NECSA, Mintek, SANEDI, NERSA, NRWDI & NNR 2021/22 Annual Performance Plans

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Mineral Resources and Energy

05 May 2021
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

Video: Portfolio Committee on Mineral Resources and Energy
Audio: NECSA, Mintek, SANEDI, NERSA, NRWDI & NNR 2021/22 Annual Performance Plans 

Annual Performance Plans

The Portfolio Committee on Mineral Resources and Energy (DMRE) was briefed by Mintek, the South African National Energy Development Institute (SANEDI), the National Energy Regulator of South Africa (NERSA), the National Radioactive Waste Disposal Institute (NRWDI), and the National Nuclear Regular (NNR) on their 2021/22 annual performance plans and budgets in a virtual meeting.

Mintek said its focus was on developing its capacity for research, development and commercialisation, as well as focusing on the rare earth element (REE) industry. Covid-19 had posed a threat to Mintek, but a focus would be placed on risk mitigation and on diversifying funding revenues.

Members questioned the financial viability of local involvement in REE, the lack of commercialisation, and the rising number of jobs exported because of mineral exportation and the lack of local beneficiation. They also raised concerns about the constraints that were hindering the development of local  capacity.

SANEDI said their strategic plan revolved around the three themes: climate change and decarbonisation, service delivery within the municipal environment, and information, knowledge and technological convergence. The programmes within SANEDI involved administration, applied energy research, development and innovation, as well as energy efficiency. The Director-General of the Department said a new SANEDI board would be an appointed very soon.

Members questioned the high expenditure for compensation and administration; the lack of accessible information for stakeholders on the work of SANEDI; the collaboration of SANEDI with Mintek; student engagement and funding for learners in the townships and rural areas; waste energy; the lack of a comprehensive in-house data base; the need for measures to curb greenhouse gas (GHG) emissions, and clarification of SANED’s role in reducing these emissions.

NERSA said that Covid-19 had impacted their efficiency, but they were on track to deal with the applications for licences. They said that their focus was on approving tariffs, licensing and alternative dispute resolution options. NERSA remained committed to the Economic Reconstruction and Recovery Act.

Members asked what amendments were needed in terms of legislation. They questioned why NERSA had a limited mandate under the Gas Act, and wanted to know why there was unrest among civil society relating to independent power producers (IPPs). They said that the application, licensing and registration process was overly complicated and lengthy. The cost of court cases was exponentially high, and there was a need for cost containment measures at Eskom.

The NRWDI focused on safety and security. Its APP outlined programmes of administration, radioactive waste disposal operations, science, engineering and technology, and radioactive waste compliance management. It highlighted its support for the Koeberg nuclear power plant lifetime extension.

The NNR said that the priority projects for the 2020-2025 period included the Long-term Operation (LTO), the steam generator replacement (SGR) project, the small modular reactor (SMR) licensing framework and the sustainability of the NNR. It was committed to being an independent regulatory body.

Members questioned both the NRWDI and NNR on the matter of transferring licences from NECSA to the NRWDI. In addition, they asked about the disposal of steam generators and pressure vessels; the new development of regulatory frameworks for small modular reactors and the role of the NNR in the procurement of nuclear energy at an appropriate rate and price.

Meeting report

Mintek: Annual performance plan

Dr Molefi Motuku, Chief Executive Officer (CEO), Mintek, said the entity’s primary focus was on research and technology development, with mining and exploration as a secondary focus. Mintek had global operations in Africe, South America, Canada, Australia, and other areas. The preliminary results highlighted the total employee Covid-19 tests to date (4 439) and screening (129 817).

The key strategic framework programmes for the period of 2021-2030 included the development/establishment of:

  • Local rare earth element (REE) mining and manufacturing industry;
  • Nanotechnology-based diagnostic products;
  • Transforming energy mix in ferro-alloys industry;
  • Hydrogen fuel-cell economy in SA;
  • Energy storage as a form of just energy transition;
  • Clean coal technologies;
  • Revitalising the iron ore industry;
  • Unlocking the bushveld complex’s titaniferous magnetite.

(See presentation for the strategic framework programme explanations, investment and partnership opportunities and key performance indicators)

The key challenges facing Mintek had been the decline in commercial income. Moreover, income distribution had seen an increased reliance on state funding, considering stagnant commercial incomes. Mintek would aim to increase its contract work and state grants for the next three years as a positive outlook.

A new strategy had been implemented in terms of science, engineering and technology (SET) staff numbers, experience, and qualification improvement. Mintek was developing the capacity for business development and commercialisation. Covid-19 had posed a threat, but Mintek would continue to manage the risk and implement mitigating measures. Lastly, it would focus on balancing its revenue sources by diversifying funding schemes.

Discussion

Mr J Lorimer (DA) raised the issue of rare earth elements (REE) and how it had been spoken about for some time within Mintek, but he understood that the “pressure was off” due to the lack of financial viability. What was the financial viability of the REE project currently?

Ms P Madokwe (EFF) commended the presentations for providing insight into the entity. She said Mintek’s mandate was to develop and/or establish industries, and that the Department of Mineral Resources and Energy (DMRE) was starting the processing of raw minerals. What was the progress on raw mineral processing -- was South Africa processing anything currently? What was the projected proportions of these processes? A lot of the time, raw minerals were exported and with that, jobs were exported outside of the country. How many jobs were being exported along with the exportation of raw materials?

Ms Madokwe commented that in terms of antibodies, Mintek had said it was “developing the capacity to develop.” She asked for an elaboration of what it meant to develop capacity, and if Mintek was developing antibodies too.

Mr K Mileham (DA) said the presentation format was similar to a previous presentation from Mintek, but he was “more concerned” about the lack of commercialisation two years down the road. This same concern had been raised in October 2019, where it was noted that technologies, patents and research were noteworthy, but highlighted the unviability of Mintek without commercialisation. He praised the Chairperson of Mintek, Dr Vangaurd Mkosana, for prioritising commercialisation going forward. However, it had taken two years to reach this point.

Mintek had been promising to break-even for the past two years; however, this was “non-negotiable” -- it had to be financially viable and self-sustainable.

Why was Mintek looking at REEs only “deep in the future” of South Africa? He said that people were looking for REEs in the present, not 20 or 30 years down the line. More attention had to be paid to the commercialisation, exportation and beneficiation of the REEs in South Africa. What was Mintek doing now to ensure that this sector of the mining industry was commercialising and getting the attention it required?

