ATC161025: Budgetary Review and Recommendation Report of the Portfolio Committee on Energy, dated 25 October 2016


Budgetary Review and Recommendation Report of the Portfolio Committee on Energy, dated 25 October 2016


The Portfolio Committee on Energy, having considered the performance and submission to National Treasury for the medium term period of the Department, reports as follows:


Outline of the contents of the Report


  1. Introduction
  2. Service delivery environment
  3. Overview of the performance of the Department of Energy in 2015/16
  4. Annual financial statements
  5. Auditor-General of South Africa (AGSA) Report
  6. Department of Planning, Monitoring and Evaluation Report
  7. Committee’s findings and observations
  8. Recommendations
  9. Appreciation





  1. Introduction


The Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department.


In October of each year, Portfolio Committees must compile Budgetary Review and Recommendation Reports (BRRR) that assess service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources. The BRRR are also source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.



  1. Mandate of the Portfolio Committee on Energy


In line with the core objectives of Parliament the mandate of the Committee is 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 energyto 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.


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 South Africa (AGSA) on the audit outcomes of the Department of Energy and the entities reporting to it.
  • Briefing by the Department of Planning, Monitoring and Evaluation on the performance of the Department of Energy for 2015/16.



  1. The Department of Energy and its entities.


In carrying out its mandate, the Department formulate energy policies, regulatory frameworks and legislation, and oversees their implementation to ensure energy security, promotion of environmental friendly energy carriers and access to affordable and reliable energy for all South Africans. There are six State Owned Entities (SOE’s) reporting to the Department. The Minister of Energy is responsible for overseeing theseSOEs and their subsidiaries, which are either classified as Schedule 2 or 3A institutions in terms of the Public Finance Management Act, 1999 (Act 1 of 1999), as amended (PFMA). The Entities reporting to the Department are listed below:


  • The National Nuclear Regulator (NNR) - The purpose of the NNR, as outlined in section 5 of theNational Nuclear Regulator Act 1999 is to essentially provide for the protection of persons, property and the environment against nuclear damage through the establishment of safety standards and regulatory practices.
  • The National Energy Regulator of South Africa (NERSA) - The purpose of NERSA, as effectively outlined in section 4 of the National Energy Regulator Act, is to regulate the electricity, piped-gas and petroleum pipeline industries within the Republic of South Africa in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), the Gas Act, 2001 (Act No. 48 of 2001) and the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).
  • National Radioactive Waste Disposal Institute (NRWDI) - This entity has been established with the aim of managing radioactive waste in South Africa. To date the Board of Directors have been appointed and the DoE is in the process of appointing the Secretariat.    
  • The South African National Energy Development Institute (SANEDI) - SANEDI’s functions, as outlined in section 7(2) of the National Energy Act, are to: - direct, monitor and conduct applied energy research and development, demonstration and deployment as well as undertake specific measures to promote Energy Efficiency (EE) throughout the economy; and - establish a nationally focused energy research, development and innovation sector and undertake EE measures with a strong relevance for South Africa.
  • The South African Nuclear Energy Corporation (NECSA) - NECSA’s functions, as outlined in section 13 of the National Energy Act, are to: - undertake and promote research on nuclear energy, radiation sciences and technology; - process source, special nuclear and restricted material including uranium enrichment; and - collaborate with other entities.
  • The Central Energy Fund (CEF) Group of Companies (SOC) Ltd - CEF (SOC) Ltd is involved in the search for appropriate energy solutions to meet the future energy needs of South Africa, the Southern African Development Community and the sub-Saharan African region, including oil, gas, electrical power, solar energy, low smoke fuels, biomass, wind and renewable energy sources. CEF also manages the operation and development of the oil and gas assets of the South African Government.




With regard to the service delivery environment, the Department of Energy highlighted the following:

  1. Electricity and Electrification


The year under review was characterised by severe shortages in electricity supply resulting in load shedding in various parts of the country. In order to address these challenges, Cabinet adopted the five point plan as a blueprint to mitigate those challenges. The five point plan consisted of supply side option to encourage Eskom to improve the availability and reliability of the power stations, while increasing power capacity through Independent Power Producers (IPPs). Programmes that were largely earmarked under IPP programme related to the renewables, coal technology as well as cogeneration.


