Report of the Portfolio Committee on Energy on its Introductory Content-Based Workshop, 11-13 August 2009

 

1. Introduction

 

The Portfolio Committee on Energy in attempting to strengthen its collaboration with the newly formed Department of Energy, its entities and key-role players, held a two-day introductory workshop on 11-13 August 2009. The separation of the two Departments (Minerals and Energy) also impacts on the knowledge base of the Members of Parliament to this new Committee. The Committee, in its efforts to enhance Members’ insights into the energy sector, held briefing sessions, introductory yet content-based in nature, which provided the appropriate introduction to key concepts and terminology in the energy sector. The collective of stakeholders, comprising the following contributed to the workshop:

 

  • The Department of Energy
  • Eskom Holdings Ltd
  • Pebble Bed Modular Reactor (Pty) Ltd (PBMR)
  • National Energy Regulator of South Africa (NERSA)
  • PetroSA
  • Energy Distribution Holdings (EDI)
  • South Africa Nuclear Energy Corporation (NECSA)

 

2. Objectives of the workshop

 

The objectives of the workshop encompassed the following:

 

  • To introduce, in general, Members of the Committee to the sector.
  • To enhance members’ understanding of the operations of the newly formed Department and strengthen the oversight capacity of the Committee to deal with matters in this regard.
  • To hear the Department of Energy on it Strategic Plan (2009-10/2011-12)
  • To assess the progress made, as well as challenges facing the energy sector in the country.

 

3. Summary of submissions

 

3.1 Briefing by the Department of Energy on its Strategic Plan 2009-10/2011-12

 

The Department of Energy briefed the Committee on its Strategic Plan 2009-10/2011-12 as tabled in Parliament, and referred to the Committee.

 

The Committee expressed its concern over the Department’s presentation, which the Members felt did not provide enough information on the Strategic Plan. There were further concerns with what the Members of the Committee saw as conflicting information, when the Department gave a briefing on the progress made with the setting up of the new Department of Energy. According to the presentation, the new Department will only become fully operational in March 2010. The Committee had previously been informed (Budget Vote briefings 2009) that this would happen no later than August 2009.

 

The Department was instructed to come back to Parliament on 26 August 2009 to brief the Committee on the Strategic Plan 2009-10/2011-12, as well as to provide clearer information on the restructuring. The Chairperson of the Portfolio Committee would raise this issue with the Minister of Energy.

 

3.2 Electricity Distribution Industry Holdings

 

3.2.1 Profile (Summary)

 

EDI Holding is fully-owned by the state. It was established in 2003 to restructure the electricity distribution industry in South Africa. The main object of the company is to restructure the electricity distribution industry and invest into financially viable independent Regional Electricity Distributors (REDs) in the country, in accordance with national government policy so as to ensure a more effective and efficient electricity distribution industry capable of providing affordable and accessible electricity to consumers. As at 2008, the revenue of the company stood at R42 billion, with 9.2 million customers, and a staff complement of 31 000. The presentation included the introduction of the company’s Board of Directors, as well as its Executive Committee.

 

3.2.2 Challenges facing the EDI

 

The Committee was told of some of the challenges facing the EDI, which include:

 

  • The current industry structure is highly inefficient owing to fragmentation.
  • There is an inequitable treatment of consumers across the country, with over 2000 tariffs, which vary significantly.
  • The inconsistent electrification performance.
  • The slow and inconsistent roll-out of Free Basic Electricity (FBE).
  • There is a worrying shortage of staff and skills.
  • The electricity distribution grid has been put under pressure by lack of investment and recapitalization of its ageing infrastructure.

 

3.2.3 RED Creation Progress (Highlights)

 

In October 2006, Cabinet approved the following:

 

  • That a roadmap will be put in place to move from the current scenario into the future industry scenario.
  • That electricity distribution industry restructuring legislation will be developed;
  • A national electricity pricing system will be developed; and
  • 148 (out of 187) municipalities have to-date signed the Accession to Cooperative Agreement.

 

3.2.4 Legislative Update

 

A Parliamentary process to consider the Constitution Seventeenth Amendment Bill is imminent. The proposed Bill seeks to amend section 156 of the Constitution by inserting a new subsection in terms of which national legislation may be passed to further regulate the executive authority of municipalities in respect of local government matters listed in Part B of Schedule 4 and Part B of Schedule 5 of the Constitution.

 

3.2.5 Plans for immediate future

 

Plans for the immediate future comprise the following:

 

  • Continuing to work with the Portfolio Committee on Energy to create an enabling restructuring environment.
  • To significantly improve the state of municipal readiness.
  • Develop and refine solutions for stakeholder concerns on the basis of which negotiations can be entered into and concluded.
  • Continued stakeholder engagement to ensure that the restructuring process is accelerated.

