Energy Security Master Plan; Mineral & Petroleum Resources Development Bill: response to public submissions

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Mineral Resources and Energy

18 June 2008
Chairperson: Mr E Ncgobo (ANC)
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Meeting Summary

The Department of Minerals and Energy briefed the committee on its Energy Security Master Plan which was divided into Phase 1 that covered liquid fuels and Phase 2 that covered electricity. Much discussion ensued.

Discussion on the response to public submissions and proposed amendments to the Minerals and Petroleum Resources Development Bill would take place the following week.

Meeting report

The Department of Minerals and Energy (DME) delegation comprised of Mr N Gumede Deputy Director General: Hydrocarbons and Energy Planning, Ms N Magubane Deputy Director General: Electricity and Nuclear, Ms T Ramuedzisi Chief Director Energy Planning, Ms L Mekwe and Ms S Mudau.

Mr Gumede said that the integrated Energy Masterplan had been developed in two phases: liquid fuels and electricity. Mr Gumede said that the Masterplan (Phase1) sought to allow for the making of well informed choices in respect of energy supply, energy carriers, demand sector strategies, as well as energy transformation approaches, cogniscent of the need to minimize negative impacts on the environment and the economy. In the short-term the Masterplan focused on developing supply chain solutions to SA’s liquid fuels supply challenges, management of liquid fuels demand and emergency response tactics. In the medium to long-term the approach was broader and began to integrate supply, demand, macroeconomics, geopolitics and climate change.

Mr Gumede provided a detailed presentation by way of graphs and diagrams covering energy security, energy modeling and planning, refining, ports, fuel storage and inland supply. He concluded with a summary of recommendations of Phase 1. It was recommended that the local production of petroleum products be promoted and that at least 30% of products be manufactured from indigenous raw materials. Climate change was considered important and needed monitoring. There was also a need to align SA’s fuels specification and other standards to global standards. Thirty percent of all crude consumed in SA should be procured through PetroSA and the policy of limited imports of petroleum products should be re-endorsed.

Energy efficiency should be strongly promoted in all sectors and there should be a level of co-ordinated infrastructure investments planning. Airlines should be forced to keep certain stocks and Eskom was to keep strategic stocks for open-cycle gas-turbines. Petronet’s new Multi Product Pipeline project should also be approved. In the short-term, rail should be operated in “block train” format in order to improve rail turnaround times. Furthermore the management of the “back of the port” operations should be run by an independent operator. Most importantly there was a need for SA to build an ability to develop properly thought-out energy plans and to develop a tool to evaluate proposed energy related policies. In closing the Committee was given insight into the overall project status of Phase 1.

Ms Magubane presented on Phase 2, much of which was explained by way of graphs and diagrams. She went into detail on the energy security framework by illustrating the electricity mix in the world and in SA. She also set out the electricity demand patterns in SA and correlated it with plant generation capacity. Ms Magubane laid out the process for generation, transmission and distribution infrastructure. She outlined planning assumptions, that is, nuclear energy was not considered, as well as decision making funding and resourcing considerations.

The Committee was provided with information on electricity consumption such as a geyser uses 4 kilowatts of energy and that they were to be found in 2.5 million SA households. Planned interventions in the short term (fuel switching and metering) and in the medium term (capacity generation expansion etc) were elaborated on.

Ms Magubane concluded the presentation with a summary of recommendations of the Phase 2 Masterplan: The reserve margin was to be increased to 19%. Performance standards were to be set (for example, a one-day outage was to be condoned over a 10 year period). Failure to comply meant a payment of a fine. Further recommendations included that Cabinet needed to note the electricity price path, to finance the implementation of the plan. Also they had to take into account the import and export of electricity, as well as leveraging private sector participation in generation. The final word was that consultation with National Energy Regulator of South Africa (NERSA), Eskom, municipalities, organized labour and business had taken place.  

Mr C Molefe (ANC) asked if the DME was not going the Eskom route. He also referred to the Phase 1 presentation and said that he was concerned about capacity, specifically, skills and the whether SA would be facing challenges in this regard.

Mr Gumede replied that the Masterplan had been presented to Cabinet in August 2007. Movement had taken place since then. The issue was about demand. Demand in terms of fuel for cars had decreased to 2006 levels. This was due to the impact of high fuel prices. The issue of rail was also being addressed and a task team comprising of government and industry was engaged on it. He said that SA was not expected to run out of fuel.

Mr C Kekana (ANC) also referred to Phase 1 and said that the presentation was good in that it had identified inefficiencies. He made reference to comments made during the presentation that the sea ports claim that they do not have problems at the ports. Mr Kekana pointed out that at an Asgisa briefing, it was said that sea ports and airports were to be beefed up. He also asked if SA was going to build refineries, given the fact that it wished to do its own refining. Was private sector involved?

