Department of Mineral Resources and Energy 2020/21 Quarter 1, 2 & 3 performance

Meeting report

The Chairperson welcomed Members and the Department of Mineral Resources and Energy (DMRE). The only apology was from the Minister.

DMRE Quarterly Performance Reports: First, Second and Third Quarter 2020/21

Adv Thabo Mokoena, Director-General, DMRE, introduced the delegation from the Department.

Mr Lucas Mulaudzi, Head of Strategy DMRE, took the Committee through the performance reports and Ms Yvonne Chetty, Chief Financial Officer (CFO), DMRE, took the Committee through the cumulative financial performance reports.

Performance: Comparison of Quarters to Date:

• First quarter totals:

Achieved Quarterly Targets – 23 (44.23%)

Partially Achieved Quarterly Targets – 7 (13.46%)

Not Achieved Quarterly Targets – 22 (42.31%)

• Second quarter totals:

Achieved Quarterly Targets – 33 (60%)

Partially Achieved Quarterly Targets – 12 (21.82%)

Not Achieved Quarterly Targets – 10 (18.18%)

• Third quarter totals:

Achieved Quarterly Targets – 34 (58.62)

Partially Achieved Quarterly Targets – 16 (27.59%)

Not Achieved Quarterly Targets – 8 (13.79%)

The presentation (available on the PMG web page for the meeting) contains detailed slides explaining the reasons why certain targets were partially achieved or not achieved at all. [Note that the presentation includes guidelines on the interpretation of these figures. This shows that in all three quarters, the Department met the thresholds set for the overall conclusion “Delivery on track (annual target will probably be achieved)”. The thresholds are 25-37% achievement of quarterly targets in the first quarter; 38-49% in the second and 50-99% in the third. The DMRE customarily performs above the 80% achievement standard for annual performance targets set by National Treasury. The overall audited performance attained by the Department was 85.8% for 2019/20 and 84% for 2018/19.

Performance Highlights:

-98% approved invoices from service providers paid within 30 days of receipt

-DMRE Fraud Prevention and Anti-Corruption Strategy is in place

-3 800 jobs created through issued mining rights

-1 708 injuries were reported from April 2020 to December 2020

-767 diseases reported from April 2020 to December 2020

-6 036 inspections and audits conducted from April 2020 to December 2020

-Fatalities reduced by 25% in the mines – there were 21 fatalities from April to September 2020 compared to 28 fatalities in the same period of the previous financial year

-Against the quarterly target “Engage Government Stakeholders” and its associated annual target “Draft Report on full scoping of the first phase of the development of just energy transition for Executive Council (EXCO) approval produced”, consultations were held with Department of Environmental Affairs and Forestry (DEFF) and Mpumalanga province to discuss collaboration on the Just Transition.

-Against the quarterly target “Data collection and development of inception report” and its associated annual target “greenhouse gas (GHG) reporting and assessment framework submitted for Ministerial approval”, there were delays regarding this target, however, a service provider has been appointed through the World Bank and this will accelerate the implementation of this delivery.

-Five carbon offset projects were processed and approved

-Investment webinar was hosted by the DMRE in partnership with the South African mission in Toronto and Fasken [a law firm] on 06 November 2020

-Draft Mining Masterplan was developed

-Gas Amendment Bill was approved by the Economic Cluster

-Implementation strategy for the 2 500 MW nuclear programme was developed but target not achieved – there were delays in assessing the responses to the Request for Information (RFI) for the 2 500 MW nuclear programme due to COVID-19 and other logistical reasons

-70% of authorisation applications processed within the 8-week time period

-7 black industrialists were created through procurement

-113 legal compliance inspections (Mining law) were conducted, cumulatively across the three quarters.

-95.24% petroleum license applications were approved with a minimum of 50% HDSA (Historically Disadvantaged South Africans) ownership

-84 rights and permits were granted and/or issued to HDSA controlled entities

-A total of 572 systems have been installed in Mahikeng Local Municipality. A further 22 have been installed in City of Matlosana Municipality. A total of 49 installer assistants were trained.

-To date, 129 501 grid electrifications, including roll overs, were undertaken by municipalities and Eskom, with 39 387 additional households connected through grid.

-A Concept Note on Just Transition was circulated for internal comments

-75 legal compliance inspections (mineral laws-MLA) were conducted in the second quarter, exceeding a target of 74

-A report on the energy savings (TWh) from identified EEDSM (Energy Efficiency Demand Side Management) projects was produced with 0,66 TWh savings reported.