In this regard plans to ensure that many megawatts are brought into the system as possible in order to alleviate load shedding were in place. Part of the five point plan included demand side options whereby South Africans were encouraged to reduce the electricity usage and to become more energy efficient.The Department’s electrification programme, the Integrated National Electrification Programme (INEP), flagship programme in the delivery of services to the people was allocated R5.6 billion during the 2015/16 financial year.  INEP and its implementing agencies Eskom, municipalities and non-grid service providers have made remarkable progress in increasing access to electricity in South Africa and connected over 6.7 million households between 1994 to March 2016. Access to electricity is at 88 percent since 1994.


Government also recognised that, while this was a short term challenge, there was a need to accelerate the conclusion of a long term plan or the integrated energy plan (IEP) in order to outline the future energy mix and to prioritise key policy interventions within the energy sector.


Through the Independent Power Producer (IPP) programme, renewable energy, coal, gas and cogeneration against the target of 17000 megawatt by the end of 2022 has progressed significantly. The renewable energy IPP programme has been very competitive in respect of pricing and time to produce power in the grid at the same time making real socio-economic impact in the communities where these projects are located.


So far the programme has injected more than R170 billion in capital investment into the South African economy with South Africans owning an average of more than 48 percent in all IPPs with Black South Africans owning at least 28 percent of the projects on average.


In order to ensure that new generation capacity is increased, new determinations under the Electricity Regulation Act for additional 6000 megawatt under the renewable energy IPP Programme as well as 1800 megawatt for cogeneration was promulgated. This is in line with the existing Integrated Resource Plan (IRP) and various request for proposals were issued during the year under review in order to procure these projects. Side by side with the renewable IPP Programme, the Department introduced a small renewable energy request for proposals which targeted smaller projects equal to 5 megawatt and under and the Department contends that these programmes would be less costly and less complex in terms of the bidding process.


The Small Scale Renewable Energy Programme procured renewable energy from small-scale IPPs, with projects that are between 1 and 5MW in size in order to ensure that small and medium enterprises owned by black people are able to participate in the green economy.   Since the inception of the renewable energy IPP programme the Department has been successful in (i) increasing the contribution of clean energy from 0 percent in 2010 to over 4.5 percent within 5 years; (ii) the creation of 24 965 job-years of employment opportunities for South African citizens. A job-year is defined as the equivalent of a full time employment opportunity for one person for one year. To date, a total of R53 million has been contributed to enterprise development by operating IPPs. The programme has also broadened Black Economic Empowerment, as Black South Africans own, on average, 30 percent of these projects.


The request for information for gas power generation was released during the year under review. This is a precursor of the gas to power procurement programme in respect of which the Department will be procuring 3126 megawatt, with bids expected to be invited in 2016. Proposal in relation to coal technology was also released. Preferred bidders under the coal programme were announced during the year under review, projects proposals were received and adjudicated.


Challenges experienced by developers who would like to generate their own power and include transmitting the power to third parties across networks owned by licences were identified. NERSA has concluded the process of developing the necessary rules for third party access at the same time as the Department is putting the necessary policy framework in place.


The Department has taken the biofuels regulatory model forward and have concluded addressing concerns about the risk posed by this programme to the fiscus and to free food security.  Through collaboration with National Treasury, Department of Agriculture, Forestry and Fisheries, Department of Economic Development and other government departments, the Department has provided a framework which will take the biofuels industry forward.


The Solar Water Heater implementation model was revised and approved by cabinet for management under the Department of Energy. This programme has seen the collaboration by national, provincial and local government together with private and public sector stakeholders. The Department concluded an agreement with the Sector Education and Training Authorities (SETAs) responsible for energy and water in terms of which comprehensive and accredited training is a central element of the Solar Water Heater roll out model.


  1. Hydrocarbons


Currently, the Department is aware of the pricing structure challenge in terms of the maximum retail liquefied petroleum gas (LPG) price remaining the highest cost fuel alternative to the consumer. The Departmentis working on rectifying this aspect of the LPG market in consultation with relevant stakeholders through the development of the Liquid Fuels Master Plan process. Evidence of the drive towards lifting constraints on supply infrastructure in South Africa is that NERSA granted licenses for the construction of four major terminal facilities at the ports of Saldanha Bay, Richards Bay and Ngqula having a combined storage capacity of approximately 65 000 m3. Although the approvals of additional storage capacity will improve the security of supply of LPG, some risks remains in the Western Cape, and specifically the Cape Town metropolitan area where consumption rates are high. Upon completion (most will be operational by 2018), these projects will improve significantly the security of supply of LPG.


