Hon Chairperson; Deputy Minister of Energy, Ms Barbara Thomson; hon chairperson of the portfolio committee, Mr Njikelana and hon members of the committee; members of Cabinet who are present here today; hon Members of Parliament, members of the diplomatic corps; director- general, deputy directors-general and senior management of the Department of Energy; distinguished guests and energy stakeholders, ladies and gentlemen, the 2009 ANC election manifesto directed that we should work towards an equitable, sustainable and inclusive growth path that brings decent work and sustainable livelihoods, education, health, safe and secure communities, and rural development to all corners of this land.
This remains the vision and the context in which the popular government of the people seeks to bring about fundamental social change, and indeed the context in which this department must fulfil its task. And this task is defined. In the main the Department of Energy responds to the injunction from the ruling party, the ANC, to ensure, and I quote:
... a security of supply of energy resources, and ... an energy mix that includes clean and renewable sources to meet the demands of our fast growing economy without compromising our commitment to sustainable development.
We are fortunate that we are able to present our views on the energy future of this country in the year of the centenary of the glorious people's movement.
Hon members, allow me to reflect on some key areas of our performance in the past financial year. The new multiproduct pipeline was completed and is operational. We improved the turnaround time for petroleum licensing from 90 days to 60 days for new entrants in retail. The regulatory accounting system was completed and margins adjusted accordingly. The Liquid Fuels Charter audit was completed and tabled in Cabinet. We have completed Window 1 of the Renewable Energy Independent Power Producer programme successfully, with 25 successful preferred bidders contributing a total of 1 416 MW.
We launched the energy efficiency campaign during COP 17, together with our social partners in the National Economic Development and Labour Council, Nedlac.
In November 2011 Cabinet approved the establishment of the National Nuclear Energy Executive Co-ordination Committee to oversee the necessary groundwork for the upscaling of our nuclear capacity by 9,6 GW in the period up to 2030. Significant progress was achieved in the development of the solar park initiative. However, there was an unexpected delay in accessing the identified land and we intend to overcome this challenge during this financial year. Despite initial teething problems, we have installed over 250 000 solar water heater systems. The 1 million target by 2014 is still in sight.
Since 1994, 5,4 million electricity connections have been made.
In the international arena, we hosted the African Energy Ministers Conference in September 2011, culminating in the signing of the Johannesburg Declaration by more than 40 African Ministers.
We hosted 26 energy side events at COP 17 and the South African Renewables Initiative Declaration of Intent was also signed during COP 17.
The Grand Inga memorandum of understanding was signed in November 2011.
Seven bilateral agreements and declarations of intent covering areas of co- operation in capacity building, funding, technology and infrastructure development have been signed.
The Central Energy Fund group of companies has undergone significant restructuring.
The wind atlas, which accurately quantifies the wind energy resources in the country, has been launched.
Significant progress has been achieved with the development of the following pieces of legislation, namely the Independent System and Market Operator Bill, the Electricity Regulation Act, ERA, the National Energy Regulator Act, the Power Purchase Agreement, PPA, and the Gas Amendment Act.
Hon members, I am pleased to announce that we have spent 99,9% of our 2011- 12 allocated budget. [Applause.]
The total allocation for the 2012-13 financial year is R6,8 billion. Sir, R6,5 billion or 95% of this allocation has been earmarked for transfers: R3,1 billion has been earmarked for the Integrated National Electrification Programme to connect 150 000 and 10 000 households to the grid and nongrid systems respectively; R1 billion has been allocated for the Energy Efficiency and Demand Side Management Programme to accelerate the solar water heating programme; R1,5 billion is for the final instalment of the new multiproduct pipeline; and R554 million to the South African Nuclear Energy Corporation, Necsa, to continue with its central role as the anchor for nuclear energy, research, development and innovation.
The balance will be utilised for smaller projects and transfers to the state-owned entities reporting to the Minister of Energy, as follows: The South African National Energy Development Institute, Sanedi, receives about R50,1 million; the National Nuclear Regulator receives about R30,9 million; the Renewable Energy Fund subsidy scheme has been allocated about R40,4 million; and R307,27 million is for the operational budget, which is a 0,06% increase from the previous year.
One of the most astute sons of the continent of Africa, Thomas Sankara, said:
You cannot carry out fundamental change without a certain amount of madness. In this case, it comes from nonconformity, the courage to turn your back on the old formulas, the courage to invent the future.
The ANC, through the mandate of the 52nd National Conference and the 2009 Election Manifesto, enjoined its representatives in government to act in the spirit of what Sankara describes in this quote. The focus and budget of the Department of Energy are therefore geared to contributing to the overall programme of transformation, and indeed to what Sankara calls "to invent the future".
Geopolitical developments globally have once again demonstrated the need for South Africa to improve its energy security of supply. We are impacted on negatively by events that are taking place in other parts of the world, and we have seen how dependence on a few countries from one region can jeopardise our security of supply of energy. We have embarked upon a diversification strategy that will ensure that we reduce our vulnerability to the spectre of political upheavals.
We have also witnessed a roller coaster of fuel prices, the increases in which were caused mainly by these geopolitical upheavals and the associated exploitation of the situation by commodity traders. I believe that there is a need for stakeholders to begin to understand that these swings are not just affecting South Africa, but are impacting on the whole world. The move of crude oil from US$100 to US$120 per barrel happened in a short space of time. I continue to feel and share the pain of the motorist, but in particular the pain of the paraffin users and the farmer who produces the food that we eat.
A positive development is that we are currently witnessing a downward swing of the crude oil price, and I am pleased to announce that next month motorists will benefit from a substantial decrease in fuel prices in time for the June holiday driving season. [Applause.] I hope that those transport sector players that have increased their prices will take this decrease into consideration and act accordingly. Hon members, all of us must explain to our people that the petroleum products system is such that when there is a downward movement in the international market prices, that benefit is passed on to the motorist in the following month.
Recently, we have observed efforts to controversialise the fuel levy. Let us desist from spreading misinformation and mischief and use facts to educate and share knowledge with our people.
Another matter that requires our collective effort is the United States, US, and European Union, EU, sanctions on Iran and the impact thereof on the South African economy. Some have tried to force us into a confrontational position with the US, the EU and the Iranian government. In the interest of the South African economy, we have steadfastly resisted that. We have said before and state again that we will respond appropriately to this challenge in the best interests of our country and its people. The Cabinet task team remains seized with this matter, and is continuing engagements with the relevant governments, and we expect to come to finality on this matter soon.
As a result of the identified constraints throughout the liquid fuels supply chain, the department has embarked on a process of developing a liquid fuels infrastructure roadmap. One of the key objectives of this roadmap is to enable government to ensure that South Africa has access to reliable, affordable, clean, sufficient and sustainable sources of energy to meet the country's liquid fuel demand. In addition, in dealing with the supply challenges of refineries, we embarked on a process of conducting an audit of our refineries last year. The purpose of the audit was to assess the state of our refineries and to obtain an understanding of their current capacity. A preliminary investigation indicates that our refineries are experiencing reduced production levels, which is equally a threat to liquid fuels security of supply.
The 20-year liquid fuel infrastructure plan will form the basis for the implementation of the Presidential Infrastructure Co-ordinating Commission, PICC, strategic implementation project with regard to refinery upgrades and development, and we will make recommendations on the future of the refinery infrastructure in the country.
Work in this regard will be informed by the cost recovery mechanisms that we will be developing with the National Treasury.
As a further response to the global situation and domestic development imperatives, we have taken a decision to strengthen the Strategic Fuel Fund, SFF, a subsidiary of the Central Energy Fund. To this end a new board for the SFF with the requisite complement of skills will be appointed, and a new chief executive officer, CEO, will be appointed this year.
We intend to position the SFF to once again improve our strategic petroleum reserves and in that way enable the country to better respond to catastrophic global events that impact on the petroleum trade. A revised strategic stocks policy is under consideration by Cabinet and will be concluded soon.
Hon members, we are making steady progress with the development of the Integrated Energy Plan and by the end of the financial year will table the draft for Cabinet approval before embarking on further broader public and stakeholder consultations.
The Energy Planning Colloquium was held at the end of March this year and attended by subject matter experts in the academic field, industry, and various organisations and interest groups. While we obtained a wealth of constructive viewpoints and comments on our processes and approach, there was a call for more stakeholder consultations to provide input into the plan. In developing this plan we are taking a holistic approach to the problem of planning for future energy needs, and we seek to ensure that environmental and climate change issues, together with social development and economic growth issues, are all considered in a balanced manner. We will therefore continue to engage with various experts and stakeholders during the Integrated Energy Plan development process and we urge maximum participation from all interested parties.
On the regulatory framework, greater focus will be on compliance, particularly with fuel specifications. The department will embark on spot checks at all licensed facilities to verify that all petroleum products sold to motorists meet the required fuel specifications. This will be over and above the certification that is done by the oil companies.
We have also set ourselves the ambitious target of obtaining International Organisation for Standardisation, ISO, accreditation for the petroleum licensing process. This, we believe, will ensure greater consistency and predictability through rigorous documented processes and systems. It will reduce subjectivity completely and also ensure that scope for potential corrupt practices is eliminated. This is not a one-year undertaking, but there will be milestones for each year.
This financial year will be spent in training all petroleum licensing staff on the quality management system framework and ensuring that there is not a single process for which there is no corresponding standard operating procedure.
Ladies and gentlemen, the implementation of the Integrated Resource Plan, IRP, has commenced and a number of policies and strategies that address the mandate of energy provision and the need to reduce our dependence on coal have been initiated. The IRP proposes the development of new generation capacity in a way that optimises costs, promotes job creation and mitigates adverse climate change.
The flagship programme under the IRP is the Renewable Energy Independent Power Producer, the REIPP, bidding programme for the provision of 3 625 MW of capacity from independent power producers. The process has lived up to expectations by attracting foreign direct investment into South Africa worth about R100 billion over a period of 12 months.
The successful bidders are expected to enter into a contractual agreement with the department, referred to as the implementation agreement. This agreement is designed to govern the commitments made by the bidders in relation to the minimum number of jobs that they will create during the construction period, the local content procurement of some power plant components, and the change in control and black economic empowerment, BEE, equity. The procurement process is designed in such a way that the bidders will not be able to finalise their deals without signing this critical component of the project agreements. We are confident that this will boost the energy sector employment growth potential.
We are now set to initiate a fresh bidding round for the other technologies, such as cogeneration from biomass, including sugar and paper, biogas, landfill gas, and small hydro. The selected preferred bidders for the Renewable Energy Independent Power Producer, REIPP, under Window 2 will be announced on Monday, 21 May 2012.
During the course of this year we will introduce the small power or less than 5 MW capacity bidding round, whilst continuing with the renewable energy programme as a rolling programme, where subsequent windows are initiated subject to availability of megawatts left from the previous windows.
