ATC121029: Budgetary Review and Recommendation Report of the Portfolio Committee on Energy on the Performance of the Department of Energy for the 2011/12 Financial Year, dated 23 October 2012.




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

1. Introduction

1.1. The role of the Committee

The mandate of the Portfolio Committee on Energy (the Committee) 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 are therefore to:

· Conduct oversight on behalf of the National Assembly, over the actions of the Department of Energy (the Department) in order 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. Sections 195 and 33 of the Constitution, read together, guarantee 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 Department and its entities to relevant legislation (financial and other); and


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

According to Section 5 of the Money Bills Amendment Procedure and Related Matters Act, No. 09 of 2009 (the Act), the National Assembly, through its committees, must annually assess the performance of each national Department The Act further provides that 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.

It is expected that BRR Reports are considered by the Committees on Appropriations when it is considering and reporting on the Medium Term Budget Policy Statement (MTBPS).

1.2 Processes in compiling the Budgetary Review and Recommendations Report

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

· 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.


· Briefing by the Auditor-General of SA (AGSA) on the audit outcomes of the Department of Energy and the entities reporting to it.

· Briefing by the Department of Performance Monitoring and Evaluation on the performance of the Department of Energy on its:

o Delivery outcomes; and

o Management Performance

2. Department of Energy

2.1. Introductory Remarks by the Director-General

In November 2010 the Department’s management came together for its annual strategic planning. During this process, the Department came out with seven strategic objectives which are aligned to government’s 12 outcomes as well as take into account the new government outcome based planning approach. Its strategic plan and annual performance plan were based on several assumptions that included the availability of financial and human resources.

During the year under review, the Department operated within an environment where:

• The credibility in South Africa Energy policy trajectory was enhanced by the Independent Power Producers ( IPPs ) procurement process the Department painstakingly championed

• On the geopolitical front, the Department had to contend and develop a response plan to the sanctions by the US and EU on the Islamic Republic of Iran.

• The vulnerability of the refining sector was exposed with a number of refinery shutdowns which diverted some of our attention into monitoring contingency plan.

Department’s Strategic objectives

Government’s outcomes

Energy supply is secured and demand is well managed

Government outcome 4

An efficient, competitive and responsive energy infrastructure network

Government outcome 6

Improved energy regulation and competition

Government outcome 6

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

Government outcome 4

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

Government outcome 10

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

Government outcome 10

Good governance for effective and efficient service delivery

Government outcome 12

2.2. Corporate Services

The Human Resource Plan of the Department was finalized and implementation commenced. However, the Organizational Structure and Framework for Occupational Classifications was not achieved because of prolonged consultation processes with the Employee Organizations. Further to the afore-mentioned, the matching and placement of staff was also delayed. The turnaround time for filling of vacancies has improved to a remarkable three months on average. Interventions to maintain a vacancy rate of 9.6 percent against the Cabinet approved baseline of 15 percent were also implemented and achieved.

All performance agreements and workplans were finalized before 30 May 2011 as required and appropriate disciplinary sanctions were imposed for non-compliance. Performance reviews for staff was also finalized before the end of June. The Public Service Wellness Framework was approved and implemented in the first quarter of 2011. The Skills Audit and plan was finalized and submitted as required. The Human Resource Development (HRD) Strategy and Training plan were finalized before the end of June 2011 and implemented. The Department further managed to train 443 employees in administrative and functional areas. The Department has exceeded the 50 percent representation target of women; and All Presidential hotline cases were resolved. Alternative office accommodation was acquired through the Department of Public Works and the Department is settling in.

The Draft Knowledge Management Strategy was developed, but approval was delayed due to planned relocation to alternative building and lack of space.

Challenges include the following:

• Recruitment of persons with disabilities was challenge , thus the target of 2 percent could not be achieved- A strategy is developed and submitted for consideration;

• Implementation of the structure at Macro-Organizational level has posed challenges relating to reporting and lines of authority- This has now been addressed through matching and placement of affected following a decision by the leadership of the Department, after finalization of the structure; and

• Establishment of a Knowledge Management Centre as well as development and implementation of a strategy and plan- This challenge has also been addressed following relocation of the Department to the new premises.

2.3. Operations

The Department established a Risk Management Unit which includes the Anti-Fraud and Corruption function during the year. The Risk Assessments were conducted, the Risk Register was produced and mitigation strategies were put in place to enhance the control environment. Standard Operating Procedures for various functional Units within the Department was developed. Challenges include: Implementation of the Enterprise-Wide Risk Management Strategy for the Department, absence of risk management tool, provision of the Department’s Service Delivery Plan

The Monitoring and Evaluation Unit during the period under review developed the Department’s foundational M&E guidelines, namely the M&E Framework, M&E Policies, Procedures and Quarterly Performance Reporting templates as well as data collection instruments reported, on the Department’s performance – quarterly and annually. Challenges include : 43 percent target achievement, timeliness of management reports, development and finalization of the Department’s Standard Operating Procedures.

The Department provides oversight of state owned entities reporting to the Minister, monitor performance against approved plans and ensuring that all SOE Boards are fully capacitated by appointing board members for SANEDI, NERSA, CEF, and PetroSA. The CEO of PetroSA was appointed during the 2011/12. During the year under review, oversight Quarterly meetings between the Minister and the Chairpersons of the SOE’s, the DG quarterly meetings with the CEO’s and the Department officials and the SOE’s Executives were convened to review the entities Performance against the approved plans and implementation of improvement plans to enhance performance. Following the Cabinet decision to halt the operations of the Electricity Distribution Industry Holdings, the branch is leading the process of winding up in collaboration with the appointed Administrator and EDIH Board. Challenges include: EDIH winding up by year end; finalisation of the SOE Oversight Framework (approved draft) to accommodate the recommendations of the Presidential SOE Oversight Committee; Sector risk management; and the Department’s compliance monitoring

During the year under review, the Department Coordinated the African Ministerial Energy Conference which was attended by more than 40 Energy Ministers. The Conference produced the declaration which outlines the Energy needs for the Continent and Political commitments to alleviate Energy Poverty. The Department was responsible for the COP17/CPMP7 preparations.

The Minister of Energy visited the following countries during the year under review: Zambia , Mozambique , Botswana and Namibia . The Department International Relations Strategy was developed and approved. All International Agreements/ MOU’s signed by the Department was audited during the year under review. Agreements- declaration of Intent with the following Countries and Organizations were concluded: IEA, Swiss Confederation, Ghana , Lesotho , Denmark , Korea and DRC. The SA Renewables Initiatives ( SARi ) was signed with the United Kingdom , Germany , Denmark , Norway and European Investment Bank. The Department further participated in Project Steering Committees that led to the Declaration of Intent on SARi . Challenges include: Approval of the International Relations Strategy for the Department – draft by year end. Approval – audit agreements signed by the Department.

2.4. Hydro-Carbons and Energy Planning

Highlights of this branch include the operationalisation of the NMPP and facilitation of the landfill which improved infrastructure for security of supply. Compliance inspections were undertaken for Petroleum Licensing and the sting operations to uncover illegal fuel sales. The Department further conducted Petroleum Products Licensing Awareness Campaigns done in all provinces. Participation of the Department in the development of the Coal Roadmap and the facilitation of its completion. Implementation of the Regulatory Accounting Systems through the introduction of the framework in the fuel margins. Intervention on new Job Industry Sites to facilitate accelerated job creation. Increase in turnaround time for processing of all applications that meet the acceptance criteria. Development of the Standard Operating Procedures for all processes thereby improving consistency in the application of the law. Blending value and break even price for biofuels established. Support mechanism not finalized. Regulatory on mandatory provision of Energy Data promulgated. IEP Draft Strategy presented to Cabinet. LFC Audit Report completed. On behalf of the Director General the branch spearheaded Government Response to the sanctions imposed on IRAN by US and the EU.

Some of the activities to be undertaken by the Department which is still work in progress or which has been completed include the following:

· Formulation of the Integrated Energy Plan,

· underestimation of the complexity of the task given the resource constraints;

· Gas Amendment Bill not completed;

· Petroleum Amendment Bill not completed;

· Regulations on Cleaner Fuels Specifications not promulgated as was planned; Regulations on Mandatory Blending of Biofuels not finalized;

· Integrated Energy Centre programme delayed due to administrative and logistical challenges;

· Strategic Stocks Framework not finalized; the 20 Year Plan not completed;

· Fuel Pricing Framework Review not completed;

· Principles for incentivizing investments in cleaner fuels not done; and

· The LPG Strategy not completed (Tactical Move).

Challenges include: Reluctance to submit/provide data, Human Resource challenges (internally/skills); Unplanned Refinery outages and impact on personnel; Quality Management System issues; and inertia.

2.5. Nuclear

Highlights in the branch include:

During the period under review, in November 2011, Cabinet approved the establishment of the National Nuclear Energy Executive Coordination Committee (NNEECC). The aim of NEECC is to oversee the roll-out of the nuclear build programme. The NNEECC, headed by the Deputy President, is the authority for decision making, monitoring, and ensuring general oversight of the nuclear energy expansion programme.

In May 2011, South Africa hosted an IAEA’s 2nd Regional Conference on Energy and Nuclear Power in Africa . Such events are important in order to foster exchanges and interactions on regional approaches to energy security. In April 2011 South Africa participated in the Review Meeting of the Convention on Nuclear Safety(CNS), which culminated into the June 2011 Ministerial CNS. The Ministerial Conference was organised by the International Atomic Energy Agency.

South Africa undertook the necessary “stress” tests (safety re-assessment) on its nuclear installations, the recommendations resulting from this exercise will be implemented to ensure safety is maintained. The IAEA Self Assessment Review (Integrated Nuclear Infrastructure Review) was initiated during this reporting period. The Review will be completed in the coming financial year. The purpose is to systematically and methodically evaluate the gaps in SA’s nuclear infrastructure that could delay or hamper progress of the nuclear new build. The review is conducted accordance with the International Atomic Energy Agency’s milestones approach.

The amendments of the founding legislation as well as the development of new legislation for long-term funding provisions for radioactive waste management are being undertaken within the nuclear energy policy implementation. Consultations continue on the installation of appropriate radiation detection equipment at identified ports of entry. This is a multi-stakeholder project involving both international and national stakeholders. When this project is completed, South Africa will be able to prevent illicit trafficking of nuclear materials through our ports of entry. Following the approval of the business case for the National Radioactive Waste Disposal Institute, physical establishment of the entity remains a challenge due to lack of funding. Processes to fund the operationalisation of the Institute in progress

Challenges include:

• Human Capacity

• Financial resources

• Matching commitments with resources

2.6. Clean Energy & Electricity

With regard to the Energy Efficiency Target Monitoring System, this is in line with the Energy Efficiency (EE) Strategy, to develop a national target monitoring system covering all segments of the economy. The Department started the process, but it is not completed. The savings verification mechanism (EE) entails the measurement and verification protocols and standards, which will cover the industrial, commercial, residential sectors. On the issue of the Energy Efficiency Campaign Strategy, the Department will improve awareness building beyond what Eskom’s 49m campaign does.

On the issue of the Distribution Asset Backlog which is currently R35bn (2010 terms), the aim is to eliminate this over 10 years. Cabinet was approached in October 2012 regarding the institutional approach for Approach to Distribute Asset Management (ADAM). Pilot projects are to be implemented once approved, to improve service delivery in key municipalities. Funding is through tariff ring-fencing and regulatory monitoring and enforcement will be implemented to prevent a relapse.

Inclining block tariffs (IBT) was approved by NERSA to cushion the poor against increasing tariffs. The application in conventional and prepaid meters in Eskom areas was done. Municipal prepaid meters were installed where only 60 percent was configured, mainly due to financial sustainability problems emanating from the Inclining Block Tariffs (IBT). The next round of tariff determination will be completed by March 2013, so the pricing principles need to be aligned with the electricity pricing policy.

2.7. Integrated National Electrification Programme (INEP)

Over 5.4 million households were connected to the grid between 1994 and 2011/12.


