ATC111122: Report on Oversight visit to the Central Energy Fund (Pty) Ltd & its entities from 01 - 05 August 2011, reports as follows, 22 November 2011





1. Introduction


1.1. Purpose of report


The purpose of this report is to report back to the National Assembly on the findings of the Portfolio Committee on Energy’s oversight visit to the Cen tral Energy Fund (CEF), its divisions, subsidiaries, and associates. The oversight visit took place from the 01 - 05 August 2011.


1.2. Background to the oversight visit


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.


Following the Portfolio Committee’s strategic planning workshop held in Stellenbosch at the beginning of the second 2011 term in, the Portfolio Committee on Energy (here in after referred to as the Committee) resolved to undertake an oversight visit to the Central Energy Fund (CEF); its Divisions, Subsidiaries, Associates and also to learn more about its investments and projects.


The aim was also to better understand the mandate of the CEF and how the subsidiaries and associates’ activities impact on the mandate of the CEF.


The CEF was initially invited to Parliament, where the Committee was briefed on by the CEF on their key strategic objectives and plans. Subsequent to the briefing, the Committee resolved that it needed to schedule follow-up engagements with the CEF in order to fully understand the operations of the entity.


1.3. Objectives of the oversight visit


The objectives of the oversight included

  • To learn more about the CEF’s investments and projects;
  • To explore how the CEF conducts its business with its affiliates;
  • To get a better understanding of specific subsidiaries sch as PetroSA, SFF, CEF Carbon, ETA Energy, PASA as well as projects such as energy saving innovations which SANERI was doing research on; and
  • To draw conclusions and make recommendations


1.4. Plan of development


Since some of the divisions, subsidiaries and associates within CEF are based in Cape Town and Johannesburg , the Committee resolved to dedicate the first day of the oversight for the Cape Town based CEF affiliates.


Day 2, 3 and 4 were reserved for Johannesburg based affiliates, whereas the last day (day 5) was to be for an oversight visit to SANERI projects, namely an oversight over the Compressed Natural Gas filling station in Langlaagte and the Green transport Centre in Midrand.


2. Delegation


The Portfolio Committee delegation comprised of:

Mr SJ Njikelana - Chairperson and leader of the delegation

Ms B Tinto (ANC)

Mr GS Radebe (ANC)

Mr GJ Selau (ANC)

Mr KA Moloto (ANC

Mr SC Motau (DA)

Mr DC Ross (DA)

Mr P Gwebu (Committee Secretary

Ms S Ntabeni (Committee Assistant) and

Mr S Mphephu (Committee Researcher).


Officials from the Department of Energy accompanying the delegation

Mr L Ganta (Director: Entities); Ms T Zungu (Chief Operations Officer); Mr O Aphane (Deputy Director General); Mr M Mkhize (Chief Director: Hydrocarbons)


3. Meeting with the Western Cape based Central Energy Fund (CEF) affiliates


3.1. Meeting with the Petroleum Oil and Gas Corporation of SA (PetroSA)


3.1.1. Company overview


PetroSA was established in 2002, and has a staff compliment of 1925 (July 2011). PetroSA owns the world’s second largets Gas-to-Liquid (GTL) refinery and its business spans throughout the petroleum value chain, where they produce about 5% of the country’s fuel needs. Products include: diesel, gasoline, kerosene and speciality products. PetroSA further has an exploration rights in both Equatorial Guinea and Namibia as well as a trading office in Rotterdam . PetroSA’s net asset value is around R16,57 billion.


3.1.2. Core business of PetroSA


PetroSA’s core business include:


  • 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


3.1.3. PetroSA’s mandate


  • Operate as an integrated commercial entity and create value for the shareholder - pay tax and dividends
  • Advance national objectives in the petroleum industry - Spearhead industry transformation
  • Complement & promote Government policy & strategic thrust e.g - Advance energy goals and Government objectives set out in various policy instruments e.g.:

- Energy White Paper (1998)

- Energy Security Master Plan (2007)

- Medium Term Strategic Framework 2009-2014


3.1.4. Key projects, challenges to implement these, and proposed solutions


3.1.4 (a) F-O gas Field Development

  • This project will sustain commercial GTL Refinery operations to 2019/20, potential upside could add a further 5 years to 2025
  • Project is progressing, production expected in 2013
  • Project risks e.g. execution on time, budget and reserve delivery are being closely managed through
    • High project prioritisation, expert project team in place, strict cost containment,
    • Some existing wells are being made more productive to mitigate against FO schedule delays & third party benchmarking
    • Continued data analysis to optimise production performance.


3.1.4 (b) Crude Refinery project:

Project is being reviewed for latest demand projections, which impacts size, timing and phasing options. This will minimise costs, and make the project more attractive to investors and financiers.

  • Key challenges are :

o security of crude supply,

o speed of execution, market dynamics, timely obtaining of shareholder support . Strategic partnerships will be pursued for complementary attributes.