Challenges:

-The Department could not accomplish most of its targets due to national lockdown regulations, but the Department has developed a catch-up/intervention plan to ensure that missed targets are achieved by the end of the financial year.

-The feasibility study has not been initiated on the new oil refinery – the Department is awaiting a final decision from the investor on whether they intend to proceed with the investment or not.

-There were no non-grid electrifications due to delays with the appointments of service providers.

-Shareholder compacts for CEF Group and South African Nuclear Energy Corporation (NECSA) were not approved due to the PetroSA Corporate Plan having not received approval from the CEF board. NECSA submitted in February 2020 and a revised plan taking into account the impact of COVID-19 and the economic recession was submitted on 29 September 2020.

-Petroleum retail site inspections were not conducted, and fuel samples were not tested during Quarter 1 due to lockdown regulations.

-“ Approach to the Distribution and Asset Management” (Adam) Framework was submitted to Cabinet for approval, but this was not achieved.

-Publications and economic reports supporting investment and sustainable resource use

-National Energy Regulator Amendment Bill certified by State Law Advisor (Target – proposal on the National Energy Regulator Amendment Bill for consideration and comment by Cabinet, but this was not achieved).

Interventions;

-The Annual Performance Plan (APP) was revised in line with the budget adjustment and the impact of COVID-19 on programme performance, especially during Q1 and Q2.

-The Department developed a catch-up/intervention plan to ensure that missed targets are achieved by the end of the financial year.

Cumulative Financial Performance per programme:

Administration – Underspend of R75 766

Minerals and Petroleum Regulation – Underspend of R49 585

Mining, Minerals and Energy Policy Development – Underspend of R21 257

Mine Health and Safety Inspectorate – Underspend of R33 448

Programmes and Projects – Underspend of R374 965

Nuclear Energy Regulation and Management – Underspend of R10 014

Cumulative Financial Performance per economic classification:

Compensation of Employees – Underspend of R106 216

Goods and Services – Underspend of R175 559

Transfer and Subsidies – Underspend of R276 300

Payments for Capital Assets – Underspend of R6861

(View presentation for further detail.)

Discussion

Mr K Mileham (DA) commented that there were a number of missed targets in Quarter 1 and Quarter 2, but the status of those missed targets remained unclear. If a target was missed in Quarter 1 or 2, was it resolved by the time the 3rd quarterly report was written? If a target was missed, it must be added to the targets of the following quarter as it is not a real reflection of whether all targets are being achieved. He welcomed the reduction in the number of fatalities but requested clarity on what the impact of departmental programmes was versus the impact of the closure of mines, given that the mines were operating on a shorter staff and limited numbers.

What is the nuclear implementation strategy? What does it entail, and could it be presented to this Committee? The Committee has had a number of discussions on nuclear over the past weeks, and there has been a discrepancy between what the IRP (Integrated Resource Plan) says – namely, that there are commenced preparations for a nuclear build – and what the Department believes, which is that nuclear investments could already be made. He was pleased to hear that progress was made on the Nuclear Waste Management Bill and asked when this Bill was going to be tabled before this Committee.

He was critical of the Department for their continued usage without explanation of acronyms – asking in particular what the ‘Adam Framework’ was – and requested that when the Department makes a presentation, they explain the acronyms which they use.

Regarding the Draft Integrated Energy Plan (IEP), it is ten years overdue. It is a legislative requirement to have an Integrated Energy Plan, and for this plan to be updated annually. What does ‘urgently’ mean to this department? On the issue of financials, how was it possible for the Department to underbudget on office accommodation given how clear-cut and straightforward leases are?

Mr J Lorimer (DA) asked who the seven black industrialists are that were created through procurement. What is the Department’s standard for creating a black industrialist – what does the Department measure to decide that a black industrialist has been created? How were the industrialists chosen, and what role did the Department play in this?

Ms P Madokwe (EFF) asked whether the Fraud Prevention and Anti-Corruption Strategy, which the Department implemented, was effective and what it entailed. The Committee has done a number of oversights on the Department and has engaged with the Department on a number of occasions, with all evidence pointing to the fact that there was a lot of fraud and corruption within the Department that was never addressed. There is also no consequence management to that effect. On the previous day (9 March 2021), when the Committee was discussing this issue, it appeared that even some of the community members which carry themselves as if they represent their communities regarding mining and other rights, actually ended up defrauding both the state and the mining communities.

