Hon Chairperson of the House, hon Minister of Energy and hon Deputy Minister; hon members; officials from the Department of Energy and senior leadership of entities reporting to the Department of Energy; distinguished guests, let me respond to the hon Smalle before I proceed with the rest of my speech.
I advise the hon Smalle to read the National Development Plan, NDP, carefully. With regard to a decision to be taken on whether we need to build a new refinery or not, the NDP makes this critical observation worth noting. It indicates that a change in the global refinery margins might occur if a current surplus in refined product occurs.
It goes on to say that such an occurrence will result in an increase in the crude oil import bill, thus increasing significantly our current account deficit and affecting our exchange rate adversely. The NDP also indicates that the timing and the decision around building should take all these factors into consideration as South Africa will be importing more than 200 000 barrels per day of finished petroleum product by 2020. This would certainly send our current account deficit through the roof and lead to a serious weakening of our currency.
Hon Smalle, I find your statement on the shortfall of bitumen a bit contradictory. You cannot talk about the impending shortage in bitumen and in the same breath discourage PetroSA from building Project Mthombo. Bitumen is a by-product of the refinery production process. Therefore, Project Mthombo is critical to the development of the petrochemical industry in South Africa.
We now know that there is a serious closure of uncompetitive refineries in the US and Europe, leading to a partial elimination of the glut in finished petroleum products. In actual fact, there is a gradual recovery in the refining margins as this closure of these refineries contributes to the elimination of the excess.
Hon Smalle and hon Alberts, I had a look at the paper compiled by Prof Anton Eberhard. I will not cast any aspersions on the academic thoroughness and the consultation process in that paper. It is very important, hon members, that we understand the sequencing between the Integrated Energy Plan, IEP, and the Integrated Resource Plan, IRP. The Integrated Resource Plan is a subset of the Integrated Energy Plan. The Department of Energy has consistently indicated that by this year they would be approaching Cabinet with an updated IEP. The updated IEP has to inform the Integrated Resource Plan.
It is important to state the following about the assumptions on demand projections. Various economic growth scenarios were subjected to a thorough public consultation process by the Department of Energy in developing the IRP. I have indicated that I don't want to cast aspersions on the consultation process of the paper that was compiled by Prof Eberhard. However, we know that there was not sufficient consultation around that paper. Various industry bodies, consumers, mining industries were consulted by the Department of Energy in that process of developing the IRP.
The department has always indicated - let me repeat - that it will be reviewing the Integrated Resource Plan every two years. The Integrated Energy Plan is going to be submitted to the Cabinet with a view to ensuring that the re-evaluation of the assumption of the IRP occurs. The IRP will have to be aligned with the updated IEP.
Therefore, it would be incorrect to argue, as Prof Anton Eberhard has done, that we should look at the previous economic growth and demand, and extrapolate that data, and then make a claim that certain technologies are no longer applicable. [Interjections.] I can't hear you. [Interjections.]
The recent media coverage of alleged corporate governance lapses and possible corrupt practices in PetroSA are a source of great concern to all South Africans. It laid bare to all South Africans the procurement practices within our national oil company, PetroSA.
It would be a lack of appreciation and of honour to duty on my part if I were to fail to congratulate the Minister of Energy and the board of the Central Energy Fund for the courageous leadership they displayed by initiating a forensic audit into the procurement practices of PetroSA after being alerted to possibly serious transgressions in the procurement practices of our national oil company.
The full might of the law has to be brought to bear on those who might have participated in such corrupt practices. The board of PetroSA has to give a full account of why such practices occurred on their watch, given that the Board Charter of PetroSA is aligned with the new Companies Act and King III principles. The critical question they have to answer is whether the board committees are fully functional and acting independently of the executive.
I'm raising this issue because we have given a clear mandate to the national oil company to assist government in ensuring the uninterrupted supply of liquid fuel. PetroSA cannot afford to lose focus and drop the ball at this critical moment, especially when they are required to undertake massive infrastructure projects and secure the much-needed feedback for the Mossel Bay refinery.
Last year in my contribution to the Budget Vote debate, I indicated that international oil companies have exited from downstream activities on the rest of the continent. The trends are becoming much clearer now. The international oil companies have sold their stakes in refineries across the continent, with the exception of South Africa. The stakes sold by the international oil companies in downstream activities in Africa were bought by African national oil companies, with the exception of Kenya, Ivory Coast and Senegal. The Kenyan refinery was bought by Essar, an Indian company, the Ivory Coast refinery was bought by Sonagolo and the Senegal refinery was purchased by the Bin Laden Group of Saudi Arabia.