Mr V Zungula (ATM) said that Mintek’s target for procuring from small, medium and micro enterprises (SMMEs) was in terms of their employment ratios, but was there any target for the procurement from specifically black SMMEs?

He agreed with Ms Madokwe’s reference to the exportation of raw minerals and the exportation jobs. The more that was exported led to more jobs created in other countries. What were the beneficiation targets currently in place for Mintek?

Ms V Malinga (ANC) asked for further clarity on the reference to "modelling being undertaken to confirm the viability of gas generation" in the presentation. She applauded its BEE performance and the 53% of women employed. Lastly, clarification was asked regarding its progress with the production of precursor battery materials.

 

Mintek's response

 

Dr Vanguard Mkosana, Mintek Chairperson, said that the majority of REEs, as mentioned in the presentation, were dominated by China and the United States of America, whereas South Africa was very low. However, the potential was there, but the “diminishing budgets” were a hindering element. However, South Africa had to be a key player globally, as this would not only unlock the potential of SA, but the entire continent. The support of the Members to get the needed funding was required, and that this would unlock the beneficiation “in a big way.” The future was technology-based, and these would be the elements needed to progress in that direction.

Dr Motuku started by clarifying Mintek’s role. It was not a producer, and was not in mining, but was rather a developer of technology which could be transferred to people who were producers. Mintek had three potential mining operations that had been looking into production, and some were being sold. Production mining was a problem in South Africa, but did not have anything to do with Mintek.

He highlighted that China -- from one deposit in Beyan Obo, inner Mongolia -- dominated 90% of the world production of REEs. No other country could compete with China. South Africa could not be a player alone, as its resources were not significant enough. Southern Africa must be looked at in totality. However, the challenge would be that a single processing plant would be unable to collect deposits from different sources. Mintek had focused on developing a technology which could take material from different resources, but this had been a limiting factor. Its role was to de-risk the investments.

He went into the details of the different stages of technology development. Step one, being research, could take between five to nine years. Step two would take three years, and he mentioned that technology dictated what to do. To treat materials from Southern Africa, the plant had to be built “from scratch” with no outside help, so it would be South African expertise alone. The seven-step process was not designed by Mintek, but these were the steps which needed to be followed for technology to be accepted by industry. Mintek was currently on step three. Steps four and five would be spoken about for the next four or five years, because this was the time required for technology to be development from the beginning. The separation of technologies was chemical and solution- based, with different expertise and 30 scientists required. He stressed how this was done with moderate resources and that if more investment was available, it may fast track the process.

Dr Motuku said that Mintek’s contribution was in de-risking technologies and developing technology, not in production and mining. He agreed with Mr Mileham that REEs were needed “now,” but said that China had been doing this for many years and if the USA could not cope with China, “who were we as South Africa?” They were doing their best with the modest resources available.

There were areas where Mintek was producing things to be tested and developed for the market. They would then partner with industry in order to take the process on. Mintek had developed the technology for Kumba processing, and as a result, R3.6 billion had been received as an investment. He commented that commercialisation meant different things for Mintek. It commercialised by transferring technology to industries, by selling products, its “know-how” and expertise. More than R100 million had been raised last year with the products it sold. Mintek operated with its products in more than 42 countries. He asked if this was not commercialisation.

They had to be true the mandate of Mintek, which was technology and technology development. An example was provided regarding technology transfer to industry. Mintek received funding from doing the work and signing licensing agreements in terms of their technologies. It was not only a patent, but rather a technology which had been implemented in that industry. Kumba had invested R3.6 billion into the economy, as well as created 2 500 jobs. This was not only for Mintek, but for the entire country to benefit.

South Africa was a small player in the production of antibodies and antigens. They were imported, despite the local production. It was important for Mintek to “get their hands dirty,” put a team together, and to build capacity for the country. It was producing antibodies and antigens in smaller quantities as they had to go through the regulatory processes of validation and registration. There had been a boost in its capacity, and it was engaging with institutes of higher education and the Medical Research Council. With funding from the Department of Science and Innovation (DSI), it was on track with building the capacity to research and produce locally. It would be producing and partnering with SMMEs to take production further while their antibodies were going through the regulatory process.

Dr Motuku noted that most black economic empowerment (BEE) firms were SMMEs, and were therefore targeted overall. However, a more detailed breakdown would be provided. He highlighted again that Mintek did not produce, but rather produced technologies for people to beneficiate and had the ability to track their contributions and the technologies that had been transferred. Mintek would address the areas of technical challenge in their operations.

He said that Covid-19, which had affected the world, had impacted Mintek's “break-even” financial situation. It derived most of its money from travelling to market their products and service clients internationally. However, this could happen for the past two years. Thus, although international income sources were Mintek’s most “effective”, it was still able to “break even.” It may have been a technical loss in terms of accounting, but it was not a material loss. Mintek was not “bleeding,” but it was nevertheless a loss.

Commercialisation occured through the sale of products, and Mintek’s products were present in Australia, Canada, South America and Europe. One would not see Mintek products in the shops as one would with Coca-Cola, but they were present within the plants. At one-point, it monopolised 70% of the Australian market on process control. Its products could be found locally. The new plant built was an example of commercialisation -- Siyanda Coal had raised $300 million as a direct result of its technologies. This was the impact that Mintek would want to make on the economic development of the country.

Finally, on REEs, he said there were many stages to go through. Stage one involved the research and test tubes, as if one was cooking for one's family. Stage two could be compared to cooking for one's relatives or the church. However, in stage three one would be cooking for an entire funeral/wedding or a whole village. This was known as “scale-up,” where one did the same thing but on a larger scale. Stage one cost R10 million to R20 million, stage two cost R100 million, but stage three would cost R500 million to complete. Mintek was therefore currently “stuck” at this stage, but had involved the Industrial Development Corporation (IDC) and was looking globally for investments of R300 million to complete this stage. These investments would allow for the facilities to be built and de-risking to occur. Most investments usually arose after stage three had been completed. If money were not the concern, Mintek would be ready.

Mr Thabo Mokoena, Director-General, DMRE, said that the Chairperson and CEO of Mintek had responded to the questions and had taken on board the comments. Although there were positives, there were areas where “something must be done,” particularly in terms of commercialisation.

