DMRE on adjustments budget allocations & impact on delivery programmes

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Mineral Resources and Energy

07 July 2020
Chairperson: Mr M Mahlaule (ANC) (acting)
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Meeting Summary

Video: Portfolio Committee on Mineral Resources and Energy, (NA) 7 July 2020

The Department of Mineral Resources and Energy briefed the Committee on its budget allocation for 2020/21 in the light of the 2020 Revised Fiscal Framework and Revenue Proposals (Special Adjustment Budget 2020) that was tabled on 24 June 2020 and on the impact of the changes on its service delivery programmes.

Following the revised programme allocations, the total allocation for the Department in 2020/21 is R7.763bn, a 17% reduction compared to the main budget of R9.337bn.

The only significant budget change was in Minerals and Energy Programmes and Projects where there was a cut of R1.534bn (26% of the total) mainly in the allocations to Eskom and municipalities for the Integrated National Electrification Programme.

This would significantly reduce the target for household electricity connections in 2020/21 from 180 000 to 137 000. The reductions would be greatest in the provinces with the largest electrification backlogs (Limpopo, KwaZulu-Natal and the Eastern Cape).

The Committee was unanimous in voicing concerns that the bulk of the Department’s savings had been taken from the electrification programme. Members asked whether savings could not have been made in other areas, such as travel, catering and consultants.

The Department explained the reasons for cutting the electrification programme and said that the [special 2020] adjustments budget had already been approved by National Treasury. However, there would be an adjustments budget in September, and the Department would use that opportunity to request additional funding, taking the Committee’s comments into account.

The acting Chairperson summarised the issues that the Committee had raised: the absence of the Minister from several Committee meetings; the date for the Department to report on the rationalisation of its entities and the role of consultants; the number of mines that had cases of COVID-19 and whether money from the Unemployment Insurance Fund was reaching mine employees.

Meeting report

Mr M Mahlaule (ANC) was elected acting Chairperson in the absence of Mr S Luzipo (ANC). The acting Chairperson accepted apologies from Mr Luzipo and Minister of Mineral Resources and Energy, Mr Gwede Mantashe.

The Chairperson invited the Department of Mineral Resources and Energy (DMRE) to brief the Committee on its adjustments budget allocations and its impact on delivery programmes.

DMRE Presentation

Mr Thabo Mokoena, Director-General, DMRE, outlined the background of the Department’s revised budget. After difficult negotiations with National Treasury, the DMRE had managed to reduce its budget by approximately R1.5bn. He then handed over to Ms Yvonne Chetty, Chief Financial Officer (CFO), DMRE, to take the Committee through the rest of the presentation.

Ms Chetty broke down the 2020 special adjustment budget for the Department by economic classification. Of the R1.574bn reduction, R42m had been taken from goods and services and R1.532bn had been taken from transfers and subsidies. No reductions had been taken from the compensation of employees. The changes per programme were as follows:

- Administration: -R25m (-4% of the unadjusted amount)

- Minerals and Petroleum Regulation: -R4m (-1%)

- Mining, Minerals and Energy Policy Development: -R6m (-1%)

- Mine Health and Safety: +R6m (+3%)

- Programmes and Projects: -R1.534bn (-26%)

- Nuclear Energy Regulation and Management: -R11m (-1%)

Ms Chetty detailed the reductions that had been made in goods and services, and in transfers and subsidies, in each of these programmes, and the impact that they would have on service delivery. By far the largest reductions had been made to the allocations for the Integrated National Electrification Programme (INEP) to Eskom (R1bn, 33% of the unadjusted amount) and to municipalities (R500m, 27%). These reductions would significantly delay the implementation of planned bulk infrastructure projects, reducing the target of household connections in 2020/21 from 180 000 to 137 000. The reductions would be greatest in the provinces with the largest electrification backlogs (Limpopo, KwaZulu-Natal and the Eastern Cape).

The presentation included a breakdown of reductions by province and information on the rationale for the reductions that had been made. Ms Chetty said that the effects of the reductions would be felt for many years, especially in electrification projects. National Treasury had not provided any guarantee that reduced budgets would be reinstated in the next budget process but DMRE would motivate for additional funds through budget processes throughout the financial year.

