Report of the Portfolio
Committee on ENERGY on budget vote 28: ENERGY, DATED 13 APRIL 2010
The Portfolio Committee on Energy, having considered the
Strategic Plan [2010-11/2012-13] and Budget Vote 28: Energy, reports as
follows;
Introduction
On 15, 16 and 23 March 2010, the Portfolio Committee
on Energy was briefed by the Department of Energy on the following:
·
The Department of Energy Budget Vote 28 and Strategic Plan
(2010-11/2012-13).
·
Human resources and general staffing structure of the newly
set-up Department of Energy.
Overview
of Budget Vote 28 and Strategic Plan
The Department of Energy’s mandate is to ensure secure
and sustainable provision of energy for socio-economic development; whilst the
mission is to regulate and transform the sector for the provision of secure,
sustainable and affordable energy. The strategic plan of the Department seeks
to deliver results along eight strategic objectives that include promoting
energy security through reliable, clean and affordable sources; universal
access to energy sources, transformation of the energy sector, and
strengthening the operations and management of the Department. The eight
strategic objectives are:
The strategic plan of the Department outlines in
detail the objectives, measures, Medium Term Expenditure Framework targets and
initiatives of the four departmental programmes, namely;
·
Programme 1:
Administration
·
Programme 2: Hydrocarbons
and Energy Planning
·
Programme 3:
Electricity, Nuclear and Clean Energy
·
Programme 4:
Associated Services
The purpose of the following State Owned Entities
reporting to the Minister of Energy is to provide related services in support
of the Department’s mandate through funded and non-funded statutory bodies and
organisations.
Regulators
·
National Nuclear
Regulator
·
National Energy
Regulator of
Research and Development
·
Central Energy Fund
– CEF (PTY) LTD
·
South African
Nuclear Energy Corporation
Other
·
Electricity
Distribution Industry Holdings
The Strategic Plan of the Department of Energy was
informed by Government Priorities, the State of the Nation Address (2010),
National Budget Speech (2010), the Budget Vote Speech (2009) and sector
specific challenges.
Organisational
Environment
·
The budget split
stands at a 30/70 ratio between the Department of Energy and the Department of
Mineral Resources for support services, although functions have been
duplicated.
·
The Department has
an interim structure that ensures that all critical positions to establish a
new department are filled immediately.
·
There has been
great cooperation between State Owned Entities, who have assisted in the
setting up of the new department.
·
The first phase of
capacitating the Department of Energy has been completed (the matching and
placement of the former Department of Minerals and Energy personnel).
·
The second phase
(advertising and filling of vacant posts) has begun and this should be
completed by the end of the first quarter.
·
Additional capacity
will be obtained with the mid-term budget adjustments later this year.
·
Line function has
maintained two branches, namely; Hydrocarbons and Energy Planning, as well as
Electricity, Nuclear and Clean Energy.
·
There are plans for
gradual increase of the line functions capacity to realise the full structure
of the new Department of Energy by the end of the Medium Term Expenditure
Framework.
Policy
Development
The Department’s legislative focus for this year is as
follows;
·
The Seventh
Constitutional Amendment Bill
·
The REDs Establishment Bill
·
The Electricity
Regulation Amendment Bill
·
New Generation/
Independent Power Producers Regulation
·
The Petroleum
Products Amendment Act, 2003
·
The National Energy
Act, 2008
·
Review of the fuel
specification regulation, so as to advance to higher and cleaner fuels.
Programme 1:
Administration (Support Services)
The main focus of the programme is on the
establishment of the new department, with focus on operational structure, capacity
and the provision of skills. The programme also has its focus on the setting up
of governance structures, including the internal audit functions, audit
committee, risk management and fraud prevention, procurement and finance
committees, amongst others. The review of the international agreements,
aligning them to government’s objectives, falls under the programme, so does
the communication strategy, finance as well as the strengthening of the
Department’s State Owned Entities oversight function.
Update on the
In May 2009, the President of the Republic announced
the split of the Department of Minerals and Energy into two departments, namely
the Department of Energy and the Department of Mineral Resources.
