DEPARTMENT OF ENERGY

1. DEPARTMENT OF ENERGY PRESENTATION OF THE DEPARTMENT’S 2010/11 ANNUAL REPORT TO THE SELECT COMMITTEE ON ECONOMIC DEVELOPMENT Ms N Magubane Director General

2. PRESENTATION Introduction Overview of the service delivery and organisational environment Performance against predetermined objectives – key focus areas DOE contribution to Government Outcomes and MDGs Programme performance Programme 1: Administration Programme 2: Hydrocarbons and Energy Planning Programme 3: Electricity, Nuclear and Clean Energy Programme 4: Associated Services Financial report Report of the Auditor General

3. INTRODUCTION In his 2011 State of the Nation Address, President Jacob Zuma reiterated that energy security is critical for economic development and job creation. Energy is a fundamental aspect of human existence: it is the principal means for providing access to basic needs such as food and water and it facilitates various opportunities for the achievement of a decent quality of life. Access to affordable, safe, and modern energy services is therefore a prerequisite for sustainable development and for achieving the Millennium Development Goals.

4. INTRODUCTION Mandate: Ensure secure and sustainable provision of energy for socio-economic development Mission: To regulate and transform the sector for the provision of secure, sustainable and affordable energy Aim: Formulate and exercise oversight on the implementation of the overall energy policies and to ensure access to affordable and reliable energy by all South Africans, as well as promote environmental friendly energy carriers

5. OVERVIEW OF SERVICE DELIVERY ENVIRONMENT: STRATEGIC OBJECTIVES The Department’s 2010/11 strategic plan seeks to deliver results along the following strategic objectives: Ensure energy security – create and maintain a balance between energy supply and demand, develop strategic partnerships and ensure reliable delivery and logistics Achieve universal access and transform the energy sector – diversify the energy mix, improve access, provide quality and affordable energy, promote safe use and transform the energy sector Regulate the energy sector – develop legislation, encourage investment and ensure compliance

6. OVERVIEW OF SERVICE DELIVERY ENVIRONMENT: STRATEGIC OBJECTIVES 4. Ensure effective and efficient service delivery – understand stakeholder needs, improve turn around time(s) 5. Ensure optimal utilisation of energy resources – develop enabling policies and encourage energy efficient technologies Ensure sustainable development– promote clean energy alternatives and economic development, promote job creation Enhance the DOE culture, systems and people

7. OVERVIEW: THE NEW DOE (interim and final structures) The following organisational structures were approved for the implementation of the 2010/11 strategic plan: Interim structure introduced 1 April 2010 – was based on the available funding to accommodates personnel transferred from the DME and to some extent critical posts needed to establish and support the new department. Final organisational structure – could not be implemented due to funding challenges A year later, the interim structure is still not fully implemented, due to funding challenges

8. OVERVIEW: ORGANISATIONAL STRUCTURE(S)DEPARTMENT’S INTERIM OPERATIONAL STRUCTURE – IMPLEMENTED ON 1 APRIL 2010 Minister Director General Electricity Nuclear and Clean Energy Hydrocarbons and Energy Planning Corporate Services Office of the Chief Financial Officer Office of the Chief Operating Officer

9. OVERVIEW: ORGANISATIONAL ENVIRONMENT To achieve its mission, the DoE is currently split into the following programmes: Programme 1: Administration – provides strategic and management support service to the Ministry and the Department Sub programme: Corporate Services Sub programme: Office of the CFO Sub programme: Office of the COO Programme 2 : Hydrocarbons and Energy Planning Developing policy and regulations to manage the petroleum, coal and natural gas industry. The Petroleum Controller is responsible for the implementation of the Petroleum Products Amendment Act,2003(Act No.58 of 2003)

10. OVERVIEW: ORGANISATIONAL ENVIRONMENT Programme 3 :Electricity, Nuclear and Clean Energy Electricity: developing, implementing and monitoring electricity policy and programmes. The INEP business unit manages electrification planning, funding and implementation Nuclear Energy : improving the governance of the nuclear sector, specifically in relation to the nuclear safety, on – proliferation and nuclear technology Clean Energy : facilitating the implementation of renewable energy and energy efficiency technologies, and promoting and regulating CDM facilities Programme 4: Associated Services State owned entities reporting to the Minister of Energy

11. DEPARTMENT OF ENERGY – APPROVED FULL STRUCTURE Minister *Revised line function streams Deputy Minister Director General Energy Policy and Planning* Clean Energy* Nuclear* Energy Programmes and Projects* Financial, Information and Supply Chain Management Governance and Compliance Corporate Support Services

12. OVERVIEW: ORGANISATIONAL ENVIRONMENT DoE started to operate with 41 % of its capacity in April 2010 which later on in the year increased to 52% of the required capacity Majority of funded posts were transfers from the DME and did not address most of the critical post requirements Most senior positions in Support Services were filled by year end. One critical resignations during the year – Acting CFO On average, the vacancy rate for the past year based on the approved interim structure was 10.6%

