ATC111108: Report on Budgetary Review and Recommendation Report of the Portfolio Committee on Energy


The Budgetary Review and Recommendation Report of the Portfolio Committee on Energy, 08 November 2011.


The Portfolio Committee on Energy, having assessed the performance of the Department of Energy, reports as follows:


1. Introduction


1.1.   The role of the Committee


The mandate of the Portfolio Committee on Energy) is underpinned by the provisions of the Constitution of the Republic of South Africa, 1996, Parliament’s vision, mission, core objectives and the Rules of Parliament. The mandate and the role of the Committee is therefore to:


·         Conduct oversight on behalf of the National Assembly, over the Minister of Energy to ensure executive accountability for the delivery of services to the people of South Africa, as enshrined in the Constitution of the Republic of South Africa, 1996. Section 195, read with Section 33 of the Constitution, 1996, guarantees all South Africans a right to services that must be provided impartially, fairly, equitably and without bias.


·         Oversee and review all matters of public interest relating to the public sector and energy to ensure service delivery;


·         Ensure compliance by the Minister and  entities under his/her charge to relevant legislation (financial and other); and


·         Monitor the expenditure of the Budget Vote of the Department and its entities and ensure regular reporting to the Committee, within the scope of accountability and transparency.


According to Section 5 of the Money Bills Amendment Procedure and Related Matters Act, the National Assembly, through its committees, must annually assess the performance of each national department. The Committee must submit an annual Budgetary Review and Recommendations Report (BRRR) for each department that falls under its oversight responsibilities for tabling in the National Assembly.


These should be considered by the Committee on Appropriations when it is considering and reporting on the Medium Term Budget Policy Statement (MTBPS) to the House.



1.2.   Processes in compiling the Budgetary Review and Recommendations Report 2011


The committee, in undertaking the process of compiling this report, has considered the following source documents and engagements:

·         Strategic Plan briefings, in terms of the Money Bills Procedures Act by both the Department of Energy (DoE) and its entities.


·         Annual Report briefings, in terms of Section 65 of the Public Finance Management Act, No. 1 of 1999, which requires that Ministers table the annual reports and financial statements for the department and public entities to Parliament


·         Section 32 reports - third and fourth Quarter Performance Reports (2010/11)


·         Briefing by the Financial and Fiscal Commission on its energy-sector related recommendations made by the Commission in the past


·         Overview by the National Planning Commission (NPC) regarding the findings of its Diagnostic report focusing on energy issues.


·         Overview of the progress made by the Department of Energy with respect to commitments to the outcomes as articulated in the Service Delivery Agreement with the Ministry


·         The committee further identified and included findings and recommendations in its oversight visit and study tour reports undertaken during the period of review.


1.3. The Department


1.3.1.    Department of Energy’s (DoE) mandate

To ensure secure and sustainable provision of energy for socio-economic development.


1.3.2.    DoE’s Vision 2014

A transformed and sustainable energy sector with universal access to modern energy carriers for all by 2014.


1.3.3.    DoE’s mission statement

To regulate and transform the sector for the provision of secure, sustainable and affordable energy.


2. Department’s Strategic Priorities and Measurable Objectives


2.1 Strategic Plan of the Department


The Department’s strategic plan 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.


1.       Ensure energy security – creating and maintaining a balance between energy supply and energy demand, develop strategic partnerships, improve co-ordination in the sector and ensure reliable delivery and logistics.


2.       Achieve universal access and transform the energy sector – diversify energy mix, improve access and connectivity, provision of quality and affordable energy, promote safe use of energy and transform the energy sector.


3.       Regulate the energy sector – develop effective legislation, policies and guidelines, encourage investment in the energy sector, ensure compliance with legislation.


4.       Effective and efficient service delivery – understands and improves stakeholder needs and improves turn – around times.


5.       Optimal utilization of energy resources – develop enabling policies, encourage energy efficient technologies.


6.       Ensure sustainable development – promote clean energy alternatives, encourage economic development, promote job creation.


7.       Enhance Department of Energy culture systems and people – attract, develop and retain appropriate skills, promote good organizational culture, make the Department an employer of choice.


8.       Promote corporate governance – optimal utilization of resources, manage budget effectively, implement fraud and risk management, and ensure compliance with relevant prescripts.



2.2. Measurable Objectives of the Department


·         Ensure supply is secure and demand is well managed.


·         An efficient, competitive and responsive energy infrastructure network


·         Improved energy regulation and competition.


·         Efficient and diverse energy mix for universal access within a transformed energy sector.


·         Environmental assets and natural resources protected and continually enhanced by cleaner energy technologies


·         Mitigation against, and adaptation to, the impacts of climate change


·         Good corporate governance for effective and efficient service delivery


3. Analysis of the Department’s Prevailing Strategic and Operational Plan


The key strategic policies of the Department hinge on the following key objectives:

·         Attain universal access to energy by 2014;

·         Ensure accessible, affordable and reliable energy, especially for the poor;

·         Diversify primary energy sources and reducing dependency on coal;

·         Practice good governance, which must also facilitate and encourage private-sector investments in the energy sector and provide environmentally sensitive energy.


South Africa experienced power outages in January 2008 as result of inadequate electricity supply on the grid, and a National Energy Emergency was declared s a response Government developed an Energy Security Master Plan for electricity and liquid fuels. The Energy Security Master Plan outlined a number of priorities to ameliorate the energy crisis and energy planning for the country. These include among others, the following priorities:

·         Ensuring acceleration of universal access to electricity by building key bulk infrastructure. Eskom build programme will invest R150 billion over the next five years. R23 billion is reserved for independent power-producer entrants.


·         Demand Side Management and Energy Efficiency initiatives are still the cornerstone of energy policies as they are regarded to have an effect of reducing energy demand on the electricity grid, delay the need for additional power stations to be built, keep electricity costs down and create opportunities for the introduction of the creation and funding of incentives for new projects and products.


·         Rural electrification. The Department continues to lead in the process of electrification with specific emphasis on rural electrification and implementing Free Basic Electricity Framework policy in order to protect poor rural customers.


·         The above three priorities have always received larger proportion of budget in the past three financial years, and also in the current MTEF. This trend, is by and large, caused by the fact that Eskom build programme has been put high in the sector priorities over past three years to guard against power outages, and integrated rural electrification programme that has a greater share in the budget because of its quest to attain universal access to electricity.


·         Energy Efficiency Initiatives in electricity sector assist in reducing environmental damages. Using electricity effectively and efficiently means that less electricity has to be generated, greenhouse gas emissions are reduced and the sustainable use of electricity is achieved. The National Energy Efficiency Agency was established mainly to coordinate national campaign to conserve energy in all sectors of the economy. The energy efficiency programme include activities such as, rolling out of compact fluorescent lights, subsidization of solar water heaters, promotion of clean development mechanism, fuel switching, traffic lights and public lighting, etc. The Department of Energy is also the main supporting department in the “Green” and energy saving industries as contained in the Industrial Policy Action Plan 2010/11-2012/13.  In support of the Renewable Energy White Paper goal of 10, 000 GWh, the Minister of Energy has made a commitment to install one million Solar Water Heaters (SWHs) by 2014. It is anticipated this target will be increased to 5.6 million SWHs by 2020.


·         Promoting clean and renewable energy sources. Promoting the development and usage of clean energy resources remains a key priority for the Department. The renewable energy feed-in tariffs (REFIT) that incentivize producers to invest in renewable energy have been developed.


·         The Programme: Electricity, Nuclear and Clean Energy earmarked a budget to undertake energy efficiency, promotion of clean and renewable energy sources priorities, and also assist in development, and monitoring of electricity policies and programmes.


·         National Strategic fuel stocks policy and liquid fuel sector. The Energy Security Master Plan for liquid fuels identified a number of challenges and constraints in meeting energy demand. This Policy set out the framework for the storage of fuel stocks by Government as well as industries, to guide the necessary investment decisions within liquid fuel sector.


·         Nuclear energy. The Department continues to implement Nuclear Energy Policy of 2008 and a nuclear energy implementation committee was established in March 2009 to review the Country’s readiness to implement or expand its nuclear programme.


4. Analysis of Section 32 Expenditure Reports


The Department of Energy (DoE) briefed the committee on the following section 32 reports (quarterly performance reports):


4.1. Third Quarter financial performance report of 2010/11


Table 1: 2010/11 – 3rd quarter financial performance



10/11 Total Budget


YTD Budget


YTD Actual




% of  Total 10/11 Budget expended

Total Energy






Compensation of Employees






Goods & Services






Transfers & Subsidies






Payments for Capital Assets







Table 1 above shows the 2010/11 - 3rd quarter financial performance of the DoE. At the end of the third quarter, the Department had disbursed a total of R4.1 billion or 72.3% of the total budget allocation for the 2010/11 financial year. This total disbursement of R4.1 billion was R220.1 million less than the available benchmark drawing of R4.3 billion from the National Revenue Fund, mainly due to the performance within the Transfer payments classification.