3.1.4 (c) Reserves Addition

  • Domestic exploration is critical for reserves addition, and needs to be pursued with vigour: Finalising partnership in Block 5/6
  • International upstream ventures are also being pursued to add reserves


Key challenges:

  • Funding capability (for competitiveness) is limited. PetroSA is targeting “less” risky producing assets for easier fundability and for short-term income. PetroSA will also pursue strategic partnerships (for exploration carry, risk sharing and complementary skills).
  • Human resource constraints make it necessary to limit geographic focus.
  • Limited domestic upstream industry activity increases costs


3.1.5. Skills Development

  • R35.9 million spent on employee training and development in 2010/11
  • Bursaries - 91 full time students are currently sponsored
  • Study assistance programme - Open to all employees for part-time tertiary studies
  • Women Leadership in Oil & Energy offered by Wits Business School - Programme runs annually, 30 employees completed to date, 7 in 2010/11.
  • High Performance Culture Academy (Supervisory & Management development
  • programme) - Has been running for past 3 years and 57 employees completed to date, 16 in 2010/11
  • Graduates in Training Programme - 35 graduates currently on the programme


3.1.6. PetroSA’s centre of excellence in Mossel Bay :

· Was established in 2002

· Is situated 12km from GTL refinery in Mossel Bay

· Drives skills programs for PetroSA and the industry

· Operated in partnership with the Mossel Bay community

· Provides training for boilermakers, welders, fitters, riggers, instrument mechanics and electricians;

· Accredited with the Chemical Industries Training Authority and has become a Trade Testing Centre

· So far has trained more than 732 artisans

· Currently has 220 learners


3.2. Meeting with the Petroleum Agency of SA (PASA)


The Petroleum Agency SA (PASA) promotes exploration for oil and gas resources and their optimal development on behalf of the government.


The agency regulates and monitors exploration and production activities and is the custodian of the national exploration and production database for petroleum. PASA is designated by the government as the official agency responsible for the promotion and regulation of South Africa ’s petroleum resources. Its role was statutorily endorsed in June 2004 in terms of the Mineral and Petroleum Resources Development Act of 2002 .


PASA’s mission is to act as South Africa 's petroleum exploration agency, seeking to actively promote exploration of natural oil and gas resources and for their optimal development for the benefit of South Africa .


In terms of exploration, in the past few years, more than US$1-billion has been spent on oil and gas exploration in South Africa and more than 10 companies have been granted exploration licences.


3.3. Meeting with the Oil Pollution Control of South Africa (OPCSA)


3.3.1. Background


OPCSA was registered as a section21 company in 1992 and managed as a department of SFF Association with the function to provide pollution prevention, control and clean-up services within Saldanha Bay harbour facilities. The SFF was at the time engaged in extensive oil trading activities that necessitated pollution control and prevention measures. After restructuring of the CEF Group of companies in 2002, OPC emerged as a subsidiary of CEF that: Manage SFF Environmental Liability -Ogies; provide a Pollution Response Service to SFF; and provide a Service to Existing Clients in Saldanha.


3.3.2. Skills Development

The following training was provided for by the OPCSA:

· Management

o Environmental Management & Essential Skills for Managers Level 1 and 2.

· Operational

o First aid, Health & Safety& Handling and operating of all equipment.

· Specialist

o Operating of mobile crane, truck crane and forklift, Skipper & radio ticket, Pre-sea, survival at sea, Motorman grade 2, Basic fire fighting, ISO 14001 and Financial/HR risk & crisis Management.


The training budget for year spent by the OPCSA was R117 201 .00


3.3.3. Tenders for the past 5 years


In 2006 - A letter of invitation to quote for the manufacturing, supply and installation of 1200m of fence boom was sent to six companies. The Board approved the procurement of the boom from Applied Fabrics at a cost of R 3288250.00.


In 2011 - The Board approved the replacement of the vessel “Albatros”, and a Request for Proposals for the replacement of the vessel were advertised. The tender closed recently and the tenders still have to be evaluated.


3.3.4. OPC’s commitment to BBBEE


OPC is committed to support the development of previously disadvantaged groups by assisting in the establishment and development of BEE and SMME companies. This is done by placing that at least 30% (thirty percent) by value of orders for goods and services with such organisations, if minimum quality and specifications are met. All purchases are done in terms of an approved budget and in line with the company procurement policy .


3.3.5. Support from CEF


OPC receives the following services from CEF monthly, as stipulated in the Service Level Agreement (SLA) between the CEF and OPCSA: Human Resources, Logistics and Facilities, Legal, Internal Audit, Finance, Treasury, Secretariat, – CEO Office


Should OPC perform these services, more staff would be appointed and/or the services would need to be outsourced to companies, which in both cases, would have a huge financial impact on OPC. Thus it is the most beneficial for OPC to have CEF provide these services.


The total amount paid to CEF for 2010/11 amounted to R 879,653.00.


3.3.6. Impact of the OPC


Due the high environmental risk, crude oil vessels would be unable to operate in Saldanha without proper mitigating measures put in to place by OPC. Clients can therefore not operate in Saldanha unless OPC provide a full environmental management service as well as a pollution prevention and control service.


3.4. Meeting with the Strategic Fuel Fund (SFF)


The Strategic Fuel Fund Association (SFF), a Section 21 company and a subsidiary of CEF which manages South Africa ’s strategic inventory of crude oil on behalf of the State.


SFF holds strategic stocks of about 10.5-million barrels of crude oil. It further manages the storage facilities in the Western Cape at Milnerton, outside Cape Town , and at Saldanha Bay .


