ATC140313: Report of the Portfolio Committee on Energy on its oversight visit to the Western Cape, scheduled on 31 July – 01 August 2013, dated 11 March 2014

Report of the Portfolio Committee on Energy on its oversight visit to the Western Cape, scheduled on 31 July – 01 August 2013, dated 11 March 2014

1. Introduction

The Portfolio Committee on Energy (PCE) undertook oversight visits on various projects in the Western Cape Province from 31 July 2013 to 01 August 2013. The report gives an overview of the visits, observations and recommendations emanating therein.

The Members of the Committee who took part on the 31 ^st July visit were: Mr. SJ. Njikelana (Chairperson), Mr. J. Smalle and Mrs. B. Ferguson. On the 1 ^st August, Members who took part were Mr. SJ. Njikelana, Mr. L. Greyling and Mrs. B. Ferguson (only for the morning session).

The support staff assisting the committee were: Mr. A. Kotze (Committee Secretary), Mr. S. Maboda (Committee Researcher), Mr. P. Rampersadh (Content Advisor), and Mr. M. Dodo (Committee Assistant), Mrs Y. Landu (Media) and Mr. B. Vilakazi (Photographer - Media).

The objectives of the Committee visits were to gain an insight on implementation of projects, challenges and opportunities of solar home systems (Enkanini), solar water heaters (Klapmuts and Nuwe Begin), gas infrastructure (BPSA and Easigas) and waste-to-energy (SA Breweries), respectively. The delegation visited the following sites:

• Enkanini informal settlement (iShack project) and Sustainability Institute in Stellenbosch
• Integrated National Electrification Projects, Klapmuts in Stellenbosch and Nuwe Begin in Blue Downs.
• Industrial sites on Liquid Petroleum Gas (LPG), a visit to Easigas and British Petroleum (BP), and
• South African Breweries (SABMiller) Waste to Energy Project in Newlands, Cape Town.

2. Day 1: 31 ^st July 2013 - Visit to Enkanini Informal Settlement (Stellenbosch)

Enkanini informal settlement has about 8 000 residents; it is an illegal informal settlement hence the name Enkanini. The estimated 8 000 people who live in Enkanini have to make do with 36 taps, 60 toilets, no electricity, inadequate waste disposal and flimsy dwellings subject to floods and fires. The Stellenbosch Sustainability Institute initiated a project which officially started in July 2012 – the aim of the project is to provide sustainable energy and sustainable housing solutions to the poor. The project involves the improvement of the selected 20 shacks in Enkanini informal settlement. In short the project is called “iShack” wherein “I” stands for improved (shack). The iShack is a 14.2m ² structure equipped with the following features:

Picture 1: Enkanini Improved Shacks (iShacks)

The ecological design principles that are incorporated in the iShack improve living comfort levels by:

· Orientating the shack in a northernly direction to capitalise on the winter sun,

· Strategically placing windows for adaptive temperature control and ventilation,

· Insulating walls and roof-spaces to moderate indoor temperature levels

· Creating a slanted roof with overhang for rain water collection and to shield the facade from the midday summer sun,

· Applying water-proofing and using fire retardant paint.

Solar power is harnessed through a Solar Photovoltaic (PV) direct current ( DC) Microgrid developed by Specialised Solar Systems based in George, South Africa. Households can upgrade the solar infrastructure from an entry level to include:

· Light-emitting diode ( LED) lights,

• A cell phone charger and a security light to include other DC appliances such as radio, television, DVD and fridge.

A sanitation component has recently been introduced as part of the iShack project. This involves the provision of bio-digester toilets. The biogas from the bio-digester (which produces electricity) will be used for cooking by the beneficiaries. Currently there are four bio-digester toilets which cater for 20 households. It is hoped that electricity from the bio-digester will be produced in the next six months.

Past technological interventions in community upgrading have often failed owing to inadequate operations and maintenance plans. To address the operational challenge in this project, local entrepreneurs are trained in basic business and technical skills which are then applied in the servicing of iShack customers within their territory.

An e-spaza or “energy hub” will provide a physical base from which a trained operator will conduct his or her business and service their customers. The sale of appliances, improvement of shacks, answering customer queries and topping-up energy user accounts will be directed from the energy spaza.

In terms of the stakeholders involved in the project, the Sustainability Institute Innovation Lab liaises with the community of Enkanini, the Stellenbosch Municipality, the Community Organisation Resource Centre (CORC), the Informal Settlement Network (ISN) and Specialised Solar Systems.

