ATC200714: Report of the Portfolio Committee on Mineral Resources and Energy on the Special Adjusted Budget Vote No 34: Department of Mineral Resources and Energy, dated 14 July 2020

Mineral Resources and Energy

 

Report of the Portfolio Committee on Mineral Resources and Energy on the Special Adjusted Budget Vote No 34: Department of Mineral Resources and Energy, dated 14 July 2020

 

The Portfolio Committee on Mineral Resources and Energy (PCMRE), having considered the Special Adjusted Budget Vote 34: Department of Mineral Resources and Energy (DMRE), reports as follows(7 July 2020):

 

1. BACKGROUND

 

The purpose of this report is to report to the National Assembly (NA) on the Portfolio Committee on Mineral Resources and Energy’s findings after evaluating and assessingthe Adjusted Budget Vote No 34 of the Department of Mineral Resources and Energy (DMRE).

 

The Minister of Finance, Mr. Tito Mboweni, introduced the adjusted budget in the National Assembly on 24 June 2020 in order to provide for comprehensive COVID-19 relief measures in terms of Section 30 of the Public Finance Management Act (PFMA) and Section 12 of the Money Bills and Related Matters Act (2009) (as amended) (the Money Act). This budget will be distinct from the normal adjustment budget, usually introduced in October, due to its nature and timing.The adjustment budget includes a revised Fiscal Framework (a written instrument), a Division of Revenue Amendment Bill (sec 76) and an Adjustments Appropriation Bill (sec 77), with a schedule of votes.

 

Section 12 of the Money Act provides that, if the Minister tables a revised Fiscal Framework, the Framework must be referred to the Standing Committees on Finance (in both Houses) which must report to the respective Houses within 15 days, or as soon as possible thereafter. Once Parliament (both Houses) have passed the Revised Fiscal Framework, the Division of Revenue Amendment Bill and the Adjustments Appropriation Bill must be referred to the Standing Committee on Appropriations in the National Assembly. While the Committee on Appropriations (and other committees) may consider both amendment bills simultaneously, it may only report on the Adjustments Appropriation Bill after Parliament has passed the Division of Revenue Amendment Bill.

 

The Money Act also includes timeframes for the Minister to comment on proposed budget amendments.Section 12 (19) states that the Committee on Appropriations must report to the relevant House within 30 days after the tabling of the national adjustments budget or as soon as reasonably possible thereafter.

 

The adjustments budget will necessitate due deliberations in the Assembly but this must be done within the legislative framework. In light of this, the following is proposed -

• The Adjustments Appropriation Bill be referred to the Standing Committee on Appropriations for report but that the Bill also be referred to portfolio committees. Portfolio committees should engage the respective departments on the proposed allocations and report if necessary. Any such reports should be tabled before the relevant mini-plenaries, if scheduled;

 

1. INTRODUCTION

 

On 15 March 2020, the South African President declared a National State of Disaster in South Africa in terms of the Disaster Management Act (No.57 of 2002), following the declaration of the global COVID-19 pandemic by the World Health Organisation (WHO). Government had to act swiftly to minimise the economic impact of the pandemic, this implied a redirection of resources.

 

On 21 April 2020, the President announced a R500 billion fiscal support package that includes spending towards COVID-19 priorities. On 30 April 2020, National Treasury published the “Economic Measures for COVID-19” report, outlining and detailing the R500 billion response, as well as identifying the funding sources for the package. Part of the funding sources for this package is a R130 billion-baseline reprioritisation in the 2020/21 financial year.

 

 

 

Table 1 below depicts a breakdown of the announced economic measures.

