SANEDI, Mintek & NECSA 2020/21 Annual Performance Plans

Meeting report

SANEDI: Annual performance plan

Ms Lethabo Manamela, Interim Chief Executive Officer (CEO), SANEDI, said energy was a vital resource that was a key enabler if the government was to achieve the national imperatives as contained in the National Development Plan (NDP) and Medium Term Strategic Framework (MTSF). Universal, sustainable, and affordable energy needed to be achieved to power economic growth and development. The focus of their strategy would be centred on the creation of an enabling environment within which policy decisions and investments in energy could take place. This would be done through:

• Provision of timely, quality and reliable data sources;
• Accurate and balanced data analysis;
• Policy support instruments;
• Capacity building initiatives;
• Sector support Interventions;
• Awareness creation of transition technologies;
• Administrative support of government programmes.

The country had also embraced the concept of smart cities, which would require a smart electricity grid. They would continue with work on Carbon Capture, Utilisation and Storage (CCUS), extending the project from just the compliance side of storage utilisation. Their focus would also be put on pilots that had greater potential for maximum Greenhouse Gas (GHG) emission reduction in the long term. Capacity building initiatives would focus on youth, women and persons with disabilities, while support would also be given to Small, Medium And Micro Enterprises (SMMEs) involved within the energy sector.

(See presentation for more on strategies and targets)

SANEDI’s total budgeted revenue was R234 million, with 38.5% from the medium term expenditure framework (MTEF) allocation and 61.5% from external funds. The expectation was that the revenue would decrease by 4.1% on average over the period under review, with the decline mainly in external funding. The compensation of employees (COE) budget represented 25.5% of the total budget. Depreciation accounted for 1.4% of the total budget

The programmes of the entity involved administration, applied energy research, and energy efficiency.

Discussion

Mr M Mahlaule (ANC) commended the work that SANEDI was doing, and remarked that he was particularly pleased with the paragraph which spoke to the continuation of work on carbon capture and utilisation. The extension of the project from just the compliance side to utilisation was very important. If one listened to the Coal Distribution Submodule (CDS) report, that they had just discovered tonnes of coal, it suggested that although they wanted to be environmentally friendly, the country could not afford to move away from coal. They needed to maintain coal as the primary source of electricity, as they had been doing. They had to look at technologies to provide cleaner coal.

Mr K Mileham (DA) commented on the amount of input that SANEDI had put into energy policy and the Integrated Resource Plan (IRP), and asked if they were the key drivers of that process whether this was driven by the Department? How much input did they provide?

He noticed that they had put particular emphasis on smart grids. He wanted clarity as to whether that included the roll-out of microgrids at an industrial park or a place like that, for example, and whether any thought had been given to that.

He was pleased that they had highlighted GHG emissions as a priority. He was concerned that the targets were talking more about carbon capture, and less on emissions. He wanted input on the relationship between SANEDI and Eskom, particularly concerning Eskom’s emission control. Over a couple of weeks, several power stations had been held or caught out with their emissions, especially at Kendal power station. He asked if they were helping them and if they were listening to Kendal, and if not, why not.

What was SANEDI’s role in implementing the national solar water heater (SWH) programme -- did they have any input into that?

Ms N Hlonyana (EFF) commented that in the presentation they had spoken about smart grid systems, but it was as if they would only apply the smart grid systems in smart cities. She wanted to understand if the smart grid system was going to wait for the smart cities, or were they going to start early on the smart grid system, and incorporate it with the systems that they had in the country.

She was pleased that they had identified that there was a lack of coordination with the departments in South Africa. There were a lot of programmes which were dealing with energy-saving across the country, but they were not properly coordinated. She was hoping that this department would try and bring everyone together so that they could understand as a country what they were doing, and when they were doing it.

Lastly, she observed that they had spoken about assisting public works. She hoped that this programme would kick in as soon as possible so that they could change their public works buildings into becoming smart buildings.

Ms V Malinga (ANC) asked if SANEDI would engage in research that would assess how energy could be made cheaper. How could the government facilitate access to energy in places like rural areas?

Mr G Hendricks (Al Jama-ah) remarked that young children, especially primary school children, were at the forefront to serve the planet. They had some fantastic ideas, with the help of educators, on how they could serve the environment. He wanted to know if the department had a line of communication with the young people, as they had ideas that could be used.

Ms C Phillips (DA) said that on page three of the Strategic Plan, there was a World Bank grant of US$23 million. She wanted to know if the money was already in their bank account, or would they get it only once they had implemented the project. She asked for a copy of the road map they had developed. They had stated that the carbon capture project was crucial -- in 2018/19, some tenders had been issued for the carbon capture project, but the tenders were then withdrawn. She asked if there was an update on those particular tenders.