Questions

Ms V Malinga (ANC) commended the Department for increasing the budget for mine health and safety, but she was concerned about the INEP reductions. What was the rationale for the reductions to the rural provinces? Weren’t the unfilled positions at the South African National Energy Development Institute (SANEDI) critical to its proper functioning?

Mr K Mileham (DA) was also concerned about the INEP reductions. The Department was defunding one of its few service delivery programmes. He estimated that an additional R580m could have been saved in other areas, such as travel, catering and consultants. He was also concerned that money was continuing to be spent on the nuclear new build programme. The Nuclear Energy Corporation of South Africa (NECSA) had demonstrated its inability to manage its finances effectively. The adjusted budget was not acceptable and the Department should look at it again.

Ms N Hlonyana (EFF) agreed that the INEP reductions were unacceptable. They would deprive the people of 43 000 electricity connections. The Department should go back to National Treasury and motivate for additional funds. Nor should the Energy Efficiency Demand Side Management (EEDSM) programme be reduced. The presentation did not address the loss of life among miners as a result of COVID-19. The position of the EFF was that mines should not have been re-opened, and now there were cases in almost every mine. How would the Department respond to the loss of life at mines? She also expressed concern that the Minister was not attending the Committee’s meetings.

Mr M Wolmarans (ANC) was also concerned about the INEP reductions, especially in the rural provinces. There would be significant negative effects in the future. What would the Department do to mitigate these effects?

Ms T Mgweba (ANC) asked the Department to provide detail on the negative effects that the INEP reductions would have on electrification, especially in rural provinces. She also wanted to know how the Department would support miners who contracted COVID-19.

Mr D Mthenjane (EFF) said that the presentation did not explain how the adjusted budget would affect workers. The position of the EFF was that the mines were not ready to re-open. The EFF was angry that the lives of the workers were being put at risk. The number of infections was increasing, and yet the economy was being re-opened, showing that the government did not care about the people. The adjusted budget was just business-as-usual for profit. It was unacceptable to the people of South Africa who were affected by COVID-19. Something should be done for workers who contracted COVID-19 and their families.

Ms C Phillips (DA) was also concerned about the INEP reductions. They must be reconsidered. Delaying electrification would perpetuate illegal connections, costing municipalities millions of Rands that they could not afford to waste. The fact that the Department was spending so much on consultants showed that it was not hiring the right people, and money from consultants should be redirected to electrification. She asked when the Department would present a rationalisation of its entities, as this would also save money that could be used to improve the lives of the people of South Africa.

Mr S Kula (ANC) agreed with other members that budget reductions, while expected, should not substantially affect major projects. The committee was unanimous that the INEP reductions should be reconsidered. The cuts made to goods and services were commendable but weren’t there further cuts that could be made that would allow more money to be spent on electrification? He said that an indefinite lockdown would not be possible. People needed to return to their ordinary lives, and the lockdown needed to be lifted gradually. He also disagreed with Mr Mileham that money should not be spent on nuclear energy. He commended the Department for not reducing the budget for mine health and safety. How would the Department motivate for additional funds, given that National Treasury was unable to give any guarantees?

Responses

Ms Chetty said that the unadjusted budget for goods and services had been R566m. There had been much iteration of the adjusted goods and services budget and everything that could have been cut had been cut. Every effort had been made to minimise the reductions from the Department’s core activities. She noted the many comments on the INEP reductions. National Treasury had done its own pre-calculations on the reductions to service delivery programmes and put out strict guidelines. The Department’s initial proposal had been rejected and it had had to increase the INEP reductions. There would be an opportunity to reconsider the budget in September and the Department would, pending internal discussions, use it to request additional funding for critical projects. [This is a reference to the normal October 2020 adjustments budget, with the details outlined in the Adjusted Estimates of National Expenditure].

Mr Jacob Mbele, Deputy Director-General (DDG): Programming and Projects, DMRE, said that the INEP reductions needed to be seen in the context of the overall government budget cuts. It was not the only service delivery grant that was cut, making it difficult for the Department to push National Treasury to lessen the reduction. He added that Eskom would usually roll over about R1bn of its R3bn budget because bulk infrastructure projects often spanned more than one year. Some upcoming bulk infrastructure projects were also facing delays already. This had been the starting point for the cuts. He assured the committee that the cuts would effected in a way that would minimise the impact on service delivery. He also explained that the cuts had been made to provincial budgets according to the percentage of the INEP budget they received. The three provinces had been flagged in the presentation because they received the greatest fractions of the INEP budget and were therefore facing the biggest cuts. The Department would work with Eskom and municipalities to bring down the cost per connection in order to get more out of the adjusted budget.

