Hendricks, National Assembly
25 May 2006
Madam Speaker
Colleagues
Honourable Members
Ladies and Gentlemen
1. Introduction
I stand before you today to present my first and last budget as Minister of
Minerals and Energy. It has been an exciting albeit challenging 11 months.
The past year has witnessed a global commodity boom that has seen the prices
of oil, platinum group metals, gold, copper and other minerals move to prices
not seen for the past twenty years. Except for the high oil prices, this
commodity boom has impacted favourably on our economy, which has seen our
commodity sales grow by 14,1 % from 2004 to 2005 and with R12,4 billion of
commodities being exported. This growth in commodity sales has gone a long way
in helping to mitigate the effects of the high oil prices. In the past boom
times the industry failed to invest wisely in the sector hence we had a number
of retrenchments immediately when the commodity prices fell. This time around
we are a bit wiser as my department together with the unions, the Chamber of
Mines, and Anglogold Ashanti, Harmony, Goldfields, and South Deep have put
aside R4,15 million for a comprehensive study that is to look at issues we have
to focus on in order for us to ameliorate retrenchments that have become a norm
in this sector.
Honourable members, the department for the 2006/07 financial year has been
allocated R2,548 Billion; a large portion of which was allocated to transfers
to public entities, other organisations and municipalities. Twenty two and a
half percent of the budget which amounts to R572 million, is allocated to the
running of the department and regulating these diverse industries.
2. Energy
The impact of the high crude oil prices and consequently the high petrol
price is felt by all, but more so by developing countries and the poor in those
countries. Furthermore if these increases continue they could result in the
slowing down of global economic growth, which would have an impact on our
economy. Honourable Madam Speaker, this has necessitated that we in South
Africa look at the alternatives in order to secure our energy supply. It is
clear that for the governmentâs Accelerated Shared Growth Initiative for South
Africa (ASGISA), energy is going to play a very crucial role.
The projected economic growth, as well as the targets as expressed in
ASGISA, necessitates a review of some of the assumptions that were made in
planning for new energy capacity and infrastructure. The results of our review
will be factored into the integrated energy planning process.
Our task is to ensure that there are measures in place to secure energy
sources that will power the economy of this country into a future where we all
share in the benefits. For the Hydrocarbons and Energy Planning this means that
a robust Integrated Energy Planning that will look at both the short and long
term needs to be established. The plan will indicate to us available energy
sources and those that will need to be developed in future. This will include
looking at our strategic stock policy, for both crude oil and petroleum
products.
2.1 Oil and gas
Our Energy White Paper of 1998 envisages a fully liberalised petroleum sector;
however, recent events â in both the local and global arena, have necessitated
a review of some of the assumptions underpinning our strategy.
When the country experienced fuel shortages at the beginning of December
2005, there were indications that the shortages were largely linked to the
bottlenecks in the supply, transportation and distribution of finished products
to the markets. I then initiated an investigation that is being led by Advocate
Marumo Moerane. This investigation covers all matters that would offer insight
into the reasons that led to the fuel shortages. Adv. Moerane and his team are
expected to conclude their investigation by July 2006.
I have also appointed a task team that is looking at the short, medium and
long term constraints in the fuel supply industry. This task team includes
members of the industry and the Department and will incorporate the findings of
the Moerane investigation.
The primary output of this task team will be an analysis of the current
downstream liquid fuels supply to the South African âmarketâ. This analysis
will show how and when bottlenecks will occur in the supply chain and what
range of remedial measures should be put in place to overcome such bottlenecks.
The medium to long term analysis to be done by this task team will provide
insight into the critical planning and management aspects of the downstream
liquid fuels.
It will therefore become necessary for us to consider changes to entire
petroleum and gas value chains, which includes refineries, pipelines,
wholesaling, distribution, and retailing. This value chain cuts across both
public and private sector organisations; with PetroSA, the state owned national
petrochemical company, expected to play a critical role. Our policy review will
contribute towards a realignment of our strategy, and preventing the recurrence
of shortages whilst improving security of supply.
2.2 Electricity Provision
Honourable Madam Speaker, one of the foremost thoughts of many members in
the house today would be the recent electricity outages in the Western Cape. I
would like to use this occasion of my budget speech to address some of the
issues; and to reassure MPs, investors and members of the public that the
department of Minerals and Energy, as the department responsible for energy
policy and ensuring there is a framework for adequate provision of energy
supply in the country, are taking these outages very seriously; and we are
taking steps to ensure there is sufficient energy capacity in our country.
Security of energy supply is the mandate of the Department of Minerals and
Energy and we require a robust plan to ensure that there is adequate power
supply in the country, both in the medium and the long term.