In response to the injunctions of the green economy and localisation accords, the target for local content has progressively been increased for Window 2, to a target of 60% in respect of certain technologies, whilst the minimum of 40% South African equity participation remains the same. I would like to challenge project developers to take advantage of this certainty in the project pipeline to bring their factories to South Africa to manufacture locally the components that constitute the various systems, and to develop local skills. More details on this process will be dealt with by Minister Davies.
Over and above the Renewable Energy Independent Power Producer, REIPP, procurement, we have also issued a request for information for projects that are available from other technologies, such as gas, imported hydro, cogeneration and coal. Once we have received the information about prospective projects, we will initiate a procurement process to meet the IRP requirements based on these projects. Hon Chairperson, nuclear energy is going to play a critical role in the IRP implementation process, and it is for that reason that the National Nuclear Energy Executive Co-ordination Committee was established last year as the authority for decision-making, monitoring, and ensuring general oversight of the Nuclear Energy Expansion Programme.
The success and deployment of nuclear power requires public acceptance, and public education is the most important topic surrounding nuclear energy.
Concerns regarding the safety of nuclear energy in the light of the recent Fukushima incident will be factored into the South African approach to ensure that proper safety measures are put in place, and that they are overseen by the appropriate expert authorities. We remind hon members that, as a member of the International Atomic Energy Agency, we in South Africa are obliged to comply with the relevant guidelines and safeguards on nuclear plants and we are therefore evaluating our processes against the agency's developed milestones for new plants.
We estimate that the total power capacity extension under the IRP will cost in excess of R4 trillion in the period up to 2030, including the new power plants, plus the transmission and distribution infrastructure.
Whilst the primary objective of the IRP capital programme is energy security, we have also prioritised considerations like reducing water intensity, reducing greenhouse gas emissions, implementing an affordable tariff trajectory, and localisation of technologies. As we do this, we must ensure that tariffs do not increase beyond what is affordable to the economy and the household consumer.
We are all aware that the multiyear price determination is due to start this year. In the last round Nersa approved increases of 25%, 25% and 16% for 2010, 2011 and 2012 respectively. The electricity pricing policy which Nersa is obliged to apply in tariff determination provides that the wholesale tariff must rise to the long-run marginal cost within 5 years of 2008 in order to fund the capital investment requirements. This has resulted in a steep rise in the electricity tariffs.
Some of the risks associated with high tariff increases are macroeconomic in nature, such as high administered prices that drive inflation upwards and the fact that the gross domestic product will slow down as input costs increase. There is also the reality of the sociopolitical dynamic that these interventions may cause, especially with regard to hardship, which will increase, with the poor bearing the biggest brunt.
The other side of the risk equation is that without appropriate investment and funding of the electricity infrastructure, inadequate capacity will cause blackouts and act as an impediment to economic growth and development. It is therefore critical that we strike a balance between these competing considerations.
An interdepartmental team is considering the best approach for determining the next round of electricity tariff increases for Eskom, due to take effect from April 2013. We share the concern of the President, as raised in the state of the nation address earlier this year, and our response will be informed by the need to develop an approach for defining a long-term electricity tariff trajectory.
The Integrated National Electrification Programme continues to be the backbone of our electricity delivery programme for communities who are underserved in regard to the grid and off-grid connections. Deputy Minister Thomson will expand more on this programme.
This year we will develop a new electrification roadmap which emanates from our engagement with stakeholders during the Electrification Indaba in March this year. This is intended to accelerate our responsiveness, particularly given the declaration by the United Nations of 2012 as the International Year of Sustainable Energy for All, with access to energy for all.
As a further contribution to sustainable energy access we intend to build three additional integrated energy centres, IECs, in Mbizana, Ulundi and Maluti-a-Phofung.
Last year we announced our intention to confront the problem we faced with copper theft. We indicated that the direct financial losses amounted to R100 million annually, apart from the inconvenience of power supply disruptions. We noted that even the flagship Gautrain transport and telecommunication systems were not insulated from this menace, and we decided to take action.
With the collaboration of the criminal justice system, a number of interventions have been concluded. I am pleased to announce that copper theft will be treated with the seriousness that is necessary to stop the izinyoka [cable thieves] once and for all. [Applause.]
The South African Police Service, SAPS, has gazetted an amendment to the Second-Hand Goods Act, and this is the beginning of a process of tightening the penal regime in regard to copper theft. I want to take this opportunity to thank Minister Mthethwa and the SAPS for their collaboration and support on this critical challenge.
Last year we entered into a pact with labour, civil society and business constituencies on numerous matters that would put us on a path that is aligned with our green economy aspirations. I am referring to the local procurement, energy efficiency and skills development accords that we concluded under the auspices of the New Growth Path's Social Partners Forum. It is our intention to make these agreements have practical meaning in relation to the programmes that we implement, especially with regard to the IRP implementation plan and the biofuels strategy.
Whilst we are recording good progress with the implementation of the solar water heating programme, I also need to indicate that the majority of these systems, particularly the low-pressure type that we install in the Reconstruction and Development Programme and the medium-income residential sectors, are imported. This is clearly untenable, and the time has arrived for us to intervene if we are to make a difference in creating local job opportunities. I have therefore decided that from this year the solar water heater programme will work on a different model. In essence, only those suppliers who commit to localising their product will be able to participate in the government-funded subsidy programme. [Applause.] We will be announcing the details of this new approach soon.
Last year we committed ourselves to achieving 1 TW hour of energy savings from a combination of energy efficiency and demand side management interventions, including the solar water heating programme and others. Eskom indicates that savings of 1,471 TW hours have been achieved and we want to compliment and congratulate them for this. This excludes the municipal lighting retrofit programme, which still has to be verified through an independent measurement and verification protocol. We need to intensify these efforts throughout South Africa so as to maximise the energy sector's contribution to sustainable development.
The repatriation of Safari-1 spent fuel of US origin was successfully completed through excellent collaboration between my department, the US Department of Energy, Necsa, the National Nuclear Regulator, NNR, and the security services. This collaboration has proved that working together we can do more to enhance nuclear security.
To this end, the NNR directed Eskom and Necsa to conduct a reassessment of their respective reactors in order to provide assurance that the design parameters, operations and beyond design basis of the plants are sufficiently robust to withstand all types of major external events.
The NNR review of the reassessment reports provided by Necsa and Eskom on their safety considerations following the Fukushima nuclear accident in Japan has resulted in the following conclusions. Nuclear installations have been adequately designed, and are maintained and operated to withstand all the external events that were considered in the original design basis; nothing has been found to warrant curtailing their operation or to question the design margins of these facilities; the safety reassessment identified a number of potential improvements to further reduce risk beyond the design requirements, and Eskom and Necsa will be required to implement such improvements; and the NNR has identified five areas for improvement of the regulatory standards and regulatory practices. These areas for improvement will be addressed as part of the current review of the regulatory framework.
Our resolve to fundamentally transform society should be steeped in "nonconformity, the courage to turn your back on the old formulas, the courage to invent the future", as Sankara directed. In the Department of Energy, these progressive thoughts by an African son will be our war cry for the period going forward. We have been bold enough to turn our backs on old formulas and we will do our part to invent a unique and prosperous South Africa and African culture. Thank you. [Applause.]
Sihlalo ongahloniphekanga nje kuphela, kodwa nothandekayo, maLungu ePalamente, Mphathiswa kunye noSekela Mphathiswa beSebe lezaMandla, nabo bonke abakhoyo - iqela lezaMandla liphelele - ndithi iqela lezaMandla liphelele, kuzo zonke iindwendwe zethu, ikakhulu abafundi abasuka e-Bernadino Heights Secondary School e-Kraaifontein nabaseKaya Gas abathengisela iimpula zikalujaca igesi, ndinibulisa kweli khulu leminyaka ye-ANC ngezona zishushu izandla xa ndinika inkxaso le Voti yoHlahlo-lwabiwo-mali yama-29, yezaMandla.(Translation of isiXhosa paragraph follows.)
[Mr S J NJIKELANA: Chairperson, who is not only honourable but also adorable, Members of Parliament, hon Minister and Deputy Minister of Energy, the whole team of the Department of Energy - I mean the whole team of the department, all our distinguished guests, especially the learners from Bernadino Heights Secondary School in Kraaifontein, the team from Khaya Gas, that sells gas to the poorest of the poor, I greet you in the name of 100 years of the ANC with the warmest of regards as I support this 29th Budget Vote of the Department of Energy.]
As a precursor to my input, allow me to share a few crucial issues. Whilst recognising the socioeconomic significance of energy to any society, the political economy of energy, amongst a host of factors, demands that any state, including South Africa, should lead and guide economic transformation in a manner that intervenes in the interests of the people as a whole, a noble effort that will advance the national democratic revolution in our country.
The global prices of crude oil have, according to Professor Michael Greenberger, an expert in the energy sector, been grossly inflated due to what he claims is "... excessive speculation, which is a fancy word for saying that gamblers wearing Wall Street suits have taken these markets over", thus resulting in a ripple effect on fuel prices, as well as price increases in transport, food, medicine and other basics of life. It therefore ought not to surprise anyone, but to concern us, that Deputy Finance Minister Nhlanhla Nene said recently in Parliament that rising global oil prices pose a risk to South Africa's economic growth.
The political rationale for military aggression against Iraq and Afghanistan, military threats against Iran, and the recent conflict between Sudan and South Sudan have a lot in common, which is access to and control of oil, driven by greed and avarice, which are propelled by materialistic values. It therefore goes without saying that solutions informed by values and principles loftier than what capitalism offers should be welcomed, given the repeated crises in the global oil industry. Transformation of the energy sector can only be meaningful to South Africans if, and only if, it brings about a visible impact and changes for the poorest of the poor, as well as micro and small businesses, because energy is also made affordable.
Ngesixhosa sithi makuded' ubumnyama kuvel' ukukhanya ngoba iSebe lezaMandla lisizisela umbane minyaka le. [In isiXhosa we say, let darkness give way to light because the Department of Energy brings light to us every year.]
The transformative character of energy to improve ordinary people's lives is fundamental. Undoubtedly, therefore, as energy is the lifeblood of any societal transformation, be it economic or social, we therefore have to ensure that energy, as a low input cost for economic growth, is uppermost in our minds, especially in the context of the current national development planning. The extent to which energy is commodified must, therefore, be treated with the greatest caution by the government of the day.
As part of redefining energy poverty, we need to include utilisation in a domestic and particularly rural context. Hence the need to advance our campaign from full access to full utilisation of energy. We need to ensure that the definition of accessibility and affordability is now extended to domestic utilisation. This means attention must be paid to household appliances and their availability must be creatively introduced.
