Department of Minerals and Energy 2008/9 Strategic Plan

Meeting report

Department of Minerals and Energy (DME): Strategic Plan 2008/9
Adv Sandile Nogxina, Director General, DME, summarised the key focus areas of the Department. He noted that last year there had been a challenge in presenting output based plans. The balanced scorecard approach had been adopted this year at the planning stage to ensure harmonisation between the Strategic Plan and Annual Report. The integrated planning process had taken into account a number of issues, including what the customers expected and what could be achieved. The overall plan would not highlight desired outcomes as these would be apparent only in the years to come.

The DME was aware that it would be a short parliamentary year and therefore only some Bills were prioritised. The main pieces of legislation related to Mine Health and Safety , Electricity Industry Restructuring, the National Energy Bill and the Radioactive Waste Management Agency. The Electricity Distribution Industry (EDI) Restructuring Bill had gone through Cabinet and was still in the process.

Adv Nogxina noted that recently many financial and human resources had been expended in facing the energy challenges. The public was expected to change their behaviour patters and the energy saving campaign would continue, in the hope that this would inculcate a culture of energy saving. An energy summit had taken place the previous week. The Department was finalising a strategy and the Minister would elaborate on this in her budget vote speech. The discussions around pricing had been robust, but had provided an opportunity to identify gaps. Electricity was key to the economy and any price increases must be treated with sensitivity and involve full consultation. The determination on pricing had not taken place in a policy vacuum; the policy would set a clear framework, achieve an appropriate balance and create certainty and transparency.

There had been fears about the impact of the power shortage on the Integrated National Electrification Programme. The funding, however, was ring-fenced and none of these funds would be channelled outside this Programme. All clinics last year were electrified. 149 212 households and 176 schools were connected. There had been some shortfalls in finalising connections due to administrative problems. The targets for 2008/9 included 2 500 schools, 150 000 households and 10 bulk infrastructure stations. The major challenge was that 80% of households in rural areas did not have bulk infrastructure. The Free Basic Electricity (FBE) would be refined and be better targeted. Adv Nogxina stressed that the 2010 projects were not under threat. The DME would ensure that South Africa had sufficient supply for this event.

Adv Nogxina noted that a study had been undertaken to ensure security and supply of liquid fuels. DME was implementing the recommendation of the studies, and the project focused on the entire value chain. The diversification of the energy sector remained a huge challenge for the fast-growing economy. The importance of Independent Power Producers (IPP) could not be over emphasised.

Energy efficiency was well set out in the National Energy Response Plan (NERP) and the DME was geared to ensure increased supply and use of cleaner energy sources. It was developing implementation plans for the licensing criteria and financing mechanism. There would be acceleration of the Renewable Energy White Paper and DME would host a Renewable Energy (RE) Summit. It had achieved a target of subsiding 3 projects to the value of R5 million. The Darling Wind Farm power project would be launched before the end of the year.

Government also planned to expand use of nuclear energy. The implement of the Nuclear Energy Policy and Strategy would commence during the year. The communication strategy would also address dissemination of correct information and responding to the concerns of the public.

The DME was finalising legislation to establish the National Radioactive Waste Management Agency. The Convention on the Physical Protection of Nuclear Material would be signed this year. New regulations would be set up.

DME was also focused on implementing the outcomes of the Summit and projects from the Liquid Fuels Masterplan. The Clean Development Mechanism (CDM) was assisting in investment in clean energy projects. The DME had reviewed 70 CDM projects and registered 13 with the Board. One project had already started claiming carbon credits. The DME and Department of Environmental Affairs and Tourism (DEAT) were starting negotiations on fuel specifications, which should be completed in 2010. The specifications would be implemented in 2012.  Adv Nogxina described the challenges around crude imports and pricing, noting that the DME was unable to influence the crude price. It had realised, however, that market prices for household fuels were too high and therefore would be regulating Liquid Petroleum (LP) gas prices. The draft regulations were gazetted for public comment and should be published before the end of the financial year. DME was also piloting safe paraffin appliances and was in discussion on the inclusion of other sources such as ethanol gel.

Turning to issues of mining, Adv Nogxina reported that the safety track record in mining for this year had been of great concern, with 67 miners having lost their lives owing to mining accidents. Safety audits conducted by the inspectorate attested to the importance of having a culture of safety. A report would be submitted shortly and would cover the findings and recommendations of the three high-risk mines. Although the Mine Health and Safety Inspectorate (MHSI) had capacity challenges, it would continue to put extra effort into recruitment and retention of skilled staff. An HR development plan was being implemented and there were learner inspectors to ensure that there would be succession planning. There was a challenge in employing already-qualified inspectors. However, DME was investigating the Occupation Specific Dispensation (OSD) for inspectors and the possibility of merging the Mine Health and Safety Council.