We have reinforced our capacity to deliver on this mandate; firstly with the
introduction of the Electricity Regulation Bill, which provides regulatory
clarity regarding the responsibilities of the Minister of Minerals and Energy
relative to the regulator and Eskom. The Bill also introduces penalties in the
event of a breach of the licensed norms, and a centralised plan for electricity
capacity expansion.
It is also our intention to strengthen the regulatory framework to ensure
effective regulation of the distribution channels of energy sources.
Honourable members, earlier this month we held a workshop with the CEOs of
energy companies, the energy regulator, other government departments, research
institutions and associated institutions. Together we remain convinced that at
present there is sufficient capacity in the country and there is no need for
panic, however we are fully aware that the reserve margins are tight. And going
forward new infrastructure and plants will need to be built. The Department of
Public Enterprises and Eskom have made announcements on the extensive programme
for refurbishing and building new power plants, which will generate a
significant investment in our country. These plans will need to be informed by
our projection of electricity demand and economic growth.
The Department of Minerals and Energy is also co-ordinating the introduction
of private investors into the electricity sector. These Independent Power
Producers will be supplying 30% of the electricity needs of our country over
the next 10 years. The bids for the first two privately operated peaking plants
will be submitted by September 2006, which power plants should be operational
by winter 2009. In addition to the new plants being built by Eskom and the
private sector independent power producers, there is a need for Public Private
Partnerships for the establishment of additional energy capacity.
2.3 Nuclear, alternative energy sources and energy efficiency
Honourable members, the problems at Koeberg have created very specific
challenges here in the Western Cape. The assistance of the French Government in
supplying the rotor has helped to ensure speedy return to service of Koeberg 1,
which is now fully operational. The Koeberg unit 2 is now able to be refuelled,
which has started and by August this refuelling should be complete and the
situation will return to normal.
Honourable Madam Speaker, the problems at Koeberg have had positive
consequences, albeit in an ironic way. We have now taken the opportunity to
embark on concerted energy efficiency and Demand Side Management program, both
here and nationally. We have asked consumers in the Western Cape to become more
energy efficient and to use alternative energy forms so that we could reduce
the amount of electricity required, particularly at peak times. Energy
Efficiency offers a short term solution to some of our challenges and members
of this house will be aware that over the past few years we have held energy
efficiency campaigns. We have declared May an energy efficiency month in South
Africa, and we have for several years now been looking to all businesses and
citizens to take greater levels of responsibility for reducing their
consumption of electricity. Not only will such reductions result in less new
power stations being built thereby benefiting the economy and the environment,
but it would also be a financial saving for these consumers. Energy efficiency
is not just a South African issue; at the recently held United Nations
Conference on Sustainable Development that I attended it was agreed that energy
efficiency is the best possible way to decrease emissions; it pays for itself
in most cases and even generates savings.
While energy efficiency campaigns have been run over the past few years, it
has not become a way of life for us. It has now become necessary for government
to take stronger measures in order to achieve greater levels of energy
efficiency. To this end the DME will be taking steps to phase out the use of
certain classes of incandescent light bulbs in our country, and replace them
with Compact Fluorescent Lamps (CFLs). The implication is that in the near
future the normal high voltage light bulbs that we buy in the supermarket will
no longer be stocked; rather we shall see these energy efficient CFLs that use
a fifth of the energy and last up to six times longer being made available.
Honourable members as part of our diversification of primary energy sources,
we intend to promote renewable energy, not only because it is the right thing
to do, but also to ensure that we have other options for our energy mix.
Nuclear energy offers a cleaner alternative to coal fired power stations. For
the Western Cape which does not have coal in abundance we must consider nuclear
energy as a viable option. That said there is a great deal of work that needs
to be done before a new conventional nuclear power station can be built. A
decision on whether we want to consider this option will need to be made in the
next few months in order to go through the proper consultative processes and
have a new nuclear power plant operational by 2015.
Alternative and renewable energy sources such as hydropower, wind power,
solar energy, and generating electricity from waves are being explored.
Currently the most significant potential for energy generation lies in
hydropower; and this requires extensive regional co-operation in the
construction of hydroelectric plants and in bringing electricity across several
neighbouring countries; the DME is working very closely with the Department of
Water Affairs and Forestry in the development of hydropower potential for the
country. Through the Central Energy Fund (CEF) and the Energy Development
Corporation we are investing significant resources in projects and enterprises
that will generate alternative and renewable energy.