Akuncedi nto ukufaka umbane endlini kanti nagaphakathi akukho zitovu, zikhenkcezisi, zihitha nezinye izixhobo zokuziphilisa ezisebenzisa lo mbane ezenza kube mnandi nakuthi. Nangona kunjalo, ayithandabuzeki eyokuba ayiselophupha into yokuba izigidi ngezigidi zabantu zixhamla umbane ngenxa yalo rhulumente ukhokelwa yi-ANC. (Translation of isiXhosa paragraph follows.)
[It is no use electrifying houses when there are no stoves, fridges, heaters and other electrical appliances for our survival and to make our lives better. Be that as it may, there is no doubt that it is not a dream that millions of people have access to electricity because of the ANC-led government.]
The Department of Energy has been steadfast and resolute in driving transformation in the energy sector. Amongst a host of initiatives is renewable energy, which is expected to make up a substantial 42% of all new electricity generation in South Africa over the next 20 years. This is a radical increase from the 30% of the new generation assigned to renewable energy in the Integrated Resource Plan, IRP, earlier. This should be expected anyway from a responsive and caring government.
Transformation is also manifested in the introduction of the cleaner fuel programme which the department has dutifully handled, notwithstanding the looming risk of having refineries that are not yet ready for this programme.
Some of the recommendations made by this committee last year included that energy efficiency projects should gain much-needed momentum and should be clearly visible in the programmes of the department. The department has to be commended on being responsive to such calls, Minister, through you, Chair.
Localisation initiatives, especially the transformative nature of introducing local content, as the Minister has said, with particular reference to renewable energy, are becoming visible, but unfortunately not fast enough. Notwithstanding various challenges currently experienced, the department is forging ahead with the transformation agenda in the energy sector. In fact, let me be unequivocal that some of us are sometimes baffled by the output of the department in the face of being grossly underresourced.
Asiyazi ukuba yenza njani na. Mhlawumbi baneyeza elithile. [We do not know how they do it. Perhaps they have magic or muti that they use.]
Minister Peters, through you, Chair, rest assured that this committee will be steadfast in campaigning for appropriate resourcing for the department, despite the challenges we will be encountering; naw' uyazi [you also know].
Parts of the arsenal to transform the energy sector are the Integrated Resource Plan and the Integrated Energy Plan - two tools that will enhance predictability and confidence for broader planning and improved investment.
Under the approved IRP 2010, nuclear electricity is expected to make up 23% of all new electricity generation, meaning that it will comprise 17% of South Africa's base load of the energy mix by 2030. On that basis, this committee looks forward to receiving progress reports on the implementation of the nuclear build programme, as guided by the nuclear energy policy of the department, in the near future when the time is ripe for it. I also trust and hope that cost uncertainty in the new nuclear build programme will be addressed in future interaction.
Let me share my uneasiness about what is alleged as mixed signals in the nuclear energy market. Toronto and the JSE-listed Uranium One claimed recently that the fundamentals for uranium remain "extremely strong", with Japan almost certain to restart some of its nuclear reactors this summer.
Yile nto isothusayo ke le. [This is what shocks us.]
Such emerging trends are contrasted with a number of countries where there seems to be a decline in the appetite for nuclear energy. This is in some countries, but the Brics group is taking a different direction.
Given the deeply entrenched global interest in the forthcoming procurement in this sector, intensive lobbying has started in earnest. We therefore need to brace ourselves for more sparks to fly all over, notwithstanding the fact that this programme is under the capable leadership of the Deputy President, Comrade Kgalema Motlanthe, an assurance that it will be properly managed to its conclusion.
Government is also processing the Independent System and Market Operator Bill to enable participation of independent power producers, IPPs. Whilst strategically engaging private capital, as can be witnessed in the creation of a conducive environment for IPPs, our government must still be rooted amongst the people and buttressed by a mass-based democratic liberation movement.
Transformation ought to extend to the restructuring of ownership of means of producing renewable energy in particular. Furthermore, as the Minister has said, localisation and manufacturing in renewable energy are crucial.
Ndiyayibethelela loo nto, Mphathiswa. Xa ndiqukumbela, mandenjenje, ... [I am emphasising that, hon Minister. As I conclude, let me say ...]
... whilst anyone will cherish the improvement in working relations between the department and the committee, the structured and collective nature of such relations is equally fundamental. Recently there has been a growing trend of incomprehensible approaches to junior officials in the department by some of us, which is unfortunately unsettling, to put it mildly. Notwithstanding the recognition of formal procedures and the right of MPs to relate to the department, I encourage all and sundry to use the Promotion of Access to Information Act to access information - a move that is more discreet and acceptable.
Camagwini, kuloo ndawo. [Pardon me for that.]
It may be a sign of changes emerging in the energy sector - who knows? Otherwise, why are there such desperate activities, if they are not aimed at undermining the transformation of the energy sector?
While I strongly support the millions that have taken a firm and unflinching stand against corruption - a socioeconomic rinderpest that leaves devastation behind it - we must not delude ourselves with regard to capitalism, which is the seedbed of corrupting individuals, irrespective of race, colour and creed. [Interjections.]
Xa uvalela amanzi etephini awuzihluphi ngokuba asuka njani na kude, kude kube lixesha lokunqaba kwawo. Kuyafana naxa ucinezela incukuthu edongeni, ukhanyisa ekhaya. Nantsi ke inqambuzane, xa umbane umkile, uqala ukhumbule ukuba kanene kukho le nto ingumbane ekufuneka ibekho ngendlela efanelekileyo.
Masimbulele uMphathiswa ngemizamo ayenzayo. Silibulele neqela lezaMandla, sisithi mazenethole. I-ANC iyayixhasa iVoti yoHlahlo-lwabiwo-mali yama-29. (Translation of isiXhosa paragraphs follows.)
[When you turn off the water tap, you do not bother to find out where it comes from till it becomes a scarce commodity. The same applies when you switch on electricity at the switch on the wall to give light in your home. The problem is when there is an electricity failure, you start remembering that, by the way, there is a commodity known as electricity which must be supplied sufficiently.
Let us thank the hon Minister for all her efforts. The same goes for the Department of Energy team; we are very grateful to them. The ANC supports Budget Vote 29.]
I thank you for your attention. Shukran. [Thank you.] Asante Sana. [Thank you very much.] Nandri. [Thank you.] [Applause.]
Thank you, hon Chair. Hon Minister, hon Deputy Minister and guests, energy is central to our economy, and without any clear and well-co- ordinated strategic objectives, we are drifting into the abyss of low growth and crisis management.
The complexity facing the global and local energy markets is increasing rapidly. Fossil fuels continue to form the basis of our energy supply, but this is unsustainable, creating an imperative to strive for an effective and sustainable energy mix. Profound challenges remain with emissions reduction. Increasingly, the role of biofuels is becoming more prominent in any ideal energy mix.
South Africa, in the light of our proportionately small contribution to global gross domestic product, is an energy and carbon-intensive country. We rank 16th in the world in terms of our total amount of primary energy consumption. The transition to a low-carbon economy, as noted in the draft National Development Plan, will require sacrifice. Minister, your challenge is to ensure that the transition is smooth and that energy demands are met to sustain dynamic growth without killing the environment.
The Central Energy Fund, CEF, whose mandate is to engage in the acquisition, generation, marketing and distribution of any energy form and in research relating to the energy sector, incurred a loss of R1 billion last year. If the CEF had not been a state-owned enterprise, it would have been liquidated! Instead, the people of South Africa are expected to fork out the cash needed to keep it afloat, money that could have been better spent in areas that directly benefit and uplift the poor.
Proposals put forward in April 2011 to restructure the CEF from 35 to 15 subsidiaries were a step in the right direction. But the DA is concerned that the call to further reduce that to 9 subsidiaries, which will include the joining of PetroSA, the South African Gas Development Company, iGas, and the Strategic Fuel Fund, SFF, will clearly create conflicts of interest and enhance state control in the energy sector.
The Mthombo project, for instance, a refinery initiative by PetroSA to build an $11 billion, 400 000 bl/d crude refinery in the Coega Industrial Development Zone, aims to capture 25% of the market share, while the SFF will be expecting to manage, enhance, plan and control storage capacity. It is evident that the strategy here is to create yet another state monopoly. Soviet-style mega-projects do not make sense simply by slapping the title of "infrastructure" on them.
The call by Cosatu for Sasol to become a state entity, purely on the basis that some of its shareholders are situated outside the borders of South Africa, is rather ridiculous. Cosatu is effectively calling for the nationalisation of this sector. How many times must we reiterate that government's function is to create an environment conducive to increased investment, which in turn will create jobs? This is the only way to eradicate poverty.
The role of government is to regulate the market, not to consolidate its participation and monopoly in any given sector. We must clearly differentiate between the state and the role of the private sector, in partnerships, to create a vibrant and diverse economy.
Ri a ?o?a na u vhona muvhuso u tshi langula phesenthe dza mahumi mavhili na n?hanu kha zwivhaswa zwa makete nga kha madzangano a langwaho ngawo, dziSOE? Ri tea u dzulela u vha rengulula u tou fana na SAA naa? Kana ri khou ?o?a u vula makete, ra ita uri u vhe na ndeme, u sike mishumo minzhi, nahone u dovhe hafhu u fhungudze mutengo une ra u badela bommboni? [Interjections.] (Translation of Tshivenda paragraph follows.)
[We want to see the government controlling twenty-five percent of the fuels on the market which are controlled by it and the SOEs. Must we always bail them out like SAA? Or do we need to open a market, make it important, create more jobs and also reduce the price we pay at the pumps?]
Chairperson, on a point of order: I would like to know what language the member is speaking. [Interjections.] [Laughter.]
Hon member, he is speaking Tshivenda. [Interjections.]
There are discussions to upgrade the Milnerton storage facilities at a cost of R276 million. When will these be concluded? There are two pipelines for this facility - one is in disrepair, while Chevron holds the rights to the other. For optimal use, and to increase the commercial viability of the Milnerton storage facility, the second pipeline must be upgraded. I am confident that Chevron would partner with the department to make this a reality.
If we want to reduce our risk of exposure to exogenous shocks, we must diversify this facility's infrastructure to be compatible with different kinds of fuel.
Agb Minister, Suid-Afrika het 'n omvattende strategie nodig om ons energieverpligtinge na te kom. Die staat en die privaat sektor moet die taak gekordineerd aanpak. Dit is 'n taak wat die DA deeglik onderskryf in sy 8% groeiplan; 'n plan wat ons glo tot die voordeel van Suid-Afrika sal werk. Ek dank u. [Applous.] (Translation of Afrikaans paragraph follows.) [Hon Minister, South Africa requires a comprehensive strategy in order to fulfil our energy commitments. The state and the private sector should tackle this task in a co-ordinated manner. This is a task which the DA thoroughly endorses in its growth plan of 8%; a plan which we believe will benefit South Africa. I thank you.] [Applause.]]