The SFF further owns sizeable coal deposits near Johannesburg . The strategic stocks of crude oil and the land and buildings used to hold the stock are the property of the State. SFF has acted as the agent of the State in managing these assets under the guidance of ministerial directives issued by the Minister of Energy in terms of the CEF Act.


Since 1 October 2002, in response to a ministerial directive, SFF entered into a sub-agency agreement with PetroSA , which meant the management of strategic stocks will be carried out by PetroSA. PetroSA manages the remaining functions of SFF as well, excluding pollution prevention and control, which is managed by OPCSA.


3.5. Findings


The Portfolio Committee on Energy, having met with four of the Western Cape based CEF affiliates mentioned above, made the following observations:


· The Committee had reservations about the positioning of PASA under CEF as holding company. The situation was deemed to create doubts about the independence of PASA when it comes to regulating PetroSA operational issues.

· The Committee needed clarity from PASA as to which operations they regulated in terms of upstream or downstream activities.

· PASA was requested to shed more light regarding their sources of revenue and whether their source of revenue was only from the fiscus.

· There was lack of substance regarding PetroSA’s commitment to climate change issues.

· The committee felt that the numbers of PetroSA’s employees who went through the Centre of Excellency were low.

· There were a seemingly large number of foreign nationals employed by PetroSA. An explanation was sought as to the rationale of employing foreign nationals when on the other hand unemployment levels were soaring in South Africa .

· PetroSA was asked to take the Committee to its confidence that one of their operations ‘Project Mthombo’ was still viable and worth investing public funds.

· The staff composition of SFF was a worrying factor as many employees were close to retirement. This was not displaying any assurance for continuity.

· The Committee was at pains to understand the OPCSA’s loss of R1.1million in 2009, although a profit of 8 million rand was realised in the 2010/11 financial year.

· Not much information had been shared regarding social responsibility initiatives

· There was no clear justification why SFF chose a target of 10.3 million barrels as strategic stock reserves for the country.


3.6. Conclusion


· PASA noted the concerns raised about its positioning within the CEF group of companies. The consensus was that ideally it would have been much better for PASA to be positioned outside the CEF holding company in order to dispel any perception that such an arrangement favoured PetroSA.

· PetroSA assured the committee that all its modern equipment was environmentally friendly.

· It was however accepted by the Committee that the regulatory framework was tightly controlled such that even PetroSA could not be afforded any favours.

· A further proposal was made to hold a joint session with portfolio committee on mineral resources to try and resolve the matter regarding accountability of PASA to both the department of energy and mineral resources department.

· A concern was raised that PetroSA had failed to share with the Committee on its plans to have security of gas for the future.

· SFF’s response to keep 10.3 million barrel as strategic stock reserve to last the country for 21 days in the event of a crisis was a ministerial directive.


3.7. Recommendations


The Portfolio Committee on Energy recommends that the Minister of Energy should ensure the following:

  • That PetroSA does more in terms of training and provide opportunities for work to local citizens; and

· That PetroSA does more in terms of increasing numbers of employees who go through the Centre of Excellence.


4. Meeting with the Johannesburg based Central Energy Fund affiliates


4.1. Central Energy Fund brief overview


The Portfolio Committee was welcomed to the Johannesburg CEF House by the Chairperson of the Central Energy Fund (CEF).


Dr Chris Cooper gave a brief outline of the company and the reasons behind its formation, and most importantly its incubation role within the energy sector.


CEF, incorporated in terms of Central Energy Fund Act, is mandated by South African Government to engage in the acquisition, exploration, generation, marketing and distribution of any energy form and engage in research relating to the energy sector. CEF (Pty) Ltd. is involved in the search for appropriate energy solutions to meet the future energy needs of South Africa , the Southern African Development Community and the sub-Saharan African region, including oil, gas, electrical power, solar energy, low-smoke fuels, biomass, wind and renewable energy sources. CEF also manages the operation and development of the oil and gas assets and operations of the South African government.


In terms of the CEF Act, the purpose of CEF is to give effect to the objectives of the Central Energy Fund, which are to:


· Finance and promote the acquisition of coal, the exploitation of coal deposits, the manufacture of liquid fuel, oil and other products from coal, the marketing of the said products and any matter connected with the said acquisition, exploitation, manufacture and marketing;

· The acquisition, generation, manufacture, marketing or distribution of any other forms of energy and research connected therewith;

· Any other objects for which the fund may be applied, and which has been designated or approved by the said Minister with the concurrence of the Minister of Finance.


Apart from CEF, the CEF Act also establishes the Central Energy Fund and the Equalisation Fund and determines that CEF will take up the shares in Strategic Fuel Fund (SFF), which is responsible for managing South Africa ’s strategic crude oil stocks on behalf of the government. CEF also calculates the monthly petrol and diesel price for the DoE.


4.1.2. CEF finances


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.


4.1.3. CEF building as a model for energy efficiency


The CEF highlighted that the new CEF building in Sandton was modified to include significant energy efficiency interventions.


The aim was to ensure that the energy consumption is below the average for similar office buildings. The two most visible interventions is the efficient lighting systems and the double glazing. The lighting system has three characteristics that ensure efficiency. The lights themselves are designed to reflect as much light into the room and use highly efficient tubes.

