REPORT OF THE PORTFOLIO COMMITTEE ON ENERGY ON THE STRATEGIC PLAN 2014/15 – 2019/20, ANNUAL PERFORMANCE PLAN AND BUDGET VOTE NO. 29 OF THE DEPARTMENT OF ENERGY, DATED 10 JULY 2014

1.         Introduction

 

1.1.         Subject of the report

 

The subject of this report is to report back to the National Assembly (NA) on the Portfolio Committee on Energy’s findings after evaluating the Strategic Plan and assessing the Budget Vote No 29 of the Department of Energy.

 

1.2.         Background

 

Strategic Plans identify strategically important outcome orientated goals and objectives against which public institutions’ medium-term results can be measured and evaluated by Parliament, provincial legislatures and the public. Annual performance plans identify the performance indicators and targets that the institution will seek to achieve in the upcoming budget year. The annual budget sets out what funds an institution is allocated to deliver services. The Annual performance plan shows funded service-delivery targets or projections. The annual budget indicates the resource envelope for the year ahead, and sets indicative future budgets over the medium term expenditure framework (MTEF). The budget covers the current financial year and the following two years.

 

At the beginning of every year, the Minister of Finance tables before Parliament, amidst great expectation and anticipation by South Africans, a detailed outline of the State’s Budget: how much money will be or ought to be spent, on what, in that financial year.

 

Thereafter, various government Departments present their budget votes before Parliament -specifying how they intend reconciling their resources with service delivery imperatives as outlined by the President of the Republic of South Africa in the State of the Nation Address. One of the main statutory functions of Parliament is to discuss, pass and oversee the State’s Budget. The Department of Energy’s Budget (Vote No. 29) was referred to, for consideration and reporting.

 

In compliance with the referral by the National Assembly, the Committee held a Strategic Plan, Annual Performance Plan and Budget Vote briefing on 01 July 2014 with the Department of Energy (the Department) to consider its Budget Vote and strategic plan. The Committee did raise a concern about the time constraints in adopting this budget.

 

1.3.         Objectives of the report

 

The objectives of the report are as follows:

 

 

 

 

 

2. Department of Energy

 

2.1. Strategic Plan

 

The Department of Energy (DoE) was established in May 2009 – the outcome was the split of the Department of Minerals and Energy into the Department of Energy and Department of Mineral Resources

 

The Department of Energy’s aim is to formulate energy policies, regulatory frameworks and legislation, and oversee their implementation to ensure energy security, promotion of environmentally friendly energy carriers and access to affordable and reliable energy for all South Africans.

 

Its mission is to regulate and transform the sector for the provision of secure, sustainable and affordable energy

 

The core business of the Department is premised amongst others on the Energy White Paper of 1998 as well as the National Energy Act, 2008 (Act No. 34 of 2008) which, amongst others mandates the Department to ensure that diverse energy resources are available, in sustainable quantities and at affordable prices, to the  South African economy in support of economic growth and poverty alleviation, while taking into account environmental management requirements  and interactions amongst economic sectors.

 

In carrying out this mandate, the Department develops legislation; undertakes programmes and projects; and in some instances, transfer resources to various implementing agencies and state owned entities (SOEs). 

 

Organisational structure

 

The approved organisational structure consists of the following seven branches:

 

 

 

 

 

 

 

 

DoE posts

 

•       Total No of Posts on DoE’s approved establishment: 814

•       Total No of Funded Posts: 569

•       Total No of Unfunded Posts: 245

 

A process is underway with National Treasury to deal with funding issues.

 

DoE offices

 

The Department consists of a national office that is situated in Gauteng Province ( Matimba House); and nine (9) Regional Offices that are situated in various provinces. DoE is still sharing office space with the Department of Mineral Resources (DMR) in seven Regional offices except for Cape Town and Gauteng.

 

Strategic outcomes of the DoE

 

The Department has the following Strategic Outcomes:

•       Security of Supply by ensuring that energy supply is secure and demand well managed;

•       Infrastructure development by facilitating an efficient, competitive and responsive energy infrastructure network;

•       Regulation and Competition certainty by ensuring that there is improved energy regulation and competition in the energy sector;

•       Universal Access and Transformation by ensuring that there is an efficient and diverse energy mix for universal access within a transformed energy sector;

•       Environmental Assets that are well protected and continually enhanced by cleaner energy technologies.