Mr Kekana referred to the Phase 2 presentation and asked why Asgisa had identified a need for 1000 engineers when there were only 500. There was thus a shortage of 500. The presentation however pointed out that there was a shortage of 40 000 engineers. He asked why such a huge discrepancy in the figures.

Mr Kekana referred to the recommissioning of old power stations and asked how many there were. He asked whether it only meant refurbishing and was concerned what the recommisioning entailed. He commented that the older buildings in the townships were built more strongly than newer buildings were. He asked for comment and also asked how it was possible to save the reserve margin.

Mr Gumede stated that the ports felt the problems at the ports were everyone else’s and not theirs. The ports insisted that they have capacity.

He noted that PetroSA alone intended to spend R24 billion on the building of a crude refinery. Mr Gumede added that SASOL was also interested in Project Mafuta which would build an 80 000 barrels a day refinery. PetroSA was confident that it would have a 400 000 barrels a day refinery by 2014. The issue was that oil companies often ask for government support on these projects.

Ms Magubane responded that the shortage of 40 000 engineers referred to was for the whole of the SA economy.

She said that the re-commissioning of old power stations was being discussed with municipalities. In Kroonstad a coal powered power station needed to find an alternative power source since the mine that had serviced it, had closed down. Power stations in Tshwane and at Steenbras in the Western Cape were considered to be viable to re-commission. Municipalities were keen to re-commission mothballed power stations. Johannesburg, Tshwane and Kroonstad municipalities had agreed to re-commission their power stations. The Steenbras power station had always been on line. The overhauling of power plants was considered a challenge. There was a regulatory environment and the old power stations needed to be retro-fitted to reduce emissions. The process of re-commissioning would be expensive. Some power stations were however too old, that is, over 50 years old and had to be decommissioned.  

Ms B Tinto (ANC) referred to the comments that the Western Cape was one of the provinces consuming much electricity but asked what the quality of supply in the province was like.

Ms Magubane stated that there were regulations to ensure quality of supply, that is, the Electricity Regulation Act. The DME was concerned that Eskom and municipalities might want to pass on to the consumer the increased cost of compliance to the regulations.

Ms N Mathibela (ANC) said that the Cabora Bassa Dam was built with SA money. She asked what benefit was it to SA. She asked why SASOL was exporting coal when SA itself was facing an energy crisis. In 2006 there had been the implementation of the renewable energy strategy and she asked if it had been finalised. Was the renewable energy strategy being incorporated into the Masterplan?

Ms Magubane replied that Cabora Bassa provided SA with 1300 megawatts of power. Without it SA would suffer further power outages. The renewable energy strategy of 2003 was due to be reviewed in 2008. Targets needed to be revised as the price of electricity had gone up.
The renewable energy strategy had not been included in the Masterplan as it was up for review in 2008.

Mr Gumede referred to the SASOL coal exports and said that the intention was to build another SASOL. The fuel price might even go up to $200 a barrel but said that eventually the crude price bubble would have to burst.

Mr Gumede noted that the issue of integration was a problem. In government, departments were driven by key performance indicators. There was supposed to be integrated planning. It was an ideal but not very possible.  He said that the Bill tried to enforce it.

The Chair noted that the Energy Security Masterplan did a great deal of modeling, planning etc. In the end it devised a total strategy to tackle challenges. He referred to a study that had been done in May 2001. The research document had been on energy transport and covered issues such as trains, rail trucks, and workers.  The proposal was that there should be more emphasis on rail instead of trucks on the road. The Chair felt it to be an excellent document and should be read.

Mr Ncgobo referred to Canadian Oil Sands and asked what their approach on oil was. He also commented that fossil fuel use in the long term seemed unstoppable. Some had postulated an end time but the Chair stated that important research was being done to make fossil fuels more sustainable in the long-term. He commented that BP was engaged in such research. There should not be fears that fossil fuels would be depleted soon. Research was even being done to make them environmentally friendly.

The Chair felt that pipeline challenges were a serious problem. He once again referred to the May 2001 research and stated that it had highlighted the problems of making the pipeline a multi – product pipeline. 

Mr Ncgobo referred to the reduction of the turnaround time of train transport from 30 days to 5 days and asked by when it could happen. The Chair said that the Phase 1 presentation was more about process engineering. He said that the department should start thinking about Pinch Technology. It apparently allowed for savings of up to 40% at refineries.

He referred to transmission and specifically the issue of landowners allowing the department to lay transmission lines over their land. The DME needed to devise a strategy that took it next to the consumers.

The Chair referred to nuclear energy and said that Pebble Bed Modular Reactor (PBMR) did not expect to see results before 2013. The National Nuclear Regulator (NNR) had many more questions to ask PBMR and hence had delayed the granting of a licence to them.

