ATC190705: Report of the Portfolio Committee on Mineral Resources and Energy on the Annual Performance Plan for 2019/20 and Budget Vote No. 26 of the Department of Energy, Dated, 05 July 2019

Mineral Resources and Energy

Report of the Portfolio Committee on Mineral Resources and Energy on the Annual Performance Plan for 2019/20 and Budget Vote No. 26 of the Department of Energy, Dated, 05 July 2019  
 

1.         Introduction

 

1. Subject of the report

 

The subject of this report is to report back to the National Assembly (NA) on the Portfolio Committee on Mineral Resources and Energy's findings after evaluating and assessing the Annual Performance Budget Vote No 26 of the Department of Energy.

 

1. Background

 

Annual Performance Plans (APPs) identify the performance indicators and targets that the institution will seek to achieve in the upcoming budget year. The annual budget sets out what funds an institution is allocated to deliver services. The Annual performance plan shows funded service-delivery targets or projections. The annual budget indicates the resource envelope for the year ahead, and sets indicative future budgets over the Medium Term Expenditure Framework (MTEF). The budget covers the current financial year and the following two years.

 

At the beginning of every year, the Minister of Finance tables before Parliament, a detailed outline of the State's Budget, how much money will be or ought to be spent, on what, in that financial year.

 

Thereafter, various government Departments present their budget votes before Parliament -specifying how they intend reconciling their resources with service delivery imperatives as outlined by the President of the Republic of South Africa in the State of the Nation Address (SONA). One of the main statutory functions of Parliament is to discuss, pass and oversee the State's Budget. The Department of Mineral Resources and Energy's Budget (Vote No. 26) was referred to, for consideration and reporting.

 

In compliance with the referral by the National Assembly, the Portfolio Committee on Mineral Resources and Energy (PCMRE) held an Annual Performance Plan and Budget Vote briefing on 03 July 2019 with the Department of Mineral Resources and Energy (the Department) to consider its APP and the Budget Vote.

 

1. Objectives of the report

 

The objectives of the report are as follows:

• To describe and analyse the budget of the Department of Energy (DoE) over the 2019/20 financial year;
• To conclude on implications and make recommendations.

 

1. Mandate of the Department

 

The core business of the Department is premised amongst others on the Energy White Paper of 1998 as well as the National Energy Act, 2008 (Act No. 34 of 2008) which, amongst others mandates the Department to ensure that diverse energy resources are available, in sustainable quantities and at affordable prices, to the  South African economy in support of economic growth and poverty alleviation, while taking into account environmental management requirements  and interactions amongst economic sectors.

 

In carrying out this mandate, the Department develops legislation; undertakes programmes and projects; and in some instances, transfer resources to various implementing agencies and state owned entities (SOEs). 

 

1. Entities reporting to the Department

 

Table 1 below provides a list entities reporting to the DoE and their mandates. It is important to note that some entities have their own subsidiaries. For instance, Central Energy Fund has eight subsidiaries, such as the Petroleum, Oil and Gas Corporation of South Africa (PetroSA), Strategic Fuel Fund (SFF), Petroleum Agency of South Africa (PASA), African Exploration Mining and Finance Corporation (AEMF) and the South African Gas Development Company (iGas), amongst others.

 

Similarly, the South African Nuclear Energy Corporation (NECSA) has three subsidiaries, Nuclear Technology Radioisotopes (NTP), which supplies radiation-based products and services, Pelchem, which is a producer and supplier of fluorochemicals in the Southern Hemisphere, and Pelindaba Enterprises.

 

