“Working together to usher in a New Era for Energy Modelling, Forecasting, Planning and Delivery”
Mr Speaker,
Honourable Chairperson and Members of the Energy Portfolio Committee,
Honourable Members,
This budget vote debate takes place at the time when the ANC has made bold its commitment to operate within the context of a developmental state that must play an active role in ensuring that energy poverty is banished.
Last year, a day after Christmas �" the child of a key energy activist died from wounds he sustained arising directly from lack of access to modern forms of energy. This is a microcosm of similar incidents that are silently happening and impacting on the most vulnerable of our society.
Maya Angelou wrote “History, despite its wrenching pain, cannot be unlived, but if faced with courage, need not to be lived again.”
We are committing through this budget our resolve to do everything in our power to reduce the dire consequences of energy poverty in our country.
We are determined to face our mandate with courage and fortitude, and to not, as Maya Angelou says �"“live history again.”
Honourable members, if you take into account policy positions and legislative adjustments that we have to carry out in this financial year, you will realise that, compounded by the current economic downturn, the resources that have been allocated to deal with these challenges are limited.
My Department was appropriated:
* R5, 535 billion for 2010/11,
* R5, 739 billion for 2011/12, and
* R5, 538 billion for 2012/2013 respectively.
Honourable Members,
97% of our budget, about R5.3 billion, will be transferred to the Integrated National Electrification Programme (INEP), the Nuclear Energy Corporation of South Africa (NECSA), the National Efficiency and Demand side management (EEDSM) Programme and Transnet leaving the Department with R202 million, which translates to 3% of the total budget allocation.
I must stress that this budget only allows us to implement 51% of our operating structure. The structure will be implemented in phases, starting with areas which are critical and essential for service delivery, compliance and the exercising of oversight functions with regard to State Owned Entities.
The Global and Domestic Energy Landscape
Energy shortages and sustained high energy prices have caused concerns globally about both the sustainability of supply and the affordability of energy for economic development and poverty eradication.
It is these concerns that have resulted in the re-emergence of energy security as a major policy imperative in almost all economies, developed and developing.
This year, we will draft and publish an Integrated Energy Planning Strategy which is expected to outline the requisite processes, systems and structures that will lead to the development of the comprehensive Integrated Energy Plan, as envisaged in the National Energy Act, 2008 (Act No. 34 of 2008).
The IEP is essentially an umbrella policy or plan which acts as a guide for the entire energy sector and takes into consideration supply and demand within the oil and gas industries as well as the electricity sector.
It is our considered view that we should develop a strategy before embarking on the development of the plan itself, to ensure that all our processes and structures are fully inclusive and aligned with other government-wide processes such as the National Planning Commission.
It is also important for us to clearly communicate how we see this plan interfacing with the Integrated Resource Plan (IRP2) and ensuring that there is alignment between these plans.
Key to us achieving our objective of developing the IEP will be for us to obtain relevant, comprehensive, up-to-date and quality data relating to:
* energy resources,
* production,
* consumption,
* environmental impact, as well as,
* macro-economic factors.
This data is hard to come by as it is often collected voluntarily, in pockets and often on an ad hoc basis which makes effective planning a challenge.
Accordingly, within the next week, I will publish regulations which aim to make it mandatory for different stakeholders to provide the Department with energy related data on a periodic basis. The Regulations will also indicate the type of data that we seek, as well as the potential sources for that data.
During the course of the current calendar year, activities in this regard will focus on developing forms and mechanisms for collecting this data from various sources.
Electricity
The electricity sector has never been as vulnerable as it is today. It has started to decline particularly given the reality of the fact that our generation assets have been in operation for a period longer than 30 years.
The economic performance over the past quarter has indicated that we are emerging out of the recession faster than most countries have done globally. We find ourselves in this vicious trap, where on the one hand our economy is growing due to the global economic upturn, and on the other hand, our ability to balance the supply and demand of electricity is under threat.
