National Energy Bill briefing

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Mineral Resources and Energy

07 May 2008
Chairperson: Mr E Ncgobo
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Meeting Summary

The Department of Minerals and Energy gave a preliminary briefing on the draft National Energy Bill. The formal briefing would be in June 2008 and it was hoped to finalise the Bill soon thereafter. Their intention with this early briefing was to give an indication of what the Bill aimed to do, as well as identifying some of the drivers of the Bill. The Bill essentially focused on energy security and was cogniscent of the fact that to make energy policy, one needed data and information. The Energy Bill established an Integrated Energy Modelling Agency to assist in the collection and analysis of data to develop an Integrated Energy Master Plan with a 25 year planning horizon. A briefing on the Electricity Distribution Industry Restructuring Draft Bill was cancelled as it had not been approved by Cabinet yet.

Comments from the Committee included concerns about the future of SA’s policy of free basic electricity for the poor, and references to bonuses paid to Eskom’s top management, the proliferation of government entities and globalisation ruining the country.

Meeting report

The Chairperson stated that it was hoped to finalise the National Energy Bill by July 2008 as it had been approved by Cabinet at its 30 April meeting. He noted that the Electricity Distribution Industry Restructuring Draft Bill had not yet been finalised in Cabinet.

The DME delegation consisted of Mr Nhlanhla Gumede (Deputy Director General: Hydrocarbons and Energy Planning) and Ms Tshilidzi Ramuedzisi (Chief Director: Energy and Planning). Mr Gumede pointed out that the briefing was only a preliminary one and that the formal briefing would take place in June 2008. The presentation was intended to give an indication of what the Bill was trying to do, as well as identifying some of the drivers of the Bill.

Mr Gumede said that there was a need to evaluate the impact of SA’s policies and to find alternative energy sources. The US was a major driver for the use of maize as a biofuel but given the soaring food prices in SA, maize was excluded from SA’s biofuel strategy. Maize could be put to better use as a food source.

The Committee was presented with data which showed how various factors impacted upon the DME’s strategies. For example energy security was not only about security of supply. There was a range of factors which impacted upon energy security such as foreign policy, demand management and climate change. Much of the data was presented graphically.

Mr Gumede explained that oil was the largest item that impacted upon SA’s trade balance. Traders were now investing in crude oil as a holder of value like gold and platinum. The increase in usage of diesel to generate electricity worldwide had caused the price of diesel to soar. The price of a commodity was now affected by other factors other than demand. SA’s electricity production capacity had run out. Eskom’s wholesale price for electricity was 3 US c/kWh. The current average domestic consumer paid 6 US c/kWh. The 3 US c/kWh difference between the price paid and the wholesale price was a tax payable to government. In order to make additional investments, one would have to add 5 US c/kWh to the price. The Bill essentially stated that to make any policy one needed data and information. It also set up entities in support of energy security: Integrated Energy Modelling Agency and the South African National Energy Development Institute (SANEDI) which would be created by using existing entities. He continued with a breakdown of the Bill chapter by chapter (see document).

Adv H Schmidt (DA) asked in as far as the purpose of the Bill, how was the industry and government facilitating the process. He also asked what was the status of the refineries to be built. Adv Schmidt referred to open and closed cycle gas turbines and asked if they were lumped together. He further asked for clarity on some of the presentation slides.

Mr Gumede said that the aim of the slides was to give the Committee an indication of how the DME had been informing its decisions without having data available. The Energy Bill was to assist in the collection of data and its analysis and dissemination. The Bill seeks to create an entity which would take figures and numbers and translate this into useful planning information. The intention was not to scare the Committee with all the figures that were given in the slides.

He said that there were two companies interested in building refineries. The first was SASOL and it hoped to have its refinery on-stream by 2014. The second was PetroSA, which intended to build a refinery for crude oil imported from South America. It usually took 4-5 years to build a refinery.

Mr Mthlaba (ANC) said that even though one’s policies might be good, challenges were often faced in their implementation. The persons involved in the crafting of the policy might not be around at the time of implementation. He referred to the production of biofuels versus the input costs to production and said that it was perhaps an opportunity for rural communities to jump on the bandwagon. High food costs were forcing rural communities to plant more. Mr Mthlaba asked whether the Department of Agriculture and Land Affairs formed part of the plan.

