Department of Energy on its 2nd & 3rd quarter 2014/15 performance report

Meeting report

Department of Energy on its 2nd & 3rd quarter 2014/15 performance report
By means of introduction, Acting Director General, Dr Wolsey Barnard, said the Department implemented its annual performance plan (APP) through six programmes: Programme 1, Administration; Programme 2, Energy Policy and Planning; Programme 3, Petroleum & Petroleum Products Regulation; Programme 4, Electrification & Energy Programme and Project, Programme 5 Nuclear Energy and Programme 6 Clean Energy. For the 2nd Quarter 2014/15 there was a total of 38 targets in the APP and 99 Institutional Operational Plan (IOP) targets. For the 3rd Quarter 2014/15 there were 33 targets that had been set in the APP. In addition, there were 92 IOP targets.

A summary of the performance and monitoring for the 2nd Quarter showed that of the 38 targets, the department had achieved 12 (32%) targets, partially achieved 10 (27%) and did not achieve 15 (40%). In total, 13 (34%) of branch self-assessments had been moderated. Two were moderated from “achieved” to “partially achieved”, six from “partially achieved” to “not achieved” and five had been moderated from “achieved” to “not achieved”. In total, 87 verification documents had been uploaded.

For the 3rd Quarter, of the 33 targets, the department had achieved eight (26%) targets, partially achieved 11 (36%), and did not achieve 11 (36%). In total, seven (21%) of branch self-assessments were moderated. Four were moderated from “achieved” to “partially achieved”, two from “partially achieved” to “not achieved” and one was moderated from “achieved” to “not achieved”;

In total, 99 APP verification documents were submitted by all the branches.

Chief Financial Officer for the Department Yvonne Chetty outlined the major achievements and challenges of both quarters.

Achievements:
a) Municipalities had installed 55 923 new electricity mains connections, while Eskom did 77 305 for a total of 133 228 (both inclusive of roll-overs). In addition, 8 277 homes were electrified with off-grid solar home systems;
b) The Renewable Energy Independent Power Producer Programme was 99% complete for Bid Window 1 and 57% for Bid Window 2.Twenty-four IPPs had reached their Commercial Operating Date (COD) for Bid Window 1 and five IPPs had reached COD for Bid Window 2;
c) The final scoping report for the Northern Cape solar park had been approved by the Department of Environmental Affairs. The Environmental Impact Assessment would now commence;
d) The Solar Energy Technology Roadmap (SETRM) had been completed and would be submitted to stakeholders for comments;
e) Fuel sampling and testing was exceeded by 330 units.
f) 100% (318) invoices had been paid within 30 days; and
g )634 retail site compliance inspections were conducted.

Challenges:
A major challenge was that a number of positions within line function units were not funded.

Ms Chetty also outlined the financial performance:

Second Quarter:
a) In September, spending was projected at R908.1 million, R535.2 million (58.9%) was utilised resulting in a budget under spending of R372.9 (41.1%).
b) 96% of the under spending, R358 million, was in the Transfer payments economic classification due to the transfers that could not take place from the Energy Efficiency Demand Side Management (EEDSM) Eskom (R300m), Integrated National Electrification Programme Municipalities (R87.3m) and Integrated National Electrification Programme (INEP) Non-grid (R8.4m).
c) 3.2% or R11.8 million was in the Goods and services category, mainly attributable to the delayed payment of office accommodation leases (R4.1m), savings in Travel & subsistence (R3.9m), Venues & facilities (R1.2m) and Consultants/Business advisory services (R1.1m).
d) Year-to-date (YTD) - September, a cumulative budget of R4.2 billion was available from which a total amount of R3.5 billion was utilised, resulting in an under spending of R658.4 million or 15.8%.The Transfers category accounted for 94% of the total under spending.

Composition of the YTD under spending
a) Transfers & subsidies: R619.06m due to under spending in the INEP Non-grid, EEDSM-Eskom as well as in INEP Municipalities.
b) Compensation of employees:R18.0m attributable to vacancies & the delayed payment of bonuses to staff on level 1 -12.
c) Goods and services:R21m, 52% of which is due to the delayed office accommodation lease payments.21% of this total under spending came from both the Venues & facilities (R2.4m) as well as Minor assets (R2.2m) cost items.
d) Total expenditure in the first six months of 2014/15, i.e. R3.5 billion or 47.2% of the total 2014/15 budget, increased by R675.8 million or 23.8% when compared to the expenditure for the same period in 2013/14 which was R2.8 billion or 43.6% of the total 2013/14 budget.