Lastly, she asked if SANEDI was currently working with any municipalities in the country.

Mr M Wolmarans (ANC) said that as 65% of the budget came from external funding, did they have a mitigating approach for what would happen if this high percentage of their budget got reduced because of other factors beyond their control. How would they mitigate going forward, if the bulk of their budget was from external funding?

Responses

Dr Minnesh Bipath, Acting Chief Information Officer (CIO) and Programme Manager for Smart Grids, Data And Knowledge Management, SANEDI, referred to the IRP and said that a lot of the data that SANEDI collects were inputs that went into IRP planning. However, SANEDI was not directly involved in the IRP planning itself, as that was the mandate of the department.

He said SANEDI was actively involved in the matter of microgrids, so when they talked of smaller grids, it was all-encompassing. SANEDI had developed a smart grid vision document and had also developed a road map for municipalities which also encompassed the work on microgrids. While the work on microgrids was important when looking at their electrification targets, they were probably at about 90% electrified. The cost of electrifying the remaining 10% was going to be expensive, so alternative sources of electrifying those customers were going to have to be looked at.

The solar water heating programme was managed by the department and the Central Energy Fund. However, SANEDI did research the water space, and sometimes they focused on trying to assess government departments, the public building sector, and also the ongoing projects with the Department of Defence.

On the question of the linkage between the smart grids and smart cities, he said that the all-encompassing strategies of municipalities were the smart cities. Smart grids were a subset of smart cities, therefore from a strategic planning point of view they have to be driven from a smart city point of view. However, implementation could be individual, and did not necessarily have to wait for smart cities to be in place. SANEDI was working with the Department of Cooperative Governance and Traditional Affairs (COGTA) directly on the smart cities project and the issues around integration.

Concerning Eskom emissions, he confirmed that SANEDI worked with Eskom regarding the carbon capture storage, but beyond that they did not do much work with Eskom on the emission side.

Ms Manamela said SANEDI was not involved in the solar water heating programme.

Regarding how they could make energy cheaper, she said they were looking at studies on the cost of supplying energy in the country. They also had some pilot projects they had done in the past, and were going to continue looking at using bio-energy, especially in places where energy was not available or as an option to make energy affordable. They had rolled out pilots in schools and also in households, looking at how to use bio-energy for cooking and maybe pairing that with the use of solar thermal technology to provide water heating.

On the question of lines of communications, she replied that they did work with the departments and collaborated with them on some of the engagements that they were doing with the youths on the ground. For example, they also participated in the learner focus week.

She said they had Eskom sitting in their advisory committee for carbon capture storage.

Concerning the US$23 million from the World Bank funding, she said that they have not yet received it. It was going to be paid in tranches, as they were implementing the project.

They were going to make the road map available to the Committee.

She said they had withdrawn the tenders relating to CCS because they had been working on finalising their terms of reference with some of their partners. They had now finalised the terms of reference, but they would have to wait for the lockdown to end before they could issue any terms of reference.

Regarding the risks associated with external funding, at the moment they were safe for the next five years in terms of funding for the projects. They were also continuously looking for opportunities for external funding. There were many funds out there that had been established specifically to assist developing countries or countries across the world in terms of transitioning. While there was money available, they needed to come up with project proposals that would meet the criteria for those different funds.

Mintek: Annual Performance Plan

Dr Molefi Motuku, CEO, Mintek, said the entity had undertaken to retain employees as far as possible during the COVID-19 lockdown in order to avoid job losses. They were focusing on filling selected key positions, and reskilling and retraining employees, so that the economic downturn could be used effectively to develop their human resources. They would put cost-containment measures in place, and re-prioritise programmes and budgets to weather the impact of the COVID-19 pandemic.

Despite declining commercial revenue, Mintek would continue as a going concern. This was supported by its stable financial position and the state grant support over the MTEF period, and the currently secured commercial project pipeline. They had undertaken to develop and support the state pharmaceutical company, Ketlaphela. They were also developing competencies and capacity to produce hand and surface sanitisers, rapid test kits (for COVID-19, HIV, tuberculosis, malaria, and Rift Valley Fever) and antigens and antibodies that were an essential ingredient of the test kits.

(See presentation for strategic plans and budget considerations)

Discussion

Mr Wolmarans said that while Mintek had a declining local commercial income, there was an uptick in the international commercial income. He asked what they could attribute that to.