Chairperson, Minister, Deputy Minister, department, distinguished guests and colleagues ... [Interjections.] This is English! [Laughter.] South Africa's demand for electricity is growing at a rapid pace, and will continue to grow as we strive to reach our various goals. We are a developing country with ambitious plans, growth targets and challenges.
There are still too many households, most of which are in rural areas, that are in desperate need of electrification. Additionally, a reliable and affordable supply of energy is critical if we are to attract the foreign investment that is needed for economic growth. To reach these goals, especially the electrification of rural areas, will require a phenomenal effort from the department and all the stakeholders responsible for the supply of energy in our country. This department's role in the development of our country is important. The separation of the Department of Mineral Resources and Energy into two departments has been a good move. However, the Department of Energy's budget needs to be increased if it is to continue to deliver on its mandate.
Eskom was successful in obtaining a loan from the World Bank, which will finance the Medupi Power Station. Once operational, the Medupi power station will provide much-needed base load capacity. This will go a long way towards ensuring that our country's economic development objectives remain on track and that the security of electricity supply is guaranteed.
Investment in energy remains a cornerstone of government economic strategy. By all accounts we will be dependent on coal to fuel our power stations for a long time. While coal is relatively cheap in monetary terms, it has an extremely negative impact on our environment. It is therefore vitally important that we look towards technological advancements in order to minimise its impact on the environment. We must also look at gas as a long- term option, as a possible replacement for coal as our main energy source. Gas is a cleaner source of energy. It is unfortunate that it has, thus far, largely been ignored.
Environmental issues have become more prominent, with people becoming more aware of the impact that their actions have on the environment. This has been especially so since we hosted the Conference of the Parties, COP 17.
More resources must be allocated to finding long-term alternatives to coal. This overreliance does not bode well for the future. We need to strive for a more diverse energy mix. Renewable, clean and sustainable forms of energy production must be fully explored.
All government buildings must be energy efficient and at the forefront of renewable and clean energy transformation. Educational campaigns aimed at efficient energy utilisation must continue to be rolled out on a national scale.
Hon Chairperson, we need to cultivate an energy-saving mindset amongst our population if we are to successfully manage the transformation from nonrenewable to renewable energy sources in our increasing energy demands.
While on the subject of the environment, it is important to note that the department is central to environmental issues. As I mentioned earlier, many rural households still do not have electricity and, to compound their problems, the price of illuminating paraffin has become unaffordable. These households are therefore dependent on their surroundings to meet their energy needs. Chopping down trees for firewood might not be environmentally friendly, but it is the only option that they have. It is with this in mind that we once again urge the Minister, the department and all other relevant stakeholders to find ways of keeping the price of illuminating paraffin as low as possible. It is the poorest and most vulnerable members of society who bear the brunt of the exorbitant fuel price and need some protection.
I believe that the use of nuclear power should be explored further and not written off. The real problem is the hazardous waste. When the Energy Portfolio Committee was in France, we were taken to a nuclear recycling plant. We were assured that the amount of hazardous waste was reduced to 4%. That was encouraging, but there was still 4% waste. Nuclear power is an issue that must be debated objectively. South Africa has had the Koeberg nuclear power plant in operation for a long period, and it is the major supplier of energy to the Western Cape.
The liquid fuels industry is an industry which is very important to the economy of South Africa. The cost of crude oil has been extremely high over the past few years, and as we have no influence over the landed cost, we are held captive to international price increases. This causes severe knock- on price increases in our economy and adversely impacts the entire country. Recently, we have been importing the finished product, more than just the raw crude. This has had a negative effect on pricing, as when we import and refine crude, we obtain other by-products, such as tar. Thank you. [Time expired.] [Applause.]
Chairperson and hon Minister, we are currently in the midst of an energy crisis in South Africa. It might not seem like it, because we have so far managed to keep the lights on, but this fact does not tell the true story of what is going on behind the scenes.
Eskom is currently having to pay energy-intensive companies to cut back on their production so as to ensure that we have enough energy to keep the country ticking over. Essentially then, we are in the absurd scenario where taxpayers are paying companies to keep people out of work.
I have also been informed just this week that a company that wishes to put up a business that will employ 1 000 people has been told that the municipal grid infrastructure will not be able to supply them with the requisite amount of energy.
Minister, I am sure you will agree that this is making a mockery of our job creation targets. It is clear that if we don't sort out our energy crisis, we will never be able to sort out our unemployment crisis.
The responsibility for this crisis rests solely with the ANC government, but if we are now going to solve it, we will require everyone to be part of the solution.
Unfortunately, Eskom has continuously demonstrated that it can no longer be entrusted with keeping the lights on. In the midst of our energy crisis, what should have been a routine test at Duvha Power Station last year resulted in a turbine smashing through the roof and more than 600 MW being removed from the grid! This will cost in excess of R2 billion to repair and will cost our economy even more in terms of companies having to cut back on production as a result of there being no energy available.
The Medupi Power Station that Eskom is building is now projected to run over schedule by at least a year, and its costs are escalating out of control. It will probably turn out to be one of the most expensive coal- fired power stations per megawatt ever built in the world and threatens to push our electricity pricing path to unaffordable levels.
These are issues that the Minister of Public Enterprises will have to account for though, but the lesson for this department is that our energy solutions can no longer just lie with Eskom. This department has to create the right policy and institutional framework for the creative energy of our people and businesses to address this crisis. In order to do that, we need the complete paradigm shift that you were talking about.
In the hearings on the Independent System and Market Operator Establishment Bill, ISMO, many submissions argued for a comprehensive vision of what the final institutional framework governing the electricity sector would be. Piecemeal legislation without this ultimate vision in mind will not deliver optimal outcomes. This can be seen in the independent power producers sector where, despite a commitment over a decade ago to derive over 30% of energy from independent power producers, we currently derive only a paltry 2%.
The situation with regard to municipal electricity distribution is also in a complete mess. It is clear that the current situation of major underinvestment in our distribution grids, to the tune of R40 billion, along with the fact that many municipalities rely on electricity sales for the majority of their revenue, is completely untenable. This is a huge disincentive for energy efficiency initiatives and also prevents households from being part of the solution by not allowing for two-way metering. There is a massive leadership vacuum on the issue, Minister, and this department has to address it.
The Independent System and Market Operator Establishment Bill is, however, a welcome step, albeit, in fact, two years after the President announced it, but in order for it to be successful, it has to allow for wheeling through the grid.
Large energy-intensive companies must be able to enter into contracts with independent power producers so that the burden of these investments is removed from the state. The problem with our current 20-year energy plan is that it requires all South Africans to shoulder the risk of massive investments like that of our proposed nuclear build programme, whereas the majority of this energy will be used to power the expansion plans of a few large energy-intensive companies. If, however, that energy comes on stream at a price that is not globally competitive, these companies could decide to expand their operations elsewhere, leaving us with the problem of extremely expensive stranded assets.
Energy is a rapidly evolving sector globally, and South Africa needs an energy policy that can respond to these changes effectively. Ever since the Integrated Resource Plan, IRP, was promulgated two years ago, there have been massive shifts in the global energy space, with the price of some technologies, like solar photovoltaic energy, plummeting and massive gas finds in our region making this a possible future energy source. As promised by this department, we therefore need a revision of the IRP so as to see whether we need a major adjustment to our policy.
I agree wholeheartedly with the National Development Plan when it states that South Africa will face major challenges in financing the capital costs of a nuclear fleet. Nuclear plants involve massive, lumpy investment, and it will be extremely challenging to build the institutional and skills base for running new generation nuclear plants. This is what the National Development Plan says. Most importantly, it states that all possible alternatives need to be explored. Yet, unfortunately, this government seems determined to stifle any debate over our nuclear programme.
No information has been put into the public domain about the economic feasibility of new nuclear power, nor the different financial models that are being considered. Instead, what we are seeing is nuclear energy being included in the energy plan despite the department's own modelling that shows that it is not the most cost-effective energy source.
The public has a right to be concerned, as an investment of this magnitude - whatever the final figure might be, and we can debate that - has the potential to bankrupt our economy. Instead of these lumpy investments, what we should be seeing is a far greater emphasis and budget being put on energy efficiency, and smaller but more rapidly deployed energy generation plants.
Hear, hear!
The department can be applauded for finally getting a renewable energy bid process off the ground, and I'm sure you will agree that what it, in fact, shows is that there is an enormous appetite for the private sector to contribute to solving this energy crisis. For this programme to be sustainable in the long run, though, we will have to bring down the cost of capital and, thankfully, countries in the North have lined up to help us do this, in the form of the South African renewables initiative. It is deplorable though, Minister, that, after its having been announced to great fanfare last year at COP 17, we still have not made any progress in bringing this initiative to fruition.
Finally, it is of huge concern that we have not made any substantial progress on energy efficiency, which should be our national priority. It should not be limited to demand side management and made the responsibility of Eskom, but must rather be mainstreamed into our entire energy DNA.
Hear, hear!
We can, in fact, learn from the experience of the City of Cape Town, which has grown its economy, while keeping its electricity demand flat since 2007. [Interjections.] [Applause.]
Order! Order!
They have achieved this, in large part, through the innovative Energy Efficiency Forum for Commercial Buildings. Let us learn from each other, Minister, in implementing best practice. We can solve this energy crisis, and the DA will soon be releasing our plan regarding how we can do this. [Interjections.] I therefore look forward to working with the Minister on our proposals, as getting this complex energy equation right is crucial in ensuring the long-term success of our economy. I thank you. [Interjections.] [Applause.]
Hon Chair, hon Minister Ms Dipuo Peters, hon chairperson Mr Sisa Njikelana, hon Members of Parliament that are present, invited guests and stakeholders, I greet you.
Mr Greyling, I think all that you have said is addressed in the Integrated Resource Plan. You are also not correct in saying that we are nowhere near energy efficiency. We actually have the 49M campaign, which is headed by the Deputy President.
Having said that, let me say that the budget presented by the hon Minister of Energy, in her speech to this House today, is in tune with our ambition to be part of the larger clean revolution, aimed at an economy which balances our country's development needs with a cleaner, smarter and more prosperous future.
It also seeks to create the necessary conditions, in the form of a secure and sustainable supply of energy, upon which to pursue our strategic objective of universal access, and which can underpin the massive infrastructure programme that our President so eloquently outlined in the state of the nation address. Therefore, this budget is about how best to leverage our energy resources to achieve our key strategic goal as an ANC government of placing our economy on a new job creation and more equitable growth path, in line with our 52nd ... [Interjections.]
Deputy Minister, can you please switch off your earpiece system? Switch off the listening system. Thank you. You may continue.
I hope it's fine now.
As already indicated by Minister Peters, the year 2012 is the year for universal access to sustainable energy. This year we in the Department of Energy will continue with programmes that will support the availability of sustainable and affordable energy to all citizens in our country.