          Table 1: Entities Reporting to the Department and their mandates                     

Name of Public Entity	Mandate
National Nuclear Regulator (NNR)	The NNR is established in terms of the National Nuclear Regulator Act, 1999 (Act No. 47 of 1999).The act establishes the regulator as a competent authority for nuclear regulation in South Africa. The purpose of the NNR, as outlined in Section 5 of the National Nuclear Regulator Act, 1999 (Act No. 47 of 1999) is to essentially provide for the protection of persons, property & the environment against nuclear damage through the establishment of safety standards & regulatory practices.
Central Energy Fund (CEF)	To finance and promote the acquisition of research into and exploitation of oil, gas and renewable/clean energy-related products and technology.
South African Nuclear Energy Corporation (NECSA)	NECSA is established in terms of Section 3(1) of the Nuclear Energy Act, 1999 (Act No. 46 of 1999). The act provides for the commercialisation of nuclear and related products and services, and delegates specific responsibilities to the corporation, including the implementation and execution of national safeguards and other international obligations. The Nuclear Energy Policy of 2008 reinforced NECSA's mandate relating to Research and Development (R&D) and Nuclear Fuel Cycle (NFC) responsibilities.
National Radioactive Waste Disposal Institute (NRWDI)	NRWDI is a Nuclear Waste Disposal Institute established in terms of Section 3 of the National Radioactive Waste Disposal Institute Act, 2008 (Act No. 53 of 2008). The act provides for the establishment of an NRWDI in order to manage radioactive waste disposal on a national basis and to provide for its functions and for how it is to be managed.
National Energy Regulator of South Africa (NERSA)	NERSA is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA's mandate is to regulate the electricity, piped-gas and petroleum pipeline industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Municipal Finance Management Act, 2003 (Act No. 56 of 2003), the Gas Act, 2001 (Act No. 48 of 2001) & the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).
South African National Energy Development Institute (SANEDI)	SANEDI is an applied energy research institute established in terms of Section 7(1) of the National Energy Act, 2008 (Act No. 34 of 2008).

Source: DoE APP 2019/20

 

 

1. Annual Performance Plan for 2019/20

 

The Department has six programme areas, Administration, Energy Policy and Planning, Petroleum and Petroleum Products Regulation, Electrification and Energy Programme and Project Management, Nuclear Energy, Clean Energy. Below is an overview of the abovementioned programmes, including their annual performance targets as espoused in the APP and presented by the Department to the Committee. 

 

1. Programme 1: Administration

 

This programme provides overall management and administration of the DoE and ensures that SOEs that report to the Department comply with good governance principles, norms and standards, and that their corporate plans are aligned with the strategic objectives of the DoE.

 

This programme is also geared to support high–level policy prioritisation of the Department through the following:

• Conduct political oversight and accountability to Parliament.
• Providing guidance and direction for the development of strategic plans and annual performance plans for the Department and its public entities.
• Supporting and ensuring good corporate governance practices by entities reporting to the Department.

• Coordinating engagement programmes with entities through the established management structures.
• Submitting /tabling strategic plans, annual performance plans and annual reports for the Department and its public entities in Parliament.
• Ensuring effective communication between the Department and its key stakeholders, and creating awareness of the Department’s key objectives and activities through community engagement sessions.

 

Planned Targets for the Governance and Compliance:

• SOEs Strategic Plans, Corporate Plan and Shareholder Compacts submitted for approval.
• Advance energy agenda with the rest of the world and multilaterals.

 

 

1. Programme 2: Energy Policy and Planning

 

The programme seeks to ensure evidence-based planning, policy setting and investment decisions in the energy sector to improve the security of energy supply, regulation and competition.

 

Programme’s strategic objectives as per the MTSF: 

• Improved energy security.
• Improved Liquid Fuels energy security.
• Policy and Regulations to ensure security of supply.
• Bulk electrical infrastructure required for universal access to electricity.  Security of supply through additional power

 

Planned Targets

• Annual Energy Balance report
• Gas Strategy Report
• Gas Amendment Bill certified by State Law Advisor.
• Biofuels Regulatory Framework Gazetted
• Proposals of the ‘end-state’ of the electricity sector
• Proposal on the National Energy Regulator Bill certified by State Law Advisor.
• Municipal Assets Management programme roll-out framework developed
• Grand Inga Hydropower: Negotiations of the Off-take Agreement with the project developer concluded.

 

1. Programme 3: Petroleum and Petroleum Products Regulation

 

The Programme’s aims to regulate the petroleum and petroleum products industry to ensure the optimal and orderly functioning of the petroleum industry to achieve government’s developmental goals.

 

The programme include the following sub-programmes: 

• Petroleum Compliance monitoring and enforcement,
• Petroleum Licensing and fuel supply,
• Fuel Pricing and Regional Petroleum Regulation Offices.

