DMRE and entities 2020/21 Annual Reports; with Deputy Minister

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Mineral Resources and Energy

09 November 2021
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

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Annual Reports 2020/21

The Portfolio Committee convened in a virtual meeting to receive briefings on the 2020/21 Annual Reports of the Department of Mineral Resources and Energy (DMRE) and its entities.

Overall, there were no qualified or adverse audit opinions for the Department and its entities, with the exception of the South African Nuclear Energy Corporation (NECSA), which received a disclaimer audit opinion. In the 2020/21 financial year, the Department had incurred R63 million in unaccountable expenditure. AGSA expressed concern at the lack of implementation of the material irregularity aspect, which was a new requirement under the Public Audit Act. In addition, three entities in the Department -- the South African Diamond & Precious Metals Regulator (SADPMR), the Central Energy Fund (CEF) and the South African Nuclear Energy Corporation (NECSA) -- had requested an extension for the tabling of their annual reports.

The Committee was concerned with the performance of the CEF and NECSA, the irregular, fruitless and wasteful expenditure incurred by the Department, the lack of consequence management, the supply chain management issues experienced by the DMRE and its entities, and the continuous use of the COVID-19 pandemic as an excuse for non-performance.

The Committee sought clarity on the causes for the delay in the tabling of the annual reports for the abovementioned entities, the interest on accounts not settled within the 30-day payment requirement, the assurance role of NECSA's senior management, IT-controlling governance, the status of the Gas Amendment Bill, the artisanal and small-scale mining policy, black industrialist-related issues, the Department’s strategy to tackle the skills deficit, the Gas Infrastructure Master Plan, the State Diamond Trader’s relation with Scarlet Sky, and the availability of Council of Geoscience’s mapping information.

It also wanted an update on the Department’s solar water project, the reason for its five percent budget under-spending, the review of the electricity pricing policy, the Koeberg power station leak, the high number of litigations brought against the NNR, the number of surrendered licences, the proposed NNR building in Cape Town, the progress on Karoo Deep Drilling project, as well as the Central African Republic project and the potential economic benefits.

Meeting report

DMRE and its entities on their 2020/21 Annual Reports

Deputy Minister’s opening remarks

Dr Nobhle Nkabane, Deputy Minister of Mineral Resources and Energy, tendered an apology on behalf of Minister Gwede Mantashe, as he was attending a meeting at the Africa Energy Week at the Waterfront in Cape Town.

She acknowledged the Auditor-General of South Africa’s (AGSA's) audit recommendations, and assured the Committee that some of the findings had already been addressed, while others were in the process of being addressed in the current financial year. The Department was committed to close monitoring of the audit findings and recommendations raised by the AG’s office, and adhering to its own action plan. It was also determined to implement consequence management against any staff who had transgressed against the legislation.

She outlined the purpose of the delegation today, indicating that the annual reports included performance highlights as well as strategies to overcome challenges.

Department of Mineral Resources and Energy (DMRE) Annual Report 2020/21

Mr Thabo Mokoena, Director-General, DMRE, introduced the Department’s delegation and asked his deputy, Mr Lucas Mulaudzi, to take the Committee through the presentation.

(Details of the presentation can be found in the attached slides).

Performance highlights of the Department for the 2020/21 financial year were outlined, and the results per programme were provided. The strategies to overcome underperformance were identified. COVID-19 was cited a key factor that had contributed to the non-achievement of some performance targets.

Mr Mulaudzi informed Members of the restructuring of the Departmental following the merger, and indicated that the Department remained committed to ensuring all vacant positions were filled.

Governance matters included minimising conflicts of interest, health, safety and environmental issues, internal controls, etc.

The Department was also delighted to inform the Committee that AGSA had finalised its audit of NECSA.

He outlined the Department’s non-achievements and partially-achieved performance targets, and accounted for the reasons. Among of the non-achieved targets were:

  • Payment of invoices within 30 days
  • The Social and Labour Plan (SLP) development project was under-achieved as a result of the COVID-19 lockdown
  • Support for black industrialists
  • District planning forums not achieved
  • Feasibility study on oil refinery
  • Number of SLP inspections,
  • Environmental inspections
  • Compliance monitoring audit of the Broad-based Black Economic Empowerment (B-BBEE) Act
  • Mining economics inspections
  • Greenhouse Gas (GHG) reporting and assessment
  • Number of publications and economic reports
  • National Nuclear Regulator Amendment Bill
  • Electricity pricing policy
  • Reduction in occupational fatalities
  • Mine health and safety parameters
  • Additional megawatt commissioned
  • Solar home households

Ms Yvonne Chetty, Chief Financial Officer (CFO), DMRE, provided the Committee with a breakdown of the Department’s financial performance. Of the R7.5 billion budget which the Department had been allocated, it had spent R7.1 billion. R382 million was not spent. The spending accounted for 95% of its budget. The CFO attributed the national lockdown as the key contributor to this under-spending, as it had affected the Department’s ability to conduct onsite work.

She explained to the Committee that former the Department of Energy had always had some delays in filling vacancies, as the recruitment process was a bit longer compared to other government departments.