 

3.3 National Energy Regulator of South Africa (NERSA)

 

3.3.1 Profile (Summary)

 

The National Energy Regulator of South Africa was established on 1 October 2005 in terms of the National Energy Regulator Act (Act No. 40 of 2004) to regulate the electricity, piped-gas and petroleum pipelines industries. Its mandatory intent includes the implementation of energy legislation, regulations and implementation of rules efficiently and effectively. It is expected to proactively take necessary regulatory actions in anticipation of and in response to the changing circumstances in the energy industry.

 

NERSA has nine Regulator Members, five of which are appointed on a full-time basis and four on a part-time basis. These appointments are made by the Minister of Energy. It has nine subcommittees. The staff complement currently stands at one hundred and sixty eight (168).

 

3.3.2 Reflections on progress made in the last five years

 

Over the past five years, NERSA has made some progress in the three industries it regulates, and has grown as an organisation. The following are some of the highlights:

 

  • The approval of the Renewable Energy Feed-In Tariffs (RETIF) and guidelines.
  • Completion of the licensing of the existing facilities in the piped-gas and petroleum industries.
  • The approval of the piped-gas Tariff Guidelines.
  • The approval of the future Petroline tariffs for five years.
  • As an organisation, the successful transition from the National Electricity Regulator (NER) to National Energy Regulator (NERSA) remains a landmark achievement.

 

3.3.3 Challenges

 

The organisation has faced some challenges in the three regulated industries. These include;

 

  • Security of supply (electricity).
  • Ensuring affordability of electricity to the indigent through Free Basic Electricity and inclining block tariffs.
  • The regulation of piped gas activities not specifically catered for in the Gas Act
  • The cost of investing in the gas industry.
  • Security of supply of petroleum to the inland stream.
  • Some of the processes are dependent on other role players and therefore outside of the organisation’s control. For example, the legislative process around the restructuring of the Electricity Distribution Industry has not been completed, just as the Electricity Regulation Act has not been promulgated.
  • As an organisation, the recruitment and retention of staff remain challenges.

 

3.3.4 Plans for the future

 

Some of NERSA’s plans (across all regulated industries) for the future comprise the following;

 

  • The inclusion of Independent Power Producers.
  • Finalisation of the restructuring of the EDI.
  • Increasing the capacity from Renewable Energy sources.
  • Licensing frameworks for CNG, LNG and other activities new to the South African gas market.
  • Monitoring the construction of large new infrastructure for Security of Supply concerns.
  • As an organisation, NERSA plans to revise and strengthen the implementation of policies relating to recruitment, development, retention and deployment of its human resources.
  • Increasing NERSA’s profile for the benefit of the industry and its customers.

 

3.4 Eskom Holdings Limited

 

3.4.1 Profile (Summary)

 

Eskom’s core business involves generation, trading, transporting and retail of electricity in South Africa, within the Southern African Development Community (SADC) countries and in the rest of African countries that are connected to the South African power grid.

 

Eskom is one of the top thirteen utilities in the world by generation capacity and among the top nine by sales. It generates approximately 95 % of electricity used in South Africa and 45% of electricity used in Africa. Its total assets are currently worth R171 181 million. The staff complement at Eskom stands at 35 404.

 

3.4.2 Special Highlights: Plans for the 2010 FIFA Soccer World Cup

 

The key installations for the 2010 FIFA World Cup lie within the host cities and are supported by the municipalities. As part of the strategy for this event, a dedicated executive focusing on 2010 has been formed. The Eskom 2010MW project has been launched, with a dedicated team consisting of subject matter and operational specialists put in place.

 

3.4.3 Progress made; and challenges faced

 

  • 168 538 new connections were done in 2007/08.
  • More than 3.6 million households electrified since 1991.
  • To date, up to 98% of municipalities are active participants in the Free Basic Electricity Roll-out strategy.
  • Amongst the challenges over the years have been persistent policy indecisions on new build for generation, ineffective industry planning, and inefficient operational risk management and contingency planning.
  • These all resulted in a low reserve margin, an unstable grid and inevitably, the power cuts experienced in recent times.

 

The industry has witnessed a fundamental shift in capacity the past few years, from abundant and cheap electricity to a constrained reserve margin and increasing cost.

 

3.4.4 Build Programme

 

Eskom’s Build Programme will seek to provide power to all of South Africa, create jobs in the total value chain, play a role as a major economic stimulus and ensure adequate power for the future. There are indications that it will be the most ambitious infrastructure investment the country has ever undertaken. 