•       Climate Change response by implementing policies that adapt to and mitigate the effects of climate change.

•       Prudent Corporate Governance through implementation of good governance practices for effective and efficient service delivery.

•       Align its key policies with the objectives of the National Development Plan.

 

Entities reporting to the DoE

 

•       National Energy Regulator of South Africa (NERSA)

•       National Nuclear Regulator (NNR)

•       South African National Energy Development Institute (SANEDI)

•       South African Nuclear Energy Corporation, (SOC) Ltd (NECSA)

•       Central Energy Fund (SOC) Ltd (“CEF” Group)-

•       National Radioactive Waste Disposal Institute (NRWDI) recently established.

 

Key focus areas for 2014/15

 

•       Increase access to electricity with an additional 265 000 grid connections and 15 000 non-grid installations;

•       Increase momentum on the installation of solar water heating units;

•       Finalise the Integrated Energy Plan (IEP) with more detailed infrastructure plans;

•       Address maintenance and refurbishment backlogs in the electricity distribution industry;

•       Strengthen the liquid fuels industry; and

•       Facilitate the process leading to the implementation of decisions taken on the nuclear programme.

 

 

 

2.2. Budget Vote No 29

 

The Departmental budget has increased from R 6.4 billion in 2013/14 financial year to 7.4 billion in 2014/15. When taking inflation into account, the DoE’s budget increased by 7.6 percent. It is important to point out that, in the previous financial year (2013/14), the Department’s budget had decreased by 7.2 percent.

 

The substantial share of this budget amounting to R4.1 billion is appropriated to the Electrification and Energy Programme and Project Management. This is followed by the Clean Energy Programme with R1.98 billion. The Nuclear Energy Programme received an allocation of R850.5 million. Allocation to the administration programme is R244.1 million.  Petroleum and Petroleum Products Regulation, as well as Energy Policy and Planning programmes received the lowest Departmental budget allocations of R82.7 million and R52.6 million respectively. As can be seen in the table below, allocations to all Departmental programmes have increased, in nominal terms (when excluding inflation).

 

The Department’s focus over the medium term will continue to be on expanding the integrated national electrification programme to increase the number of households with a connection to the electricity grid and the number of non-grid connections; provide substation infrastructure; and promote energy efficiency through the continuation of the solar water geyser programme. As a result, 93.2 percent of the Department’s budget is expected to be transferred to the implementing municipalities and agencies, and the state owned company, Eskom. According to the National Treasury, transfer payments for the integrated national electrification programme, and the Energy Efficiency and Demand Side Management (EEDSM) programme, constitute on average 67.4 percent and 15.5 percent of total expenditure over the medium term. 

 

Table 1: Budget Allocations – Energy

Programme

Budget

 

Nominal Rand change

     2014/15

Real Rand change

2014/15

R million

2013/14

2014/15

 Nominal Increase /Decrease in 2014/15

Real Increase /Decrease in 2014/15

Administration

  212.8

  244.1

  31.3

  17.0

14.71 per cent

8.01 per cent

Energy Policy & Planning

  45.0

  52.6

  7.6

  4.5

16.89 per cent

10.06 per cent

Petroleum & Petroleum Products Regulation

  69.3

  82.7

  13.4

  8.6

19.34 per cent

12.37 per cent

Electrification & Energy Programme & Project Management

 3 946.2

 4 199.2

  253.0

  7.8

6.41 per cent

0.20 per cent

Nuclear Energy

  730.8

  850.5

  119.7

  70.0

16.38 per cent

9.59 per cent

Clean Energy

 1 483.3

 1 986.5

  503.2

  387.2

33.92 per cent

26.11 per cent

 

 

 

 

 

 

 

TOTAL

 6 487.4

 7 415.6

  928.2

  495.3

14.31 per cent

7.63 per cent

Source: National Treasury (2014) – Vote 29 Energy.

 

 

5.1 Programme Analysis

 

The Department has six programme areas: Administration; Energy Policy and Planning; Petroleum and Petroleum Products Regulation; Electrification and Energy Programmes and Project Management, Nuclear Energy and Clean Energy.

 

Programme 1: Administration

 

The purpose of programme 1 of the Department is to provide corporate, executive, financial management and accounting; information and communication technology; supply chain; asset management support to the Department; to ensure good corporate governance; and compliance by Department and/or the Energy Sector.