 

Programme’s strategic objectives as per MTSF: 

• Compliance monitoring and enforcement in the petroleum sector.
• Petroleum and Liquid Fuel Sector Transformation.
• Promote Petroleum Licensing.

 

1. Programme 4: Electrification and Energy Programme and Project Management

 

Programme purpose is to manage, coordinate and monitor programmes and projects focused on access to energy.

 

The programme include the following sub-programmes:

• Integrated National Electrification
• Programme Energy Regional Offices

 

Programme and Project Management Office

• Electrification Infrastructure/ Industry Transformation/ Community Upliftment programmes and projects

 

Programme’s strategic objectives as per MTSF: 

• Access to Electricity by Households.
• Enhancement Programme and Project Management. 
• Energy Infrastructure Development Monitored

 

Planned targets:

 

• 4 Quarterly reports on additional households to be electrified with grid electrification towards the 2019/20 target of 195 000 in the National Electrification Plan.
• 4 Quarterly reports on building/ upgrading of electrification infrastructure projects towards the 2019/20 targets, as contracted with Eskom and municipalities.
• New bulk substation build
• Additional Substations upgraded
• 50 KM New MV Power lines constructed
• 50 KM of the existing MV power lines upgraded
• 20 000 additional households electrified with non-grid electrification in the           National Electrification Plan.
• 2 Reports on interventions and support provided to municipalities regarding electricity

 

1. Programme 5: Nuclear Energy

 

Purpose of the branch is to manage the South African nuclear energy industry and control nuclear material in terms of international obligations, nuclear legislation and policies to ensure the peaceful use of nuclear energy.

 

The programme include the following sub-programmes: 

• Nuclear Safety and Technology
• Nuclear Non-Proliferation and Radiation
• Security Nuclear Policy

 

The following are the programme’s strategic objectives as per Medium Term Strategic Framework:

• Improved Security of Energy Supply.
• To Strengthen the Control of Nuclear Material and Equipment
• Improved Nuclear Safety and Security
• 70% of authorization applications processed with the 8 week time period.
• Draft Decommissioning and Decontamination Policy Submitted to Cabinet.
• National Nuclear Regulator Amendment Bill submitted to Cabinet.
• Draft Radioactive Waste Management Fund Bill submitted to Cabinet.

 

 

1. Clean Energy

 

The Programme seeks to manage and facilitate the development and implementation of clean and renewable energy initiatives, as well as Energy Efficiency and Demand-Side Management (EEDSM) initiatives.

 

The programme include the following sub-programmes:

• Energy Efficiency
• Renewable Energy
• Climate Change Response, Environmental Compliance and Designated National Authority

 

The following are the Programme’s strategic objectives as per Medium Term Strategic Framework:

• Implementation of the EEDSM measures across all sectors coordinated and monitored.
• Renewable Energy.

	2018/19	2019/20
PROGRAMMES	Final ENE Allocation	Indicative Baseline	ENE Allocation	Variance
Rand thousand	R'000	R'000	R'000	R'000	%
Administration	305,329	299,108	308,264	9,156	3.06
Energy Policy and Planning	46,073	56,232	54,668	-1,564	-2.78
Petroleum & Petroleum Products Regulation	79,242	92,697	91,269	-1,428	-1.54
Electrification & Energy Prog & Prog Man	5,380,591	5,845,439	5,531,825	-313,614	-5.37
Nuclear Energy	875,486	870,269	1,045,912	175,643	20.18
Clean Energy	476,811	409,901	408,083	-1,818	-0.44
TOTAL	7,163,532	7,573,646	7,440,021	-133,625	-1.76
Administration
Ministry	42,424	35,359	34,335	-1,024	-2.90
Departmental Management	79,434	77,825	79,757	1,932	2.48
Financial Management  Services	40,539	41,809	41,291	-518	-1.24
Audit Services	8,453	8,982	8,864	-118	-1.31
Corporate Services	85,302	83,286	87,651	4,365	5.24
Office Accommodation	49,177	51,847	56,366	4,519	8.72
TOTAL	305,329	299,108	308,264	9,156	3.06

• Implementation of Energy Related Climate Change Response measures and Environmental Compliance coordinated and monitored.
• Measurement, Reporting and verification system of climate change parameters.