Electrified Houses: Municipalities & Eskom

Eastern Cape

985 156

Free State

360 880


651 005

KwaZulu Natal

889 744


526 747

Northern Cape

129 114


949 545

North West

639 901

Western Cape

372 605


5, 503 857

In the period 2002 to 2011/12 over 50 000 households were supplied with non-grid technology (Solar panels – Renewable Energy).

The total photovoltaic solar heater systems installed - 55 831

• Eastern Cape - 11,412

• KwaZulu Natal - 35,607

• Limpopo - 8,812

According to the Department, n on-grid electrification programmes will in future not only be implemented in concessionary areas, but in a limited basis in other areas in country.


With regard to households without electricity, the figures are as follows:

• Households without electricity: ~3.4 million (Informal 1.2 million and formal 2.2 million)

• 75 percent are in Eskom’s supply area and 25 percent in the municipalities’ supply area.

2.8. Challenges experienced by the Department of Energy in the different programmes:

2.8.1. Municipalities and Eskom

• Slow delivery of electrification projects by municipalities and certain Eskom regions.

• The lack of skills within municipalities – technical and project management.

• The majority of Municipalities are not performing as required - internal procurement processes takes too long.

• Eskom internal project management systems and ‘red tape’ is slowing down delivery in certain regions.

• Consulting engineers and contactors not geographically spread according to backlogs in country.

• Municipalities do not have purchase bargaining power.

2.8.2. Non-grid programme

• Slow roll-out of non-grid connections due to negative political perceptions and practical short comings.

• Current non-grid systems not addressing basic electricity needs - heating and cooking needs.

• Non-grid service providers struggle to exist financially due to small customer base and rural location.

• Regulations promulgated recently increase non-grid installation costs dramatically.

2.8.3. Electricity industry

• Shortcomings in EDI are starting to have a very negative effect on the delivery of new connections.

• Municipalities use electrification funds to do upgrading of existing networks.

• Due to the nature of EDI, different electrification technical standards are implemented by Municipalities and Eskom.

2.8.4. Funding and cost of connections

• More and more connections need to be done in the rural areas – connections costs increase sharply and subsidy level have to be increased accordingly.

• Electrification fund allocated in next 3 years will not increase annually above CPI while connection costs on average have increased annually by 12 percent over the last 3 years.

• Pressure is increasing on fund - received 4.2 times more applications from municipalities than what was available for 2012/13 financial year. Last 6 years INEP received 50 percent of the funding as projected in 2003/4 to address backlogs.

• Annual budgetary process force projects to be planned and designed on an annual basis and not on a multi-year (project completion) basis.

• High energisation /switch-on cost charged by Eskom. Municipalities have to pay up front, not as previously over 10 to 15 yrs period.

• No soft loans or grants nationally or internationally available for normal grid extension, except if grid is renewable feed.

• Difference in National and Local Government financial years.

2.8.5. INEP

• Planning, Monitoring and evaluation of the electrification programme is limited due to the lack of resources – funding and HR;

• The operational budget for 2012/13 was cut by 55 percent

• Limited national planning capacity within INEP – Eskom Distribution and Transmission expansion and planning is dictating electrification roll-out.

• INEP resources are stretched, since more and more operational issues are involved in municipal projects.

2.8.6. General

• EIA and land claim processes that take more than two years to resolve;

• Late delivery of housing projects.

• Sharp increase in hard ware cost (transformers, switch gear, cables) – increase in base metals prices.

• Corruption starting to became a serious issue.

• Local manufactures cannot compete with low cost imported equipment.

2.9. Proposed solutions to the challenges

2.9.1. INEP

• Obtained IFC funding to do an analysis of INEP and the Electrification process.

• Various inefficiencies have been identified within Municipalities and Eskom

• Use Eskom and some Metro’s to render assistance to struggling municipalities with project management to ensure that the electrification projects are implemented effectively (MOU signed in this regard between CoGTA and Eskom).

• National electrification Master plan – link with PICC SIP projects.

2.9.2. Municipalities and Eskom

• Tighter control over performance of municipalities – Provincial Energy Forums, withdrawal of funds if not utilized immediately, re-gazetting etc.

• Possibility of a national purchasing office for Eskom, when in full operations to investigate the possibility to roll out to Municipalities – Will decrease hardware cost for projects by 10 -15 %!

2.9.3. Electricity industry

• Stimulate/protect local manufacturing of hardware – need surety of electrification figures and annual roll-out.

2.9.4. Non-grid programme

• Upgrade of current 50 Wp systems to 150 - 200 Wp systems – Industry to assist with technology initiatives.

• Increase number of connections via non-grid technology, due to increased cost of grid extension in rural areas and low consumption levels.

• Grand funding available for non-grid electrification projects, if policies are known and connections protected for a given period.

• Establishment of non-grid utilities – economics of scale.

• Selected non-grid projects to be rolled-out in rest of country – INEP assistance to Municipalities

2.9.5. General

• INEP will not request at this stage an above CPI increase in the annual electrification budget before the various options regarding improving the efficiencies in delivery the programme more effectively is not fully been implemented and the effect been proved – Foreseen by 2014/15 updated processes will be in place the full effect been experienced.

• Revised universal access date been moved to 2025 – This was modelled taking into consideration the implementations of the various efficiency gains are implemented.

• More emphasis on non-grid options in areas where grid will not be possible or to expensive to roll out.

• Will also allow for a limited grid supply for informal settlements under certain conditions, together with a limited non-grid option where grid is not possible.

• Larger involvement of Eskom in electrification projects, especially in the 23 District Municipalities that have been identified under the PICC SIP 6 programme.

2.10. Annual Financial Statements and the report of the Auditor-General

2.10.1. Introduction

The year under review, year 2011/12, is the second year that the Department of Energy was operating as an independent Department. There has not been any significant increase in the Department’s budget allocation between the years 2010/11 and 2011/12. Of the 12 percent increase between the two years, 10.6 percent went to transfers and subsidies and only 1.4 percent went to the Department’s operational budget. The challenges of the inadequate baseline allocation for the Department resulting from the split of the Department of Minerals and Energy remain – however engagements between National Treasury and the Department are in progress.

From the 2011/12 the total budget allocation of R6.2 billion, 95 percent went to transfers, which include:

· Integrated National Electrification Programme - R3.2 billion;

· Transnet’s New Multi-Product Pipeline - R1.5 billion;

· NECSA - R586 million;

· Energy Efficiency Demand Side Management - R398 million

· And the balance was transfers to State Owned Entities and other smaller programmes.

Only 5 percent of the total budget was allocated for the Department’s operational needs, amounting to R305 million. The Department spent 99.6 percent of its allocated 2011/12 budget.

The Department was granted approval by National Treasury to shift an amount of R41.32 million appropriated as transfers and subsidies for the REFSO, on condition that a provision is made from the approved funds for the office accommodation lease cost of R21.8 million and the Independent Power Producer (IPP) unit set-up costs, estimated at R 4 million.

The Department’s total spending for the year was R6.174 billion (99.6 percent) of the total budget of R6.20 billion. The afore-mentioned represents an under spending of 0.4 percent i.e. R26.65 million. This under spending was generally caused by undue delays in procurement and transfer processes. On 31 March 2012, the Department had an unspent amount of R26.65 million and a roll over of R26.84 million to the 2012/13 financial year.

The composition of the overall balance of R26.65 million unspent funds is as follows:

· Compensation of Employees :R.032 million

· Goods & Services :R8.55 million

· Transfer Payments :R12.95 million

· Capital Assets :R5.13 million

2.10.2. Unauthorized expenditure

The unauthorized expenditure of R14.86 million due to an Infrastructure Grant transfer payments paid to the Mthonjaneni Municipality in May 2010. The transfer was appropriated in the 2009/10 financial year; however the payment to the municipality was processed in March 2010, but transferred in May 2010 due to the system rejection of the banking details. This amount is awaiting condonation and authorization from National Treasury. The Department has subsequently implemented the necessary controls to avoid a recurrence.

2.10.3. Irregular expenditure

All irregular expenditure incurred in the 2010/11 financial year was condoned. For 2011/12 financial year the R39.485 million irregular expenditure closing balance - 99 percent relates to lease payments for office accommodation (R22.09 million of this amount is for the current year and R17.395 million is for the prior year). All of the above irregular expenditures have been condoned subsequently to the year end.

2.10.4. Report of the Auditor-General of SA (AGSA)

The Department received an unqualified audit opinion , without any emphasis of matter. Despite the unqualified audit opinion the Department however showed some weaknesses in its financial controls that led to unauthorized expenditure amounting to R14.86 million and irregular expenditure of R39.485 million. The Department has completed an action plan to address all outstanding AGSA findings. Most of the audit findings were addressed by 31 July 2012. All of the SOE’s reporting to the Department has also received an unqualified audit opinion.

2.11. Observations and findings

· The Department is supposed to be in the forefront of energy policy and planning. However, due to budgetary constraints this it difficult to achieve.

· The Department is in constant discussions with the National Treasury, on its funding requirements.

· The Department spent 99 ,6 percent of its allocated budget during the period under review.

· The Department is aware that more priority needs to be placed on Energy Efficiency. The Energy Efficiency Strategy which was developed by the esrtwhile DME, is being revised by the Department and currently inputs from various stakeholders were widely canvassed.

· The household Energy Efficiency Strategy will be prioritized by the Department as a matter of urgency and with a focus on diversifying households’ energy mix.

· On the restructuring of the energy sector, the Department will seek Cabinet guidance.

· The synergy between the Department and its entities is still lacking. The monitoring and evaluation of the Department over the entities, reporting to them, need to be strengthened.

· Members raised concern that the monitoring and evaluation of funds transferred to the entities and municipalities is quite compromised and such needs to be reinforced. The Department made an undertaking to include performance targets when conducting oversight over the entities.

· With regard to the Independent Power Producers ( IPPs ), there are supposed to be specific agreements, between the Department and IPPs . The Department will undertake to ensure that these agreements are reached by the end of the financial year.

· On the issue of obtaining the necessary information/data from stakeholders, there are regulatory mandates in the energy sector (liquid fuels in particular) which compels stakeholders to provide the information. However, the main concern of the Department is the way the information is packaged. Because of the sector’s competitiveness, stakeholders are reluctant to divulge the necessary information.

· Prior the split of the Department of Minerals and Energy, most emphasis relating to skills development, focused on the mining industry and very little on the energy side. The Department acknowledged that they are playing catch up with regard to skills development in the energy sector and that the sector is under tremendous stress especially the liquid fuels sector and the electricity sector.

· The Department pointed out that they have learned a lot during the auditing of the refineries process (the Department have however not indicated what those findings are).

· The Department does have bi-lateral agreements with SA’s neighbouring countries, especially in the liquid fuels and electricity sector.

· The Department is currently experimenting with the roll-out of smart-grid technology.

· According to the Department, there is a budget of R400m (of the former EDI Holdings), which municipalities are able to access for specific projects or infrastructure development initiatives. However the Department has set certain criteria, which must be fulfilled, for municipalities to access these funds and these funds will be ringfenced for that specific programme. This is in an effort by the Department to encourage correct behaviour by municipalities.

· With regard to the Inclining Block Tariff (IBT), the Department pointed out that co-operation between all three spheres of government is crucial. According to the Department local government has a by-law which requires one (1) electricity meter per site. In the event that a site has for example three “homes” or households within one property, all three need to be metered separately for IBT to be effective.

· On the issue of consultants vis a vis in-house specialists, the Department pointed out that consultants are temporary, where they are called in to address a problem and leave. In other words, they are a short term solution.

· A concern of the Department is the planning cycles between that of the Department and its entities. Entities use to plan ahead of the Department, with the result that there was no alignment. The Department has undertaken to address this as matter of priority including a combined risk management strategy will be jointly developed.

· With regard to the necessary skills in the Department, the Department pointed out that a skills audit is performed, after which the Workplace Skills Plans will be developed, where training needs are identified.