In the 2020/21 financial year, the Department had overspent R142 million on goods and services.

The Department’s audit outcomes remained unqualified, with findings. She attributed this to the merger and the subsequent unintended repercussions. Retrenchment of management, different methodologies used by the two different departments, and skills deficits had all led to the outcome of this audit. She assured the Committee that the Department had had an engagement with AGSA and Treasury to try have a consistent methodology on the audit going forward.

Ms Chetty pointed out that the audit approach of the Auditor-General’s office had not been consistent. The same methodology that was not correct in this financial year was accepted in prior year.

There were missing documents from the Department’s immovable assets record, and it had reached out to AGSA to get them.

Mine Health Safety Council Annual Report 2020/21

Mr David Msiza, Chairperson, MHSC, briefed the Committee on the entity's 2020/21 annual report.

An overview of the fatalities in the mining sector from 1984 to 2020 was provided to the Committee. He commented that overall, in terms of mining health safety standards, South Africa had been coming close to the standards of advanced economies such as Australia, United States, Canada, etc.

Mr Dumisani Dlamini, CEO, MHSC, gave details of several research projects that had been undertaken by the MHSC. These included rock mass assessment tools, a feasibility study on developing a collision management system, and a 3D upgrade of the Cytovivo system.

Women’s health and safety in mining was discussed.

The presentation concluded with the financial performance of the entity and its action plan on the AG's findings. Although the entity had incurred a R11 million loss in this financial year, the Committee was reminded that the entity had used cost-cutting measures that had reduced the loss from R20 million in the previous financial year.

The MHSC received an unqualified audit opinion for 2020/21.

(Details of the presentation can be found in the attached slides).

Discussion

Mr J Lorimer (DA) asked when the DMRE anticipated the Gas Amendment Bill would be presented to this Committee because it looked like it would happen only next year.

He sought clarity on the artisanal and small-scale mining (ASM) policy as to whether it would fall under legislation or regulations.

He asked the Department to define what a black industrialist was, and what measures it used to assess if a black industrialist had been created. He also sought clarity on the relationship between procurement from low-cost producers and from black industrialists.

The Department was asked to give an indication of the total number of rights and permits that had been granted to historically disadvantaged South Africans (HDSA)-controlled entities, and why rights and permits were granted only to the HDSA-controlled entities. How many jobs were created by the issuing of rights and permits to those entities controlled by HDSAs, and those not controlled by HDSAs, respectively.

Mr Lorimer asked if all the locations depicted on slide 38 were also published on the Department’s website. If not, he wanted to get a list.

MsV Malinga (ANC) noted that across entities under the Department’s portfolio, there was a common audit outcome that pointed to a lack of skills. People in many positions did not have the necessary skills to perform their job responsibilities. She wanted to know what the Department’s strategy was to deal with this issue.

She had found that the Department’s SCM-related irregular expenditure amounting to R7 million disturbing, as it had its own internal audit component which should have prevented such an issue from happening. She wanted the Department to explain what really the cause was for that, and what consequence management measures had been taken to address the issue.

Regarding the solar water geyser project, she asked the Department to provide a timeframe as to when it would be completed. It was worrying that by now the project had incurred R20 million in irregular expenditure and still had not been completed.

Mr K Mileham (DA) wanted the Department to explain the contradictory statements included on slides 23 and 69 involving irregular expenditure. On slide 23, the Department stated that it had achieved its target ensuring that it had no fruitless, irregular and wasteful expenditure, whereas on slide 69, it stated that the Department had incurred R7.5 million of irregular expenditure, R4 million of unauthorised expenditure and R21 million of fruitless and wasteful expenditure.

He asked why the completion date of the Gas Infrastructure Master Plan had been postponed to 2021/22, and why it still was not concluded.

Several documents had been referred to as having been completed, and he suggested that the Committee should have a separate session in which the Department could unpack those documents to help Members fully grasp what they entailed and suggested. Those documents included the nuclear roadmap, the electricity pricing policy -- particularly why the current pricing was deemed acceptable -- and the Just Transition Report from the COP26 conference.

Mr Mileham asked the Director-General to explain to the Committee what consequences there had been for the failure to implement the Solar Water Geyser programme. The Committee had been assured by the Department on two or three occasions that this project would be completed on time, yet there were only 3 000 geysers that had been installed. He refused to believe that the cause was because of some components of geysers were not available. He suggested that maybe it would be better to write off this programme in its entirety and move on. He described the project as a bad project with no consequence management.

Mr S Kula (ANC) refused to accept the Department’s use of COVID-19 as an excuse for its non-performance. Many targets were not achieved and reasons had been attributed to COVID-19. He questioned whether the Department had not factored COVID-19 into its planning.

He noted that the Department gave its inability to attend physical meetings as a cause for failing to achieve the district planning target. He asked if it had made any alternative plans, or would the Department not achieve again in this financial year if the same physical meeting issue persisted?

He disagreed with Mr Mileham on the solar heating geyser programme. He pointed out that the programme had good intentions. It just needed to be managed better. He expressed his frustration at the project’s lack of progress and implementation from the Department’s side and said that Members were tired of listening to the Department’s excuses for their non-achievements.

