Five-Point Plan to respond to energy challenge: Department of Energy briefing

Meeting report

Chairperson F Majola (ANC) noted in the last few weeks there had been difficulties with the Committee receiving presentation documents on time, partly because of the nature of the interventions, which involved a number of departments. However it was important that the Committee understand what the War Room was doing to deal with the energy challenges. The Minister of Energy was unable to attend the meeting because she was out of the country; however no mention was made of the whereabouts of the Deputy Minister in the apology submitted to the Committee. Both or one of them should have been at the meeting. He relayed his disappointment that the Committee was informed only the day before the meeting about the absence of these heads. He said the different Portfolio Committees relevant to the work of the War Room needed to discuss a way they could all meet and receive a coordinated briefing from the War Room.

Mr M Mackay (DA) said it was slightly alarming that the Minister was not at the meeting, it was even more alarming that the Minister’s agenda was shrouded with secrecy. Members were told last week that the Minister would be present at the meeting. The country was waiting to hear from the Minister. He suggested that the meeting be postponed until the Minister was able to brief the Committee herself. It was not acceptable that the Minister was not at the meeting and that she had not been at any Portfolio Committee meetings in six months.

Ms Z Faku (ANC) shared disappointment that the Minister was not at the meeting. However the Committee was aware that the Minister was out of the country, in the Democratic Republic of Congo conducting government business. She disagreed about postponing the meeting. The DoE was ready to present the information and they should be allowed to do so.

Mr Mackay said another reason to postpone the meeting was that the presentation documents were sent to the Committee only on the morning of the meeting. This was completely unacceptable as Members could not do any justice to the documentation, it would be impossible to ask all the relevant questions.

Mr P van Dalen (DA) introduced himself as a new Member of the Committee. He agreed with Mr Mackay that the meeting be postponed. In the previous Parliament, the Minister also never came to Committee meetings; she had to be summoned to come, and this was not acceptable. The 5-Point Plan was a very serious plan and the Committee needed her input on it.

Mr J Esterhuizen (IFP) shared the concern that the Minister was not at the meeting; however he did not agree that the meeting be cancelled. He shared in Mr Mackay’s frustration that the documents were received late by Members. The by-laws stated that Members should have documents for meetings 72 hours before a meeting.

Chairperson Majola agreed that it was a fact that the documents were sent to the Committee only the previous night, and the Committee Secretary could only send them to Members this morning. This was unacceptable. The meeting would have been cancelled the previous day already had he not insisted that the meeting continue. He was aware of the Members’ frustrations but the Committee needed to find a way to agree. The DoE was present, and it would not be a helpful thing to cancel the meeting.

Mr M Mavunda (ANC) agreed with the ruling that the meeting should not be postponed. The DoE was present. The Committee should not focus on an individual but rather on the interests of the country. He conceded that the Committee indeed received information very late but that was another matter which would be taken up with the officials. The country was faced with a crisis of electricity supply and that needed to be considered. People outside were not interested about whether the Minister was at the meeting or not, they wanted to know what was being done to address electricity challenges.

Chairperson Majola said it was not the right platform for Members to be disagreeing on the matter. He suggested that DoE be allowed to make the presentation so that it could be interrogated. Members would then be able to assess what information was outstanding for further interactions. The Committee could shuffle its programme and get the Minister to brief the Committee herself next Tuesday, 17 March 2015. He did not agree that the meeting be abruptly postponed.

Mr van Dalen agreed that receiving information late did not do justice to the item of the meeting. The Committee needed to send a bold message to DoE and to the Minister that it would not accept below par work. This would result in the good functioning of the Committee moving forward. The Committee was not being taken seriously.

Mr Mackay said the conversation on the 5-Point Plan was already delayed. He did not care whether the Minister was present at the meeting or not. He was aware that the Minister was busy with her nuclear ambitions around the world. The fact that she was never at the Committee meetings was not a problem. The problem was that Members would not be able to do their jobs properly because they received documents late. He suggested that the meeting be postponed for at least one hour so that Members could go through the document and prepare questions to engage the officials properly. He suggested that DoE be called to present again before the end of the week, so that any questions which could not be addressed would be answered before the end of the week, possibly on Thursday of Friday. The nation could no longer wait. The fact that the Minister found her work outside the country to be more important than the work she needed to be doing inside the country, was alarming.

Chairperson Majola said Members needed to agree on how to move forward.

Mr Esterhuizen said none of the Members had had an opportunity to look through the documents. Could Members then not go through the document while DoE was giving the presentation? The meeting needed to carry on.