Third Quarter:
• Cumulatively at Dec 2014, the Department had withdrawn from the NRF a budget of R5.7 billion
• From the above, a total amount of R5.2 billion was utilized, resulting in a budget under spending of R491.3 million or 8.6%. The transfer’s category accounted for 92% of the total under spending.

Composition of the Quarter 3 under spending
a)Transfers & subsidies: R454.6m (8.5%) due to the under spending in the INEP Non-grid (R50.7m), EEDSM-Eskom for the Solar-Wind Hybrid Power System (SWHP) (R300m), EEDSM Municipalities (R27m), INEP Municipalities (R65.7m) as well as international membership fees (R12.1m) .
b) Compensation of employees: R21.3m attributable to vacancies in the Department. This amount includes the notch-increase payments payable to qualifying SMS members.
c) Goods and services:R14.0m below budget mainly attributable to delayed projects.
d) The level of under spending decreased per quarter as follows:
1. Quarter 1 - 69.1% of the budget was utilized
2. Quarter 2 - spending increased as 95.3% of that quarter’s budget was utilised by the end of that quarter
3. Quarter 3 - 110.7% was utilised including unspent funds from Quarter 2.
e) Comparatively, the total expenditure at the end of Q3 of 2014/15, R5.2 billion, is R1.1 billion or 26.9% higher than that of the same period of 2013/14.This is mainly attributable to an increase in the value of transfers made to Eskom, for the INEP electrification programme and to the South African Nuclear Energy Corporation (NECSA). Both these projects were allocated additional funding in 2014/15. NECSA received a once-off allocation for improvements to the SAFARI1 reactor as well as refurbishment of the Pelindaba site.

As a result, the full year budget expended at the end of Q3 was 70.5%. This was higher than the 63.5% reported in the same period of 2013/14.

Ms Chetty highlighted remedial action that had and was being taken.
- Spending progress was reported at the Finance Committee meetings, held six times a year, and Branches were advised of the slow spending areas in the Financial Performance Report.

- In addition, spending against the Procurement Plan was monitored and reported at the Finance Committee meeting, for action.

- Where spending against the Procurement Plan had not been realised for reasons beyond the control of the Department, funding was redirected to other priority spending areas.

- In addition to the monthly Bid Adjudication Committee (BAC) meetings, 6 ad-hoc BAC meetings were held to accommodate requests in order to accelerate spending.

- The appointment of service providers for the INEP Non-Grid program posed the most challenges (delays) in previous years. The procurement process for the 2015/16 financial year commenced in September 2014 in order for the service providers to be appointed by 31 March 2015 (before the commencement of the 2015/16 financial year).

- Due to the challenges experienced on the Solar Water Heater (SWH) implementation that was handled by Eskom, the Department had resolved to terminate the implementing agreement with Eskom, and embark on a more robust SWH implementation model.

Discussion
During and after the presentation Mr Majola and Members questioned the Department’s methodology.

Mr Majola said he was not sure the way in which the Department was working was effective. How come the Department could not deliver 50% of its targets? What was wrong? What of the 50% had been met qualitatively? Maybe 50% had been met but were they big things, big targets? What were the general, persistent problems?

Mr P Van Dalen (DA) congratulated the Department on spending 94% budget of its third quarter budget but had they gotten “bang” for their targets. The answer was surely no. If the Department was at school and had to re-do the year, what would it do differently? The targets were set by the Department, no one else. That must have been an epic fail. Was it worth spending another R4 billion to get something different. If it was a sinking ship, when was the Department going to sound the alarm. Were Members observing another Costa Concordia? [The Costa Concordia ship capsized in 2012 and the Captain abandoned the ship leaving the passengers behind]

Mr Van Dalen asked for more information on the nuclear energy progress, slide 12.

He questioned the Department’s awareness and outreach programmes. At a time when government was embarking on a huge nuclear build programme, were South Africans being informed and taken along? The 485 solar water heaters; solar water heaters had to go on to houses, it was a no-brainer. It would help with electricity to get geysers out of circulation; it would help with load shedding. Vacancies in the third quarter were likely the direct result of budget cuts, was to Department going to reach the targets in the fourth quarter?