13. OVERVIEW: ORGANISATIONAL ENVIRONMENT We ensured that vacant positions were filled within a period of four months Employment equity figures of the DoE, Black constituted 93% while women constituted 54% Due to lack of adequate funding, not all training gaps could be addressed during the year

14. OVERVIEW: ORGANISATIONAL ENVIRONMENT The following governance structures were established during the year under review: -Internal Audit -Audit Committee -Strategy and Risk Management -Monitoring and Evaluation (later in the year) -Procurement Committee and -Committees related to HR DoE is currently sharing accommodation with DMR at the Trevenna Campus in Pretoria and regional offices

15. OVERVIEW: SERVICE DELIVERY ENVIRONMENT Some of the challenges faced by the Department in its first year Country was recovering from the 2008/9 economic meltdown Lack of significant investments in the energy sector Urgent need for integrated plans to address security of energy supply Need to respond to climate change and global warming Regulatory uncertainty and price votality in the liquid fuels industry Capacity challenges- in manufacturing (refining) and distribution in the liquid fuels sector Challenges in the electricity distribution industry

16. Government Outcomes and Millennium Development Goals

17. Government Outcomes and Millennium Development Goals

18. Government Outcomes and Millennium Development Goals

19. SUMMARY OF PERFORMANCE AGAINST PREDETERMINED OBJECTIVES KEY FOCUS AREAS

20. SUMMARY OF PERFORMANCE AGAINST PREDETERMINED OBJECTIVES

21. SUMMARY OF PERFORMANCE AGAINST PREDETERMINED OBJECTIVES

22. PROGRAMME PERFORMANCE

23. PROGRAMME 1 (Sub-programme: Office of the COO)

24. PROGRAMME 1: Administration Sub Programme: Office of the COO Branch components: Strategy and Risk Management – strategy, risk management and fraud prevention Monitoring, Evaluation and Reporting – monitoring, evaluating and reporting on the department’s performance State Owned Entities Oversight – oversight on the performance of SOEs International Co-ordination – international relations services Special Programmes and Projects (temporal housing 2010/11)

25. PROGRAMME 1: Administration Sub Programme: Office of the COO Branch started operating in May 2010 with less than 10% capacity, resulting in challenges to fully establish all required components. The unit was able to ensure that Jointly with DMR, produce and table the last Department of Minerals and Energy’s Annual on time, Hold the first DOE strategic planning session in November 2010 where the new outcome based planning approach was introduced and implemented. The Department’ s 2011/12 MTEF(five year plan) was tabled in February 2011 and later presented to the Parliament Portfolio Committee on Energy and the Select Committee on Economic Development.

26. PROGRAMME 1: Administration (Continued) Sub Programme: Office of the COO Together with the Internal Audit function, governance structures were established Capacity challenges in the implementation of the Strategy and Risk Management function Provide oversight of state owned entities reporting to the Minister, strategy alignment, monitor performance against approved plans and ensuring that all SOE Boards are fully capacitate by appointing board members for CEF, PetroSA and NERSA. Following the Cabinet decision to discontinue the REDs process, the branch is leading the process of winding up EDIH in collaboration with the appointed Administrator and EDIH Board

27. PROGRAMME 4: Associated Services Transfers to SOEs During the year under review the Department transferred grants to the EDIH, NECSA and the NNR. NERSA is fully funded by levies from the regulated industries. The CEF Group operations are in the main funded from the income generated from operating activities The table below indicates the transfers to the SOE’s for the 2009/2010 and 2010/11 financial years * significant decrease in 2011/12 m

28. PROGRAMME 1: Administration (Continued) International Co-ordination The Department has entered into several international engagements during the year under review a Our engagements have been on ensuring security of energy supply through old and new relationships Further focus has been on capacity building in the energy sector, clean energy and climate change, building relationships with international financial institutions like the World Bank, our role in SADC and the African Continent, country participation in international bodies, etc A number of SA companies have signed international business agreements – include skills development, technology transfer, localisation imperatives, etc

29. FACTORS THAT GUIDES AND DRIVE THE ENERGY SECTOR INTERNATIONAL RELATIONS Energy security Access to funding Climate change (Clean energy) Access to energy resources Access to information Energy sector International cooperation Skills and capacity Access to technology Diversity of supply Upward pressure on cost of energy Safety

30. Securing energy supply • Engagements with the following countries were also held in an attempt to secure new supply relations • Venezuela, - PetroSA secured blocks and is working on marginal blocks • Egypt- signed an MOU on Oil and gas and developed an implementation plan but now currently on hold • Ghana- drafted an MOU on Oil and Gas and now signed in September, 2011 • Algeria –signed an MOU on Oil and Gas- and PetroSA working on an implementation plan • Angola- PetroSA in discussion with Sonangol to explore the possibility of securing