The Minerals and Petroleum Resources Development Act (MPRDA) implementation remained a challenge, in that there was still non compliance from the industry and Black Economic Empowerment (BEE) players. There was a need to fast track the beneficiation strategy, which would seek to change the behaviour of business to facilitate a seamless environment . 23 rehabilitation projects were committed. The total expenditure was R40.3 million . Eleven asbestos projects would happen in the 2008 year.

On the organisational side, the DME had continued to experience high staff turnover, at 17.2%, although this was an improvement on the 21.7% last year. Exit interviews with those leaving the department indicated that they were leaving for better remuneration, growth, exposure and opportunities, career advancement, and because of the stressful working environment at DME caused by shortage of staff. An Integrated HR Plan and Master Systems Plan would be started this year, to deal with the problems. Both would promote an integrated approach to improvement of service delivery.

The participation of women and youth was still a challenge and DME prioritised transformation. It would use small scale mining to broaden the base of beneficiaries. This would assist in meeting government targets and plans. The women and youth would not be confined, however, to small scale mining and other opportunities would also be made available. There were career guidance programmes for learners from grades 10 to 12. A Youth In Energy and Mining (YEM) organisation had been started with various training programmes and DME had a Memorandum of Understanding with Umsobomvu Youth Fund, despite the fact that this Fund did not finance mining, as it was too capital intensive.

Mr S Simelane, Chief Financial Officer, DME, presented the financial statements. He noted that the budget was R2.9 billion in 2008/09 and would be increasing to R4.5 billion in the 2010/11 year. It was divided into six departmental programmes and Associated Services related to all entities. The largest expenditure was allocated to administrative expenses, followed by Regulation and Mine Health and Safety. The increases in budget had been around 16% per annum since 1994. The allocation showed employee remuneration also increasing. Detailed budget comparisons and spending patterns over the years were tabled (see attached presentation). He reported a drop in under spending to only 0.93% underspending in 2007/08, and this was attributed to improvements in processes, especially amongst local government. He set out a further budget analysis across the various programmes, and commented on the increases, highlighting the R100 million provision for increased resources for mine health and safety issues. 

Discussion
The Chairperson commented that Members had not had sufficient opportunity to go through the documentation. He pointed out that the documents should ideally have been presented a week prior to the meeting; or at the very least 48 hours in advance. Parliamentary oversight had the aim of reinforcing the departments so that they were better able to deliver.

Ms F Mathibela (ANC) noted that the paraffin price was rising as the petrol prices rose. Paraffin was largely used by the poor, and she asked what impact this would have and why DME was not meeting the aims of assisting the poor.

Mr Nhlanhla Gumede, Deputy Director General: Hydrocarbons, DME, noted that the prices of paraffin, diesel and jet fuel were increasing faster than other fuels. The crude price had increased dramatically, from $15 a barrel in 2000, to $124 a barrel today, and this did play a major role. However, an additional factor was that the three fuels of paraffin, diesel and jet fell into the group of middle distillates, which were used by most countries to generate electricity, largely because of the lessened use of coal, and because gas turbines were quicker to build. The price therefore increased according to the demand. Paraffin was one product that in South Africa carried no tax, including zero rating for VAT. South Africa did not produce the product. As a non-producer, its hands were tied, unless there could be a global challenge to the increase in crude and decisions on generation. The most that could be done would be to subsidise, and this would involve deciding whether paraffin was the best fuel, and whether subsidy was then the correct route.

Mr E Lucas (IFP) highlighted the expenditure on electricity and nuclear, asking if that had been sufficient. 

Ms Nelisiwe Magubane, Deputy Director General: Electricity, DME, conceded that there was not sufficient spending, but there had to be relevant human and financial resources in order to deal with the emergency. The matter had been raised with National Treasury.

Mr Lucas commented that there had been escalation in thefts and losses, and wondered what controls were in place.

Mr Simelane noted that theft and loss had arisen through accidents and related mostly to smaller items such as computers. However, there was one large claim relating to fraud perpetrated during December and January, which was out of the control of DME as there had been unauthorised access to the financial system. The case had been reported and the Commercial Crime Unit and Asset Forfeiture Unit were busy investigating, and would then proceed to prosecute the matter.