· Current publications of the Department are internally focused however outward focus will be considered in future.

· Clean Development Mechanism (CDM) initiatives are small and very expensive projects. The Department confirmed that they have very little influence over the process on what can be done. The Department hopes to develop a booklet to inform communities on CDM.

· The Top 40 energy users in SA signed the Energy Efficiency Accord at the COP17.

· The Department pointed out that there are overlaps with regard to energy efficiency at municipal level. Municipalities include energy efficiency in their municipal tariff settings, while energy efficiency has already been applied for in ESKOM’s multi year price determination application. The Department emphasized that a centralized effort is needed.

· The National Energy Efficiency Agency will be the referee with regards to energy efficiency, to determine effectiveness - including savings – on current programmes.

· The Department highlighted that there is a need to tighten the acceptance criteria when it comes to licensing of fuel.

· Even though the New Multi-Product Pipeline (NMPP) is finished, the infrastructure relating to the linkages - at the end of the pipeline is not in place. The Department did however state how the other pipeline can still be utilized.

· The Department acknowledged that governance practices in the Integrated Energy Centres are a concern and a challenge. However, where Total SA is involved in the IECs , they are undertaking to address the challenges. Because IECs are run by communities, there are governance issues which impede their success. The Department of Trade and Industry and the Independent Development Trust was approached to assist the Department in embedding governance issues in cooperatives.

· The Department relies on the oil companies, relating to the quality of the fuel sold to customers. There is currently no independent verification measure in place to determine the quality of fuel. Department confirmed that this makes them very uncomfortable.

· One the issue of smart-grid technologies, members raised concern that the conceptualization thereof have not been done by the Department.

· The Electricity Efficiency Demand-Side Management campaign is fragmented and need to be consolidated.

· The continental drive especially in the SADC region is lacking.

· Public Participation Programmes through partnerships with other spheres is lacking especially municipalities.

3. Briefing by the Minister of Energy, Hon D Peters on the outcomes of the service delivery agreements

The Minister of Energy signed the following performance agreements with the President:

3.1. Outcome 6: An efficient, competitive and responsive economic infrastructure network

Output 1 : Improving competition and regulation:

• Establishment of the Independent System and Market Operator (ISMO) – The Bill was introduced in Parliament after stakeholder consultation at NEDLAC. A due diligence process was initiated to investigate the possible transfer of the transmission assets into the ISMO. It is anticipated that the legislation will be finalized by the first quarter of 2013, where after the state-owned company will become operational.

• Building of the New Multi-Purpose Pipeline (NMPP) between Durban and Johannesburg to ensure a reliable and sustainable supply of liquid fuels. This year the Department will be making the last transfer of R1 ,5 billion to Transnet. The pipeline was operationalised in December 2011.

Output 2 : Ensure reliable generation, distribution & transmission of energy:


• Introduction of Independent Power Producers ( IPPs ) – The Renewable Energy IPP procurement process is underway to facilitate IPPs that will generate power side by side with Eskom. Approximately 2400MW of renewable energy IPPs was selected as preferred bidders for the generation of power using wind, solar and small-hydro technologies starting in 2012.

• Electricity generation/build programme – (Completion of OCGT IPP – 100MW) Contract negotiations have been completed and reached commercial close. Awaiting signature of proven power purchase agreement once conditions precedent (including government guarantees) imposed by Eskom are fulfilled.

Distribution & Transmission:

• Develop a funding and implementation plan and reduce the distribution infrastructure maintenance backlog of R27.4 Billion to R15 billion by 2014:

o Funding and implementation Plan was in place by March 2012(MYD 3).

• Restructuring of the Electricity Distribution Industry:

o The Approach to the Distribution Asset Management (ADAM) proposal was completed.

• Address the backlog challenges in the maintenance of the electricity distribution infrastructure;

• Development of Substations;

• Household access to electricity to be 92 percent by 2014 – ( Details in slide no 3.2)

3.2. Outcome 10: Environmental assets and natural resources that is well protected and continually enhanced

Development & implementation of policies to reduce greenhouse gas emissions & climate change impacts, & improve air/atmospheric quality.

Output 2: Reduce greenhouse gas emissions, enhance measures to adapt to climate change impacts and improved air quality

• 2.3 Renewable energy deployment

Sub -output 2.5: Efficient energy use:

• 2.5.1. Energy efficiency improvement of 12 percent by 2015

• Completed the Second review of the National Energy Efficiency Strategy (Consultation with Residential and Commercial Building sector, Mining and Industrial Sector, Business Unity South Africa and National Business Initiative and sector workshops held during the course of 2011 (i.e. etc)

• The Energy Efficiency Campaign was consulted upon extensively and was launched during COP 17.

3.3. Additional outcomes co-signed by the Minister of Energy

  • Outcome 2: A long and healthy life for all South Africans
  • Outcome 4: Decent employment through inclusive economic growth
  • Outcome 7: Vibrant, equitable & sustainable rural communities with food security for all
  • Outcome 8: Sustainable human settlement & improved quality of household life
  • Outcome 9: A responsive, accountable, effective & efficient local government system

3.4. Observations and findings

  • With regard to Windows 2 and 3 of the REIPPP, the Department aims to improve from the lessons learned in Windows 1.
  • Review of the IRP 2010 is supposed to have started by now (the IRP is reviewed every second year). There are continuous technical changes and therefore, according to the Minister it is important to determine what is achievable. In March 2013, the revised IRP will be tabled in Cabinet. The IRP is a multi-Departmental initiative.
  • On the issue of jobs the Minister acknowledged that most jobs will created in the construction phase of the Renewable Energy IPP.
  • During the 2011/12 financial year the Department finalised and signed an MoU with the IEA. The primary objective of the MoU is to promote ongoing cooperation between the Department and the IEA in the field of energy with the primary focus on energy policy areas, which are challenges globally, such as promoting transparency of data to ensure energy security, promoting the development of renewable and clean energy as well as improving energy efficiency.
  • The Minister pointed out that the Department is constrained when it comes to full implementation of Public Participation Programmes, due to the lack of resources.
  • The Minister and the Deputy Minister undertake frequent Roadshows to communities.
  • The Department pointed out that the refining industry in SA need to be closely monitored and protected against imports of “white” products e.g. remedy of jet fuel when it is off specifications is a huge challenge. Jet fuel is also refined at the refineries.
  • The Liquefied Petroleum Gas (LPG) strategy was consciously delayed by the Department. According to the Department, this gave the market the opportunity to restructure itself and such seemed effective.
  • Levies on petrol are much lower in SA then in other countries. According to the Department what is critical is how to encourage efficient fuel use.
  • Bio-fuels require attention and the decision need to be taken whether to subsidize it or not.
  • With regard to the Radio Active Waste Management Institute, the main concern is the funding thereof. The Department is in discussions with National Treasury to address the issue.

4. Department of Performance Monitoring and Evaluation:

4.1. Performance of the focusing on the service delivery agreements

The outcomes are the government’s main initiative to achieve effective spending on the right priorities.

· Aim is to improve service delivery by:

o Introducing whole-of-government planning linked to key outcomes, clearly linking inputs and activities to outputs and the outcomes

o Implementing the constitutional imperative for cooperative governance by negotiating inter-Departmental and inter-governmental delivery agreements for the outcomes

o Increasing strategic focus of government

o Making more efficient and effective use of limited resources by introducing more systematic monitoring and evaluation

4.1.1. Outcomes to which the Department contributes

· Economic Infrastructure: An efficient, competitive and responsive economic infrastructure network

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

· Environment: Protect and enhance our environmental assets and natural resources

Table 1: Progress on the Outcomes



DPME comment

Progress on Outcome 6 Output 2:

Ensuring reliable generation, distribution and transmission of energy ( Outcome 9: Responsive, accountable, effective and efficient Local Government system is also covered under output 2)

Develop a funding and implementation plan and reduce the electricity distribution infrastructure maintenance backlog of R27.4bn (baseline in 2009) to R15bn by 2014

• Funding and implementation plan in place by March 2011

• Report detailing a map of distribution asset status for 50 percent of all Municipalities by 2012/13

• Initiate interventions, monitor rehabilitation projects and reduce backlog by R8bn in 2012/13

• The planning work is behind schedule

• Difficult to ascertain whether R8bn reduction in backlog in 2012/13 will be met or whether it is adequate, because the Department is not reporting on municipal rehabilitation expenditure using own funds. Municipalities are already receiving maintenance funding through Nersa approved tariffs.

Household access to electricity should be 92 percent by 2014

Targets for 12/13:

(1) 180 000 households electrified

(2) 500 schools electrified

(3) 10 000 solar electricity home systems installed

(4) Expansion of electrification by additional 200 000 households through non-fiscal funding

• According to DBE data percentage of schools with electricity improved from 57 percent in 2002 to 86 percent in July 2011. Between 2008 and 2010 an additional 1000 schools were electrified.

• DPME not optimistic that the 92 percent electrification target will be reached by 2014.

Develop a funding model for electricity generation build programme (Eskom Capex ) to ensure security of supply

Funding model developed and submitted to Cabinet by 2010/11 (DPE)

While good progress was made for securing much of the IRP2010, much work needs to be done on the nuclear build programme, before there is clarity on Eskom’s role and the funding model for nuclear.

Long-term energy mix diversification to address the security of energy supply and requirements for renewable energy

(1) Extend IRP, covering 25 year window by December 2010 and issue licences in accordance with IRP implementation – 1000MW installed in 2012/13

(2) Accelerated 1 million Solar Water Heaters roll-out by 2013 (DoE, DPE , NT )

(3) Demand Side Management (9 TWH saving in 2012/13)

(1) IRP completed and implementation commenced

(2)The solar water heating installation programme is a little behind schedule.

(3) More attention needs to be paid to reporting on, and increasing actual demand-side savings.

Migrate Eskom coal from road to rail

Rehabilitate coal haulage roads (joint responsibility with DPE and DoT)

• Additional 380 km coal haulage roads rehabilitated by 2012/13

• 2012/13: 19mpta coal on rail, and 23.5mpta on road

Delivery agreement target for coal on rail by the end of 2012/13 is 19 million tons which is unlikely to be achieved.

Progress on coal roads also seems to be slow

Restructuring of the electricity distribution industry

• Decision on the end state of EDI Holdings by 2010/11

Distribution infrastructure maintenance backlog at municipal level still needs to be addressed

Setting cost reflective tariffs while cushioning the poor from increasing electricity costs

• Develop targeting framework for qualifying beneficiaries in collaboration with municipalities by 2011.

• 2012/13: 100 percent coverage of qualifying beneficiaries

Better mapping and targeting of indigent households needed for FBE, CFL’s and solar geysers, for IBT not to penalise the poor

Progress on Outcome 10: Output 2: Reduce greenhouse gas emissions reduced, climate change impacts mitigated & air/atmospheric quality improved

Renewable energy deployed

• Power generated that is renewable (10 000 GWh by 2014)

While progress is evident, some intervention is required on Upington Solar and to clear obstacles to enable the rapid realisation of the REIPP construction.

Measurement of current use of Renewable Energy must be reported in order to track progress.

Efficient energy use

• 12 percent energy efficiency improvement by 2015

Whilst progress is noted, reporting is required on the extent of actual reductions in relation to the target percentage

*Source: Presentation document – Tuesday 10 October 2012

4.2. Management Performance of the Department of Energy

4.2.1. Background

In June 2011, Cabinet approval for annual assessments of management performance of national and provincial departments using the Management Performance Assessment Tool (MPAT) was approved. The aim is for effective and efficient translation of inputs into outputs through good management practices which is important for improving service delivery. The aim is also to develop a culture of continuous improvement and sharing of good practice.

The assessment will be done against 31 management standards in 17 management areas. These standards are based on legislation and regulations. The standards were developed collaboratively (with National treasury, Department of Public Service and Administration, Office of the Public service Commission, Office of the Auditor-General and Offices of the Premier). This is a joint initiative, where the Office of the Premier facilitates provincial departments, the DPME facilitates national departments.