Regarding the 6 036 inspections and audits, can the Department elaborate on them as previously requested? What were the outcomes of the inspections and audits, and what remedial action was taken in response? On the issue of the seven black industrialists, what is the effect of these seven black industrialists on the overall proportion? What was the percentage of mining licences that have been issued? She observed that the Department had been entering into a lot of litigation and cases, which has been quite costly. She expected a section in the report dealing specifically with this issue. How many of the cases which were before the Department has the Department responded to? On this issue of the Mining Qualifications Authority (MQA) underspending 100% of its budget, can the Department elaborate on the explanation of why this occurred?

Ms V Malinga (ANC) asked whether the PetroSA Corporate Plan included the input by Labour. When the Committee visited PetroSA, Labour complained that PetroSA developed a corporate plan did not include their proposals as Labour.

What does the final bullet point on slide 17 – “The operating payments as a result of unbudgeted warranties for SWH units” – mean? [SWH=Solar Water Heater]

Mr S Kula (ANC) praised the Department for nearing 100% completion in terms of approved invoices that are paid within 30 days, as well as for the 3 800 jobs that were created through the issuing of mining rights. He wanted to praise the Department on the reduction of fatalities as well, but the fact that the Department underspent in mine health and safety was cause for concern. If the Department had not underspent in this regard, how would this have affected the number of fatalities? He welcomed the creation of seven black industrialists as it helps in addressing the issue of transformation, especially in regard to the economy. What is the Department’s target regarding the creation of black industrialists? Regarding the unbudgeted warranties, how much was spent on them? How does the Department plan to mitigate such spending in the future? He expressed concern at how much the Department underspent regarding programmes and projects and asked how the Department planned to mitigate this in the future.

Mr M Mahlaule (ANC) asked if there are any bills intended for processing. What hurdles would be in the way of the completion of their drafting? Regarding the new oil refinery, the Committee had been told for the last year that there was an issue with the land in KwaZulu-Natal and so forth. How has the situation shifted from that point, to waiting for an investor? What happened to the investor, given that the Committee was told that an investor was prepared to invest?

Responses by the DMRE

Ms Chetty explained that in the merged Department of Mineral Resources and Energy, a new budget needed to be formulated. The process involved combining the ex-DMR (Department of Mineral Resources) and ex-DOE (Department of Energy), without any adjustments. From the DMR side, there were private leases signed, especially for regional offices, that were not budgeted for. When the budgets for the DMR and DOE were combined, this portion remained unbudgeted for. Now that the departments are one entity, all leases have been accounted for and the Department will ensure that the requisite budget is correct, and that finances are set aside for this operational expenditure.

On the issue of the warranties that were unbudgeted for, Ms Chetty explained that the warranties are paid when the Department takes possession of the units, and due to delays in the Department accepting receipt of the units from the manufacturing sites, the warranties were only paid in later financial years when the requisite budget was already surrendered to Treasury in the past financial year. In the current financial year, the Department had to pay the warranties although they were not budgeted for, due to contractual obligations.

Mr Jacob Mbele, Deputy Director-General (DDG): Energy Programmes and Projects, DMRE, explained that, in the presentation, it was mentioned that the underspend seen between Quarters was generally as a result of the Department at times withholding the money from some of the municipalities, in line with the Division of Revenue Act. The Department must assess the performance of the municipality in terms of the contracts the Department enters into with those municipalities. Where municipalities fail to comply with the Act, the Act requires that the Department withhold the transfer that was supposed to happen to that municipality and try to implement a corrective measure. Where there is no correction by the municipality, the Act allows the Department to redirect the money to other, [better] performing municipalities.

This underspend is part of what one would see on a month-by-month basis as the Department tries to manage the project, but at the end of the financial year, the books are balanced as the money withheld from underperforming municipalities is reallocated to performing municipalities capable of properly spending it.

The delay in the supply chain procurement process has been resolved, and service providers have been appointed with some already on the ground doing installations. In terms of the current schedule, these installations should be done in six to eight weeks’ time.

Mr Zizamele Mbambo, DDG: Nuclear Energy, DMRE, stated that recently, the Department had appeared before the Committee and presented an update on the Request for Information on the nuclear new build. During that meeting, the Committee requested an update from the Department, and the Department committed to accounting to the Committee on the progress of the nuclear new build.