The project is funded by the Gates Foundation and National Research Foundation (NRF). The Water Research Commission funded the sanitation (toilet) component of the project. National Treasury, in the current budget, has allocated R17 million from the Green Fund for this project – the aim is to upscale the project.

Members of the Committee and the support staff toured the Enkanini area. After the tour, presentations about the project were made by the Sustainability Institute and the beneficiaries. Members welcomed the project and appreciated the innovative idea that the Sustainability Institute and its team came up with.

The Committee proceeded to another site visit on electrification projects in Nuwe Begin and Klapmuts.

3. Visit to the Integrated Electrification Projects in Klapmuts and Nuwe Begin (Blue Downs)

3.1. Visit to Klapmuts project

At the Klapmuts site the delegation was briefed on the status of the Klapmuts and Nuwe Begin solar water heater programmes, respectively. This was followed by visits to a few of the households in both Klapmuts and Nuwe Begin.

Klapmuts is a settlement in Cape Winelands District Municipality in the Western Cape province. A little town just off the R45 road between Kraaifontein and Paarl. Klapmuts is well known for its surrounding wine farms. It is a small village situated approximately 15km from Paarl, Kraaifontein and Stellenbosch in the valleys of the Hottentots Holland mountain range. As the area is almost surrounded by vineyards; it provides numerous opportunities for wine tours and wine tastings at various wine farms around the village.

Mr M. Mzalisi of the Department of Energy (DoE) gave a presentation on the status of the two projects. In attendance, as well, were representatives from the Stellenbosch Municipality.

Mr Mzalisi indicated that 95 percent of households in the Western Cape Province are electrified. The first project that the Committee visited is in Klapmuts . The project in Klapmuts is an Eskom project and was allocated R5 790 000 for 579 connections in the 2013/14 financial year. The total number of connections in this project is 832. This means that Eskom will have to apply to the DoE for the 253 connections that are not allocated funds. The project was started in the 2012/13 financial year. Regarding the social and economic impact of the project, Mr Mzalisi and his team indicated that a formal study on this hasn’t happened and that the study that was conducted by Shack Dwellers International focused on informal settlements not formal houses.

The Project Managers at Klapmuts indicated to the PCE that there are some challenges that need to be addressed in terms of electrification programme and are as follows:

· Project Management: it was indicated that electrification projects involving Eskom results in the appointment of three project managers, one for the council, one at the DoE and one from Eskom. This results in some tripping up (Managers defeating each other’s efforts) and hence projects getting delayed.

· Eskom: there appears to be problems in communication within departments. Councils get approval from Eskom technical for higher rated electrical installations however when it comes to payment, Eskom finance only pays for what DoE approved hence short payment to Municipalities (there is a problem here as technical approval may not imply financial approval).

· DoE pays for municipal electrification projects that are 80 percent complete while Municipalities can only budget for an electrification project when they are in possession of the funds or funds are in municipal account. Therefore there is a need for a change of modus operandi in this regard. Project Managers proposed that the DoE should guarantee payment to municipalities through written agreement.

3.2. Visit to Nuwe Begin – Blue Downs

The second electrification project that the Committee visited is the Nuwe Begin. The Nuwe Begin project is under Cape Metro’s jurisdiction but is serviced by Eskom.

The Nuwe Begin site is located in the Blue Downs area and is surrounded by standard road and service infrastructure, Hindle Road to the North, Eersteriver Way to the east and Faure/Klipfontein road to the West. Bardale village is on the left and the existing residential development of Malibu Village occupies the area east of Eersteriver Way. Blue Downs is a suburb of Cape Town. It is part of the Oostenberg sub-region of the city.

This is a pilot project managed by the Western Cape Provincial Government; and the Department of Human Settlements. The project aims to create a new and innovative direction to the provision of housing showcasing the use of high density urban planning to create Sustainable Human Settlements. The project yields 1200 Breaking New Ground (BNG) housing opportunities and 591 Gap housing opportunities all on single residential erven. The Gap housing prices start from R299, 000 and the first batch came on sale from October 2012. The project is implemented by BVN 2000 (Pty) Ltd, a full subsidiary of Motlekar Cape, a MOTLEKAR holdings company.