4.2.2. Moderation

The 2011/12 assessment results for the national departments have been published on the DPME website. Results of the 2011/12 reflect the self-assessment only. DPME only started the MPAT assessments in 2011/12 and tested the moderation process in that year. For the 2012/13 assessments DPME will ensure detailed peer moderation of self-assessments, and will publish the moderated results. However, self-assessment results for the 2011/12 financial year are still useful because management were generally frank in assessing themselves and because the results provide a picture of management’s own view of its performance and how it needs to improve.

4.2.3. MPAT Compliance ratings



Level 1

Non-compliance with legal/regulatory requirements

Level 2

Partial compliance with legal/regulatory requirements

Level 3

Full compliance with legal/regulatory requirements

Level 4

Full compliance and doing things smartly

4.1.2. Observations and findings

  • The monitoring and evaluation of the DPME initially started with the 12 key outcomes. Subsequent to this the DPME started looking at the management performance of national departments and provincial departments. The next focus will be on frontline service monitoring and evaluation.
  • The reason for developing the 12 key outcomes was and is to increase the strategic focus of government, which has deliberate outputs.
  • The DPME envisages that these agreements be a continuous process.
  • The aim of the outcomes is to institutionalize monitoring and evaluation in departments, and with that improving planning.
  • The monitoring and evaluation of the Department by the DPME is ongoing through discussions which are based on facts and evidence provided.
  • The aim of these monitoring and evaluation processes is to be factually correct.
  • Monitoring and evaluation can increase service delivery.
  • The DPME advises that the Department constantly and continuously review and assess itself.
  • The DPME was established to monitor and evaluate the progress of government. In other words to provide an independent monitoring and evaluation process at different levels within government.
  • The Department experienced significant compliance challenges (level 1 & 2) in standards relating to: service delivery improvements, Human resource management (HR Planning, Staff retention, management diversity), supply chain management (IT governance, SCM demand management)
  • The Department is compliant with frameworks (level 3) but need to do more to be working smartly in: planning, programme management, monitoring & evaluation, governance and accountability, Human Resource management and supply chain management.
  • The Department rated itself as working smartly (level 4) in: Annual Reporting, functioning of the audit committee, implementation of level 1-12 Performance Management System and the functionality of Departmental bargaining chamber.
  • DPME is in the process of implementing the 2 nd round of MPAT. As part of this process, the Department plan to conduct its next self assessment during October 2012.
  • DPME will be available to present the findings of the 2012/13 assessment from February 2013. These assessments will be repeated annually with a view to track improvements.
  • From the 2013/14 financial year onwards, MPAT results will be taken into account in the performance assessment of individual HoDs .
  • DPME working with DPSA and National Treasury are offering support targeting specific Departments to improve management practices.

5. Audit outcomes by the Auditor-General of SA (AGSA) for the Department of Energy

Table 2: Audit outcomes of the Department and its entities

Audit opinions





Department of Energy





Nuclear Energy Corporation of South Africa (NERSA)

Clean audit

Clean audit

Clean audit


Central Energy Fund (CEF)










Nuclear Energy Corporation of South Africa (NECSA)

Clean audit

Clean audit



South African National Energy Research and Development Institute (SANEDI)





EDI Holdings


Clean audit



National Nuclear Regulator (NNR)





*Source: Presentation document – Wednesday 10 October 2012

n/a* – The Department was only established during the 2010-11 financial year

n/a** – The entity was only established during the 2011-12 financial year


CLEAN AUDIT OPINION: No findings on PDOs and compliance

UNQUALIFIED with findings on PDOs and compliance

QUALIFIED AUDIT OPINION (with/without findings)


5.1. Key focus areas of the audit include the following:

  • Supply Chain Management (SCM)
  • Pre-determined objectives
  • Human Resources
  • Information Technology controls
  • Material errors/omissions in the annual financial statements (AFS) submitted for auditing
  • Transfer of funds
  • Other non-compliance
  • Financial health

5.2. Other matters of interest

Table 3: Unauthorised expenditure


Unauthorized expenditure





Department of Energy



Table 4: Fruitless and wasteful expenditure


Fruitless and wasteful expenditure





Department of Energy




Nuclear Energy Corporation of South Africa (NERSA)




Central Energy Fund (CEF): Group (excluding PetroSA)








Nuclear Energy Corporation of South Africa (NECSA)




South African National Energy Research and Development Institute (SANEDI)




EDI Holdings




National Nuclear Regulator (NNR)



Table 5: Irregular expenditure


Irregular expenditure





Department of Energy




Nuclear Energy Corporation of South Africa (NERSA)




Central Energy Fund (CEF): Group (excluding PetroSA)








Nuclear Energy Corporation of South Africa (NECSA)




South African National Energy Research and Development Institute (SANEDI)




EDI Holdings




National Nuclear Regulator (NNR)



*Source: Presentation document – 10 October 2012

5.3. Observations and findings

  • For the first time the Audit Committee made its direct briefing to the Committee
  • The quality and integrity of all information submitted is very important in both the Departments and entities.
  • There is downward curve of procurement irregularities in the both the Department and its entities.
  • The internal audit should be more involved in observing the bidding processes.
  • Capacity is a challenge in the Department, and due to this a number targets was not achieved.
  • The Department also lacks the ability to perform its oversight function over the entities reporting to them.
  • Having the right skills in the energy sector (Department and its entities) is of the utmost importance.
  • The Energy Portfolio, as a whole, has the potential to be the first portfolio which has a clean audit (Department and its entities), according to AGSA.
  • If procurement policies are followed, irregular expenditure will be minimized. What is important in this regard is that officials dealing with these issues need to be aware and alert to procurement policies and prescripts.
  • Irregular and fruitless expenditure are human errors and that can be addressed in the short term, and if corrective measures are put in place the effects thereof can be seen quickly.
  • Strong internal control measures will lead to clean audits and clean administration.

6. National Nuclear Regulator (NNR): Annual Report 2011/12

6.1. Highlights

Nuclear installations and entities under the regulatory oversight of the NNR did not expose workers to harmful levels of radiation or caused nuclear damage to the environment in 2012. The Board and its Committees were successful in fulfilling their fiduciary duties during the period under review and continued to discharge their mandate in accordance with the set charters and King III Code of Good Governance. In light of the Fukushima Daiichi accident the NNR directed Eskom and the South African Nuclear Energy Corporation (NECSA) to perform safety assessments on the Koeberg and SAFARI-1 nuclear installations The safety assessments were completed during the period under review and the NNR is of the view that the said facilities are sufficiently robust to withstand events such as tsunamis and earthquakes in terms of their design basis.

As part of the continual improvement of safety and in preparation for potential new nuclear projects, the NNR participated in the South African Government’s Integrated Nuclear Infrastructure Review (INIR) process. This process will culminate in the production of a National Report that will be presented to the Executive Ministerial Committee responsible for the nuclear new-build expansion programme for South Africa .

On 1 July 2011 the NNR began to operate under a new structure. This occurred after several months of intensive work involving both internal and external consultation. The organisational restructuring process entailed a comprehensive review of the NNR structure and processes, with the aim of streamlining the organisation to improve efficiency and operations

During the period under review, the NNR continued to manage the allocated financial resources conservatively. Total operating revenue for the year was R125,6 million, R88,7 million of which was derived from services rendered to holders of nuclear licences (Koeberg Nuclear Power Station and NECSA), and holders of certificates of registration (mines and small users of radioactive materials and processing), and R35,4 million from a direct government grant

6.2. Regulation of Nuclear Activities

The facilities and actions currently under the regulatory control of the NNR include the Koeberg nuclear power station, the Pelindaba nuclear fuel cycle, production, and research facilities, the Vaalputs nuclear waste repository and mining and minerals processing facilities / activity.

The NNR’s regulatory process entails authorisation, safety case review and assessment, development and issuance of regulations, and the undertaking of compliance assurance and enforcement activities as appropriate.

6.3. Compliance Assurance Inspections

In order to verify degree of compliance with the conditions of authorisation, the NNR undertakes independent regulatory inspections. During the reporting period the NNR conducted a total of 333 inspections which comprised of;

Occupational exposure at Koeberg Nuclear Power Plant, NECSA, Pelindaba Site, NECSA, Vaalputs Radioactive Waste Disposal site and mining and mineral processing facilities were within prescribed regulatory limits

Projected public exposure at Koeberg Nuclear Power Plant, NECSA, Pelindaba Site, NECSA, Vaalputs Radioactive Waste Disposal site was within the prescribed regulatory limits.

With regard to special case mines, for a mine to be classified as a special case mine by the NNR the potential of the monthly dose rate must be 1.7mSv and above, or the projected dose of 20mSv should be exceeded

The NNR has identified 17 mining and mineral processing facilities with the potential to exceed the set regulatory limit of 20mSv/ a if not closely monitored. These facilities continue to implement appropriate corrective measures such as engineering and administrative controls to ensure that all dose levels are kept ALARA as part of the on going monitoring programme.

6.4. International Cooperation

IAEA Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management : The NNR coordinated and submitted South Africa’s national report to the Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management to the Joint Convention Secretariat in October 2011.

IAEA Convention on Nuclear Safety: The NNR participated in the 5th Review meeting of the contracting parties to the IAEA Convention on Nuclear Safety.

IAEA Convention on Nuclear Safety: The NNR participated in the 5th Review meeting of the contracting parties to the IAEA Convention on Nuclear Safety. The NNR participated at the fifth Review Meeting of the Contracting Parties to the Convention on Nuclear Safety (CNS) held at the Headquarters of IAEA in Vienna , Austria from 4 to 14 April 2011. The fifth Review Meeting was the first major international nuclear safety meeting following the events of the Fukushima Daiichi Nuclear Power Plant. It was noted that South Africa ’s Report to the CNS complied with the provisions of the Convention as required by Contracting Parties in the National Reports.

The NNR participated in the following Committees, Technical Projects and Forums;

• Nuclear Safety Standards Committee (NUSSC)

• Radiation Safety Standards Committee (RASSC)

• Waste Safety Standards Committee (WASSC)

• Transport Safety Standards Committee (TRANSSC)

• Commission on Safety Standards (CSS)

• IAEA Technical Co-operation Project SAF9004

• IAEA Technical Co-operation Regional Project RAF/0/033

• Multinational Design Evaluation Programme (MDEP)

6.5. Regional Cooperation

Within the regional African context, South Africa is a member of the African Regional Co-operative Agreement (AFRA) which was established by the heads of state of African countries that are members of the IAEA. South Africa and the NNR in particular, are being called upon to play an increasing role in the strengthening of nuclear and radiation safety regulatory infrastructure throughout the African region.

The NNR continued to represent South Africa in the Forum for Nuclear Regulatory Bodies in Africa (FNRBA).

6.6. Public Safety Awareness

Tudor Shaft Informal Settlement:

  • NNR created safety awareness by distributing Safety information to dwellers in the Tudor Shaft Informal Settlement
  • NNR created general public awareness of the issues when CEO fielded a media interview with SABC TV Programme Special Assignment onsite at the Tudor Shaft Informal Settlement

6.7. Human Resources

During the period under review, the NNR went through a process of restructuring, which resulted in a leaner and flatter structure. With the filling of the new posts created by the restructure, new senior management was born. Significant performance improvements have since been registered and the NNR continues to enjoy innovation, quality work output and a generally positive work ethic. Of the 21 terminations 12 were as a result of retrenchments due to the restructuring process, five were resignations while one person retired and one was terminated through a disciplinary process. Two NNR employees passed away. The statistics reflect a healthy level of labour turnover and a stable work environment.

6.8. Financial Performance Analysis

The NNR revenue grew by 14 percent from the previous financial year mainly from the increase on authorisation fees. The compensation of employees increased by 10 percent from the previous financial year due to the minimal growth on capacity and annual cost of living adjustment. The Depreciation costs in the same period increased by 138 percent in line with the leasehold assets associated with the new HQ in Centurion occupied through an operating lease with an option to purchase. The move to the new office resulted in 15 percent decline on maintenance costs during the year under review. Overall the NNR realised an operating surplus of R1 ,2 million which is just below 1 percent of the total budget

6.9. Financial Report Auditor-General

The NNR obtained an unqualified audit report for the third year in succession during 2011/12 financial year.