With regard to transfer payments the department had a total of R4.1 billion available to transfer to entities or implementing agents and an actual of R3.9 billion was transferred, resulting in a variance of R224 million. This variance is attributable to the delay in the transfer of funds to Transnet for the petroleum pipeline.  This delay was due to the department implementing progress reviews. The amount delayed amounted to R300 million.


The results reflected within the Goods and Services economic classification showed a R5.6 million year-to-date over spend mainly due to membership fees paid to international bodies.








4.2. Fourth Quarter financial Performance Report of 2010/11


Table 2: DoE’s expenditure per programme


Expenditure per appropriation Act 2010 ('000)

Appropriated Budget

Total additional appropriation

Available Budget

Year-to-date actual expenditure

Percentage of budget expended

1. Administration






2. Hydrocarbons and energy planning






3. Electricity, Nuclear and Clean Energy






4. Associated services






Total for vote







Table 3: 2010/11 – 4th Quarter Financial Performance



10/11 Total Budget


YTD Budget


YTD Actual




% of  Total 10/11 Budget expended

Total Energy






Compensation of Employees






Goods & Services






Transfers & Subsidies






Payments for Capital Assets







Table 3 above shows the 2010/11 – 4th quarter financial performance of the DoE. The Department has seen an increase in spending within the quarter under review. This was mainly due to the Department closing of all commitments and open orders in preparation for the year end process. The Department disbursed an additional R1.4 billion in the current quarter increasing the overall disbursement to a total of R5.5 billion or 97.5% of the total 2010/11 financial year’s budget.


Transfer payments increased by 36% from R3.9 billion in the last quarter to R5.3 billion in the current quarter. The oversight issues which delayed transfers to Transnet for the construction of the petroleum pipelines were resolved in the last quarter.  A total of R1.5 billion was transferred, as per the plan. By the end of this quarter, the Department had transferred R5.3 billion or 97.7% of the total 2010/11 Transfer payments budget. 


The unspent total was R126.5m, a portion of which, 62%, was committed and a motivation for a roll-over to the 2011/12 financial year was submitted to the National Treasury for approval. The INEP non-grid project, was entirely accountable for the balance of the unspent and uncommitted funds, approximately R48 million.


Spending on Goods & Services increased from R61.2 million in the last quarter to R91 million in the current quarter.  Although the Department’s financial records reflected an unspent budget total of R14.5 million within this classification, the entire balance was committed and motivated for a roll-over. In addition to the R14.5 million requested as a roll-over, the Department had an additional R7.2 million of committed expenditure which were motivated for inclusion into the 2011/12 rolled over funds.


Although spending on Capital assets increased from R2.2 million in the last quarter to R3.3 million in the current quarter, this performance was still below the Department’s initial plan and resulted in an under spend of R1.9 million.  The Department had anticipated moving to a new office building.  The costs associated with this move, e.g. ICT costs, were catered for within this category.  The move was delayed due to the approval of the new building by the Department of Public works.


Table 4: 2011/12 Rollover overview



Unspent Funds


Roll-over Requested


Roll-over Approved



(Requested & Approved)

Total Energy





Compensation of Employees





Goods & Services





Transfers & Subsidies





Payments for Capital Assets






Table 4 above highlights the rollover review of the DoE. Although the Department only had R14.5 million left from its 2010/11 budget allocation in Goods and Services, a Roll-over request was submitted to the National Treasury for a total of R21.7 million.  The additional funds were required in order to meet the department’s obligation. A total of R10.7 million was not approved, and this is the amount related to NERT PMO.


With regard to transfer payments, the Department requested a Roll-over total of R78.5 million and approval was granted for R77.2 million.  The R1.3 million not approved is a portion requested under the Non-grid programme.


5. Analysis of the Department’s Annual Report and Financial Statements


5.1. Programme Performance overview

The Department of Energy consists of four programmes that are reflected in table 6 below. Some of the programmes are sector specific like Hydrocarbons and Energy Planning; and Electricity, Nuclear and Clean Energy. Administration and Associated Services programmes are over arching programmes providing services to both sectors.











Table 5: Summary of expenditure per programme

Expenditure per appropriation Act 2010 ('000)

Appropriated Budget

Total additional appropriation

Final Appropriation

Year-to-date actual expenditure

Percentage of budget expended

1. Administration






2. Hydrocarbons and energy planning






3. Electricity, Nuclear and Clean Energy






4. Associated services






Total for vote






Source: Department of Energy-Annual Report 2010/2011


5.2. Administration

The programme operated with a higher vacancy rate for the better part of last year in until the latter in 2010, when it received funds which were misallocated to the Department of Minerals Resources (DMR). The poor state of affairs required that most employees in the support function had to perform the duties of two or more people. Most of the predetermined objectives were achieved despite operating at high vacancy rate for the better part of the year. The Departmental capacity increased from 41 percent at the beginning of the year to 52 percent at the end of year. The average vacancy rate for the year was 10.6 percent caused by lack of funding.


5.3. Hydrocarbons and Energy Planning

In terms of service delivery achievements, the Department has a draft LPG strategy with an objective of increasing LPG usage in the households to 20 percent (1 million people). However, the current usage of LPG is at 5 percent. The Department need to do a lot in the LPG sub sector in order to achieve its target and this is evident from the briefings the Department had with PC on Energy. There are still barriers that need to be unlocked such as cylinder management, non compliance to pricing, possible collusion etc in pursuit of greater uptake of LPG in South Africa.


It is noted that Integrated Energy Plan was not completed as it was initially envisaged due to the fact that there was need to revise some of the Plausible Future Scenarios and IEP methodology. The scope and availability of data to build model seem to have been a major impediment.


One of the departmental priorities as per strategic plan 2010/11 was the development of Biofuels Pricing Framework to guide investment decisions and expanding the biofuels market as envisaged in the Biofuels Industrial Strategy. This seem to have been not been achieved as per annual report and it will stall the whole process of biofuels market creation because without price signals the investors would not invest in this sub sector.


5.4. Electricity, Nuclear and Clean Energy

The purpose of the programme is to monitor developments in the electricity, nuclear and clean energy sectors. The programme has spent 94.7 percent of its budget. The actual unspent budget (under expenditure) totaled R23 098 million for the period under review.


In terms of the Integrated National Electrification Programme (INEP) which is aimed at achieving universal access to electricity, the Department connected 195 000 households to the electricity and 10 000 to the off grid system with an overall spend of R29 billion. More than 5 000 jobs were created during electrification of households.

Huge chunks of departmental under-expenditure is from this programme and reasons for the underspending as stated, are as follows:


  • INEP: Non-grid services providers - R114.3 million designated for transfers to INEP were not made due to delays in service agreements, late fund requests by municipalities and time frames attached to the bank verification process.
  • NERT-PMO- R5 million in respect of the National Electricity Response Team (NERT-PMO) was not disbursed before March 31st
  • INEP: Conditional Grant to municipalities - R1.58 million was not disbursed due to late fund requests by municipalities and time frames attached to the bank verification process.


5.5. Associated Services

The purpose of the Associated Services programme is to provide related services in support of the Department’s mandate through funded and non-funded statutory bodies and organisations.


The measurable objectives were to enhance the Department’s objectives through policies and directives, promoting its legislative mandate and leading to the creation of an environment conducive to sustainable development, investment and the improvement of the quality of life of all South Africans.


The greater percentage of the Departmental budget (62 per cent) was allocated to this programme. The greater portion of the programme budget is for transfers and subsidies. Funds are transferred from this programme to entities such as EDIH, NNR and NECSA, while other entities have funded their own operations through levies without grants from the Department.


6. Briefings by the entities on their Annual Reports 2010/11


6.1. National Nuclear Regulator (NNR)


The NNR’s mission is to provide and maintain an effective and efficient national regulatory framework for the protection of persons, property and the environment against nuclear damage.


6.1.1. Highlights of the NNR during the period under review:

  • Nuclear Security Action plan for FIFA world Cup – This entailed providing expertise in radiological monitoring, instrument methodology and spectral analysis, and emergency planning and response measures in the event of nuclear fallout or dispersal of radiological material. This project was hailed as a huge international success story.  
  • Emergency  Preparedness - Progress in efforts to build stakeholder confidence in South Africa’s nuclear safety regime by conducting a regulatory emergency exercise to test the effectiveness of Koeberg Nuclear Power Station’s emergency preparedness and response arrangements. The results of this exercise reflect that Koeberg has adequate emergency preparedness measures in place in case of a nuclear accident. A few corrective measures were proposed to further strengthen the measures.
  • No incidents of undue or excessive exposure - A number of authorisation holders and facilities continued to maintain a safe operating record. There were no incidents of undue or excessive exposure of workers, the public and the environment to harmful effects of radiation.
  • Special Case Mines – the NNR have put a constant watch on the special case mines that have reflected some raised radiation levels. The NNR issued certain directives to these mines such as;
    • Institution of engineering controls,
    • Temporary closure of certain shafts and
    • Other related interventions to protect workers


6.1.2. Challenges faced by the NNR

The NNR faced a number of challenges during the period under review, which include:

·         Reduction in operating revenue and government grant

·         Inadequate legislative framework to strengthen the Regulator’s enforcement mandate

·         Regulating special case mines

·         Remediation of legacy sites such as the Wonderfonteinspruit catchment area.


