Report of the Portfolio Committee on
Energy on its Introductory Content-Based Workshop, 11-13 August 2009
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
- The Department of Energy
- Eskom Holdings Ltd
- Pebble Bed Modular Reactor
(Pty) Ltd (PBMR)
- National Energy Regulator of South Africa
- Energy Distribution Holdings
- South Africa Nuclear Energy
2. Objectives of 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
Department of Energy briefed the Committee on its Strategic Plan
2009-10/2011-12 as tabled in Parliament, and referred to the Committee.
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.
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
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.
facing the EDI
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
- The inconsistent
- 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
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.
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
Plans for the immediate future comprise the following:
- Continuing to work with the
Portfolio Committee on Energy to create an enabling restructuring
- 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
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.
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
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
- 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
- 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.
organisation has faced some challenges in the three regulated industries. These
- Security of supply
- Ensuring affordability of
electricity to the indigent through Free Basic Electricity and inclining
- The regulation of piped gas
activities not specifically catered for in the Gas Act
- The cost of investing in the
- 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
- As an organisation, the
recruitment and retention of staff remain challenges.
3.3.4 Plans for the
Some of NERSA’s
plans (across all regulated industries) for the future comprise the following;
- The inclusion of Independent
- 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
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.
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.
Highlights: Plans for the 2010 FIFA Soccer World Cup
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
- 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.
industry has witnessed a fundamental shift in capacity the past few years, from
abundant and cheap electricity to a constrained reserve margin and increasing
3.4.4 Build Programme
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.
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).
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.
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.
is on assisting Government meet security of supply, as well as facilitating
skills development in the energy sector.
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
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
126.96.36.199 Vision 2020
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.
involves a portfolio of projects that aim at ensuring sustainability of current
operations, security of supply through growth, and working towards industry
highlights on the key strategic focus areas
- Sustainability Initiatives –
- 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)
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.
- 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.
- 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
- National Nuclear Manufacturing
Centre aims to facilitate industrial localization in Eskom nuclear new
- 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)
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
- 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
- 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
- A Customer Consortium with
PetroSA, Sasol, BHP Billiton, Anglo, ArcelorMittal and Royal Bafokeng
4. Overview of
4.1 Department of
- The Committee expressly voiced
its concern that the Department had made a briefing that was not
- 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 Department was then
requested to come back with a new presentation on the week of 24-28 August
- 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
- 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.
- 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.
- 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.
- 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
- The recent much publicised
issue surrounding PetroSA’s Risk Manager is before the courts. His
utterances in the media are however, regrettable.
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
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
- 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
- Assess the extent of
transformation in the nuclear industry.
- Assess the safety levels of
- 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.
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.