In May 2015 the Gas to Power Programme commenced with a formal Request for Information. The Request for Information was intended to solicit information from participants in the gas to power industry. The Department received information on a number of interesting LPG-based project options. This information is being used to design the procurement documentation for the Gas to Power Programme.


  1. Nuclear


Government remains firmly committed to an open, fair and transparent procurement process with due regard to implementing the programme at a scale and pace that the country can afford. According to the Department, the Request for Proposals (RFP), for the Nuclear New Build Programme of 9 600 MW will be released to the market during the 2016/2017 financial year in line with the Cabinet decision taken on 9 December 2015. As part of procurement preparation for the Nuclear New Build Programme, the Department has appointed Transaction Advisors to conduct an independent assessment of the RFP and other pre-procurement activities in order to ensure the state of readiness before testing the market.


Extensive nuclear skills development and training is taking place both in South Africa and in countries abroad to ensure that the country has a sufficient supply of skills and expertise to meet the human resource needs required by the new build programme.


Government remains committed to ensure energy security for the country, through the roll out of the nuclear new build programme as an integral part of the energy mix to provide the reliable and sustainable electricity supply, as part of mitigating the risk of carbon emissions. The nuclear new build programme will enable the country to create jobs, develop skills, create industries, and catapult the country into a knowledge economy.




For the year under review, based on its needs analyses, the Department estimated that it would require R7.98 billion in fulfilling its mandate. However, this was adjusted downwards to R7.48 billion after incorporating the 2015 adjustments emanating from Medium Term Expenditure Framework (MTEF) budget process. Reductions as a result of the MTEF process were in the compensation of employees, goods and services, payments for capital assets and transfer payments. Furthermore, during the 2015 Adjusted Estimates of National Expenditure (AENE) process, the Department’s budget was further adjusted downwards to R7.21 billion. This means that, for the year under review, the Department had an adjusted final appropriation of R7.2 billion. The bulk of the budget, 93 per cent, was allocated for transfer payments to public entities, municipalities and other implementing institutions. The remaining 7 per cent was for Departmental operations.  By the end of the financial year, the Department had spent 98 percent of the allocated budget, an improvement from 83.6 per cent in the previous financial year. The 2 per cent underspending is attributed to the following:


  • Integrated National Electrification Project (Non-Grid): According to the Department, the transfer payment of R10.41 million could not be disbursed due to late receipt of invoices from service providers as well as late uptake of systems from one of the concession areas in KwaZulu Natal.
  • Energy Efficiency and Demand Side Management (EEDSM): A transfer payment of R112.52 million relating to the implementation of the National Solar Water Heater Programme (NSWHP) was not finalised before 31 March 2016. The reason cited by the Department for the delay is the technical and complex bid process and subsequent delays in appointment of service providers.
  • Non-personal current expenditure: According to the Department, a total of
    R3.83 million was not paid to the service before 31 March 2016 and this is in relation to the measurement and verification of energy savings achieved for the implementation of energy saving projects by municipalities participating in the EEDSM Programme.


The underspending is mainly in three of the six programme areas of the Department and the three programmes are as follows: Energy Policy and Planning, Electrification and Energy Programme and Project Management, as well as the Clean Energy programme.


Regarding the Energy Policy and Planning programme, 6.4 per cent (R2.49 million) was underspent, and according to the Department this is as a result of planned projects not being finalised as anticipated. This mainly relates to the money earmarked for consultants and business advisory services. The Department had awarded a contract for a project to study and collect data on the energy footprint and energy savings potential in heavy industry. “Subsequent to the awarding of the contract, the appointed service provider was liquidated and the Department’s process of replacing this provider with another provider, was unsuccessful”.[1] It is important to note that delays in energy data study was also highlighted as a reason for underspending in this programme in the previous financial year, 2014/15. In addition, the study on energy data is expected to inform the future targets of the National Energy Efficiency Strategy from 2016 to 2030.


The underspending of R3.56 million or 0.06 percent in the Electrification and Energy Programme and Project Management programme is attributed to the Integrated National Electrification Programme (INEP) Non-Grid programme as stated before.