Ms Phillips asked if they could expand on the top project since 2018/19 -- what it was, the income-generating capacity of the project, and also the creation of jobs.

Mr D Mthenjane (EFF) commended them for their involvement in the COVID 19, such as producing test kits, etc. He observed that Mintek’s revenue had not been growing in the past five years, and asked the reason for that.

Earlier on, the Committee had been told that Mintek was the entity that was carrying out a project of rehabilitation on the asbestos mines. He wanted to know how far they were with that programme. He also wanted to know why the communities were fighting them. Had they also identified the ex-workers who were affected by those diseases and the community that was living around that area?

Mr M Nxumalo (IFP) asked what the tie between the development of the pharmaceutical company and the core mandate of Mintek was.

Mr Mileham commended Mintek’s involvement in COVID 19 crisis. He asked when they were going to make the sanitizers that they said they were producing, commercially available. He remarked that test kits for COVID 19 were something that the country direly needed, and there was no local manufacturer. He asked what sort of time frame they were looking at, to get them out to the hospitals and clinics. In their presentation there were a lot of pilot programmes, but not a lot of commercialisation. He asked who was doing their commercialisation and what progress was being made.

He added that they talked about having 224 active pertains, but they had only eight licence agreements. This meant there was an enormous opportunity that was not being commercialised, and he wanted to know what they were doing to address that shortfall.

Mr Mahlaule was excited to hear the good work that they were doing, and this warranted the support that they needed to be given for their core business. The people who were responsible for their core business were 17% at the PhD level, and 38% at Masters. For them to go to much greater heights, there was a need to convert the 38% Masters into PhDs. Also, those at the Honours level needed to be supported to the Master’s level. Generally, he was very happy with the work that they were doing.

Responses

Dr Motuku explained why they had a low income locally. Around 2009, their income locally was at its peak, and this was during the mining boom. After the mining boom, everything was in decline. What was happening before that was that mining houses were investing in big pilot activities. Thereafter, they had seen that mining houses were looking for quick solutions, so they were no longer investing in pilot activities. Mintek had not responded to the change, which was why in 2020 they were repurposing most of their activities. They were building new capacity remodeling so that they could respond quickly. Pilot plans took about six months, and mining houses were looking for solutions and information sooner than that. Mintek was now focusing on service activities and could see that there was more that they could do to provide more value. This was why they were repositioning Mintek to be a true research and technology organisation.

Regarding their top projects, he referred to the test kits, and said that there was no facility in the country at the moment that could validate even external test kits. Mintek had a licence from the Southern African Pharmaceutical Regulatory Affairs Association (SAPRAA) to manufacture test kits. In partnership with SAPRAA, they would be able to validate even imported test kits. They would be setting up an entity that would be focusing on the reproduction of test kits not only for COVID-19 but also for HIV.

The reason they were involved with sanitisers was that when they wanted to buy them, all they could get were sanitisers that were not compliant with World Health Organisation (WHO) guidelines. They had therefore decided to provide the country with quality sanitisers that were compliant to WHO guidelines. They were massifying production of sanitisers.

He said that most of their programmes were there to address the challenge of the decline in revenue

They did have some challenges with the communities regarding rehabilitation. They had developed capacity at Mintek with a project management office which had the requisite skills to be able to address rehabilitation. They had quantity surveyors, engineers, and people who were designing programmes to make sure that they had a fit-for-purpose solution for rehabilitation.

He commented that they were making the sanitisers commercially available. They had just processed an order for the Department of Mineral Resources and Energy (DMRE) of 1 500 litres of sanitisers. What had been a bottleneck, however, had been the procurement of ethanol. They had partnered with PetroSA, and they would make available to them 35 000 litres of ethanol which was the main ingredient of sanitisers. They could produce 4 000 litres per week and to commercialise this, they had partnered with a local bottling company to bottle it on their behalf.

The bottleneck on test kits had been that they needed to import antigens and antibodies. Before the lockdown, they had placed an order on these, and had just received a consignment of some of them last week. This was why they were proposing that Mintek, or the country, should build the capacity to produce antigens and antibodies locally. The timelines were that within two months they should have been able to produce a prototype that would be clinically validated.

He said that commercialisation was a challenge. Before the lockdown, they had lined up interviews and had established a portfolio within Mintek that would be focusing on commercialisation. They were back at work, and were fast-tracking that. They were recruiting to get the right people to make sure that Mintek would start commercialising. They anticipated having more licence agreements, and had therefore established an office at Mintek on intellectual property (IP) and technology transfer.

