Presentation to Select Committee on Economic and Business Development Annual Report 2016/17

1. Presentation to Select Committee on Economic and Business Development Annual Report 2016/17 Chris Forlee CEO 4 October 2017

2. PRESENTATION OUTLINE Introduction Mandate Overview of performance in 2016/17 Organisational performance against predetermined objectives Financial Performance Conclusion

3. A. INTRODUCTION

4. Legislative Context • The National Energy Regulator (NERSA) is a Schedule 3A Public Entity as per the Public Finance Management Act, 1999 (Act No. 1 of 1999). • It was established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to regulate the: • Electricity industry - in terms for the Electricity Regulation Act, 2006 (Act No. 4 of 2006); • Piped-Gas industry – in terms of the Gas Act, 2001 (Act No. 48 of 2001); and • Petroleum Pipelines industry – in terms of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)

5. NERSA’s Role NERSA’s overarching role is to: • ensure the development and sustainability of the electricity, piped-gas and petroleum pipelines industries; • while facilitating the affordability of and accessibility to the three regulated industries to balance the economic interests of all stakeholders • to ensure the sustainable economic development of South Africa and a better life for all.

6. NERSA Structure In terms of section 5 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), the Minister of Energy appoints nine (9) Regulator Members: • Four (4) are Full-Time Regulator Members (FTRMs) and hold office for a period of five (5) years; • Chief Executive Officer; and • 3 Members primarily responsible for Electricity, Piped-Gas and Petroleum Pipelines industry regulation respectively. • Five (5) are Part-Time Regulator Members (PTRMs) and hold office for a period of four (4) years. • The Chairperson and Deputy Chairperson are Part-Time Members.

7. Regulatory Independence • The National Energy Regulator Act provides that the Regulator must act independently of any undue influence or instructions. • In carrying out its regulatory functions, the Energy Regulator does this in line with its regulatory principles and governing legislation. • In order to ensure regulatory independence, the Energy Regulator has developed regulatory mechanisms (i.e. policies, procedures, rules, guidelines, systems, etc.) that makes its decision-making processes to be open, transparent, credible, consistent, predictable, as well as making it accountable for its decisions.

8. B. MANDATE

9. MANDATE NERSA’s Mandate is anchored in: • 4 Primary Acts: • National Energy Regulator Act, 2004 (Act No. 40 of 2004); • Electricity Regulation Act, 2006 (Act No. 4 of 2006); • Gas Act, 2001 (Act No. 48 of 2001); and • Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). • 3 Levies Acts: • Gas Regulator Levies Act, 2002 (Act No. 75 of 2002); • Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004); and • Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987).

10. MANDATE (continued) The following facilitating and other legislation is also applicable to NERSA's conduct of its business:

11. MANDATE (continued) • NERSA implements its mandate by means of the following regulatory functions: • Issuing of licences and setting pertinent conditions; • Setting and/or approving tariffs and prices; • Monitoring and enforcing compliance with licence conditions; • Dispute resolution including mediation, arbitration and the handling of complaints; • Gathering, storing and disseminating industry information; • Setting of rules, guidelines and codes for the regulation of the three industries; • Determination of conditions of supply and applicable standards; Registration of import and production activities • In executing its mandate NERSA endeavours to balance the conflicting interest of both licensed entities and end users.

12. C. OVERVIEW OF PERFORMANCE IN 2016/17

13. Key achievements • NERSA received a clean audit for its financial performance and performance against predetermined objectives; • 4th consecutive clean audit. • NERSA achieved 98% (57 of 58) of its planned annual targets: • The one (2%) target that was not met, was that of 99% (vs. target of 100%) of creditors paid within 30 days. • Corrective actions have been put into place to mitigate the recurrence of this target not being met in future.

14. Key achievements (continued)

15. D. ORGANISATIONAL PERFORMANCE AGAINST PRE-DETERMINED OBJECTIVES • Strategic imperatives • Service Delivery Environment • Corporate Governance issues • Key achievements for the 2016/17 financial year • Human resource management • International activities

16. D1. Strategic Imperatives

18. D2. Service Delivery Environment • Operating in national context: NERSA’s contribution towards key government priorities and programmes • Organisational Programmes

19. Contribution towards key government priorities and programmes

20. Contribution towards key government priorities and programmes (continued))

21. Contribution towards key government priorities and programmes (continued)

22. Contribution towards key government priorities and programmes (continued)

23. Contribution towards key government priorities and programmes (continued)

24. Contribution towards key government priorities and programmes

25. Organisational programmes In order to achieve its outcome oriented goals NERSA delivers on its strategic objectives through the following structured programmes:

26. Organisational programmes (continued)

27. D3. Corporate Governance issues

28. Introduction • NERSA is committed to good corporate governance. Adopted the Corporate Governance Handbook containing corporate governance rules and prescripts. • The provisions of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), the PFMA and the principles contained in the King Ill Report on Corporate Governance are included in the Corporate Governance Handbook to which NERSA adheres. • NERSA applies a process of declaration of interest. • In adhering to best practice and sound governance principles, the Energy Regulator subjects itself to an annual assessment on the effectiveness of the Energy Regulator and its committees.

29. Oversight The Parliamentary Portfolio Committee (PPC) on Energy has oversight of NERSA Executive Authority The Executive Authority of the National Energy Regulator is the Minister of Energy. The Energy Regulator submitted a number of documents to the Executive Authority, namely: • The Annual Performance Plan (2017/18-2019/20) submitted on 31 January 2017. It was approved by the Minister of Energy in March 2017 and tabled in Parliament on 15 March 2017. • 4 quarterly performance reports submitted within prescribed timeframes • The Annual Report (2015/16) was submitted to the Minister of Energy, the Minister of Finance and the Auditor-General on 18 August 2016.