A significant underspending of 29.72 (119.18 million) per cent in the Clean Energy programme is worrisome.  According to the Department, underspending is attributable to projects which could not be finalised by the end of the financial year as anticipated. Such projects include an independent technical audit, monitoring and evaluation of energy savings achieved from the implementation of the municipal EEDSM as well as the late completion of the procurement process for the implementation of the NSWHP.In the previous financial year, this programme had an underspending of 58 per cent and this was mainly attributable to the changes in the NSWP contracting model, such as the termination of the contract with Eskom.  


Table 1: Review of expenditure performance during the period 2011/2012 – 2015/16


 Expenditure Performance During the Period 2011/2012 – 2015/16









Under expenditure

Under expenditure

Under expenditure

Under expenditure

Under expenditure












R26.6 Million


R75.5 Million


R26.2 Million


R1.2 Billion


R125.5 Million




100% = Good


Below 90% = Bad


90 -99% = Average



3.1 Programme performance


As indicated in the preceding section, the Department has six programme areas, namely - Administration; Energy Policy and Planning; Petroleum and Petroleum Products Regulation, Electrification and Energy Programme and Project Management, Nuclear Energy and Clean Energy. It should be noted that these departmental programmes have their respective sub-programmes as well. The information provided below summarises the number of planned targets per programme or branchfor the year under review and indicate whether targets were achieved or not.


Table 2: Summary of 2015/16 Annual Performance Report


Number of Annual Targets in APP

Achieved targets

Partially achieved

Not Achieved

Year to date Actual Expenditure

R 000’s

Year to date Expended %

Policy & Planning







Petroleum & Petroleum Products Regulation







Programmes & Projects







Nuclear Energy







Clean Energy





281, 783


Corporate Services





110, 758


Financial Management Services







Governance & Compliance







Office, Director General
























Source: Department of Energy Presentation, (12 October 2016)

As indicated in the above table, the Department had a total of 76 targets, and of the 76 targets 39 or 51 percent were achieved and 29 or 38 percent were partially achieved. When the Department was delivering its presentation to the Committee, areas of underperformance as well as strategies to overcome underperformance were highlighted. The Committee will monitor the implementation of the strategy.


3.2 Human Resources

On the organisational environment the Department highlighted the following:


The Department has filled the position of the Director General in October 2015. Of the two Deputy Directors General posts which were vacant, one has been filled through secondment whereas the other one has been advertised and will be filled soon. As at the end of the year under review, the DoE had a staff complement of 610 employees, with 541 full time employees and 69 contract employees. The Department has commenced with the process of reviewing the functionality of its operational structure in order to accurately respond to its mandate and the challenges facing the energy sector. Specific changes were effected during the year under review which amongst others, include the relocation of the Communications and Knowledge Management Chief Directorate from Corporate Services Branch to the Office of the Director-General.


The challenges of technical skills required in the energy Sector have continued to be of concern to the DoE. In response to these challenges; the DoE has developed a Workplace Skills Development Plan (WSP), based on the training needs of individual employees and their managers. The DoE has also offered thirty two new bursaries to serving employees of the Department. The DoE also contributed to the implementation of youth development intervention programmes such as the provision of bursaries to external applicants. Eleven external applicants within the youth programme were offered bursaries sponsored by the Chemical Industries Education and Training Authority (CHIETA) including four integrated learners, 32 interns and 15 people on learnership programmes.




The Department of Energy received, an unqualified report from the Auditor-General of South Africa (AGSA).


  1. Annual Financial Statements


As discussed earlier, by 31 March 2016, the Department had utilised R7.14 billion or 98.25percent of its 2015/16 adjusted budget and a budget balance of R125.50 million or 1.73 percent of the adjusted allocation.


The composition of the budget balance of R125.50 million is as follows:


  • Compensation of Employees                 :R 210 thousand           
  • Goods & Services                                 :R 2.29 million 
  • Transfer Payments                                :R 123 million
  • Capital Assets                                       :R 8 thousand
  • Financial Assets                                    :R 1 thousand


Table 3: Annual Financial Statements

Note: 1                                                      Major spending areas


Final Appropriation

Actual Expenditure


Expenditure as a % of final appropriation

Rand’s Thousand





Compensation of Employees





Goods and Services





Transfers and subsidies





Payments for capital assets





Payments for financial assets





Totals : Major spending areas





Source:Department of Energy Presentation, 12 October 2016



  1. Unauthorised Expenditure


The unauthorized expenditure of R14.86 million is 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 only transferred in May 2010 due to the system rejection of the banking details.A request for condonation has been submitted to National Treasury for consideration. Condonation was approved without funding.The Department presented the matter to SCOPA on 12 November 2014 and is awaiting the committee’s decision.