The Chairperson welcomed the presentation, and said that it was the high standards of Mintek that had allowed for that level of questioning to take place, and for them to not be “stressed.” He referred to a question he had asked in the previous meeting regarding the different views around public finance management. Were the public resources being managed in the best way? The financial challenges were recognised, and he wanted to confirm that the “little we have left” was being used to the best of the entity's abilities. The overarching investment strategy did not fall on one entity alone, and there was a gap in the way public investments were being coordinated. He asked how the IDC fitted into the Mintek funding scheme. A collaborative effort with public finance institutions and other institutions could be an avenue, including the interactions with the private sector or institutions of higher education.

He recognised that the past two to three years had been focused on de-risking, but public resources had been “battered,” and it had risks associated with it in case things did not go right. The lack of a comprehensive investment strategy may have added to the difficulty of work. To what extent could commercialisation be a fast- tracked process? Some public finance institutions were meant to be developmental in nature. Although conventional methods for commercialisation may not have worked, what was a more radical approach that could assist moving forward?

The Chairperson agreed that it would be difficult to find new, fast-tracked commercialisation avenues whilst working with mineral resources. Regarding hand sanitisers, the concern was that more could have been made, but they could not get enough nor speed up the process to meet the commercial requirements. However, the public finance institutions could have assisted, as generating a profit from that would not have been expected. With commercial ventures, each entity would make their own decisions, but there was no overarching guideline. What was happening to ensure that there was an investment and a client base to guarantee a streamlined commercialisation path?

Mr Mokoena said that these were important topics, and that the Minister had been very vocal about the issues that had been raised.

Dr Mkosana thanked the Chairperson and Mr Mokoena for their contributions. He said that they had raised something that was very “fundamental”. This was not only an issue for the entity, but could be seen as a national priority and they deserved a budget to that effect. The REEs had been expressed previously as being extremely important, and he had highlighted their important role while entering the fourth industrial revolution (4IR) and the digital economy. The support of the Parliamentarians would be important going forward so that matters of this nature could “receive special attention.” The country would benefit in terms of economic development. If “this was the spirit,” he would retract Mintek’s presentation and return with an amended presentation on what they would want to propose, over and above what had been presented on.

Dr Motuku agreed that commercialisation was important, and that a system was needed to regulate and assist in the commercialisation process, not only within the entities. The Technology, Innovation Agency, an entity of the DSI, should be investing in stage two and three for de-risking, but this was not the case. The budget for DSI was R550 million, but this was for the entire country. Mintek received R10 million, which was meant to contribute towards the commercialisation. However, this did not cover the costs of stage three. The state budget for Mintek was R180 million, which covered salaries and research. R120 million had gone towards stages one and two. REEs had not been considered owing to the R300 million needed to progress to stage three. He said that this funding was necessary, not from Mintek, but from the “system.”

He said that Mintek had been advocating for some of these programmes to be adopted by Cabinet, the Department or the National Treasury, in order to be strategic. It had de-risked the programme to a point where it could be a national programme, but with only one entity on board it had not had the resources to be completed. Mintek had spoken to the Minister about external investments, but internal investments were needed.

The Chairperson said that this could not fall on one entity, and that it was present within all entities. He hoped that this would be something which could be assisted with, going forward.

SANEDI: Annual performance plan

Ms Lethabo Manamela, Interim Chief Executive Officer (CEO), South African National Energy Development Institute (SANEDI), said that the strategic plan developed for 2020-2025 revolved around the three themes:

  • Climate change and decarbonisation;
  • Service delivery within the municipal environment; and
  • Information, knowledge and technological convergence.

These would incorporate the strengths and expertise of SANEDI within the areas of sustainable energy, renewable energy technologies and smart grids.

SANEDI was fully behind the Integrated Resource Plan (IRP) 2019, as well as a key part of the National System for Innovation (NSI) as defined by the White Paper on Science, Technology and Science published under the Department of Science and Innovation (DSI).

The programmes of the entity involved administration, applied energy research, development and innovation, as well as energy efficiency.

SANEDI’s budget allocation had been estimated at R90 million, coming from the medium term expenditure framework (MTEF), and R13.5 million through general budget support. The 2021/22 budget expenditure would cover the compensation of employees (47%) and the goods and services (53%). Expenditure may be expected to reduce by more than 4% from the previous year due to budget reprioritisation. Cost containment would continue to be implemented, particularly in programme one.

Lastly, the strategic risks and risk mitigation were expanded upon in terms of smart cities, a skilled and competent workforce in the energy industry, the reduction of greenhouse gas (GHG) emissions, awareness for solutions in the transition period, data, legislative compliance, and internal compliance.

(See presentation for details on key risks, strategies and targets)

Discussion

Mr Mokoena said that the Minister had undertaken the stabilisation of state-owned entities (SOEs) and reported that the new SANEDI board would be appointed soon. The new board would elect the new CEO.

Mr Mileham commented that just under 30% of SANEDI’s total expenditure was for compensation and administration. Although SANEDI was research-based, why was this so high, and was this the most effective way to spend?

He recognised the work that SANEDI was doing, but noted that there was no way for stakeholders to access information about this on the SANEDI website. They had said in their presentation that they had enumerated their outputs, but the outputs were still unavailable. Where were the presentations, reports or position papers? He accepted that SANEDI was indeed doing the work, but called for greater transparency in terms of their outputs. The energy sector needed data and research, and if SANEDI could not provide that information, where should it be found?

Mr M Wolmarans (ANC) drew a comparison between Mintek and SANEDI, saying that SANEDI was to energy what Mintek was to minerals and the mining environment. Did they collaborate/exchange notes or work together?

He questioned if SANEDI was involved in the emergency power generation programme, whether it be either research or data assistance. If SANEDI was not involved, more clarity was needed to understand why this may be happening.

Ms Madokwe highlighted that SANEDI was research based, and recognised its involvement in student funding. However, most funding opportunities were afforded only at post-graduate levels. The education system had its downfalls, especially at the basic and undergraduate stage, but what was SANEDI doing in terms of student engagement in townships and rural areas to bring to their attention the opportunities within the energy sector? Most students were not aware of these different career pathways and would often go into the ‘normal careers’ such as teachers or doctors, and thus could not access the energy sector funding at the post-graduate level. There was a lack of career guidance within townships and rural areas. Was SANEDI engaging in workshops, career guidance or highlighting the funding opportunities in these areas?