Another impact of the high oil prices is that renewable and more
environmentally friendly forms of fuel become more viable to produce. Here we
refer to biofuels, which are fuels that can be manufactured from a number of
different agricultural products such as sugar cane, maize or soya. The
production of biofuels has been recognised as having significant potential for
our country not only because of the environmental benefits, but also to create
significant numbers of jobs in the agricultural sector and second economy as
well as reduce the need to import crude oil. Biofuel production is a project of
the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) and
Cabinet approved in December 2005 the establishment of a task team, which is
being co-ordinated by the Department of Minerals and Energy. We are at present
working with several other departments; and with CEF (Pty) Ltd and the
Industrial Development Corporation we have commissioned an extensive study of
this sector. Already the private sector has responded well to our shift in
policy toward biofuels and we are looking at significant investment by both the
agricultural sector and in the manufacture of these fuels.
2.4 Electrification
Honourable Madam Speaker, Ladies and Gentlemen, one of the largest
allocations of our departmentâs budget is on electrification. A total of R 1.3
billion has been allocated over the coming financial year. In 2004, the
President announced in his State of the Nation Address the intention to achieve
universal access of electricity by 2012. According to our plans, in order to
achieve this goal, we need funding of no less than R2,5 billion per annum.
However, we are currently receiving on average R1,4 billion per annum and we
continue to engage with relevant role players to ensure that we receive
appropriate funding to cover the shortfall. We believe we have enough capacity
in the Department to effectively implement this electrification programme.
The benefits of electrification to poor households are critical in the drive
to reduce poverty, help people move from the second to the first economy, and
create a better life for our people. The health and educational benefits, small
business opportunities, and job creation potential of electrification are well
documented; and with the support of provincial and local government we are
committed to attaining our goal of universal access.
,
2.5 Electricity distribution
Part of our strategy to improve the provision of electricity and to increase
the poverty net to consumers has been to establish the Regional Electricity
Distributors or REDS. Last year we established RED1 in Cape Town and we have
learnt many lessons from this experience; we welcome the inputs from the City
of Cape Town and the Portfolio Committee on this issue.
It is important to give clarity to this house that in the process of
establishing the REDs we have needed to be flexible. One of the issues
identified is the need to have six REDs based in the Metropolitan areas, and a
national RED that encompasses the regions outside of the metropolitan areas.
This approach is based on the realities that we have identified, and we have
been asked by Cabinet to model the viability of this national RED. EDI Holdings
have done this modelling, which will be taken to Cabinet and to Parliament for
finalisation.
We have acknowledged that there are indeed challenges that face us in the
establishment of these metro REDs but we have made significant progress, and
look forward to meeting the time frames indicated by the President in his State
of the Nation Address. We look forward to all of the Metro REDS being in place
by this time next year. With the co-operation from all the players, Local
Government, the Unions, Eskom, other government departments, we know we will
achieve this vision.
3. Minerals
In the 2004/5 financial year the Mineral Development branch was split into
two, namely, the Mineral Regulation Branch, responsible for the implementation
of the Mineral and Petroleum Resources Development Act (MPRDA) and other
mineral policies; and the Mineral Policy and Promotion Branch, responsible for
policy formulation and promotion. One of the benefits of this split is the
improvement on the turn-around time for processing prospecting and mining
license applications in this sector.
The capacity of the Mineral Regulation branch has been increased to cope
with the workload as well as to give the branch resources to assist the
first-time entrants in the industry. This branch received the biggest share of
the departmentâs budget this year at 28% of the total budget of the department.
We have started to see the results of this intervention as out of 6 785
applications received last year, of which 957 were rejected mainly for being
incomplete; 191 were withdrawn; 861 refused for non compliance with the Act;
with 912 issued. The balance is still in the system. It should be noted that
the majority of the 912 issued licenses have a minimum of 15% BEE
participation. Later this year will be bringing amendments of the MPRDA to
Parliament to further streamline the processing of applications.
Madam speaker, the Minister of Finance will be pleased to hear that the
Department collected R133 million from royalties in the previous year; this
collection was R17,8 million more than what was initially projected in the
estimates.
3.1 Beneficiation
Minerals continue to play a critical role in our economy, and we need to see
what we can do together with beneficiators beyond the boom time. We have seen
continued growth in the processing of minerals (ferro-alloys and aluminium) and
in 2004, for the first time, processed minerals overtook the gold and platinum
group metalsâ in total sales, although with the significant increase in
commodity prices, this situation changed in 2005. The growth in domestic sales
of processed minerals indicates that there is a significant increase in local
beneficiation and growth in the manufacturing sector. Our efforts in promoting
beneficiating are starting to bear fruit although we still have a long way to
go.