Mr Sakhi Simelane, General Manager: Finance, Mintek, said they had capacitated themselves to do more on rehabilitation than just project management. They were continuing with capacitation at the rate of about four to five sites annually. Most of the sites were in the Limpopo province. They also do the Zama Zama holings, which they rehabilitate at the rate of 40 holings annually. The biggest challenge they were facing was always with the community, because most of the community was unemployed. The communities demand employment and the procurement of some products locally, and that was where the squabbles emanate. They try as much as they can to enforce local sub-contracting, and manage to sub-contract about 30% to the local communities. However, this was not always enough to satisfy the requirements of the communities.

Concerning the ex-workers, they do look for them, but when they get into the rehabilitation areas it was normally the communities in general that they supported.

Nuclear Energy Corporation of South Africa: Annual Performance Plan

Mr Ayanda Myoli, Acting CEO, NECSA, said the key to the entity’s sustainability was:

• New nuclear build being part of future electricity generation planning;
• The building of a multi-purpose reactor (MPR) for nuclear research and commercial isotope production.
• The state-owned pharmaceutical company’s operation was advanced.

Although the Group would have a turnover of more than R2bn in the 2020/21 financial year, there would be a projected net loss of R61m for the period. For year five, the Group projects about R551m in net profit, and in year 10 a R1.4bn net profit. The key financial objective of the Group in the short term was to reduce losses and to rehabilitate the balance sheet to enable it to fund its growth and expansion strategy.

The current status of NECSA was as follows:

• The NECSA Board had approved the Group strategy at the end of April 2020;
• NECSA was finalising the revised Group corporate plan for the period 2020/21-2022/23;
• The DMRE Minister had approved the Ketlaphela project at the beginning of May 2020;
• Nuclear Technology Radioisotopes (NTP) was on the path to sustainability;
• The projected COVID-19 impact was currently (April) estimated at R150m;
• The NECSA Board and management were looking forward to implementing the NECSA Group strategy to ensure a turnaround and its long-term financial sustainability

Discussion

Mr Mahlaule commented that earlier on they had been asking the National Nuclear Regulator (NNR) about their complaint about NECSA’s behaviour in terms of adherence and non-compliance that had led to their closure at some point. He asked if they would say they were on a path to recovery in that regard.

Most of the entities were speaking of collaboration with each other, which was encouraging, as it painted a picture of no competition amongst them, but rather complementing each other.

He asked when they were likely going to get a CEO at NECSA.

Mr Mileham said he was very concerned with some of the assumptions that they had made in their presentation. They had talked about the new nuclear build, and particularly about 2 500 gigawatts of a new build. He pointed out that it did not align with the IRP, which made no provision for 2 500 gigawatts from a new build. It said that they would commence preparations at a pace and scale that South Africa could afford. They were therefore working off the wrong version of the IRP. This was the same position that Minister Mantashe had announced a week ago when he spoke to this Portfolio Committee. However, this was not what had been gazetted or approved. He asked them how they could plan, based on something that was not an approved strategy of the government.

He was very concerned because the Committee had not seen a detailed turnaround strategy for Pelindaba Enterprises and Pelchem. He had not heard Pelindaba Enterprises being mentioned even once in the presentation. These were entities that had been problematic when the Committee did oversight last year. He asked when these turnaround strategies were going to be tabled to the Committee.  

Ms Hlonyana said that at the beginning of the presentation they had said that they were in partnership with Mintek. The presenter had referred to an international partner, and she wanted to know who that international partner was.

Ms Malinga asked if they had met with organised labour in NECSA, because what they had seen was a strained relationship between the Acting CEO and organised labour which left them feeling uncomfortable.

Secondly, how did NECSA intend the NTP to adhere to the safety regulations as prescribed by the National Nuclear Regulator (NNR) to ensure that they do not lose revenue and their customer base?

Mr Hendricks congratulated NECSA for taking the bull by its horns and getting back on track. In as far as nuclear and electricity was concerned, they could not wait for when there was money in the bank. They had to be proactive, and he commended them on their proactiveness. Also, they should not stick to only one international partner, but should have a basket of international partners. He had once spoken to an executive in Pakistan, and they were quite happy to assist South Africa as a developing country and were willing to share some of the technology and expertise, and to buy some of their products. Their minds should be flexible so as not to rely on only one international partner.

Mr Mthenjane welcomed the new board members. He said they should do what they were employed to do, and leave politics to the politicians.

Ms Phillips wanted to echo what her colleague had said about the nuclear build, where one area of government seemed to be planning for what another area of government did not seem to have money for.