The Auditor General found and reported the following with regard to performance information:

  • Some of the organisation’s performance targets were not time bound
  • The organisation did not have an adequate system for identifying, collecting, collating, verifying and storing performance information.

Management did review and address time frames during the 2nd quarter of the financial year. The organisation continues to monitor and scrutinise performance information on quarterly basis to ensure accuracy and completeness of reported performance

The AGSA found and reported non compliance with Section 55 of the PFMA due to significant changes on the Annual Financial Statements particularly property, plant and equipment and cash and cash equivalents

  • The above was mainly caused by a programmatic error on calculation of depreciation in the asset management system
  • Reconciliations were further not always done per month due to lack of resources

Management has already acquired a new asset management system which calculates correctly and has relevant accounting standards built in to ensure maximum compliance. All vacant positions within finance component have been filled with suitably skilled resources and maximum quality is envisaged. The above recruitment emphasized versatility of candidates across broader financial administration activities and the team is being developed and capacitated to do more than their sole responsibilities.

The following were further identified as critical by the AG:

  • The lack of permanent resource of Chief Financial Officer (CFO) as a head of finance during the year under review
  • A permanent CFO was appointed and assumed duties in 01/07/2012
  • Assets Management system that had programmatic error on depreciation calculation

Irregular expenditure of R5 ,8 million was noted though it was condoned during the same year. The expenditure was around the lease of the NNR HQ and management concluded the acquisition of the building. The Irregular expenditure was reduced to a closing balance of zero during the year under review and controls are in place to ensure maximum compliance with the rules and regulations.

6.10. Overview by the Audit Committee of the NNR

The Audit and Risk Management Committee (Committee) operates in terms of its charter approved by the board. It is a board committee and consists of five non-executive directors. The Chairperson of the Committee is a Chartered Accountant and Certified Internal Auditor and he is an independent non-executive director. The Committee members consist of members of the Board and one independent member. The committee was constituted to include experts in IT Assurance, Risk Management, Finance, Audit and Nuclear Science.

The committee undertakes its work in accordance with the annual plan derived from its charter.

The CEO, CFO, Internal Audit & Risk Manager and Auditor General of South Africa (AGSA) have a standing invitation to the Committee meetings. The committee reports to the board at least quarterly . The Committee meets least quarterly.

The Committee meets to address the roles and responsibilities as detailed in the Committee Terms of Reference (TOR), including: financial and sustainability reporting; internal financial controls; external audit process; internal audit process; risk management; information technology ; Performance management and the Committee recommends to the Board for approval matters that were considered in terms of its TOR.


• The absence of a CFO for the major part of the year, reducing reports review capability.

• Material errors detected before submission of AFS to the AGSA.

• Changes in the Regulations during the year, resulting in differences in interpretation.

• Moving to the new building, resulting in asset issues.

• Limited funding resulting in limited ability to plan and forecast appropriately.

6.11. Observations

  • The NNR does not have the sufficient number of inspectors to inspect facilities, considering that there are 140 facilities in the country which they have to inspect – ratio 1:17.
  • NNR created safety awareness by distributing Safety information pamphlets to dwellers in the Tudor Shaft Informal Settlement.
  • Measures were put in place first to relocate the settlements followed by the removal of tailings dump.
  • The Wonderfontein issue is very complex, where a multi-party arrangement is in place. A Task Team was set up to address the issues as several role players are involved. Issues at Wonderforntein do not only relate to radiation, but also include other like water and environmental concerns. The Task Team is in the process of developing a project plan (which is at an advanced stage).
  • All uranium is accounted for at Pelindaba (NNR with the International Atomic Energy Association). Proper accounting and verification tools were used which confirmed that all uranium is accounted for. The NNR is comfortable that all is in order.
  • According to the NNR they did not “do too bad ” on the issuing of licenses, as these depend on the number of license requests they receive.
  • The NNR plays a pivotal role in overseeing the effective regulation of the nuclear industry and the maintenance of high safety standards. The recent developments in the nuclear sector in South Africa , and the ensuing competition for skilled and experienced personnel, have crucial implications for the recruitment, retention and development of trained staff members within the nuclear regulatory function.
  • The NNR continues to strive towards maintaining a workforce that mirrors the profile of the people that it services. During the period under review, the NNR achieved a 55 percent male/female split on the legislators, senior management and managers’ level.
  • During the period under review, the NNR went through a process of restructuring, which resulted in a leaner and flatter structure. With the filling of the new posts created by the restructure, new senior management was born. Significant performance improvements have since been registered and the NNR continues to enjoy innovation, quality work output and a generally positive work ethic.
  • Overall the NNR realised an operating surplus of R1,2 million which is just below 1 percent of the total budget

7. SA Nuclear Energy Corporation (NECSA): Annual Report 2011/12

7.1. Highlights of the period under review

  • A post-Fukushima Daiichi safety re-assessment, conducted on the SAFARI-1 research reactor and its operational systems in response to a National Nuclear Regulator (NNR) directive, confirmed the fundamental safety and integrity of the reactor and its operations.
  • In line with its core R&D Mandate, NECSA recorded 11 new innovation disclosures and 39 peer reviewed publications.
  • NTP remains one of the world leaders in the supply of medical isotopes and the only company in the world that produces Molybdenum-99 (99Mo) using a fully Low Enriched Uranium (LEU)-based process.
  • NTP achieved 2 million disabling injury free hours.
  • The NECSA Visitor Centre, which incorporates interactive displays on nuclear technologies, received nearly 10,000 visitors since February 2011.
  • A total of 447 apprentices completed semester training programmes offered by NECSA’s Nuclear Skills Development Centre.
  • Eleven interns were enrolled at NECSA’s NSD centre to complete studies in technical trades.
  • NECSA Group donated a Positron Emission Tomography (PET) Camera to Tygerberg Hospital and the instrument was functional by the end of the fourth quarter of 2011.
  • Financial support was provided to the “Skills for Life” project in Diepsloot to provide skills development to unemployed people in the Diepsloot informal settlement.
  • US 25$ million was awarded to NECSA by the US DoE to acknowledge the successful commercial scale production of Mo-99, using low enriched uranium target plates.
  • During the 2011 National Science Week, NECSA hosted more than 2,075 learners and educators from 41 schools, the attendance rate increased by 11 percent compared to the previous reporting year.

7.2. Performance: Key Performance Indicators

  • Financial KPI’s were not met as a result of:
    • A decline in Group sales mainly due to difficult market conditions in the manufacturing and medical isotope sectors; and
    • A reduction in baseline allocation;

· Operational KPI’s that were exceeded:

    • Research publications outputs and innovations were exceeded;
    • Safari 1 reactor has availability of 308.3/303 days
  • Human Resources KPI’s were typically exceeded:
    • A higher number of Black technical professionals were recruited; and
    • Investment in staff training exceeded its target.
  • Marketing KPI’s were typically exceeded:
    • The NECSA brand penetration outperformed target mainly due to its direct involvement in addressing nuclear safety questions following the Fukushima incident in March 2011; and
  • Compliance KPI’s were met:
    • NECSA achieved an unqualified audit;
    • There were no National Key Point incidents; and
    • Public dose impact of annual releases was only 4.8 percent of the NNR authorized limit.

7.3. Overview of Revenue Generators of the NECSA Group

7.3.1. NTP Group

NTP was established as a wholly owned subsidiary of NECSA in 2003 and operates as a commercial subsidiary of NECSA. NTP routinely serves customers in 60 countries on six continents with a range of radiation-based products and services and is one of the world’s leading producers of radiochemicals , radiopharmaceuticals and other radiation technology-based products. NTP Group mainly generates the NECSA Group’s external revenue and achieved sales of R 842 million during the 2011/12 financial year, in the face of challenging global market conditions.

7.3.2. Pelchem SOC Ltd ( Pelchem )

Pelchem was established as a wholly owned subsidiary of NECSA in April 2007. It has a proud record of more than 25 years experience in locally produced fluorspar beneficiation. Pelchem maintains a portfolio of fluorochemical business activities that serve local and international markets while playing a leading role in the SA Fluorochemical Expansion Initiative (FEI). Pelchem is the only company in the Southern Hemisphere which produces fluorochemicals from fluorspar. South Africa has the largest global reserves of fluorspar, but currently supplies less than 10 percent of the global fluorspar demand, while earning less than 0.5 percent of the $16 billion annual global turnover. Downstream value adding manufacturing is therefore a strategic focus for Pelchem . Pelchem achieved sales of R186.0 million during the 2011/12 financial year

7.3.3. Nuclear Manufacturing Centre (NMC)

NMC is a NECSA commercial business unit with vast experience and specialised capabilities in manufacturing. NMC can fabricate high quality products and plant components from a wide range of metals and exotic alloys. ASME III certification is critically important for NECSA’s nuclear manufacturing capabilities in providing a platform for leveraging localisation opportunities that will arise from the nuclear power reactor new-build programme for the fabrication of high level nuclear reactor equipment. NMC is thus aligned with the Government’s policies and objectives as outlined in the Industrial Policy Action Plan 2 (IPAP2). NMC achieved sales of R 44.0 million during the 2011/12 financial year

7.3.4. Analytical and Calibration Services (ACS)

ACS is a NECSA business unit that supports NECSA’s compliance with Nuclear, safety, health and environmental regulatory and license requirements, including compliance to process and/or product specifications. ACS’s services comply with the strict nuclear industry requirements. Since most ACS services are not available from any other laboratories in South Africa , these services are offered commercially to industries in South Africa & SADC countries as well. ACS achieved sales of R 26.7 m for the 2011/12 financial year.

7.3.5. Nuclear Liabilities Management (NLM)

NLM is a NECSA business unit that provides radioactive waste management services. These professional and cost effective Radioactive Waste Management and Radiation Protection services are also offered to external clients. NLM was authorised by Government (Department of Energy and Department of Health) to accept radioactive waste from external generators and small users for further management and eventual disposal. NLM achieved sales of R 15m for the 2011/12 financial year.

7.4. Skills Development at NECSA

The Nuclear Skills Development (NSD) Centre continues to grow and fulfill its mandate in terms of the National Skills Development Strategy. The quality of training at NSD is of a high standard and is partnered with several clients externally such as:

· Department of Public Works (100 students)

· Development Bank of South Africa (150 students)

· Alstom (55 students)

· DB Thermal (35 students)

· Others on job creation projects (88 students)

In its Decentralized Trade Test Centre (DTTC), the following was achieved:

· Conducted 120 pre-tests to determine the readiness of candidates for the final trade tests,

· 280 candidates received trade test preparation required by the SETAS and

· 245 candidates wrote the artisan trade tests.

· 207 passed (84.5 percent)

7.5. SAFARI-1 today

  • Since 25 June 2009, the SAFARI-1 reactor was run continuously on a fully low enriched (LEU) fuel with a U235 content of less than 20 percent, conforming with International Safeguards requirements.
  • Central to NECSA Group’s business activities (playing a pivotal role in global nuclear medicine) and execution of NECSA’s nuclear R&D mandate from Nuclear Energy Act. Loss of SAFARI-1 will be detrimental to NECSA and South Africa .
  • Extensive maintenance programme underway to optimise and extend remaining lifetime within safety and licensing limits.
  • Will reach end of its operational life between 2022 and 2030, depending on ageing management programme. Preferable that alternative is in place by beginning of this period.
  • During 2010-2011 a feasibility study was performed on a Dedicated Isotope Production Reactor (DIPR) to follow SAFARI-1, but changes in global market conditions necessitated a broader approach.
  • In December 2011 the NECSA Board approved expansion of the scope of the DIPR study to include feasibility of upgrading from a DIPR to a Multi-Purpose Reactor (MPR) and to assess the possibility of including such a reactor in the nuclear new build procurement framework.
  • Most of the work already undertaken for the DIPR project could be used in expanded MPR (SAFARI-2) feasibility study that is currently underway.