30. Accounting Authority • The Energy Regulator, as the accounting authority, retains full and effective control over NERSA. • The Energy Regulator provides leadership and is responsible for monitoring the implementation of its decisions and strategies by management. Energy Regulator subcommittees and committees • Regulatory Subcommittees – open to the public except where confidential matters are to be considered: • Electricity Subcommittee (ELS) • Piped-gas Subcommittee (PGS) • Petroleum Pipelines Subcommittee (PPS) • Cross-Cutting Subcommittees – open to the public except where confidential, organisational or governance matters are to be considered: • Regulator Executive Committee (REC) • Governance Committees – not open to the public: • Human Resource and Remuneration Committee (HRRC) • Finance Committee (FIC) • Audit and Risk Committee (ARC)

31. Risk Management • In compliance with the requirements of the PFMA, the Energy Regulator approved a Risk Management Policy for the organisation. • Progress made with mitigating the top 10 risks were reported in the quarterly performance reports. Internal Audit • The objective of the NERSA internal audit function is to: • provide professional, independent and objective assurance and consulting activity designed to add value and improve the operations of NERSA; and • assist NERSA in accomplishing its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. • The Internal Audit Unit has completed all 34 audits planned for the period under review.

32. Compliance with laws and regulations • NERSA reports on compliance with the Public Finance Management Act, 1999 (Act No. 1 of 1999) ('PFMA') and Treasury Regulations in its quarterly reports submitted to the Department of Energy. Fraud and Corruption • A fraud policy and a fraud prevention plan are in place and were approved by the Energy Regulator. • A fraud hotline is in place, which is operated by an external service provider and guarantees the anonymity of any person calling in to report suspected fraud, corruption or misuse of public resources. • No cases of fraud were reported during the financial year.

33. D4. Key achievements for the 2016/17 financial year • Overall Performance against predetermined objectives • Specific Achievements – grouped as follows: • Electricity Industry Regulation; • Piped-Gas Industry Regulation; • Petroleum Pipelines Industry Regulation; • Transversal Regulatory; and • Organisational.

34. Overall Performance against predetermined objectives

35. Specific Achievements: Electricity Industry Regulation

36. Specific Achievements: Electricity Industry Regulation (continued)

37. Specific Achievements: Piped-Gas Industry Regulation

38. Specific Achievements: Piped-Gas Industry Regulation (continued)

39. Specific Achievements: Petroleum Pipeline Industry Regulation

40. Specific Achievements: Cross-cutting regulatory

41. Specific Achievements: Organisational

42. D5. Human Resource Management

43. Staff development • A total of 67% of staff underwent training (both locally and internationally) . This is a decrease of 8% from the previous year's 75%. • The decrease was due to cost containment measures implemented from April 2016. • In the period under review, 9 learners were appointed to embark on NERSA's Learnership programme to attain a National Certificate: Energy Regulation NQF Level 5. • The programme prepares young graduates from further education and training institutions and universities for development of skills within the regulatory environment by providing theoretical and on-the-job training in order to create a pool of potential candidates for employment by the Energy Regulator. • 11 interns were appointed and allocations were made across both the support and regulatory divisions.

44. Staff Analysis • NERSA concluded an organisational review in July 2016 and a new organisational structure was approved with a total of 246 positions. • The implementation of the new structure commenced with the start of the 2017/18 financial year.

45. Staff Analysis (continued)

46. D5. International Activities

47. Regional Electricity Regulatory Association of Southern Africa (RERA) NERSA is a Member of the Executive Committee of RERA RERA Objectives: • Capacity Building and Information Sharing; • Facilitation of Electricity Supply Industry Policy, Legislation and Regulations; and • Regional Regulatory Cooperation. RERA Membership • Angola - Institute for Electricity Sector Regulation (IRSE); • Lesotho - Lesotho Electricity and Water Authority (LEWA); • Malawi - Malawi Energy Regulatory Authority (MERA); • Mozambique - National Electricity Advisory Council (CNELEC); • Namibia - Electricity Control Board (ECB); • South Africa - National Energy Regulator of South Africa (NERSA); • Swaziland – Swaziland Energy Regulatory Authority (SERA); • Tanzania - Energy & Water Utilities Regulatory Authority (EWURA); • Zambia - Energy Regulation Board (ERB); and • Zimbabwe - Zimbabwe Energy Regulatory Authority (ZERA).

48. African Forum For Utility Regulators (AFUR) NERSA is a member of AFUR EXCO and Energy Sectoral Committee. AFUR focuses on issues related to the regulation of the Energy, Telecommunications, Transport, Water and Sanitation Sectors AFUR Objectives: • Information sharing; • Capacity building; and • Harmonisation of regulatory policies and legislation. Algeria Mauritania Niger Mali Senegal Gambia Burkino Faso Cote d’Ivoire Ghana Togo Nigeria Cameroon Angola - observer Benin DRC - observer AFUR Membership Ethiopia - observer Uganda Kenya Tanzania Malawi Zambia Zimbabwe Namibia Mozambique South Africa Lesotho Rwanda North Sudan - observer

49. Co-operation with other global institutions / organisations • RERA and AFUR continue to enjoy excellent working relationships and support from the: • African Union (AU); • SADC Secretariat; • Southern African Power Pool (SAPP); • International Confederation of Energy Regulators (ICER); • Council of European Energy Regulators (CEER); • Energy Regulators Regional Association (ERRA); • ECOWAS Regional Electricity Regulatory Authority (ERERA); and • Roundtable of Regional Energy Regulators Associations of Emerging Market.

50. E. FINANCIAL PERFORMANCE