The Chairperson said Members did not need to ask all their questions in one meeting. A suggestion had already been made that another meeting, with the Minister be scheduled for next Tuesday. It would be difficult to meet again before the end of the week; there was no guarantee that the Minister or the Deputy Minister would be at the meeting. It might not be practically possible that there be another meeting before the end of the week.

Ms Faku cautioned Mr Mackay that he should mind his language. It was not correct for him to say the Minister was “busy with her nuclear ambitions around the world.” The nuclear programme was a government programme, not the Minister’s problem. The Committee should not be turned into a mud-slaying platform.

Chairperson Majola said there were other platforms to have such discussions, and the Committee meeting was not one of them. The Committee was for discussing serious matters.

Five-Point Plan to respond to energy challenges: briefing by Department of Energy
Ms Yvonne Chetty, DoE Acting Deputy Director-General: Energy Programmes and Projects, relayed an apology from the Minister who was in the Democratic Republic of Congo finalizing work on the Grand Inga project. The Deputy Minister had also sent through an apology due to prior commitments. She apologized for DoE’s delay in the paperwork sent through to the Committee.

Mr Ompi Aphane, DoE Deputy Director-General: Policy, Planning and Clean Energy, apologized for the confusion about the circulation of the documents. He explained that the treaty related to the development of the Grand Inga Project, would enter into force next week, therefore certain things had to take place as a matter of urgency before the treaty could be finalized, and this was the main reason the Minister was not available to attend the meeting. Secondly, it was difficult for DoE to prepare a presentation on the 5-Point Plan because there was a standing Cabinet decision about the respective roles of the various players within the energy space. The 5-Point Plan was under the leadership of the Deputy President; some of the pillars in the 5-Point Plant were outside the mandate and jurisdiction of one department. Many of the issues were cross-cutting. It had therefore been very difficult to try and present in the name of DoE without flouting one of the protocols which had been agreed to on matters relating to the War Room. He reiterated that it was not DoE’s intention not to present but the department struggled to get some of the necessary approvals.

He said Cabinet endorsed the Five Point Plan on 10 December 2014. The presentation was to brief the Committee on the War Room’s institutional framework and its resourcing, updates on the load shedding prospects and the emergency measures at Eskom, funding interventions and the progress made on the development of detailed implementation plans. He acknowledged that the country was facing load shedding daily. Approximately 14,000MW or about one-third of total Eskom generation capacity on average was offline. Of this 14,000MW, over 8,000MW was due to unplanned (breakdown) maintenance. To reverse this trend, Eskom needed space to execute preventative (philosophy based) maintenance instead of reactive maintenance. In the immediate, the focus would be on sustained maintenance and operational efficiency to reduce the level of these unpredicted breakdowns. In the medium to long term, the focus would be to bring in new generation capacity to alleviate the constrained system and accommodate demand growth. The key was to improve plant performance while limiting load shedding.

Some of the key milestones achieved since the adoption of the 5-Point Plan:
•The War Room has been set up and the participating Departments have nominated representatives
•The Coal Independent Power Producer (IPP) Request for Qualification and Proposals (RFP) was issued was issued
•The Request for Information (RFI) for the Demand Management Interventions was issued
•Memorandums of Understanding (MOU) have been signed between Eskom, CEF (Petro SA), Strategic Fuel Fund and Transnet National Ports Authority (TNPA) regarding diesel supply.

The key objective of the War Room was to facilitate the creation of space to effect the maintenance to improve plant performance. Interventions were prioritised according to how quickly they delivered or saved additional megawatt to the grid, the scale or capacity load factor and the cost per kilowatt. Eskom’s emergency measures and funding work streams have therefore been prioritised. Some of the key initiatives in the short term were: sourcing funding to support financial sustainability and diesel costs, unplanned capability loss factor (UCLF) reduction through structured planned maintenance, reduced partial load losses, reduced outage slips, Majuba Power Station Coal Silo recovery interim solution for full load, first synchronisation of Medupi Unit 6 and the implementation of Integrated Demand Management.