Ms N Mathibela (ANC) said that in rural areas, Genetically Modified Organisms (GMOs) were used in agriculture. The USA had introduced the use of GMOs yet they did not use these themselves. For example the corn that was stripped from a cob could not be replanted as was the case in the past. Farmers were now forced to buy corn seed every season. Commenting on rocketing food prices, she was shocked to see that a two litre bottle of sunflower oil cost R30. Globalisation had ruined SA. She pointed out that the USA was paying as little as $2 a barrel for crude oil in the Middle East.

Mr Gumede said that maize was used in SA as a source of food. It had been excluded from the biofuels strategy. It was sometimes easy to predict some of the increases in prices of certain commodities such as sunflower oil. He pointed out that sunflower oil was competing with diesel. He did not wish to comment on the prices that the USA paid for their oil.

Ms E Ngaleka (ANC) asked if the implementation of the Regional Electricity Distributors (REDs) would have a positive impact on the price of electricity. She asked why the presentation spoke about the price of electricity in US cents and not in rand cents.

Mr Gumede noted that REDs have indicated that municipalities need funding. SA had a R40bn deficit on infrastructure upgrade at municipality level. From where was the funding supposed to come? He noted that it was easier to use US cents but that rand cent value was easily determined by multiplying the given figure by seven, which was the current exchange rate.

The Chair asked if one entity was being replaced by another entity in the Bill. He wondered why what was contained in the Bill could not be set out in the form of a strategy. What was the need for a Bill? He felt it to be a welcome strategy to fill gaps.

The Chair made a comparison between Sweden and SA and said that SA had a tendency to create too many entities. This led to too much disjointedness. Sweden on the other hand had singular entities and was highly efficient. There was also greater co-ordination of policy.

The Chair said that government had a policy of accessibility of energy to the poor. Government had to intervene to ensure this. International markets should not be the only determinant of what the strategy should be. The Chair felt that the Bill must go hand in hand with the resolutions of the ANC ruling party. He said that if it was a strategy, one had to look at energy and all the relevant components, that is, SA is a developmental state and access to energy was paramount.

Mr Gumede said that previous entities had been created in terms of directives; the entities created by this Bill were in terms of legislation. These entities would be properly created and legalise the collection of data. The mandated party had to make difficult choices in a globalised environment. The reality was that SA existed in a global system. Some of the problems in Nigeria relating to the prices of liquid fuels were that there was no available information. The Bill seeks to address this very problem.

The Chair asked if it was correct that Qatar had the largest gas reserves. It was a concern that Eskom said that it lacked funds. Where did all of Eskom’s accumulated profits go? The Chair asked if funds were lacking, why were bonuses paid to the top management of Eskom?

Mr Gumede confirmed that Qatar did have the largest gas reserves and that SA was hoping to import gas from it. A solution needed to be found for SA‘s thermal energy problem. Solar was a possibility but the global solution for thermal was gas.

Mr Gumede said that he did not wish to comment on the Chair’s statements about Eskom. He did mention that Eskom was state owned and paid dividends to the state.

Ms Mathibela was concerned about the impending increases in the price of electricity and asked how it would affect the provision of free electricity to the poor.

Mr Gumede stated that there was a need to increase capacity. A possibility could be investment in base load electricity. A further possibility could be to reduce the tax on electricity. These were possible choices.

Ms Ngaleka asked who the main beneficiary of the Bill was.

Mr Gumede responded that the beneficiaries of the Bill would be widespread. Security of supply benefitted everyone. The beneficiary was generally the public. The biggest beneficiary however would most probably be government. The Bill was a data-driven strategy.

Adv Schmidt asked when the Committee could expect the briefing on the Electricity Distribution Industry Restructuring Bill.

Mr Gumede could not comment on when a briefing could be done.

The Chair responded that it would not be soon as the Bill was still stuck in Cabinet.

Committee Programme
The Committee finalised its committee programme.

The meeting was adjourned.


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