Further there are both occupancy and ambient light level sensors to provide efficient light levels at all times. Double glazing reduces heat uptake through solar thermal insulation when it is hot outside and through radioactive heat losses when the outdoor temperatures are low.


4.2. Energy Development Corporation projects


4.2.1. Overview

Energy Development Corporation (EDC) was created as a Division of CEF as a result of the 2003 High Level Business Strategy issued as a Directive from the Minister. The EDC also focuses on Commercial and Developmental projects and also to play its role in the renewable energy space and act as a catalyst.


The main objective of the EDC Commercial is:

Commercial Unit will engage in Projects that will have rigorous business plans that will meet all the normal standards for such plans clearly revealing commercial internal returns (IRR) that meet or Exceed CEF’s threshold for Project approval.


The main objective of the EDC’s Developmental Unit is to:

Provide energy solutions on a sustainable basis, including to the less developed areas of RSA (cleaner energy, accessibility, affordability and energy efficiency) e.g. LPG



4.2.2. Landfill Gas Activities


The landfill gas activities were said to be a part of the EDC commercial projects. However, a decision was taken to withdraw from participating in the project, largely as a result of changes it caused by the new Renewable Energy Feed-in Tariffs (REFIT) structure.


CEF tried to acquire a special dispensation from the Department of Energy to continue with the project, but without success. As a result, R3 million investment were lost due to a decision that was taken to discontinue with land fill gas activities.


4.2.3. Darling Wind Farm Project


As a national demonstration project the Darling Wind Farm was developed to share lessons learned from the construction and operation of the technology with potential developers in the renewable energy sector.


Wind power generation is still relatively under-utilised in Southern Africa . Wind power holds several advantages over other energy resources.


Turbines mainly make up the largest chunk of the capital cost of setting up a farm, however the operating costs are low. The shareholders of the project are CEF (Pty) Ltd with 49 per cent; the Olsener Group at 26 per cent and the Development Bank of South Africa 25 per cent.


The Environmental Impact Assessment (EIA) for expansion of the project was approved in 2009, and findings indicate space for more turbines to be added to the existing 4, which will vastly reduce production and maintenance costs and raise monetary returns by bringing power output to 15 megawatts peak.


4.2.4. Johanna Solar and Thin Film Solar Technologies


This project is the brain-child of professor Vivian Alberts from the University of Johannesburg . The project focuses on developing the production plant that produced PV panels. CEF made a strategic investment into the project and remains the main investor for the South African operations. Unfortunately, the commercial scale plant failed to achieve the required efficiencies and the technology choice was being reviewed.


Thin Film Solar Technologies Pty Ltd reported that it procured land in the Western Cape Province to produce the thin film solar modules. A team of scientists, led by University of Johannesburg research department, invented the design for the solar panels. The advantage of the product was its stability over long-term and its low cost base and was far cheaper than traditional solar photovoltaic cells.


The machinery required for the plant would be built in Germany and shipped to the site near Paarl in the Western Cape . Shareholders in the project include Sasol, the Central Energy Fund (CEF), the National Empowerment Fund and the University of Johannesburg . The Project needs €160 million to implement, of which CEF is to contribute €30 million as part of its investment.


4.2.5. Cradock Sugar Beet Project


This project was a development of a 90 million litres per annum fuel grade bio-ethanol production plant in Cradock in the Eastern Cape .


The feedstock for the plant will be a combination of sugar beet and grain sorghum. The target use for the bio-ethanol was blending into the liquid transport fuel by oil companies.


The construction of the plant is set to be completed by the end of 2011, with the actual operation expected to commence in October 2012.


4.3. ETA Energy


4.3.1. Key projects


· Solar Water Heaters (SWH) (exclusive use of the Municipal billing system)

· 100 mega watt (MW) wind project

· Energy efficiency:

o 1.400,000 CFLis replacement and maintenance

o 2.Streetlights (circa 40,000s)

o 3.Water treatment

o Buildings

· Land Fill gas Projects

4.3.2. BBBEE


  • BEE spend as a % of total qualifying spend is circa [97%]
  • 2 main tenders above R0.5m over past 2 years relating to SWH project (Outsourced partner and SWH suppliers with CEF procurement signoff)

4.3.3. CEF support

ETA has a SLA with CEF for Accounting/legal/IT and other administrative functions (no duplication of roles within ETA and CEF)


4.3.4. Support from DoE


· The ETA has supported the DoE in its SWH initiatives

· Three (3) key areas of focus:

o Paid for consultant to prepare financial model to consider the impact of the Standard Offer (Eskom rebate) moving from upfront to the annual payment

o ETA has signed an MOU with Santam to progress Reactive SWH installations

o ETA SWH project is to focus on high pressure SWH

· The ETA however still require the DoE support for the IPP definition to be changed for LFG


4.3.5. ETA Projects


Set out below is an analysis of each project within ETA:






Pilot 500 SWH rollout then proceed to mass roll-out overtime

GO–Pilot implementing


Assist DOE in SWH roll-out plans

GO – assigning and aligning with DOE plans


Develop feasibilities in potential investment in loca lSWH manufacturing facilities