She referred to waste energy, and highlighted that a lot of rural and townships areas did not have any waste management systems. Within these areas, dumping sites and general waste had created “borderline health risks” for the people of these areas. This waste could have been processed and used to assist with the country’s energy crisis. Where were the plants for waste energy? Was SANEDI looking into creating more plants in places where they were most needed?  This would allow for energy to be transferred to those communities on Eskom’s grid.

The presentation had indicated that SANEDI did not have any functional data, an in-house data base, nor a management facility. As a research-based entity, would an operational in-house data management facility not be needed? She asked for further clarification.

The reduction in greenhouse gas (GHG) emissions seemed to have two different values in the presentation. The period of 2020/21 reflected zero tons under the reduction of GHG emissions, but had reduced an area coated in GHG emissions by two tons. More information was needed to understand this divergence. Countries across the world had been given a mandate to cut GHG emissions as far as possible. SA was not alone in being behind in the reduction of GHG emissions. What informed the projections of 1.5 tons, and what conditions would be implemented for the target to be met?

SANEDI response

Ms Manamela first corrected an error in the presentation on slide 36 -- the targets under number three were mistakenly under number four. The “not applicable” did not refer to the data being not applicable, but rather that this was a new addition added to SANEDI’s strategy and therefore they did not have any previous data recorded. Moving forward, this would be area that would be tracked and reported on. This was a weakness which had been highlighted in both the strategy and APP, and the potential for this technology would be demonstrated. She used an example of an area coated with cool surfaces -- say, one million square meters -- that would translate into “so much in terms of tons of GHG emission reduced.” Although this had not been previously reported, it would be going forward.

She said that the mobile plant was currently in the process of being developed, and NERSA was working on it with SANEDI. There had been issues with the operations, but a plant was planned to be put up in partnership with a municipality. This would start to generate “buying gas” from the plant to deal with the waste issue. Rather than be a waste collection site, this would be an energy production site, which would generate jobs and improve the economy. This mobile plant would demonstrate SANEDI’s potential and hopefully attract funding.

On student funding, SANEDI provided funding for areas which were seen to be a gap in the industry, or an area of energy which would be of importance in the future. This was a way to build capacity in the country by developing those key skills. SANEDI did not have enough money to coordinate a programme for career advice, but had partnered with the Energy and Water Sector Education and Training Authority (EWSETA) to not only offer bursaries, but also to advise about which skills and areas of funding were important, and developing the curriculum.

SANEDI was not currently involved in the procurement processes for emergency power generation. Although the involvement was indirect, it did offer data and resources to this programme regarding what resources could be added.

SANEDI had worked with Mintek in the past, and owing to the synergy between the presentations, there was room for more collaboration to happen. Mintek was involved in the Hydrogen SA programme, and SANEDI did engage with Mintek in that respect.

The compensation of employees presented within the slides was a combination of the technical workers and those directly involved in administration. It was an error to not breakdown the costs of what staff costs were aligned with the energy Efficiency programme, as well as the staff costs aligned with the applied energy and innovation programme.

However, this did highlight an issue within the funding of SANEDI. There was not enough money to go towards the allocation for the internal operating structures and the core mandate of SANEDI. The money received had been used as leverage to gain external funding to execute its mandate. She commented that if a rand value were to be placed on the work done, the Members would realise that the allocation “itself was not enough.”

During the organisation under review process, it had been noted that information from SANEDI was not readily available. This had been identified as a weakness and SANEDI was working on rectifying this. She said transparency was very important to this strategy. The resources were being brought in to ensure that a correct analysis and packaging of this information would occur, and that stakeholders could access this information. SANEDI needed to have a data depository which was easily accessible.

The Chairperson asked Mr Mokoena if there was a board at SANEDI.

Mr Mokoena said that they were finalising the new SANEDI board, and waiting for it to take over. He could confirm “safely and comfortably” that the conclusion of the appointment of the SANEDI board was almost complete.

NERSA: Annual performance plan

Ms Nomalanga Sithole, Acting CEO, National Energy Regulator of South Africa (NERSA), said that the impact of Covid-19 had affected the entity's ability to carry out its mandate, but confirmed that due to the impact on the economy, it would ensure that all applications were addressed in good time. It remained committed to the Economic Reconstruction and Recovery Act.

NERSA spoke to regulatory independence, revenue funding, and the achievements of NERSA in respect of maintaining unqualified audits for the past six years, and said that 89% of the planned targets for the 2020/21 financial year had been met. In an attempt to be a recognised world-leader in energy regulation, staffing was important, and 50% of the management positions were occupied by women.

NERSA’s regulatory activities were grouped in the following programmes:

  • Programme 1: Setting and/or approval of tariffs and prices;
  • Programme 2: Licensing and registration;
  • Programme 3: Compliance monitoring and enforcement;
  • Programme 4: Dispute resolution, including mediation, arbitration and handling of complaints;
  • Programme 5: Setting of rules, guidelines and codes for the regulation of the three energy industries; and
  • Programme 6: Establishing NERSA as an efficient and effective regulator.

NERSA referred to the key challenges present within the electricity, piped-gas, petroleum pipelines industry regulations, as well the organisational challenges. (See presentation for more information.)

The projected revenue for the 2021/22 financial year amounted to R335 million, 7.7% lower than the R362 million of 2020/21. This was due to the Covid-19 lockdowns and restrictions. The operating expenditure was 2.9% higher than the 2020/21 year, and capital expenditure was R14 million – 3.7% higher than the R13.5 million for 2020/21.

Lastly, the total staff complement was 253, with the total staff strength being 239, of which 57% were women. The vacancy rate was 5.5%. NERSA was involved in learnerships and internships, job shadowing and exchange programmes, and the training of regulators in the South African Development Community (SADC) region.

Discussion

Mr Mileham raised concern around the application, licensing and registration process of NERSA. The timeline, or total turnaround time, was meant to be 120 days, but if an application was rejected due to “whatever reason” on day 90 or 100, the application timeline would restart back at day one once the necessary documents had been submitted. It could thus take up to one year or 18 months to get a license application through the Regulator. More feedback was needed regarding this matter.