Main benefits of SAFARI-2

  • Maintain and secure global leadership as an international medical isotope producer based exclusively on the use of low enriched uranium.
  • Establish a world-class R&D capability in neutron beam applications and reactor physics (based on SAFARI-1 track record).
  • Provide material testing capability for qualification of future locally produced power reactor fuel.
  • Contribute to maintaining RSA’s nuclear leadership in Africa .
  • Provide opportunity for learning before New Build construction.
  • Provide launch pad for nuclear skills development and training.
  • Underpin NECSA’s financial requirements with steady foreign currency income.

7.6. NECSA Group: Human Capital

The NECSA Group’s staff complement decreased by 4.59 percent, from 2,179 in 2010/11 to 2,097 at the end of the reporting period. The number of contract staff decreased from 311 in 2010/11 to 199 in 2011/12, in line with NECSA’s strategy to co-ordinate and consolidate its workforce to deliver on its strategic mandate.

Reasons for retrenchments

  • A reduction is baseline allocation from the Department
  • High Electricity Tariff increases
  • High Costs of Running NECSA Site

– Doubling of licence fees

– Reduced Dividends from Subsidiaries compared to income

  • Sales Targets under challenging market conditions

7.7. Radio-active Waste Management

Currently NECSA has Ministerial delegation to carry out the responsibilities of the National Radio-active Waste Management Institute (NRWMI

7.8. Observations and findings

  • The NECSA brand penetration outperformed targets mainly due to its direct involvement in addressing nuclear safety questions following the Fukushima incident in March 2011
  • The public dose impact of annual releases was only 4.8 percent of the NNR authorized limit.
  • A higher number of Black technical professionals were recruited by NECSA.
  • Investment in staff training exceeded NECSA’s target.
  • Progressive energy savings opportunities implemented resulted in significant cost savings for NECSA.
  • The existing workforce is aging and thus the knowledge base is shrinking due to natural attrition.
  • There is a need to invest in big projects to attract young professionals and sustain knowledge transfer from the ageing workforce to young professionals.
  • Research and Development is at the core of NECSA’s activities.
  • NECSA has the necessary skills and knowledge to manage South-Africa’s waste management effectively, but NECSA conceded that more still need to be done.
  • NECSA endeavors looking at forging partnerships with other entities.
  • With regard to expanding its isotope market base, NECSA has partnerships with entities in Australia and Europe .
  • NECSA is supporting other African countries with nuclear issues.
  • The Committee commended NECSA for the clean audit which they received, and encouraged NECSA to sustain this.
  • With regard to the New Nuclear Build, NECSA requires a mandate and during the period under review there was no clear indication of this. NECSA has already begun the process of building up skills for the New Nuclear Programme, but they acknowledged that a lot more still needs to be done.
  • Retrenchment of staff according was the last resort, according to NECSA.
  • Most of the retrenchments were non-core workers.
  • Members raised concern regarding the retrenchment of NECSA, and reiterated that other avenues should have been explored in dealing with the issues

8. National Energy Regulator of SA (NERSA): Annual Report 2011/12

8.1. Introduction

NERSA’s Strategic Objectives are linked to the following National outcomes that the Minister of Energy has entered into a Performance Agreement with the President:

• A long and healthy life for all South Africans ;

• Decent employment through inclusive economic growth;

• An efficient, competitive and responsive economic infrastructure network ;

• Sustainable human settlements and improved quality of household life;

• Environmental assets and natural resources that are well protected and continually enhanced ; and

• An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship .

8.2. Achievements – Electricity Industry Regulation


  • Approved:
    • 177 municipal tariff applications for 2011/12; and
    • Revised tariff increase for Eskom for the period 1 April 2012 to 31 March 2013 of 16 percent instead of the originally approved tariff of 25.9 percent.
  • Commissioned a study into the impact of the Inclining Block Tariffs and it was found that it benefitted the poor;

o Concurrence of the Energy Regulator with the determination made by the Minister of Energy in line with section 34 of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) on the procurement process for renewable energy; and

o Held six provincial workshops on electricity resellers / trading.


  • Conducted national hearings on the license applications by the 28 Renewable Energy IPP programme preferred bidders. All 28 licenses were granted in April 2012 within 90 days after receipt of applications (thirty days less than statutory deadlines.


• Successful mediation of the dispute between the Chiawelo community and Eskom after the acceptance of NERSA’s report on Testing of Disputed Electricity Prepaid Meters in Chiawelo , Soweto by all parties .


Licenses granted – Generation (5) and Distribution (1)

8.3. Achievements – Piped-Gas Industry Regulation

• Pricing and Tariffs:

o Determination of “inadequate competition” as contemplated in Section 21(1) (p) in the Gas Act, in the piped-gas industry. The determination is a condition precedent for the implementation of the Methodology to Approve Maximum Prices for Piped-Gas which was also approved in the period under review;

o Approved:

• Aggregated (average) piped-gas prices for 2010 for different categories of customers in various provinces;

• maximum prices for Greenfields customers for 2010 and for distributors and reticulators for 2010/11;

• minimum prices for Gas for 2010/11;

• compliance with regulatory discounts for 2010; and

• price capping mechanism for 2009 and 2010.

o Approved the following transmission tariffs:

• ROMPCO’s quarterly transmission tariffs; and

• Transmission tariff for Transnet Pipelines for the pipeline from Secunda to Durban South (Lilly Pipeline) for 2011.

• Compliance Monitoring:

o Notices of non-compliance:

• Issued 13 notices of non-compliance following findings that Sasol Gas did not adhere to licensing requirements in certain areas; and

• Sasol Gas reimbursed four of its small customers after a finding that they failed to grant appropriate discounts prescribed.

• Other

o Conducted three workshops on Dialogues on gas infrastructure development and investment:

• Findings:

o Price uncertainty;

o Regulatory / policy uncertainty; and

o Creditworthy off-taker (most likely electricity generation).

8.4. Achievements – Petroleum Pipelines Industry Regulation


  • Approved:
    • Transnet’s tariff determination for the period 2012/13; and
    • Tariffs for 133 storage facilities.
  • The first tariff application from a private pipeline operator (Chevron) was received.

Compliance Monitoring:

  • All of the main oil companies have submitted applications for the approval of tariffs for their storage facilities; and
  • Licensees are starting to submit their allocation mechanisms and the data in terms of the Regulations to the Petroleum Pipelines Act.

8.5. Financial performance

Actual levies collected amounted to R141.6 million, received from the following sources:

o Electricity industry – R67.8 million

o Piped-Gas industry – R42.2 million

o Petroleum Pipelines industry – R31.6 million

The under recovery of the levies, compared to the budget is due to the actual volumes of product transported being below the volumes projected by the industry. The actual expenditure for the period 1 April 2011 to 31 March 2012 amounted to R179.4 million. This represents an underspending of 14.8 percent compared to the budgeted amount of R210.6 million.

• Expenditure categories in relation to the other expenditure

o Operating Expenses = 30 percent

o Employment Costs = 57 percent

o Consultant fees = 8 percent

o Regulator Members remuneration = 5 percent

• Total irregular expenditure not yet condoned at year end was R85 242 and fruitless and wasteful was R356.00

• NERSA received an unqualified audit opinion with an emphasis of matter from the Auditor-General for the 2011/12 financial year

• Matter of emphasis – misstatement of previous year figures

8.6. Observations and findings

• NERSA has continued its tradition of receiving an unqualified Audit Report for 2011/2012;

• NERSA was re-elected as Chair of the Regional Electricity Regulatory Association (RERA); and

• NERSA was re-elected to serve as a member of the Executive Committee of the African Forum for Utility Regulators (AFUR).

• The regulation of the three energy industries characteristically continues to pose challenges in that the Energy Regulator is required to balance the conflicting interests of licensees, investors, consumers/end-users and the policy maker.

• NERSA has achieved its regulatory mandate through projects set for the 2011/2012 financial year – it completed 66 percent of its planned Business Plan activities for 2011/12.

• According to NERSA, there are regulatory frameworks within which they operate, relating to those institutions (e.g. municipalities) who do not comply. NERSA stated that they left it to the industry to self-regulate and enforce compliance, but it was found that it does not work in practice. NERSA admitted that the current legislation leaves them “light handed”, and that compliance need to be reinforced.

• Resignations of the Chief Financial Officer and the Head of Human Capital had no way hampered the operations of NERSA.

• Due to the different financial years between ESKOM and NERSA there were delays in submitting its reports to NERSA.

• The old Durban pipeline is still being used to move products.

• With regard to the impact of the transport strikes, a Task team was established to ascertain which areas were hardest hit, as some areas were worse off then others.

• ESKOM must submit its Multi-Year Price Determination 3 (MYPD 3) by 18 October 2012, and NERSA is confident that they will make their deadline to finalise its processes by 28 February 2013.

• On the issue of wheeling charges there is methodology to deal with this.

• NERSA has a Regulated Clearing Account facility, which deals with cost overruns by operators. These funds can be clawed by NERSA from the operator, without placing any burden on the consumer.

• With regard to the storage of liquefied petroleum gas, it remains a concern especially the coastline. Efforts are underway to build storage capacity at Coega ( Eastern Cape ) and the West Rand ( Gauteng )

• The working relations between the CEO and the Commissioners were reluctantly accepted.

9. SA National Energy Development Institute: Annual Report 2011/12

9.1. SANEDI’s staff compliment

  • Permanent staff: 8
  • Contract staff: 14
  • HDI representation: 61 percent
  • Female representation: 38 percent

9.2. Renewable Energy Centre of Research and Development (RECORD)

The v ision of the centre is to facilitate Renewable Energy research coordination, collaboration and dissemination of national and international RE energy knowledge contributing towards a sustainable low carbon energy future. Is mission is to be recognised as the foremost institution for RE research coordination and collaboration in SA

RECORD is intimately involved with establishment of wind (SAWETC) and solar (CSTDI) energy training centres in South Africa . Hosted (with kind input of GIZ) two study tours to date to Europe for stakeholders to experience similar centres in operation and gain insight in to them. RECORD is also engaging all relevant tertiary training institutions in this regard.

RECORD has printed a publication encompassing all previous areas of SANEDI funded research and a gap/opportunity analysis thereof. RECORD has a project management package articulated for industrial partners who wish to engage in research from the applied to pilot/demonstration phase.

RECORD is engaging with various institutions and associations with regards to RE technology standards development, in order to facilitate this wherever there is a need.

9.3. Energy Efficiency and SANEDI’s role

The Department has indicated that SANEDI should not be involved in EE-implementation. The focus has shifted towards integrated M & V, including consolidated reporting & training. SANEDI was requested to assist in co-ordinating SWH communication activities amongst all stakeholders.

9.4. SANEDI: Audit Committee

9.4.1. Audit Committee’s: Key activities during the financial year

According to the Audit Committee, although deficiencies in the internal control were identified, management implemented corrective actions to remedy them. No deviations came to light during the Audit Committee’s interventions with management on compliance with policies or delegated authority. According to the Audit Committee the internal audit charter, staffing skills and structure is appropriate and adequate to render a clean audit. SANEDI has regular interaction with the AGSA, monitoring of activities, budgets etc.

The AGSA Findings - SANEDI is in a transitional period of 18 months and most of the findings are attributable to this. Risk Management Processes were adequate and effective in evaluating and mitigating risk exposures regarding governance, operations and information systems.

Internal Audit provides the audit committee with reasonable assurance that the majority of internal controls are appropriate and effective. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes. From the various reports of the internal auditors, the audit committee noted that matters indicating any deficiencies in the system of internal control have been brought to management's attention and corrective measures are being implemented.