 

Table 1: COVID-19 Fiscal Response Package

 

Responses	Rand amount
Credit Guarantee Scheme	R 200 Billion
SME and Informal Business Support Job Creation	R 100 Billion
Measures for Income Support (further tax deferrals, SDL holiday and ETI extension	R 70 Billion
Support to vulnerable households for 6 months	R 50 Billion
Wage Protection (UIF)	R 40 Billion
Health & other frontline services	R 20 Billion
Support to Municipalities	R 20 Billion
Total	R500 Billion

Source: National Treasury, (2020)

 

The Money Bills Amendment Procedure and Related Matters Amendment Act, (Act No.13of2018) states in Section 12(1) that the Minister may table “a national adjustments budget asenvisioned in section 30 of the Public Finance Management Act, (Act No. 1 of 1999)”. TheMinister of Finance on 24 June 2020 tabled an emergency supplementary budget, outlininggovernment’s financial response to the COVID-19 pandemic. It seeks to fast-track processesto provide resources to frontline services, provincial and local government, businesses andhouseholds, with a focus on the most vulnerable South Africans.

 

1. SUPPLEMENTARY BUDGET OF THE DEPARTMENT OF MINERAL RESOURCES AND ENERGY

 

 

As per the legislative requirements, the National Treasury tabled the 2020/21 budget toParliament on 26 February 2020. Government departments and entities presented theirbudgets, along with their Strategic Plans (2020 – 2025) and Annual Performance Plans2020/21 (APP) to the relevant Parliamentary Portfolio Committees in April 2020. At the time,

the country was already on lockdown due to COVID-19. Thus, it was anticipated that the budget will have to be adjusted.

 

On 15 March 2020, the President of South Africa declared a national state of disaster in terms of the Disaster Management Act, 2002 after COVID-19 was declared a world pandemic by the World Health Organisation.National Treasury later published the 2020 Special Adjustment Budget guidelines to give effect to the R130 billion baseline reprioritisation included in the President’s COVID-19 response package.The Department’s contribution towards COVID-19 response package was submitted to National Treasury in line with the guidelines. However, two bilateral meetings were subsequently convened by National Treasury and the outcome was that the Department should implement further cuts on 2020/21 budget allocation. The net change to baseline was a downward revision of R1,574 billion implemented as follows:

 

Table 2: Supplementary Budget of DMRE 2020/21

            Source: National Treasury 2020

 

 

            Table 3: Economic Classification: Net Budget Reduction

Economic Classification	Budget Reduction	Reallocations	Net Change	Net % Budget Decrease
Goods and Services	-48 721	7 012	-41 709	-7%
Transfers and Subsidies	-1 532 318	-	-1 532 318	-21%

            Source: DMRE presentation to PCMRE 07 July 2020

 

As shown in the table above, the bulk of the reductions are effected on transfers and subsidies, mainly on the Integrated National Electrification Programme (INEP). Below is a detailed explanation of the reductions.

 

3.1.       Goods and services reduction

 

A reduction adjustment of R41.7 million or 7.4% was effected on goods and services budget allocation, 44.72percent was implemented under Administration (mainly in travel and subsistence), service delivery will not be significantly affected. Non-essential reductions were implemented on core programmes mainly due to the lockdown and the staggered return of employees.

 

A total of R7 million was reallocated within goods and services to, mainly to fund mandatory inspections that were intensified.

• A virement of R6,2 million was reprioritised from Administration to augment the budget for Program 4 - Mine Health and Safety Inspectorate in response to COVID-19.
• An amount of R800 thousand was reprioritised from Energy Efficiency Projects sub-programme to Regional Programmes and Projects Management Office sub-programme within Program 5 to cushion the impact of the pandemic at the regional office level.

 

Two projects were delayed as a direct result of lockdown.

• Programme 3:  Fuel Sampling & Testing
• Programme 5: Non-grid M&V which involved the verification of installed units, since installation is delayed, verification which takes place after installation.

The delay resulted in savings in consultants and contractors’ items, hence the reductions.It is expected that the procurement processes will return to full capacity in the next month.The following programs also contributed to the special adjustment budget hence there will be some delays in the projects and activities that were planned.