He referred to the Department’s under-spending, which accounted for 5% of its expenditure. He also noted that the Department had incurred irregular expenditure amounting to R7.4 million, as well as R20.6 million in fruitless and wasteful expenditure. How did the Department plan to ensure that it would avoid under-spending its budget again? Were there any practical projects and plans to spend the unspent budget on?

Mr Kula noted that it was becoming a pattern now for Mr Lorimer to ask about the definition of a black industrialist every time the Department came to make a presentation. He thus suggested the Department to send a formal reply to him, detailing what a black industrialist was. His question seemed to give people an impression that he had an issue with the promotion of black industrialists.

The Chairperson recommended that the solar water geyser issue should be included in the Committee’s observations in its Committee report.

He urged Members to raise issues that were relevant to the Department’s presentation and leave issues of agreement or disagreement within the Committee for them to discuss exclusively.

The Chairperson recalled the meeting at which the Department of Trade, Industry and Competition was also present. It was clear from that meeting that there was a difference between the definition of a black industrialist and what was defined within the B-BBEE Act. He suggested Members should include those inputs in the Committee’s report.

DMRE's response

Deputy Minister Nkabane said that she had listened and noted all the issues and concerns registered by Members. She would take those questions and criticisms in a serious manner.

Responding to Mr Lorimer’s question, she said that due to some delays and internal technical processes within the Department, the Gas Amendment Bill would be brought to Parliament only in the next financial year.

Regarding the question on the Gas Infrastructure Master Plan, she said that the plan had not been finalised due to a lack of resources. Number one was that the Department did not have the technical modelling tools in analysis, and number two was that it did not have specialists in modelling and economic analysis. In order to produce this master plan, the Department was now entering into an agreement with the Council for Scientific and Industrial Research (CSIR) to use its skills to assist with the master plan. The Department hoped that it would make progress to meet the target at the end of this financial year.

Dr Nkabane acknowledged Members’ concerns on the Department’s financial performance as a result of the AG's audit opinion. The Department had noted these concerns, limitations and gaps, and had developed an action plan based on the findings of the AG's report. The Department would also be ensuring quarterly monitoring of those action plans. In addition, it had also developed its own mitigation strategy to close the gaps.

Mr Tseliso Maqubela, DDG: Minerals and Petroleum Regulation, DMRE, said the Department’s approach on black industrialists was informed by the Department of Trade, Industry and Competition, which defined black industrialists as an individual, black South African in particular, who was involved in the creation of industrial enterprises in manufacturing of goods as well as original services. He undertook that the Department would provide some examples in its future presentations.

He said that since it was not a target in the report, the Department did not have information about the total number of applications that had been adjudicated, and would have to get back to the Member separately in writing. The differentiation between the jobs created by historically disadvantaged South Africans and those of non-HDSAs was not an area of focus for the Department.

Mr Maqubela accepted responsibility for the under-performance of his branch during the last financial year. He explained that the Department had to have one quarter written off last year because it could not go out to the field at all as a result of the COVID-19 lockdown restrictions. It became almost an impossible task for the Department to catch up and make up the loss even after restrictions eased. He guaranteed that the performance level of the Department would be much better in this financial year, because there was no hard lockdown and so far its performance had been good. He confirmed that the Department had not participated in the district training forum last year due to public gathering prohibitions, but in this financial year, it had been attending all the forums to which it had been invited. At least in one province, the Department was doing three of such forums per quarter, showing that it was making an effort to meet the target.

He added that the target for establishing a refinery would fall away because investors were no longer interested in building that refinery in Richards Bay.

Ms Chetty said that the non-compliance of supply chain management was carried over from the prior financial years, as it would have an impact on the current financial year. She informed Members that the Department’s contracts usually ran for multiple years. In most instances, they were valid for three years.

Ms Chetty responded to Mr Mileham’s remark on the contradiction that targets were said to be achieved whilst it also said there were supply chain issues on the other page. She clarified that the Department currently did not have any new contracts that were non-compliant to supply chain regulations. The Department had an implementation plan to remedy the past issues on supply chain management.

She confirmed that the R20 million was only for the storage cost for the solar water heating project. In addition, the amount had been substantially higher in the prior year. The Department had managed to move some of the storage space from the manufacturing storage space to its own storage facilities.

Regarding the Department’s 5% under-spending, she assured the Committee that the spending of the Department was being closely monitored. On a quarterly basis, it tried to move budgets to areas that needed it. Further, all under-spending budgets were being reported to Treasury. She attributed the under-spending to the lockdown period.

Mr Mokoena assured Members that the Department had taken note of all the points raised by Members.

The Upstream Petroleum Resources Development Bill had been tabled in Parliament. The Gas Amendment Bill was at an advanced stage, and Members could start consultations with stakeholders over this coming weekend. The small scale mining policy was closed on 17 June for public comments. The Department was currently dealing with consultation with relevant constituencies and stakeholders.

Mr Mokoena commented on the Members’ reference to the 3 000 units installed for the solar heating project. He updated the Committee that so far 12 000 units had been installed. The Department was going to start with the second phase. It was committed that all the challenges that it had experienced in the first phase would be avoided in the second phase.