We thank President Zuma for his foresight in establishing the Inter-Ministerial Committee on Energy in a bid to ensure that the democratic government brings together almost all disciplines in order to usher in a new era for implementing our energy mix policy that will catapult our country into a modern society.
Integrated Resource Plan (IRP) �" South Africa’s Power Plan
Towards the end of last year we promulgated, an interim Integrated Resource Plan (IRP1) to cover the period 2010-2013. The IRP1 sought to provide us with space to deal with:
* stakeholder engagement,
* economic growth assumptions,
* engagement with intensive energy users in the context of the Energy Conservation,
* renewable energy,
* demand side management and energy efficiency initiatives,
* climate change imperatives, as well as,
* understanding what the Southern African Power Pool can deliver.
The IRP2 currently under development will cover a period of 25 years and will put into effect our President’s commitments in line with our Long Term Mitigation Scenarios.
The decision of the World Bank to grant a loan to Eskom, our state utility tasked with the supply of electricity, will enable us to continue with our build programme as well as broadening the use of renewable and clean energy sources in our country.
Working together with the Department of Science and Technology and through SANEDI (our energy research entity), we will find home grown scientific answers to the issue of carbon capture and storage as well as using our abundant coal reserves to produce clean forms of energy to reduce greenhouse emissions.
To facilitate meaningful engagement process for IRP2, we will within the next few days introduce an interactive website, (http://www.energyirp2010.co.za), and will also hold workshops and stakeholder forums dedicated to culminate in the country’s electricity plan.
Private sector participation in the electricity sector
Honourable members, you will recall that cabinet took a decision that 30% of our new generation capacity should be supplied by independent power producers.
We however remain firmly committed to the fact that transmission should remain under the control and ownership of the democratic developmental state.
In order to give effect to the 2010 State of the Nation Address injunction by President Zuma, we are establishing, as a solution in the short term, and within the next 6 months, the Independent System and Market Operator (ISMO) in order to, amongst others, resolve the perceived conflict of interest with regard to the role of Eskom as both buyer and seller of electricity.
Legislation related to the establishment of the ISMO as a public entity is about to be tabled before cabinet and as is the convention this will go through this house soon thereafter. In the main, the ISMO will have the responsibility to negotiate the power purchase agreements.
I am happy to confirm that the first 300 MW of co-generation from IPPs will be signed within the next month.
Energy Efficiency and Demand Side Management (EEDSM)
A financial incentive scheme will be introduced, to be known as the standard offer, in terms of which project developers will be able to claim a rebate in respect of the amount of energy they have saved from the electricity system.
We intend to intensify energy efficiency in the estimated 100 000 public buildings which will be retrofitted to comply with energy efficiency standards. The Department of Public Works is called up on to ensure that all provincial governments participate in this project.
It is unfortunate that the hospitality industry has not fully embraced the spirit of this campaign as expected.
Last year, we made the commitment to install solar water heaters as one of a myriad of interventions to address the challenges of electricity demand.
We needed to do thorough work with the industry and sister departments to ensure that when we roll out this programme, we have covered every piece of ground that had to be covered. The outcomes of this programme are expected to include:
* electricity demand reduction (3 600 MW),
* localisation of SWH technology (design and production),
* climate change mitigation,
* job creation as well as
* skills development.
In terms of this programme, access to hot water will not be determined by your socio-economic status.
I am delighted to indicate to this august House that President Zuma will launch, on 28 April 2010, the first massified solar water heater project in Winterveldt.
This is a precursor to numerous other SWH projects which will ultimately result in the displacement of coal by the sun as a preferred energy carrier for water heating in this country.
Working for Energy Programme
This year, the Department will be launching the Working for Energy Programme, with the primary objective of using the feedstock created from clearing alien biomass vegetation to produce power.
We are happy to announce that we are working with Municipalities and the Department of Water Affairs with regard to waste to energy project.