Regarding the strategy, it is currently being drafted. A workshop by the technical task team on this issue was set for the next day (11 March 2021). The Department expects the strategy to be finalised by the end of the 2020/21 financial year. Following its finalisation, it will go through the relevant approval processes and an update will be given to the Committee. It was important to note that, as a Department, the IRP is being implemented in totality. There are nine decisions contained in the IRP, each at various stages of implementation by the different programmes in the Department – the nuclear new build is one of these decisions. The Department believes that there is no discrepancy because the nuclear new build is part of the energy mix contained in the IRP, with the IRP stating that there must be a commencement of the work on the nuclear new build given that it is a no-regret option in the long term. The knowledge gathered by the Department from the Request for Information indicates that a nuclear project is a long-term project that requires a minimum of about ten years for the commissioning of a power plant. It is very critical that the Department commences the work which would ensure that the 2500 MW is added to the grid post-2030.

Mr David Msiza, Chief Inspector of Mines, DMRE, ensured the Committee that the health and safety of the mineworkers and their communities when in close proximity to the mines remained of utmost importance to the Department. The Department, under the leadership of the Minister, continues to implement the measures contained in the legislation, and continues to engage with the sector. The mining sector as a whole agreed that anything can be argued about, apart from the health and safety of the mineworkers. There must be a continuous sharing of knowledge and ideas in the pursuit of the ultimate goal – zero harm.

In 2017, there was a regression in the number of fatalities. The following year, the Minister hosted the Mine Health and Safety Tripartite Summit, which was attended by the PPC (Parliamentary Portfolio Committee). It was important that the Committee consider the fact that all measures implemented should accumulatively assist in achieving the ultimate goal of zero harm. In the year following the Summit, the Department achieved the safest year on record for South African mines, with our mines comparing favourably with some of the leading countries in the world. Mr Msiza explained that the issue lies in the sustainability of the improvement. The Department continues to implement enforcement measures, and in future, the Department will highlight the key issues following inspections and audits. He recalled the Minister’s meeting last year with the leadership of the sector to reflect on the performance of the sector up until November 2020, in terms of where the sector was regarding the occupational health and safety and COVID-19. Most importantly, the issue of women in mining was considered, and measures are being implemented to deal with this issue.

The Department wanted to assure members that with the easing of the lockdown, measures are being implemented to ensure that the money is being spent. While there has been an improvement, sustaining this improvement is the biggest issue, and the Department is trying to emphasise the idea of sustainability through engagements with the sector, organised labour and so forth.

Ms Ntokozo Ngcwabe, DDG: Mineral Policy and Promotion, DMRE, made a number of corrections on the presentation. The Nuclear Waste Fund Management Bill was tabled at Cluster, and the Department already received approval in October 2020. It was then taken to Cabinet where it was approved with amendments, which the Department is currently busy with. The amendments are in relation to how the Department planned to set up the fund itself – initially it was proposed that the Fund would be set up as an entity, but this must be reviewed, and the Department must ensure that the Fund would be administered by an existing entity within the Department. The Department would take the amended Bill to Cabinet in April 2021, and if it is approved, the Department will proceed further.

The Adam Framework is the “Approach to the Distribution and Asset Management” Framework, which is a framework that the Department wanted to develop to ensure that there was a structured way of managing and maintaining electricity distribution infrastructure within municipalities countrywide.

Regarding the Draft Integrated Energy Plan, she agreed that this was long overdue. The challenge which the Department has with the IEP is that research and modelling must be done for the three areas covered by the IEP – petroleum, electricity and gas. The Department is currently busy with gas, with electricity having been completed through the IRP, and petroleum was also incomplete.

She made a correction in the presentation on Bills which the Department intended to bring to Parliament for processing. The Gas Amendment Bill was approved by Cabinet, not simply by the Economic Cluster. The approval allowed the Department to request that the Minister table the Bill in Parliament. the next day (11 March 2021). In addition, the Department will take the Upstream Petroleum Bill to the Economic Cluster – from there, the rest of the process will be followed.

Mr Tseliso Maqubela, DDG: Petroleum and Petroleum Products Regulation, DMRE, explained that the target for black industrialists, as it appears in APP, is ten – this target will be revised. He requested that, on the names of the companies themselves, the Department be given an opportunity to consult, given that these were companies with contracts with mining companies. Legally, the Department must look at whether any non-disclosure agreements exist between the company itself and the mining house, with an audit determining whether a mining company is complying with the Mining Charter.