 

The budget increased by R10.2 million (11.4 percent in real terms) from R219.6 million in 2013/14 to R244.0 million in the 2014/15 financial year. In 2013/14, the programme had 321 filled posts, the majority of which were in salary levels 7 to 10. Expenditure on compensation of employees increased significantly over the medium term mainly due to additional funding of R29.5 million out of a total of R66 million to improve the human resource capacity of the Department’s support service structure in order to implement these and other objectives. This expansion in human resources is expected to result in an increase in expenditure on communication, training and development, and audit fees over the same period. Over the medium term, it is expected that the establishment will increase to 329 posts, which also accounts for the strong growth in the compensation of employees’ budget to support human resource capacity in the line functions.

 

The largest share of the budget amounting to R91.1 million is appropriated to Corporate Services. The allocation has increased from the previous year by 11 percent in real terms.  There is also an increase in allocation to the Departmental Management sub-programme, an increase of 6 percent when taking inflation into account. Allocation to office accommodation has also increased by almost 6 percent in real terms. As can be seen in the table below, the allocation to other sub-programmes has increased, although when taking inflation into account a decrease in allocation on the Ministry, Finance Administration and Audit services sub-programmes can be seen.

 

Table 2: Administration sub-programmes

 

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

Ministry

  24.8

  25.4

  0.6

-  0.9

2.42 per cent

-3.56 per cent

Departmental Management

  45.6

  51.4

  5.8

  2.8

12.72 per cent

6.14 per cent

Finance Administration

  35.3

  35.4

  0.1

-  2.0

0.28 per cent

-5.57 per cent

Audit services

  5.3

  5.5

  0.2

-  0.1

3.77 per cent

-2.28 per cent

Corporate Services

  77.2

  91.1

  13.9

  8.6

18.01 per cent

11.12 per cent

Office accommodation

  31.4

  35.2

  3.8

  1.7

12.10 per cent

5.56 per cent

Total

219.6

244.0

24.4

10.2

49.30

11.40

 

 

 

 

 

 

Programme 2: Energy Policy and Planning

 

The purpose of the programme on Energy Policy and Planning is to ensure evidence based planning, policy setting and investment decisions in the energy sector to improve the security of energy supply, regulation and competition.

 

The budget for this programme increased by R3.2 million (15.3 percent in real terms) from R47.2 million in 2013/14 to R53.5 million in the 2014/15 financial year.

 

The largest share of the budget amounting to R25.3 million is appropriated to the Energy Planning sub-programme. Allocation to other programmes has also increased in the 2014/15 financial year, except a decrease of 5.3 percent (in real terms) on allocations to the Electricity, Energy Efficiency and Environmental Policy sub-programme.

 

Table 3: Energy Policy and Planning sub-programmes

 

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

Policy Analysis and Research

 3 827.0

 4 425.0

  598.0

  339.7

15.63 per cent

8.88 per cent

Energy Planning

 21 740.0

 25 356.0

 3 616.0

 2 135.7

16.63 per cent

9.82 per cent

Hydrocarbon Policy

 13 378.0

 14 519.0

 1 141.0

  293.4

8.53 per cent

2.19 per cent

Electricity, Energy Efficiency & Environmental Policy

 8 256.0

 8 283.0

  27.0

-  456.6

0.33 per cent

-5.53 per cent

Total

 47 201.0

52 583.0

5 382.0

3 212.2

41.11 per cent

15.36 per cent

 

 

Programme 3: Petroleum and Petroleum Products Regulation

 

The purpose of programme 3 on Petroleum and Petroleum Products Regulation is to manage the regulation of petroleum and petroleum products to ensure the optimum and orderly functioning of the petroleum industry and invariably achieve Government’s development goals.

 

The budget for this programme increased from R68.8 million in 2013/14 to R82. 7 million in the 2014/15 financial year. The Regional Petroleum Regulation offices sub-programme received the biggest share of the budget, from R25.4 million in 2013/14 to R30.4 million in the 2014/15 financial year. Expenditure in the Petroleum Compliance, Monitoring and Enforcement sub-programme has also increased from R13.6 million in 2013/14 to R16.2 million in the 2014/15 financial year. Allocation to the Fuel Pricing sub-programme has decrease by 2 percent when taking inflation into account.  