Mr Wolmarans (ANC) referred to the relationship between the entity and its labour, and wanted to know what the current situation was.

He asked if the production of hand sanitisers was in collaboration with Mintek, or if it was also competing for market share.

NECSA had mentioned the risk of a lack of transformation and an inability to retain designated groups. He asked if their turnaround strategy addressed that and their way forward around that issue.

Responses

Mr David Nicholls, Chairperson of NECSA, referred to the appointment of the CEO, and said they were still trying to resolve issues with the previous CEO at the Commission for Conciliation, Mediation and Arbitration (CCMA), and they could only appoint the new CEO after they had resolved that issue.

On the nuclear build, he said nothing in their current turnaround strategy took credit for any work coming out of the nuclear new build programme. The recovery programme that had been presented did not rely on the new nuclear build programme for its success. The IRP had delineated what plant ought to be commissioned up to 2030, and does not list what goes beyond 2030. As the Minister had pointed out, he was looking for the preliminary work to be completed by 2024. Even assuming that they placed contracts in 2024 for their new build programme, there would be nothing online before around 2030/32. Commenting as an individual, he felt the current IRP had a weakness, as it stopped the process nine years from now, and for megaprojects, nine years was nothing.

Ms Myoli said that at that particular time, it was unfortunate the union had raised certain issues.. They had had some sessions between the union members and management representatives in what they call the group bargaining programme. One such session had been chaired by the CCMA to help them address the issue of labour in general. It had been a successful programme, and he had been called on the last day to witness the outcome. They had continued with such engagements, and the management provided feedback regularly.

Pelindaba Enterprises was a division of NECSA where they were doing industrial manufacturing. The strategy they were talking about was a group strategy, so in essence it included its subsidiaries.

He said they were not in collaboration with Mintek in the production of sanitisers at the moment

On the risk relating to transformation, he said that they had to continuously transform the organisation, especially in key areas such as research and development (R&D), and it took time to develop the expertise they need in such areas. They were working on how they could transfer knowledge from existing expertise to those who were knowledge seekers. It was something they had not perfected, but they were working on it. The number of black technical staff was about 50%, so they were almost on target. They did recognise that in some of the key areas of knowledge and expertise, they needed more transformation.

Mr Ivan Radebe, Managing Director of Pelchem, on the question of sanitisers, said that it was a three-way collaboration between Mintek, Pelchem, and Ketlaphela. The three entities had been working together so that they could produce the World Health Organisation (WHO) recommended formulations. There was a complementary collaboration between the three entities.

The international partner was Macleods Pharmaceuticals Limited, from India. They were currently the largest producer and supplier of anti-retrovirals (ARVs) and tuberculosis (TB) pharmaceutical products. Currently, they were awaiting the final concurrence from the Minister of Finance and the Minister of Health.

Ms Tina Eboka, Group Managing Director, Nuclear Technology Radioisotopes (NTP), said that they worked with NECSA’s nuclear compliance and safety unit to ensure that they meet the requirements from the Nuclear Reactor Regulator (NRR). Since July 2018, they had worked very closely to ensure that they rebuilt the production protocols and their standard operating procedures, and since November 2018 they had started producing and providing products to the market. They had been able to regain almost 80% of their customers, and believed that by July 2020 they would have recovered all their customers.

They were trying to maintain their production for Motilium, which was the major product that they sell internationally, and iodine 131. They had also started producing Lutetium 177 PSMA, which was used for prostate cancer treatment. They had started to work on taking advantage of the African market with new products through the Africa Continental free trade area agreement, so they were set to get back to the positions they were in 2017. They had done a lot of training for their staff and even though they had the lockdown, they had managed to have three productions runs and supply the American and European market. As long as they were flying into those countries, they could deliver products.

The Chairperson reminded the NECSA Chairperson that the question of whether the board had met with labour, and what their relationships were, had been directed to him. What was his take on it?

Mr Nicholls said the board as a whole had not met the unions. He had met the unions in the second week of being in position, and he had not met with them since then. Since the lockdown, they had not had many meetings. However, following the discussions with the leaders of the union on site, he felt comfortable that they had a relationship where they could come and tell him if they were not doing the right thing.

The Chairperson asked the Director General to make the closing remarks.

Adv Thabo Mokoena, Director-General, DMRE, said he wanted to bring the attention of the Members to their agreement, that during the Budgetary Review and Recommendations Report (BRRR) process that would give an update to the Members on the work that they have done, and then look specifically at the plans their entities needed to put in place, such as the rationalisation and repurposing of state-owned entities (SOEs).

The meeting was adjourned.