With regard to gas imports, Mr Aphane said gas would not be able to provide additional capacity in the immediate term, which is over the next three months. Focus was therefore on accelerating the conversion of open-cycle gas turbines (OCGTs) from diesel to gas. However through preliminary discussions between the relevant stakeholders, the scope of the plans has been expanded to include gas to power generation options in addition to the diesel to gas conversions. With regard to Independent Power Producers (IPPs) of coal, progress had been made in that there was a determination for 2500 MW for coal IPPs. A request for proposals was sent out in the market since 12 December 2014 and submissions for bids were due on 8 June 2015. As seen with renewable energy IPPs, it was possible that the commissioning could happen earlier than the expected dates through the fast tracking of the construction of IPPs. Environmental Impact Assessment (EIA), grid connection and water licences were generally considered to be enablers that can impact on the commissioning timeline. Lephalale (Waterberg) has been identified as an area that needs some strategic investment to be able to unlock its potential for coal for power plants beyond Medupi.

On Demand Side Management (DSM), most of the supply interventions were likely to be realised over the medium to long term. DSM was presently a viable option to ease the pressure on the system; the focus would be on the costing of the interventions, on quantifying the impact and on securing funding.

Discussion
Mr P van Dalen (DA) asked whether there was any entity which NERSA did not regulate its electricity prices. Was there any entity which falls outside NERSA’s regulations? He said there was a company which employed about 3 000 people, contributed less than 0.01% to GDP and runs at a loss. This company imports aluminum in the raw form from Australia, melt it down and exports this back to Australia because SA electricity is very cheap. The company was sucking the country dry. Government was being subsidized with about R10 billion a year. The company was BHP Billiton. This was very unfair to the country. Why was this company not being switched off? Eskom was planned to buy about 5 million tons of a-grade coal at a premium price from suppliers. The problem which the country had was that coal stations were built to run with low-grade coal and they couldn’t run on a-grade coal. Quality of coal was bad and therefore needed to be blended down; this was costing the country a lot of money unnecessarily.

On pen cycle gas pipes he said these were very fast and could be put down anywhere; they have a very short lead time. It would not be such a huge process to down such stations. Sasol also recently announced that they have electricity which they would love to sell to South Africa; how much of this electricity did Sasol have to sell and why was the country not busying as much as they could?

Chairperson Majola (ANC) said the projections presented raise very difficult policy questions about the future. What did these 3-year projections mean against the National Development Plan (NDP)? The projections seem to indicate that we won’t need as much electricity as we thought we would.

Mr J Esterhuizen (IFP) said most of the problems which Eskom had were because of their own doing. Eskom did not plan their sending for future generations. Eskom only recently recognized the need for alternative energy; this gave PetroSA a reason for existence. The country was importing more than 140 million litres per month, this was predicted to escalate to over 10 000 billion litres per annum. Eskom had lost capacity in more than 5 units. He said the figures in the presentation were outdated. The DoE was not communicating with Eskom clearly.

Mr M Mackay (DA) said the presentation was underwhelming. South Africans had a reason to worry; there was not a single timeline or distinct action stipulated in the document presented. There was nothing in the plan which stipulated how the country’s energy problems would be resolved. He said DoE needed to come clean about what some of the regulatory hurdles were which were contributing to the electricity crisis within South Africa. On the Solar Water Heater system he said there was potential to remove 1 gigawatt of power from the grid. Eskom handed the programme back to the Department beginning of 2015, however DoE has been silent on this programme. What about the people who have been trained to work on this programme and the people who had build the technology?

What were the future potentials of this programme in managing the energy crisis? What was the progress with the Gas Utilization Master Plan (GUMP)? This was presented to the Committee over a year ago. The Committee has been asking for this document without any answers. The whole co-generation problem was a result of regulations; industry has wanted to sell to government for years but DoE has not been coming to the table. He said the whole concept of Demand-Side Management sounded very nice: essentially DoE was asking consumers to consume less electricity; however this would lead to the need for fewer jobs within markets and essentially lower economic growth. The fact that DoE was presenting on DSM to deal with the crisis was worrying. What did DSM mean for jobs, what were the figures? According to the World Bank DSM would shed about 1-3% of the country’s GDP; has DoE considered this? What were some of the consequences to the country’s economy? On peaking plants he said these were used to allow Eskom space to do their maintenance, but 20% of Eskom’s current capacity was offline due to unplanned outages. Peaking plants were therefore only meeting 20% of the demand; these plants did not deal with the issues of load shedding. What did these mean to the consumer and to the economy? What were the consequences of using peaking power? The fact that Acacia plant was being used as a peaking plant more than it should be was hugely worried. Who would be paying for converting peaking plants to gas plants? Eskom did not have the balance sheet. When would this happen? Where were the figures? He argued that the plan presented by DoE was a complete waste of time.