• Programme 2
• Programme 6

 

3.2.       Transfers and subsidies

 

The DMRE’s 2020/21 main appropriation earmarked for transfer to public entities, implementing agencies, municipalities, households and for implementing specific programmes and projects was R7.635 billion or 82% of the total 2020/21 allocation. The INEP-Eskom grant for electrification of households, accounted for 39 percent of the total transfer payments budget, while the allocation to entities accounted for 30 percent and grants to municipalities for both electrification and energy efficiency projects accounted for 27 percent.

 

As stated earlier, a total of R1.532 billion was reduced and reprioritized from this classification towards the COVID-19 fiscal response package, mainly from Programme 5: Mineral and Energy Resources Programmes and Projects, specifically from electrification grants, INEP-Eskom and INEP-Municipalities.

 

This reduction decreased the Transfer payments’ main appropriation from R7.635 billion to R6.102 billion impacting Programmes as follows:

 

Programme 5: Mineral and Energy Programmes and Projects

• This programme started the 2020/21 Financial Yearwith a total budget allocation of R5.798 billion, 96% thereof is earmarked for transfer to public entities, implementing agencies for electrification projects, municipalities and international multilateral organizations for international membership fees.
• A Transfer payments’ reduction of R1.527 billion was approved by Treasury and implemented through the Special Adjustment Budget process.

 

Details of the implemented reductions are as follows:

 

1. INEP-Eskom grant– R1 billion reduction from the main allocation of R3 billion.

• The reduction will delay the implementation of planned bulk infrastructure projects, which are critical for laying the foundation for household connections, as well as reduce the targeted electricity connections.
• It is projected that the 2020/21 household connections target of 180,000, will decrease by 43,000 to 137,000 connections.
• The reduction will also have a significant negative impact on the Eastern Cape, Limpopo and Kwa Zulu Natal as these provinces have the largest electricity backlogs.

 

1. INEP-Municipal grant– R500 million reduction from the main allocation of R1.86 billion

• The decrease in the budget will contribute to the reduction in household connections target which is projected to decline by 43,000 connections and also delay the implementation of infrastructure projects.

 

1. SANEDI– R4.10 million reduction from the main allocation of R78.22 million resulting in a revised allocation of R74.12 million.

• The reduction is from savings for first quarter as a result of vacant positions that will not being filled due to the lock down, travel budget that will not be utilized, costs relating to venue hire and catering expenses which will be migrated to on-line platforms and Consulting fees for business development which is deferred to the following financial year.

 

1. Energy Efficiency Demand Side Management (EEDSM) grant – the grant reduces by R21.799 million or 10% of the main allocation to R196.20 million.

• The objective of the grant is to support various municipalities to reduce electricity consumption in municipal infrastructure, which has a significant positive impact on the electricity bill.
• The reduction will be applied across all municipalities that are currently receiving this grant.
• The reduction requires a reengineering and downscaling of initial plans by municipalities, thereafter, a resubmission of business plans which will delay implementation as the veracity of each revised plan has to be established by the Department.
• The downscaling of plans will negatively affect the technology advancement aspect.
• The grant includes capacity building and awareness for municipalities which will also be scaled down in the current financial year.

 

1. International Membership fees

• A provision of R1.15 million for a voluntary contribution to the International Partnership on Energy Efficiency Cooperation (IPEEC) was reduced. The IPEEC is in the process of being reviewed into an Energy Efficiency Hub to be located under G20 countries therefore, the non-payment will not compromise South Africa’s international standing as the review process is delayed by the pandemic.

 

1. Programme 6: Nuclear Energy Regulation and Management

• This programme started the 2020/21 financial year with a total budget allocation of R1.096 billion - R1.058 billion or 97% thereof is earmarked for transfer to public entities, mainly to NECSA, and international multilateral organizations for international membership fees.
• The only reduction implemented on this Programme is R5 million reduced from the NNR’s grant - from R45.47 million to a revised grant of R40.47 million.
• This reduction will not have a negative impact on the Regulator’s performance targets as it is savings from the travel budget due to the national lock-down.