 

 

1. Financial information

 

This section provides an overview and analysis of the budget allocation for the Department of Energy during the 2019/20 financial year.

 

Table 2: Overall Budget Allocation for 2019\20

Source: DPMRE presentation 03 July 2019

 

Changes to the baseline which either increased or reduced the final budget allocation in Programmes were effected as follows:

• Programme 1 increase in property payment related costs, computer services costs and annual increase for salaries inclusive of a provision for vacant DDG positions.
• Programme 2 net-budget reduction of R1.56 million (2.78%) is attributable to the Compensation of Employees (CoE) budget realignment in order to align the budget with the headcount in the Programme.
• Programme 3 also affected by the CoE budget realignment, hence a net-decrease of R1.43 million (1.54%)
• Programme 4 budget reduction is attributable to reductions of INEP Municipality grant and INEP Eskom grant
• Programme 5 budget increase is as a result of upward adjustments in NECSA’s and NRWDI’s budget allocations
• Programme 6 the downward adjustment is due to CoE budget realignment.

 

        Table 3: 2019/20 –Allocation – per economic classification

VOTE 26 - ENERGY
	2018/19	2019/20
	Final Budget Allocation	Indicative Baseline	Final Allocation	Variance
Economic Classification	R'000	R'000	R'000	R'000	%
Compensation of Employees	360,075	384,278	384,278	0	0,00
Goods and Services	419,116	272,098	287,266	15,168	5,57
Transfers and Subsidies	6,378,197	6,912,485	6,763,692	-148,793	-2,15
Payments for Capital Assets	6,140	4,785	4,785	0	0,00
Interest and rent on land	1	-	-	-	-
Payments for financial assets	3	-	-	-	-
TOTAL	7,163,532	7,573 646	7,440,021	-133,625	-1.76

           Source: DPMRE presentation 03 July 2019

 

The Department is appropriated R7.44 billion for the 2019/20 financial year, with 90.91% allocated to transfer payments and the remaining balance of 9.09% for operational purposes.

 

The 2019/20 budget allocation increased by R276.49 million, translated as 3.86% compared to 2018/19 final budget allocation of R7.16 billion.

The final budget allocation reflects an overall budget reduction of R133.63 million translated as 1.76% in comparison with the indicative baseline.

 

Changes in the final allocation are attributable to:

• Goods and Services A net increase of R15.17 million or 5.57% was implemented from the indicative baseline of R272.10 million to final allocation of R287.27 million.
• The above increase is largely due to an additional allocation of R8.40 million to INEP for the development of the electrification master plan and additional allocations of R6.77 million for office accommodation related costs and for SITA license fees.
• Transfer Payments – Final budget is R6.76 billion with a net-reduction of R148.79 million being 2.15% of the baseline made up of:
• R264.60 million budget reduction on the INEP-Municipalities grant and R58.40 million reduction on the INEP-Eskom grant.

 

Budget increases were simultaneously implemented for NRWDI, R4 million, in order for the entity to achieve its mandate and NECSA R170.21 million for Stage 1 of the decommissioning and decontamination of past strategic nuclear facilities projects.

 

          Table 4: MTEF allocation and outer years indicative baselines

Programmes	2019/20	2020/21	2021/2022	Total Budget
	ENE Allocation	Indicative  Baseline	Indicative  Baseline
	R’000	R’000	R’000	R’000
Administration	308,264	327,049	344, 649	979,962
Energy Policy and Planning	54,668	57,663	60,787	173,118
Petroleum & Petroleum Products Regulation	91,269	96,401	104,289	291,959
Electrification & Energy Prog & Prog Man	5,531,825	5,350,612	6,269,953	17,152,390
Nuclear Energy	1,045,912	1,102,700	1,163,743	3,312,355
Clean Energy	408,083	440,319	465,357	1,313,759
Total	7,440,021	7,374,744	8,408,778	23,223,543
Economic Classification
Compensation of Employees	384,278	409,249	435,850	1,229,377
Goods and Services	287,266	310,800	318,393	916,459
Transfers and Subsidies	6,763,692	6,649,647	7,649,209	21,062,548
Payments for Capital Assets	4,785	5,048	5,326	15,159
Total	7,440,021	7,374,744	8,408,778	23,223,543