 

3.4.4.1 Funding Requirements

 

A review of the funding model is required to address the shortfall needed to fund the capital programme. The new plant is to be funded from retained earnings, new equity and borrowings. A significant shortfall on funding the capital programme exists (R248 billion required).

 

3.4.4.2 Key conclusions

 

Eskom submitted that they believe there is emerging consensus that the new build programme should continue. The platform for a funding model to be developed should be created, so as to achieve success. This will be a success as Eskom will work with all stakeholders to resolve the funding model.

 

3.5 PetroSA

 

3.5.1 Profile (Summary)

 

The Petroleum Oil and Gas Corporation of South Africa (Pty) Ltd (PetroSA) is South Africa’s national oil company. Operating in eight African countries, it produces diesel, gasoline, kerosene and specialty products. It also produces 5 % of South Africa’s fuel needs.

 

Its focus is on assisting Government meet security of supply, as well as facilitating skills development in the energy sector.

 

PetroSA was formed in 2002 from a merger of Mossgas (Pty) Limited, Soekor E & P (Pty) Limited, and parts of the Strategic Fuel Fund Association. It currently employs 1800 people.

 

3.5.2 Current challenges

 

Amongst the number of challenges the company faces, are:

 

  • The current global recession
  • Declining feedstock reserves
  • Oil price fluctuations
  • Low funding availability

 

3.5.3 Future Plans

 

3.5.3.1 Vision 2020

 

PetroSA plans to be a sustainable, fully integrated, commercially competitive national oil company supplying at least 25% of South Africa’s national liquid fuel needs by the year 2020.

 

Vision 2020 involves a portfolio of projects that aim at ensuring sustainability of current operations, security of supply through growth, and working towards industry transformation.

 

3.5.3.2 Some highlights on the key strategic focus areas

 

  • Sustainability Initiatives – Project Jabulani
  • Growth Initiatives – Project Umthombo [a 400kbbl/d refinery that will help meet the growing South African demand till 2021].

 

3.6 South African Nuclear Energy Corporation (NECSA)

 

3.6.1 Profile (Summary)

 

 A level 3 BBBEE contributor, NECSA has a total staff complement of 1870. The Nuclear Energy Policy of South Africa mandates NECSA to, amongst other responsibilities, promote nuclear energy as an important electricity supply option, creation of framework for utilization of nuclear energy, contribution to the country’s social and economic growth,  reduction of greenhouse gas emissions as well as building the uranium value chain.

 

3.6.2 Strategy

 

  • NECSA is currently in discussions with existing enrichment companies to examine the feasibility of establishing a plant in the country as a joint venture with the corporation.
  • The Energy Policy directs NECSA to embark on a programme to achieve local conversion, enrichment and fuel capabilities, to ensure security of supply.
  • Value addition to uranium.

 

Costs

 

  • Centrifuge enrichment plant (3 MSWU per annum) R15 billion. Construction time; 5 years.
  • Conversion plant (6000 tpa) R2 billion. Construction time; 2 years.
  • Fuel fabrication plant (1000 tpa) R 2 billion. Construction time; 3 years.

 

3.6.3 Some key new projects

 

  • National Nuclear Manufacturing Centre aims to facilitate industrial localization in Eskom nuclear new build.
  • Nuclear Skills Development Centre provides training to NECSA, stakeholders and contractors in the nuclear and energy fields.
  • The Nuclear Technologies in Medicine and the Bioscience Initiative (NTeMBI) seeks to facilitate innovative application of nuclear technologies in medicine and the biosciences through research capacity development and knowledge transfer.
  • There is a proposed NECSA Visitor Centre Plan (2008-2011), which will offer a nuclear science education exhibition and more.

 

3.7 Pebble Bed Modular Reactor (Pty) Limited (PBMR)

 

3.7.1 Profile (Summary)

 

The PBMR was established in 1999 with the intention to develop and market small-scale, high temperature reactors both locally and internationally. When Eskom stopped funding the company in 2003, the government took over the responsibility in 2004. Government holds 83% of the shares at PBMR.

 

3.7.2 Some challenges: Lessons were learnt

 

  • Up until recently, there had been a lack of coordinated planning and understanding of which infrastructure was needed for a nuclear build programme, which created unrealistic expectations on schedule.
  • No maturity or readiness of national environment to host a nuclear build programme, with the Department of Energy’s implementation of the SA nuclear policy only coming in June 2009.
  • There is a need to learn from international programmes, in Europe and the United States – consortium approach.
  • There is also a need to clearly define roles and responsibilities between departments and role players.
  • Regulatory and legal frameworks must be strengthened.