·6.1.3. Addressing the challenges

The NNR has made proposals to National Treasury on its financial sustainability, while developing a comprehensive funding model for the future.


The Board of Directors also approved amendments to legislation giving powers to the Regulator for enforcement of its mandate. An on going monitoring programme has been put in place to address the special case mines as well as focusing on the remediation of the Wonderfonteinspruit catchment


6.1.4. The NNR’s financial highlights

  • Total revenue increased by 1% (R1,1m) compared to the previous year. The minor increase is a combination of a significant decline of state grant by 16% and an increase in authorization fees of 6%.
  • The effects of recession were felt in the industry resulting in a number of consolidations in the mining and mineral operations. This had negative impact on the revenue due to liquidations, surrenders, revocation and reclassification of certificate of registration from a higher category to a lower one.
  • Operating expenses increased by 7% (R7,5m) compared to the previous year. The major contributors are the reinstatement cost incurred at the old building on vacating, the new operating lease for the building, and provision made for restructuring cost.


6.1.5. Findings of the Auditor-General

The NNR obtained an unqualified audit opinion suggesting a generally acceptable level of internal controls.


However, the Auditor General raised an emphasis of matter on the NNR financials which related to the restatement of corresponding figures. The corresponding figures for 2010 were restated as a result of an error discovered during 31 March 2011 in the financial statements of the National Nuclear Regulator at, 31 March 2011.  Another area of concern was the irregular expenditure in relation to a few procurement transactions largely relating to the tenant installation for the new building.  This will be strengthened going forward through rigorous monitoring of all procurement transactions.


Another area of concern was on performance information specifically relating to measures which could not be quantifiable


6.1.6. Conclusion

The NNR has recently completed the restructuring process and is now better positioned to meet its performance targets and enhance efficiencies. The new nuclear build programme requires the NNR to be adequately capacitated and resourced in order to address the regulatory aspects of this massive programme.


Financial sustainability and viability of the NNR continues to pose serious challenges to the NNR and the country’s ability to meet its international nuclear regulation obligations.


A secure funding tenure is needed to ensure a funding baseline for the NNR by National Treasury.


6.2. National Energy Regulator of SA (NERSA)


6.2.1. Strategic objectives of NERSA

  • To implement relevant energy policy efficiently and effectively
  • To implement relevant energy law efficiently and effectively
  • To implement relevant energy regulations efficiently and effectively
  • To identify, develop and implement relevant energy rules efficiently and effectively
  • To establish the credibility, legitimacy and sustainability of NERSA as an independent and transparent energy regulator
  • To create an effective organisation that delivers on its mandate and purpose
  • To evaluate the Energy Regulator’s effectiveness


6.2.2. Performance against pre-determined objectives

  •  At the end of the 2010/2011 financial year, NERSA had a total of 395 activities in its business plan.
  • 68% of activities were carried out as planned.
  • 32% of activities were not carried out as planned.
    • 14% of activities were delayed due to external dependencies that are outside of NERSA’s control
  • Main reasons for delays within NERSA’s control:
    • Human resource constraints; and
    • Licensing of existing facilities in the piped-gas and petroleum pipelines industries taking longer than anticipated.


6.2.3. Highlights of NERSA’s performance


 Electricity Industry Regulation

  • The Energy Regulator approved 179 municipal tariff applications for 2010/2011;
    • The Energy Regulator approved the Inclining Block Tariffs (IBTs) rates for implementation by Eskom on 01 April 2011;
    • NERSA conducted 22 workshops with municipalities on the implementation of the IBTs;
  • The Energy Regulator approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors;
  • The Energy Regulator approved the guidelines for municipal Tariff Applications for 2010/2011 Electricity Rate for 2011/2012


Piped-gas industry regulation

  • The Energy Regulator approved the preliminary reference prices, minimum prices and the maximum prices for the year 2008/2009 which were published for comment;
  • The Energy Regulator approved the minimum and maximum prices for the year 2008/2009 in terms of clauses 8 and 9 of Schedule One of the agreement concerning the Mozambique Gas Pipeline between government of the Republic of South Africa and Sasol Ltd (Agreement);
  • The Energy Regulator approved the Transnet Pipelines transmission tariff for the gas pipeline from Secunda to Durban South (Lilly Pipeline);
  • The Energy Regulator approved the ROMPCO tariff for the period August 2010 to October 2010;
  • The Energy Regulator approved consultation document on a methodology to approve maximum prices for gas in order to prepare in order to prepare for the end of the agreement in 2014;


Petroleum Pipelines Industry Regulation

  • Frequently Asked Questions (FAQs) on the tariff methodology for the setting of petroleum pipeline tariffs were developed and placed on NERSA’s website;
  • The Energy Regulator approved the revised tariff methodologies for the petroleum pipelines and petroleum storage facilities;
  • The Energy Regulator approved an increase in the allowable revenue for Transnet Pipeline System for 2011/2012;
  • The Energy Regulator approved the Guidelines for Annual Assessment of Storage and Loading Facilities Tariffs Application
  • The Energy Regulator granted nine (9) and amended four (4) operation licenses in 2010/2011;


6.2.4. Lowlights of NERSA

  • Delays in finalization of the revision of the Energy Efficiency and Demand Side Management policy;
  • Receipt of requested information from licensees, including comments on audit reports - resulting in some projects being delayed;
  • Delay in filling some positions within the organisation has had an impact  on the completion of some of the planned activities; and
  • Employment Equity is still a challenge (minority groups and people with disabilities)


6.2.5. Financial Performance of NERSA

  • Actual levies collected amounted to R155 million, received from the following sources:
    • Electricity industry – R87 million
    • Piped-Gas industry – R28  million
    • Petroleum Pipelines industry – R40 million
  • The under recovery of the levies, compared to the budget is due to the actual volumes being below the projected volumes.
  • The actual expenditure for the period 1 April 2010 to 31 March 2011 amounted to R 163.7 million. This represents an underspending of 6% compared to the budgeted amount of R177.2 million.
  • Expenditure categories in relation to the other expenditure
    • Operating Expenses = 31%
    • Employment Costs = 53%
    • Consultant fees = 10%
    • Regulator Members remuneration = 6%
  • Total irregular expenditure at year end was R85 242.00 and fruitless and wasteful was R5 797.00;
  • NERSA received an unqualified audit opinion (with no emphasis of matter) from the Auditor-General for the 2010/2011 financial year


6.2.6. Financial Performance of NERSA

Actual levies collected amounted to R155 million, received from the following sources:

Electricity industry – R87 million

Piped-Gas industry – R28  million

Petroleum Pipelines industry – R40 million

The under recovery of the levies, compared to the budget is due to the actual volumes being below the projected volumes.


The actual expenditure for the period 1 April 2010 to 31 March 2011 amounted to R163.7 million. This represents an underspending of 6% compared to the budgeted amount of R177.2 million.


Expenditure categories in relation to the other expenditure:

Operating Expenses = 31%

Employment Costs = 53%

Consultant fees = 10%

Regulator Members remuneration = 6%

Total irregular expenditure at year end was R85 242.00 and fruitless and wasteful was R5 797.00;


NERSA received an unqualified audit opinion (with no emphasis of matter) from the Auditor-General for the 2010/2011 financial year


6.3. Central Energy Fund (CEF)

6.3.1. Mandate of the CEF

The Central Energy Fund Act of 1977 gave CEF a broad mandate to pursue interests in fossil fuels, including coal and oil. The Renewable Energy Ministerial Directive of 2003 gave CEF another broad mandate to pursue projects in renewable energy - including hydro, bio energy, solar, wind energy, low smoke fuels and energy efficiency.


The various subsidiaries in the Group largely fall into two categories – the Fossil Fuel cluster and the Renewable Energy cluster.


6.3.2. Highlights

  • The Group turned in positive results thanks to good performance in the fossil fuel cluster resulting in a net cash position of R17,5 billion.
  • SFF turned in a strong performance with a declared profit of R450 million.
  • During the financial year the Vlakfontein mine in Mpumalanga was operationalized and launched by President Zuma. The facility is already producing coal and is operated by African Exploration (AE)
  • Government has taken a decision that AE will be a standalone entity reporting to the Department of Mineral Resources.
  • The primary asset of iGas is the tripartite arrangement with Sasol and the Government of Mozambique to operate the trans-border pipeline which delivers natural gas from Mozambique to South Africa.
  • iGas continues to work on other hydrocarbon gas infrastructure projects including a possible combined cycle gas power plant.
  • CEF has been tasked with the development of the feasibility studies for the 5000 MW Solar Park project in the North West – what could be a R150 billion project funded largely by private sector project developers. The feasibility study will be completed in the current financial year.
  • ETA Energy continues its pilot SWH project in Nelson Mandela Bay and Ekurhuleni Metro. There are challenges in selling the high-pressure systems to customers who can afford and recovering from the municipal billing system. Many customers do not qualify in terms of the National Credit Act


6.3.3. Lowlights

  • The Renewable Energy Cluster was most adversely affected by change in the Government strategic approach. Projects affected included:
    • The Cradock Sugarbeet Project which was to develop a 90 million litre per annum fuel grade bio-ethanol plant in the Eastern Cape. CEF’s participation required R800 million, but Section 54 approval was not received.
    • Hoedspruit Bio Ethanol Project, which involved the conversion of sugarcane to ethanol which will be blended with fuel
    • Landfill Gas projects in Buffalo City, Emfuleni, Tshwane, Alton and Cape Town


6.3.4. Challenges going forward

  • Dismembering of the Group – AE going to DMR, Saneri and Energy Efficiency Agency to form SANEDI which will be a standalone entity – still no clarity about future reporting lines or funding structure. Presently all funding is from CEF.
  • There is speculation that other subsidiaries might be removed from the Group.