9.4.2. Corporate Governance

AGSA is of the opinion that SANEDI continues to strive towards complying with sound principles of corporate governance. As per their discussions with SANEDI management, management confirms that the content and quality of monthly and quarterly reports prepared and issued by the Chief Executive Officer during the year under review were properly formulated and have complied with the PFMA in this regard

9.4.3. Risk Management

The Board assigned the oversight of the risk management function to the Committee. A formal risk assessment was undertaken for the year ending 31 March 2012 with quarterly reviews, updates and reports. Consequently, internal audit used this assessment to prepare the 3 year rolling strategic plan and the annual operating audit plan. The committee monitored the significant risks faced by the company through reviewing risk reporting and participation in the risk assessment workshop. We are satisfied that significant risks were managed to an acceptable level.

9.5. Observations and findings

• Members noted that the bulk of SANEDI’s work during the period under review has taken place during its transitional period.

• Members commended SANEDI for its excellent performance thus far.

• Members reassured SANEDI that they will support them in their awareness campaign process.

10. Central Energy Fund and its subsidiaries: Annual Report 2011/12

10.1. Central Energy Fund (CEF)

10.1.1. Financial Results

  • Revenue – Negatively affected by an increase in oil prices and crude and finished products trading
  • Cost of sales – increased mainly due to smaller margins realised from purchased products and increased feedstock costs
  • Investment income – decreased mainly due to lower interest rates
  • Other income – includes recoveries, revaluation of debtors and creditors and unrealised currency variances
  • Finance cost - Notional interest due to increased abandonment costs
  • Operating costs – mainly due to the impairment of loans to subsidiaries and projects, a reduction in expenditure in Equatorial Guinea (no drilling) as well as VAT liability reversal.
  • Taxation - Assessed loss for PetroSA (unredeemed capex ) and SFF exemption status
  • Discontinued operations – relates to CCE Solutions spend on George Wood Waste project now under review

10.1.2. Auditor-General findings

The CEF Group received an unqualified opinion for 2011/12; however, certain matters of emphasis were raised:

  • Restatement of prior period accounting errors
  • Material impairments (R68m)
  • Significant uncertainties ( Brass , Nigeria )
  • Expenditure/ procurement management flaws

Table 6: Major Audit findings



Irregular expenditure (procurement processes not followed – group-wide)

Procurement processes are being reviewed for compliance gaps with remedial actions then implemented

Performance against objectives – non-achievement of planned targets; operating budgets not aligned to objectives (group-wide)

Differentiation between strategic and operational objectives with a new approach to budgeting. External consultant used to advise

Ineffective human resource management; lack of an HR plan and key positions not filled

Some critical positions are due to be filled shortly. Group wide skills audit initiated

Environmental audit (mainly PetroSA – Voorbaai , landfill, offshore exploration wells)

Environmental compliance raised to board level

Major uncertainties include Brass ( Nigeria ) and African Exploration (purchase consideration)

Scenario analyses are being considered for understanding possible future trajectories

*Source: Presentation document 18 October 2012

10.1.3. Progress on Renewable Energy Projects

Existing portfolio of projects where the CEF seek to enhance, extract or protect value include: Philips Maseru Lighting, the Darling Wind Farm and the MethCap SPV1 Waste-to-energy.

The CEF have a couple of projects currently in intensive care where they are trying to recoup the value. Efforts are still at an early stage (Darling Wind Farm and Cape Cleaner Energy (CCE).

10.2. Strategic Fuel Fund (SFF)

10.2.1. Financials

The entity's net profit for the period amounted to R390 ,2 million (2011: R451,5 million). During the 2012 financial year, the crude oil market experienced some difficulties and resulted in a significant drop in storage rental income. The profit decreased by 10 percent from the previous year.

The Minister of Energy issued a Ministerial Directive authorising the acquisition of diesel for the National Multi Product Pipeline (NMPP). The total volume of diesel acquired was 154,744,400 litres, valued at R1 ,049 billion. The stock is managed by Transnet on behalf of SFF. The South African Revenue Service recognises SFF Association (NPC) as an Agent of the State, and has therefore deregistered SFF for VAT and the company is exempt from Income Tax in terms of Section 10(1)(c) of the Income Tax Act. Irregular expenditure for 2011/2012 amounted to R36K

10.2.1. Strategic Stock

The strategic Stock (crude oil) is presently at 10.3mBbls as per Directive. The Department task team is currently reviewing the strategic stock policy

10.2.3. Strategy for addressing insufficient funding

SFF needs funding for both infrastructure and the purchase of crude oil. The Department and SFF will discuss a funding strategy.

10.2.4. BEE access to storage facility

SFF is issuing RFP’S on open tenders. This gives equal opportunity to companies wanting to store crude oil. The challenge for BEE companies is to secure funding for crude procurement, storage and holding costs for the crude. During the 2011/12 financial year SFF trained 30 women on Oil Trading and related issues. A follow up on progress these trainees have made is planned

10.2.5. Spare Capacity Utilization

Spare capacity in Saldanha is rented out to third parties. Income derived from this is utilised to fund the mandate of SFF. The Milnerton facility is undergoing refurbishment. SFF is considering various options to make the tank farm available for storage.

10.3. African Exploration Mining and Financing Corporation (AEMFC)

10.3.1. Progress thus far

• Mined 1.7 million tons as at end September 2012

• Sold 1.5 million tons – rest in stock

• Employ 256 people – 54 directly

• AEMFC offer 2 bursaries in Engineering and 3 internships – safety, admin and geology

• Finalising the new Kusile Powerstation supply contract

10.3.2. Highlights

• Production and Sales volumes are ahead of estimates

• Over 80 percent of local people from the nearby Phola township are employed

• Mine safety was preserved

• In line with required Eskom coal qualities

• The State Owned Mine is self sustaining

• Clean audit from the AG (areas of improvement)

10.3.3. Challenges

• Funding the State Owned Company for future growth

• The mining and transport industry strikes

• Gender representation - Board and Senior management

• Mining rights processing delays

10.4. Petroleum Agency SA (PASA)

10.4.1. Licensing and Regulation

All applications received were processed within the legislated time frames, where 41 submissions were finalized. The Agency continues to monitor and enforce compliance with legislation, particularly environmental compliance.

10.4.2. Shale Gas

The Agency has stressed its determination to remain objective in order to carry out its mandate successfully.

10.4.3. Data Management

There is massive interest in data both on and offshore, where the Agency made R31 million income from data sales, however the information management software is reaching its “end of life”. The Agency has undertaken a data management infrastructure review and an investigation into the possible replacement of software is underway. All newly acquired data will be catalogued and indexed.

10.4.4. Referee and player

According to PASA, in this industry the term “referee and player” generally refers to an entity which is responsible for both the exploration for, and Production of, oil and gas and the licensing and monitoring of both activities. SOEKOR was just such an entity. This was the reason for the separation of SOEKOR to form the two separate entities, PetroSA and the Petroleum Agency. Current functions performed by the Agency are accepted as good industry practice. Promotion function entails resource evaluation and the promotion of petroleum opportunities to the industry within regulatory prescripts. There is thus no conflict between promotion and regulatory functions, according to PASA. Other organizations which play a similar role to the Agency - Norwegian Petroleum Directorate, Crown Minerals New Zealand: Petroleum and Minerals, INP Mozambique

10.5. iGas

10.5.1. Background

iGas was established by a Cabinet resolution in 2000, in order for SA to have a hydrocarbon as development company. iGas ’ value is around R1,93 Billion, with cash of R 104 million.

10.5.2. Performance against objectives

A. Manage iGas ’ interest in the Rompco Pipeline

• Oversee efficient operation and management of Rompco’s assets;

• New opportunities for gas usage in Mozambique investigated; and

• Ensure continued dividends to shareholders.

B. LNG to Power

• Development of commercial case and support government decisions on LNG to power.

• LNG regasification plant supplying gas to a 2400 MW power plant.

• Designs complete and EIA specialist studies completed in previous years.

C. Finalise the opportunity to import more gas from Mozambique .

• Work progressed to a joint venture agreement draft, handed over to PetroSA to progress.

D. Investigate the viability of LPG usage in South Africa :

• In October 2011 PetroSA were given this task to progress.

E. Start the feasibility of the supply of gas to markets:

• Basic work complete, reported to Board and iGas was requested to continue with low expenditure.

F. Progress the west coast gas transmission pipeline studies:

• Worked with Forest Exploration, their focus changed to progressing a power plant onshore at Abraham Villiers Bay . Only phase 2 of Forest Exploration is planned to have a gas transmission pipeline.

G. Maintain an iGas presence in the natural gas communities:

• iGas commented on all relevant NERSA documents on gas and attended and presented papers at a variety of conferences. iGas is the country representative of the International Gas Union (IGU). The IGU held a gas forum seminar at COP-17.

10.6. South African Supplier Development Agency (SASDA)

Table 7: Performance indicators against objectives





Undertake Supplier Development initiatives

Selection of suppliers & Assess

Supplier Shortlist & complete Assessments

Completed. Training programme to commence.

Establishment of SASDA as supplier Dev. Of choice

Appointed by PetroSA for CSDP & DoE input on LFC

Appointment by PetroSA. Input document to LFC

Appointment not done by PetroSA. SASDA participation withdrawn by DoE.

Development of existing & new suppliers with participating SOE’s

Develop 15 companies with SOE’s

Approved ED plan with committed budget

No progress on this front with SOE’s.

Development of existing & new suppliers with participating SOE’s

Develop 30 companies with participating oil companies

Approved ED plan with committed budget

Developed 44 companies with approved ED plan and budget

Operate a sustainable Verification unit

Obtain SANAS accreditation and achieve turnover target

SANAS accreditation. Achieve revenue target

SANAS accreditation attained. Revenue target not met.

*Source: Presentation document – 18 October 2012

10.7. Observations and findings

  • The CEF Group recognised the misalignment regarding performance measures and has therefore engaged Ernst & Young to provide guidance. The key aspect that was identified is confusion between strategic and operational objectives and plans, and this is a major contributor to the audit findings on performance
  • Work is underway to improve plans and objectives being prepared for the 2013-14 year.
  • The performance management system of the CEF will be reviewed and cascaded to subsidiaries to ensure better oversight and control of performance information from CEF.

• CEF Carbon, in general achieved its targets, but company is in close down mode.

• Training of Clean Development Mechanism (CDM) trainees through CSA was completed.

• With regard to the progress of Renewable Energy Projects, the CEF is seeking to build value in the following project pipelines: Solar Water Heaters, Solar Park Feasibility, ENER G Landfill gas to electricity, Thin Film Solar Technology (TFST)

• Members commended the CEF for restructuring itself and committed to more engagement in future.

• Members raised concern that CEF has not developed an exit strategy for the AEMFC to the Department of Mineral Resources.

• The review on the Maseru Philips Lightning is still in progress (not completed yet)

• CEF sees the losses incurred as venture capital for new businesses.

• The CEF had a strategic session with its subsidiaries to discuss the issue of irregular spending,

• AEMFC’s move to the DMR will impact the balance sheet of the CEF.

• SFF’s mandate is to store crude oil, and now they are also storing white product.

• Storage prices are regulated by the market.

• When tank storage capacity becomes available, SFF puts it out for tender (RFP)

• There is still oil in the Ogies mines, however the quantity thereof is not known. The Council for Scientific Industrial Research (CSIR) is on site at Ogies . SFF is working closely with the Department of Mineral Resources and the Department of Water and Environmental Affairs in addressing relevant issues at Ogies mine.