31. SADC Regional initiatives • Energy Minister Annual Meeting • Approved development of a renewable energy strategy for SADC • Alignment of regulatory policies to ensure trade and investment regionally • Conducted capacity building workshops on CDM led by RSA • South Africa supporting the establishment of designated national authorities in the region • Promotion of regional electricity interconnectivity and support to the Southern African Power Pool and related projects

32. PROGRAMME 1 (Sub-programme: Corporate Services)

33. PROGRAMME 1: Administration (Continued) Sub Programme: Corporate Services Through the HR function, the Department’s average vacancy rate for this past year was 10.6% The first 95 critical posts were filled within 4 months. Employment equity – blacks represent 93% of the total staff compliment, women represents 54% of the total employees.

34. PROGRAMME 1: Administration (Continued) 262 employees participated in the Department’s training programmes e.g.: Advance Management Development Programme, Financial Management for non Financial Management, Excellent Customer Service for Frontline Staff, Job Evaluation, Core and Job Description, Anti- Fraud and Corruption, Leadership and Management, Human Resource Management, PERSAL training, Computer Training(Microsoft Excel, Word and PowerPoint), Basic Accounting System (BAS), Departmental Induction programme and Public Service Induction Programme.

35. PROGRAMME 1: Administration (Continued) Sub Programme: Corporate Services 39 employees were awarded internal bursaries (26 employees accepted). 55 unemployed graduates were engaged on an internship programme and 12 students (i.e. civil, chemical and mechanical engineering fields) The Chief Directorate Communications together with GCIS developed and implemented the Energy Efficiency Awareness Campaign. A number of radio dramas, TV series (eTV) and other SABC channels as well as Billboards and newspaper adverts were done.

36. PROGRAMME 1: Administration (Continued) Sub Programme: Corporate Services A total of 10 Public Participation Programmes (PPP) were conducted during the fiscal period under review as per Cabinet pronouncement. The Department has partnered with SOEs such Eskom, Nersa, NNR, PetroSA, EDIH and Necsa on these public participations These PPPs have proved to be a successful platform to engage civil societies across all government spheres

37. PROGRAMME 2 Hydrocarbons and Energy Planning

38. PROGRAMME 2: Hydrocarbons and Energy Planning Purpose: Undertake integrated energy planning to promote the sustainable use of energy resources. Develop appropriate policies, implement regulations and monitor compliance within the hydrocarbons sector.  Hydrocarbons develops policy and regulations to manage petroleum, coal, and natural gas The Petroleum Controller is currently included under this sub-programme and is responsible for the implementation of the Petroleum Product Amendments Act (2003). Energy Planningpromotes the sustainable use of energy resources through integrated energy planning

39. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Objectives and measures Ensure sustainable energy supply by developing the Integrated Energy Planning Strategy by September 2010. Developing the national strategic fuel stocks policy by March 2011. Provide oversight over the construction of the National Multipurpose Petroleum Pipeline. Encourage research and development for energy related technologies with a key focus on energy efficiency and mitigating greenhouse gases by establishing the South African National Energy Development Institute (SANEDI) by March 2011. (R &D –focus on energy efficiency and mitigating greenhouse gasses)

40. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Objectives and measures Strengthen the regulatory framework in the petroleum products industry by implementing the regulatory accounting system before March 2011.   Improve the countrywide availability of petroleum products by licensing retail, manufacturing and wholesale operators within 90 days of receiving confirmation of the publication of licensee applications.   Facilitate the participation of historically disadvantaged individuals in the petroleum sector by licensing 25 per cent of all licence applications by historically disadvantaged individuals in each year of the MTEF period

41. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Progress Achieved   A draft LPG Strategy has been developed – The Department will soon publish a Liquefied Petroleum Gas (LPG) strategy in a bid to encourage greater use of LPG in place of electricity, which could also help delay the need for new electricity generation capacity. Currently 5% of South Africans use LPG and the intention is to target at least one million additional users over the next five years. Clean Fuels 2 – Discussion document on fuel specifications and standards –Published 08 March 2011 for comment SANEDI was established during the year - to promote the diversification of energy supply and ensure emerging energy technologies are incubated and commercialized, as well as to ensure appropriate human capital is developed, to support new energy-related industries.

42. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Progress Achieved Other progress included an infrastructure database report containing maps, and further improvements to the energy statistics database. Progress Partially Achieved CSIR has been contracted to develop the modelling system for the IEP and work on this has commenced. Availability of relevant data at the required level of detail for energy modelling purposes remains a key concern, which is difficult to address in the short term.  A draft Strategic Stocks Policy has been developed and associated regulations drafted. A Cabinet Memorandum has also been prepared to seek approval for publication and public comment. The consultation process, particularly with National Treasury took longer than expected. However, this was necessary due to the concurrence required for the use of public funds for the construction of storage tanks by Government

43. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Progress Partially Achieved The Integrated Energy Plan was expected to be published for comments by 31 March 2011. Further revisions had been made to the Plausible Futures as well as to the IEP methodology within the IEPS. Significant work has been done in developing the IEP, with the IEP methodology, the Plausible Futures, and the Integrated Energy Planning Strategy documents having being finalized. However, the Integrated Energy Planning Strategy was not approved by Cabinet for publication as was originally envisaged. Against the annual target of establishing two Integrated Energy Centres (IeCs), one had been established in Qunu within the financial year, while another at Mbizana scheduled for completion by May 2011. A comprehensive review of the Liquid Fuels Charter also meant the postponement of the Petroleum Products Amendment Act into the next financial year since the Charter is currently appended to the Act.

44. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Progress Partially Achieved License inspections - a target of 3 660 was planned for the year, and 2 460 inspections were conducted. Insufficient budget and lack of vehicles for inspectors in the Northern Cape and Free State were some of the constraints. A total of 360 petroleum licensing applications out of 600 lodged were processed within ninety days (60%). Other partial progress achieved concerned the development of data collection regulations for which three Cabinet Ministers had provided comments which had been incorporated into the regulations for final gazetting. Original timeframes were extended due to the requirements of State Law Advisors for concurrence by other Cabinet Ministers before gazetting the regulations. The final report on the Regulatory Accounting System has been submitted internally, but execution awaited a departmental implementation plan, as well as audited 2009 data from the industry

45. PROGRAMME 2: Hydrocarbons and Energy Planning (Continued) Progress Not Achieved  Although the entire R1.5 billion was transferred by DoE to Transnet for the construction of the Multi-Products Pipeline from Durban to Gauteng in terms of the Grant Funding Agreement, installation of the 24-inch trunkline has been delayed pending a workable funding mechanism.

46. PROGRAMME 3 Electricity, Nuclear and Clean Energy

47. PROGRAMME 3: Electricity, Nuclear and Clean Energy Purpose:Provide the policy and regulatory framework for the electricity, nuclear and clean energy sectors in a manner that ensures energy security, universal access to electricity, diversification of primary energy sources and the promotion of clean and efficient technologies  The Electricity Chief Directorate develops, implements and monitors electricity policy and programmes. The Integrated National Electrification Programme Business Planning Unit manages the electrification planning, funding and implementation process, including the addressing of electrification backlogs in the quest to achieve universal access to electricity. Nuclear Chief Directorateaims to improve governance of the nuclear sector, specifically in relation to nuclear safety, nuclear non-proliferation and nuclear technology. Clean Energy Chief Directorate facilitates the implementation of renewable energy and Energy efficiency technologies and also regulates and promotes the Clean Development Mechanism (CDM) activities

48. PROGRAMME 3: Electricity, Nuclear and Clean Energy (Continued) Objectives and measures Ensure a well managed, efficient and safe electricity, nuclear and clean energy industries by: Implementing the nuclear energy policy through developing an implementation strategy by June 2010 Implementing energy efficiency policies and issuing regulations and strategies to achieve electricity savings of 12 per cent by 2015, based on forecasted energy demand Regulating the security of nuclear material and facilities through developing appropriate regulations for the physical protection of nuclear material by March 2011. Promote the sustainable use of electricity to achieve a 100MW saving over the MTEF period by: Publishing the solar water heating framework by June 2010 Ensuring the use of compact fluorescent light bulbs in public buildings and reducing the power used for domestic and street lighting

49. PROGRAMME 3: Electricity, Nuclear and Clean Energy (Continued) Objectives and measures Promote the sustainable use of electricity (cont) Facilitating the development and implementation of energy efficiency technologies and programmes through developing the energy efficiency standards for appliances and publishing them by 2010/11. Increase access to electricity by monitoring the implementation of the integrated national electrification programme, which aims to connect 3.2 million households by 2012. Facilitate the implementation and adoption of new and renewable energy technologies in order to meet the 2013 target of 10 000GWh generation from clean energy sources by providing increased support through the renewable energy finance and subsidy scheme and other support programmes

50. PROGRAMME 3: Electricity, Nuclear and Clean Energy (Continued) Progress Achieved EDI Restructuring The process to review the entire electricity distribution value chain with the aim of developing a focused strategy on energy security, as well as determining the implications of the capital investment required for the entire value chain commenced during the year. Integrated Resource Plan (IRP 2010-2030) The IRP 2010-2030 was promulgated in March 2011. It provides the blueprint of the power generation options that the country has adopted for the next 20 years, including a portfolio of renewable energy technologies, coal, nuclear, gas and the energy efficiency option.