This work and that of the Solar Water Heating programme are being undertaken in the context of IPAP2 and it solidifies our commitment to green economy
Renewable Energy
We have concluded the Clinton Climate Initiative supported pre-feasibility study that I announced last year. This initiative aims to establish the concept of a Solar Park in our country.
We will be making further announcements in this regard in the near future.
In order to confirm governments’ commitment with regard to the use of renewable energy, we have launched two flagship initiatives:
* a small scale hydro at Bethlehem in the Free State, and,
* a Waste to Electricity Project at eThekwini.
These projects have added 13 MW to the total supply capacity in our country.
Distribution Infrastructure
The integrity of the electricity distribution sector is threatened by increasing backlogs in maintenance and rehabilitation, which currently stand at an estimated R27 billion.
The introduction of an intensive network rehabilitation programme has become more urgent and critical. This has to be pursued together with a parallel regulatory plan to ensure that rehabilitation is sustained by a sound maintenance strategy going forward.
The funding for such a programme is planned to be done in the form of a combination of fiscal and tariff allocations. I would like to thank EDI Holdings for the tremendous work they have done in this regard.
Honourable Speakers and Members,
Rural Development and Energy Poverty
This department recognises that we have to play a central role in the imperatives outlined in the ANC Manifesto insofar rural development is concerned. Access to and the effective utilisation of energy remains key ingredients in our quest to move the masses of our people out of the spectre of poverty and underdevelopment.
Our Integrated Energy Centres are but one of the many interventions led by this department as part of the comprehensive response of government to the challenges of bridging the gap between liquid fuels and electricity.
INEP
Since the inception of the Integrated National Electrification Programme (INEP), more than 80% of formal households in six provinces have been electrified.
However, serious challenges remain in the provinces of KwaZulu-Natal, Limpopo and the Eastern Cape. The department has prioritised the building of network capacity in these Provinces to support additional connections.
Working with the Department of Basic Education, we will ensure that all identified functional centres of learning will be electrified this year. This year with the fiscal allocation of R2.8 billion, the Department will only achieve 150 000 new household connections plus 10 new and upgraded bulk substations and lines.
We will use the possibility that is offered by the off-grid electricity programme to connect an additional 10 000 households utilising Solar Home Systems (SHS) for lighting and running a few electronic appliances.
Impact on the Poor
One of our concerns, as electricity tariffs increase, is premised on the impact of high tariffs on the impoverished.
Whilst this concern is well substantiated, it has become critical to dispel some misconceptions regarding the emotive subject of electricity tariff determination and how tariffs are applied to domestic, commercial and industrial customers.
We will mitigate the adverse impact of tariff increases on the poor through a number of mechanisms over and above the Free Basic Electricity Programme. The first mechanism is based on inclining block tariffs and the second one is related to the savings on the electricity bill derived from the solar water heating programme.
We will work with the Department of Cooperative Governance and Traditional Affairs and the National Treasury to sort out the funding of municipalities in so far as electricity distribution infrastructure is concerned. We need municipalities on our side as energy champions.
In the meantime we call on municipalities to apply surcharge increases in a manner that is sensitive to the circumstances of the indigent.
Honourable Speaker,
Nuclear
We are happy to report that South Africa has successfully converted our SAFARI 1 reactor from a High Enriched Uranium (HEU) to a Low Enriched Uranium (LEU) based facility. We will be the first radio isotope producing country to have completed this conversion process, which is a requirement for supplying radio isotopes into certain key markets.
The good news is also that South Africa is a leading supplier of medical radio isotopes globally.
We must also indicate that during the recent Nuclear Security Summit in Washington, President Zuma was highly commended on South Africa’s commitment to nuclear disarmament and the peaceful use of nuclear power.
We were 1 of only 8 countries in this category, out of a total of 43, which were complimented for aligning ourselves with a worldwide effort to combat the proliferation of nuclear technology.