The Integrated National Electrification Programme, Inep, is the backbone of our electricity delivery programme for communities who were underserved in regard to grid and off-grid connections. It focuses primarily on servicing rural areas and newly established formal urban and informal settlements.
Although the electrification programme has been in operation for 18 years, we continue to come across various implementation challenges. These challenges include the increasing costs of supplying new customers, network capacity, lack of skills, the poor financial status of distributors, and backlogs. The biggest backlogs are in KwaZulu-Natal, the Eastern Cape and Gauteng, followed closely by the islands in and around the eight metropolitan municipalities.
In March this year, as part of celebrating Energy Month, we held an electrification indaba in Durban where we, amongst others, identified shortcomings of the current programme. The department has commenced with the process of addressing these shortcomings, with the assistance of the International Finance Corporation and consultants, in order to improve the connection rate. I would also like to take this opportunity to thank the KwaZulu-Natal provincial government and other participants for their support during the Inep Indaba.
In this financial year the programme has been allocated R3,5119 billion, with municipalities receiving R1,151 billion, and Eskom R1,882 billion. R86 million has been allocated for nongrid connections. This will result in about 192 000 grid and nongrid connections planned for this year. For bulk infrastructure projects, R345 million has been allocated to municipalities and R243 million to Eskom, respectively.
The deteriorating state of the electricity distribution infrastructure is beginning to affect the pace of the roll-out of the programme. To address these challenges, the Approach to Distribution Asset Management, Adam, project is to be launched this year, with pilot projects in selected municipalities.
Our approach is premised on the prioritisation of regulatory matters, rather than structural adjustments for distribution businesses. We also recognise that there might be limitations in the current legislative and regulatory framework, and we require some commitment from municipalities, where funding will be made available to rehabilitate the infrastructure, particularly where energy security is threatened. The government and its social partners signed a Green Economy Accord on 17 November 2011 as an outcome of social dialogue on the New Growth Path. This is an agreement between organised labour, business, communities and the government. All parties agreed to support the government with the development, establishment and publication of a sustainable funding plan to support the installation of 1 million solar water heaters. To date we have installed approximately 250 000 solar water heaters nationwide, against the one million target to be reached by 2014-15. As we move forward with this programme we will be focusing on both rebate and fiscal-funded programmes in the residential and commercial sectors. This programme is not only contributing to the decrease in electricity consumption, but also ensuring access to a basic need, which is hot water.
The department will continue to alleviate energy poverty through the establishment of integrated energy centres in rural areas as part of its contribution to the Department of Rural Development and Land Reform's Comprehensive Rural Development Programme. Our Minister conducted the sod turning ceremony at the QwaQwa Maluti-a-Phofung Energy Centre on 12 January 2012. It is also envisaged that three additional energy centres will be in operation during the 2012-13 financial year.
The key challenge is to ensure that the energy centres which are currently operational are sustainable and continue to benefit the communities in the surrounding villages. For this to be realised, they must be operated and managed as business entities, similar to existing service stations, and should therefore incorporate business management principles, irrespective of the ownership model. There is no business that will succeed unless it sticks to universal business principles.
The oil companies that are partnering with the department have the experience and expertise in operating and managing retail service stations, and these skills should be shared with and transferred to the energy centres. The department is grateful that some of the oil companies have embraced the department's call to provide access to affordable energy services and create jobs in rural areas through the energy centres initiative of our department.
Minister Peters has also indicated that later this evening we will officially launch the South African National Energy Development Institute, Sanedi. Amongst the projects to be implemented by Sanedi this year will be the hosting of the Working for Energy project, which puts clean energy solutions and sustainable development into practice, demonstrating replicable applications and improving the quality of lives in poor and rural communities. An amount of R25 million has been transferred to Sanedi for the current financial year for the implementation of this project.
Last year I also committed myself to intensifying our efforts to engage appropriately with women, youth, children and people with disabilities, and implement responsive programmes and projects in partnership with our stakeholders. Through our partnership with PetroSA, R13 million has been committed to the construction of a multipurpose centre in Nkungumathe as a joint initiative with the Nkungumathe Youth Development Forum in Nkandla. Thank you, Chair. [Time expired.] [Applause.]
Hon Chairperson, the hon Greyling agrees with us that we must move from A to B together. However, the only thing that he is doing as an opposition member is playing a game that says, "The route you are taking is not the correct route to date. Because there is more than one route, we will take other routes. Well, you are taking the A route, but I prefer or argue that we must take B." That will get us stuck and we will not be able to move. I will be prepared to deal with this much more if time allows at the end of my input.
Chairperson, the Department of Energy has already, by way of my colleagues, alluded to the nation of South Africa and the economy. It is like the heart and blood circulation of the body of a living being. The heart is an organ without which there is no life in the body.
The current situation in this department of such magnitude is that it is operating with 52% of its approved establishment structure, because it is alleged by the National Treasury that there are no funds to capacitate the department. If fully capacitated, the department requires a total of 927 employees, as opposed to the current status quo of 565 employees, including support staff.
The department is faced with the very serious challenge of climate change, which requires urgent moves in areas like renewable energy and alternative energy to mitigate greenhouse gas emissions, the creation of independent power producers, IPPs, to ensure green jobs, and competition in the generation of energy. Let me take this moment to focus on climate change, renewable energy, independent power producer procurement and, of course, black economic empowerment.
As you are aware, South Africa hosted COP 17 in December last year. The COP 17 discussions in Durban highlighted the importance of the multinationals in critically considering the negative implications of the continuous use of primary energies such as coal and diesel to produce electricity and other nonelectrical energy carriers.
We in South Africa need to take a holistic approach to the problem of planning for future energy needs, and we seek to ensure that environmental and climate change issues, together with social development and economic growth issues, are all considered in a balanced manner, to which the Minister has already alluded and with which the hon Greyling agrees in his inputs.
Our planning for the greener future is emphasised by the introduction of renewable power production and the preparation of carbon capture and storage technologies, among others. The department has developed a policy document clearly indicating our appetite to increase the levels of renewable energies up to 42% of the primary energy mix by 2030.
Now, with regard to renewable energy and the IPPs, the Integrated Resource Plan indicates a balance between the different government objectives, specifically economic growth, job creation, security of supply and sustainable development, but more especially climate change issues. According to the department, the security of supply should not be compromised whilst all of the other objectives above are being contemplated.
In 2003, the Renewable Energy White Paper was developed by the department, indicating the government's intention to have the production of electricity include that from renewable resources.
According to the department, a request for proposals for renewable energy power projects was published in August 2011, requesting independent power producers to submit by November 2011 proposals for the first window of a five-window process. All bidders intending to bid for the first and second windows were required to attend a compulsory bidder's conference on 14 September 2011.
The department received about 53 bids and the received bids were across the different technologies for Window 1. Bids received in Phase 1 were solar PV, solar CSP, wind and small hydro. It was expected that wind and solar would dominate the bids, given the South African environment. You will notice that even the determination gave the wind and solar a greater MW allocation, compared to other technologies. The evaluation of the received 53 bids was started and concluded in November 2011.
In relation to the second window, the receiving of the bids closed on 5 March 2012. The process of evaluating the bids was similar to that in Round 1. In Round 2 the department received 79 bids and these bids amounted to 3 233 MW cutting across the different provinces, with the Northern Cape and the Western Cape taking a bigger share of the megawatts. Similar to Round 1, wind and solar were the predominant technologies, especially around the Northern Cape and the Western Cape. As the Minister said in her speech, she will be announcing the outcome of the second bid window in due course.
With regard to the black economic empowerment sector, according to the department, and as announced by the Minister, the work of the Liquid Fuels Charter audit is now complete and the production of the report is proceeding. We in the Portfolio Committee on Energy are patiently waiting for the report in order to engage stakeholders in earnest.
On the Renewable Energy Independent Power Producer, REIPP, programme, the levels of BBBEE and BEE participation in the South African equity contribution are not as high as anticipated. This is a serious cause for concern which needs to be urgently addressed, especially by the private sector involved. However, the portfolio committee applauds the recently increased local content target of up to 60% for Window 2 for the Renewable Energy IPP programme. We therefore want to challenge all the black-owned companies, in line with what the Minister said, to diversify their investments and look into investing in energy projects.
Looking ahead, and I agree with the Minister, the project developers are encouraged to bring their factories to South Africa to manufacture locally the components that constitute the various systems of renewable power plants and develop skills.
Before we move on too much, I would like to pause and say that the ANC supports Budget Vote 29. [Applause.]
Voorsitter, Suid-Afrika staar steeds 'n energiekrisis in die gesig. Die feit dat Eskom nie seker is of beurtkrag wel hierdie winter gaan plaasvind nie, is tekenend daarvan. Daar is wel beweging om die kwessie aan te pak, maar daar is steeds heelwat sistemiese probleme wat bespreking verdien. Die gentegreerde energieplan se benadering om van 'n gediversifiseerde energiemengsel gebruik te maak, is sinvol en toon aan dat die holistiese benadering tot die energieprobleem wel inslag vind. (Translation of Afrikaans paragraph follows.)
[Adv A D ALBERTS: Chairperson, South Africa is still facing an energy crisis. This is illustrated by the fact that Eskom is not sure whether load shedding will indeed be happening this winter. There has been some effort to address the matter, but there are still many systemic problems that need attention. The approach adopted in the integrated energy plan to utilise a diverse energy mix is logical, and indicates that the holistic approach to the energy problem is gaining acceptance.]
Minister, we are, however, very concerned about the easy way out that the government may want to take by implementing the so-called f-word, also known as fracking. If that is true, I have to ask the hon Minister and government: What the frack are you thinking? [Laughter.]
We have seen the evidence of the environmental fallout of mining this gas energy source. Yet government deems it fit to continue down this mad road! We have to ask on what environmental basis this is taking place. Who gave fracking a clean bill of health? We have also received information that the ANC's business friends are just waiting to leap into this field in the name of cadre self-enrichment.
Let me warn the Minister that fracking will be the ANC's third suicide scandal, the first being the arms deal and the second being the Gauteng e- tolling system. We will be watching to see who will position themselves to get tenders from this and we will, with the rest of the world, oppose this ill-founded idea of making money at the cost of nature. Minister, ons is ook bekommerd oor Eskom. Ons het inligting dat Eskom van 2016 tot 2020 'n steenkooltekort van 100 miljoen ton per jaar in Mpumalanga gaan h. Die koste om die steenkool van ander gebiede af in te bring, sal die kragtariewe weer eens astronomies laat spring. Daar word gepraat van 'n tarief van meer as R10 per kilowatt-uur wat daaruit sal ontstaan. Kan die Minister bevestig wat Eskom se plan is om hierdie potensile krisis die hoof te bied? (Translation of Afrikaans paragraph follows.)