No unauthorised expenditure was incurred in the 2015/16 financial year.


  1. Fruitless and wasteful expenditure


During 2015/16 Fruitless expenditure to the value of R12 thousand was identified. This amount was due to interest paid for a late payment of contributions to the Government Employees Pension Fund. The matter was referred to labour relations for investigation as per the Departmental policy.During 2014/15 Fruitless and wasteful expenditure amounting to R15 thousand was identified. The payment made was in respect of interest on international membership fees.



  1. Irregular expenditure


During 2015/16 financial year irregular expenditure to the value of  R678 thousand was identified. This amount was due to the non-compliance of the procurement process. The matter was referred to labour relations for investigation as per the Departmental policy.


During 2014/15 irregular expenditure to the amount of R55 thousand was identified. This amount was due to non-compliance to procurement process



  1. Provision for disused past nuclear facilities


The table below highlights the provision for disused past strategic nuclear facilities


Table 4: Provision for disused past strategic nuclear facilities

Note: 35                           Provision for disused past strategic nuclear facilities




  Rand thousand



Provision for disused past strategic nuclear facilities

3 643 364

3 527 216

Change in provision


116 148

Transfer to NECSA

(3 643 364)




3 643 364

Source: Department of Energy Presentation, 12 October 2016


The Department had a potential liability arising from the decontamination and decommissioning of past strategic nuclear facilities as per section 1 (xii) (a) of the Nuclear Energy Act, Act No. 46 of 1999.


NECSA then submitted to Cabinet, in 2004, through the former Department of Minerals and Energy (DME), a Nuclear Liabilities Management Plan of the total nuclear liability for the nuclear facilities on the NECSA site at Phelindaba. This Plan was divided into three major stages as follows:


  • Stage 1 -Decontamination and Decommission (D&D) and waste management of all disused strategic nuclear facilities
  • Stage 2 -D&D and waste management of all remaining (currently operating) nuclear facilities i.e. operational past nuclear facilities
  • Stage 3 - Disposal of long-lived and high level waste (including SAFARI-1 Spent Fuel) when an appropriate disposal facility for such waste becomes available.


The Department carried the liability of the Stage 1 of the D& D liability for the strategic past disused – 2014/15 valued at R3.6 billion.There were ongoing disputes regarding the legal liability of the costs of decontamination and decommissioning of past strategic nuclear facilities.


To assist with concluding this long outstanding matter and to assist NECSA with the process of tabling their outstanding Annual Report, the Department sought a legal opinion in this regard.The legal opinion was sought to determine the legal liability and the funding responsibility thereof.After a lengthy process with Senior Counsel, it was concluded that the legal liability should be carried by NECSA and the funding responsibility resides with the state.

The legal opinion was shared with NECSA and AGSA – the information was used in concluding the 2014/15 and 2015/16 Annual Financial Statements of NECSA.


The legal opinion also gave clarity to the Decontamination and Decommissioning liability disclosed by DoE in their Annual Financial Statements. This resulted in the liability being transferred from DoE Annual Financial Statements and disclosed by NECSA.


  1. Auditor General of South Africa (AGSA)REPORT


The Department of Energy, National Energy Regulator of South Africa (NERSA) and the National Nuclear Regulator received unqualified audit reports from the AGSA.


5.1. Audit outcomes


The portfolio’s overall outcomes have remained unchanged. DOE, NERSA and NNR have sustained clean audits, which is commendable. NRWDI has not submitted annual financial statements for 2014-15 or 2015-16 and the audits have therefore not been finalised.


The compliance with key legislation has remained unchanged. The compliance findings, which need to be addressed, were mainly on material misstatements corrected, procurement and contract management, irregular and fruitless and wasteful expenditure.


The quality of the submitted annual performance reports has remained unchanged.  The reliability of the annual performance report has improved from the prior year.


Equalisation Fund (EQF) should continue with the engagements with Treasury to establish its legal status.


Despite the portfolio not receiving any modified financial audit outcomes, focussed intervention and commitments are still required in order to improve the current status of the overall control environment.