              Source: DPMRE presentation 03 July 2019

 

• The 1.76% net-reduction in 2019/20 is carried through to subsequent years of the 2019 MTEF period, decreasing by 7.79% in 2020/21 and by 0.92% in the outer year.
• The significant reduction in the 2020/21 year is attributable to a high reduction in the INEP-Eskom grant of R558.75 million.
• The above brings indicative allocations to R7.37 billion in 2020/21, increasing by 14% in 2021/22 to R8.41 billion. 
• Factored adjustments are:
  • Goods and Services – An increase of R13.92 million in 2020/21 was implemented, consisting of R8.75 million additional for the electrification master plan project and an upward adjustment in property related payments and SITA fees of R5.17 million.
  • In the outer year 2021/22, the goods and services budget increases by R5.19 million as budget increases for property related payments and SITA fees are carried through to this year.

 

Transfer Payments:

• 2020/21-  A net reduction of R636.78 million was implemented as follows:
  • R558.75 million reductions on the INEP-Eskom grant
  • R267.60 million reductions on the INEP-Municipalities grant
  • R179.57 million baseline increase for decommissioning and decontamination of past strategic nuclear facilities programme in NECSA and
  • R10 million increase for NRWDI’s operational activities.
• 2021/22 -  A net reduction of R82.87 million consisting of:
  • R282.32 million reductions on the INEP-Municipalities grant
  • Baseline increases of R189.45 million for NECSA and R10 million for NRWDI.

 

Table 5: 2019 - MTEF: Transfer Payments schedule

DETAILS	2019/2020	2020/21	2021/2022	Total Budget
	ENE Allocation	Indicative Baseline	Indicative Baseline
Rand Thousand	R’000	R’000	R’000	R’000
Households	480	507	535	1,522
SETAs	1,170	1,234	1,302	3,706
International Membership fees	29,478	31,099	32,809	93,386
Prg 4 - INEP Non-Grid	212,941	224,653	237,009	674,603
Prg 4 - INEP Eskom	3,374,053	3,062,738	3,820,670	10,757,461
Prg 4 - INEP Municipalities	1,863,328	1,977,364	2,131,018	5,971,710
Prg 5 - NECSA	890,431	939,419	991,088	2,820,938
Prg 5 - NNR	43,096	45,467	47,968	136,531
Prg 5 - NRWDI	47,499	49,397	51,564	148,460
Prg 6 - SANEDI	74,151	78,215	82,517	234,883
Prg 6 - EEDSM: Municipalities	227,065	239,554	252,729	719,348
Total	6,763,692	6,649,647	7,649,209	21,062,548

Source: DPMRE presentation 03 July 2019

 

 

 

 

6. Observations and findings

 