Chairperson Majola said it was important that the Committee discuss the possibility of a follow up meeting and what the nature of the report was which the Committee was looking for. The report presented lacked details; it was a high level summary. The Committee wanted more detail so that Parliament could hold DoE accountable and communicate a positive message to the people. However DoE alone was not in a position to give the Committee all the details alone. Parliament needed to figure out how it was going to monitor the implementation of such plans. The Committee has been asking questions about funding; who would answer this question, the Department of Energy or National Treasury? The full picture was important to the Committee. The Committee needed a full briefing with all the Departments present and all other relevant stakeholders. This would be discussed to possible take place in the coming follow up meeting towards the end of the week or the coming Tuesday. The Committee needed a full report on what DoE was doing and how it was planning to do it, where the funding will come from and what the timeframes were. He said the Committee would finalize a date for the follow up meeting; either for Thursday 12 March or Tuesday 17 March.

Mr Aphane apologized if there was some miscommunication about the presentation and what it was meant to achieve. He explained that the 5-Point Plan was adopted by Cabinet as a framework for addressing the current electricity supply and demand imbalance. The implementation of the plan happened through a coordinated structure called the War Room. The presentation did not purport to give an update on the workings of the War Room, which was a project management and coordination structure. This mean t that a lot of the questions which related to its project management principles such as time, costs, resources and progress would not actually be located in the kind of report presented at the meeting. If there was a need for a progress report in respect of the project management elements scheme, the issue would then need to be raised with the relevant office. The report would have been a lot more overwhelming had all the sub elements been reported on; however that was not part of the mandate of DoE.

 In so far as the questions relating to Eskom he said Eskom was best positioned to respond to these. Some of them related to processes around BHP Billiton. He said there was a process specifically on this matter which Eskom should engaged directly on. On the question around generators around the Mozambican coastline, he said the option had already been explored. If fact the two generators on the Mozambican side of the border were already producing additionally and part of the engagements with Sasol related to securing additional gas generation. All available short term gas options for power generation were being exploited. He said there was wide agreement that electricity shortages were actually adversely impacting economic growth. The DoE was in a self-defeating situation as a result as a result of capacity challenges. However there were also a lot challenges around suppressed demand. The 3.2 aspirations were linked to the National Development Plan, which spoke to economic growth around 6% per annum.

On the future prognosis, he said DoE believed that there was a lot of investment which required power generation which was currently sterilized because there was no power. There were two very critical issues which were at play, the first one being related to the fact that a lot of the country’s power stations were due for retirement in the next decade. There was a massive need to deal with that. The second driver was that historically the correlation between GDP growth and electricity usage added to energy intensity. These drove DoE future projections. He said it was common knowledge that the cheapest energy was the one which we did not serve; this was what was referred to DSM. DSM had the opportunity to yield the biggest job opportunities. DSM was the most effective per kilowatt. It was therefore a misconception to refer to DSM as worrying; energy efficiency was to reduce demand.

On the question around the regulatory hurdles which DoE was responsible for, he conceded that these needed to be dealt with. This related to unblocking issues identified to be in the way of policy. He said the problem with the solar water heating system was that the country was leaking jobs. It was misrepresentation to refer jobs without making reference to the fact that over 99% of the products being used in the programme were imported. This needed to be addressed through insisting on locally manufactured products in order to create jobs. Unfortunately by doing that the current model needed to be stopped in order to make a transmission into the new model, and this was where DoE was currently. The DoE wanted to create jobs and to maximize local content therefore a law has been put in place to say only products which complied with the 70% local content requirement would qualify for government subsidies. And that was where the challenge was currently. These were the actual problems with the solar water systems. He conceded that the institutional arrangements around the War Room and funding were a challenge; however it was outside DoE’s mandate to address this. He said there were two sources of funding; the fiscas and National Treasury. Some of the regulatory hurdles which DoE was faced with, he said in so far as co-generation was concerned, contracts which were entered into 3-4 years ago were expiring and the regulatory framework to extend them was the role of DoE.

On PetroSA he said currently around R10 billion of diesel was being used through two power plants. He said the system operator needed to be able to follow demand as it manifested. Diesel generators, through the push of a button, would follow demand, they could be deployed quickly and that was their utility within the system. It was therefore not s mistake to use diesel generators; the problem was that they could not run more than they could run for. The system operator currently used them to mitigate against total blackout. The 5-Point Plan was precisely about wining Eskom of the usage of diesel beyond what it was intended for, and this would then reduce Eskom’s costs. The regulatory framework involved a programme with various instruments; legislation, regulation, rules all underpinned by policy announcements. There were four Bills which DoE had already informed Parliament about for processing this year. He said there were broader efforts to address the issues raised by Members. Initiatives such as GUMP did not impede the workings of the 5-Point Plan. On the question around coal, he said answers to these questions have been developed within the auspices of the 5-Point Plan.