5.2. Assurance providers


The level of assurance provided has remained the same. Senior management did not provide the required levels of assurance in the year under review.


The internal audit and the audit committee provided assurance and contributed towards sustained key controls, particularly those relating to financial and performance management however the focus of these governance structures must be intensified in the area of compliance with laws and regulations.


The following criteria were used to evaluate the level of assurance for the Portfolio Committee:


  • Oversight role in terms of robust budget vote process, review of the annual report including the audit report, quarterly reporting; follow up on progress made by the entities to address poor audit outcomes; recommendations made in relation to key audit matters; and follow up on key matters reported in the committee’s prior year BRRR report.
  • According to the AGSA, the Portfolio committee performed in terms of the legislative oversight requirements and it robustly engages the Department and entities on its role and mandate. AGSA therefore assessed the committee as provides assurance.


5.3. Quality of Annual Performance Plan


According to the AGSA, the actual reported performance was misstated in the annual performance report submitted for CEF and SANEDI for the following significant indicators:


  • CEF - Financial sustainability, Improved safety, health and environmental compliance,
  • SANEDI - Number of reports submitted to Department of Science and Technology on energy efficiency and demand side management.


Management subsequently corrected the misstatement. Consequently, AGSA did not raise any material findings on the reliability of the reported performance information.


5.4. Other non-compliance





Non compliance

Enabling legislation:

The Board of Directors was not constituted as required by Section 16 of the Nuclear Energy Act, 1999 (Act No. 46 of 1999) (Nuclear Energy Act).

The public entity failed to inform the National Treasury of the sale transaction of 10 million barrels of strategic crude oil reserves as required in terms of section 54 (2)(d) of the PFMA.


The entity suffered material financial losses relating to 300 000 barrels of crude oil which were loaned to a service provider. The entity assessed the crude oil as irrecoverable to be written off. This resulted in non-compliance with section 51(1)(c) of the PFMA.


The purchase of 10million litres of diesel led to irregular expenditure –R80m

Root cause

The executive authority did not appoint board members timeously to fill the vacancies left by board members who resigned or who’s terms ended to ensure compliance with the Nuclear Energy Act

Inadequate review and monitoring of compliance with applicable laws and regulations.


Reasonable due care was not exercised by the accounting authority prior to entering into significant contracts



5.4. Additional AGSA interactions to help improve outcomes






We had several meetings with the DOE and NECSA to determine who is responsible for the decontamination and decommissioning liability for the operational strategic nuclear liability associated with the operation of the Safari 1 research nuclear reactor (stage2). The DoE approached senior council to obtain legal opinion in this regard. The legal opinion indicated that NECSA is responsible for the decontamination and decommissioning liabilities for both the historical strategic nuclear facilities (stage 1) as well as the current liabilities for the strategic operational facilities should be accounted for by NECSA. In addition, the legal opinion also stated that the state is responsible to fund these liabilities. The Minister of Energy then issued a letter to DoE, National Treasury and NECSA in this regard requesting NECSA to disclose the Phase 1 and Phase 2 liability in their annual financial statements.

Interactions were held with the management of SANEDI with regards to improving the annual performance plan as the indicators did not meet the SMART criteria in the 2014-15 financial year.


The inclusion of both the stage 1 an stage 2 liability in the annual financial statements of NECSA resulted in the entity achieving an unqualified financial opinion for both the 2014-15 and 2015-16 financial years.

Management updated the annual performance plan for the 2015-16 to ensure that the indicators are SMART.