He added that one of the recommendations of the 2001 research previously referred to was that by 2020 the world would have moved to the use of fuel cell technology. He asked if the DME’s research in the Masterplan dwelt on the shift to fuel cell technology. Fuel cells had apparently been used in buses in Sweden. The project had however been abandoned due to it being too expensive.

The Chair asked how far the DME had looked into wind energy.

Mr Ncgobo stated that SA had skills but they were not properly deployed. A plan was needed to audit skills.

He referred to the 2300 megawatts that SA was importing and asked from which country it was being imported.

Mr Gumede replied that the study the Chair had made reference to was the Moving SA Study of 2001. It had been well researched, documented but had never taken off and had not been implemented. He pointed out that Canadian Oil Sands when manufacturing needed steam injections. For every 4 tons material processed the yield was 1 ton of crude.

Mr Gumede agreed with the Chair that fossil fuel usage would continue. There was however a role for alternative energies. He said that SA used 666 000 barrels of oil per day. The world consumed 11 trillion barrels of oil per annum. It would be difficult to find a replacement for crude.

Mr Gumede said that rail transport needed to be improved. SA’s transport system was inefficient and needed to be improved. 

Ms Magubane said that Pinch Technology would be considered. Refineries would be looking into it. She said that regulations could be put in place to set targets for energy efficiency.

Ms Magubane said that the nuclear power policy was more a statement of intent. PBMR was an example of one such technology. She felt that the NNR was doing a good job overseeing PBMR. The PBMR was to submit its safety case by the end of 2008. Failure to do so would require the NNR to advise government on what the next step was.

Ms Magubane said that the issue of fuel cells had been handed over to the Department of Science and Technology (DST) which had the infrastructure to support it. SASOL had been keen on the technology but the glitch was that they wanted to do the testing in the United States. DME was of the opinion that they could do the testing in SA.

She explained that, of the 2300 megawatts that SA imported, 1860 megawatts came from Cabora Bassa. The DRC supplied 150 megawatts and the rest was from Zambia.

On the issue of transmissions, Ms Magubane said that bringing it next to consumers had been considered in coastal areas. The issue was whether it was better to transport coal or electricity to the particular areas.

The Chair said that the 2001 study had said that 84% of energy was being used by transport. He asked how smart metering worked, noting that he was aware that it was being used in Europe.

Ms Magubane replied that a smart meter could do many things. For example, it would allow a municipality to reduce a consumer’s load by remote control. The smart meter would also be able to show a consumer how much the electricity used would cost him per hour. The rates would vary according to high and low peak times. In the end the consumer would receive a bill that was the average of all these costs. The smart meter would also send out a signal if it were in any way tampered with.

The Chair asked why there was an intention to increase SA’s reserve margin to 19%. Eskom had a current reserve margin of 15%. Why the increase?

Ms Magubane replied that the intention was to tie in the reserve margin with the performance of the network. The point was to ensure that there would only be one outage in ten years. If outages were more often, there would be penalties such as fines. There was a need for a stable supply system. The 15% reserve margin was not tied in with anything. The 19% reserve margin was not expected to be in place any time in the near future, only in ten years’ time.

Mr Kekana asked what the international reserve margin was. The Committee had been told it was 15%.

Ms Magubane said that it varied from country to country. It depended on the country’s market system.

The Chair thanked the Department for the comprehensive presentations and the healthy interaction.

Mineral and Petroleum Resources Development Bill
The Chair said that the Committee had agreed that the DME was to include in the Bill those proposed amendments that the Committee had agreed upon, based on submissions received during the public hearings.

Ms Lindiwe Mekwe: Acting Chief Director: Mineral and Mining Policy agreed that the intention was to consider the public submissions.

Mr O Monareng (ANC) said that the Committee should get a final draft of the Bill inclusive of what stakeholders had proposed. The Committee would then peruse the Bill and make its determination.

The Chair said that the Committee would consider the inputs. Once this was done, the DME would get back to the Committee to gauge the Committee’s feeling on the inputs.

Ms Mekwe said that the inputs had been consolidated into the Bill and forwarded to the Committee. Clarity on what was to happen presently was what was needed. Members had copies of the Bill which was numbered B10D-2008.

Mr Monareng said that members had to check whether what was said and agreed upon by the Committee was what was contained in the Bill.

Mr Kekana said that these administrative matters should have been sorted out before the meeting.

The Chair said that the Committee needed to clarify the process to be followed.

The committee members present, which consisted only of ANC members as no members of the opposition parties were present, internally discussed what the process on the Bill should be.

The Committee agreed to deliberate on the Bill the following week as members of the opposition were absent from the present meeting. The DME was asked to be present for that meeting. The Chair said that the meeting would be open as the present meeting was and concluded the meeting.



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