The Department of Human Settlements (DOHS) aim for the project is to urgently relocate existing informal settlements, thereby addressing the urgent housing and development needs of the communities located in the concerned target areas, which include the Bongani and Nkqubela areas in Khayelitsha and the Ward 17 and Ward 108 areas of Greater Blue Downs and Mfuleni. Beneficiaries consist of a large number of flood victims as well as backyard dwellers from the aforementioned residential areas. The 903 beneficiaries have taken occupation since June 2012 when the first houses were completed. The remaining beneficiaries were to occupy the houses in July 2013. According to the project implementers, 3 disabled beneficiaries received grants and subsidies and were also part of the first occupants. Furthermore, a total of 213 labourers have been employed as a result of the project.

Picture 2: Chairperson and his team engaging with the residents in Nuwe Begin

Similarly with Klapmuts, DoE allocated R5 790 000 for 579 connections in the 2013/14 financial year for this project

Members of the Committee had conversations with the beneficiaries. Generally, beneficiaries expressed satisfaction with the houses, however, a strong need for alternative energy, such as solar water heaters was emphasised by the residents (particularly for the old and disabled). The desire for solar water heaters was also triggered by a temporary (demonstration, see picture below) house for contractors which had solar water heaters installed. Representatives of the residents strongly raised the need for rolling out of solar water heaters, especially for the old and disabled.

Picture 3: Demonstration (contractor) houses with solar water heaters.

4. DAY 2: 01 August 2013 – Visit to British Petroleum (BP) South Africa

An overview of the BP Liquid Petroleum Gas (LPG) Plant was presented by the BP officials – the aim of which was to familiarise Members with the Plant prior to the site tour. Regarding the ownership of the space (infrastructure/storage facilities) within the BP Cape Town Terminal, 2 x 45 m ³ is owned by BP whereas 1 x 68 m ³ + 1 x 100m ³ is owned by Reatile. Key issues that emerged from the presentations and discussions are as follows:

· A Basic Fuel Price (BFP) formula was reviewed by South African Petroleum Industry Association (SAPIA) which also affected the price of LPG. However, the concern is that this exercise did not focus on LPG pricing.

· The current Maximum Refinery Gate Price (MRGP) does not reflect true import parity pricing. Currently all imports are landed at an MRGP plus a premium and therefore an importer is not compensated, in other words the costs of production is not recovered. Secondly, the price of LPG is based on petrol price.

• The storage capacity of LPG in the country is inadequate

· Prices of appliances are a problem as such appliances become too expensive for poor households.

The LPG sector has been sold to Oryx as of the 1 ^st August 2013 and will be moved off site in the future. This was based on a BP International decision to sell off its gas business units internationally for safety reasons.

5. Visit to Easigas – Bellville-South

Mrs Lorraine Van Wyk and Mr Duane Dennis, from Easigas gave an overview of Easigas indicating that the company is dedicated to LPG marketing and distribution throughout Southern Africa. It operates in Lesotho, Botswana, Swaziland and South Africa and is owned by Rubis, a French company listed on the French stock exchange. Key issues emanating from the presentations and the tour were that:

· There is lack of import terminals (currently only two – one in Richards Bay maximum capacity 3.7 kt and two spheres in Port Elizabeth maximum capacity 1.1kt). Tenders to build a storage facility were allocated to certain companies e.g. Reatile and Vopac at Richards Bay in 2008 but nothing has happened since then;

· Avedia Company was also awarded a tender to build an import terminal in Saldana. However, there are concerns about the legitimacy of the tender;

· Ability to make a return on investment is hampered by the regulated price levels;

· No incentive for refineries to produce additional LPG;

· No correlation between MRGP and actual logistical cost of imports;

· No adjustment to cost recovery elements in regulated pricing during the last 18 months

· Issuing of wholesale licenses to parties that do not have resources or customer base that leads to a mushrooming of middlemen that charge exorbitant prices

· LPG price is based on Petrol Price and this has implications (SA is the only country in the world doing so).

· An additional point that was raised was “the bolt on fees”. Gas refiners add Gantry and transport fees and this is not revealed but results in the costs escalation.

· Easigas is considering at commissioning storage at Nigel (800t) and Durban (1.2Kt)

· It was indicated that there is a host of illegal fillers in SA which has brand and safety implications. Regulation in this regard is not easily enforceable .

· No alignment between the Gas Bill and the Petroleum Pipelines Act.

· No strategy to deliver to low income households and

· There needs to be investment in distribution infrastructure

· Easigas introduced a household cylinder (targeting the indigent population) but this was not widely accepted. There were issues of pricing and public acceptance.

· In terms of manufacturing of cylinders, Easigas indicated that the price of steel is an issue in SA and should be reviewed.