 

 

 

 

 

 

 

 

 

 

Table 4: Petroleum and Petroleum Products Regulation sub-programmes

 

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

Petroleum Compliance, Monitoring & Enforcement

 13 662.0

 16 277.0

 2 615.0

 1 664.7

19.14 per cent

12.19 per cent

Petroleum Licensing and Fuel Supply

 15 280.0

 21 051.0

 5 771.0

 4 542.0

37.77 per cent

29.73 per cent

Fuel Pricing

 14 373.0

 14 920.0

  547.0

-  324.0

3.81 per cent

-2.25 per cent

Regional Petroleum Regulation offices

 25 491.0

 30 497.0

 5 006.0

 3 225.6

19.64 per cent

12.65 per cent

Total

 68 806.0

82 745.0

13 939.0

9 108.3

80.35 per cent

52.31 per cent

 

Programme 4: Electrification and Energy Programme and Project Management

 

The purpose of the above programme is to manage, coordinate and monitor programmes and projects focused on access to energy.

.

The budget allocation for this programme has increased from R3.9 billion in 2013/14 to R4.1 billion in the 2014/15 financial year. The programme is divided into five sub-programmes. As can be seen in the table below, there is a decrease in budget allocation in two sub-programmes, namely, Energy Regional Office Programme and Projects Management Office – a decrease of 38 and 36 percent respectively. A large amount of the budget (4.1 million) is appropriated to the Integrated National Electrification Programme.

 

Table 5: Electrification and Energy Programme and Project Management sub-programmes

 

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

Integrated National Electrification Programme

3 914 233.0

4 165 901.0

 251 668.0

 8 461.0

6.43 per cent

0.22 per cent

Energy Regional Office

 11 881.0

 7 831.0

- 4 050.0

- 4 507.2

-34.09 per cent

-37.94 per cent

Programme and Projects Management Office

 13 273.0

 8 994.0

- 4 279.0

- 4 804.1

-32.24 per cent

-36.19 per cent

Electricity Infrastructure/Industry Transformation

 7 676.0

 9 798.0

 2 122.0

 1 550.0

27.64 per cent

20.19 per cent

Community Upliftment Programmes and Projects

 5 474.0

 6 688.0

 1 214.0

  823.6

22.18 per cent

15.04 per cent

Total

3 952 537.0

4 199 212.0

246 675.0

1 523.0

-10.07 per cent

-38.68 per cent

 

 

 

 

 

 

Programme 5: Nuclear Energy

 

The purpose of programme 5 is to manage the South African nuclear energy industry and control nuclear materials in terms of international obligations, and nuclear energy legislation and policies to ensure the peaceful use of nuclear energy.

 

The budget allocation for this programme has increased by R92 million (55 percent in real terms) from R708.7 million in 2013/14 to R850.5 million in the 2014/15 financial year. As can be seen in the table below, there is a significant percentage increase in budget allocation in all sub-programmes.

 

Table 6: Nuclear Energy sub-programmes

 

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

 

 

 

 

 

 

 

Nuclear Safety and Technology

 694 456.0

 832 246.0

 137 790.0

 89 203.1

19.84 per cent

12.85 per cent

Nuclear Non-proliferation and Radiation

 5 504.0

 7 338.0

 1 834.0

 1 405.6

33.32 per cent

25.54 per cent

Nuclear Policy

 8 838.0

 10 918.0

 2 080.0

 1 442.6

23.53 per cent

16.32 per cent

Total

 708 798.0

850 502.0

141 704.0

92 051.3

76.70 per cent

54.71 per cent

 

 

Programme 6: Clean Energy    

 

The purpose of the programme on Clean Energy is to manage and facilitate the development and implementation of clean and renewable energy initiatives, as well as energy efficiency and demand side management initiatives.

 

The budget for this programme increased from R1.5 billion in 2013/14 to R1.9 billion in the 2014/15 financial year. Energy Efficiency and Renewable Energy sub-programmes received a biggest share of the budget, R1.8 billion and R168.4 million respectively. Climate Change and Designated National Authorities sub-programme received R7.6 million.

