ATC100413: Report on Budget Vote 28: Energy
Energy
REPORT OF THE PORTFOLIO COMMITTEE ON ENERGY ON BUDGET VOTE 28: ENERGY, DATED 13 APRIL 2010
The Portfolio Committee on Energy, having considered the Strategic Plan [2010-11/2012-13] and Budget Vote 28: Energy, reports as follows;
Introduction
On 15, 16 and 23 March 2010, the Portfolio Committee on Energy was briefed by the Department of Energy on the following:
· The Department of Energy Budget Vote 28 and Strategic Plan (2010-11/2012-13).
· Human resources and general staffing structure of the newly set-up Department of Energy.
Overview of Budget Vote 28 and Strategic Plan
The Department of Energy’s mandate is to ensure secure and sustainable provision of energy for socio-economic development; whilst the mission is to regulate and transform the sector for the provision of secure, sustainable and affordable energy. The strategic plan of the Department seeks to deliver results along eight strategic objectives that include promoting energy security through reliable, clean and affordable sources; universal access to energy sources, transformation of the energy sector, and strengthening the operations and management of the Department. The eight strategic objectives are:
- To ensure energy security
- To achieve universal access and transform the energy sector
- To regulate the energy sector
- Effective and efficient service delivery
- Optimal utilisation of energy resources
- To ensure sustainable development
- To enhance the Department of Energy culture systems and people
- To promote corporate governance
The strategic plan of the Department outlines in detail the objectives, measures, Medium Term Expenditure Framework targets and initiatives of the four departmental programmes, namely;
· Programme 1: Administration
· Programme 2: Hydrocarbons and Energy Planning
· Programme 3: Electricity, Nuclear and Clean Energy
· Programme 4: Associated Services
The purpose of the following State Owned Entities reporting to the Minister of Energy is to provide related services in support of the Department’s mandate through funded and non-funded statutory bodies and organisations.
Regulators
· National Nuclear Regulator
· National Energy Regulator of South Africa
Research and Development
· Central Energy Fund – CEF (PTY) LTD
· South African Nuclear Energy Corporation
Other
· Electricity Distribution Industry Holdings
The Strategic Plan of the Department of Energy was informed by Government Priorities, the State of the Nation Address (2010), National Budget Speech (2010), the Budget Vote Speech (2009) and sector specific challenges.
Organisational Environment
· The budget split stands at a 30/70 ratio between the Department of Energy and the Department of Mineral Resources for support services, although functions have been duplicated.
· The Department has an interim structure that ensures that all critical positions to establish a new department are filled immediately.
· There has been great cooperation between State Owned Entities, who have assisted in the setting up of the new department.
· The first phase of capacitating the Department of Energy has been completed (the matching and placement of the former Department of Minerals and Energy personnel).
· The second phase (advertising and filling of vacant posts) has begun and this should be completed by the end of the first quarter.
· Additional capacity will be obtained with the mid-term budget adjustments later this year.
· Line function has maintained two branches, namely; Hydrocarbons and Energy Planning, as well as Electricity, Nuclear and Clean Energy.
· There are plans for gradual increase of the line functions capacity to realise the full structure of the new Department of Energy by the end of the Medium Term Expenditure Framework.
Policy Development
The Department’s legislative focus for this year is as follows;
· The Seventh Constitutional Amendment Bill
· The REDs Establishment Bill
· The Electricity Regulation Amendment Bill
· New Generation/ Independent Power Producers Regulation
· The Petroleum Products Amendment Act, 2003
· The National Energy Act, 2008
· Review of the fuel specification regulation, so as to advance to higher and cleaner fuels.
Programme 1: Administration (Support Services)
The main focus of the programme is on the establishment of the new department, with focus on operational structure, capacity and the provision of skills. The programme also has its focus on the setting up of governance structures, including the internal audit functions, audit committee, risk management and fraud prevention, procurement and finance committees, amongst others. The review of the international agreements, aligning them to government’s objectives, falls under the programme, so does the communication strategy, finance as well as the strengthening of the Department’s State Owned Entities oversight function.
Update on the Split Process
In May 2009, the President of the Republic announced the split of the Department of Minerals and Energy into two departments, namely the Department of Energy and the Department of Mineral Resources.