[Minister, we are also worried about Eskom. We have information indicating that Eskom will experience a coal shortage of 100 million tons per year in Mpumalanga from 2016 tot 2020. The cost of obtaining coal from other areas will once again result in an astronomical electricity tariff hike. It is speculated that this will lead to a tariff of more than R10 per kilowatt- hour. Could the Minister indicate Eskom's plan to avert this potential crisis?]
Lastly, the rising fuel prices are systematically eroding the income of working South Africans and the ability of business to create jobs. While we cannot control the external oil price movements, we do have control over the internal market. At the very least, by introducing competition into the petroleum segment of the market, we can unleash forces that could drive the price down when the rest of the oil-producing world wants to engage in war or manipulates production.
Aan die einde sal ons moet voortbeur na die gebruik van meer volhoubare kragbronne. Ons sal egter ook ontslae moet raak van kaderontplooiing, korrupsie en swak uitvoering van planne. (Translation of Afrikaans paragraph follows.)
[In the end we will have to push ahead with the utilisation of renewable energy sources. However, we will also have to get rid of cadre deployment, corruption and the poor implementation of plans.]
Above all, Minister, leave those fracking plans off the table!
Thank you, hon Chairperson. Hon Ministers, hon Deputy Ministers, hon members, stakeholders of state-owned entities, and distinguished guests, today we are celebrating the day on which Jesus Christ left the earth and went to stay with God. This is the 40th day after Easter, which Christians celebrate. Therefore, people should never come and lie on this very special day of Jesus Christ! [Interjections.]
I am honoured to speak in the debate on this cross-cutting sector of the Department of Energy, on which all departments and other sectors depend. Energy is a way of life, and without energy there is no life. In this context, hon Minister, I am right to say that we must ensure that we all save energy. That is why I am dressed up for the Eskom 49 Million campaign, 49M, to ensure that I lead the campaign by example.
Hon Minister, we appreciate your prompt response when you realised that corruption had taken place in your department. You took a very firm step when you received the Auditor-General's report indicating that some of the officials had contravened one of the most important regulations, section 16A.3 of the Public Finance Management Act, 1999, as amended. The section deals with supply chain management. You acted promptly by disciplining them and took a very firm step. This has shown that the ANC does not tolerate corruption, unlike other people in their province, where they lead by corruption in their events. The budget of the Department of Energy has increased by 9,76%, which amounts to a total of R6,8 billion for the financial year. All other members have confirmed that this is definitely a very serious challenge, and it causes very serious pressure, as some of this money, 95%, as you have mentioned, Minister, goes to the state-owned enterprises and some of the other subsidiaries that are supposed to benefit from it.
This will also have a negative impact on the performance of the department. Therefore we want to assure you, Minister, that we in the Portfolio Committee on Energy have noticed that when some of the skilled positions are not being filled, it is because there is a lack of the funding that you need. We are going to ensure that we engage with the Standing Committee on Appropriations, led by hon Chairperson Sogoni, to ensure that we negotiate for an increase in your budget so that you are at least able to deliver to our poor people.
Hon Chairperson, President Jacob Zuma, in his state of the nation address announced massive investment in infrastructure through the building of power stations, railway lines, dams and roads. The President reiterated that this investment should industrialise the country, generate skills and boost much needed job creation. We in the ANC welcome the department's budget, as it responds to the President's call for job creation through infrastructure development in the energy sector. Again, we say to the hon Minister, "Malibongwe igama lamakhosikazi!" [Let the name of women be praised!] You really are doing what is expected of you.
We are delighted that over the medium term the department will focus on planning for the implementation of new power generation projects, including developing a framework for the participation of independent power producers in the market and establishing an independent market operator. Projects like the construction of the new multiproduct pipeline by Transnet will also unleash the creation of jobs, more jobs than what is expected, which is a response to the call of the President.
The department should be commended for its efforts in promoting the use of cleaner energy to protect environmental assets and natural resources, through the installation of solar water geysers and the liquefied petroleum gas strategy.
Hon member, is this a point of order?
Chair, can somebody help the hon member by adjusting the microphone there, because he is struggling. Thank you. [Laughter.]
Continue, hon member.
Chairperson, in the short term the green economy will have the potential to increase demand for green jobs already existing, such as solar water heating technicians, solar energy system engineers, power distributors and dispatchers, thermal fuel technicians, gas generation system technicians, solar sales representatives, assessors and many more.
Eskom, through its expansion building programme, has employed an estimated 13 954 people, who are scattered in, for example, the Waterberg in Limpopo, Nkangala in Mpumalanga, and uThukela in KwaZulu-Natal. These are all the subsidiaries that are responding to the call of the President to ensure that job opportunities are created. Eskom is continuing to ensure that it trains many young people. Its strategy is to ensure that we have future generations that will lead Eskom and ensure that power generation does not fail.
The AU has declared 2010 to 2020 as the African Women's decade. This includes, amongst other things, fighting poverty and promoting economic empowerment of women's entrepreneurship; education; women's being involved in decision-making; and mentoring of the youth.
The solar water heater component has gone a long way, as it has spread throughout the whole country. As you go all over the provinces you can see the giant steps taken in delivery by the ANC-led government, with all the houses having solar water heaters on their roofs. Minister, this means that we must definitely make sure that there is collaboration between the Departments of Energy, of Co-operative Governance and Traditional Affairs, Cogta, and of Human Settlements to ensure that the delivery of green housing to our communities becomes effective.
The above project has created massive job opportunities. However, hon Minister, the solar water project can do even more, as the department is still looking at a strategy to maintain the solar water heaters. I can confirm, that through the EWSeta, the FET colleges, and the universities of technology, there can be more collaboration in ensuring that we develop more skills for our country.
Chairperson, on 24 March 2010 the Cabinet took a decision to replace the biannual Imbizo Week with public participation programmes. They are designed to be of qualitative value for the communities. Both the Minister and the Deputy Minister are required to have 10 public participation programmes, PPPs, annually, which focus primarily on various mandates: educating communities, interaction between government and communities, and issues that relate to service delivery.
The hon Minister and Deputy Minister had 45 PPPs, which means they have delivered on the mandate that they were given by the President.
In conclusion, let me quote from one of the greatest icons, a freedom fighter, Martin Luther King Jr. [Interjections.] You wish!
Make a career of humanity. Commit yourself to the noble struggle for equal rights. You will make a greater person of yourself, a greater nation of your country, and a finer world to live in.
With these words, I support the Budget Vote, but before I close, let me say this. It is very surprising, hon Minister, that ...
... labanye bantfu banemancendze. Emancendze-ke ngulentfo lekutsiwa ngemagcubu. Bomnumzane Greyling-ke basenemagcubu ekutsi basengakaliphatsi lelive. Manje, tinhlitiyo tabo tisacacamba, batfunukwa nanguloku lokwentekako. Labanye banetinhlitiyo letibuhlungu ngekutsi ... (Translation of Siswati paragraph follows.)
[... some people have grudges. Grudges are persistent feelings of resentment. Mr Greyling and others are still begrudging that they are not yet in power. Therefore, their hearts are throbbing; they are also aggravated by what is happening. Some are bitter because ...]
... the ID is already dead! [Laughter.] [Time expired.]
Chairperson, most people in South Africa are acutely aware that we are facing challenges in meeting our high energy demand. As defined by you, Minister, this includes ensuring energy security and efficiency; competitive energy pricing; and encouraging growth while reducing carbon emissions.
Too much demand and insufficient supply means in the short-term that the National Energy Regulator of South Africa, Nersa, will be forced to grant further price hikes to Eskom, and Eskom's power will become dismally uncompetitive compared to natural gas-derived power in nations geared to trade on world markets.
Mozambique's major gas discoveries signal some hope, as they could potentially mean economic growth and energy security for South Africa and SADC. Although preliminary indications are that the gas is likely to be exported to East Africa, it is still early enough for South Africa to gain a foothold in this new area of extraction. The availability of natural gas and its global trade are a major game changer in the global energy market.
The ACDP welcomes the Minister's statement that the national pipeline distribution network has been developed. We note, however, that it has cost far in excess of what was expected.
Gas emits about half the amount of pollution that coal does for the same amount of electricity generated, and as an energy feedstock for the production of synthetic fuels could decrease South Africa's carbon emissions. Increasing the role of gas would not only be beneficial for South Africa, but a positive move towards regional integration and attaining energy security within SADC.
Widespread attention has been given to the hydrogen vehicle. Instead of using coal-derived electricity to produce hydrogen electrolytically we can, with sufficient resources, develop our own technologies. We have more than enough sunlight to produce liquefied natural gas for export and own consumption.
South African companies have also developed technologies to extract atmospheric water using solar power to provide for communities in arid areas, technologies that can be fast-tracked in regard to commercialisation to address the needs of tomorrow. The alternative of paying high prices for technologies that have not worked in Europe and America will leave us with large numbers of our people still without adequate, low-cost power and water supplies.
The former Prime Minister of Japan apologised last month for accepting nuclear power, saying it was imprudent and a failure. And the French Court of Auditors recently found that nuclear power, in which France is a leader, costs more than that which electricity consumers in the country are charged. The second evolutionary power reactor plant, EPR, has been delayed to 2016, and costs have risen by more than 50%.
The ACDP has raised concerns regarding a planned spend of over R1 trillion on a nuclear fleet of six Areva reactors, as well as a uranium enrichment plant, a fuel assembly plant, a reprocessing plant and a high-level waste repository. This is probably a very conservative estimate right now.
Minister, when can we expect the promised 2012 Integrated Resource Plan, IRP? [Interjections.] All right. I will then say the ACDP will support this Budget Vote, despite the serious concerns that we have about our energy choices. [Time expired.]
Hon Chairperson, hon Minister, hon Deputy Minister, hon members and all others who are present here today, I greet you.
Minister, the plight of our rural communities requires constant attention if we are to move forward as a country. In her book, Call Me Woman, the late Mam Ellen Kuzwayo describes in a moving manner the devastating impact the dispossession of land has had on the black community, which includes the disintegration of the black family unit and the creation of impoverished households.
The formation of the migrant labour system, the inadequate education system designed especially for black people under the previous regime, the so- called influx control, diseases, underresourced health facilities and other factors designed specifically to oppress black people will for many decades haunt our country.
That people in the rural areas - the overwhelming majority of whom are black - continue to live on the periphery of South Africa and the global world, is a factor we cannot afford to ignore or pay scant attention to if we are serious about removing the shackles of apartheid which, despite the denial attitudes of many, continue to keep our people in a prison of sheer poverty and underdevelopment.
To our rural poor, industrialisation and technological advances have come to represent their further marginalisation. The world, Africa and South Africa in particular, have entered an exciting phase of further developing the world around us. It is therefore key that our rural communities are also taken along on this journey.
While the country's rural population represents a third of the country's total population, it accounts for about half of the poor in this country. Furthermore, rural households represent a large majority of unelectrified households. Many businesses in rural areas are also forced to make do with the lack of electricity. In those rural communities with electricity, the costs of living and doing business are further worsened by rising costs of electricity and other energy resources, including fuel.