6.3.5. Financial Performance of the CEF

CEF experienced a net operating loss of R75 million in 2010. This was due to PETROSA shutdown for maintenance and also caused by oil price rand exchange rate while during 2010/11 the company recorded a profit of R1.2 billion.


In terms of CEF financial position, the net assets and liabilities amount to R7.4 billion and the total assets and liabilities decreased by 2 percent.


Pertinent challenges during the year under review:

  • CEF also indicated that CCE will be shut down due to lack of feedstock and also there was no power purchase agreement.
  • African Exploration to move out of CEF.
  • The loans for Cradock Sugar Beet project, CCE (Biomass R17 million) projects and landfill gas were written off.
  • CEF also indicated that it withdrew from different renewable energy projects which it has already spent money due to the fact that they are no longer eligible to participate. CEF is state owned enterprise; therefore, it does not qualify to participate as IPP.


Overall Auditor’s General Report for CEF (Pty) Limited

  • Fruitless and wasteful expenditureFruitless and wasteful expenditure to the amount R24.45 million was incurred.
  • Irregular expenditureIrregular expenditure to the amount of R0.682 million was incurred as a result of the contravention of the authorized delegations of authority.


6.4. PetroSA

6.4.1. Overview of PetroSA

PetroSA was established in 2002 from: Mossgas (Pty) Limited, Soekor E&P (Pty) Limited, and parts of the Strategic Fuel Fund Association, and currently employees 1836 people. PetroSA owns the world’s second largest fully operational Gas to Liquid (GTL) refinery. It produces 5 per cent of the RSA’s fuel needs and products include diesel, gasoline, kerosene and specialty products. PetroSA has exploration acreage in Equatorial Guinea and Namibia. PetroSA has a net assets value of R16,57 billion.


6.4.2. Core business of PetroSA

  • Exploration and production of oil and natural gas
  • Participation in and acquisition of local as well as international upstream petroleum ventures
  • Production of synthetic fuels from offshore gas
  • Development of domestic refining and liquid fuels logistical infrastructure
  • And marketing and trading of oil and petrochemicals


6.4.3. Performance against objectives



Key Performance Indicator

Performance Result


Employment Equity

Women representation remains a challenge,  but there are interventions under way to rectify



A turn-around to R831- million net profit vs R356 million loss the previous year


Preferential Procurement


BEE Sales

53% of discretionary  spend



14% increase in sales

Internal Business Processes

 Feedstock Solution

 New Crude Refinery

Project Ikhwezi approved

Business case review


6.4.4. Skills Development

Bursary Programme - The PetroSA Bursary Programme consists of 91 full-time students selected from previously disadvantaged and vulnerable groups studying towards qualifications in Engineering, Geosciences, Accounting and Economics.


Graduate-in-Training Programme - Following completion of their qualifications, PetroSA graduates are appointed on two--year Fixed Term Contracts within various divisions of the organisation. The PetroSA Graduate-in-Training programme currently accommodates 35 GiTs; affording graduates supervised practical learning in the workplace. In the 2010/11 period there were 23 GiTs.


Centre of Excellence (COE) - At the COE 220 Learnerships at Levels 3 and 4 in Chemical Electrician, Instrumentation Mechanic, Fitter, Welder, Rigger and Boilermaker Learnerships for the chemical industry are offered and are CHIETA accredited.


Employee Skills Development - Various skills development opportunities are created for existing employees as part of personal development – for the period 2010/2011 1852 employees were trained, at a total cost of R36 million


Study Assistance - PetroSA provides financial assistance to 263 permanent employees who wish to advance themselves academically through part-time study.


6.4.5. Audit opinion

For the period under review PetroSA received an unqualified audit opinion


6.5. Nuclear energy Corporation of South Africa (NECSA)


6.5.1.  NECSA’s Business


Necsa is a Public Company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences. It is also responsible for processing source material, including uranium enrichment, and co-operating with other institutions, locally and abroad, on nuclear and related matters.


The Company promotes the public understanding of nuclear science and technology and facilitates regular communication with the public and its stakeholders. Apart from its main activities at Pelindaba, which include operation and utilization of the SAFARI-1 Research Reactor, Necsa also manages and operates the Vaalputs National Radioactive Waste Disposal Facility in the Northern Cape on behalf of the National Radioactive Waste Disposal Institute (NRWDI).


Necsa engages in commercial business mainly through its wholly owned commercial subsidiaries NTP Radioisotopes (Pty) Ltd (NTP), which is responsible for a range of radiation-based products and services for health care, life sciences and industry, and Pelchem (Pty) Ltd (Pelchem), which supplies fluorine and fluorine-based products. Both subsidiaries supply local and foreign markets, earning valuable foreign exchange forSouth Africa.


6.5.2. Highlights for 2010/11


  • NTP, the SAFARI-1 Reactor and the Necsa Fuel Department continued to successfully address the global medical radioisotopes supply crisis.
  • As a result of an effective maintenance programme, fully staffed and trained reactor operations group, and the implementation of a reactor ageing management programme, the SAFARI-1 Reactor achieved its best ever operational availability of 101.1 percent against scheduled availability, at an average reactor power of 19.44 Megawatt (MW).
  • In line with its core research and development (R&D) mandate, Necsa recorded 31 innovation disclosures.
  • The NTP Group achieved sales of R869 million, some 13 percent more than budgeted and remained the world leader in the supply of medical isotopes and the only company in the world to produce Molybdenum-99 (Mo-99) using a totally low enriched uranium (LEU) process.
  • Necsa was awarded a special contract by the US Department of Energy (DOE) in recognition of and support for the South African programme to fully convert the Mo-99 production process from highly enriched uranium (HEU) to LEU-based operations and technology.
  • The state-of-the-art Necsa Visitor Centre, which incorporates interactive displays on nuclear technologies, was launched by the Minister of Energy, Ms Dipuo Peters, during February 2011.
  • The Nuclear Skills Development (NSD) Centre trained 487 apprentices in semester training programmes and the Decentralized Trade Test Centre was officially launched by the Minister of Trade and Industry, Dr Rob Davies in February 2011.


The planned expansion of South Africa’s nuclear power capacity from the current 1,800 MW to 11,400 MW by 2030 holds substantial opportunities for technology advancement and manufacturing. Necsa commenced with some preparatory work in anticipation of government’s approval of IRP 2010, more will have to be done in this regard as the implementation of the nuclear energy expansion programme proceeds.


Necsa conducted further techno-economic pre-feasibility studies on site selection options for a local nuclear fuel production programme, the availability of uranium resources, options for the establishment of a local uranium conversion and enrichment programme.


6.5.3. Overview of commercial report


The main subsidiaries of NECSA are NTP Radioisotopes (PTY) Ltd, Pelchem (PTY) Ltd and ARECSA. The first two also has number of subsidiaries and affiliates under their operations. All NECSA subsidiaries earned nearly one billion in foreign exchange for South Africa in the period under review, created hundreds of jobs and paid back in the central revenue fund via income tax.


NTP Radioisotopes is a wholly owned subsidiary of Necsa and conducts its operations from the Pelindaba nuclear facility near Pretoria, South Africa. The NTP Group consists of subsidiary companies AEC-Amersham (Pty) Ltd (100 percent owned by NTP), NTP Logistics (Pty) Ltd (51 percent shareholding) and Gammatec NDT Supplies (Pty) Ltd (55 percent). Gammatec in turn has wholly and partially owned subsidiaries.


NTP and its subsidiaries manufacture and supply isotope products, non-destructive testing equipment, Kodak film for X-ray and gamma radiography, ultrasonic equipment and accessories, fluorodeoxyglucose (FDG) for Positron Emission Tomography (PET) application and other nuclear and radiopharmaceutical products and related services to the nuclear medicine sector and to distributors in South Africa and in many countries abroad. Subsidiary, NTP Logistics, provides safe transportation of hazardous radioactive materials and chemicals.

Company sales were R711 million, which is 22 percent above budget and 8 percent better than the previous financial year. Group sales of R869 million, some 13 percent more than budgeted.


Pelchem is a 100 percent subsidiary company of Necsa Ltd with a business focus on the fluorochemical industry. It plays a strategic role in supporting Necsa and government plans for a nuclear fuel programme in the country.