A National Macro Organisation Steering Committee was established to oversee the process of re-organising government departments. Various work streams were formed to focus on specific functions such as Organisational Scoping, Human Resource Audits, Change Management and Communication, Labour and Legal, Infrastructure and Assets, ICT, Finance and Budgets. An internal steering committee for the split was established and work stream leaders were appointed. A consolidated transitional plan was compiled and progress reports by work streams are being submitted to the Departmental Steering Committee every second week.
The functional analysis of functions was finalised. A determination on the transfer of functions was obtained from the Minister of Public Service and Administration. The departmental structures have been designed and approved by both Executing Authorities. The process currently awaits concurrence on the Departmental structures from the Minister of Public Service and Administration. Allocation of funding for newly- created positions has been obtained, but for critical posts only. All new positions in Support Services have been profiled and evaluated.
A Change Management and Communication Strategy was developed and approved by the Steering Committee. A submission on the appointment of the Matching and Placement Committee for support services staff was approved by both Directors-General. The placement of all employees on separate Persal systems will be finalised on 15 March 2010. The recommendations for placements shall be considered by both Directors-General for approval, upon which formal placement letters will be issued to affected employees. In cases where employees are not satisfied, an appeal process will commence. Once the matching and placement of staff is finalised, all funded vacant posts will be advertised no later than 30 April 2010.
Throughout this process, consultation with employee organisations on the split was done. A Labour Relations Forum has been established. A collective agreement on the relocation of employees to Trevena Campus and the split of the Department was concluded in the Departmental Bargaining Chamber.
Programme 2: Hydrocarbons and Energy Planning
Programme Focus Areas
- Integrated Energy Planning Strategy – caters for the provision of an integrated energy plan that recognises the interdependence of all forms of energy, which will be formulated by the end of the current year.
- Fuel specifications and standards.
- Liquefied Petroleum Gas (LPG) price regulation – supports greater use of LPG for thermal purposes.
- Biofuels pricing framework – development of a framework to guide the implementation of the biofuels strategy to expand the market.
Policy Development
The programme will advocate for the amendment [or development, review where applicable] of the following:
- Petroleum Amendment Act of 2003, to ensure improved governance of the petroleum sector.
- National Energy Act of 2008, to enable integrated energy planning and ensure energy security. Between 2010 and 2011, the promulgation of Regulations for the mandatory provision of data will be done.
- There will also be a review of fuel specifications and standards, albeit the opposition by major oil companies.
- A review of the Liquid Fuels Charter, to usher in a new empowerment dispensation for the liquid fuels industry, is also part of the plans.
- The development of an energy modeling system for South Africa as a tool to develop an Integrated Energy Plan.
- The development of an appropriate pricing mechanism for Regulatory Accounting throughout the liquid fuels value chain to promote appropriate behaviour.
- Develop integrated energy centres (IeCs) to contribute towards the eradication of poverty.
General Challenges
· Budgetary constraints
· Inadequate support for line function, particularly ICT systems
· Personnel
· Data availability
· Understanding of energy issues (or lack thereof)
· External factors
Programme 3: Electricity, Nuclear and Clean Energy
Electricity Strategic Objectives
· To create and maintain a secure balance between electricity supply and demand;
· To diversify primary energy mix in the new build programme;
· To create incentives for energy efficiency and demand side management programmes;
· To create a sustainable electricity distribution industry.
Electricity Programmes
The following programmes form part of the Electricity, Nuclear and Clean Energy branch plans for the MTEF;
· Integrated Resource Planning;
· Private sector participation in the electricity generation sector;
· Energy Efficiency and Demand Side Management Scheme
· Distribution Asset Rehabilitation
· Establish the Regional Electricity Distributors
Nuclear Energy
The branch plans to improve governance of the nuclear sector, specifically in relation to nuclear safety, nuclear non-proliferation and nuclear technology. The Nuclear Energy Policy of 2008 will come under review. Decisions on new nuclear power plants will be effected, with specific focus on Nuclear Fuel Cycle, Regulatory Framework, Skills and Training, Stakeholder engagement and communication, industrialization and localization, and the funding and procurement processes.
The establishment of the Radioactive Waste Disposal Institute is currently ongoing, as well as that of the National Committee on Radioactive Waste Management.