President Zuma further re-affirmed our stance of using nuclear energy for power generation, water provision as well as healing and feeding the nation.
We intend to implement our decision to introduce additional nuclear base load power as part of the process of developing the IRP. We are steadfast in our commitment to the right of our people to know about all the sides of the equation of the nuclear debate.
We have an obligation to enable our citizenry to better understand all issues related to nuclear. We will continue with our process of unmediated communication on this issue.
As a responsible government we have commenced with the establishment of a National Radioactive Waste Disposal Institute which will be responsible for the management of all radioactive waste pursuant to a safe waste disposal regime.
Hydrocarbons
Honourable Members,
Whilst public discourse has largely been focused on electricity, the liquid fuels challenges are equally daunting. There is a need for extensive investment in infrastructure for liquid fuels.
20 Year Liquid Fuels Infrastructure Plan
In order to inform long term investment and provide security of supply there is a need to revise existing plans and strategies.
To this end, I have directed the Department to develop a comprehensive 25-year Liquid Fuels Infrastructure Plan by the end of this fiscal year. This plan will cover port, pipeline, storage as well as distribution infrastructure. It will also include future refining capacity development requirements.
Project Mthombo
PetroSA, the National Oil Company, is the instrument in the hands of the government that we can use to implement the provisions of the Energy Security Master Plan, as well as the provisions contained in the Liquid Fuels Charter.
We are determined to make sure that PetroSA plays a leading role in providing a solution to South Africa’s liquid fuels challenges.
This strategic national asset must be repositioned to compete with the best and the most efficient oil companies in its line of business.
We have continuously indicated that Government supports plans to develop a new crude oil refinery at the Coega Industrial Development Zone. In addition to addressing the growing gap between the demand and supply of liquid fuels, this project will facilitate the implementation of new clean fuels standards.
Clean fuels, because of lower toxic emissions, are essential for people’s health as well as improved engine performance in motor vehicles. And importantly, it will mitigate the country’s growing reliance on imported finished product which is due to insufficient local refining capacity.
The Department is presently reviewing the recommendation to proceed with Front End Engineering Studies made by the national oil company following the completion of the Feasibility Study and I will make further announcements in this regard in the near future.
New Multi-Product Pipeline (NMPP)
In recognition of the fact that more than 60% of our liquid fuels demand lies within the Durban-to-Johannesburg corridor and the fact the Durban-to-Johannesburg Pipeline (DJP) had become inadequate to transport the required volumes of petroleum products from the coast to the inland regions, the Department in its Energy Security Master Plan (ESMP) included the construction of a bigger new multi-product pipeline (NMPP) by Transnet.
Pursuant to that the Department, in conjunction with the Department of Public Enterprises and National Treasury, has worked on the funding mechanism for the NMPP.
In the Budget Speech on 13 February 2010, the Minister of Finance raised a security of supply levy to enable motorists to contribute funds towards the construction of the NMPP.
In this regard, the Department has been allocated an amount of R4.5bn over the Medium Term Expenditure Framework (MTEF) period to fund the additional capacity for the security of supply of petroleum products.
Strategic Stocks
My Department has developed a Strategic Stocks Policy for petroleum products to ensure that the economy does not suffer from shortages during severe liquid fuel supply disruptions.
The Department will be engaging other economic sector departments on the draft Policy Document that has been developed. I expect to table this document to Cabinet before the end of the first quarter of the 2010/11 fiscal year.
Clean Fuels
As part of our contribution towards cleaner burning fuels, we are determined to modernise SA’s fuel specifications. To formulate a common Governmentposition, an interdepartmental task team was formed last year.
We have undertaken preliminary engagement with key stakeholders such as the South African Petroleum Industry Association (SAPIA) and the National Association of Automobile Manufacturers of South Africa (NAAMSA). We expect to issue a Roadmap on Clean Fuels during the third Quarter of the 2010/11 Fiscal Year.