As a member of this House whose constituency is in one of the many underdeveloped and underresourced rural parts of this country, I am inspired by our ANC government's continued commitment to the development of our rural communities. I was particularly encouraged by the President's report in his state of the nation address earlier this year that he had requested Eskom to investigate options in regard to reducing prices over the next few years, with the objective of benefiting the poor and supporting economic growth and job creation. It would further benefit our nation, especially poor rural women, if efforts were to be made to lower the costs of fuel.
I am also encouraged by the Energy department's continued commitment to extracting our poor people from the doldrums through free basic electricity, free basic alternative energy, solar home systems, integrated energy centre programmes and partnering with private and public sector entities for increased service delivery.
I should point out, however, that in a few studies conducted on the free basic electricity programme it was found that the quantity of free basic electricity provided to qualifying households was not enough to make a significant contribution to the creation of jobs through, for instance, the establishment of home-run electricity-dependent small businesses. A further problem identified is that, since qualifying households are accountable for the costs of any electricity used above the free quantity, which appears to be insufficient to meet most households' basic needs, many households resort to illegal connections, thereby risking lives and placing further strain on the country's electricity supply and reserves. The recommendation is that the current quantity be increased at least threefold to allow qualifying households the opportunity to conduct electricity-dependent businesses from home if they so desire.
It should be mentioned that the indications are that some municipalities provide at least twice the approved quantity of free basic electricity. Obviously, those who receive only the approved quantity are disadvantaged by the inequalities.
The increase will also have other positive spin-offs, such as the eradication of unsafe energy sources for things such as cooking and heating. It has also been found that schoolchildren with adequate access to electricity spend more time at home on their studies than children with insufficient access to electricity. With regard to the solar home system programme, the studies conducted found that many of the beneficiaries considered the system inferior technology, reserved only for the poor, as the system has a limited range of applications compared to grid electricity.
The negative perception of the beneficiaries of free basic alternative energy sources will have to be addressed through education, especially since the challenges of climate change and the increasing demand for energy dictate that more reliance must be placed on renewable energy sources.
Given the rising demand for energy, the efforts of both Eskom and the department in educating the nation on the safe use of electricity and energy saving measures have been commendable. Education on these matters should be intensified in the rural areas where the literacy rates are significantly low.
Local government represents the final supply chain in the provision of free basic electricity and free basic alternative energy to qualifying households. Indications are that most municipalities in the rural areas are underresourced, and thus unable to properly spend the funds allocated for the free basic services.
Accordingly, there need to be greater synergies between this department, the department that deals with provincial and local government, and the municipalities concerned, as well as the South African Local Government Association, Salga, to ensure the optimisation of the department's programmes aimed at the eradication of energy poverty.
Despite the drawbacks, there should not be a loss of focus on the significant improvements made by our government and the department, in both its previous and current forms, in just 18 years. When the ANC-led ... [Interjections.] The ANC supports this Budget. Thank you. [Time expired.]
Thank you, Chairperson. Hon Minister, thank you for bringing us the good news that there is the possibility of a reduction in the fuel price before the holidays. Just for the information of my colleagues, I will be joining you in going on holiday this year, then. [Laughter.]
Many speakers have alluded to the issue of adequate supply. The problem is that there isn't a sufficient supply of electricity. I know that this is an issue that we need to address urgently, both in the short and in the long term.
I think, however, that we have to analyse the issue of reserve margins. Reserve margins have now breached the stipulated 11% threshold, despite an international best practice recommendation of about 15%. Now, if we have a 37% demand for electricity and it normally increases to 37 000 MW in winter, and our capacity is about 41 000 megawatts, that gives you a reserve margin of about 8,5%. It is critical, as the previous speaker has said, and I think we need to address it.
This morning the Minister of Public Enterprises assured the nation on television that we would not have blackouts this winter. But there are different views. The Energy Intensive User Group has indicated that Eskom's power buy-back programme can only last until June or July at the latest, putting supply at risk. Demand for electricity, as I said, is problematic, and we hope that perhaps the demand for electricity will somehow, although it's contradictory to economic growth, stay at the levels predicted.
We heard in the presentation this morning that the cost of running diesel- fired gas turbines is R8 per kilowatt-hour. This is an abnormal cost if you compare it to what it should be, which is about 60c per kilowatt-hour. These turbines are being run because we need a supply of electricity.
Let us talk about the good news. Renewable energy remains a critical potential source of alternative energy supply. Bidders heard that the second round of renewable energy provisions had not been announced on 14 May, and you saw that there was a newspaper clipping. Thank you for informing us about this. I think that we will have an extended bidding process on 21 May and that we are well on our way there.
You have also mentioned that the target is 3 625 MW. Currently, we are at 1 460 renewable energy MW, and I think it's an achievement. However, we have to take into consideration that we need bulk supply to power the economy in our country. That's very important, although this is huge progress in terms of renewables.
Minister, the oversupply of renewable energy projects, which is good news, has been presented and needs to be harnessed. It surely makes sense for the recently announced increase in the environmental levy to be allocated to funding the purchase of renewable energy. Now, my question is this: Can the Minister give an indication to the House as to whether this will indeed be the case? Have these huge amounts - I believe there are substantial amounts in that account - been ring-fenced for the purpose of renewable energy?
Then, of course, we have to talk about pricing. Many people have spoken about pricing this evening, and South Africans have recently been subjected to significant increases in the cost of living. I believe that the cost of electricity has, over the last three years, risen by 83,6% and this affects the poorest of the poor the worst.
As a means of softening the blow, especially to the poor, the following proposals were made by the DA to the Economics cluster hosted by Prof Eberhard in the Planning Commission. He indicated to us that there a special section on pricing and funding would be included in the National Development Plan which we all, of course, need to welcome.
We believe that electricity pricing should be inflation-related, following the recent reduction in the increase in electricity prices from 25,9% to 16%. Further, we expressed our view that the administered prices were inflated by the cost of replacement of assets methodology that Eskom uses. I think we've spoken to the director-general in this regard. This is not acceptable, and we need to review the methodology. We asked for an interview with you, Minister, and you actually extended an invitation to us, but unfortunately it was cancelled. It's time we got together and sorted out the funding and pricing aspects, and perhaps also had the guidance of Prof Eberhard.
With regard to the fuel price, we are also concerned that the international component of South Africa's basic fuel price is driven by market sentiment. I think you have alluded to that and - if I can find my notes - you said that there were political upheavals in the swing in the price from $100 to $120. I believe that we are on the right path, that dialogue at the international level is also necessary, and that you are doing your best in regard to that. The Department of Energy has made a call for a review of the fuel pricing mechanism, and I would like to know the progress in that regard. Considering the importance of electricity price stability to incentivise investment, to spur economic growth and to create jobs, we have made a few interventions. I would like to thank the National Energy Regulator of SA, Nersa, for all the time spent with the DA, taking into consideration that we had a reduction in the price.
We welcome Nersa's commitment - the upcoming Nuclear Build Programme will not be included in the third multiyear price determination, MYPD3, so consumers need not be too concerned about the pricing situation.
Let me jump to the last issue that was mentioned, that of distribution. The municipalities, we know, are not fulfilling their responsibilities with regard to maintaining the networks. My hon colleague, Lance Greyling, has mentioned the leadership vacuum. We are looking to you, Minister, to take the lead here, because we really need somebody to do the necessary co- ordination in this regard.
The Development Bank of Southern Africa - I'm glad Mr Moloto is present and we can share some funding and financing models - has now been repositioned as a centre of excellence for infrastructure, which will unlock infrastructure delivery.
I have written to Mr Radikeledi, Chief Director of Development Finance Institutions in the Treasury, to establish the state of readiness of the bank to embark on this new development path in the funding of 158 underresourced municipalities. We should not neglect those municipalities because we have to get electricity from A to B. I don't want any comments about "C" now! [Laughter.]
Noting that the problem lies in the huge demand for municipal capital, the additional funding by the Development Bank of Southern Africa, DBSA, to address the backlog in electricity distribution maintenance is critical. Minister, the real gap in getting electricity from A to B is the policy one. Thank you, Chair, for the opportunity. [Time expired.] [Applause.]
Thank you, hon Chairperson. Hon Minister, hon Deputy Minister and hon Members of Parliament, the Energy Security Master Plan places great emphasis on the centrality of energy in economic development. It correctly depicts energy as the lifeblood of the economy and underlines the consequences of disruptions in the supply of fuel in the economy.
It was estimated in 2007 that a total fuel disruption in the South African economy could cost the economy at least R925 million a day at 2000 GDP prices. This sobering observation requires of us to continuously investigate all possible risks and threats to the whole fuel supply value chain.
Today, I want to focus on the risks present in the increasing mismatch between demand and supply of fuel products, the risks in the sources of supply of crude oil, and the risk posed by the use of a single facility, SBM, to carry crude oil from the oil tankers at sea to refineries.
We are faced with the persistent mismatch of demand and supply of fuel. Our existing refineries are unable to meet the local demand for fuel, and hence the gradual increase in the amount of fuel being imported. According to some conservative estimates, South Africa will have to import in the region of 180 000 barrels per day by 2020 - that is eight years from now - if there is no decision on investment in additional refining capacity. It should be noted that this is equivalent to the nameplate output of SA Petroleum Refineries, Sapref, a refinery owned by British Petroleum, BP, and Shell.
The National Development Plan, NDP, acknowledges that South Africa has run out of refining capacity and hence the country has to import a share of its refined fuel needs. It notes that there are no easy answers to this challenge, and proceeds to present five options with their associated risks, advantages and disadvantages.
The plan requires us to reflect on where the refining margins will be in the next 15 years. This is a very important point, given that refining margins are a good indicator of the profitability of the refineries. The National Development Plan maintains that refining margins are quite low, and are likely to remain so for at least another decade, given a surplus in refined product.
The National Development Plan then recommends the continuation of importing refined products until the country reaches a stage where it can absorb the output of a new refinery and/or a major upgrade of an existing refinery. It recommends that a decision on whether to invest in a new refinery be taken by 2016, or 2017 at the latest.
The National Development Plan emphasises the need for timing this decision properly, as the building of a new refinery is estimated to need 8 to 10 years. I indicated earlier that South Africa will be importing in the region of 180 000 barrels per day by 2020 if no decision is taken to invest in a new refinery.
Indeed, timing is critical, and we need to take into consideration a lot factors prevailing in the market that influence the direction of the refining margins. Understanding the context of the NDP statement on refining margins is critical, as it will assist us to arrive at timeous and proper decisions.