 

Table 7: Clean Energy sub-programmes

Programme

Budget

Nominal Increase / Decrease in 2014/15

Real Increase / Decrease in 2014/15

Nominal Percent change in 2014/15

Real Percent change in 2014/15

R million

2013/14

2014/15

Energy Efficiency

1 358 631.0

1 810 348.0

 451 717.0

 346 028.1

33.25 per cent

25.47 per cent

Renewable Energy

 140 364.0

 168 437.0

 28 073.0

 18 239.6

20.00 per cent

12.99 per cent

Climate change and Designated National Authority

 7 279.0

 7 690.0

  411.0

-  37.9

5.65 per cent

-0.52 per cent

Total

1 506 274.0

1986 475.0

480 201.0

364 229.8

58.89 per cent

37.94 per cent

Source: National Treasury (2013) – Vote 29 Energy.

 

 

9. Observations and findings

 

·         The current Director-General’s term of office is coming to an end at the end of November 2014 and the Department is already in the process of filling the post.

·         Members raised concern regarding the Department’s senior management gender representivity.

·         On the issue of accountability and monitoring the funding which is allocated to ESKOM, the Department acknowledged that the lines of accountability is blurred and that these need to be addressed, where for example there need to be clear terms of reference between the Department of Energy and the Department of Public Enterprises, to whom ESKOM reports.

·         The accountability of funds allocated to municipalities (from the department) remains a challenge as there are no mechanisms in place to address these shortcomings,

·         The Minister assured members that the Energy Master Plan will be developed in consultation with the Committee, and that inputs from the Committee will be valued and appreciated.

·         The Inter-Ministerial Committee Reports will be made available to the Committee, provided they do not contain any classified information.

·         According to the Department greening the economy is an expensive exercise and all costs and benefits need to be considered.

·         The current staff compliment of the Department is 42% women and 58% male.

·         The department indicated that carbon tax levies is the National Treasury’s competence.

·         The Free Basic Electricity (FBE) programme provides for free electricity to people who are unable to afford electricity. In addition to FBE, tariffs are designed in blocks so upper and lower tariff users pay different tariffs.

·         According to the Department of Energy, the Koeberg Nuclear Power Station has been successfully producing electricity for the last 30 years and Eskom has plans to ensure the plant has a further active life.

 

10.        Conclusion

 

The Portfolio Committee on Energy will continue to fulfil its Constitutional mandate. It is guided by the Parliamentary rules in conducting the oversight on the functioning of the Department of Energy. This is done to ensure proper and effective functioning and compliance with the legislation and policy requirements.

 

11.        Recommendations

 

Having considered the Strategic plan and Budget Vote of the Department of Energy, the Portfolio Committee on Energy (PCE) recommends that the House supports the Budget Vote 29: Energy and further recommends as follows:

 

The Minister of Energy is requested, within the current financial year, to:

1.     Conduct an overall assessment of funding of the Department of Energy, to establish if the department is correctly funded to deliver on all the areas that need attention for energy resource development in SA.

2.     Expedite the delivery of the various pieces of legislation and policy documents that are still outstanding. These include the new draft Integrated Energy Plan and Integrated Resource Plan which are critical for energy planning in South Africa.

3.     Focus on the development of key and critical skills in the various sectors of energy including, amongst others, engineering, nuclear, renewable and electricity distribution.

 

 

4.     Ensures security of electricity supply, in the short term, is made a priority, with the various stakeholders and Government departments, to develop a mechanism to prevent load shedding in South Africa.

5.     Place emphasis on the Solar Water Heater programme. The Department envisaged one million units be rolled out by 2015 of which only 400 000 have been rolled out thus far. Challenges include:  local content, the involvement of all spheres of government, maintenance of units.

6.     Place emphasis on the roll-out of the National Electrification programme.

7.     Finalise the proposed Gas Utilisation Master Plan and report regularly on its progress to the Portfolio Committee on Energy.

8.     Ensure that the restructuring of the Central Energy Fund (including its subsidiary companies) are empowered to meet the future demands of South Africa.

9.     Ensure that the National Energy Regulator (NNR) has the requisite skills and resources able to manage the new nuclear build programme.

10.  Assess the legislative framework of the National Energy Regulator of SA (NERSA) to ensure that they are empowered to execute their duties.

11.  Ensure that National Energy Regulator of SA (NERSA), in conjunction with the Department of Energy and the SA Local Government Association (SALGA), ensure greater compliance of municipalities to NERSA’s determinations.

12.  Explore SANEDI’s role as an Energy Efficiency Champion for South Africa.

13.  Develop an end state vision for the electricity sector.

 

 Report to be considered