2009/10 ANNUAL REPORT Presentation to the Select Committee on Economic Development

1. 2009/10 ANNUAL REPORT Presentation to the Select Committee on Economic Development 09 November 2010

2. Presentation • Introduction • Strategic Planning Process • Key/ Strategic Objectives • Energy Programmes Within DME • 2009/10 Programme Performance Review • Auditors General’s Report • Annual Financial Report • Conclusion

3. INTRODUCTION • Departmental strategic planning session was held in November 2008 under the DME umbrella; • The split of the Department of Minerals and Energy was effected on 1 April 2010 (split of support services - human and finance resources); • Some of the activities/projects that were identified during the November 2008 strategic planning session had to be either delayed/abandoned to prepare for the split, especially in support services; and • Less changes were experienced in the line function activities.

4. INTRODUCTION • Challenges facing the implementation of the 2009/10 strategic plan: • The split of the Department of Minerals and Energy; • Resource constraints (both financial & human); • Aging electricity generation and distribution infrastructure, electrification backlogs, bulk infrastructure; • Liquid fuels infrastructure, supply challenges; • Preparations and hosting of the Confederations Cup and the 2010 Soccer World Cup; and • Global economic downturn .

5. STRATEGIC PLANNING PROCESS • Introduction of the Balance Scorecard methodology of planning during 2008 by DME; • Poor understanding of the process by management – when cascading to lower levels of planning; • Challenges of alignment with the format of DG’s performance agreement as prescribed by DPSA; • Way forward – postponement of the BSC methodology by DoE.

6. MANDATE, MISSION, VISION

7. MANDATE, MISSION, VISION

8. KEY OBJECTIVESSTRATEGIC OBJECTIVES TO SUPPORT THE MANDATE, VISION AND MISSION • Promote and regulate the minerals and energy sectors; • Ensure effective service delivery through efficient organisational processes; • Promoting and maintaining a learning organisation; and • Ensure efficient, effective and economic use of financial resources.

9. PROGRAMMES COVERED IN THE ANNUAL REPORT The activities of the DME were organised in the following seven programmes: • Programme 1: Administration; • Programme 2: Promotion of MHS; • Programme 3: Mineral Regulation; • Programme 4 : Mineral Promotion; • Programme 5: Hydrocarbons & EP; • Programme 6 : Electricity, Nuclear & Clean Energy; and • Programme 7: Associated Services

10. PROGRAMMES continued……….. • With the split of the DME in October 2009, the two energy line function programmes were delineated from the Mineral Resource functions, with a direct reporting line to the DG of Energy; • Support Services functions were for the transitional phase, shared between DMR and DOE under the hosting Accounting Officer of DMR. • Today’s presentation will therefore focus on the performance of the two line function specific branches, namely -Hydrocarbons and Energy Planning as well as - - Electricity, Nuclear and Clean energy.

11. PROGRAMME 5HYDROCARBONS AND ENERGY PLANNING • Hydrocarbons • Develops policy and regulation to manage petroleum, coal and natural gas sectors. • Petroleum controller – Controller of Petroleum Products administers and issues petroleum licences, and monitors and enforces licence conditions. • Energy Planning • Promotes the sustainable use of energy resources through integrated energy planning

12. PROGRAMME 5 Cont…. • Implementation of the PPAA • 15 198 license applications received, 12 453 processed, balance 2 745. • Inspectors from the Compliance and Monitoring Unit undertook 2309 site inspections for the year. • Import and export of fuel products • 1200 import and export permits were issued during the reporting period. South Africa exports petrol and diesel to neighbouring countries, hence the export permits.

13. PROGRAMME 5 Cont…. Safe Illuminating Paraffin (IP) Pilot Project • 1000 IP safe stoves were distributed by the Department to households in Gauteng (350 stoves), Western Cape (350 stoves), KwaZulu Natal (150 stoves) and Eastern Cape (150 stoves) Provinces to promote use of safer appliances. • The project has resulted in prevention of fires. • The higher cost of stoves remains a challenge.

14. PROGRAMME 5 Cont… National Integrated Energy Modeling System (NIEMS) • User requirement specifications for the development of NIEMS were finalized. • Due to funding constraints alternative approaches to developing the modeling system were evaluated and certain recommendations were made. Integrated Energy Planning Strategy (IEPS) • Draft IEPS completed.