Mr M Matlala (ANC) asked why funds were unspent. Why was the Department still sharing offices with the Department of Mineral Resources? In one of the projects, a contractor was unable to continue with implementation. How much had this cost?

He said in his own understanding he thought the presentation was supposed to have been presented at the last strategic planning workshop in Caledon. It was a concern that if the Department did not deal with the problems, after the next elections it would simply cut and paste the same presentation and give it to the next Energy Portfolio Committee whose Members who would not know the difference.

Mr R Mavunda (ANC) said he did not have any questions per se but rather points for clarity. 1. The Department had identified problems but it had not identified solutions. Unless this was done, it would sit with the problem forever. Verbal explanations had been given for why some targets had not been achieved but there was no programme of action. He wanted it in writing as he could not remember what had been explained verbally. 2. Slide 82 was the only one that highlighted remedial actions. At least there had been an attempt to try and address those issues. The Department had learned to do things the wrong way, why was it not learning to do things the right way?

Mr Mavunda said it was always the case that the presentation was very long so by the time it was finished, Members were exhausted and had not had a chance to comprehend. It should have been short, precise and to the point. It was not in the best interest of some of the Members to have a very good presentation only to find that the remedial action to be taken was nowhere to be found in the presentation. Of the 50% of targets achieved, how many were qualitative?

Mr Majola said at the end of the presentation there were financial challenges. Slide 57 (see document) was not complete and had to be addressed. He agreed with Mr Matlala that the Department was continuing to move in the same direction. The Committee was going to refuse to proceed with business as usual. It was just going through piles of paper but it wanted to see what the strategic outcomes were that had made an impact on the lives of South Africans.

Mr G Mackay (DA) said he would at some point like to move from discussing the programmes to the legislative agenda of the Department which never seemed to get much air time. There was quite a programme for Parliament this year. It would be of great interest to understand why the Department was separating out certain pieces of legislation in to their own Bills. Looking at the numbers, it was evident that 71% of the budget was spent against an achievement of 21% of the targets. This was hardly efficiency for the taxpayer. It could be questioned whether the Department actually needed to exist. It was flailing and directionless.

Mr Mackay was pleased to hear there was some modelling with Treasury around the Integrated Energy Plan. However which IEP was being used, considering it was still being based on the IEP of 2010. There was no update. How exactly was the IEP being modelled with the sub-plans that had not being finalised. What assumptions were being used? These should be made public. Fundamentally it impacted the credibility of any plan.

He asked the Minister what was happening about the finalisation of the Independent Power Producers (IPP) Bid Window 4. The extended deadline of the 31 March had come and gone. As of the 2 April there was still no determination by the Minister or the Department as to the finalisation of the Window.

Mr Mackay drew attention to the use of consultants. If one looked at the half-year figure of R16 million and doubled that for the full 12-month period it was R32 million. This was about 22% of the total staff budget. The Department may be needed to consider how its employment practices were affecting functionality. It spoke to lack of expertise in the Department and the failure to achieve the programmes.

He said the nuclear energy department seemed to be flailing. This was significant in that government was considering a major enlargement of nuclear programmes in South Africa. Regarding the International Atomic Agency’s Report on South Africa’s readiness to implement nuclear energy safely. It was promised at the end of the Fourth Parliament and it had not been made available to the Committee. Attempts to recover it in the public domain had not been successful. The DA had to submit a Promotion of Access to Information application to the Presidency to get the report. Government had committed to an open and transparent process with regards to nuclear energy in South Africa. The first hurdle was making the report public.

Ms T Mahambehlala (ANC) said the presentation was worrying because it indicated factors that were not positive. The simple targets for public awareness campaigns and community outreach events had not been met. There were five and only one had been achieved. If the Department was unable to deliver on simple things how was it going to lead to country on issues of substance like nuclear and clean energy? It had explained that the Department had inherited a rotten department. Similarly, on the Izimbizos reported. There was no clear understanding of what the Department was trying to achieve. The Department wanted to demystify nuclear but it did not have capacity for simple outreach events and awareness campaigns. It was contradictory. Policy and planning and finances were very bad. The Department had spent the majority of its funds on administration. What administration?