The review of the Petroleum Products Amendment Act
We are currently reviewing the Petroleum Products Act with a view to further strengthening our legislative framework’s ability to address the needs of a developmental state, including the transformation of the liquid fuels industry.
We are concerned that the prohibition of vertical integration in the petroleum industry has not yielded the desired results of opening up access to refined products by emerging entrepreneurs at the refinery gate prices.
Liquefied Petrol Gas (LPG) Price Regulations
In response to public outcry about exorbitant LPG prices, the Department undertook to regulate the retail price of LPG supplied to residential customers.
The Department is working towards implementing the regulations of the retail price of LPG, which empower the Minister to determine price on a monthly basis. This is in line with Government’s efforts to expand the energy mix and promote LPG as an efficient energy carrier for household cooking and other thermal purposes.
The Department will also commence with the development of an LPG strategy to holistically address all challenges in the LPG sector, chief amongst which is the security of supply and affordability.
Regulatory Accounting System
This year, the Department will finalise and implement the Regulatory Accounting System for the petroleum sector that will be used to determine appropriate margins for:
* wholesale,
* coastal storage,
* handling
* secondary storage,
* distribution, and;
* return on assets for the benchmark service station (BSS).
The ultimate goal is to achieve a uniform and transparent set of regulatory accounts where costs are allocated according to predetermined methods.
This will provide certainty to investors with regard to the return on assets throughout the petroleum industry value chain. We will achieve this by ring-fencing regulated from unregulated activities in order to eliminate actual and potential cross-subsidies.
It is envisaged that a properly functioning regulatory system will promote appropriate investments in the sector.
Honourable Members,
Petroleum licensing
On petroleum licensing, I am pleased to report that during the course of the last financial year 3,041 licence applications were processed.
I am mindful of the backlog in this area, and have therefore instructed the Department to reduce the stipulated ninety (90) day period for processing applications without sacrificing the quality and the evaluation of applications.
From the 1st of April 2010 licence applications can now be lodged in all the respective provinces.
The Liquid Fuels Charter
November 2010 will mark a decade since the liquid fuels charter was adopted. As part of the process of reviewing the performance of the liquid fuels sector, we will be convening an Indaba later this year.
This will afford opportunities for new and aspirant entrants to have a platform that can enable them to benefit from the opportunities that accrue from this sector as well as share information with the established industry players.
Preliminary indications are that with regard to gender and procurement aspects of the charter we are not performing as we anticipated and the Indaba will afford us the opportunity for industry stakeholders to deal with these challenges.
With regards to the 2010 FIFA World Cup, the Department, together with roleplayers in the liquid fuels sector, has within the exemption granted by the Competition Commission, been able to plan for the anticipated increase in the demand during the event.
In addition all stadia will be running on diesel generators for electricity supply during the period of the tournament.
Its all systems go for a successful African Soccer World Cup!
Conclusion
Let me take this opportunity to thank the Director-General, Ms Nelisiwe Magubane, my advisers, ministerial staff, senior management and other staff members in the department, the Chairpersons and Members of both the Portfolio and the Select Committees of Parliament, our State �"Owned- Entities as well as all other stakeholders who continue to take active interest in the development of the structure and mandate of the department.
Let me express gratitude to President Zuma for leading the charge of those frontline and progressive forces that are championing the cause of energy. We continue to be inspired by his leadership and support, and that of my colleagues in Cabinet.
Finally, no one must doubt our intention as a Department of Energy to work together and even better to intervene in energy planning, modeling, forecasting and delivery in a bid to safeguard our country’s security of supply.
As we have said, Honourable Members, we are determined NOT to “live our past!”
We are honoured to commend to this House the 2010 Budget for Vote 28.
I thank you!
Ke a leboga!
Ndiyabulela!
Ro livhuwa!
Baie dankie!
Issued by: Department of Energy
20 April 2010