The Chairperson asked Members if they had any remaining questions for the Mine Health Safety Council (MHSC).

Mr Mileham remained concerned with the Department’s irregular, fruitless and wasteful expenditure. According to the CFO’s response, the Department had incurred no irregular expenditure in this financial year. However, the fact was that the Department could not be certain of that as the audit report for this financial year had not been concluded yet. He cautioned the Department against over-relying on its own internal records making them feel as if it had achieved the goal. He emphasised the importance of accurate reporting to avoid being hammered down the line, and therefore suggested that the "achieved" figures on slide 23 needed to be changed to "not achieved" or "partially achieved."

The Chairperson suggested including that in the Committee’s observations.

That concluded the meeting for the morning. The Chairperson indicated that Members and officials should reconvene at 1:30pm.

Afternoon meeting

The Chairperson indicated the 15-minute rule given to each entity for their presentations. Due to time constraints, no entity would be permitted to exceed that time limit.

The Deputy Minister announced the following new appointments:

Ms Futhi Zikalala had been appointed the new Mintech Chairperson due to the death of its former chairperson, Dr Vanguard Mkosana.

Mr Smunda Mokoena was appointed the new Chairperson of NERSA due to the death of the former chairperson as well.

Adv Nomalanga Sithole was appointed the new CEO of NERSA.

Dr Margaret Nkosi was appointed as the CEO of the National Radioactive Waste Disposal Institute (NRWDI).

National Energy Regulator of South Africa (NERSA) Annual Report 2020/21

Mr Mokoena, Chairperson, NERSA, outlined the regulator's key achievements, which included its fifteenth consecutive unqualified audit opinion from AGSA.

Adv Sithole, CEO, NERSA, emphasised that the entity had managed to achieve some of its targets, despite of COVID-19 constraints.

Other regulatory activities included the electricity industry regulation, piped-gas industry regulations, and the Petroleum Pipelines Industry regulations.

Transversal regulatory activities were described to the Committee.

Ms Bulelwa Pono, Chief Financial Officer, NERSA, said that in the 2020/21 financial year, the entity had experienced a decrease in revenue collection as a result of a decrease in the usage of electricity due to the lockdown.

Overall, she assured the Committee that the entity was in a good financial position. It had obtained an unqualified audit in the 2020/21 financial year.

The human resource management performance was outlined. The CEO highlighted the entity’s introduction of a new bursary scheme for postgraduate students and was glad to announce that the bursaries had been awarded to three students consisting of two ladies and a gentleman. The entity was regularly monitoring their academic progress to ensure that they met the requirements.

The entity’s unachieved planned targets in the 2020/21 financial year were outlined, with explanations provided and remedial actions proposed.

(Details of the presentation can be found in the attached slides).

National Nuclear Regulator (NNR) Annual Report 2020/21

Dr Bismark Tyobeka, CEO, NNR, informed the Committee of the recent leadership structure changes, such as the forming of a new board.

He proudly announced that the entity’s organisational performance had been at an all time high, at 99.6%. This included the service delivery environment, the organisational environment, as well as the progress made towards achieving its institutional impacts and outcomes.

The entity’s human resource structure was described, including its vacancies, targets and employment equity status.

He emphasised that inspections were hampered in the earlier part of the year due to the COVID-19 restrictions.

Mr Dakalo Netshivhazwaulu, CFO, NNR, provided the Committee with the financial state of the entity. He assured the Committee that the NNR’s current assets were stable, with adequate liquidity to operate going forward.

With the cash and cash equivalency totalling approximately around R104 million in the 2020/21 financial year, the NNR would be using some of its reserves to build its Cape Town office. The NNR was able to collect from its debtors on time, and its debt was under control.

The NNR currently had no huge liability. The R11 million was well managed and under control. The entity’s non-current liability bond was going down and would be settled by the end of the financial year.

He outlined the entity’s revenue and expenditure trends, and informed the Committee of the entity’s current surpluses, which totalled R24 million for the current financial year,

Audit outcomes for the past five financial years had been provided to the Committee. The audit outcomes showed that the entity was performing well, and that it had been getting an unqualified opinion since 2016/17.

Dr Thapelo Motshudi, Chairperson of Board, was pleased with the performance of the entity in this financial year. The audit outcomes had been very stable for the past few years. He highlighted one concern regarding the public hearings on the building a nuclear power station in the Eastern Cape. The entity would report the progress back to the Committee next time when it meets with it. He also indicated that there might be a possibility of the entity requesting a reconsideration of its budget, as the country’s worsening financial state would ultimately lead to more surrendering of licences.

(Details of the presentation can be found in the attached slides).

National Radioactive Waste Disposal Institute (NRWDI) Annual Report 2020/21

Ms Thandeka Zungu, Chairperson, National Radioactive Waste Disposal Institute (NRWDI), remarked on the significant boost that the entity had received at the leadership level. The Minister had appointed a new board in August 2020. Dr Nkosi had just been appointed as the new CEO and had assumed duty from last Tuesday.