GO–starting process with 2 key local/Chinese technology partners


Flaring on 2 Landfill gas sites in Nelson Mandela Bay Metropolitan Municipality (NMBMM)

NO GO–Project progressed but ETA not defined as an IPP thus Project cancelled by Municipality


Installation of 400,000 CFLs

NO GO–cost recovery analys is underway


Installation of 35,000 Streetlights in NMBMM

NO GO–cost recovery analys is underway


25MW windproject in NMBMM

NO GO–possible dispute with contractor–plans to prepare case


Waste Water Treatment Project in NMBMM

NO GO–cost recovery analysis underway


Hydro opportunities in EasternCape

NO GO–no defined project ever identified



4.4. CEF Carbon Activities


4.4.1 Overview


CEF Carbon:

· Established in October 2008

· Wholly owned subsidiary of CEF (Pty) Ltd (PFMA schedule 2)

· Provide advisory, financial and operational services to Emission Reduction Project developers, including Clean Development Mechanisms ( CDM) and Voluntary Carbon projects.

· Assists buyers in acquisition of Certified Emissions Reductions (CERs) and Voluntary Emission Reductions (VERs).

· Also focuses on delivering and marketing carbon credits from CDM projects undertaken by other CEF subsidiaries as well as third parties.

· Facilitate the transfer of carbon credits to buyers predominantly in the EU

· CEF Carbon further has as a dormant subsidiary CEF Carbon UK Ltd which is the holder of the European Union Emissions Trading Scheme (EU ETS) registry account.

· Established joint venture subsidiary Carbon Stream Africa in 2008 with GreenStream Network, partly funded by the Norwegian Agency for Development Cooperation (NORAD): a specialist entity focused on the development of Project Design Documents (PPDs), which are prescriptive documents required as part of the formal UN approval process for CDM projects.

4.4.2. Operating principles


· CDM Project Management: Work directly with the Designated National Authority (DNA) and project developers to ensure efficient CDM delivery. Manage the CDM project cycle.

· CDM Project Documentation: Provide project specific documentation to clients including but not limited to PINs, PDDs, and Validation Reports.

· CDM Verification/ Certification: Verify and certify emission reductions and baselines.

· Revenue for the current portfolio is dependent on the physical projects being operationalised. CEF and ETA Energy project CDM costs are currently carried by CEF Carbon with cost recoveries through a delta on CER’s, once these are generated, realized and sold.

4.4.3. Strategic goals and objectives

Long Term:

  • Maintain presence in the carbon and climate arena by assessing opportunities for climate change services such as carbon master planning, carbon footprinting, energy management and implementation plans


Short to medium Term:

· Operate to complete current project obligations in completing and registering of CDM projects. There are activities associated with the carbon and CDM business.

· Identify State carbon opportunities that can be developed under carbon management and/or CDM

· Continue to offer CDM services

4.4.4. CEF Carbon key objectives for 2011/12

· To develop and implement a restructuring plan for the CEF Carbon business

· Progress the CDM cycle stages for the existing project portfolio up to UNFCCC registration. This includes to date the CCE projects and the NMBM SWH project.

· To build the CEF Carbon brand through marketing activities based around strategically important carbon/climate conferences and workshops

· Conduct a carbon footprinting evaluation of CEF Carbon and of the energy consumption of CEF House for the 2011 calendar year

· Identify any potential CDM and/or carbon related project opportunities within State-owned entities and municipalities

· Expanding the CEF Carbon image and services into sub Saharan Africa

· Investigate and assess the opportunities for CEF Carbon to access the climate change and sustainability industry, while still maintaining CDM services as a business offering. Make provisions that will allow for and support CEF Carbon in offering climate/carbon advisory work as well as sustainability strategy implementation services to third parties and municipalities. (This will include the appointment of a new CEO/Manager)

· Provide inputs to the CEF interactions with COP-17 planning and the event.

4.4.5. CEF Carbon origin & rationale

· CEF Carbon has identified various opportunities in gaining an active role in the CDM space.and the climate change sector.

· Created to monetize carbon opportunities from CEF projects under the UNFCCCCDM rules.

· To provide carbon cycle management services to CEF and third parties.

· Provide technical services to produce Project Design Documents (PDDs),

· To support both sellers and buyers of carbon credits in southern Africa through the delivery of CDM project development and transaction services in exchange for resulting carbon credits.

· The vision for CEF Carbon is to continue to manage its current contractual obligations as well as undertake any CDM projects that are run by CEF,other SOE’s and government.

· A further vision is to expand its service base by taking on a more involved role in the climate change scene as part of an overall long term strategy and role management and implementation plans, greenhouse gas inventories,carbon footprinting.

4.5. South African Supplier Development Agency (SASDA)


4.5.1. Establishment of SASDA


  • In 2005 - National Supplier development pilot project completed in partnership with PetroSA.

Department of Minerals and Energy (DME) and the SA Petroleum Industry Association (SAPIA) members established SASDA to facilitate access to procurement opportunities by Historically Disadvantaged South Africans (HSDA) for goods and services.