Ms Mahambehlala said she found it surprising that there was over spend on administration but underspend on key areas such as energy, policy and planning; petroleum and petroleum products regulation; electrification and energy programmes; project management and nuclear and clean energy. But, there was too much spending on compensation of employees.

She referred Energy Efficiency and Demand Side Management (EEDSM). Research showed that there was no transfer to Eskom due to the termination of contract. Which transfers was the Department referring to when it alluded to that particular matter. President Zuma had said government had to intensity efforts towards energy efficiency. What was the Department pre-occupied with? They were so inefficient and had not delivered. Moving forward, perhaps there was a need to start behaving like the Portfolio Committee on Communications and do an assessment of the Department’s officials, much like the assessments that had been done on the SABC Board. The Department had to be cleaned up or the Committee would force it to.

Having looked at the APP, there were deadlines up to the end of March that had not been met. The first thing the Committee had to do was make sure the Department met those deadlines. The Committee should refuse to hear reports until the Department could say the deadlines had been met.

Mr J Esterhuizen (IFP) asked for more clarity on under-spending.

Responses
Ms Chetty responded that money spent and targets achieved were not a one-to-one direct relationship between the spend and the target achieved. Some targets were multi-year so perhaps they should have been called work in progress and roll-over targets.

In relation to transfers, there was a relationship with National Treasury. Municipalities were engaged. The Department expected an upfront agreement, for example, the Division of Revenue was re-gazetted if the targets were not achieved. Sometimes, the effect would only be seen in a later quarter. Sometimes the municipalities year-end and the Department’s year-end were in sync.

In terms of Energy Efficiency and Demand Side Management, there were two transfers. One that went out to the municipalities with an agreement and the other was EEDSM to Eskom. For the entire year there was R1.6 billion that had to go out in the fourth quarter. There was an underspend in the fourth quarter of R1.1 million which would be returned to the National Treasury Fund and the roll-over would be requested after the model was tabled at Cabinet for approval.

 The Department did not work in silos. For example, with the EEDSM, there had been another party to the agreement and it was Eskom. Non-grid rollout was another example, there were external service providers which were privy to a rigorous process and that process did not happen without hiccups. Paperwork was not often up to date and to be equitable and transparent in the bid adjudication, the Department would allow suppliers this as the process had to be applied equally to everybody.

Regarding consultants, Ms Chetty said the Department had not replaced staff with consultants. The department had fully implemented cost containment measures. It was very specialist skills that were required in some cases. For example, fuel testing was outsourced as was measurement for fuel efficiencies. Consultants were not used in any way to cut costs and vacancies.

Dr Barnard added that the Department was not a research lab. When it came to fuel sampling there were only a handful of labs in the world that could do that, so it had to be outsourced.

He explained that the dilemma with halted contracts was often the result of land claims. The moment a pole was planted or the moment an area of land had been identified, there was a land claim. The contract was signed but it had been suspended because the contractor could not proceed because of land claims.

Minister Tina Joemat-Pettersson asked if the Department could report on Bid Window 4 of renewable energy, the power purchase agreement for coal generation 31 March deadline was met. She personally ran up and down and intervened.

Dr Barnard replied about the renewable energy programme, saying for Bid Windows 1 to 3, there were 37 projects active and 1700 Megawatts were being supplied on to the grid. In terms of Bid Window 4, 13 entities were successful bidders who filled the criteria. Communication had been made with those bidders. The 13 had been approved and signed.

The Minister re-emphasised this.

Mr Jacob Mbele, Acting Deputy Director General: Policy and Planning, said the number of solar water heaters' target was the number of the units to be installed depended on the budget for the particular year. The budget for the last financial was R1.8 billion which was supposed to have been transferred. For 2015/16, the budget was sitting at around R400 million. At a subsidy of about R9000, there were about 40,000 units or so. The numbers were normally budget dependent.

Mr Sandile Ntanzi Chief Director in DDG Office and currently Acting DDG: Corporate Services, said the Department was confident it was going achieve it vacancy rate target in the fourth quarter. There were interviews towards the end of the third quarter for senior level positions.