Pelchem manufactures and markets anhydrous hydrogen fluoride (AHF), hydrofluoric acid, fluoride containing salts, fluorine gas, and speciality fluoride containing gases and fluoro-organic monomers to local industry and to selected international customers. These products are used in the petroleum, pharmaceutical, glass, electricity, metallurgical, mining, polymer, agrochemical, electronics, construction, aluminium and detergent industries.


ARECSA Human Capital (Pty) Ltd is a joint venture (JV) company between AREVA from France and Necsa, with Necsa representing the JV the interests of two other nuclear industry stakeholders, namely Eskom and the NNR.


In the 2010/11 financial year no new funding was secured for training and funding that was expected from one of the obligors based in France did not materialize.


Nine people received training through ARECSA, funded by the R2.2 million allocation secured from Patria in the previous financial year. This included training which was given by Institute National des Sciences et Techniques Nucleaires (INSTN) in France


6.5.4. Financial performance


State funding for operating costs increased by 1 percent in real terms (2009/10: 7.0 percent) and group sales increased by 1 percent (2009/10: 60.6 percent) in real terms respectively. Income generated for the year under review amount to R1.6 billion and sales and other income has a share of 66.6 percent of the total income generated (government grant is also included).


NECSA financial position in the period under review was stable. This is because the company has assets and liabilities amounting to R 1 804 174 billion respectively (2009/10: R1 496 943). Similar financial position prevailed in 2009/10 financial year.  Its assets and liabilities increased by R307 231 million (17 percent). This attests to the fact that NECSA group is growing from year to year.


Profit for the year was R129 million after taxes which decreased by R34 261 from 2010 financial year (R163 720). It has contributed R68 million in taxes to the central revenue fund.


NECSA received an unqualified audit outcome from AG. However, AG raised some issues under emphasis of the matters.


  • Restatement of corresponding figures
  • The accounting authority did not take effective and appropriate steps to prevent fruitless & wasteful expenditure as per the requirements of section 51(1) (b) of the PFMA.
  • The fruitless and wasteful expenditure could have been prevented had compliance with laws and regulations been properly reviewed and monitored by management.


7. Consideration of Other Sources of Information


7.1. State of the Nation Address (SONA)

The State of Nation Address (2010) outlined key policy thrusts that have direct impact on energy. The key policy priorities outlined by the President are:




7.1.1. Capital Investment Programme


The State of Nation Address prioritized the Capital Investment Programme so as to lay a strong foundation for economic development. This policy lever has a direct link with Eskom’s build programme whose objective is to increase the power generation capacity that is already under enormous strain. For instance, electricity generation versus consumption in 2009, shows that actual estimated volume of electricity consumed during the fourth quarter of 2009 increased by 3,0% (1 680 GWh/h) compared with the third quarter of 2009 and actual estimated production of electricity during the fourth quarter increased  by 1,3% (834 Gw/h). The statistics clearly indicates that the country’s electricity generation is increasing at a lower rate than the consumption.


The build programme priority for power generation under Government’s capital investment programme was a policy response after the 2008 power outages and government has continued to prioritize this initiative over the past few years. Eskom has delivered 4 454 MW of new electricity generation and 1 962 kilometers of high voltage power lines to the system since 2004. A 10 100 MW of transformer capacity has been installed to enable it to carry the amounts of power being generated across the country.


The State of Nation address further indicates that government has increased the budget for the Capital Investment Programme from R787 billion in 2009 to R846 billion this year.


Jackson (2010) also believes that after the recession, what is needed is a period of public investment led growth to drive the whole economy. Good public infrastructure and good public services are key drivers of private sector productivity unlike private sector stimulus. This means that financing public expenditure create jobs while it also extends to raising productive potential and the future tax base. 


7.1.2. Green Jobs Initiative


A new focus area outlined by the President targets green jobs which is regarded as having a potential to create jobs. Green New Deal movement emerged after the 2008 power outages, which advocated a move from over reliance on fossil fuels to a more diversified energy sources notably renewable sources (hydro, solar, wind), cleaner energy technologies and energy efficiency measures. Therefore, the green jobs focus area is not a new policy priority as it had been introduced in the energy sector through the energy efficiency programme some years ago. However, it could be regarded as a renewed effort by government to intensify the creation of more jobs in the currently untapped industries such as renewable and energy efficiency projects.


To date, public awareness and education campaigns for energy efficiency together with Eskom’s Demand Side Management are in progress. Over the past years the country has seen nation wide installation of compact fluorescent lights in the residential areas in order to promote energy savings for the Country. The Department is still to finalize regulations for building standards and requirements of the energy programme. It is evident that there are on-going projects in the area of green jobs or energy efficiency.


The Green Jobs strategy as articulated in the Industrial Action Plan includes a range of possible monetary, trade and industrial policy interventions. This includes instruments such as environmental taxes on enterprises that have measurable negative impacts on the environment and incentivize investment that create larger number of green jobs. The plan to roll out these measures is still in its infancy and Government need to articulate a plan on how these measures will be implemented.


In this regard government is currently developing a green jobs strategy to identify ‘green job’ opportunities in energy, manufacturing and services and incorporate it into the revised Industrial Policy Action Plan. Government has committed itself to the roll out of one million solar water heating panels to households, with opportunities to create jobs in the manufacture and installation of the units.


South Africa lost nearly one million jobs in 2009 as the global recession made its way through the economy, but the government has not been able to substitute these job losses with anything meaningful as some countries have done. The green economy offers some quick answers and there are others, which will take time, as they will need some forward planning and strategic choices.


International experiences shows that Germany has already seen 280 000 new jobs in the renewable sector and will be able to add another 220 000 by 2020. Today, Germany has a globally competitive renewable industry second to none.


7.1.3. Inter-Ministerial Committee on Energy


The State of Nation address noted the establishment of an Inter-Ministerial Committee on Energy to ensure reliable power supply for the country. This committee is tasked to develop a 20 year integrated resource plan for energy.


The Integrated Resource Plan is also charged with the responsibility to ensure participation of Independent Power Producers in the energy market, and protecting the poor from rising electricity prices. This committee is further tasked to establish independent system operators separate from Eskom Holdings.


The South African energy market, particularly electricity generation, transmission and distribution is monopolised by Eskom. Monopoly by Eskom in the electricity sector inhibits competition in the market and consumers bear the costs of paying expensive bills and are left with no choice in the market. The envisaged Integrated Resource Plan will open the energy market to other Independent Power Producers and such a measure will in turn promote competition in the market, thus influencing a downward trend in electricity prices.


Monopoly and rigid economic structure are considered, by many scholars, as the main ingredient of high inflation (high electricity prices). Monopoly in the private and public sector are part of the problem of keeping inflation high. The term "structural rigidities" refers to arrangements in the economy that limit its flexibility and therefore its ability to respond to changing conditions. This rigidity reduces efficiency and adds to the cost of production.


While there are positive motivations for power sector reform, there is also substantial opposition to privatization. The Municipal Government has objected to restructuring, fearing loss of revenue and citing their constitutional rights to distribute electricity. The Unions have been arguing strongly that a State should retain its role in development, in particular in sectors delivering basic services.


7.2. National Planning Commission (NPC)


The National Planning Commission is a new initiative of government. Chaired by the Minister in The Presidency for National Planning, the NPC will be responsible for developing a draft long term vision and strategic plan for South Africa. The process of developing this draft plan will include discussion and engagement across our country and will also provide opportunities for people to come forward with ideas and suggestions.


The aim of the NPC is to take a broad, cross-cutting, independent and critical view of South Africa and help to define the South Africa we seek to achieve in 20 years time. The Commission mapped out a path to achieve those objectives by putting forward well researched evidence and clear recommendations for government.


The NPC worked with the broader society to draw on the best expertise and consult with relevant stakeholders. The view is that many successful countries had national plans and the South African government had often taken a sectorial and short-term view that has hampered development. A long-term and independent view would add impetus, focus and coherence to what needed to be achieved in RSA.


The establishment of the NPC was the promise to the people of South Africa that the government was building a state that would grow the economy, reduce poverty and improve the quality of life of all South African citizens. The purpose of the NPC is to develop the country’s long-term vision and national strategic plan. It had to draft a vision statement for 2030 and produce a development plan for how that vision could be achieved. The Commission presented reports on issues affecting long-term development on the issues it was mandated to address. The entity had to be objective and critical where necessary.


The NPC highlighted that the country under-invested in its infrastructure for over a generation. The development was being held back by too little investment in new infrastructure, and a failure to maintain existing infrastructure.


The poorly located and inadequate infrastructure limited social inclusion and faster economic growth.  The settlement pattern was problematic and the poorest lived either in the former homelands or in cities far from where the jobs were. There was a failure to coordinate the delivery of household infrastructure between provinces, municipalities and national government. People could either be moved where the jobs were or jobs could be moved to where the people were, and to reverse the effects of spatial apartheid would be a central challenge in decades to come.

The Commission considered making various recommendations regarding the energy issues, like balancing the domestic and export interests in coal.


7.3. Department of Performance Monitoring and Evaluation (DPME)


The Department of Performance Monitoring and Evaluation (DMPE) provided a progress report of the performance of the Department of Energy (DoE) with regard to the relevant outcomes regarding the Service Delivery Agreement concluded with the Ministry.