• The long awaited Integrated Resource Plan (IRP) will be finalised (gazetted) by the end of September 2019. The finalisation of the IRP will ensure policy certainty in the energy sector.
• Seventy (70) percent of electricity generation in South Africa is from coal and this is going to be the case in the foreseeable future.
• The Minister stated that the focus should be on working towards the realization of a diversified energy sector in which there is a supply of various types of energy.
• The lifespan of the Koeberg Nuclear Power Plant is 2024. There are plans to extend the lifespan by 20 years, to 2045.  This is to give government the opportunity to explore new nuclear energy options
• It was suggested that smaller nuclear power plants might be an option to consider for South Africa than focusing on big nuclear plants. The Minister agreed and indicated that the draft IRP is in fact considering these options.
• The National Development Plan proposed that government makes a decision on building a new petroleum refinery. There is consensus that indeed a new refinery is needed. The Minister stated that the process is currently “stuck’, relating to issues of the location of the plant. Government wants it to be located in Coega, but the investor has identified Richards Bay as its preferred location.
• Government is in the process of opening a Liquefied Natural gas (LNG) plant in Coega, where it will have access to the PetroSA plant in Mosselbay, with the intention of creating a gas sector in the country.
• The Minister acknowledged that “all the SOEs reporting to the Department of Energy are in trouble”. Examples include uncertainty as to where PASA belong – either Energy or Mineral Resources. Whose interest is NERSA looking after, such as the public’s or Eskom? PetroSA’s main challenge is that there currently is no sustainable feedstock for the Mosselbay Gas-to-liquid plant. For PetroSA to survive, it has to find the feedstock and/or diversify its products/business. 
• On fuel prices (petroleum), the Department will be reviewing the price formulation to possibly identify areas where South Africans could be cushioned against fuel price increases.
• South Africa is one of the global leaders in the production of medical radioisotopes (nuclear medicine) through NTP, NECSA subsidiary.  
• On the issue of buying electricity from the renewable energy Independent Power Producers (IPPs), the Minister stated that the Bid Windows 1 to 3.5 and to a certain extent Bid Window 4, will have to be revisited to address issues relating to its costs. It was stated that Eskom buy electricity from the IPPs at a higher price and sell it at lower price. For instance, buy for R2.26 per kilowatt-hour (kWh) and sell it at R0.89 kWh.
• Governance issues relating to the Central Energy Fund and its subsidiaries is major concern for the department.
• The storage of renewable energy remains a challenge and it is an area which Research and Development (R & D) in South Africa need to look at.
• Corrupt activities might be taking place at the department with regard to the issuing of petroleum licenses – especially at the regional offices. The Minister stated that employees need to undergo training on ethics and ethical leadership. The Minister acknowledged that this is not a deterrent, but it speaks to the consciousness of these employees. A huge percentage of the department’s budget, 91.91 percent, is allocated to Eskom and municipalities (and other departmental agencies) through the Integrated National Electrification Programme (INEP). Members raised concern as to how the department is tracking whether the funding given to Eskom and the municipalities are utilized as intended. According to the department, accountability measures have been put in place. The department stated that the municipalities have to submit business plans – which identifies areas to be addressed - which are signed-off by the Accounting Officer of a municipality. This is also applicable to Eskom. The department further stated that the funding is given in tranches, such as quarterly.
• A concern was raised about the illegal connection of electricity and the fact that the government has no plan to respond to this issue.
• The Committee is concerned that Eskom is reporting to the Department of Public Enterprises not the DoE. The DoE has no jurisdiction on Eskom, whilst Eskom is the main supply of electricity in South Africa and the bulk of the DoEs budget is transferred to it.  
• On the Grand Inga Hydropower Project, the department stated that the country is a signatory to the project, thus it is a commitment which the country is required to fulfil.
• The Committee resolved that it needs to arrange for 2-3 day workshop, where the department and all entities reporting to it are invited. Members further agreed that other stakeholders such as the Department of Public Enterprises, Eskom, Department of Cooperative Governance and Traditional Affairs, South African Local Government Association (SALGA) need to be invited as well. 

 

7. Conclusion

 

The Portfolio Committee on Mineral Resources and Energy will continue to fulfil its Constitutional mandate. It is guided by the Parliamentary rules in conducting the oversight on the functioning of the Department of Mineral Resources and Energy. This is done to ensure proper and effective functioning and compliance with the legislation and policy requirements.

 

8.         Recommendations

 

Having considered the Budget Vote No 26 of the Department of Energy, the Portfolio Committee on Mineral Resources and Energy recommends that the House support the Budget Vote 26: Energy and further recommends that,

 

The Minister of Mineral Resources and Energy, within the current financial year:

1. Present to the Committee the approach towards the finalisation of the Integrated Resource Plan (IRP) and the Integrated Energy Plan (IEP), including the restructuring of the energy mix.
2. Prioritise and address governance challenges which exists at Central Energy Fund and its subsidiaries.
3. Ensure a decision on the location of the proposed new oil refinery is reached.
4. Address the issue of various energy technology costs, cost implications currently and in the future.
5. Ensure that measures are in place to address issues of corruption within the Department’s petroleum licensing units.  
6. Prioritise the review of the fuel price formulation.
7. Present the legislative programme of the Department for the 2019/20 financial year. 
8. Ensure the finalisation of the ‘end state’ of   the South African electricity sector proposals.

  

 

Report to be considered.