Andy Steinhubl and Jos de S, authors of a document entitled "Global refining: fuelling profitability in the turbulent times ahead", stated the following, and I quote:
The global refining industry will continue to experience cyclicality, but with the ups and downs increasingly dictated by the overall global economy, global crude markets and major refinery disruptions. Between 2000 and the period just prior to the onset of the financial crisis refineries enjoyed a favourable margins environment. The economic developments after 2009 had an adverse impact on the refining margins, particularly in the US and Europe. There is currently a rationalisation of refineries in the US and Europe to cope with financial losses on their refineries. These developments are definitely related to the economic situation in Europe and the US.
The KPMG Global Energy Institute, in a paper entitled "Challenges and opportunities for today's global refining industry", indicates the following, and I quote:
The last time a completely new refinery went operational in the US was in 1976. In fact, from 1981 to 2008, the number of US refineries declined by over 50 percent ... Nevertheless, the period saw a 20 percent increase in US demand for refined oil products, much of it met by importing refined products.
Actually, the US may soon be desperate for new refineries, and opportunities can possibly emerge for investment and development. The KPMG study continues and states the following, and I quote again:
Older refineries cannot refine the heavier and cheaper crudes that are becoming more common as reserves of sweet crude are depleted. Old refineries also have more difficulty complying with environmental standards. In addition, other parts of the world such as China and India will require more refining capacity as their economies grow.
Asian and African economies have been experiencing positive economic growth; hence their increasing thirst for crude oil and fuels. Therefore, the centre of gravity in the global refining industry is shifting away from developed nations to emerging economies.
Clearly refining margins are cyclical, and have a positive relationship to the performance of the economy and other refinery-specific factors I will deal with later.
The second set of risks we are faced with relates to the current state of our existing refineries. South African refineries are outdated, with an average age of 40 years. They desperately require upgrading to enable them to produce cleaner fuels. Their inability to produce cleaner fuels poses environmental and health hazards to adjacent communities, and adversely affects the car manufacturing industry. We welcome the department's initiative to audit the state of our refineries and develop cost-recovery mechanisms relating to the upgrading of refineries.
Domestic car manufacturers produce cars that require low sulphur content fuels. The higher sulphur content fuels affect the efficiency of the catalytic converters in cars. These refineries have high maintenance costs and experience periodic unplanned shutdowns. This poses risks to the security of supply in South Africa.
The third set of risks relates to the inability of these refineries to process heavy sour crude. They have been configured to process light sweet crude. The study by the KPMG Global Energy Institute indicates that there is a price differential between light sweet crude and heavy sour crude. Heavy sour crude is cheaper and the refining margin will definitely look attractive when a complex refinery is utilised. As a country, we need to give serious consideration to investing in a complex refinery that can process heavy sour crude. We need a refinery that is complex to process crudes from various sources.
I agree with you, Minister, that with the tensions highlighted in the Middle East we definitely need good diversification of our resources. The challenge, however, is that our refineries are old and cannot refine heavy sour crude.
We also need to reach finality in the discussion of who must pay for the upgrading of these old refineries. The shareholders of these old refineries are not giving any signal as to whether they are prepared to invest in the upgrading of their facilities. I have always assumed that it is common practice in business to strive to preserve retained earnings in the good times, so as to be able to invest in the company when the need arises and deploy more efficient technologies. The world of oil is strange and murky indeed. Ironically, the amount of money needed to upgrade these refineries is equivalent to an equity injection in a new complex refinery.
The fourth set of risks relates to the rationalisation that has been taking place in oil companies. I assume that this decision was taken by their headquarters, based in London and other international capitals.
I am stating these facts so that we can make an objective determination regarding the need for new refineries, without being dictated to by vested interests. It is about deciding the future of our national interests.
The shift in the centre of gravity in the global refining industry requires us to seriously think strategically about the role of our national oil company, PetroSA. National oil companies, globally and in emerging markets, engage in business because of security of supply concerns and dictate the pace of the development of their own country. It has nothing to do with soviet-type state-led development.
The paper by Steinhubl and De S on the global refining industry asserts that oil companies that focus on operational excellence and have a continuous improvement mindset are those that will separate the leaders from the rest of the pack. This is a mandate that we are giving to our national oil company, PetroSA. It must improve its production and operations, and focus on excellence. It should not allow the opportunities that arise from this shift in global refining from developed countries to emerging markets to escape its attention.
In conclusion, the ANC supports this budget. Thank you.
Chairperson, in the process of responding to inputs by hon members I would like to take this opportunity to complete part of my speech which was not completed during the time allocated to me earlier. This part will actually speak to the issues that members have raised.
Later this evening, as the Deputy Minister has indicated, we will be formally launching the South African National Energy Development Institute, Sanedi. The institute will continue with the carbon capture and storage work, which will culminate in the selection of a site for a CO2 test injection project planned to commence in the 2016-17 financial year. This is a way of protecting our coal reserves, because we do have coal and we need to invest in technologies that can protect the reserves that we have.
The Grand Inga Dam memorandum of understanding, MOU, signed with the Democratic Republic of the Congo, is an important milestone in working towards sustainable African partnerships aimed at developing strategies for low carbon economies and interconnected energy systems. Located on the Congo River, the Grand Inga project is expected to generate approximately 40 000 MW of hydroelectric power for regional distribution.
The Cesul project in Mozambique will improve the ability to evacuate power from the projects in the Northern Mozambique complex, Mrs Dudley, particularly releasing the hydropower potential relating to Mpanda Nkuwa and Cahora Bassa, amongst others. We are also engaging with Mozambique and Namibia with regard to the gas finds. The two countries have gas commissions together with South Africa so that we are able to work together.
The South African Renewables Initiative aims to establish and facilitate an international financing partnership to enable investment in the deployment of renewable energy, as well as the development of industrial capabilities associated with renewable supply chains through securing a critical mass of renewable energy, without imposing an undue burden on the fiscus or the South African consumer.
Ladies and gentlemen, you will have realised that the ANC members of the portfolio committee, from the chairperson to Mr Moloto, have indicated the challenges that we have with regard to the budget. You will have realised that some of the programmes and projects that we have, and that we as the energy sector need to drive, will necessarily be delayed, because we still need to get additional resources. The South African Renewables Initiative, SARI, is one of those that we have placed before the National Treasury for additional capacity and financial support, and we will be engaging further with that.
I need to thank the portfolio committee. I must say it, and I would be failing if I didn't, as it is in my speech. It has very active members who make it possible for us to engage with matters that affect the day-to-day issues related to energy in South Africa. It gives us leadership and also makes it possible for us to be responsive to the needs of the people of South Africa.
I also want to thank the leadership and management of state-owned companies that report to the department and the Ministry of Energy, for their ongoing engagement and support. I want to indicate that we have done quite well. Most of our state-owned entities are driven by women. [Applause.] Dr Sankie Mthembi-Mahanyele is the chairperson of the Central Energy Fund, CEF. She is here in the gallery. She is very capable, and she is one of those who are going to drive the transformation and restructuring of the CEF and its entities that we are talking about.
The chair and the CEO of the National Energy Regulator of South Africa, Nersa, are women. You all know that Adv Phindile Nzimande is the CEO of Nersa and Ms Cecilia Khuzwayo is the chairperson. We also have a brand-new CEO of the Petroleum, Oil and Gas Corporation of South Africa, PetroSA. She is also a woman, for that matter. The industry, the private sector that we have been talking about, has been telling us that there are no women in this country to run the oil and gas sector and we have proven them wrong. Here we have them. They say dynamite comes in small packages. There she is in the gallery!
I also want to thank the Deputy Minister for the support and contribution to the energy sector. To the Director-General, Nelisiwe Magubane, and Team Energy, thanks for the hard work and dedication against all odds. I want to indicate, director-general, that you are doing quite well with your team. That shows that if you want a job done, you must give it to a woman to do! The energy sector is driven by women and we will show you that we can deliver against that. [Applause.]
I want to thank the ministerial staff and the protectors for their support. In particular, I want to thank my family, especially my two girls, for their love, patience and sacrifice, knowing that we all belong to a bigger family that is working together for a better life. It is important that we remember that in the process of doing our work we are sacrificing our families.
Hon Smalle, I know that you are very interested in matters of the Central Energy Fund, but I want to indicate to you that not a single cent of the motorist has gone into the coffers of the Central Energy Fund. There were no losses, but write-offs due to an upstream investment which by its very nature is very risky, and it was an inquest for energy security. In the year of the write-off the Central Energy Group declared a profit of R1,2 billion and this took place during tough global economic conditions.
The Strategic Fuel Fund, SFF, will remain a strategic petroleum reserve vehicle, separate from PetroSA. E-Gas and PetroSA are both responsible for gas infrastructure development. The only difference is that PetroSA is involved in using the infrastructure to produce fuel. Therefore, it does not make sense to have two subsidiaries in the same stable involved in gas infrastructure. It is important to understand that e-Gas and PetroSA are both subsidiaries of SFF. It is important to make sure that we streamline them.
On energy efficiency I want to indicate that the hon Greyling was not listening to my speech. We targeted saving 1 TW hour and we have exceeded this target by 40%. That is why I said we needed to congratulate Eskom. The United Nations Industrial Development Organisation, Unido, has records. We will give you the report that Minister Davies and I received from Unido that indicated that energy efficiency was starting to bear fruit in South Africa.
Hon Greyling, to say that nuclear energy, as part of the modelling of the department, is more expensive is not true. The modelling indicated that the plan without nuclear energy would increase the emissions. We have always said that we brought in nuclear energy because ours is an economy that is energy-intense, so as to be able to make it possible for us to respond.
In the same speech you spoke about the Energy Intensive User Group, who are complaining about a lack of confidence in the availability of supply. When we look at ways of intensifying the supply, you also complain. What is it that you would like us to do?
The hon Alberts asked what the "frack" I am talking about! But then, after saying that, his speech just "fracked"! [Laughter.] I want to say that it is important that we remember that whatever we are doing in South Africa, we are doing in the best interests of the people of South Africa. We cannot sit here and salivate about the gas that is available in Mozambique without testing whether it is true that we have gas in South Africa.
We have been told about unconventional gas - coal bed methane, CBM, and shale. We are calling on the Department of Science and Technology to investigate, and invest in the technologies, if there is a better way of liberating that gas. I am happy that our own subsidiaries, including our entities like PetroSA, have indicated that they are also investing in technologies to look at the energy of the future and how the fuel of the future will be produced.
Imagine what would happen in South Africa with the available gas. They say that just 10% of that gas would be able to do for us what has been done for Qatar. Who are we not to want to test it?
Hon member Radebe said that today is Ascension Day, and I'm happy that a member of the ANC has reminded us of this important day, when Jesus ascended to heaven to be at the right hand of God and to be able to make a place for us in the Father's mansion. It would be wrong for us not to use the resources that God has blessed us with. These are blessings that God has given us, and we need to exploit them for the benefit of the people. The people of the Karoo are going hungry and if there are job opportunities ... [Time expired.]
Debate concluded.