Department Budget Allocation Overview 2016/17

1. PRESENTATION OF THE BUDGET VOTE 26 Ms Yvonne Chetty Chief Financial Officer

2. PRESENTATION LAYOUT 2016 MEDIUM TERM EXPENDITURE FRAMEWORK 2016/17 Final Budget Allocation for Vote 26 2016/17 Budget Breakdown Cabinet approved Budget Reductions Implemented Indicative Baseline vs Final Baseline Per Economic classification Per Programme Transfer Payments Schedule Conclusion

3. 2016 /17 FINAL BUDGET ALLOCATION • The Department’s budget allocation for 2016/17 is R7.54 billion. Earmarked transfer payments to public entities, municipalities and other implementing institutions amounts to R6.80 billion which is equivalent to 90.15% of the Department’s total budget. • The remaining budget of R743 million or 9.85% is for operational expenditure, inclusive of payments for capital assets. This is consistent with the trend of the budget for the past 5 years. • The history of the fiscus allocations is as follows: • 2011/12 - R6.200 Billion • 2012/13 - R6.734 Billion (Increased by 8.6%) • 2013/14 - R6.503 Billion (Decreased by 3.4%) • 2014/15 - R7.415 Billion (Increased by 14.0%) • 2015/16 - R7.482 Billion (Increased by 0.9%) • 2016/17 - R7.545 Billion (Increased by 0.8%)

4. 2016/17: BUDGET BREAKDOWN

5. 2016 MTEF: CABINET APPROVED BUDGET REDUCTIONS IMPLEMENTED

6. BASELINE REDUCTIONS • The 2016 MTEF Final Allocation letter , after deliberations by the MinComBud, was released by National Treasury in January 2016. • Owing to the reduction in the revenue estimates of the country over the 2016 MTEF period relative to the estimates contained in the MTBPS, substantive budget reductions had to be implemented by National Treasury over this period. • The total original Indicative allocation for Vote 26 of R24.85 billion over the MTEF period, R7.69 billion in 2016/17, R8.33 billion in 2017/18 and R8.82 billion in 2018/19 has been adjusted downward by incorporating the following adjustments: • Compensation of Employees: R33.56 million reduction over the MTEF period, R989 thousand increase in 2016/17, R14.46 million reduction in 2017/18 and a R20.09m reduction in 2018/19. • Goods and Services: R356.33 million increase over the MTEF period made up of budget increases of R239.58m in 2016/17, R55.95m in 2017/18 and R60.79m in the final year of the 2016 MTEF period. • Transfer Payments: R1.01 billion reduction over the MTEF period made up of budget reductions of R390.36m in 2016/17, R246.85m in 2017/18 and R372.02m in 2018/19. • The above adjustments brings the final baseline to R24.16 billion over the MTEF period reflecting an average reduction of 2.76% with R7.54 billion in 2016/17, R8.13 billion in 2017/18 and R8.49 billion in 2018/19.

7. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE per Economic classification

8. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE per Economic classification • Compensation of employees • The baseline increase of 0.32% in 2016/17 in this classification, only provides for the 2015 public sector wage settlement. In the two outer years of the 3 year cycle, budget ceilings for Compensation of employees funding are set by implementing budget reductions of 4.40% and 5.78% respectively. • These outer years reductions have an impact on staff establishment and the ability of the Department to fund contract or positions that are additional to the establishment. • The estimated budget shortfall during the two outer years, in relation to the current heads on the ground, is R89.12 million and R98.09 million respectively. • Goods and services • Baselines increases in this category of 127.04% in 2016/17, 28.53% in 2017/18 and 29.29% in 2018/19 are mainly as a result of: • The NNBP’s additional non-recurring allocation in 2016/17 significantly contributing to the baseline increase of 127.04%; • Budget increases in the outer years of the MTEF cycle are mainly attributable to additional allocations in the SWH programme for social facilitation and technical feasibility assessments as well as the oversight and monitoring and evaluation of Non-grid electrification installations. • Transfer Payments • The budget reductions in this category of 5.43%, 3.16% and 4.50% in 2016/17, 2017/18 and 2018/19 years respectively are mainly attributable to budget reductions implemented on the INEP Eskom, INEP municipalities and on the SWH programme. • All these programmes had to decrease the performance targets in order to align to the revised expenditure ceilings.

9. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE per Programme

10. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE -per Programme (Cont..) • Baseline adjustment over 3 years (2016/17 to 2018/19) • Over the 3 year MTEF period, the DoE’s indicative baseline will see a total budget reduction of R686.47 million commencing with a reduction of 1.95% or R149.78 million in the first year increasing to 2.46 % or R205.36 million in the second year and finally a reduction of 3.76% or R331.33 million in the outer year. • Significant adjustments are in the following programmes: • Nuclear Energy • A net budget increase of 29.02%, R194.55 million, has been implemented in 2016/17 entirely allocated to the Nuclear New Build programme for the acquisition of procurement advisory services. However, in 2017/18, the programme’s baseline reduces by 0.19% attributable to the removal of the NNBP’s funding as it is currently a once-off allocation in 2016/17 and reductions implemented on current payments. In 2018/19, the reduction increases to 0.35% affecting current payments once more. • Electrification and Energy Programme and Project Management • A net budget reduction of 5.54% or R334.37 million has been implemented in this programme in 2016/17 which reduces to 2.77% in 2017/18 and finally picks up to 4.4% in 2018/19. The movement is mainly due to reductions in the following projects: • INEP-Eskom with a baseline reduction of R250 million in 2016/17, R70 million in 2017/18 and increase to R180 million in the final year. • INEP Municipalities with a R90 million baseline reduction in 2016/17 which increases to R110 million in 2017/18 and increasing further in 2018/19 with a reduction of R120 million. • Reductions on both projects necessitated a review of the performance targets and electrification installations that may be achieved. • A total of R9.60 million over the MTEF period has also been added to this programme to provide for the oversight, monitoring and evaluation of Non-grid installations.

11. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE -per Programme (Cont..) • Baseline adjustment over 3 years (2016/17 to 2018/19) • Administration • A 2.21% or R5.41 million baseline reduction was incorporated in this programme in 2016/17 increasing to 2.91% in 2017/18 and 5.05% in 2018/19. The reductions over the 3 years are mainly affecting the current payments classification, i.e. Compensation of employees and Goods and services. • The cost items mainly targeted in the Goods and services classification are Travel and subsistence and Consultants. • Clean energy • The overall net budget reductions of 0.94% in 2016/17, 1.64% in 2018/19 and finally 1.21% in 2018/19 implemented in this programme are mainly due to the decrease in the SWHP’s funding in relation to the acquisition of actual units and the training of installers over the MTEF period. • However, the Goods and services classification reflects budget increases over the MTEF period attributable to the SWHP’s funding related to the acquisition of services. • The Energy Policy and Planning and Petroleum an Petroleum Products Regulation programmes both receive minor budget increases in 2016/17 of 0.61% and 1.74% respectively in current payments. The reductions over the two outer years are also on current payment expenditure in both programmes.

12. TRANSFER PAYMENTS SCHEDULE

13. BASELINE REDUCTIONS • The Transfer Payments economic classification has been hugely affected by the implemented budget reductions. • The following Programmes’ funding has been significantly reduced, contributing to the total reduction of R1.01 billion over the MTEF period in the Transfer payments classification: • INEP Eskom programme which reduces by R500 million over the medium term by, 6.62% or R250 million, 1.77% or R70 million and 4.31% or R180 million in 2016/17, 2017/18 and 2018/19 respectively; • INEP Municipal grant’s total reduction is R320 million over the medium term, 4.42% reduction in 2016/17, 5.01% in 2017/18 and 5.16% in the final year. • The NSWH project reduces by R189.87 million over the MTEF period, 14% in each year of the 3 year cycle. • The budget reductions in the 2016 MTEF period were not implemented on any of the entities reporting to the Department of Energy.

14. CLOSING REMARKS • The implemented reductions required a review of the Department’s performance targets so that they can be aligned with the funding received, specifically for the 3 projects which were significantly reduced. • The spot light has been placed on the Compensation of Employees funding. The Compensation of Employees reductions will impact on how the Department deals with its natural attrition over the MTEF period. A freeze on certain vacant positions has been recommended by the National Treasury. • Specific measures to manage personnel expenditure and to develop tools to reduce personnel numbers in 2017/18 and 2018/19 are to be announced by the Ministers of Finance and the Public Service and Administration. Prior to this, Departments are required to manage the staff establishment to keep within the Compensation of Employees budget ceilings. • A total of R200 million has been made available in 2016/17 for the New Nuclear Build Programme’s procurement advisors and consulting services.

15. Thank You!