A National
Macro Organisation Steering Committee was established to oversee the process of
re-organising government departments. Various work streams were formed to focus
on specific functions such as Organisational Scoping,
Human Resource Audits, Change Management and Communication, Labour and Legal,
Infrastructure and Assets, ICT, Finance and Budgets. An internal steering
committee for the split was established and work stream leaders were appointed.
A consolidated transitional plan was compiled and progress reports by work
streams are being submitted to the Departmental Steering Committee every second
week.
The functional analysis of functions was finalised. A
determination on the transfer of functions was obtained from the Minister of
Public Service and Administration. The departmental structures have been
designed and approved by both Executing Authorities. The process currently
awaits concurrence on the Departmental structures from the Minister of Public Service
and Administration. Allocation of funding for newly- created positions has been
obtained, but for critical posts only. All new positions in Support Services
have been profiled and evaluated.
A Change Management and Communication Strategy was
developed and approved by the Steering Committee. A submission on the
appointment of the Matching and Placement Committee for support services staff
was approved by both Directors-General. The placement of all employees on
separate Persal systems will be finalised on 15 March
2010. The recommendations for placements shall be considered by both
Directors-General for approval, upon which formal placement letters will be
issued to affected employees. In cases where employees are not satisfied, an
appeal process will commence. Once the
matching and placement of staff is finalised, all funded vacant posts will be
advertised no later than 30 April 2010.
Throughout this process, consultation with employee
organisations on the split was done. A Labour Relations Forum has been
established. A collective agreement on the relocation of employees to Trevena Campus and the split of the Department was
concluded in the Departmental Bargaining Chamber.
Programme 2:
Hydrocarbons and Energy Planning
Programme Focus Areas
Policy Development
The programme will advocate for the amendment [or development,
review where applicable] of the following:
General Challenges
·
Budgetary constraints
·
Inadequate support for line function, particularly ICT
systems
·
Personnel
·
Data availability
·
Understanding of energy issues (or lack thereof)
·
External factors
Programme 3: Electricity, Nuclear and Clean Energy
Electricity Strategic Objectives
·
To create and maintain a secure balance between electricity
supply and demand;
·
To diversify primary energy mix in the new build programme;
·
To create incentives for energy efficiency and demand side
management programmes;
·
To create a sustainable electricity distribution industry.
Electricity Programmes
The following programmes form part of the Electricity, Nuclear and Clean
Energy branch plans for the MTEF;
·
Integrated Resource Planning;
·
Private sector participation in the electricity generation
sector;
·
Energy Efficiency and Demand Side Management Scheme
·
Distribution Asset Rehabilitation
·
Establish the Regional Electricity Distributors
Nuclear Energy
The branch plans to
improve governance of the nuclear sector, specifically in relation to nuclear
safety, nuclear non-proliferation and nuclear technology. The Nuclear Energy
Policy of 2008 will come under review. Decisions on new nuclear power plants
will be effected, with specific focus on Nuclear Fuel Cycle, Regulatory
Framework, Skills and Training, Stakeholder engagement and communication,
industrialization and localization, and the funding and procurement processes.
The establishment
of the Radioactive Waste Disposal Institute is currently ongoing, as well as
that of the National Committee on Radioactive Waste Management.
Clean Energy
Energy
Efficiency
The finalization of
the Energy Efficiency Strategy (2005) will be pursued, and the EES will
advocate for a final energy demand reduction of 12% by 2015, with the
industrial sector contributing 15%. There will be a review of the Energy
Efficiency Accord. The Department plans to develop the Monitoring and
Verification system for Energy Efficiency and Demand Side Management. The
Municipal Energy Efficiency; and the Public Buildings Energy Efficiency
projects will be implemented. The other programmes
include;
·
Energy Efficiency and Demand Management campaigns will be
implemented, to enhance the uptake of energy efficiency initiatives
·
The finalization of the Renewable Energy Policy (2003)
·
Implementation of the National Solar Water Heating Programme, which seeks to install 1 million solar water
heaters by 2014
·
Operationalisation of the Working for
Energy Programme
·
Implementation of the South African Wind Energy Programme
·
Implementation of the Biofuels
Strategy
·
Implementation of the Tradable Renewable Energy Certificates
·
Operationalisation of International
Renewable Energy Agency engagements.