Clean Energy
Energy Efficiency
The finalization of the Energy Efficiency Strategy (2005) will be pursued, and the EES will advocate for a final energy demand reduction of 12% by 2015, with the industrial sector contributing 15%. There will be a review of the Energy Efficiency Accord. The Department plans to develop the Monitoring and Verification system for Energy Efficiency and Demand Side Management. The Municipal Energy Efficiency; and the Public Buildings Energy Efficiency projects will be implemented. The other programmes include;
· Energy Efficiency and Demand Management campaigns will be implemented, to enhance the uptake of energy efficiency initiatives
· The finalization of the Renewable Energy Policy (2003)
· Implementation of the National Solar Water Heating Programme, which seeks to install 1 million solar water heaters by 2014
· Operationalisation of the Working for Energy Programme
· Implementation of the South African Wind Energy Programme
· Implementation of the Biofuels Strategy
· Implementation of the Tradable Renewable Energy Certificates
· Operationalisation of International Renewable Energy Agency engagements.
Integrated National Electrification Programme (INEP)
The programme seeks to manage the electrification planning, funding and implementation process, with the aim of eliminating the electrification backlog so as to achieve Universal Access.
The focus areas include; managing the electrification planning process, and subsequently its funding allocation and implementation processes. The INEP will be monitored in line with the Energy White Paper.
The Backlog Classification is as follows;
|
PROVINCE |
BACKLOG |
% BACKLOG |
INFORMAL BACKLOG |
FORMAL BACKLOG |
|
Eastern Cape |
673,694 |
19.88% |
67,369 |
606,325 |
|
Free State |
200,633 |
5.92% |
70,222 |
130,411 |
|
Gauteng |
715,195 |
21.11% |
572,156 |
143,039 |
|
Kwazulu-Natal |
813,315 |
24.00% |
162,663 |
650,652 |
|
Limpopo |
340,064 |
10.04% |
51,010 |
289,054 |
|
Mpumalanga |
222,755 |
6.57% |
44,551 |
178,204 |
|
North West |
192,774 |
5.69% |
48,194 |
144,581 |
|
Northern Cape |
49,375 |
1.46% |
17,281 |
32,094 |
|
Western Cape |
180,351 |
5.32% |
126,246 |
54,105 |
|
Total |
3,388,156 |
100.00% |
1,159,691 |
2,228,465 |
Source: Department of Energy
One of the challenges the Department of Energy faces with regards to its vision for universal access by 2014 is funding. Below is an outline of the funding requirements for this programme to be realised;
|
FINANCIAL YEAR |
CONNECTIONS |
BULK INFRASTRUCTURE |
REFURBISHMENT/REHABILITATION |
TOTAL/YEAR |
|
|
2009-10 |
R 4,554,560,933 |
R 1,066,368,279 |
R 666,018,943 |
R 6,286,948,156 |
|
|
2010-11 |
R 4,625,652,151 |
R 2,087,695,645 |
R 759,261,595 |
R 7,472,609,392 |
|
|
2011-12 |
R 4,698,165,194 |
R 2,109,449,558 |
R 865,558,218 |
R 7,673,172,971 |
|
|
2012-13 |
R 4,772,128,498 |
R 2,131,638,549 |
R 986,736,368.92 |
R 7,890,503,417 |
|
|
Totals |
R 18,650,506,778 |
R 6,465,571,031 |
R 6,465,571,031 |
R 29,323,233,937 |
|
Source: Department of Energy
Programme 4: Associated Services
SOE Oversight
State Owned Entities are the extended arm of government and need to advance government priorities. They are established as instruments of socio-economic advancement, and should have the means to contribute to the improvement of the standard of living of the citizens of South Africaand create sustainable economic and social benefits. This branch facilitates the oversight role over the State Owned Entities as mentioned in the overview.
Department of Energy Oversight Role
The Department is responsible for the alignment of strategies and plans of the SOEs. It must also ensure the balance between the government priorities and commercial priorities of these entities. The Minister is responsible for shareholder board appointments. The Associate Services branch also oversees board participation by departmental representatives. It must also monitor and evaluate the entities’ performance.
The oversight on the electrification programme – as defined in the Division of Revenue Act- is the responsibility of the Department, and applies to both Eskom (Schedule 7) and the Municipalities (Schedule 6).
The Department of Energy will focus on improved oversight, monitoring and evaluation in line with government priorities and addressing the concerns of citizens raised through the Presidential Hotline. It will also focus on the alignment of planning cycles.
The Department will hold the shareholders’ annual strategic workshop in July/August, so as to articulate government priorities and alignment of strategies.