 

3.7.3 New PBMR strategies

 

  • Change in product configuration – process heat and electricity generation.
  • Nuclear Licensing – new process for South Africa, agreed with the National Nuclear Regulator.
  • The company is now positioned to be South Africa’s Nuclear Engineering Design Authority.
  • Necsa is now involved in a joint venture with the other role-players to operate fuel plant at Pelindaba.
  • A Customer Consortium with PetroSA, Sasol, BHP Billiton, Anglo, ArcelorMittal and Royal Bafokeng established.

 

4. Overview of outcomes

 

4.1 Department of Energy

 

  • The Committee expressly voiced its concern that the Department had made a briefing that was not noteworthy.
  • The seemingly conflicting information (to what was told to the Committee on 9 and 10 July 2009) on the progress made in setting up the new Department of Energy also troubled the Committee.
  • The Department was then requested to come back with a new presentation on the week of 24-28 August 2009.
  • The Department must brief the Committee (during the month of September) on the Regulations on LP Gas, published for comment in 2007. This process has taken too long, and serious efforts must be made to promulgate the regulation soon.

 

4.2 EDI Holdings

 

  • The company continues to engage the private sector on the concept of Independent Power Producers.
  • A skills development forum within the distribution industry will be established in order to consolidate strategies for the recruiting, retaining and mentoring of employees. A skills Indaba with the Parliamentary Portfolio Committee will be considered so as to seek solutions on these challenges.
  • Municipalities and current distributors remain responsible to revamp the ageing infrastructure. They should be held to account, as some do pass the buck and shift this responsibility.
  • The legislative process about to begin, that of the [Seventeenth] constitutional amendment, will ensure that the implementation of the REDs takes off in earnest.
  • The lack of gender parity on the Board of the organisation was of concern to the Members. The Chairperson of the Portfolio Committee will engage the relevant people, whilst the Chairperson of the Board was requested to discuss this with the Minister of Energy.

 

4.3 Nersa

 

  • There is plenty of room for improvement as far as information dissemination strategies employed by Nersa are concerned. More must be done to ensure that advertisements calling for public comments on tariff applications reach as many people as possible, especially those outside of metropolitan areas and the poor.
  • There remains a persistent perception that what Eskom requests in tariff increment is always granted by the regulator without vigorous and well informed enquiry.
  • The draft Regulation on LP Gas was published for public comments in 2007, and awaits promulgation. See instruction to the Department of Energy under 4.1
  • The Committee still reserves the right to hear the public views on tariff hikes before or after applications are brought to the regulator. The Committee can do this without interfering with the work or mandate of the regulator.
  • The Committee would consider hosting a lecture, or a series of these, on transformative practices in the electricity industry, for the benefit of Members.

 

4.4 Eskom

 

  • Members expressed concerns on a number of issues regarding Eskom, from the cost containment strategies (e.g. short term use of coal) to moneys owed to Eskom by other countries connected to the South African grid.
  • Eskom’s representative was tasked with taking the questions back to Eskom management. The Committee resolved to invite Eskom back to Parliament for further engagement on these and other issues.

 

4.5 PetroSA

 

  • Project Umthombo will create jobs in the Eastern Cape, but will benefit other regions as the company will scout for skills.
  • The project will contribute about R1.5 billion in company taxes, annually, an obvious benefit for the country’s economy.
  • The recent much publicised issue surrounding PetroSA’s Risk Manager is before the courts. His utterances in the media are however, regrettable.

 

4.6 Necsa

 

The Committee will consider the joint invitation from Necsa and the PBMR to visit the working sites, for Members to understand the operations of the two organisations.

 

4.7 PBMR

 

The Committee will in the near future invite the PBMR to brief it further on its operations. The Committee will also consider the joint invitation from Necsa and the PBMR to visit the working sites, for Members to understand the operations of the two organisations.

 

 

5. Strategic Oversight Focus Areas (Committee) – 5- year period

 

  • To promote the design and implementation of broad based sector or industry empowerment programmes with clearly defined targets based on agreements between stakeholders.
  • Assess the impact of the Energy Efficiency Strategy of 2005.
  • Restructuring the fragmented electricity distribution industry.
  • Achieving universal access to electricity.
  • Monitor progress on the utilization of LPG.
  • Assessing the extent of investment and progress on the utilization of clean energy sources.
  • Facilitate the review of the Energy Policy.
  • Assess the extent of transformation in the nuclear industry.
  • Assess the safety levels of electrical installations.
  • Private sector participation in the electricity industry (Independent Power Producers).
  • Monitor the implementation of the Energy Act, 2008.
  • Engage stakeholders on investments in clean technology (curbing carbon emissions).
  • Assess Nuclear Policy.

 

6. Conclusion

 

The Committee will continue to invite the entities to engage them on the issues raised as well as others. Visits to some of these entities will be conducted.

 

The Committee declared the workshop a great success.