Integrated National Electrification Programme (INEP)
The programme seeks to manage the electrification planning,
funding and implementation process, with the aim of eliminating the
electrification backlog so as to achieve Universal Access.
The focus areas
include; managing the electrification planning process, and subsequently its
funding allocation and implementation processes. The INEP will be monitored in
line with the Energy White Paper.
The
Backlog Classification is as follows;
|
PROVINCE |
BACKLOG |
% BACKLOG |
INFORMAL BACKLOG |
FORMAL BACKLOG |
|
|
673,694 |
19.88% |
67,369 |
606,325 |
|
|
200,633 |
5.92% |
70,222 |
130,411 |
|
|
715,195 |
21.11% |
572,156 |
143,039 |
|
|
813,315 |
24.00% |
162,663 |
650,652 |
|
|
340,064 |
10.04% |
51,010 |
289,054 |
|
|
222,755 |
6.57% |
44,551 |
178,204 |
|
|
192,774 |
5.69% |
48,194 |
144,581 |
|
|
49,375 |
1.46% |
17,281 |
32,094 |
|
|
180,351 |
5.32% |
126,246 |
54,105 |
|
Total |
3,388,156 |
100.00% |
1,159,691 |
2,228,465 |
Source: Department
of Energy
One of the challenges the Department of Energy
faces with regards to its vision for universal access by 2014 is funding. Below
is an outline of the funding requirements for this programme
to be realised;
|
FINANCIAL YEAR |
CONNECTIONS |
BULK
INFRASTRUCTURE |
REFURBISHMENT/REHABILITATION |
TOTAL/YEAR |
|
|
2009-10 |
R 4,554,560,933 |
R 1,066,368,279 |
R 666,018,943 |
R 6,286,948,156 |
|
|
2010-11 |
R 4,625,652,151 |
R 2,087,695,645 |
R 759,261,595 |
R 7,472,609,392 |
|
|
2011-12 |
R 4,698,165,194 |
R 2,109,449,558 |
R 865,558,218 |
R 7,673,172,971 |
|
|
2012-13 |
R 4,772,128,498 |
R 2,131,638,549 |
R 986,736,368.92 |
R 7,890,503,417 |
|
|
Totals |
R 18,650,506,778 |
R 6,465,571,031 |
R 6,465,571,031 |
R 29,323,233,937 |
|
Source: Department
of Energy
Programme 4: Associated Services
SOE Oversight
State Owned
Entities are the extended arm of government and need to advance government priorities.
They are established as instruments of socio-economic advancement, and should
have the means to contribute to the improvement of the standard of living of
the citizens of
Department of Energy Oversight Role
The Department is
responsible for the alignment of strategies and plans of the SOEs. It must also ensure the balance between the
government priorities and commercial priorities of these entities. The Minister
is responsible for shareholder board appointments. The Associate Services
branch also oversees board participation by departmental representatives. It
must also monitor and evaluate the entities’ performance.
The oversight on
the electrification programme – as defined in the
Division of Revenue Act- is the responsibility of the Department, and applies
to both Eskom (Schedule 7) and the Municipalities
(Schedule 6).
The Department of
Energy will focus on improved oversight, monitoring and evaluation in line with
government priorities and addressing the concerns of citizens raised through
the Presidential Hotline. It will also focus on the alignment of planning
cycles.
The Department will
hold the shareholders’ annual strategic workshop in July/August, so as to
articulate government priorities and alignment of strategies.