  • In 2006 - SASDA Board and governance structure were established.
  • In 2007 – 2008 - SASDA was incorporated into CEF following a ministerial directive and SASDA’s mandate was also expanded to include energy related SOEs. SASDA renegotiated its MOU with SAPIA resulting in individual oil company Service level agreements (SLAs). It took almost 2 years to negotiate the SLA swith the oil companies.


4.5.2. Industry’s Performance against the SLAs


4.5.2 (a) PetroSA

· Four companies are currently in the programme.

· Initial investment of R14million.

· Developed 94 shareholders; (9% were women)

· Created more than 120 permanent jobs.

· Generated more than R223m turnover since inception.

· One company attained ISO9000 certification with three others still implementing their Safety, Health, Environmental and Quality Management (SHEQ) systems and undergoing training.

· All 4 companies are receiving training on financial management to make them independent of PetroSA’s financial and business processes.

· SASDA appointed project manager for CSDP to achieve 30% local content on procurement spent.

4.5.2 (b) Sasol

· Ten companies are currently in the programme

· Initial investment of R1million

· Developed 15 shareholders; (20% women)

· Created more than 50 permanent jobs

· Generated more than R10m turnover since inception

· All ten companies attained ISO9000 certification

· Training on SHEQ systems for 40 employees

· A further five companies will be developed for 2011

4.5.2 (c) Total

· Has committed to develop 10 companies in 2011

· Initial investment of R1million

· Potential to develop 20 shareholders; (20% women)

· Potential to created more than 60 permanent jobs

· Potential to generate more than R10m turnover

· Potential to contribute to skills development by training the incumbents

4.5.2 (d) Engen/BP/Chevron/Shell

· The above companies have not contributed at all to transformation in the areas where SASDA is involved.

· Promises were made in terms of the signed SLA’s but nothing happened.

· Attempts to get the companies on board even after engaging their respective CEO’s has proven fruitless


4.5.2 (e) Refinery Managers Forum Initiatives

· The forum as represented by PetroSA, SAPREF (BP/SHELL); ENGEN, SASOL – Secunda approved an ED Project on painting& insulation, scaffolding and tank des-ludging to commence in 2011

· The project has potential to generate R74.8m in revenue and create ten 100% black owned entities

· Potential to create more than 120 permanent jobs

· Our attempts to get the companies on board even after engaging their respective CEO’s has proved fruitless

· Potential to contribute R5m on skills development

4.5.3. Challenges experienced by SASDA


  • The Liquid Fuels Charter is in the current state inadequate for effecting transformation:
    • Makes broad statements of intent without specific indicators for measurement (how will we know how well we’re doing?).
    • There is no enforcement and/or alignment of the Charter with the BB-BEE codes.
  • During the Charter review of Feb 2006 the Minister reminded industry that it is far from reaching the LFC target of 25%.
  • In SAPIA’s Annual Report of 2008 :
    • The Minister in her foreword raised concerns that procurement still requires further attention & laments the inaccessibility to the oil companies by HDSA’s/SMMEs.
    • SAPIA Executive Director in his report highlighted meeting LFC procurement targets as a challenge for industry.
  • The irrefutable fact is that the Charter’s target of 25% commenced in 2000 and was to be implemented within 10 years (i.e. by November 2010 )
    • The target of 25% will not be met
    • These are clear indications of industry’s apathy and possible contempt for the Charter.

· LFC procurement has been premised on preferential transactions with companies that have 25% ownership irrespective of other BB-BEE elements. As such narrow empowerment is taking place.

· The oil industry has opted for narrow based empowerment at the expense of SMME empowerment and BBBEE

· Company procurement processes are a barrier for effecting the LFC procurement objectives.

· Lack of a mandate and authority to enforce compliance is evident.

· Current economic environment has relegated supplier development programme to the back burner.

4.5.4. Concluding remarks by SASDA

  • At the time of the LFC adoption, of the R103 billion spent by industry only R3.9m (3.8%) was attributable to HDSA’s companies;
  • At least 25% (R25.7billion) of total industry procurement spend should be earmarked for HDSA’s companies;
  • Over the 10 yrs period, the R25,7bn per annum translates to R257.5bn procurement total spend.
  • It is very unlikely that industry has achieved this expenditure over the 10 yr period to Nov 2010

4.6. National Energy Efficiency Agency (NEEA)


Established in March 2004 through a directive issued by the Minister of Minerals and Energy, the National Energy Efficiency Agency (NEEA) is located within the Central Energy Fund as a wholly incorporated division. Its prime mandate is to promote the efficient use of energy in South Africa by any means possible. This crosses all sectors, including electricity, transport, gas, liquid fuels. The aim is to create an energy efficient society given the current energy crisis and environmental impact of our energy usage.


NEEA is tasked with a mandate of assisting in the search for appropriate energy solutions to meet the future energy needs of South Africa, the Southern African Development Community and the sub-Saharan African region.


The implementation partners of NEEA include the National Energy Regulator of South Africa (NERSA) and Eskom. It is envisaged that the NEEA will initially oversee the implementation of Demand Side Management (DSM) and Energy Efficiency projects undertaken by Eskom and other entities in the country. The DSM funds will in the interim remain with Eskom as the main implementing agency, who will continue to manage these funds with the oversight of the NEEA governance body.