The outcomes are the government’s main initiative to achieve effective spending on the right priorities and the aim is to improve government service delivery.


The outcomes, as highlighted by the DPME, applicable to the Department of Energy are:


·         Outcome 6: Economic infrastructure - An efficient, competitive and responsive economic infrastructure network


·         Outcome 9: Local government - Responsive, accountable, effective and efficient Local Government system


·         Outcome 10: Environment - Protect and enhance our environmental assets and natural resources


·Each of the 12 outcomes has a number of outputs which need to be achieved. To follow is the outputs applicable to outcomes 6, 9 and 10 (as per DPME)


7.3.1. Outcome 6 – Economic Infrastructure

Output 2 of outcome 6: Ensure reliable generation, distribution and transmission of electricity.


7.3.2. Outcome 9 – Local government

Output 2 of outcome 9: Improving Access to Basic Services.


7.3.3. Outcome 10 – Environment

Output 2 of outcome 10: Greenhouse gas emissions reduced climate change impacts mitigated & air/atmospheric quality improved.


7.3.4. Overall progress against the outcomes

To follow is the progress of the outputs vis a vis the outcomes as highlighted by the Department of Performance Monitoring and Evaluation of the outputs vis a vis the outcomes:


·         Output 2 of Outcome 6


o        Create regulatory and institutional structures for the introduction of viable Independent Power Producers (IPPs) and start the process for  the participation of IPPs in 2010 – according to the DPME sub-outputs are either proceeding slower than targeted or which face impediments require intervention


o        Develop a funding and implementation plan and reduce the electricity distribution infrastructure maintenance backlogs of R27.4b to R15bn by 2014 - according to the DPME sub-outputs are either proceeding slower than targeted or which face impediments require intervention


o        Household access to electricity should be 92% - According to DPME sub-outputs are on track and require no interventions.


o        Develop a funding model for Electricity Generation/build programme to ensure security of supply - According to DPME sub-outputs are on track and require no interventions.


o        Long term energy mix diversification to address the security of energy supply and requirements for renewable energy – according to the DPME sub-outputs are either proceeding slower than targeted or which face impediments require intervention


o        Coal haulage logistics – According to DPME sub-outputs are on track and require no interventions.


o        Electricity Distribution Industry (EDI) restructured – according to the DPME sub-outputs are either proceeding slower than targeted or which face impediments require intervention


o        Setting cost reflective tariffs while cushioning the poor from increasing electricity costs - According to DPME sub-outputs are on track and require no interventions.


·         Output 2 of outcome 9


o        Increased access to basic electricity - According to DPME sub-outputs are on track and require no interventions.


·         Output 2 of outcome 10


o        Renewable energy deployed – According to DPME sub-outputs are on track and require no interventions.


o        Efficient energy use -  according to the DPME sub-outputs are either proceeding slower than targeted or which face impediments require intervention


7.3.5. Findings


·         Delivery agreements are not “cast in stone” and can be changed. If it is found that the sub-output does not have the impact required, it can be changed.


·         With regard to skills development, the Department of Higher Education and Training is collaborating with line function departments and Eskom to address the skills shortage.


·         The intention of the analysis and progress of the outcomes by the DPME is to continually inform Cabinet (quarterly), where Cabinet will decide on the necessary action to be taken if performance is not up to standard.


·         With regard to concurrent functions, the provinces with continuously update the national department with progress.


·         The PDME has good relations with the 9 respective Premiers Offices.


·         The PDME acknowledged that they were too lenient with the progress of certain outputs, e.g. maintenance backlogs.


·         The work done by the DPME will reinforce and strengthen parliamentary committees in its oversight function.


·         The DPME is too lenient in its overall appraisal regarding the performance of the Department of Energy in terms of the progress of the outputs.


7.4. Auditor-General’s Report


The Department of Energy received an unqualified audit opinion; however the Auditor General drew attention to the following matters:


7.4.1.    Emphasis of matter


·         The Department incurred unauthorized expenditure of R14 860 000 due to funds which were spent for purposes not in accordance with the vote. Details of irregular expenditure are well documented on 142 of the annual report


·         The Department incurred irregular expenditure of R110 992 000. This was in contravention of Treasury Regulations 8.2.2, expenditure not approved in accordance with department’s financial delegations


·         The department also incurred irregular expenditure of R1 371 000 as the expenditure was in contravention with Treasury Regulation 16.A.3 relating to SCM (Transparency and fairness).


The then DME 2009/10 annual report also drew attention to similar matter which is:


·         Irregular expenditure to the amount of R4.2 million incurred as a result of contravention of the authorized delegations of authority of the department, the irregular expenditure was condoned in the financial year.


7.4.2.    Report on other legal and regulatory requirements


The reported performance has been found to be deficient on the following:


Consistency: Targets and indicators in the annual reports are not complete as compared to targets and indicated in the strategic plan.

Measurability: Targets are not measurable.


In a nutshell this implies that strategic objectives, targets and indicators in the strategic plan and annual report are not comparable and measurable.


7.4.3.    Statement of Financial Performance


The Department had a total revenue of R5 658 125 billion and its total expenditure of R5 506 256 billion with a net surplus of R151 869 million. The net surplus as documented in the annual report is as a result of unspent budget and it is not clear if savings were made in some of the programme.


7.4.4.    Statement of Financial Position


It could be concluded that the financial position of the department is in good standing because its balance sheet shows that the total assets and liabilities are equal.



7.5. Recommendations by the Financial and Fiscal Commission (FFC) on energy


7.5.1. Water and electricity tariffs, municipal sustainability and the local government fiscal framework

The FFC recommended that local government be incorporated into the system of intergovernmental fiscal relations, where they can share in revenue and grants in order to provide basic services and perform other functions allocated to them of which electricity is one. Local government will be able to spend their revenue sharing funds in terms of their own needs and priorities vis a vis basic services.


7.5.2. Impact of electricity reform on municipalities

According to the FFC no stakeholder should experience deterioration in its circumstances owing to the restructuring process, unless this is an explicit policy decision. The FFC highlighted that tariff support to low-income consumers should be financed primarily by a national grant to Regional Electricity Distributors (REDs) for the provision of free electricity, and to a lesser extent by a consumer cross-subsidy. Capital electrification for low-income consumers must be financed by National Government, and provision for this should be made in the MTEF estimates.


7.5.3. Location of energy related powers and functions

The Commission made a submission on the proposed reforms of the Electricity Distribution Industry during 2005/06. The FFC noted that the reform of EDI could have a substantial impact on municipal finances, but successful EDI restructuring will only be possible if sound implementation strategies are developed. If municipalities are not adequately compensated, service delivery across the sphere may be affected in terms of loss of funding to cross-subsidize other municipal services


Recommendations from the FFC include:


·         Government must revisit Blue Print assumptions initially drawn to restructure the EDI


·         Underlying causes of poor performance in the EDI need to be highlighted and addressed


·         Conduct an up-to-date re-evaluation and analysis of the benefits of restructuring the EDI


·         It is important that the social objective of universalizing access to electricity is not lost in the process of restructuring the EDI


7.5.4. Intergovernmental response to climate change

Using an econometric model, findings show that climate change is a real threat to energy security in the local government sector, where climate change induces increases in electricity infrastructure expenditures.


A recommendation from the FFC is that government should ensure that municipalities develop their own climate change mitigation and adaptation strategies and plans for climate change as part of the Integrated Development Planning process. Government should provide support in this respect to municipalities over the next three years, distinguishing between different types of municipalities by both location and capacity in terms of the mandatory requirements placed on them. Government should consider providing municipalities with a performance-based conditional grant which rewards or incentivizes actions that are environmentally efficient and responsive to adaptation and mitigation challenges of climate change. Design of proposed grant should pay attention to municipal-specific factors, such as the area, topography, coastal/or otherwise, and vulnerability to climate change



7.5.5. Impact of inefficient land use on energy consumption and hence climate change.

According to the FFC a vibrant urban economy is critical for sustainable development and economic growth and optimum land use has the potential to unleash growth potential of the economy. The FFC noted that in South African cities, land is used inefficiently as characterized by low density levels. According to the FFC this challenge needs to be addressed, as it has direct impact on sustainability of resources such as land and is costly to overall economy


The FFC noted that various pieces of legislation do not create many incentives.  Current funding for built environment is uncoordinated and does not support delivery of integrated and sustainable human settlements with all basic infrastructure


Government should actively and specifically pursue development of a more spatially compact urban form for cities, by developing and adopting appropriate policies and financing instruments. According to the FFC these specific fiscal instruments may include:


·         Wider use of development charges in financing infrastructure associated with the land development process


·         Public transport subsidies that specifically target high density low-income areas


·         Fiscal incentives for urban land development projects located within the existing urban form


·Government should conduct a broad-based review of the efficacy of current housing finance arrangements in meeting housing needs within the context of creating sustainable and more compact human settlements


7.5.6. Conditional grants


The FFC recommended that when introducing and/or terminating conditional grants, national departments must ensure that there is an independent evaluation of the grant performance at entry, midterm and end of the grant



7.6. Budgetary Review and Recommendations Report (BRRR) 2010

The Portfolio Committee on Energy adopted its BRRR 2010 with the following findings:


·         There is a lack of continuity which relates to the alignment and synchronization between the national, provincial and local spheres of government focusing on planning, budgeting and implementation of programmes.