Transfers to State Owned Entities
Below are the allocation to State Owned Entities for the 2010/11
financial year;
|
ENTITY |
AMOUNT |
PROGRAMME |
|
1. NECSA |
R574,1m |
Capex R10,7m Operational budget R554m |
|
2. NNR |
R20m |
Operational budget |
|
3. EDIH |
R61,6m |
Operational budget |
|
4. INEP |
R2,808bn |
Electrification programme |
|
TOTAL |
R3,463bn |
|
Source: Department
of Energy
Budget summary
Budget
Allocation- Energy
|
Programme |
Budget |
Nominal |
Real |
Nominal % change |
Real % change |
|||
|
|
|
|
|
|
|
|||
|
R million |
2009/10 |
2010/11 |
2011/12 |
2012/13 |
2009/10 - 2010/11 |
2009/10 - 2010/11 |
||
|
Administration |
68.8 |
104.2 |
127.7 |
106.9 |
35.4 |
28.9 |
51.45 |
41.94 |
|
Hydrocarbons
and Energy Planning |
55.3 |
1
558.6 |
1
564.6 |
1
571.2 |
1
503.3 |
1
405.4 |
2718.44 |
2541.47 |
|
Electricity,
Nuclear and Cleaner Energy |
340.0 |
408.8 |
513.7 |
116.5 |
68.8 |
43.1 |
20.24 |
12.69 |
|
Associated
Services |
3
293.4 |
3
463.8 |
3
533.6 |
3
744.0 |
170.4 |
-
47.1 |
5.17 |
-1.43 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
3 757.5 |
5 535.4 |
5
739.6 |
5
538.6 |
1 777.9 |
1
430.3 |
47.32 |
38.07 |
Source: Research
Unit
Overview
After the split of
the two departments, an amount of R75 million was transferred to the Department
for the 2010/11 financial year. The MTEC proposal involved mainly the
reprioritization of funds after the National Treasury ruled out any possibility
of new funding. An amount of R150 million was re-allocated from the Integrated
National Electrification Programme. The Department of
Energy did not benefit, whilst the Department of Minerals received approximately
R65 million. The amount was then ear-marked for transfer back to the Department
of Energy as it was reprioritized from the related programmes.
The National Treasury has been informally informed of the decision. The
agreement between the two Accounting Officers was drafted and is awaiting
approval.
Potential financial challenges
·
The funding of new generation capacity, which is always
funded from savings.
·
Discontinuation of energy efficiency (demand side
management) allocation on the final year of the MTEF cycle (2012/13) – which
will be replaced by tariffs.
·
The structure is not yet fully funded.
·
The universal access cost projections are far above the
allocated budget.
Concerns and questions by the members of
the Portfolio Committee
The Portfolio
Committee raised a number of issues (for clarity and follow-up) and concerns
throughout the briefings by the Department; and the summary of responses is included
in the above overview. Amongst these were
·
The matching and placement of staff; as well as job creation
by the formation of the new Department
·
Security of supply during the 2010 Soccer World Cup
·
The status quo with regards to the establishment of the
Radioactive Waste Disposal Institute
·
Fuel specifications
·
Electricity pricing
·
Branding
·
Ethanol and Biofuels (in relation
to Renewable Energy)
·
Independent System Market Operators
·
Liquefied Petroleum Gas
·
Integrated Resource Plan – timelines
·
Integrated Human Resource Plan – the Department presented
this on 23 March 2010, to the satisfaction of the Committee
Committee
Recommendations
The Portfolio Committee on Energy recommends as follows;
·
more practical, reachable targets on the
electrification programme (in the context of
Universal Access) and solar water heaters (renewable energies) should be set by
the Department in light of the limited financial resources at its disposal. A
further briefing on the said subject was presented by the Department on 13
April 2010.
·
the Department should ensure that its
ongoing restructuring process is used as an opportunity to achieve gender
equity.
·
the Committee would support the
Department of Energy in its efforts to improve the energy mix by 2012, and
expressed appreciation that the Department was now separate from the mining
component.
·
there was a
need for better awareness on nuclear energy and the associated programmes on nuclear energy.
·
the Department should follow
up on the implementation of the Free Basic Electricity Policy.
·
the Department of Energy presented an
Integrated Human Resources Plan to the committee on 23 March 2010 as reported
above.
The
Portfolio Committee on Energy recommends that Budget Vote 28: Energy be approved by the House.
Report to be considered.