Transfers to State Owned Entities
Below are the allocation to State Owned Entities for the 2010/11 financial year;
|
ENTITY |
AMOUNT |
PROGRAMME |
|
1. NECSA |
R574,1m |
Capex R10,7m Operational budget R554m |
|
2. NNR |
R20m |
Operational budget |
|
3. EDIH |
R61,6m |
Operational budget |
|
4. INEP |
R2,808bn |
Electrification programme |
|
TOTAL |
R3,463bn |
|
Source: Department of Energy
Budget summary
Budget Allocation- Energy
|
Programme |
Budget |
NominalRandchange |
RealRandchange |
Nominal % change |
Real % change |
|||
|
|
|
|
|
|
|
|||
|
R million |
2009/10 |
2010/11 |
2011/12 |
2012/13 |
2009/10 - 2010/11 |
2009/10 - 2010/11 |
||
|
Administration |
68.8 |
104.2 |
127.7 |
106.9 |
35.4 |
28.9 |
51.45 |
41.94 |
|
Hydrocarbons and Energy Planning |
55.3 |
1 558.6 |
1 564.6 |
1 571.2 |
1 503.3 |
1 405.4 |
2718.44 |
2541.47 |
|
Electricity, Nuclear and Cleaner Energy |
340.0 |
408.8 |
513.7 |
116.5 |
68.8 |
43.1 |
20.24 |
12.69 |
|
Associated Services |
3 293.4 |
3 463.8 |
3 533.6 |
3 744.0 |
170.4 |
- 47.1 |
5.17 |
-1.43 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
3 757.5 |
5 535.4 |
5 739.6 |
5 538.6 |
1 777.9 |
1 430.3 |
47.32 |
38.07 |
Source: Research Unit
Overview
After the split of the two departments, an amount of R75 million was transferred to the Department for the 2010/11 financial year. The MTEC proposal involved mainly the reprioritization of funds after the National Treasury ruled out any possibility of new funding. An amount of R150 million was re-allocated from the Integrated National Electrification Programme. The Department of Energy did not benefit, whilst the Department of Minerals received approximately R65 million. The amount was then ear-marked for transfer back to the Department of Energy as it was reprioritized from the related programmes. The National Treasury has been informally informed of the decision. The agreement between the two Accounting Officers was drafted and is awaiting approval.
Potential financial challenges
· The funding of new generation capacity, which is always funded from savings.
· Discontinuation of energy efficiency (demand side management) allocation on the final year of the MTEF cycle (2012/13) – which will be replaced by tariffs.
· The structure is not yet fully funded.
· The universal access cost projections are far above the allocated budget.
Concerns and questions by the members of the Portfolio Committee
The Portfolio Committee raised a number of issues (for clarity and follow-up) and concerns throughout the briefings by the Department; and the summary of responses is included in the above overview. Amongst these were
· The matching and placement of staff; as well as job creation by the formation of the new Department
· Security of supply during the 2010 Soccer World Cup
· The status quo with regards to the establishment of the Radioactive Waste Disposal Institute
· Fuel specifications
· Electricity pricing
· Branding
· Ethanol and Biofuels (in relation to Renewable Energy)
· Independent System Market Operators
· Liquefied Petroleum Gas
· Integrated Resource Plan – timelines
· Integrated Human Resource Plan – the Department presented this on 23 March 2010, to the satisfaction of the Committee
Committee Recommendations
The Portfolio Committee on Energy recommends as follows;
· more practical, reachable targets on the electrification programme (in the context of Universal Access) and solar water heaters (renewable energies) should be set by the Department in light of the limited financial resources at its disposal. A further briefing on the said subject was presented by the Department on 13 April 2010.
· the Department should ensure that its ongoing restructuring process is used as an opportunity to achieve gender equity.
· the Committee would support the Department of Energy in its efforts to improve the energy mix by 2012, and expressed appreciation that the Department was now separate from the mining component.
· there was a need for better awareness on nuclear energy and the associated programmes on nuclear energy.
· the Department should follow up on the implementation of the Free Basic Electricity Policy.
· the Department of Energy presented an Integrated Human Resources Plan to the committee on 23 March 2010 as reported above.
The Portfolio Committee on Energy recommends that Budget Vote 28: Energy be approved by the House.
Report to be considered.
Documents
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