PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGEY STRATEGIC PLAN, 2016/17 APP & BUDGET VOTE

1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGEY STRATEGIC PLAN, 2016/17 APP & BUDGET VOTE

2. Introduction • Who we are • Organisational Structure • Revisions to Legislatives And Other Mandates • Strategic Outcome Oriented Goals • Entities Reporting to the Minister Of Energy • Energy Sector Synopsis • Strategic Plan Highlights • Key Focus Areas For The 2016/17 (FY) • NDP, MTSF and 2016/17 APP • Challenges & Interventions • Budget Vote Allocations PRESENTATION LAYOUT

3. Established in May 2009 – outcome of the split of the Department of Minerals and Energy into Department of Energy and Department of Mineral Resources AIM: Formulate energy policies, regulatory frameworks and legislation, and oversee their implementation to ensure energy security, promotion of environmentally friendly energy carriers and access to affordable and reliable energy for all South Africans. MISSION: To regulate and transform the energy sector for the provision of secure, sustainable and affordable energy VISION 2025: Improving our energy mix by having 30% of clean energy by 2025. INTRODUCTION (Who Are We)

4. WHO ARE WE (Cont….) • The core business of the Department is premised amongst others on the Energy White Paper of 1998 as well as the National Energy Act, 2008 (Act No. 34 of 2008) which, amongst others mandates the Department to ensure that diverse energy resources are available, in sustainable quantities and at affordable prices, to the South African economy in support of economic growth and poverty alleviation, while taking into account environmental management requirements and interactions amongst economic sectors. • In carrying out this mandate, the Department develops legislation; undertakes programmes and projects; and in some instances, transfer resources to various implementing agencies and state owned entities (SOEs).

5. MACRO ORGANISATIONAL STRUCTURE OF DOE Minister Associated Institutions Deputy Minister Department of Energy Office of the DG Ministerial and Parliamentary Services Directorate Audit Services Branch Energy Policy, Planning and Clean Energy Branch Petroleum and Petroleum Products Regulation Branch Nuclear Energy Branch Energy Programmes and Projects Branch Corporate Services Branch Financial Management Services Branch Governance and Compliance

6. ORGANISATIONAL STRUCTURE (Cont…) The approved organizational structure consists of the following seven branches: Energy Policy, Planning & Clean Energy Purpose: Ensure evidence- based planning, policy setting and investment decisions in the energy sector to improve energy security, through supply and demand side options, and increase competition through regulation. Petroleum & Petroleum Products Regulation Purpose:To regulate the petroleum and petroleum products industry to ensure optimum and orderly functioning of the petroleum industry to achieve government’s developmental goals. Electrification & Energy Programme and Project Management Purpose: To manage, coordinate and monitor programmes and projects focused on access to energy.

7. ORGANISATIONAL STRUCTURE (Cont….) Nuclear Energy Purpose: Manage the South African nuclear energy industry and control nuclear material and related material in terms of international obligations, nuclear legislation and policies to ensure the safe and peaceful use of nuclear energy. Corporate Services Purpose: To provide corporate support to the DoE. Governance and Compliance Purpose: To ensure good corporate governance and compliance by the DoE and its SOEs; and Financial Management Services Purpose: To provide financial management, accounting and supply chain management services to the DoE.

8. UPDATE ON APPROVED, FUNDED AND UNFUNDED POSTS • Total No. of Posts on DoE’s approved establishment : 844 • Total No. of Funded Posts: 619 (8 filled permanently and additional to the establishment) • Total No. of Unfunded Posts: 225 - Funding of positions is based on budget allocation from National Treasury • Vacant posts: 77 - Recruitment process towards the filling these positions in various stages

9. LOCATION OF DoE OFFICES The Department consists of a national office that is situated in Gauteng Province( Matimba House); and Nine (9) Regional Offices that are situated in various provinces, namely:- Eastern Cape (East London); Free State (Welkom); KwaZulu-Natal (Durban); Limpopo (Polokwane); Mpumalanga (Emalahleni); Northern Cape (Kimberley); Western Cape (Cape Town); Gauteng (Pretoria); and North West (Mafikeng). .

10. REVIEW OF LEGISLATION AND OTHER MANDATES

11. REVIEW OF LEGISLATION AND OTHER MANDATES

12. REVIEW OF LEGISLATION AND OTHER MANDATES

13. STRATEGIC OUTCOME ORIENTED GOALS

14. REGULATORS • National Energy Regulator of South Africa (NERSA) • National Nuclear Regulator (NNR) • RESEARCH AND DEVELOPMENT • South African National Energy Development Institute (SANEDI) • South African Nuclear Energy Corporation, (SOC) Ltd (NECSA) • OTHER • CEF (SOC) Ltd (“CEF” Group)- • National Radioactive Waste Disposal Institute (NRWDI). ENTITIES REPORTING TO THE MINISTER OF ENERGY

15. ENERGY SECTOR SYNOPSIS • South African economy relies heavily on energy; • RSA is dependent on imported crude oil and is increasingly importing petrol and diesel; • The petroleum sector employs about 90 000 people with an annual turnover of about R270 billion; • The electricity industry (ESKOM) employs approximately 46000 employees with the annual turnover of R77.8 billion; and • To date 12, 012 jobs have been created by the RE: IPP and direct investment from IPPs is R120 billion

16. Country’s 20 year plan (IRP)for electricity with a deliberate bias towards cleaner energy. • Renewable Energy Independent Power Producers. • Regulatory certainty, which will bear fruit through significant investments in energy infrastructure. • Improved access to energy services in rural communities . • Nuclear Build Programme. • Solar Water Heaters. • Implement National Infrastructure Plan (NIP) through PICC. • Revision and submission of legislative and other mandates to Cabinet/Parliament. • Grand Inga Project. • Capacity Building and targeted training in the Energy Sector. 5 YEAR STRATEGIC PLAN HIGHLIGHTS

17. KEY FOCUS AREAS FOR THE 2016/17 (FY)

18. KEY FOCUS AREAS FOR THE 2016/17 (FY)

19. NDP - 2016/17 APP

20. NDP - 2016/17 APP

21. NDP - 2016/17 APP

22. NDP - 2016/17 APP

23. CHALLENGES & INTERVENTIONS

24. CHALLENGES & INTERVENTIONS

25. BUDGET VOTE ALLOCATIONS

26. 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%)

27. 2016/17: BUDGET BREAKDOWN

28. 2016 MTEF: CABINET APPROVED BUDGET REDUCTIONS IMPLEMENTED

29. 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.

30. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE per Economic classification

31. 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.

32. 2016 MTEF: INDICATIVE BASELINE vs FINAL BASELINE per Programme

33. 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.

34. 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.

35. TRANSFER PAYMENTS SCHEDULE

36. 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.

37. 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.

38. THANK YOU