He said that there were multiple court cases involving Eskom and NERSA on the matter of tariffs. What was being done to ensure that these same errors did not recur going forward? The cost of electricity tariffs was becoming unaffordable both for the consumer and business owners. Minimising tariff increases must be a priority for NERSA. Moreover, attention should be placed on ensuring that Eskom, being the primary electricity supplier, had effective cost containment measures in place. Eskom must be run efficiently and should not simply be a loan scheme, where money was being used to pay back debt. How did NERSA keep the cost of electricity down?

He said that the recognised the need for Member’s support on amending legislation, but what legislation amendments was NERSA speaking about? More clarity must be provided on the status of NERSA’s submission for the amendment to the Electricity Regulation Act. Had these submissions been made? Could these submissions be presented to the Members? NERSA was asking for these amendments to be fast-tracked, but NERSA must brief the Committee on what they were needing fast-tracked.

NERSA had mentioned the Small-Scale Embedded Generation (SSEG), but Mr Mileham highlighted the overly regulated requirements for registration of off-grid and grid-tied solar roof tops. Would NERSA be open to a streamlined and cost-effective process, in order to achieve optimal energy efficiency and self-generation by the consumers?

Mr M Mahlaule (EFF) said that there had been a high number of court cases lost by NERSA. The amendment to the current legislation aimed at creating alternative dispute resolution opportunities. However, was this an acknowledgment by NERSA that the current legislation was not in line with the Constitution?

NERSA seemed to be struggling to enforce compliance on licence conditions, with the R2 million per day, or 10% of total revenue, as compensation for the lack of compliance. He understood why R2 million per day may not work, as some companies may not have had the funds, but every business would have 10% of their total revenue. Why was it difficult for NERSA to impose the 10% penalty?

NERSA had said that they had a limited mandate under the Gas Act, and he asked for this to be explained in simple terms. What was meant by no provisions for third party access to gas distributions facilities -- what were those facilities? Who was considered a third party? Who was able to block third parties from using these facilities? This linked to further questioning around the inadequate provision to regulate liquefied natural gas (LNG) infrastructure. He had heard that this would be the case around the Saldanha terminal, where it had gone to court. He urged NERSA to provide more information so that if more regulatory power were given to NERSA, the Committee would understand which powers they did not have currently and which powers they were suggesting.

Lastly, the finances for NERSA relating to the travel, accommodation and training expenditure were questioned. The approved 2020/21 budget amounted to R30 676 799, but the provisional/actual for 2020/21 was only R3 820 482. Why was there such a massive increase between the provisional/actual and the approved budget? The other expenditure areas remained aligned, but this seemed to be a big difference.

Ms Madokwe said NERSA had mentioned that they would want to increase the role players in the industry in respect of the SSEG, traders and independent power producers (IPPs). However, there had been an increase in complaints raised by civil society in smaller municipalities regarding existing IPPs and their extensiveness and unreliability, and that they had not made provision for free electricity.

There had been a number of marchers in Umtata regarding electricity, with the imminent threat of taking the matter to court. The electricity provisions within Umtata were not new and had been in place for decades. There had not seemed to be any response from the municipalities or NERSA to engage with civil society members to ensure that IPPs had met their conditions. Why did NERSA intervene only when it had reached the courts? How could people get responses? She said that if NERSA were to increase the role players in the industry, would the guidelines and terms and conditions be more extensive, and bind the IPPs to provide electricity which was not more expensive than Eskom? IPPs had to provide the same resources as Eskom, particularly free electricity for the indigent.

Lastly, she applauded the learnership programme, and asked how many learners were in the programme, their demographic makeup and what the selection criteria were.

NERSA's response

Ms Sithole noted that she had colleagues who would assist with the responses.

Mr Mondli Shozi, NERSA, referred to the questions about processing and timelines. The current framework timeline was 60 working days, with the correct paperwork, and within two days there would have been a receipt acknowledging the application and any missing information that had to be communicated. Therefore, if all information was provided, the application would be considered by the Energy Regulator's system base. He said they had registered almost 270 SSEG’s with an overall capacity of 130 watts.

Based on the current regulations, NERSA had been able to comply with registering those below the one-megawatt threshold, but those who had been above one megawatts had to go through the licensing process, which was “lengthy” in terms of the current legislation. He said that the registration was not as stringent as the licensing process, and was far more lenient.

Mr Mmboniseni Murathi, Head of Legal Department, said that NERSA had made amendments to the Electricity Regulation Act (ERA), and this had been shared with the Department. However, with the recent changes that had been made, there seemed to be a process at play which would mean further revision.

The provisions made in the law stipulated that once a regulator had taken a decision, any person who had been affected and was “unsettled” by the decision must take that decision to court. This did not allow for alternative dispute resolution options, or using inter-governmental legislation. Thus, the courts became the only option. He said NERSA had requested that there be an amendment which was not court-based. There were many challenges when dealing with the courts, such as the lack of capacity and the lack of knowledge of the energy regulation space. These amendments would allow for a “smooth flow” for resolving issues, other than through the courts.

An official from NERSA responded to questions around high electricity tariffs. He said that NERSA did oversee the cost containment and efficiency of Eskom. When NERSA had received an application from Eskom – based on Eskom’s budget and the estimated cost for the three or five-year period -- it would ensure efficiency, and any fare included would be removed. Eskom had applied for an 18-20% increase in tariffs. NERSA had kept that increase to below 10% or even single digit figures, if not just above the 10% mark.

He referred to the CEO of NERSA’s comments regarding the outdated Act and the Electricity Pricing Policy (EPP). The Act stated that NERSA must allow for an efficient operator to cover all its costs at a reasonable return. The EPP stated that NERSA must raise the valuation of assets. Thus, an old asset value must be based on as if NERSA were buying it new. This was noted as a constraint.

On matter of compliance with license conditions, Mr Murathi agreed that the 10% of total revenue provision had not been tested. However, he noted that NERSA did work closely with municipalities and as a result, they were weary of imposing strict financial conditions which may economically endanger the greater communities. The licensing conditions were technical in nature, rather than financial. Moreover, if municipalities were to repay the 10%, it would be taken from the fiscus to only be put back into the fiscus. This could impact on the service delivery, sustainability and other costs. There could be a distinction made under the Gas Regulation and Petroleum Pipelines Regulation owing to the greater private sector involvement, but this may increase tariffs for the proceeding years. However, the approach should be regulation-related, rather than punitive in nature. This was because numbers could “devastate the whole industry.”