Mr Lucas asked what was meant by “Associated Services”.

Mr Simelane said this included all transfers made to state-owned institutions, including transfers to Eskom and non-grid, and anything being spent outside the DME. This was a generic programme name.

Mr M Matlala (ANC) noted that there were a number of questions on electricity challenges. He asked about the relationship with the public utilities, including Eskom. He noted that there had been some dispute as to whether Eskom had an advisory role, or whether this was up to the Department and he asked for clarity. In the process of a crisis, there were accusations as to whether, 10 years ago, the DME had or had not been advised of the possibility of a crisis and had or had not failed to respond.

Adv Nogxina advised that Eskom was not an associated body. It was a State Owned Enterprise, with the shareholder being government, through the Department of Public Enterprises (DPE). DME was responsible for policy formulation, and Eskom played its role as a utility within that policy environment determined by DME. The only company of which DME was a shareholder was PetroSA, and this company, on operational matters, would engage with DME. Eskom would therefore by the same reasoning have to engage with DPE. Because Eskom did not answer to DME it would not have to interact with it in terms of its operations, unless it was saying that the DME policies made it impossible for the institution to operate. Even in this event, it would report this through DPE.

Mr J Nene (ANC) was concerned about loss of lives in mines, and he asked that the reports be forwarded to the Committee. If there was negligence involved, he believed that there should be severe action taken. It seemed that capacity in the DME was perhaps not at sufficiently high levels and he wondered if the shortage of inspectorate capacity was contributing to the high rate of accidents.

Mr Michael Oberholzer, Acting Deputy Director General: Mineral Regulation, DME, said that there was a review of the Mine Health and Safety Act under way, in order to tighten enforcement, and there was an increase of fines from R200 000 to R1 million, as well as discussions with Department of Justice to facilitate the processes of prosecutions. In regard to the Inspectorate capacity, there were two initiatives under way that would be finalised, hopefully, this year.

Ms E Ngeleka (ANC) noted that the assessment of the Mining Charter would only be done next year, when it was five years old, and expressed her disapproval as that meant that opportunities to improve could have been missed. She believed that annual assessments should have been done.

Adv Nogxina appreciated her comments. Although the Charter had to be reviewed after five years, the DME could evaluate progress in the meantime, and that had in fact been done on a regular basis, to check the impact of the Charter. The DME was recognising companies not just according to black ownership, but rather on broad based black economic empowerment principles, to ensure that it was the broader group, not just a few individuals, who were benefiting. He would make reports available if required.

Ms Ngeleka noted that DME was negotiating with DEAT on fuel specifications, but this was only to be completed in 2010. On the previous day the Minister of Environmental Affairs had said that South Africa was amongst the most energy-inefficient countries. It was unacceptable, in her view, for the specifications only to be implemented in 2012. This had serious implications for the environment, human health and the whole continent.

Mr Gumede noted that in the process of producing cleaner fuel, some properties would be lost, meaning that other technologies were needed for efficiency. Most of the population did not have cars with catalytic converters, and if most of the cars on the road could not take the cleaner fuel, then it was not worth making these available. It was necessary to involve DEAT, DME and the Department of Transport in addressing the problem. Emissions, fuel and cars would need to be regulated. Some refineries produced only a certain type of fuel and their capacity had been reduced with the introduction of cleaner fuel. In regard to the timing, he noted that it was neither considered wise to introduce specifications in the year of the World Cup, nor before there was sufficient infrastructure to handle those cleaner fuels. The date was also calculated taking into account the production of a new refinery that could possible supply fuels without importing them.

Ms E Ngeleka (ANC) said that in some instances the Department had clearly set out its measurable objectives and figures. However, there was no such clear statement in regard to women and youth. There was no indication how far the Department had progressed, nor what its targets were for the next financial year. She enquired as to the targeted figure and the challenges. She recognised that funding was an issue, but asked that there be proper planning for women and youth. She also asked what mechanism was used to measure progress in enhancing previously disadvantaged individuals (PDI).
 
Adv Nogxina referred to page 56 of the printed glossy Strategic Plan sent to Members, noting that a strategic objective was to redress past imbalances and increase participation of PDIs and women. The measure was the number of rights and licenses granted. The targets were 18 for the year. In respect of each strategic objective there were indeed targets.