  1. Performance assessment


  • The DPME emphasised that the Department of Energy, in line with the Cabinet Lekgotla recommendations must submit the revised Integrated Energy Plan and the Integrated Resource Plan within the 2016/17 financial year, as the lack thereof continues to create uncertainty in the energy market.
  • The development and implementation of a Gas Infrastructure Master Plan need to be fast tracked. Progress on the gas to power initiative is slow as the conversion of Open Cycle Gas Turbines (OCGT’s) from diesel to gas must be accelerated and have clear timeframes in place.
  • The National Coal Policy with regulations that will include a strategy to secure coal supply is lagging behind, there is thus a need for the Department to fast track policy development.
  • A funding model for upgrading existing refineries is behind the MTSF target of 2015/16.
  • Funding for key infrastructure projects through the fiscus remain constrained under the current economic environment.
  • Development towards firmer commitments and clearer private sector participation proposals are required at least for key large infrastructure projects in the energy space.
  • Although DoE exceeded its target of 12 percent by 11.7 percent on percentage of energy efficiency improvement in 2015/16 financial year, new commitments/ targets for the remainder of the MTSF is required.
  • Significant progress has been made by DoE in the installation of solar home systems. To date the Department is sitting at 39 700 against a target of 105 000 by 2019.
  • Progress on publishing energy balances for 2013 is lagging behind since the Departments missed the March 2016 deadline. This might impact on the timeous publications of subsequent energy balances to come.
  • Some of the MTSF indicators such as establishment of an independent system operator and an indicator to improve governmental support for combating illegal use of electricity has been removed from the reporting template making it difficult to monitor progress as per the MTSF
  • DPME commended the Department on the successful implementation of the REIPPP, indicating that more than R13billion of funding was supported by the Industrial Development Corporation (IDC). It attracted just under R200 billion foreign direct investment, which has resulted in 6 327 MW of renewable energy procured thus far.


  1. Recommendations from the DPME


  • It is recommended that the Department produce a recovery plan for the indicators where target dates have passed.
  • Proper channels for refining the MTSF indicators were opened but the Department never refined their MTSF target. It is therefore recommended that the Department adheres to the Cabinet processes.Including aligning the MTSF and the Nine Point Plan, particularly on the Solar Water Heater commitments
  • The Department should highlight when submitting the quarterly reports to the Cabinet, any blockages hindering or delaying progress and to act on the recommendations by Cabinet timeously.
  • In addressing poor attendance with regard to participation in the outcome 10 implementation forums;  attendance is crucial for the coordination and collaboration of the sector’s efforts and work towards achieving the vision of the National Development Plan (NDP) on ensuring environmental sustainability




  • Members were in agreement that the NECSA and SANEDI can improve their audit performance to the level of receiving unqualified/clean audit reports.
  • Members stated that the Equalisation Fund (EQF) is an issue which needs to be further discussed in more detail.
  • According to the AGSA, the Accounting Authority is vested in the Board of Directors of an SOE. According to AGSA if the Accounting Authority is unable to ensure that its judiciary responsibilities is carried out, then the Minister of that specific SOE must intervene.
  • The AGSA highlighted that one of the challenges at the NECSA might have been due to the number of vacancies within their finance section.
  • PetroSA has an obligation to rehabilitate and abandon its offshore and onshore operations valued at R10, 7 billion which is currently under-funded by R8, 8 billion. In terms of the recently promulgated National Environmental Management Act, 1998 (Act No. 107 of 1998) (NEMA), PetroSA is required to have the rehabilitation liability fully funded within the next eight months. Currently there are challenges with funding this gap due to PetroSA’s weakened financial position. The holding company (CEF SOC Limited) has committed to assist PetroSA through various support and oversight mechanisms to close the funding gap. In addition, PetroSA is working closely with the regulator (South African Agency for Promotion of Petroleum Exploration and Exploitation) to ensure that PetroSA discharges its responsibilities as required by NEMA.
  • A dedicated project team consisting of various disciplines i.e. technical, legal, finance etc. has been formed to address the quantum of the abandonment provision and funding thereof.
  • Subsequent to year-end, the Minister of Energy raised specific concerns around the Strategic Fuel Fund (SFF) and directed that a thorough investigation be conducted of SFF contracts from the 2014-15 financial year to date. This review will include all contracts and transactions entered into in terms of the Ministerial Directive issued to the SFF, inclusive of the Strategic Stock Rotation and Storage and Leasing Agreements concluded. This process will establish whether the transactions were implemented in accordance with conditions as set out in the Ministerial Directive and also whether the due process followed was above board. Any lapse in governance processes or irregular actions will be investigated. However, Members raised concern that there is no timeframes with regard to the finalisation of this investigation.
  • The SFF failed to inform the National Treasury of the sale transactions of 10 million barrels of strategic crude reserves. However, 1, 1 million barrels could not be sold as it has to remain in the storage facility, i.e. SFF thus did not have 10 million barrels to sell, but 8, 9 million barrels.According to AGSA there is a clause in the contract between the SFF and the other party, that in the event of an emergency, SFF will be able to buy back the barrels, at the prevailing prices.Members further raised concern regarding the mandate of the SFF. The understanding is that it is mandated to hold strategic fuel stock not to sell.
  • Members highlighted that the issue of concern is not “at what price the oil was sold”, but rather more “the time it was sold”.
  • SFF suffered material financial losses amounting to R60 million relating to 300 000 barrels of crude oil which were loaned to a service provider and are likely to be written off. The company to which SFF sold the 300 000 barrels is EnviroSure. AGSA confirmed that EnviroSure does have other contracts with the SFF.
  • The CEF Group has been instructed by the Minister to fill all critical vacancies as a matter of urgency.
  • NECSA’s board of directors was not constituted as required by section 16 of the Nuclear Energy Act, 1999 (Act No. 46 of 1999).
  • Members raised concern regarding the decontamination and decommissioning liability for the operational strategic nuclear liability associated with the operation of the Safari 1 research nuclear reactor.
  • Members pointed out that the business model of the NECSA need to be addressed taking into consideration, especially relating to the possibility of its role in nuclear expansion.
  • Members were informed that the report on PetroSA’s R14.5 billion impairment is finalised. However, the Department did indicate that they have not had the opportunity to scrutinize the report.
  • Members pointed out that the feedstock issue of PetroSA’s GTL plant in Mosselbay remains a challenge.
  • Challenges experienced by developers who would like to generate their own power and include transmitting the power to third parties across networks owned by licences were identified by the Department. Consequently, NERSA has concluded the process of developing the necessary rules for third party access at the same time as the Department is putting the necessary policy framework in place.
  • The R200 million in the budget (under Nuclear) of the Department has been used for preparatory work relating to the Nuclear New Build programme.
  • The Department committed to a process that is transparent and promotes good governance in the procurement of the Nuclear New Build Programme. As such the Department will utilise processes similar for the evaluation of proposals and/or bids as that of the Independent Power Producers.