Ms Khosa referred to the limited mandate under the Gas Act and distribution tariffs, and said that NERSA had a mandate to regulate gas transmissions, distribution pipelines and the facilities used to transport gas from the source to the customers. This included the licensing of the infrastructure, construction, operation and approval of the tariffs of the owner of the pipeline, who would charge the customer who made use of the pipeline which they did not own. However, under the Gas Act, the owners of the pipeline could charge “whatever tariff they wanted” for a third party to utilise their infrastructure. The impact of that would be an increase in tariffs, and NERSA could do nothing about that. This was different to the storage and transmission infrastructure, which clearly stated NERSA must approve the tariffs. She said that gas pipelines were “natural monopolies” -- the initial capital was expensive, and they were not easy to duplicate in specific areas. Services to pipelines must be made more affordable. She said that markets could be served only for a specific geographical area for distribution infrastructure, so if two companies were able to develop the network with a condition that the infrastructure could be used by third parties, they should be able to use the Gas Act. Currently this could happen, but only on negotiated terms, not regulated terms.

Ms Nomfundo Maseti, Regulator Member, echoed Ms Khosa’s statements by saying that the role of the regulator, in terms of the distribution tariff, was to have the power to be able to control prices to deal with the market power that manifested itself in terms of high prices and tariffs. These powers were not currently provided to the regulator in two ways. Firstly, it did not have regulatory approval as to how much to charge for gas that was distributed through these pipelines. There had been a loophole which exploited the regulator by charging nearly R20 per gigajoule, whereas the price was R5 per gigajoule on bigger capacity pipelines. This had highlighted the economic harm associated with the current unregulated area, or regulatory gap.

Secondly, within the distribution area, pipelines were not able to touch for safety reasons. However, to protect investment, it allowed exclusivity and considered no obligation as to how one could utilise this exclusivity to ensure obligations to supply, but also that prices and tariffs were competitive. Ms Maseti’s audio then lost connection.

Mr Nthupheni Ragimana, Acting CFO, NERSA, clarified the issue of budgets. The provisional/actual section had been the provisional figures for the 2020/21 year, based on the quarter four report. The travel, accommodation and training, when budgeting was occurring, had been at R30 million. Travel accounted for 63% of the R30 million (R19 million) and the remaining 37% went to training, study fees, bursaries and learnerships. Therefore, at the time, travel had been included in the budget. This would have been needed for travelling to public hearings and to visit municipalities. However, the Covid-19 lockdown had cancelled the need for travel, and as a result the figure was must lower than the normal rate.

An official from NERSA addressed the issue of IPPs and unrest in communities. He said that when IPPs submitted an application to the DMRE for selection, the Department would ask what they would charge, and their commitment to economic development. The commitment made by IPPs were monitored through the IPP office, and quarterly reporters were submitted. IPPs were mandated to uphold their commitments and the IPP officers had to enforce them.

Regarding expensive tariffs, he said that customers were not paying the actual price of the IPP project, but rather paid an aggregated price of what it would cost Eskom as the primary energy cost. The unrest had to be investigated and if the IPPs were not adhering to their commitments, the contracts must be revoked.

Mr Paseka Nku, Chief Human Capital Officer, NERSA, responded to Ms Madokwe on the matter of learnerships. There were ten per year for grade 9 to 11 students, who were all females of all races. A service provider had assisted with the procurement of the learners. There were 12 learnerships and 12 internships, and there was an open process advertised through the media. For students who had graduated, interviews were conducted, and once the requirements were met, they would have been accepted.

Ms Nkomo ended the NERSA response by saying that timelines were important to the board. Although the Act allowed for more days, NERSA was committed to faster turn-around times. She noted that the electricity division had initiated an overall electricity industries strategic planning process to get as much input as possible. As such, the challenges, especially those regarding tariffs which were up or appeared to go up due to methodologies, could be adjusted.

Mr Mileham said that his question had not been answered. He had not been speaking about licence requirements, but rather about SSEGs and customers who wanted to go off grid or tied-grid. He added that he wanted to know about rooftop solar and rooftop photo-voltaic (PV) for a small house. The registration process for a small house to have rooftop solar was overly “cumbersome” and expensive. This would not incentivise customers to actively use it. For the middle class who may be able to afford solar, there were many obstacles in the way, while SA was in the middle of an energy crisis. Could NERSA ease the regulatory and registration process for consumers who wanted to put rooftop solar panels on their houses?

Mr Murathi responded that the context that the law provided was important. There were three distinctions: customers that were the SSEGs that were under 100 kilowatts, and those who did not need to be licensed or registered. They should engage with their local municipalities and distributor of the area and ask to generate their own electricity. This would be for the purpose of safety and network investment that had been done to supply the distributor. The infrastructure which had been developed was developed with that customer in mind. These were the issues the distributor had to deal with. Thus, upon registration, the approval of the distributor would be needed. NERSA would be the last to come in after the distributor of the area.

The cost of registration was R200, and within two days there would be an acknowledgement of receipt. NERSA’s goal was to get this process to under 30 days. However, part of the challenge may be the governance processes of approvals, as board meetings sat once a month. He said this would be improved upon.

NRWDI: Annual performance plan

Mr Alan Carolissen, Acting CEO, National Radioactive Waste Disposal Institute (NRWDI), outlined the situational analysis in terms of the entity's strengths and weaknesses as well as its strategic alignment and contribution to the government's priorities. It would not compromise on safety and security, and would be committed to fulfilling the expectation on South Africa’s waste management being safely managed.

A number of key strategic projects were highlighted, such as the off-site above ground storage facility for spent fuel, and the support for the Koeberg nuclear power plant lifetime extension.

The 2021/22 APP outlined four programmes:

  • Administration
  • Radioactive waste disposal operations
  • Science, engineering, and technology
  • Radioactive waste compliance management

Revenue over the MTEF would increase from R50.9 million in 2021/22, to R52.2 million in 2023/24. Expenditure was expected to increase from R50.891 million in 2021/22, to R52.211 million in 2023/24. The compensation of employees contributed to 82% of the total budget, with goods and services contributing to 17%, and depreciation contributing 1%.