15. PROGRAMME 5 Cont… Energy Data • The Energy Digest was finalised in December 2009 • The Energy Price Report was compiled and finalised • The Energy Balance for 2006 was finalized and published on the Department’s website

16. PROGRAMME 5 Cont…. FIFA World Cup Task Team • A task team was set up by the DoE to ensure adequate supply of jet fuel and other petroleum products during WC2010. • Operational plans were developed in conjunction with the oil industry and Transnet. LPG • The Draft Regulations and the associated Draft Working Rules were published in the Government Gazette for public comment in November 2009.

17. PROGRAMME 5 Cont… Regulatory Accounts • One aspect in the regulatory accounts project namely, the Benchmark Service Station (BSS) model was completed and discussed with relevant stakeholders. The project will be completed during 2010/11 financial year. Funding mechanism for New Multi Product Pipeline (NMPP) • A security of supply levy of 7.5 cents per litre was determined by the Minister of Finance to contribute funds towards the construction of the NMPP.

18. PROG 5 PERFORMANCE Cleaner Fuels • A draft Position Paper and Roadmap was developed, having engaged the two key stakeholders, namely the South African Petroleum Industry Association (SAPIA) and National Association of Automobile Manufacturers (NAAMSA) • The Department also engaged SAPIA on their proposal on Clean Fuels

19. PROG 5 PERFORMANCE Integrated Energy Centres (IeCs) IeCs under development during the 2009’10 financial year include: • Three IeCs, namely Ulundi (KwaZulu Natal), Qunu and Mbizana (both in the Eastern Cape) were at advanced stages of their Environmental Impact Assessments. • A sod-turning ceremony for the Qunu IeC was held in February 2010 • The establishment and registration of the Mbizana and Qunu cooperatives with the Department of Trade and Industry in the Eastern Cape was completed • Two energy needs assessment surveys were done in Western Cape and Limpopo • Information sessions on energy safety and energy education were organized in seven Provinces, namely Western Cape, Eastern Cape, Kwazulu-Natal, North West, Mpumalanga, Gauteng and Limpopo).

20. PROGRAMME 6ELECTRICITY, NUCLEAR AND CLEAN ENERGY • Electricity • Provide the policy and regulatory framework for the electricity sector. • Ensures energy security, universal access, diversification of primary energy sources and the promotion of clean and efficient technologies. • Integrated National Electrification Plan (INEP) • Overall management of the electrification programme, electrification planning in the quest to achieving universal access to electricity. • Nuclear Sector • Improve governance of the nuclear sector. • Clean Energy • Facilitate implementation of renewable energy and energy efficiency.

21. PROGRAMME 6 Cont.....KEY /POLICY DEVELOPMENTS. • Review of the 2003 Renewable Energy White Paper. • 17th Constitutional Amendment. • 2nd Amendment to Electricity Regulation Act. • Development of the country's first Integrated Resource Plan (IRP1). • Development of New Generation Capacity Regulation. • Development of Standard Offer Policy for Energy Efficiency and Demand Side Management. • Nuclear energy implementation strategy. • The National Radioactive Waste Disposal Institute Act, 53 of 2008, was promulgated during the past financial year.

22. PROGRAMME 6 Cont.... • Electricity • Integrated Resource Plan (IRP1) gazetted. • New Generation Capacity Regulations promulgated. • 17th Constitutional Amendment released from DoE to lead department (DoJ) for Cabinet. • Standard Offer Policy gazetted. • INEP – Integrated National Electrification Programme • Targeted household connections 150 000 achieved 167 119. Challenge to be discussed under the Auditor General’s report • Solar Water Heating (EEDSM) • Detailed project implementation plans developed. • Joint implementation with Municipalities, CEF and Eskom.

23. PROGRAMME 6 Cont... • Nuclear Energy • Research and Development (R&D) agreement signed with USA, anticipate more next year • The development of the business case to list the entity is underway, as well as the appointment of a Board of Directors • Renewable energy • Held a successful Renewable Energy Summit to review the Renewable Energy Policy • The revised White Paper, which will be finalised before the end of 2010 financial year

24. MTEF ALLOCATION INEP

25. PERFORMANCE PER PROVINCE INEP ALLOCATIONS TO MUNICIPALITIES

26. REASONS FOR UNDER SPENDING INEP • Overall under spending for INEP is within the threshold tolerance of 5%; • The under spending is mainly attributable to the misalignment of national and local government budgeting cycles. • Municipal tender processes only commence after July, once the budgets have been passed • Procurement processes in the municipalities take too long • Municipalities technical capacity challenges

27. REASONS FOR VARIANCE

28. REASONS FOR VARIANCE

29. Analysis of 2009/10 Financial Performance

30. FINANCIAL PERFORMANCE • From May 2009 the Director General of Mineral Resources was the hosting Accounting Officer, and through a MOU offered financial and Human Resource support services to the Department of Energy. • The next Financial Performance presentation includes expenditure and performance of the Department of Mineral Resources.