Mr Alan Carolissen, Chief Operating Officer (COO), NRWDI, covered the four programmes making up the annual report -- administration, radwaste operation, radwaste technology and siting, and radwaste compliance. The performance achieved against targets was provided, and can be found in the attached documents.

Mr Justin Daniel, CFO, NRWDI, informed the Committee that the entity had achieved its fourth consecutive clean audit. The entity’s financial statement can be found in the attached document.

(Details of the presentation can be found in the attached slides).

Discussion

Ms Malinga welcomed the newly appointed members to this Committee.

She asked NERSA if its supply chain management officials had been provided with the necessary SCM training course. She had noted in the entity’s audit opinion that challenges in supply chain persisted and had prevented the entity from making improvements in obtaining a clean audit. She urged the CFO of NERSA, as well as other entities in the DMRE, to pay attention to SCM issues. She made it very clear that it was becoming unacceptable that entities were failing because of the lack of training in this area. She expressed her wish that the entity would get its cash flow statement right in this financial year.

She commended NRWDI for its clean audit and urged all other entities to learn from this entity. She noted that the financial liability of NRWDI was lower than its assets, which was a good sign for the entity.

Mr Mileham asked NERSA to explain why it viewed the electricity pricing policy as a challenge in its presentation slide 24, while the Department had just briefed the Committee and said that the electricity pricing policy had been reviewed and it had seen no change was required. He found it confusing and sought clarity on what the official position was on the review of electricity pricing.

Mr Mileham asked the National Nuclear Regulator to elaborate on one of the achievements that it said it had not achieved.

He expressed his concern over the safety compliance issue with regard to a Koeberg radiation leak which had been announced by Eskom. He found it absurd that such a major issue had not been discussed in public so far because the NNR had failed to bring this issue to the public’s attention. He wanted to know what the NNR was doing at the Koeberg nuclear power plant. He highlighted the loss of skills at Koeberg, and questioned whether Eskom still had sufficient skills and capacity to manage the power plant, given its nuclear nature.

Mr M Wolmarans (ANC) commented on the high number of litigations which would go into dispute resolution indicated in presentation slide 24. He wanted to find out what the timeframes would be for legislative changes, and if litigation happened between entities within the same department, what other options were available to resolve such disputes? He reminded the NNR that some litigations may directly or indirectly hamper service delivery, which would affect ordinary citizens within their own constituencies.

He noted that the presentation spoke about the surrendered NNR licences. He wanted the NNR to provide figures of how many licences were surrendered per province. He also wanted to know the economic impact that such surrenders caused.

The Chairperson noted in the presentation that the NNR intended to use its surplus to establish a new building in Cape Town, and asked the entity to unpack why it needed a new office in Cape Town given that PetroSA was in the process of decommissioning its office in Cape Town.

The Chairperson enquired whether the Chairperson of NERSA, Mr Mokoena, and the Director-General had any connection or association, since they shared the same surname.

Response

Deputy Minister Nkabane confidently clarified that the two Mr Mokoenas were not related. They actually came from different provinces and had met on the Zoom platform for the first time.

Dr Tyobeka responded to Mr Mileham that the one objective that the entity did not accomplish was the delayed procurement of laptops. It was an ICT objective, and was the only one of the 13 objectives that the entity did not achieve.

Responding to the question about the entity’s oversight role at the Koeberg nuclear power plant, he assured Members that the NNR continued to provide oversight support over the nuclear power plant as its high priority. In fact, the cracks in the containment building were discovered by the NNR’s inspectors, who then brought the issue to the power plant management. Eskom was now busy with re-layering the containment building to close off some of the cracks. He guaranteed that there was no hazard significance at the moment from the cracks.

The contamination of the control room had been reported last week. As the NNR believed that regulations must begin with self-regulation, Eskom must first start inspecting itself. So far, Eskom had been doing well with its self-regulation and the NNR was also currently investigating the extent of the contamination in the control room. The NNR would update the public once the investigation had been concluded. The origin of the issue arose when it was discovered that staff in the control room had received doses, though not fully confirmed yet, and they had not exceeded personnel doses.

Dr Tyobeka commented on the loss of skills, and said that the entity shared the same concern going far back as in 2015/16 financial year. Because the UAE was ramping up its nuclear project, a lot of staff from Eskom had been lured to go and work there. The NNR was closely monitoring the situation and had discussed with the UAE the brain drain effect on South Africa, and both parties had agreed that the impact should be limited. Nuclear issues could cause significant ramifications, as an accident in South Africa would affect the whole world. There were discussions ongoing to reverse or contain the brain drain effect, but so far he was satisfied that there were sufficient skills to safeguard the nuclear power plant.

He said that he would need to report back to the Committee on the economic impact quantification which a Member had requested. However, an overall impression was that the effect in the North West province was more severe, as that was where most mining operations were based.

Mr Mokoena, the NERSA CEO, clarified that what he was saying on slide 24 was that the current electricity pricing policy and legislation were still in order, but they needed a review as there were developments in the electricity field. For instance, there were some newly emerged issues, such as embedded electricity generation had now been increased to 100 megawatts, which was not fully covered by current legislation. Also as government was contemplating the option of de-bundling the electricity industry, the need for the review of pricing regulations and legislation would be inevitable.