(See the presentation for more on the budget and strategies)

NNR: Annual performance plan

Dr Bismark Tyobeka, CEO, National Nuclear Regulator (NNR), said there were emerging issues and priority projects for the 2020-2025period. This included the Long-term Operation (LTO), the steam generator replacement (SGR) project, the small modular reactor (SMR) licensing framework, and the sustainability of the NNR.

The NNR existed to provide and implement:

  • Independent radio-analytical verification capability and capacity;
  • An effective approach towards compliance assurance
  • Regulatory programmes to assure effective nuclear and radiation safety
  • Oversight of the LTO
  • Readiness to regulate SMRs
  • Long-term sustainability of the Centre of Excellence for Nuclear Safety and Security (CNSS)
  • A framework for securing and managing information and intellectual property emanating from CNSS activities.
  • Nuclear safety
  • Stakeholder relationship management plan
  • Adequate funding
  • Inclusion of previously disadvantaged individuals in economic activities
  • An ISO:27001 aligned information communication technology (ICT) security plan
  • The Protection of Personal Information Act (POPIA) compliance plan
  • Proactive management of potential litigation

(See presentation for output indicators and annual targets)

Lastly, the total revenue was projected to increase at 3.6% over the MTEF period, and expenditure was projected to increase by 3.33%. The compensation of employees (CoE) accounted for the major share of the total expenditure at 66%, and the goods and services totalled 29%. The remaining 5% was allocated to all other activities, including capital expenditure.

NRWDI and NRR discussion

Mr Mileham asked if it was possible to transfer the licence from the South African Nuclear Energy Corporation (NECSA) to the NRWDI, and if there was a mechanism which would allow for that to happen. If that could not happen, when would the licence for NRWDI be approved, and what information was outstanding on the licence application?

The NRWDI had spoken about the disposal of steam generators and pressure vessels. How would those be disposed of, or what mechanism would be used to dispose of them?

He asked the NNR why they were going to develop a regulatory framework for small modular reactors (SMRs) if the rest of the world was not yet doing so. Why was it not allowing this technology to be developed in China or the USA, and then looking at a regulatory framework at a later point?

Lastly, he directed his question the DG Mokoena. He said that Mr Carolissen had been the acting chairperson of the NRWDI for the past two years. What process was being put in place to make this a permanent position? Why was the process of filling acting positions taking so long?

Mr Mahlaule asked a question on behalf of Ms Malinga. She had welcomed the extension of the Koeberg lifespan, given that nuclear power had been identified as another source in South Africa. She asked about the NRWDI’s mitigation strategy in their situational analysis, especially on their identified weaknesses.

Mr Mahlaule asked for further clarity on the advisory role of the NNR to the Department on nuclear plans. What role had it played to ensure that the country procured nuclear energy at a rate and pace which the country could afford? The comfort around nuclear power would come from the point of view of the experts, such as the NNR.

NRWDI and NNR response

Mr Carolissen responded to Mr Mileham’s question on steam generators and their disposal. The replacement of steam generators and reactor pressure vessel heads had been a normal operation globally. There had been a lot of scientific knowledge which showed that steam generators and reactor pressure vessel heads were classed as low-level waste. Vaalputs was licensed to received low-level waste. The NNR would update their safety case and would submit it to the regulator for approval and incorporate a new design. The steam generators should meet all the waste acceptance criteria, although it was not classified as a standard waste package. A standard waste package for concrete was four tons, and 200kgs for metal. The steam generators would need to be justified, but the largest challenge for disposal would be the operational safety. Proper lifting equipment was needed. However, all the knowledge on this was available.

Mr Carolissen recognised Mr Mileham’s question regarding the appointment of a chairperson, but said that Mr Mokoena had already answered that question.

Regarding their mitigation strategy, he said the NRWDI had many weaknesses. However, it had developed a comprehensive and integrated stakeholder engagement strategy. It had adopted their branding manual and had started branding themselves. The threats and negative perceptions relating to the disposal of radium would be dealt with through the stakeholders and social media in an attempt to demystify the concerns relating to waste. It had identified new revenue streams for financial sustainability.

Mr Tyobeka, from the NNR, noted that the NNR Act was clear on the matter that licences could not be transferred. It may not simply exchange hands, but rather a new application would need to be submitted with proof of the requirements being met, and then it may be transferred. The public information documents had been published until 30 March, after which the public comments and questions needed to be responded to by the NRWDI. The issue of security of tenure had to be resolved. Lastly, the applicant must demonstrate the nuclear viability. In the case of the NRWDI, it was engaging with the state to ensure that the state would carry the viability for the site. These requirements were non-negotiable. The licence for the NRWDI was believed to be at an advanced stage, and would be “resolved soon.”

The SMR regulatory framework had not been developed in isolation from the rest of the world, but rather in conjunction with other states. The NNR had recently joined the SMR Regulatory Framework Forum, made up of 15 states of the International Atomic Energy Agency (IAEA) that were either developing SMRs (Canada, USA, China, Russia), or those who aspired to procure SMRs (Kenya and Zambia).

The DMRE had a set policy which states that the NNR must consider a share of the 2 500 megawatts in the integrated resource plan (IRP) to SMRs. The NRR was being proactive, and if the government decided to engage, there would be a need to have a framework in place by which the NNR would assess the safety of the designs and the licensing of the designs.

Responding to Mr Mahlaule’s question of an advisory role, he said that the Act was very clear that the NNR must be an advisor to the Minister on “all matters on nuclear safety.” However, it was not involved with the procurement of nuclear. It advised the Government on the licensing and safety of a design on discussion of procurement. Its role was to tell the Government if a design did not have an operational footprint and insufficient information was available. The NNR provided advice for the government, while still maintaining its regulatory independence.

Dr Thapelo Motshudi, Deputy Chairperson, NNR, said the entity's independence had been questioned in the past, as it was within the same Ministry as nuclear energy procurement. Thus its wariness against becoming too involved in the procurement of nuclear power was owing to the fact that they did not want to be seen as both “referee and player.” The NNR was seen as one of the depositories for skills on nuclear power in the country, so it had to be seen as independent.

