue be clarified especially because the matter had been publicised.

The DG assured Members that once the name of the company that had lodged the application was ascertained questions that concerned the nature of the application, when it was lodged and by whom would all be resolved. The Company in question was said to be Eskom Mining. A member of the Department delegation interjected that Eskom applications for conversion had been finalised and two of them approved. There had also been many rejections of Eskom’s applications and correspondence to this effect had been sent to them.

The DG said there had been two matters of emphasis in the Auditor General’s report. The first was the issue of asset management which had been affected by the migration of Government Departments into logging which at the time of the Report the Department had yet to convert to. As a result a spreadsheet system had been developed that allowed for better accounting mechanisms. The reason the accounting system had been an issue was because the Report was for the previous financial year where the system had not changed; the current system was different. The second issue was the 30th September 2003 date of asset transfer to the Lebowa Mineral Trust. Here the mistake had been putting the date of transfer into law because this meant all parties had to comply and had been bound by the date. However, there were other laws related to the transfer of money from one entity to another through the Public Fund Management Act (PFMA) that required compliance with certain administrative regulations by the receiving entity. As a result of working with the Treasury and the Limpopo province on the issue, the money had since been transferred and was in the possession of the National Treasury.

The current regulations referring to crude oil confined importation of it to a limited number of refiners. The Department wanted these regulations changed so that any South African could participate. It was however necessary that the refiners participated because value addition had to be done. Lots of work needed to be done in the Small Scale Mining sector and this sector was affected and/ or related to more than just the Department of Minerals and Energy. Other Departments needed to be included as well as small BEE entities that normally ended up selling their rights and shares to larger firms because of financial challenges. The Minerals and Energy Laws Amendment Bill had set a new precedent that allowed petroleum companies to be brought to book by the Department. Hence in the case of the Durban Refinery mentioned by Mr Lucas, they would be brought to book.

Ms Nellie Magubane, the Deputy Director General for Electricity and Nuclear Energy, said that the Atlantis power station was powered by diesel although the future plans involved gas feedstock. The Department was currently focused on the roll out of gas infrastructure for use in the medium term. It was reported that 1650 schools had been electrified, 1152 on a non-grid system and 498 on a grid system. Although the costs associated with grid electrification were very high, schools and clinics remained an energy priority. Once the grid was installed, the spin-offs would be electricity supply for an entire village. Ms Magubane requested the details of the school in the Eastern Cape so the issue could be followed up. Although her colleague expanded on IeCs, it was noted that communities needed to be educated about solar panels. Another problem was that where support for solar energy users could not be found, the likelihood was that an IeC had not expanded to that area. In such a situation the details of the specific situation were required.

It was explained that the process of Nuclear Waste Management was complicated but the policy was very specific about disposal. Education and training around the issue was needed as well as confirmation of the structure for disposal. A proposal had been submitted for an Educational Institution at SANERI and a corporate plan had been submitted to the relevant parties. The plan however omitted nuclear energy as it was part of the Nuclear Energy Corporation of South Africa’s (NECSA) jurisdiction according to the Nuclear Energy Act. Committees were established to deal with the Nuclear Disaster Management Plan and oversaw the Koeberg and Pelindaba sites. The necessary documentation would be made available.

Mr Nhlanhla Gumede, the Deputy Director General for Hydrocarbons and Energy Planning, said that the Department was in the process of developing the second Integrated Energy Plan (IEP) which included several areas although they were being developed in isolation. A blueprint for the short and long term of the IEP would be developed which considered the security of supply plan to the supplier. With specific regard to Mr Greyling’s question about gas versus coal, the plan would deal with the issue. The development of the plan would be facilitated in terms of projects and a first draft would be submitted to Cabinet in July. Thereafter these plans would be submitted on an annual basis and would take into account what had transpired in the previous year. The Externalised Cost Study on electricity supply from coal had been postponed owing to limited scope. The scope had thus been expanded and results would be published in the coming year. National Treasury would still fund the study.

Mr Greyling asked when the study would be completed.

Mr Gumede said because the terms of reference had changed it would be completed in the coming financial year. He continued to address the IeCs list and said it would be made available to Members. Energy had not been represented at the regional level and plans to expand energy representation regionally had been undertaken and the aim was to change the way communities participated in energy. The Liquid Fuels Charter had initially been a voluntary charter and so had posed limitations. However, since the Petroleum Products Act had come into effect in 2006, the Charter had become obligatory and BEE would soon materialise. Definitions of new and clean energy technologies had been renewed and efficiency in new technologies was being looked into. SANERI fell under CEF and had to be considered in terms of the Energy Bill; yet to be finalised, which determined the creation of entities in the sector.

A member of the delegation mentioned that the queried amounts of R6 million and R79 million were an accounting issue. He referred to note 15 which reflected that in fact the amount had decreased from R86 million to R79 million. The initial amount given to the Department by Treasury had been R80 million. A further R6 million had been requested but in the end only R79 million had been utilised. The Monitoring of Public Entities was being carried out in terms of the Public Finance Management Act (PFMA) and the Division of Revenue Act (DORA). In respect of the transfers the Acts clearly laid out the Accounting Officer’s responsibilities.

In his concluding remarks the Chair noted that if 2010 energy provision targets were to be met, relevant strategies that enabled this were needed. He observed that 20 to 30 year projections on the demand for uranium showed an increase and although South Africa was fortunate to have the resource there were issues around its depletion that had to be considered. Verification had to be sought on the Camden issue or the Department would answer to the Committee. The Committee would visit oil companies during the month of March. Progress needed to be made on the Diamond Bill and a way forward would have to be sought within all portfolios, the Executive, the Legislature and the Departments. Very importantly the Committee had to look at ways in which the mineral wealth of the country could be used to diminish impoverishment as diamonds had. South Africa’s mineral wealth had not been used to its maximum effect.

The meeting was adjourned.



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