He said the sharing of office space with the Department of Mineral Resources was historical. The provision of office space was the responsibility of Public Works. There had been engagements which had taken longer than expected but in a number of regional offices there were now offices. These were in Durban and Witbank. The Department would occupy space in Polokwane on 1 May; Cape Town on 1 June and Klerksdorp, 1 July.

Regarding the Izimbizos, Mr Ntanzi said the programme had been adopted by Cabinet. At times most of the issues raised were not related to the Department. Many were directed towards the Department of Social Development.

Deputy Director-General of Nuclear Energy, Mr Zizamele Mbambo, responded to a question on nuclear self-sufficiency and the possibility of a downgrade of the highly enriched uranium (HEU). Nuclear self-sufficiency was not related to the down planting of the HEU. It was about the localisation of technologies that would allow South Africa to produce its own fuel from its own territory. The Department would require mining, beneficiation and enrichment of the uranium as well as the fuel fabrication technology for South Africa’s own fuel to sustain the power plants.

On the demystification of nuclear and public engagement Mr Mambo said it was something the department was pursuing quite strongly. The public needed to be taken along. There had been budget considerations. There were media engagements to inform the public.

Timing was crucial. There was also a realisation that the Department needed to be transparent in sharing and exposing its facilities to the public.

Mr Mbambo said the Department was also aware of the sensationalism employed by anti-nuclear lobbyists. It was working towards ensuring that a balanced view was achieved. There was a need to accelerate and do more in that respect, especially since the programme was at an advanced stage. The Department had also voluntarily undertaken an Integrated Nuclear Infrastructure Review Report with the International Atomic Agency. The Department had also conducted the emergency preparedness review mission through the International Atomic Agency. The work had been done precisely to make sure there was a holistic view. As part of the normal day-to-day work several stakeholders were engaged in order to make sure that roles and actions were defined. Once those reports were done, an action plan would be drawn up and executed.

The Integrated Nuclear Infrastructure Review Report was still undergoing government approval processes. Then a decision would be taken on the process going forward.

Chief Director Hydrocarbons, Mr Muzi Mkhize, talked to legislation issues. He said the Department would be able to present after developing a concept. It wanted to learn from the previous experiences in passing of the principal Act and its promulgation.

Dr Barnard acknowledged the Committee’s views and its expectations regarding the format of the presentation.

Mr Van Dalen corrected Ms Chetty. He said there was no direct correlation between budget and targets. He did not buy that explanation. If 95% was spent and only 22% of the targets were reached then the Department was not doing its work. No amount of sugar coating would convince him or the taxpayers otherwise.

Mr Matlala asked again about the question of the suspended contract. In addition, were the awareness campaigns going to be conducted in all 11 official languages?

Ms Mahambehlala asked what the plans were to address the problems of the EEDSM. The Department also clearly had no idea what public participation was. Perhaps the Department should ask Eskom for help regarding its electrification awareness programme.

Dr Barnard said the contract alluded to 'incurred no costs' as the contract start and end date had lapsed. This was a result of an ongoing land claim.

In terms of the EEDSM programme, it was still with the Department. In a nutshell, government had moved to an open rollout programme where it had bought from anywhere no matter the quality. To develop locally, it had taken longer. The process had been completed.

Ms Chetty acknowledged the comment from Mr Van Dalen about the spend and the targets. It was a fact.

Mr Mbambo said public awareness would remain part of the rollout of the nuclear energy strategy. All members of society would be communicated to in all the languages. Radio stations would also be partnered with to reach out to the public which could not read or write.

The Minister said she thought a number of the commitments made were not commitments that even captured the government's priorities. After the strategic planning session with the Committee, she had requested that department officials re-assess those targets. They had to start displaying the priorities of the National Development Plan and the policy documents that guided the Department. There was a shake-up; there was an attempt but there was almost minimal haste. It was a matter of getting the energy into the Department for it to realise there was a sense of urgency.

Mr Majola said he agreed with the Minister and the Committee wanted the same shake-up. To “jack up” was imperative. The relationship between the Committee and the Department would be robust. The Department would be supported but it needed to be seen to be doing its work. The Committee would not accept any more slack conduct.

In summation, the Minister said she wanted to report that the appointment of the Director-General was pending security clearance from the Department of State Security. The Department of Energy had done its part.

Mr Majola said the update on the Matatiele Task Team’s activities would have to be delayed due to time constraints.

The meeting was adjourned.