The CEO responded to a Member’s question on the energy regulator’s decision being reviewed on slide 24. He explained that s10(3) of the National Energy Regulator Act gave everyone the power to take the energy regulator to the high court for review. However, there were other alternative dispute resolution models in South Africa, such as taking the energy regulator to the Competition Commission or Tribunal, etc.

He said that both NERSA and Eskom had done something whilst waiting for the final outcomes of the amendments, but it could only take action once the amendments had been finalised.

Deputy Minister Nkabane responded to Ms Malinga’s question on the SCM issue which had been flagged in the AG's audit opinion. She attributed it to the different interpretations of the National Treasury’s practice notes, the NERSA policy, and what was being done by the AG's office. For instance, the AG's audit opinion had said that the entity did not follow the Treasury’s process with regard to a deviation, but NERSA’s prescripts differed from those of the AG's office. Hence, most of the SCM on the NERSA side were related to interpretation issues, and the entity was working with AGSA to address these misalignments.

The Deputy Minister informed the Committee that the Department had completed a review of the current legislation and hoped that some of the difficulties which it currently faced would be covered in the proposed processes.

Dr Tyobeka responded to the Chairperson’s question on the new building that the NNR intended to build in Cape Town. He reminded Members that the entity had an office in Cape Town which dated back to 1984/5, when the nuclear power plant was commissioned. The building was now in a derelict state, and the bulk of the staff would be based in Cape Town until nuclear power plant was decommissioned. The entity had a site where the building had to be demolished. The entity had also experienced some delays in getting the construction permit from the City of Cape Town. The Treasury had given the entity the funds to go ahead with constructing the building, and the board had also given its approval.

The Chairperson still expressed his confusion that he did not understand why the entity planned to build a building on a site where another building was to be decommissioned. He suggested maybe Members could include that point in the Committee’s draft report.

Mintek Annual Report 2020/21

Ms Futhi Zikalala, Acting Chairperson, Mintek, could not make any opening remarks due to a connectivity issue.

Mr Molefi Motuku, CEO, Mintek, highlighted the key aspects of its annual report. These included the number of PhD graduates in the entity, as well as the publications that it had produced in the financial year.

Overall, Mintek had performed satisfactorily during the COVID-19 pandemic. The entity had achieved an unqualified audit opinion in the year under review

(Details of the presentation can be found in the attached slides).

South African National Energy Development Institute (SANEDI) Annual Report 2020/21

Ms Lethabo Manamela, CFO and Interim CEO, SANEDI, took the Committee through SANEDI’s annual report.

The report covered three programmes -- administration, applied energy research and energy efficiency. For the first and the last programmes, the entity had achieved 100 percent of its targets. On applied energy research, it had achieved 91% of its targets. Under programme 2, the number of recipients of energy-related training was the target that was not achieved in the financial year.

Ms Manamela informed the Committee of the major funding sources of SANEDI. The entity had generated revenue of R89 million in 2020/21. It received its revenue from the Department of Education and some donors. The deficit of R75 million was due to the transfer of its internal unit to the Council for GeoScience. Other financial related information could be found in the attached documents.

The entity had received an unqualified audit opinion with findings. It had identified material misstatements and non-compliance for procurement in its annual report.

She guaranteed that the entity had noted the issues flagged by AGSA, and would be taking steps to rectify them.

(Details of the presentation can be found in the attached slides).

State Diamond Trader Annual Report 2020/21

Ms Monica Ledingwane, Chairperson, State Diamond Trader (SDT), led the entity’s delegation.

Mr Stanley Mnguni, CEO, SDT, said that the entity had experienced a depressing 2019/20 financial year. Major indicators such as volume and value inspected, SDT purchases, sales as well as profits, had all declined in that financial year. He highlighted that the pandemic had prompted structural changes in the diamond industry. Details of other trading performance information can be found in the presentation slides.

The annual report of the entity showed that it achieved 21 of its 31 targets, with one being partially achieved and nine not achieved.

The SDT had managed to increase its revenue from R230 million in the 2020 financial year to R683 million in the current year.

It had received an unchanged unqualified audit outcome. Areas to be improved were outlined.

The future focus areas of the entity were presented to the Committee.

(Details of the presentation can be found in the attached slides).

Council for GeoScience Annual Report 2020/21

Mr Mosa Mabuza, CEO, CGS, announced that it had published its annual report in IsiZulu last year, in both English and IsiVenda, and in IsiSuthu in the previous year. The entity would continue to adopt this as its culture so that ordinary South Africans could have access to geoscience knowledge in a language they were familiar with.

The performance of the entity had been on an upward trend. In the 2019/20 financial year, it had achieved 82 percent of its targets, and in this financial year it had achieved 86 percent under very difficult circumstances.

Details of the entity’s performance per programme can be found in the presentation slides.

The entity’s response to the COVID-19 challenges was provided.