Mr David Msiza, Chief Inspector of Mines, DMRE, said that the health and safety of miners had always been a concern of the Department. 1 570 inspections had already been carried out to monitor compliance with workplace safety guidelines. This had helped to strengthen the measures that were being implemented, such as testing and screening at mines. The guidelines that had been given to the mining companies were clear that they should be supporting workers, their families and affected communities. There had been a meeting with provincial governments and the Minerals Council of South Africa the week before on what the mining companies were doing to support the workers who had contracted COVID-19. The Department would continue to ensure the mines implemented preventative and responsive measures.

Mr Zizamele Mbambo, DDG: Nuclear Energy, DMRE, explained that the request for information (RFI) regarding nuclear power that the Department had issued did not have an implication for the budget reduction. It was just a way of testing the market so that the government could plan effectively.

Mr Mokoena said that SANEDI had prioritised the funding of critical posts. It had voluntarily surrendered the reduction to its budget. Mining companies had been instructed that COVID-19 would be treated as an occupational disease and compensation would be provided based on the applicable legislation.

Follow-up questions

The acting Chairperson asked for clarity on the source of the R7m that had been redirected to mine health and safety.

Ms Malinga asked what the Department’s strategy was ensure that municipalities spent their INEP grants timeously. She thanked Mr Msiza for alleviating fears for miners. Were there any COVID-19 cases among DMRE staff?

Mr Mileham was not satisfied with the Department’s response on savings in goods and services. There were significant savings that could have been made in travel and subsistence, catering and particularly consulting. Had the Department gone down to the level of its entities to see what savings could have been made there?

Ms Hlonyana asked the Department to provide an explanation at a future meeting of exactly what contribution consultants were making in the Department.

Mr Wolmarans asked the Department to clarify whether it was willing to reconsider the INEP reductions and look for savings in other programmes.

Ms Mgweba asked the Department about its approach to illegal miners.

Mr Mthenjane asked if the Department could say how many mines had COVID-19 cases. Was the Department aware that some mines, such as in Kuruman and in many other places, were claiming money from the Unemployment Insurance Fund (UIF) but were not passing it on to their workers. How was the Department planning to address this?

The acting Chairperson reminded Members that the meeting was to consider the adjustments budget. Some matters might belong to another meeting, although this should not prevent the Department from responding if it could.

Ms Phillips said she would appreciate a meeting to discuss UIF non-payment.

Responses

Ms Chetty explained that the total savings that had been made in goods and services across all programmes was R48m. R7m of this amount had been redirected to mine health and safety. The financial year for municipalities closed on June 30 and municipalities that applied to National Treasury for a rollover also had to seek the concurrence of the Department. She said that savings had been requested from all entities. However, some entities’ funding had been a once-off allocation and others, such as the Council for Geoscience, had special allocations that could not be touched. NECSA already had a cash deficit, so its budget could not be reduced any further. The unadjusted 2020/21 budget for travel had been R113m, for consultants R134m and for computer services R43.5m. Every opportunity had been taken, especially during lockdown, to make reductions to these amounts. She explained that the [special 2020] adjustments budget had already been approved by National Treasury. However, there would be an adjustments budget in September, and the Department would use that opportunity to request additional funding, taking the Committee’s comments into account.

Mr Mbele said that the Department engaged on an ongoing basis with municipalities where there were challenges with regard to the implementation of projects. There were also provincial and regional forums. The Department could not get involved in appointing service providers, however, even though this was often where delays occurred.

Mr Msiza said he would report back to the committee with the number of mines that had cases of COVID-19.  He could confirm that 3 132 individual cases had been reported, of which 1 310 had recovered.

Mr Mokoena acknowledged that there were COVID-19 cases in the Department and its entities. The Department was working closely with labour and had complied with all COVID-19 regulations. There was a programme to assist small scale miners and the budget for this programme had not been affected.

Conclusion

The acting Chairperson noted some of the issues that the Committee had raised: the absence of the Minister; the date for the Department to report on the rationalisation of its entities and the role of consultants; the number of mines that had cases of COVID-19 and whether money from the UIF was reaching employees.

The meeting was adjourned.

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