4.7. South African National Energy Research Institute (SANERI)


The South African National Energy Research Institute (SANERI) outlined its mandate as having emanated from a realisation that the country was facing a situation where the Research and Development capacity in South Africa was declining in existing institutions outside of Universities.


Cabinet resolved to establish a new institute to ensure the nurturing of Research and Development skills in engineering and science. Despite being housed under the CEF group of companies, the current funding for SANERI comes from the Department of Science and Technology, and was split into two main areas, the first being human capital development, concerning the development particularly of post-graduate students at universities and the second area being project development.


Among a variety of SANERI’s many projects is silicon beneficiation for photovoltaic panels, integrated low-income housing and sustainable energy supply, green transport, solar traffic lights and other concentrated solar energy technology.


SANERI/DI was created by Ministerial directive in 2004 to assist government in developing an energy R&D and is listed as schedule 3A public entity on the 1 st April 2010. SANEDI is the merger between SANERI and NEEEA. It was operationalised by the State President and Minister of Energy.


SANEDI goes beyond research, but development of technology (incubating emerging energy technologies).


SANEDI is the implementing agent of Working for Energy. It has placed an application for job fund of 300 000person/days


It is experiencing a declining funding trend from Government (2007/8: R42m; 2008/9: R44m; 2009/10: R39m; 2010/11: R23m). The breakdown of funds for current financial year is as follows:


Department of Science and TechnologyST – R9m

Department of Energy – R21m

Central Energy Fund (CEF) – R29m


Working for Energy (WFE) has two focal points which are provision of renewable and energy management. There are number of projects which WFE is implementing such as Bioenergy Cluster- Fort Cox College of Agriculture and Phillipi project.


Under energy management it also has solar home project that produces 4kW of power to meet standard modern household energy needs and low cost energy sufficient housing.


SANEDI is also planning to establish Renewable Energy Centre of Research and Demonstration (RECORD).


The National Energy Efficiency Agency (NEEA) will implement the following projects going forward:


  • Public sector Energy Efficiency
  • Establishing National Energy Efficiency Database – this is because the energy efficiency initiatives are very scattered and there is need to channel these efforts into one institution
  • Monitoring and Evaluation projects
  • Appliance labelling
  • Play a technical advisory role


The Company reported a net profit for the year of R5 million (2009: R8 million). This is mainly as a result of SANERI being funded by government grants received through the Department of Science and Technology.


4.8. South African Gas Development Company (iGas)


iGas acts as a state agency for the development of gas industry in the sector in particular gas infrastructure development. The company invests, constructs and operates gas transmission pipelines and storage in the country in the quest to diversify South Africa’s energy spectrum and invest in environmental clean energy.


iGas work hand in hand with Mozambican government in managing natural gas pipeline from Mozambique to South Africa. The main flagship projects for iGas are Rompco pipeline which employed 1 830 people during construction and 25 operational jobs for 25 years and Rompco Komatipoort Compressor which employed 300 people during construction and 10 operational jobs for 25 years. iGas is also managing the transmission pipeline studies.


There is also LNG regasification project at Coega which is at project level (2 400 MW) and West Coast Gas Transmission project which is also on the pipeline.


A fatal flow study for West Coast Gas Transmission project has been completed and the result will assist in the selection of best routes for the construction of gas transmission pipeline from Ibhubesi gas field to Ankerlig (Eskom’s Power Station in Atlantis). The project will take 3 years to build and 6 years to get it completed.




4.9. Findings


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

· The Committee expressed disappointment with the CEF’s Chief Executive Officers conduct during the entire oversight visit. It was felt that the CEO acted untowardly by choosing not be a part of the CEF officials without giving reasons for his absence.

· Staff turnover levels seemed to be alarmingly high and the Committee raised concern relating to the number of managers in acting capacity and whether that did not affect efficiency. CEF informed the committee that the matter was discussed at EXCO and at the CEF strategy session. It was agreed that EXCO will view the staff resignations as right sizing as there is a number of projects that are halted as a result of the new regulations which disqualified CEF.

· Concern was raised over a large number of projects that were terminated after investing substantial amount of resources. CEF requested to clarify its strategy regarding its taking of decisions to embark on projects and how they conduct their feasibility studies.

  • There is inadequate methane gas supply at PetroSA, which has resulted ina potential going concern challenge with Methcap in which CEF holds a 19% interest (Capital investment by CEF is R1,4m). It will probably take 12 to 24 months for all the the digesters to be recommissioned.
  • SoE’s do not have the necessary funds earmarked for Energy Efficiency Programmes and thus require support. CEF is awaiting concurrence from the Minister of Public Works on their proposal submitted via the Minister of Energy.

· With regard to PetroSA’s BBBEE procurement, (for the period under review) payments made to suppliers for goods and services totalled R7,38 billion. Of these payments, R1,36b was spent on black economic empowered (BEE) suppliers with a minimum of 25,1 per cent black ownership, while R2,99 billion was spent on suppliers with BBBEE contribution level of 1-8. This equates to 18,52 per cent and 40,52 per cent respectively of the company’s total procurement spent. Under the BBBEE Codes of Good Practice, certain expenditure may be excluded from total procurement, that is, from other organs of state, imported goods and services that cannot be sourced locally, as well as specific branded sole-source procurement. The total procurement expenditure from organs of state, sole source suppliers and foreign entities was R4, 82 billion.