The Geoscience Technical Programme of mapping South Africa at a scale of 1:50000 was explained, and details provided to the Committee. Through the mineral systems approach, new areas were found to host widespread metals and minerals in the Orange River Pegmatite Belt (Northern Cape Province), which was about 67% larger than was previously predicted.

Among other operational highlights were the Karoo Deep Drilling Programme, support for a Just Transition to a low carbon economy, and the geoscience data and information which was made available to the public.

Mr Leonard Matsepe, CFO, assured the Committee that the entity’s financial performance was up to scratch. The audit outcome had been consistently satisfactory for the past 19 years. He also explained the one audit finding which had been due to a newly appointed service provider which had needed to re-do its work that was below the standard required.

(Details of the presentation can be found in the attached slides).

Discussion

The Chairperson suggested Members should engage with Mintek and the State Diamond Trader in the first round of questions, before moving to the second round to engage with the Council for GeoScience.

Mr Wolmarans commended the excellent financial statements that those two entities had produced in the past financial year that led them both obtaining clean audits.

Mr Mileham asked State Diamond Trader if the entity was still doing business with Scarlet Skye Investment. He enquired if there had been any consequences based on the Gobodo report covering some problematic purchases that were made several years ago.

Mintek and State Diamond Trader responses

Mr Mnguni said the State Diamond Trader was not dealing with Scarlet Sky Investment currently, as he had just checked the entity’s book. If there was additional information to which he was not privy, he requested Mr Mileham to send him more information so that the entity could do a further investigation into the matter.

Mr Mileham said that his question had not been properly responded to. Scarlet Skye was an entity that worked for Alexcor. It was recently brought to light that Scarlet Sky had sold diamonds to the State Diamond Trader at prices that were significantly lower than the prescribed market value. There had been an investigation by Gobodo Forensics, so he wanted to know if there had been any consequence management measures implemented subsequent to that Gobodo investigation.

Mr Mguni responded the matter to which Mr Mileham referred had been discussed at the Zondo Commission. The entity had made a presentation to the Zondo Commission and was still waiting for the Commission’s feedback on the matter. To his own knowledge -- and he also wanted to put it on record -- the State Diamond Trader had never made any purchases from Alexkor or Scarlet Sky at a rate that was below the market value.

The Chairperson asked if he could assist the CEO in understanding Mr Mileham’s question. He asked if there had been any forensic investigation conducted by Gobodo at the State Diamond Trader for its trading relationship with either Scarlet Sky or Alexkor. What had been the findings from that investigation? If there were findings, what consequence management measures had SDT taken?

Mr Mnguni clarified that Gobodo was an internal auditing firm hired by the Department of Business Enterprises. The SDT had been implicated as a result of its trading relationship with Alexcor. From that, the matter had been submitted to the Zondo Commission, where the entity had been requested to make its presentation on the matter. The entity at the moment was still waiting for the outcome of that presentation.

The Chairperson said that he understood the entity’s point, and the Committee would deal with the matter when it compiled its report.

Discussion

Mr Lorimer asked that the Council for GeoScience to note that the presentation had spoken about the number of information requests that it had received, but he also wanted it to tell him how many of those requests were granted. For instance, he knew of an instance where the Nelson Mandela Mining Institute had tried to reach out to the Council for some information, but still had not received any feedback.

He asked if the mapping that had been done over the year had been published or not. If the information had not been published, he wanted to know why.

He sought more information on the Karoo Deep Drilling Project. He wanted the Council to provide an assessment on whether the project was commercially viable, and when the completion of the deep drilling project could be expected.

He also sought some clarity on its mandate and the project in the Central African Republic (CAR). Given the huge cost of the CAR project, he wanted the Council to explain the potential benefits that it would bring to South Africa.

Mr Wolmarans congratulated the entity for its 19 years of unqualified audit opinions.

He recalled that the entity had mentioned the issue of securing a long-term sustainable funding model in its last annual report, and it had appeared again in this annual report. He wanted to know what initiatives the entity had taken so far. He emphasised the importance of this long-term sustainable model, and asked whether the entity had thought of commercialising some of its products make them competitive in the market. He commented that a number of entities had been constrained by a lack of resources which the Council could provide and by doing so, it could not only solve the problems for those struggling entities, but also broaden its own revenue streams.

Mr Mahlaule enquired about the incidents at the council where some employees had clandestinely traded confidential insider information to other companies for money. He wanted to know how the entity was tackling this issue.

The Chairperson asked the Council to explain the reason behind its decision to redo a building, despite the Auditor-General’s and the Chairperson’s expressed concerns. He noted that although the Council had obtained 19 unqualified audits in the past 19 years, there was still room for improvement until it got a clean audit. He suggested the Council should work with the Auditor-General’s office to improve those small aspects, so that it could finally get a clean audit.

CGS's response

Mr Mabuza clarified that all the requests that were outlined on slide 21 had been responded to, and disseminated to the broader public. The Nelson Mandela Mining Institute had probably not informed Mr Lorimer that the Council for GeoScience had entered into an agreement with the institute to take over some of the projects that the institute did not have the competence to do. These projects had been properly assigned to members of the Council and were being well attended to. However, there were instances where the Council may enter into agreements with some stakeholders where certain information could not be disclosed as it was deemed confidential. From 1 July, the Council had launched an information portal so that all freely available information was accessible to the public.