He said that in other jurisdictions, the regulator would not be in the same Ministry as the other entities which dealt with nuclear power procurement. South Africa was not an anomaly, but it was normal for the regulator to be in a different Ministry, such as the Department of Environmental Affairs.

Mr Tyobeka noted that NRWDI had asked for its licence to be ready in the next 90 days. This would be possible if all the paperwork for the application was in order. The NNR would rather not prolong this and would be happy to meet face-to-face to sort the licensing process out in good time, as it could stand in the way of a lot of plans. However, the regulations of the NNR must be abided by. The 90 days should be possible, provided the paper-work submission was in line.

Mr Mokoena requested Mr Mbambo from the NNR to comment on the question relating to the 2500 megawatts, but Mr Mbambo’s connection was not working.

Mr Mokoena said that the Department provided policy oversight on the Koeberg Long Term Operation to ensure that there was security of energy supply. A technical oversight committee had been established to monitor the progress of the Koeberg LTO. The committee met quarterly. They were going well, and Eskom was engaging in these meetings. A session was held at which the Department of Public Enterprises (DPE), the NNR, Eskom and the State Security Agency (SSA) had been invited to provide direction for the implementation of the Koeberg LTO. The relevant stakeholders would be contacted when and if necessary. Regulatory certainty was necessary for the Koeberg LTO.

He said the appointment of the new NRWDI CEO was almost finalised, and that by the next quarterly report, or before the next Portfolio Committee meeting, a new CEO would be present.

Mr Mbambo, back online, said that the 2 500 megawatts had been allocated in the IRP in terms of decision number eight, which indicated that nuclear was a “no regret option.” From a policy perspective, the IRP indicated that post-2030, SA would have to decommission a large capacity -- around 24 100 megawatts -- from the coal plants. This would require a base load capacity that would replace the decommissioned coal capacity. The IRP made a strong case for movement towards greener energies, and it was important that nuclear was required when moving forward, as it would provide base load electricity. Therefore, in line with decision eight, the Department must commence with the preparations for the 2 500 megawatts, although this may not be sufficient, as 24 100 megawatts would be decommissioned in post-2030. The 2 500 megawatts of clean technology must be coupled with various energy technologies to ensure that there would not be a base load gap post-2030. It was in that context that IRP research was being conducted to mitigate the risk of load-shedding post 2030. He urged the country to begin preparations for the next generation of baseload capacity, with nuclear being part of the energy mix and a necessity.

He said it was important for the Department to understand that the market had been tested through the RFI, and what had become clear was the international benchmark regarding the construction, planning, and commissioning of a nuclear power plant. It was a “long lead project,” and would take about 10 to 12 years to commission a nuclear power plant. Therefore, he noted the proximity to 2030 and the work that needed to be done. He said that the country had about six years left to continue with the planning of the project, because after the design, the licensing needed to be completed, which could take up to 48 months. Thus, nuclear would assist post-2030, but it would be important to begin immediately to remove the risk of load-shedding going forward and post-2030.

Mr Carolissen highlighted the different licensing stages. Before the design licence could be processed, there was a site licence which had to be completed. This could take between three and four years. Therefore, if these electrons were to be on the grid after 2030, it was important for these steps to start as early as now in order to meet the deadline.

 

Chairperson's remarks

The Chairperson said that he had picked up a problem across most presentations, and asked if the entities knew what an APP was. He said it was meant to highlight what an entity intended to do and its target for the year, as well as how this would be achieved. However the presentations seemed to be the same as the presentations from October 2019 in the introductory meeting. He would like someone to analyse the presentations across the board to understand if this was the case, or if it was his own misunderstanding.

He questioned if the entities were frustrated with the presentation system. He commented that if the entities had stipulated that a licence was needed in order to have nuclear power by 2030, this could have been minuted, and a meeting would be called if it was not reached. He urged the entities to be firm, and say “one, two three” would be done. That had not happened.

He referred to the meeting from the previous day, where R74 to R75 million had disappeared under goods and services. Why had this been put under the goods and services if it was a conditional grant for solar heaters given by the Treasury? The Department should be able to indicate the pricing related to things, not only the administration. As such, it had been discovered that two office spaces were being paid for while simultaneously only one was occupied. If he had been asked the cost of the offices within the Department, he would not be able to answer. The targets were not clear in the APP.

The South African Diamond and Precious Metal regulators, who were moving to OR Tambo, should be able to tell the Committee the cost implications of this move.

He said a blueprint of an APP should be given to the DG and his team. The vision and mandate of the entity was unnecessary within the APP, as these were well-known to the Committee. He did not “even know what you want to achieve,” let alone how it would be done or how the Committee could help.

He referred to the jump from R30 million to R300 million in NERSA’s budget, and said there were no explanatory notes to help the Committee understand. Why was this not the case? The entities may be doing well, but they were “too traditional.” The presentations needed to stick to the topic, not repeat or add irrelevant information, and the text must be relevant. The goods and services budget could not be approved if the item within the budget was a conditional grant. The entities were presenting budgets to the Committee, but it was important for the Committee to know what they were approving or not approving them.

The entities and the Committee had to be a working team. The presentations should not have been an hour long. The Chairperson urged the DG not to hide anything, but to be brief and guide the information. Lastly, he said that if the entities were “coming to the Committee to plead, they should know what they were pleading for.”

A better system must be found for Members to approve the budget. If it were said that one entity could do only three things, the Committee should know why only three could be done. Milestones should be given for measurements to be conducted. The budget may be given, but the annual target/measurement was unknown.

The Chairperson assured the entities that the Committee was there to assist and was not “antagonistic.” He said he wants to ensure “excellent work at the end of the day.” He urged the DG to provide a commitment going forward on the APPs and targets.

Mr Mokoena said that he understood the comments made by the Chairperson, and the entities still to present would take those comments on board. The CEOs and chairpersons of the entities were present and had heard the feedback from the Chairperson. He understood the APP and quarterly performance reports and the need to have clear targets.

The Chairperson said that he did not want the entities to change, because some items were “very good.” However, it must be made clear when the targets would be achieved, even if it were to say, “ongoing,” and that the costs were present. This would allow for a measurement of success.

He noted that the Committee was meant to meet the next day, but a slot was unavailable. The meeting would be held on Friday, as Thursday was fully blocked.

He thanked the DG and the entities.

The meeting was adjourned.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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