The suggested way forward was that there is a need for the government to:

· Address complaints that have been received about the current regulations and rules relating to Maximum Refinery Gate Price [MRGP] (LPG pricing must be at a level that encourages importation). Maximum Retail Price for residential customers must be in line with MRGP/import price;

· Enable the industry to build import facilities; and

· Promulgate regulated prices in line with current supply/demand situation in the country.

· The prices of appliances are too high (they suggested a subsidy for appliances)

6. Visit to the SA Breweries – Newlands, Cape Town

South African Breweries identified energy value in waste water and hence decided to pursue a waste-to-energy process. SAB identifies this energy value as “chemical oxygen demand” but is basically a carbon source that can be converted to methane by biological methods using bacteria. The methane is thereafter an available energy source. Currently this provides 12% of the brewery’s energy needs but SAB are (with UCT) looking at waste yeast (6% potential) and spent brewers grain (30% potential). Hence using waste, this brewery can generate 48% of their energy needs. Key issues identified included, inter alia, the following:

6.1. Co-generation

SAB is looking at electricity co-generation to provide for its energy needs at its Roslyn plant. Plans were already approved, but later put on hold. This was so after the NERSA determination on the price Sasol can charge for gas (Sasol purchases gas from Mozambique for less than R20 (USD 1.82) GJoule and sells currently for about R40 GJoule. With the NERSA declaration on maximum prices they can increase their selling price to R80 GJoule). Hence SAB feels that this make co-generation not feasible for them anymore. Tony Cole (Engineering Manager) also part of the “Gas User Group (still being formalized)” argued that the NERSA determination will result in job losses. Further gas prices should be dropping, e.g. US gas price dropped from USD 7 GJoule to USD 3 GJoule since the discovery of shale gas.

6.2. Municipal Electricity charges

The City of Cape Town charge industry at the maximum usage rate for the entire month, called a “maximum demand charge”, hence industry with power peak demands are affected the most. The municipality also have other charges included, adding to the cost to industry.

6.3. Municipal service charges

This is specifically with regard to waste water. The City of Cape Town charge separately for Chemical Oxygen Demand (COD) and volume for waste water. SAB reduced the COD content hence expected a reduction in cost, however the municipality adjusted the charges such that SAB sees no financial benefit.

SAB also indicated that the Municipality required assistance with infrastructure maintenance and development e.g. water purification works. However SAB feels there should be “Strategic Synergistic Industrial Planning” and this should be government facilitated.

7. Recommendation(s)

7.1. The Minister of Energy to address the following:

· SAB indicated that they are willing to partner with government in terms of skills development, investment in energy projects and job creation (SAB sees great opportunity in clearing alien vegetation).

· Institutional arrangements in project management of electrification projects at municipal level, between the Department of Energy, ESKOM and a municipality be reviewed and improved.

· Technical and financial approvals for electrical installations be rationalised.

· Reviewal of the modus operandi of payment for electrification projects by the Department of Energy and ESKOM including exploration of guarantees and improved formalisation.

· Installation of solar water heaters in Nuwe Begin with a priority on the old and disabled.

· Arranges a meeting between the Department of Energy and the gas industry to address all gas related issues raised in the report.

· Arranges a meeting with the Gas Users Group to address their proposals and concerns.

Other recommendations:

· The City of Cape Town to be written a formal letter and request to address issues raised in 6.2. and 6.3

· The PC on Energy to arrange its own meeting with the Gas Users group to get insight of its programmes, proposals and concerns.

· The Committee would require a clarification on how the proposed changes on the Stellenbosch Municipality Indigent Policy would affect the Free Basic Electricity (FBE), Free Basic Alternative Energy (FBAE) subsidies and the R100 monthly fee which the community is currently paying for solar electricity.

· Furthermore the Committee noted the idea of investing on bio-digester toilets through collaboration with the Stellenbosch Municipality in order to improve household access to sanitation, which would ultimately improve household access to gas electricity.

· The Committee recommended the Sustainability Institute to collaborate with the Department of Human Settlements and the Department of Health.

· The Sustainability Institute indicated that an “incremental approach” to electrification appeared to be a good approach for informal settlements.

· It was suggested that the Department of Energy visits the Institute and discuss options available regarding projects of this nature.

· The Director of the Sustainability Institute, Mr Mark Swilling suggested that the Committee hold Public Hearings on Incremental Approach to Energisation.

Report to be considered.