 

3.3.       Notes by the Department on the adjusted budget

 

• In order to implement the President’s pronouncement regarding the government’s COVID-19 fiscal response package, funds were repurposed within the vote while a significant portion had to be surrendered for reprioritization to other departments to fund the specific activities listed in the response package.
• The impact of the surrendered funds will not only be evident in the current financial year but will impact implementation in future years as well.  This is specifically the case for electrification projects as the nature of infrastructure and pre-engineering activities related to bulk infrastructure projects has an impact on delivery in future years.
• National Treasury has emphasized that a guarantee cannot be provided that the reduced amounts will be reinstated in the next budget process as the allocation of resources is guided by the prevailing priorities of government.
• However, the DMRE will motivate for additional funds where necessary during the following budget processes.

 

1. Observations and findings

 

1. The DMRE budget has been reduced by R1.5 billion, mainly from programme five. Reductions are the Integrated National Electrification Programme, which is implemented by Eskom and Municipalities. The reduction will delay the implementation of planned bulk infrastructure projects, which are critical for laying the foundation for household connections, as well as reduce the targeted electricity connections. The household connections target of 180,000, will decrease by 43,000 to 137,000 connections.
2. This is a concern for the committee as the INEP is a key service delivery programme.
3. The reduction in INEP will also have a significant negative impact on the Eastern Cape, Limpopo and Kwa Zulu Natal as these provinces have the largest electricity backlogs.
4. On the decrease on the INEP, the department pointed out that for example, over the years the Eskom has rolled-over funding – on average R1b a year. The department reminded members that the current rollout of this programme does not only focus on electrification of households, but also provision of bulk infrastructure, which are implemented over a number of financial years. Some of the reasons for the delays in these programmes include: land acquisitions and environmental impact assessments etc.
5. The department further assured the committee that the cuts will affect those projects which are not ready for implementation. The department also stated that funds were not moved across provinces, and that the cuts were done equally across provinces.
6. According to the department they have developed a strategy to assist municipalities, where they have a number of forums to engage on challenges experienced. The department also engaged with the Municipal Infrastructure Support Agent (MISA) to assist with various interventions.
7. On the Goods and services budget, the Department stated that they have had a number of discussions and deliberations on this budget, with all branch heads, where they had to make cuts which they could have saved on, hence the revised budget of R524 million. The department assured members that every effort was made to reduce the non-core activities, without affecting the major deliverables.
8. The SA National Development Institute (SANEDI) has seen a R4.10 million reduction from the main allocation of R78.22 million resulting in a revised allocation of R74.12 million. The department assured members that SANEDI did prioritise critical positions and that its current adjusted budget will cover its operational activities.
9. Members raised concern regarding the use and role of consultants by the department.
10. Members commended the budget increase to the Mining Health and Safety Council (MHSC), in order to strengthen the council’s oversight function over the mining industry.

 

 

 

 

 

1. Recommendations

 

Informed by its deliberations, the Committee recommends that the House, request that the Minister of Mineral Resources and Energy should:

 

• Consult with the Minister of Finance for additional funding of the Integrated National Electrification Programme (INEP), prior to the September 2020 budgeting processes, as this programme is funding one of the few service delivery programmes in the Department, which addresses much needed electrification projects to South African households.
• Ensure that the Department has a mitigation strategyto ensure Eskom and the municipalities spends the Integrated National Electrification Programme (INEP) grant on time, to avoid funds being reallocated or rolled over.
• Increase and promote mine inspections, relating to the adherence of government COVID-19 regulations, rules and guidelines, as the increase in infection rates in the mines can have serious consequences for the mining industry.

 

6.         Conclusion

 

The Portfolio Committee on Mineral Resources and Energy, having considered the adjusted budget, hereby approves the Special Adjusted Budget Vote 34: Department of Mineral Resources and Energy (DMRE).

 

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.

 

 

Report to be considered.