·         There is delayed implementation of the business model of implementing the Integrated National Electrification Programme  (INEP) and Solar Water Heaters


·         Delays with regard to the Transnet’s Multi-purpose pipeline continue.


·         The Clean Energy Programme of the Department of Energy is lacking the necessary funding to be implemented successfully.


·         Progress reports to the committee on the solar water heaters roll-out are inconsistent, haphazard and reactive.


·         Monitoring and evaluating the performance of its State Owned Enterprises by the Department of Energy is lacking.


·         The committee is concerned that too little emphasis is placed on hydrocarbons and clean energy. 


·         Changing consumer behavior on the usage of energy is critical, which is one of the objectives of the Department.



8. Committee observations/findings


·         The Department of Energy was successful in monitoring its expenses and implementing cost containment measures.


·         For the period under review the committee undertook an oversight visit to CEF and its subsidiaries (01-05 August 2011). The following were found by the committee during  briefings by the Petroleum Agency of SA (PASA), PetroSA and the Strategic Fuel Fund (SFF), respectively:


o        The committee found that PetroSA was not doing enough to train and hire more of the local people in Mossel Bay.


o        PASA is both regulator and “player” in the energy sector.


o        Strategic Fuel Fund (SFF) pointed out that their funding received from government was insufficient to deliver effectively and efficiently on its mandate.


o        The committee raised concern that the strategic stock kept by the Strategic Fuel Fund (SFF) during a crisis will only be sufficient for 21 days


o        Members found that a limited number of PetroSA’s employees go through the centre of excellence in Mossel Bay.


·         The following was found by the committee during its briefing by the Central Energy Fund in Johannesburg:

o        Procurement details were missing or not addressed to the satisfaction of the Committee. This was the case with a number of CEF affiliates which made presentations.


o        CEF’s pioneering nature resulted in many impairments. What was not clear was whether such was due to lack of proper planning, inadequate resources or poor legislation and regulatory framework.


o         Staff turnover levels seemed to be alarmingly high. The Committee was concerned about the number of managers in acting capacity and whether that did not affect efficiency.


o        Concerns were raised by members over the large number of projects that were terminated after investing substantial amounts of resources. CEF is requested to clarify its strategy regarding its decisions to embark on projects and how it conducts its feasibility studies.


o        The Committee was concerned about the delays in obtaining the Section 54 approval. An explanation would be needed as to why obtaining the approval from the National Treasury is difficult.

o        The information shared concerning the Darling wind power project was far from convincing. A detailed report on the community trust was needed, with reasons for the delays and lack of communication.

o        The Committee was concerned about how the CEF will raise the €30 million for investment.


·         For the period under review the committee undertook an oversight visit to Mozambique (2010) and the following was found during the visit:

o        Mozambique is endowed with water resources which can be effectively used to generate renewable energy.


·         For the period under review, the committee further undertook a study tour to France (03 – 10 November 2010) and the following observations and findings were made by the committee:

o        Nuclear Energy is one of the proven options with the capacity to produce “clean” electricity on a global scale with no carbon dioxide or other greenhouse gas emissions. Wind, hydro and solar energy can do the same but on a smaller scale.


o        Operational safety: With regard to operational safety, technological advancements at nuclear power plants, together with a global nuclear safety culture, largely mitigate the risks and hazards associated with nuclear power generation such as the infamous Chernobyl accident of 1986.


o        Costs reduction: With regard to costs, the industry’s steady reductions in both operational and capital costs would probably result in nuclear power emerging as the most cost-effective source of energy in the long term.


o        Nuclear waste management: Nuclear waste management poses a challenge. While there is technology to process the dangerous waste, there is no yet industrial solution on how the waste could be disposed. At the time of the visit, storing waste in recyclable canisters seems to be the only alternative. A strong compromise favours deep geological repositories as a safe and affordable means of achieving long-term storage of nuclear waste.


o        The risk of abuse of nuclear technology for military vis a vis use for peaceful means (e.g. generation of energy) was noted. The committee highlighted that public education is crucial regarding this issue.


o        With regard to the vulnerability of nuclear power plants, they are, by their very nature, among the most robust structures ever built.


o        Government should consider investing heavily in clean electricity from renewables, that is, solar, wind, biomass and geothermal power in the long run in order to embrace viable energy mix.


o        Currently some governments around the world are gradually embracing nuclear power as part of their strategies of national energy security.


·       During the period under review a delegation from the committee attended a workshop convened by World Future Council Renewable Energy in Ghana focusing on Renewable Energy Policies for Sustainable African Development, June 21-23 2010 inAccra, Ghana and the following observation were  made by the committee:


o      Local manufacturing of products will create job opportunities in the green economy.   


o      Urban waste can be considered as a source of energy.


o      Renewable Energy Technology can play a significant role in the energy sector.


o      Intellectual Property Rights of Renewable Energy Technology might hamper knowledge transfer and capacity building.


o      Advocacy of RETs should not promote one technology over another.


o      Many electrical appliances are still not labeled, in a way that indicates their energy  in/efficiencies.


o      Fiscal incentives which are country specific will be critical to develop Renewable Energy Technology.


o      Standardization of solar PVs to ascertain materials used to manufacture the units and also look at the ways of handling and disposal of acid batteries; hence there is a need to establish an African Technology Test Centre.


o      This workshop is an annual event and regular attendance would be beneficial


·      During the period under review delegation from the committee undertook an study tour to Lesotho (10-12 May 2010) and the following were observed by the committee:


o        Power generated from water is considered cleaner as it has no carbon emissions and other green house gases.


o        In an effort to diversify energy mix in South Africa and ensuring energy security, Muela Hydropower station may serve as a model for South Africa. A feasibility study in this regard should be facilitated to determine hydropower potential across the Country.


o        Given that South Africa is not well endowed with water and most of the rivers dry up in winter, mini hydropower stations of 10 MW are ideal to be generated by Independent Power Producers (IPP).


o        Enabling policy framework such as Renewable Feed in Tariffs (REFIT) and other incentives should be expedited encourage greater uptake of renewable energy in South Africa.


·           Observations by the FFC and DPME independently corroborate issues and concerns the Portfolio Committee on Energy has raised consistently on specific issues - refer to relevant sections on FFC and DPME in the report.


·         The Portfolio Committee on Energy is not taking advantage and harvesting in international activities such as conferences, symposia, and parliamentary fora to the benefit of Parliament and thus improving oversight on DoE.  


·           Collaboration with Select Committee on Economic Development (SCED), albeit limited, as well as Portfolio Committee on Public Enterprise has assisted in the oversight work of the Portfolio Committee on Energy. Specific reference is made to:


o        ESKOM- especially on INEP and, rehabilitation of electricity infrastructure


o        EDI- with focus on electricity distribution in the post – REDS era including regulatory environment vis-à-vis role and contribution of municipalities in particular. 


·           The DoE’s reporting on the following is lacking:


o        International activities,


o        Supervision of SOE’s within the energy sectors,


o        Progress on legislation,


o        Information on Public Participation programmes is rather terse and limited and its usefulness is in doubt.


·         The role and contribution of Department of Energy with regards  to:


o        Energy efficiency


o        Restructuring of Electricity Distribution Industry(EDI)


o        Rehabilitation of electricity infrastructure


o        Public participation


o        Integrated Energy Plan has been either partial or unfulfilled when compared with the strategic plan


·         The investment drive, at international level,  has not been adequately articulated as well, although there is a sense that there is activity taking place in this regard


·         The Department of Energy has been established on a compromised resource baseline. That is, it was provided with very low resource base e.g. 30% of former Department of Minerals and Energy (DME) resources as well as absence of personnel in certain key positions.


·         Notwithstanding such challenges the Department of Energy has achieved in a number of areas viz: IRP 2010, renewal of liquid fuels charter, establishment of a distinct department, unqualified financial report, cleaner fuel programme, etc


·         Department of Energy has not adequately clarified the status quo regarding challenges of resourcing including funding by National Treasury


·         Whilst an informed assessment of the Department of Energy is crucial , due consideration has to be given to its strategic objectives, service delivery outcomes, MDG’s, predetermined is essential, both the service delivery and organisational environmental considerations have to be factored in as well.


·         Above all, the Department of Energy is one of the departments that was established in the current term as such is not endowed with resources as well as legacies such as an established organisational culture. Apparently energy was a sector that was overshadowed by mineral resources in the erstwhile Department of Minerals and Energy.  Underinvestment was one of the manifestations of such unfortunate legacy.


·         Even the exercise of reviewing and particularly performance of Department of Energy needs intense scrutiny. After separation from the erstwhile Department of Minerals and Energy it can be verified that there are programmes that were earlier not activated partially implemented were able to get adequate attention. Thus assessment performance of the Department of Energy in a manner similar to that of a long established department is rather unfair    . 