The Chairperson wished to address issues around Eskom in more detail. He noted that the DME was involved only insofar as it made policy, and that DPE was the lead department. However, he then asked what the made a follow up on the position of Eskom. He noted that DME was only involved with it as far as policy was concerned, and that DPE was the lead department. Eskom was a public utility. He thus enquired what the boundaries were for DME regulating what should or should not happen at Eskom. DPE, as main stakeholder, was representative of government. Government had taken resolutions on energy. The question thus arose whether electricity and energy were a commodity or for the public good. The White Paper was a product of the DME. If there was a resolution to say that South Africa was a developmental state and the poor must be given access to electricity, and if electricity was not to be regarded as a commodity, how then must DME draw its policies to benefit the poor.

The Chairperson added that if Eskom was a private utility, then it must be questioned why would it want to expand by using the public purse. If government decided that it should be privatised, then it would be a profit making entity. Questions had been asked at the Energy Summit as to why Eskom was negatively-credit rated, if it had not been operating at a loss. Eskom had been a monopoly and had never previously worked at a loss. However the question must be asked what had happened that it now was without funding to expand its capacity. He noted that Eskom had asked for a sum for around R327 billion for expansion, and that would be expansion of its business as a monopoly. The construction of a power station of 100 megawatt capacity cost around R3 to R4 billion.  The State budget  - to sustain the whole State - was around R500 billion. The figures did not tally. He asked how to deal with Eskom. He noted that the tariffs were set to rise by 53%. There were more questions than answers.

The Chairperson said that DPE had, during the summit, referred to global market considerations. The question was raised at that Summit whether energy was a public good. The question was also asked of DPE around the “smoothing” of the price hike, that if this was agreed, then what would happen when the market forces, and therefore inflation, fluctuated. DPE responded clearly that the prices would be adjusted according to the international market. That posed even more difficult questions. He believed that there was a need for a detailed indaba to try to reach agreement on the price hike. COSATU had said people would be on the streets if there were raises of more than 20%. He believed that DME, as policy makers, had a chance to take the lead.

The Chairperson then added a question around the Pebble Bed Modular Reactor (PBMR). He asked if this was under DPE or DME, and how it was run in terms of energy policies of the DME. If government undertook projects such as PBMR, it should use a cost benefit analysis to determine cost against profit, to determine whether the project was something to be undertaken for the benefit of society. He believed this should have been done by DME.
 
Adv Nogxina stated that some of the issues raised by the Chairperson could not be answered in this forum and he agreed that an indaba would be needed. He wanted to make his position clear. He was at this meeting to present the strategic plan, not to discuss what should have been in the policy - such as the definition of electricity in the public good or as a commodity. The policy did not speak to this issues and therefore the strategic plan could not speak to that either. The DME, as public servants, applied the policy, which did not attempt to define the issue, but merely stipulated how people should access electricity. With due respect, he suggested that this and some other issues should be dealt with in a different forum.

The Chairperson said that the strategic plans then had serious gaps and challenges. He asked how a strategy plan could be made, with measurable objectives, outputs and outcomes, when the basic definition of concepts was not well understood.

A Member said that the Eskom policy should depend on what Eskom was.

Adv Nogxina said it was clear that Eskom was a public utility, but it was not clear whether its product, electricity, was a public good or a public commodity.

He reiterated that the strategic plan could only be based on existing policies and laws of government. If Members felt that these did not address the situation, then they must say so, in order that the policies could be refined, and it was also their responsibility to amend the law. He did not think these issues could be discussed in the context of the Strategic Plan.

The Chairperson questioned this. He said that DME was the custodian of energy policy. In developing the White Paper, it should have taken certain things into consideration, or, when identifying the gaps, should have revised the Paper so that it addressed the gaps. Without knowing what exactly was included in the policy dimension, there would be “unstrategic Strategic Plans”. He believed there was a need to revisit the whole energy policy to overcome the sort of dilemmas facing the Energy Summit.

Adv Nogxina said that the resolutions of the Summit would have to be implemented, and that would automatically result in a review of the policy. That was why he said that these answers could not be found in this context. They needed research and further consideration. The reason for crafting the Summit resolutions as they had been was to allow DME and others to go and research the best way forward, but not to produce immediate results. He agreed that there would be a process, but he could not provide the answers now.

Adv Nogxina suggested that he would thus answer those questions that were capable of explanation because they were backed up by policy. He reiterated that he could not make policy and that Members must be involved in policy formulation.

He could answer on the responsibility of regulation against the responsibility of the shareholder Minister. Companies, be they public or private, operated within a policy environment. That environment was formulated by the DME. Eskom was publicly owned, and the DPE was the appropriate Department. That formulation insulated both departments from conflicts of interest, as clearly DME could not be a shareholder of a company that it had to regulate. The boundaries were clear - DME formulated policy and DPE would ensure that Eskom played its role. He said that the same principle applied to PBMR. It was owned by DPE, but operated within an environment regulated by DME.