Referring to the Karoo Deep Drilling Project, he said it was not the Council’s job to evaluate the commercial viability of shale gas. Its job was to undertake a geo- and environmental baseline study in collaboration with the DMRE and Petroleum Service SA on the shale gas project. This study was expected to be completed within the current financial year, and would be made available to the authorities and the Committee.

He said the Karoo Deep Drill Project had been concluded, as was indicated in the presentation. The project had gone to the depth of 2 978 metres. Of the five fundamental questions that this project aimed to answer, four had been answered. The remaining last question requires a different type of technology which the Council had now partnered with Wits University to answer. The last question was to answer if there was brackish water at a depth that could be used as a necessary fluid in the extraction of shale gas if the government decided to develop and commercialise it. He reported that so far the scientists at the Council and academics from Wits were working together to find a technology that could detect from the surface without having to drill again. The Council had installed 11 new seismic monitors in the region to closely monitor the seismic baseline.

Mr Mabuza responded to the Central African Republic question, and said that there existed an agreement between South Africa and the CAR, which was a diplomatic relationship seeking to discover potential minerals. The Council had not done any geological work in the CAR yet. He commented that the CAR remained largely untouched and was a reservoir of minerals that could complement the minerals which existed in South Africa, most particularly rare earth elements. He said that the beauty of geoscience was that it was a precursor that could enable the country to make a decision for economic benefits based on geo-scientific information.

He confirmed that the Council had uncovered two cases of young professionals who had been lured by material compensation from outside of government, and had disclosed confidential information. Fortunately, the Council’s system had detected the issue. The Council had developed a whole programme to train scientists to develop their integrity, but he also asked the Committee to bear in mind that there would always be one or two cases of such a nature.

Mr Matsepe responded to the question around the lack of strategies to drive long-term investment via the development of minerals. The CFO said that the Council played a very important role in the early stage of a value chain. The information which the Council provides was a public good which stakeholders could use for development and mineral exploration for economic benefits.

He made a plea to Members that the entity simply did not have enough funding to do its job. For the nationwide mapping, the Council needed R20 billion to complete the task over a period of ten years. The entity had come to the Committee in the past to ask for more funding. So far it had obtained support from the Department and PPC to secure only R600 million, which was a significant drop from the R20 billion that was required. He was confident that the entity was capable of generating commercial revenue, but it needed more support in order to fund the exploration of more minerals. On a positive note, he also noted the gradually increasing attention that the Council had been receiving from the National Treasury and the Department, and he hoped that the entity would be given more funding to carry out its projects.

The Council remained committed to achieving a clean audit and was aware of the minor issues that deterred it from accomplishing it. In response, it had deployed an Enterprise Resource Planning (ERP) electronic system to replace its old manual system in order to eliminate its minor errors.

Mr Matsepe explained that what had also deterred the Council from obtaining its clean audit was the recent engineering work that it had done. As it did not have competence in engineering work, it had had to outsource a service provider to install a ventilating, humidity and air conditioning system. This project had received the approval and funding from the Treasury and the Department. However, the quality of the work that was provided by that service provider had been dismally disappointing. The audit opinion had indicated that some of the work needed to be redone, so the Council had to approach the Treasury and the Department again. According to the PFMA,, this newly-done work was categorised as fruitless and wasteful expenditure. As a remedial measure, the Council was taking the legal route to recoup the cost from that service provider.

This brought to an end to Members’ engagement with the entities.

Final remarks

The Chairperson said that Members would be compiling the Committee report so that it could finalise, adopt and submit the report soon.

Mr Mahlaule remarked that it did not make sense that the energy sector was having a conference in Cape Town, and no one from the Committee was participating. He questioned how Members would know what had transpired in those discussions and the subsequent resolutions. He suggested that the Chairperson needed to represent Members' dissatisfaction, and should write to the Speaker and convey Members’ views on the matter.

The Chairperson understood his view, and suggested including that view in the Committee's report.

Deputy Minster Ndakane said she had just checked with her colleagues, and that an invitation had been sent for the Committee to be part of the African Energy Week. She thought it was because of this coinciding meeting that Members were not present at the conference.

She noted the Members' concern at the Department’s financial performance. She expressed gratitude for the Committee’s work in taking the executive to account. She absolutely agreed with the point that the Department must lead by example, for other entities to follow.

She updated the Committee that the material audit findings had been identified, but the Department still had not rectified them. She gave an assurance that the Department would implement the Committee’s recommendations and report back.

The Chairperson urged the Deputy Minister to sort out those people who did not adhere to the relevant regulations, and said she had the Committee’s full support to do that.

He referred to the unqualified audit opinions of the entities that had presented their reports today, and hoped that they would move towards getting a clean audit. It was non-negotiable that they must do that.

He indicated that the Committee could possibly adopt the Committee report on Friday. The Secretary had said that the BRRR process could be done on Tuesday next week and be adopted on Friday. Usually, Committees had until 3 December to finalise the BRRR.

The meeting was adjourned.

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