·         The legislative and regulatory constraints especially in BBBE Empowerment, LPG sector, Liquid Fuel Charter, NERSA, EDI, PASA have had a negative effect and compromised on performance of the Department of Energy.






·         Whilst taking cognizance of the existing radioactive waste management system the committee takes note of the challenges experienced in this sector. Innovative ways of improving the current system must therefore be earnerstly explored.


·         Linked to some of the above observations and findings the committee further observed there were challenges regarding the strategic coherence within the Department of energy as well as its compromised ability to drive its programmes. Particular reference is made on inter-departmental programmes where the Department is supposed to be the lead department.


9. Conclusions


The Department of Energy was able to operate independently as department as from 2009. Logically all programmes on energy were transferred from the erstwhile Department of Minerals and Energy to the new Department of Energy. However, it is worth noting that quite a number of programmes have either not been implemented or partially implemented .e.g. Energy efficiency as from 2005, Solar Water Heater Roll-out Programme as from 2009, etc., or at times not implemented according to committed deadlines – IRP 2010,IEP, etc.


As articulated in the findings, since the Department was established on an incorrect and compromised resource base, anxiety must therefore be expressed on the extent to which the Department of Energy can sustainably execute its mandate and implement programmes under its wing in view of the huge financial and human resource constraints. This extends to the deficit and shortcomings in certain legislative and regulatory areas. Notwithstanding the resource challenges the Department of Energy has commendably achieved in a number of programmes.


The dedication and commitment displayed by the Minister, the Deputy Ministry, the Director General and her team has been observed. However, the sustainability of their performance is questionable if requisite resource allocation is not provided.


10. Recommendations


·         The Minister of Finance in conjunction with the Minister of Public Service and Administration (DPSA) and the Minister of Energy should address appropriate resourcing of the Department of Energy in both the forthcoming Medium Term Budget Policy Statement Processes well as Budget Vote for Energy for 2012/13. Particular reference is made to human resource, regional offices and international activities.


·         The Minister of Energy should expand and intensify the Department of Energy’s continental activities. A comprehensive plan on this area should be submitted to Parliament by the end of the first quarter of 2012.


·         The Minister of Energy should address the challenges in the distribution of electricity as a matter of urgency. These include a restructuring of the electricity distribution industry, as well as reviewing the legislative and regulatory environment throughout 2012. Progress of addressing the challenges should be submitted to Parliament by the end of June 2012.


·         The Minister of Energy should improve progress reporting on Solar Water Heaters. The Minister of Energy should provide Parliament with quarterly progress reports as well as provide a briefing, early in 2012 on the proposed new plan regarding the roll-out of this programme.


·         The Minister of Energy should consider establishing a special directorate that would oversee the performance of the State-Owned Enterprises. Alternatively an upgrade of any existing office in this regard should also be considered by the end of the first term of 2012. 


·         Central Energy Fund (CEF) should, as part of its restructuring process, satisfy the Portfolio Committee on Energy on how it will raise requisite capital for its future initiatives. A report thereon should be submitted to Parliament by the end of the first term of 2012.  


·         The campaign around changing consumer behaviour on usage of energy (energy saving lifestyle), as one of the objectives of the Minister of Energy, should be intensified and strengthened as a matter of urgency.


·         Local manufacturing and beneficiation of products (focusing on, inter alia, solar photovoltaic and renewable energy technology) in the green economy should be prioritized by the Minister of Energy. Due consideration should include the consideration of urban waste as a source of energy.


·         The Renewable Energy Technology Policy and Programme should be developed in line with the conventional grid infrastructure by the Minister of Energy and progress on such be shared with Parliament by end of June 2012.


·         The Minister of Energy should ensure that electrical appliances should be labeled to indicate their energy in/efficiencies. A report thereon should be submitted by the end of June 2012 to Parliament.


·         The Minister of Finance should introduce fiscal incentives to address Renewable Energy Technologies (RET’s).


·         The Minister of Science and Technology should introduce standardisation of solar PV-units to ascertain quality materials used to manufacture the units as early as is practically possible.


·         The Minister of Energy should develop regulations for handling, disposal and recycling of power batteries by the end of the third quarter of 2012.


·         Establishment of an African Technology Test Centre, in partnership with NEPAD, should be explored by the Minister of Energy in order to standardize materials used to manufacture photovoltaics and associated products. Progress thereon should be shared with Parliament by end of 2012.  


·         The Minister of Energy should emphasize education focused on nuclear technology used for nuclear energy, as part of its public education programme on energy issues. This is an effort that should be executed in collaboration with other spheres of government. The Minister of Energy should share the programme with Parliament by end of first quarter of 2012.


·         The Minister of Trade and Industry should ensure that Intellectual Property Rights on Renewable Energy Technologies be developed in a manner that it does not undermine knowledge transfer and capacity building.


·         Optimization of Muela and Cahora Bassa hydropower facilities should be favourably considered in the context of a South African Development Community Regional Energy Power Pooling Programme by the Minister of Energy. The outcome of such consideration should be integrated into the review of IRP2010 during 2012.  


·         The Minister of Energy, in conjunction with the Minister of Science and Technology, should review South Africa’s nuclear disaster preparedness – a comprehensive, inter-sectoral and collaborative approach which should include municipalities and provincial governments should be embarked on by 2012.


·         The Minister of Energy should ensure functions and competencies on nuclear and nuclear-related programmes and activities be rationalized and harmonized amongst various Ministers and their respective government departments and entities, e.g. Health, Science & Technology, Mineral Resources, Water and Environmental Affairs. A report thereon should be submitted by October 2012 to Parliament.


·         The Minister of Energy should address the need for a comprehensive radioactive waste management system through public private partnerships and include universities and similar institutions. A report thereon to be submitted by the end of June 2012 to Parliament.


·           The Minister of Energy should, through the National Nuclear Regulator, explore creative ways and means of strengthening Africa’s regulatory capacity through the Forum of Nuclear Regulatory Bodies in Africa (FNRBA).  A plan thereof should be shared with Parliament by September 2012.


·         The Development Bank of Southern Africa (DBSA) should, in conjunction with other partners in the Darling Wind Energy Project, submit a report regarding challenges on the project to Parliament by the end of the fourth term 2011.


·         The Minister of Finance should submit a report to the Portfolio Committee on Energy about Section 54 challenges regarding State Owned Enterprizes (SOEs) roles and status in the Renewable Energy Feed-In Tariff (REFIT) or similar initiatives. Such report should indicate whether there are any alternatives or likely solutions on such challenges. Such report should be done within the first term of 2012.


·         The Central Energy Fund (CEF) should compile a proposal/plan and brief the Portfolio Committee on Energy on its strategy regarding its decisions to embark on projects and how it will conduct feasibility studies for such projects. Such must include future strategy on pioneer projects.


·         The Minister of Energy in partnership with the Minister of Higher Education and Training should arrange an Indaba on Skills Development in the Energy Sector with the aim of producing a strategy and programme on skills development in the energy sector by the third term of 2012. Such should be done in partnership with the business sector.


·         A Budget Review Facilitation Unit or dedicated personnel, located in the Office of the Speaker to assist all parliamentary committees in the budget review processes as well as monitoring and evaluating the budget review processes, be established as a unit and personnel be appointed as a matter of urgency


·         The Minister of Performance Monitoring and Evaluation should ensure presentation of its plan regarding the Department of Energy for 2012-2013 financial year (or MTEF whichever is applicable) and regular briefings on its assessment of the Department of Energy on a quarterly basis to the Portfolio Committee on Energy as from the Phase 1 of the forthcoming Budget Review Cycle (i.e. November 2011)


·         The Minister of Finance should consider allocating additional resources for the forthcoming Budget Vote for the Department of Energy for the Clean Energy Programme in order to allow for implementation of renewable energy projects.


·         The Minister of Energy should report to the Parliament on the recruitment of appropriate personnel for the Clean Energy Programme. The latter report should be submitted to the Portfolio Committee on Energy every six months for the three coming years.


·         The Minister of Energy should examine the adequacy of the Strategic Fuel Fund’s (SFF)’s funding received from the fiscus. Such effort should include a comprehensive review of fuel stocks reserves which are currently 21 days. A report should be submitted to the Parliament by end of the first term of 2012.


·         The Minister of Energy should ensure that further engagements be undertaken with the Mozambican authorities to explore and scale up hydro electricity opportunities to supply South Africa with additional renewable energy.


·         The establishment of the UN-sponsored observatory should be explored jointly by the Minister for the National Planning Commission (NPC), Minister of Finance and Minister for Performance Monitoring and Evaluation (DPME) in partnership with the UN Habitat.


·         The Minister of Energy should embark on a comprehensive restructuring programme for both Central Energy Fund and PetroSA, specifically with the aim of positioning them as strategic national entities in the energy sector. .A report thereof should be submitted by conclusion of the Budget Review Process of 2011/2012 i.e. October 2012.


·         The Minister of Energy should submit a brief plan on how the Department of Energy intends to improve its strategic coherence in programmes where it is the lead department, to the Committee by the end of the second term of 2012.


Report to be considered.









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