· 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. Furthermore DBSA was to be requested to submit a report on the project to the Committee.

· With regard to the fraud and corruption, the CEF has spent R3,3 million in investigation and legal fees. Where CEF receives whistleblowers reports the matters is considered and necessary investigation is undertaken with the board approval. In the last two years there was allegations made and investigations undertaken. In most instances the investigations have identified lapses in processes, controls and exceeding limits of authority. The nature of irregularity (exceeding limits) have been quantified and disclosed in the Annual Financial Statements.

· CEF currently has 14 direct subsidiaries and they are currently exploring the option to rationalise the Group where there are synergies. It is expected that this rationalisation programme will take about 2 years.

· Of the total CEF budget, 62 per cent is spent on Research and Development.

  • The Committee was concerned about where and how CEF will get the €30 million investment for the Johanna Solar and Thin Film Solar Technologies Project .
  • An explanation was also sought as to how CEF decides to get involved in certain investment, some which are very risky and costly.


4.10. Conclusions


  • The overly compliance regulatory environment, as highlighted by CEF officials was noted. The Committee would engage the Department of Energy as part of finding a solution.

· Committee was concerned about the high levels of skills constraints especially for the new and large projects.

· Committee agreed to invite NEEA to parliament for a briefing of their role in promoting and guiding Energy Efficiency initiatives

· The Committee also requested a report detailing how CEF dealt with incidents of fraud and corruption and further an indication of the extent of fraud and corruption within the group.

· There were many projects which had been terminated before achieving desired results. CEF was asked to give a breakdown of all projects which were written-off and reasons why such decisions to disband or withdraw from those projects were taken.

  • The Committee sought to know from where will CEF get the €30 million investment needed for the Johanna Solar and Thin Film Solar Technologies Project as well as some of its foreign projects.
  • Concerns were raised with regard to the specific exclusion of maize from being a part of the feedstock for bio-fuels, including delays in the finalisation of blending values.


4.11. Recommendations


The Portfolio Committee on Energy recommends the Minister of Energy ensures the following:

· That Central Energy Fund considers getting involved in energy-efficiency intervention in order to promote energy efficiency in government buildings;

· That Central Energy Fund renegotiates the partnership or joint venture arrangements with Phillips Trading Company in Lesotho in order to enhance The growth of the company as well as market penetration locally and globally; and

· That Central Energy Fund promotes and facilitates local manufacturing as much as is possible in all its projects and ventures as this would contribute to job creation.


5. Oversight visit to SANERI Projects


5.1. Visit to Langlaagte Gas Filling Station


The station is a key point in providing Compressed Natural Gas (CNG) as an alternative vehicle fuel. A fter an extensive study doneby the South African National Energy Research Institute (SANERI) on operating South Africa's public transport on CNG, it was determined that CNG is the only viable alternative fuel source that is available for immediate implementation in South Africa.


With about 10 million vehicles running on CNG worldwide, it's easy to see why CNG has become the fastest growing alternative clean energy source in the world. SANERI and NGV Gas (Pty) Ltd are planning CNG demonstration stations across Gauteng and other strategic provinces to showcase the technology and promote CNG as a fuel source for the immediate future. These demonstration stations will be made available to interested parties who want to convert their vehicles to run on CNG.


Natural gas is non-toxic and emits much lower quantities of pollutants. CNG-powered vehicles have less maintenance costs due to the absence of any lead or benzene content fuelling the spark plugs and the increased life of the lubricating oils as CNG does not contaminate and dilute the crankcase oil. CNG fuel systems are sealed, which will prevent any spill, evaporation losses or theft.


5.2. Visit to SANERI’s Green Transport Centre

The vision of the green transport centre is to be a one stop facility for information sharing, technology development, technology demonstration related to the use and testing of alternate fuels and vehicles. The Committee got exposure to the electric powered vehicle, which was expected to revolutionaries the transport sector in years to come.

Key objectives of the centre include:

  • To be the agent of change and pioneering introduction of alternate fuels and vehicles into the South African transport sector
  • To be a one stop facility for information sharing related to alternative fuels and vehicles involving vendors, vehicle manufactures, researchers and policy developers
  • To be the one stop facility for the public to get first hand experience of the use of alternatives, see refuelling, experience and feel driving, understand operational and learn about the benefits
  • To facilitate partnerships
  • To provide access to reliable data
  • To facilitate access to local funders, international donors and international funders

A Corsa electric powered bakkie was presented to the committee as an example of the project. All that was needed for the bakkie was a plug point to recharge the battery and it was easy to find one especially in the city centre. The costs of fully recharging the batteries were said to be around R4, and the vehicle did not use any oil or fuel to get going. In addition, the electric vehicle produced less noise and had great performance of about 0-100km/h in nine seconds.

The officials at the Green transport Centre urged members of the committee to spread the word about the possibility of using electric vehicles, which had not gained public trust largely due to ignorance and apathy. An additional benefit of using electric motor over petrol engine for instance is that the life of an electric engine lasts much longer than a petrol engine, meaning consumers got more in terms of value for money.


Report to be considered.




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