31. Analysis of variance in Statement of Financial Performance

32. Analysis of the Statement of Financial Performance

33. Statement of Financial Performance: Variance analysis • The staff cost increased in relation to the increase in staff numbers (1272 vs.1169) • The G & S cost is relatively low compared to 2008/9 owing to cost containment measures implemented during the year under review. The related costs include, travelling, venues and facilities, advertising and catering. • Tangible capital assets increased significantly owing to acquisition of furniture and servers for new building • Intangible capital assets decreased as only security related software were acquired during 2009/10

34. Statement of Financial Performance: Variance analysis

35. Analysis of variances: Statement of Financial Position

36. Analysis of major variances : Statement of Financial Position • The asset base increased by 24% from last year attributable to bank balance (R158m) for payments projected to disburse at year end , late revenue payments (R33m) • Prepayments and advances went down by 224% due to rehabilitation of ownerless and derelict mines projects that were concluded during the 2009/10 financial year. • Recoverable expenditure (R7.6m fraud and approximately R1. 9m – land for IPP project). • Notable decrease in long outstanding staff debt (R2.2m vs. R2.7m)

37. Analysis of major variances : Statement of Financial Position • Total liabilities of R201m(also 24% increase) include R 74 m revenue and R137m of voted funds for surrender • Net assets of R3.2 m include the capitalization reserve (R2.2m) and R1m recoverable revenue

38. Analysis of variances: Cash Flow Statement

39. Analysis of major variances: Cash Flow Statement • The increase in net cash flow available from operating activities is attributable to the increase in unspent funds by 60%. (as explained under unspent funds) • The significant increase in net cash flow from investing activities is due to acquisition of furniture and servers for the new building as well as the improvements made to the new building

40. Analysis of variances: Disclosure notes

41. Analysis of variances: Disclosure notes

42. Analysis of variances: Disclosure notes • Contingent Liabilities is made out of legal claims against the department, guarantees for car schemes and housing; and interdepartmental payables (unconfirmed balances). • Accruals increased by 67% as a result of R20.4m due to Public works, invoice of which is still awaited • Increase on employees benefits is as a result of leave payouts and performance bonuses due. • Receivables increased as a result of uncollected monies due to the department. • Irregular expenditure incurred in the current financial year was due to officials not following the departmental financial delegations.

43. Details of Transfers and Subsidies

44. Transfers and Subsidies

45. An overview of the audit report and the report of the Audit Committee Audit opinion • Qualified audit opinion issued Basis for qualified opinion • Completeness of receivables for departmental revenue (R25m) could not be verified • This is related to disclosure note 26 (page 189) • Although the department prepares AFS on modified cash basis, such disclosure notes are necessary as part of the preparation for migration into accrual basis of accounting

46. An overview of the audit report and the report of the Audit Committee Root Cause • Lack of a comprehensive debtors system • Skills gaps Management action plan • New debtors system to be developed as part of the new system – BAS to be used in the interim • Monthly workshops with regional offices to review registers • Additional staff with Financial background to be appointed in all regional offices

47. An overview of the audit report and the report of the Audit Committee Emphasis of matter • These matters are not a qualification but are intended to draw the readers attention to such matters due to their importance. Matters reported are: • Basis of reporting - this is a standard paragraph for all national departments – No further action is required in this regard.

48. An overview of the audit report and the report of the Audit Committee Matters reported are: • Irregular Expenditure – • expenditure that was incurred without adhering to the internal delegation of authority, e.g. services rendered prior to approval by the relevant authority • These were picked up the internal controls established by the department • All cases were evaluated and condoned by the Accounting Officer during the year

49. An overview of the audit report and the report of the Audit Committee Matters reported are: • Restatement of previous financial year figures. • Changes effected on prior year’s reported figures • These changes were either made as a result of a query from the AG or initiated by Management • The intention is to align prior year’s figures to the current for comparability. • One of the major causes for these adjustments is change in reporting framework, e.g. disclosure of minor assets.

50. An overview of the audit report and the report of the Audit Committee Matters reported are: • Material under-spending of budget • Although the amount appears significant it only represents 2,9 percent of the total budget – which is below the materiality threshold set by National Treasury • The under spending was primarily caused by delays in finalising contracts for non-grid service. These contracts were signed towards the end of the financial year • Approval was granted by National Treasury for the roll over of the funding to the 2010/11