11. PetroSA: Annual Report 2011/12

11.1. Key highlights

With regard to financial performance and sustainability, PetroSA received an unqualified audit opinion. The Group profits rose 54 percent year on year to ~R1.3 billion in 2011/12. Progress was made on Project Ikhwezi , which is intended to extend the Mossel Bay operations to 2020 and sustain jobs as the single largest employer in the Southern Cape

PetroSA’s safety record is within acceptable range, but more focus must be placed on leading indicators (e.g. near misses) is needed. Fifteen (15) incidents occurred, with appropriate remedial action taken to avert a recurrence

On Project Mthombo , together with Sinopec , with which PetroSA signed a Joint Study Agreement, where they are currently reviewing the business case in view of new clean fuels requirements and demand/supply projections. PetroSA bought Sabre Oil and Gas Holdings Ltd in Ghana , which gives them access to the Jubilee field and provides a strategic entry into the prolific Gulf of Guinea

With regard to transformation, p rogress is being made on women recruitment, but more is still needed. PetroSA is experiencing difficulties in recruiting people with disabilities, but they have offered bursaries to selected students with disabilities. PetroSA further built a specialised fuels research centre at the University of the Western Cape . On BBBEE - 71 percent of commercial business sales went to BEE customers and 67 percent of discretionary procurement spend went to BEE suppliers

11.2. Project Ikhwezi

  • Approved by PetroSA Board in March 2011
  • It entails the drilling of 5 long, horizontal wells
  • Drilling of the first well is expected to commence by the end of this year
  • First gas is expected to flow in the second half of 2013
  • Project Ikhwezi is expected to extend the life of the GTL plant to 2020
  • Provides opportunity for further development of other gas prospects near the F-O field, which should extend the life of the GTL plant

11.3. Financial Performance

Revenue increased due to a 2 percent increase in sales volumes and a weaker rand against the dollar (30 percent). Cost of sales increase as a result of an increased sales of purchased product and again a weaker rand against the dollar (30 percent). Other apex declines included freezing of posts and other cost- saving initiatives. The i nvestment income decreased due to the decline in interest rates, despite higher cash reserves

The property, plant and equipment were less than the budget due to delays in the Ikhwezi drilling project. On o ther financial assets there was an under-spent mainly due to delays in downstream entry. There were furthermore increases in inventory and trade receivables due to the increased sales of purchased product. PetroSA’s c ash balance was higher than the budget due to the delay in acquisitions

11.4. Audit opinion

The PetroSA group was issued with an unqualified audit opinion. An emphasis of matter, which does not modify the audit opinion, was raised for the following items:

• Significant Uncertainties - The sale of Brass Exploration Unlimited and PetroSA Nigeria (SOC) Ltd was recognised during the financial year. The disposals are still subject to litigation in the Nigerian judicial system.

• Material Impairments - Impairments of loans to PetroSA Egypt (SOC) Ltd, R197m (2011: R945m), and PetroSA Equatorial Guinea (SOC) Ltd, R1, 412m (2011: R nil), were incurred.

11.5. Other Legal and Regulatory Requirements

• Predetermined Objectives - There were no material findings on predetermined objectives

• Achievement of Planned Targets - 38 percent of total targets not achieved

• Annual Financial Statements - Annual financial statements submitted for auditing were not prepared in all material aspects in accordance with the prescribed reporting framework and as required by the PFMA and the Companies Act.

• Material mis -statements of non-current and current assets identified by the auditors were subsequently corrected

• National Environmental Management Act - T imely corrective action was not implemented with regards to contamination at the operating facilities.

11.6. Observations and findings

• Fruitless and wasteful expenditure of R36m and irregular expenditure of R27m were incurred by PetroSA.

• Certain goods and services of a transaction value above R15k for quotations and R1m for tenders were procured without inviting competitive bids

• Members raised concern over the lack of a risk management strategy with special reference to the exploration in New Guinea and Egypt .

• The aim of PetroSA going downstream is to diversify its income source, and to be ultimately an integrated oil company.

• On the issue of the gas finds in Mozambique , PetroSA does have a relationship with the national oil company in Mozambique .

• PetroSA will soon have acreage in Mozambique .

• Project Ikhwezi will sustain the Mosselbay GTL plant to 2020.

• PetroSA’s performance management budget grew from R90m (2010) to R350m (2011). PetroSA pointed out that their current Performance Management System will be reviewed.

• The Committee indicated its intention of engaging PetroSA more frequently in future

12. Conclusion

During the period under review, the following factors influenced the environment within which the Department of Energy operated:

· The credibility of South Africa ’s Energy policy trajectory was enhanced by the Independent Power Producers ( IPPs ) procurement processes the Department painstakingly championed.

· On the geo-political front, the Department had to contend and develop a response plan to the sanctions by the United States of America and European Union on the Islamic Republic of Iran.

· The vulnerability of the refining sector was exposed with a number of refinery shutdowns which diverted some of its attention in terms of monitoring contingency plans.

Overall performance is 57 percent whilst the Department spent 99 ,6 percent of its allocated budget during the period under review. The operational efficiency especially of utilizing resources will be under intense scrutiny during the current financial year.

This is the third Budgetary Review and Recommendations Report this committee is processing. However, this report may have to be substantially compared to the second report (2011) given that the Department was only established in 2009.

The operations of the Department is, in part, displaying signs of or actually beginning to mature as a distinct institution after its separation from the Department of Mineral Resources, due to the Department’s emergence from a state of transition after the separation. Notwithstanding resource constraints and other challenges which compromise the performance of the Department, there was notable improvement of its performance.

The performance of branches that handle the Energy Efficiency and oversight on State Owned Enterprises, is unfortunately less than satisfactory.

There were external factors such as electricity infrastructure backlog, unresolved cross-subsidization municipal services by income from electricity sales, to name but a few which have compromised the performance of the Department.

The Portfolio Committee on Energy recognizes some of the achievements by the Department are dependent on other Departments or agencies of the government as well as other spheres of government. As such this, from time to time, compromises its performance profile.

The Portfolio Committee on Energy applauds the Department and its entities on no findings by the AGSA with regards to Human Resources and Information and Communication Technology.

The Portfolio Committee on Energy also expresses its concerns about the apparent lack of progress on the New Nuclear Build Programme.

Given the challenges that obtain the energy sector there must be an emphasis on the urgency of generation and finalisation of relevant policies where appropriate.

The introduction of the Audit Committees in the BRRR process, albeit their debut, painted a fair picture about the Department and SOEs under its supervision.

Notwithstanding the above challenges, the Department under the leadership of Minister Peters, Deputy Minister Thompson and the Director-General, Ms Magubane , have been resilient enough to grow the Department and also enhance its performance and effectiveness in a number of respects.

13. Recommendations

Having assessed the performance of the Department of Energy, the Portfolio Committee on Energy recommends that the Minister of Energy should ensure the following:

· The Department of Energy expedites the conclusion of outstanding policy strategies and programmes in order to position itself in the forefront of energy policy and planning. These strategies and programmes should include the following:

o Strategic Fuel Policy,

o Energy Efficiency Strategy,

o Approach to Distributions Asset Management (ADAM),

o Restructuring of the electricity industry,

o Electricity Pricing Policy,

o Bio-Fuels Policy,

o Replacement of Regional Electricity Distributors ( REDs ),

o Free Basic Alternative Energy (FBEA),

o Cost Recovery Mechanism for cleaner fuels,

o Review of the Integrated Resource Plan (IRP),

o Review of the Renewable Energy White Paper,

o Integrated Energy Plan, and

o Household Energy strategy.

· The Department of Energy mobilises at least 30 percent of the needed funding for the infrastructure backlog in conjunction with the National Treasury, by the end of the 2012/13 financial year.

· The Department of Energy ensures that the restructuring process of the Central Energy Fund is concluded within the 2012/13 financial year.

· The Department of Energy submits an update on how it has addressed recommendations of the Budgetary Review and Recommendations report of both 2010 and 2011 by the end of the 2012 calendar year.

· The Department of Energy submits a report to the Committee relating to the Internal Audit Control strategies and plans on how to achieve clean audits for both the Department of Energy and its entities.

· The Department of Energy submits a strategy and plan on its role and contribution in responding to climate change and based COP 17 resolutions. This strategy/plan should be submitted within three months after the adoption of this Report by the House.

· The Department of Energy mobilises for skills development in the energy sector by ensuring a definite review and rollout of non-grid electrification policy and programmes within the 2012/13 financial year.

· The Department of Energy extends the Household Energy Strategy to include efficiency and access to household appliances.

· The Department of Energy and its entities develops a strategy on synergy between the itself and its entities within 2012/13 financial year. Such a strategy should include monitoring and evaluation of funds transferred to entities including municipalities.

• The Department of Energy formulates policy and develops a strategy on energy data management especially collection including measurement of use of Renewable Energy reporting in order to track progress. This should be done within the 2012/13 financial year.

· The Department of Energy addresses outstanding issues with the Independent Power Producers ( IPPs ) that have received Renewable Energy Independent Power Producer Programme (REIPPP) contracts by the end of the calendar year.

· The Department of Energy develops skills development programmes in the energy sector especially the liquid fuels sector and the electricity sector within the 2012/13 financial year.

· The Department of Energy develops a plan on smart-grid policy and strategy is developed within the 2012/13 financial year.

· The Department of Energy ensures corporate services especially skills development, legal services and monitoring and evaluation have adopted plans by the end of the 2012 calendar year.

· The Department of Energy develops a plan relating to Public Participation Programme through partnerships, especially with municipalities to be adopted within this financial year.

· The Department of Energy ensures that an independent verification mechanism is in place to determine the quality of liquid fuels within this financial year.

· The Department of Energy ensures the readiness of South African Nuclear Energy Corporation and the National Nuclear Regulator for the New Nuclear Build Programme is visibly geared up within this financial year.

· The Department of Energy ensures the full utilization of the National Multi-Purpose Pipeline (NMPP) for various liquid fuel products by end of current financial year.

· The South African Nuclear Corporation works out a turnaround strategy to avert further retrenchments.

· The Department of Energy formulates an exit strategy for the African Exploration and Financing Corporation by the end of the year, including compensation for its establishment by the Central Energy Fund within the 2012/13 financial year.

· The Department of Energy facilitates financing mechanisms for Clean Development Mechanism by the end of the financial year.

· The Department of Energy submits a report on the Ogies Mines environment challenges within the 2012/13 financial year.

· The Department of Energy builds internal capacity to generate policies and legislation as a priority by end of the 2012/13 financial year

· The Department of Energy formulates a strategy and develops a plan on how to maintain targets on universal access on electricity whilst shifting deadline from 2014 to 2025. These strategy and plan to be finalized before the end of the 2012/13 financial year.

· The Department of Energy develops a funding and implementation plan in order to reduce the electricity distribution infrastructure maintenance backlog of R27.4 billion to R15 billion by 2014. This plan to include the following:

o Funding and implementation plan in place by March 2011,

o Report detailing a map of distribution asset status for 50% of all Municipalities by 2012/13

o Initiate interventions, monitor rehabilitation projects and reduce backlog by R8bn in 2012/13

· The Department of Energy develops a plan that will ensure that household access to electricity would be 92 per cent by 2014. This plan should be completed before end of the 2012/13 financial year.

· The Department of Energy formulates a strategy and develops a plan to regain momentum on solar water heating installation programme schedule. This strategy and plan should be completed before end of the 2012/13 financial year

· The Department of Energy develops a plan on how reporting on demand-side savings will be improved. This plan should be finalized before end of the 2012/13 financial year

· The Department of Energy formulates a strategy and develops a plan on how b etter mapping and targeting of indigent households needed for Free Basic Electricity, Compact Fluorescent Light Bulbs and solar geysers, for Inclined Block Tariffs.

· The Department of Energy presents an intervention strategy and plan which is required on Upington Solar Park Project and to clear obstacles to enable the rapid realisation of the Renewable Energy Independent Power Producer Programme (REIPPP) construction by end of this calendar year

· The Department of Energy formulates an intervention strategy and plan how to expedite the SARi programme, by end of the current financial year

· The Department of Energy presents an intervention strategy and develops a plan on how 12 per cent energy efficiency improvement target by 2015 will be achieved

· The Department of Energy submits, during the 2012/13 financial year, a report on the New Nuclear Build Programme. This report should articulate the following:

o Funding model of, the New Nuclear Build Programme,

o Eskom’s role, and

o The Department’s role.

· The Department of Energy ensures that programme and requisite resource mobilization plans are in place before end of the 2012 calendar year.

Report to be considered.


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