Ms Z Faku (ANC) thanked DoE for the presentation and the agreed follow up meeting between DoE and the Committee. She said in the mornings’ news Sasol advised the War Room on gas supply agreements in the absence of GUMP; what other inputs were there for the War Room from the sector?

Mr van Daren argued that with regard to gas from Mozambique, the country had a 33% share in a company, MOTRACO. This company sold about 2000 Megawatts of South Africa’s electricity to Mozal, a company owned by BHP Billiton. Was South Africa making money out of this?

Mr Mackay spoke to the water heaters; the legislation on localization has been around longer than the programme itself. The idea that DoE was now saying there needed to be a stronger focus on localization was disingenuous. The jobs that were currently being sacrificed were of those who were installers of the heaters; these were local South African people. By stopping the one end of the programme DoE was affecting the whole downstream sector. The DoE needed to focus on the jobs which were currently in the system as a result of the programme. There has been no communication from DoE on why the programme has been halted. Why was the programme not moving forward? Was DoE aware that a number of local small businesses were being severely affected by this? Companies were having to fire hundreds f people who were working for them.

Localization had the ability to remove 1 gigawatt off the grid; how many jobs would be sacrificed due to ongoing load shedding within the next three years? Was localization more important than protecting the whole economy against load shedding? On DSM he said it was a whole new industry and it would take time to create jobs. The people responsible for managing DSM were local council who worked according to by-laws; what impact did DoE hope to have on DSM? The DoE was making broad statements not supported by any facts. The Committee wanted to see DoE’s economic modeling; facts not opinion on gas he said gas producers had a huge interest in investing in South Africa but there were no legislation to facilitate and support such developments. The lack of urgency from DoE was deeply troubling. The ethos of DoE was highly questionable, especially because of the lack of detail in the presentation given to the Committee. What economic analysis has DoE done on the decisions taken at the war room?

Mr Esterhuizen said the 5-Point Plan was one step from government to agree that the country was faced with an energy crisis. Monopolies such as Eskom were more interested in running costs than in delivering services. Tax just could not afford this anymore.

Chairperson Majola thanked Members for their questions. The Committee would have an internal discussion and inform DoE about when the follow up meeting would be, between Thursday and Tuesday next week.

Mr Aphane said the instruction note issued under the Preferential Procurement Policy Framework Act requires mandatory localization of solar water heating was promulgated in 2013 and revised in 2014 August. The solar water heating programme was funded by government since around 2008. In relation to the question around Sasol and the proposal of gas, he said government works within the framework of the legislation and the constitution, there were processes in place to ensure that DoE does not ignore these requirements. Engagements with the gas sector with regard to the introduction of infrastructure and supply of gas was bigger than the consideration made to Sasol. On the question around Motrako, he explained that South Africa was a net importer of electricity from Mozambique because of Cahora Bassa dam, what the country sends to Mozambique was less than what the country buys from Mozambique. Mozambique was exporting to South Africa based on an agreement which was entered into years ago. Motrako was a company which was set up in order to provide other people power; it did not generate electricity. Motrako did not sell to BHP Billiton. He explained that jurisdiction in Mozambique was different from that in South Africa.

He explained that there were two regulators of electricity; the National Energy Regulator of South Africa (NERSA) and the respective municipalities. He said he was not aware of any price regulation which fell outside of NERSA. He said there was a process which related to special pricing agreements from a regulatory perspective; the agreement between Eskom and BHP Billiton was a special pricing agreements which was motivated decades ago for what it was worth of the time. However this was not outside of NERSA’s jurisdiction. NERSA approved tariffs and regulation, they did not set them. In the electricity pricing policy provisions were made for all special pricing agreements.

Chairperson Majola thanked DoE for the presentation and the Members for their interactions with the presentation. Everybody within the country recognized that energy was the most binding constraint within the economy. Parliament needed to find a way in which it would treat this binding constraints and how it set mechanisms to ensure that a more coordinated oversight was provided, otherwise the country would run into difficulties. The country needed to find an effective way of dealing with the challenges faced by the country. Matters around electricity had serious impacts on growth and jobs.

The meeting was adjourned.