Adv Nogxina, in relation to the questions on the nature of the electricity, said that the people of South Africa must decide how they viewed electricity.

Mr S Louw (ANC) said that the type of questions raised by the Chairperson were important, but he agreed that the present meeting and the strategic plan presentation were in preparation for the budget vote. He suggested that DPE, during the Medium Term Budget Process (MTBP), should be asked those questions, so that they could start to budget accordingly to address the problems and projects raised. He also noted that the questions raised by the Chairperson were similar to those raised some time back, by the previous Chairperson and members, at a high level meeting with the Ministers in Pretoria. It was not necessary, in his view, to go over the issues again. The Strategic Plan was addressing this year's budget. If new issues or shortcomings must be highlighted, then it was more appropriate to address that during the MTBP, when the Committee and the Minister would have the opportunity to present a case.

The Chairperson said that Mr Louw’s point was out of order. He pointed out that the price hikes were in fact for this year, and were included in the strategic plan. This was of immediate concern. He did not believe that those kinds of matters should not be discussed here, although he accepted the views of the Director General about the definitions and the different platforms.

Mr Matlala asked about the balanced scorecard, which should surely seek to address the desired outcomes. He asked if there were any approximations as to desired outcomes.

Mr Lucas said that he accepted that the price of crude oil was out of South Africa's concern, but felt there was a need for discussions as to why it was rising so fast, what could be done to lessen the burden of the public, who had to use private transport because public transport was not up to scratch, and the formula for arriving at the price.

Mr L Greyling (ID) concurred with this, and felt that the world and South Africa must look into renewable energy and energy efficiency. He pointed out that India had a separate Ministry for Renewable Energy and China had set targets of 20% of renewable energy sources. The allocation of R5 million was too small. He asked if the legislative policy environment was encouraging renewable energy enough, including solar, and if there was enough encouragement for people to bring projects forward.

The Chairperson informed the Member that similar questions had been addressed prior to his arrival.
 
The Chairperson asked how far was the DME with investigating tidal power in energy generation.

Ms Magubane said that energy efficiency had been reinforced in the Energy Security Bill, and it was being given the seriousness that it deserved. A recent proposal had suggested that a premium be paid for renewable energy projects. In regard to tidal and wave energy, DME still was developing this. There were investigations into the technology, but there was huge potential to provide energy at low cost.

The Chairperson pointed out that similar technology was already being used elsewhere, such as Norway, where not only were there hydroelectric schemes, but also wave energy schemes. The Ambassador to Norway had suggested a visit to investigate the systems.

The Chairperson noted that Sasol had researched an important energy-saving technology, and he asked if this technology had been investigated by DME, and why Sasol had decided not to pursue it.

Adv Nogxina said that DME had heard about it, but had not pursued the matter as yet. It would find out more from Sasol.

The Chairperson would like to hear more on the licensing and conversion procedures in mining, and the conditions around old order and new order licenses, as there had been complaints about some people being deprived of licences.

Adv Nogxina said that the conditions and requirements for this were clearly set out in the legislation, and no arbitrary decisions were made. No discretion was applicable and a person who met the conditions would have the license converted. The holder of the old order right had an exclusive right to convert the old order to a new order right. It was impossible for two rights to be held together, and if this had been alleged then it was incorrect.

Mr Louw asked for an indication of the deadlines for conversion.

Adv Nogxina responded that the deadline for conversion of old order prospecting rights was 30 May 2006. If this was not met, the rights were lost. The deadline for conversion of mining rights was 30 April 2009. Once the old order rights had been converted, they ceased to exist in the old form. Once again, they would be lost if the deadline was not met.

The Chairperson referred to the Strategic Plan of 2006/07 (used as an example in a recent training session), quipping that it mentioned 10 vacancies for low-level cleaning jobs, and asked how this was possible. He also asked how far was the Department in producing skills development in energy.

Mr George Mnguni, Chief Director: Management Services, DME firstly noted that there had been an improvement of vacancy rates from 363 to 266. He explained that the cleaning posts were in fact unfunded vacant posts, which would not be filled since the cleaning had been outsourced. However, the posts had not been deleted from the system. There were a number of initiatives in respect of skills, in line with needs and functions. One hundred interns had been taken in. There were also scholarships, and bursaries offered to serving employees, who were completing postgraduate qualifications.

The meeting was adjourned.