It is recommended that the Minister of Energy:


  1. Subsequent to its finalisation, brief the Committee on the outcomes of the investigations of all the Strategic Fuel Fund contracts from 2014/15 financial year.
  2. Conduct robust oversight and continuously update the committee on the performance of the entities reporting to the Department.
  3. Ensure that the Department of Energy assist the South African Nuclear Energy Corporation and the South African Nuclear Energy Development Institute in receiving unqualified audit reports.
  4. As a matter of urgency, ensure that all critical posts in the State Owned Entities are filled.
  5. Update the Committee on the decontamination and decommissioning liability for the operational strategic nuclear liability associated with the operation of the Safari 1 research nuclear reactor, during the 2nd quarter of 2017.
  6. Ensure the finalisation by the National Energy Regulator of South Africa of the rules for third party access as well the finalisation of the necessary policy framework related thereto by the Department of Energy.
  7. Ensure that challenges related to the maximum retail price of liquefied petroleum gas are resolved by 2017/18 financial year.
  8. Update the Committee on the recommendations submitted to Cabinet regarding the roles and responsibilities of Eskom, South African Nuclear Energy Corporation and the Department of Energy on the new nuclear build programme.
  9. Update the Committee on a regular bases regarding the nuclear procurement process.
  10. Present to the Committee the finalised Integrated Energy Plan, in the 4rd quarter of 2016/17.
  11. Present to the Committee the Integrated Resource Plan, in the 1st  quarter of 2017/18.
  12. Present to the Committee the Gas Utilisation Master Plan, in the 1st quarter of 2017/18.
  13. Ensure that the new energy efficiency target for the remainder of the MTSF is set.
  14. Ensure that the Department commits to outcome 10 of the MTSF and comply with the Department of Planning, Monitoring & Evaluation requirements.
  15. Subsequent to the adoption of the Integrated Resource Plan and Integrated Energy Plan by Cabinet, the DoE must re-engage the Committee with legislative proposals for the reform and restructuring of the electricity sector.


  1. Appreciation


The Committee would like to express its gratitude to the Minister, Hon T Joemat-Pettersson, the Deputy Minister, Hon TC Majola, the Director-General, Mr T Zulu and the executive management team (Team Energy) of the Department of Energy, the Chief Executive Officers (CEOs) of the respective state-owned companies reporting to the Department of Energy, the Office of the Auditor General of SA (AGSA) and the Department of Planning, Monitoring and Evaluation (DPME), and the parliamentary officials supporting the Committee for their hard work and dedication during this process. 


Report to be considered.



[1]Department of Energy, (2015/16)


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