It is gratifying that the Platinum Group Metals producers and companies in
the sector are looking at beneficiation. The CEOs of Lonmin, AngloPlatinum and
Implats approached me with a proposal on how we can further extend the levels
of beneficiation of Platinum Group Metals in South Africa. Subsequent to that
meeting we have held a workshop with industry players and established a task
team to drive this process. It is befitting that we grow this industry and
increase our levels of research into the uses of Platinum Group Metals, as we
are the number one producer of this commodity with 87% of the reserve base
The passing of the Diamond amendments Acts and the Precious metals Act late
last year will usher in the establishment of the State Diamond Trader and
Diamond and Precious Metals regulator, which will go a long way in making a
dynamic minerals beneficiation sector a reality. Indeed it is a âbold visionâ
that we are looking for in the growth of our beneficiation sector. My
department has initiated legislative measures over the past year to encourage
greater levels of beneficiation in our economy. We are now looking to industry
players to take forward that vision, and cause beneficiation to happen in our
country, not because they will obtain points under the Mining Charter, but
rather because it is in the long - term interest of their business and the
country.
3.2 Black Economic Empowerment
The Department has seen several significant BEE deals over the past year and
we have begun to see new faces in these deals, with broad based empowerment and
women empowerment becoming more prevalent. With the implementation of our
transformation legislation, the Department will be in a good position to
continue promoting effective black economic empowerment. More attention will
need to be given to ensure the quality and broad based nature of the deals
supporting BEE, particularly in the structuring of the deals where BEE
companies find themselves not earning any returns for several years; or are in
reality diluted as a result of the financing arrangements.
Some of the challenges in BEE come from the BEE companies themselves, and we
are committed to addressing the issue of fronting and BEE companies cashing out
shortly after rights having been granted.
Last year the Deputy Minister reported to this house in her budget vote
speech that all petroleum companies with the exception of Sasol had complied
with the liquid fuels charter. We would like to note that Sasol signed their
broad based BEE deal last year and we congratulate them on their commitment to
transformation, although we would still like to see something in synfuels and
greater involvement of women in their deals.
In order to accurately assess the level of compliance with targets as set
out in the Liquid Fuels Charter, the Department commissioned Empowerdex to
conduct a five-year review. We are disappointed with what the Empowerdex study
has revealed as the level of compliance on equity was not has high as
previously thought.
The study also showed that on procurement only 3,8% was spent on BEE
companies, this is of a total spend of approximately R103 billion. Procurement,
unlike ownership/equity deals, has immediate returns to investments and is
accessible to small and medium enterprises owned and controlled by the
historically disadvantaged South Africans in this industry.
In an effort to address compliance on procurement, the Department together
with the industry has launched the South African Supplier Development Agency
(SASDA). This agency is responsible for the registration of BEE companies,
training, accrediting BEE companies and assisting them in accessing procurement
opportunities in the liquid fuels sector. We would like to see the oil
companies making greater use of this agency.
4. Mine health and safety
A very important function of the Department of Minerals and Energy is the
Mine Health and Safety inspectorate, and the Deputy Minister will address this
area in her speech.
5. Conclusion
To conclude honourable members, the strong economic growth that our country
is currently experiencing, which in part arises from the increased investment
in mines and in the beneficiation of minerals, both of which are energy hungry
sectors, and will place increasing pressure on our energy capacity. During the
course of this year will be taking measures to ensure that there is alignment
between our AsgiSA aspirations of 6% growth and the supply of energy.
The role of women in the minerals and energy sector needs to receive greater
prominence, presently it seems as if women participation is an afterthought in
these deals as we see just a sprinkling of them. To support the entry of women
into these sectors the department supports SAWIMA, WOESA and WINSA. We feel
that these organisations need to become more visible and represent a greater
diversity of women. We look forward to industry players recognising these
organisations and working with them in bringing women on board for their broad
based BEE deals.
In the gallery today we have Namhla Mdoda a student from Brackenfell High
School, who joins us as part of the âBring a Girl Child to Work Dayâ and is my
shadow Minister for the day, and hopefully a future mining magnate.
The need for skills in the sectors covered by the DME is a factor that we
need to be cognisant of as we pursue our plans for growth and investment. The
Joint Initiative on Priority Skills Acquisition (JIPSA) programme is extremely
important in contributing to skills development in the country, and will see
the Mining Qualifications Authority and Energy Seta playing a valuable role in
the minerals and energy sectors.
Madam speaker, I request the House to approve my departmentâs budget of R2
548 272 000.
Finally I would like to thank the Deputy Minister, Director-General of the
Department of Minerals and Energy, Advocate Sandile Nogxina for their support
and welcoming me to the department, and to the staff in the department for
their hard work and commitment.
I thank you.
Issued by: Department of Minerals and Energy
25 May 2006