On the issue of the new refinery, at the beginning of 2020, the oil price plummeted. When this occurred, Saudi Aramco – the National Oil Company of Saudi Arabia – slashed all investments, including in Saudi Arabia, by 50%. The Department was in the process of completing a pre-feasibility study with Saudi Aramco, which was completed, but Saudi Aramco never returned to the Department with clarity on whether they would proceed with the investment or not, which is why the target is still hanging. With the oil price rising again and given the interest Saudi Aramco showed in the South African petroleum sector, investment remains a possibility and the Department is waiting to hear back from the company.

Regarding the Corporate plan of PetroSA, the concerns of Labour have been incorporated. Currently, there is a process being taken by PetroSA management to discuss with Labour the most optimal way of ensuring the company’s survival going forward. This will require a number of adjustments, including the costs of the organisation

Adv Mmadikeledi Malebe, DDG: Mineral Regulation, DMRE explained that Inclusive Procurement Supplier and Enterprise Development are elements of the Mining Charter. The Department ensures the inclusivity of all South Africans – especially HDSA – by expecting mining companies to develop and nurture their plans in terms of suppliers of mining goods. The Department monitors compliance with industrialist programmes but does not choose the industrialists – it ensures that those which have been chosen [by the mining companies] comply with the requirements of the Mineral and Petroleum Resources Development Act (MPRDA) and the Mining Charter.

Mr Mulaudzi confirmed that the Department carries over missed targets to the next implementation phase and mentioned the intervention measures that the Department implemented in this regard. He assured Members that this would be presented with more clarity in the future, with the goal of showing the results yielded by the intervention measures.

On the issue of the efficacy of the Department’s Fraud Intervention Plan, he explained that this plan was a contribution to the overall picture of how the government manages fraud in the public or private sector. All executive authorities – in their performance agreements – have undertaken to ensure that fraud and corruption are dealt with vigorously; there is a zero-tolerance policy. This Plan was a response to the Fraud Prevention Strategy that was approved by Cabinet and exists alongside the ‘combined assurance’, which are the other government structures that assist in ensuring that fraud is dealt with accordingly.

The policy implemented by the Department will be workshopped to internal employees through various programmes and during the orientation of new employees. The Department will also investigate allegations of fraud and corruption received through the hotline seated in Presidency. Cases of fraud and corruption that have been received are being dealt with by the Risk Management Audit Committee and manco (managing committee).

Adv Mokoena responded to the question on the Department’s litigation cases. From 1 April 2020 to date, the total cost of litigation was R3.9 million. He explained that there are different categories for cases – mine health and safety, the promotion of access to information, the MPRDA, recovery of losses, entities, and petroleum licensing. He said the Committee may request as part of its responsibilities, a presentation on the Department’s key strategic cases which are not internal and may be disclosed.

He emphasised the issue of nuclear, acknowledging that it is an issue which always arises. There is an alignment in terms of the 2019 IRP – decision eight articulates clearly that in terms of infrastructure projects, preparations must be made significantly in advance in order for plans to be implemented on time. A time allocation for this project will be given at an appropriate time. There is an expectation that every determined method of producing energy must be connected to the grid by 2030. Nuclear in particular will not be able to meet this expectation, and a change to its expectation will also be made at an appropriate time.

The Chairperson advised the Department to be more precise and certain on how they present information in the future. When the issue of black industrialists was explained, it turned out to be a completely different matter to the one which was presented. The issue of black industrialists used to lie with the Department of Trade, Industry and Competition.

He suggested that the Department prepare a new presentation on the black industrialist programme, explaining how an industrialist is created through procurement, and making it easier and more uniform to assess how the Department is performing in this regard. Members agreed that the Committee should have a separate presentation on the black industrialist programme.

The Chairperson took the Members through the minutes of the meeting held on 02 March 2021. Mr Kula moved for adoption without amendment, and two Members seconded.

Ms Malinga asked the Chairperson when the Committee would receive the outstanding audits. It was decided that the Committee would follow-up with the Auditor-General on the issue of the outstanding audits. If the Committee did not receive the audits soon, it would wait for Quarter 2 and insist that the issue of the audits is dealt with first in the budget presentation by the Auditor-General.

The Chairperson took the Members through the minutes of the meeting held on 03 February 2021. Mr M Wolmarans (ANC) moved for adoption without amendment, and Mr Kula seconded.

The meeting was adjourned.