We note with great appreciation the announcement made by BP to invest R2,5 billion for the purpose of upgrading SA Petroleum Refineries, Sapref, in Durban. The Department of Energy has committed itself to supporting the upgrading of refineries through the adjustment of the basic fuel price without unduly overburdening the consumers. We encourage all the refineries to follow the example of BP.
There are some among us in this House who want to suggest that PetroSA should forego opportunities available in the downstream activities. Such a view is not anchored in reality and true facts. A national oil company cannot continue to play a marginal role in the domestic downstream sector. It has to be fully integrated, and capture value throughout the whole value chain.
The mandate that we give PetroSA is very clear. Get your act together and build a true national oil company worthy of pride of place among our people. The national oil companies in other jurisdictions are integrating to determine their business decisions in the interests of their country and encourage other economic activities linked to the refining of crude oil. We need the development of a significant petrochemical industry in South Africa. The decision made by BP is critical to building the efficiency and competitiveness of our refineries. Our existing refineries are old and not competitive when compared to their peer refineries in South East Asia, Europe and the new generation of up-and-coming Middle Eastern refineries.
Refineries that enjoy economies of scale and complexity will survive in this highly competitive industry. PetroSA has to focus on ensuring their Project Mthombo has economies of scale, complexity and the necessary funding to ensure the uninterrupted security of supply to South Africa.
We have stated before in this House that around 2020, South Africa - and we are doing it now - will be importing about 200 000 barrels of refined products per day if we do not succeed with building Project Mthombo. The consequences thereof are just too ghastly to contemplate. Our current account deficit will just shoot through the roof. PetroSA has to keep the eye on the ball. They dare not fail the country. They owe it to all of us.
PetroSA must ensure that they secure the feedstock for the Mossel Bay refinery. Our local gas feedstock will be depleted soon. They must focus on these activities. We have given a mandate to PetroSA to procure at least 30% of crude oil for South Africa by 2020. They need to assist government in diversifying the sources of crude oil for our country. PetroSA is fully aware of the implications of sourcing crude oil predominantly from one region. The Strategic Fuel Fund, SFF, has to work jointly with Transnet to ensure adequate port facilities to secure a consistent supply of crude oil to the inland refineries. There are 39 tanks of 200 000 barrels each in Milnerton for the purpose of crude oil storage that are currently in use. The SFF needs to ensure that the remaining 7 are put to good use.
The National Energy Regulator of SA, Nersa, deserves to be commended for the transparent manner in which they conducted the Multi-Year Price Determination, MYPD 3, application submitted by Eskom. It consulted with various stakeholders. You just have to go through the list of the stakeholders that Nersa consulted in the province and you will come to one conclusion, that it is quite fashionable for political parties to try to attract the glory to themselves, when all of us know that industry, mining, consumers and Cosatu make presentations to Nersa. For the DA to come here and claim that the reduction in the tariff is as a result of their efforts, is mischievous and disingenuous. [Interjections.]
The truth needs to be told when necessary. To just think that you will attract a few votes by stating the untrue, is beyond my comprehension. [Interjections.]
We have to keep the lights on. Nersa has the difficult task of balancing the interests of Eskom and those of the consumers. We have to keep the lights on, but at the same time not hurt the competitiveness of South African industries, and protect the poor from high electricity tariffs - and the provision of free basic electricity goes a long way in protecting the poor.
However, we need to state that the practice of municipalities of procuring 60% of their funding from electricity distribution is unsustainable. It results in prohibitive electricity tariffs being imposed on industry and consumers within the jurisdiction of municipalities. Funding municipal budgets mainly through electricity tariffs will prove problematic in the long run. We need to move towards the standardisation of tariffs in South Africa. It has come to our attention that certain municipalities are adding mark-ups of several hundred percent to Eskom's Megaflex tariffs.
Last year I had an engagement with residents of the Free State on the local radio station. They indicated that the municipal electricity tariff they are made to pay is vastly different from the one consumers who were supplied electricity by Eskom pay.
These are serious matters. We need to be able to pay attention to the financial viability of municipalities because the challenge that the municipalities are facing is that the electricity tariffs serve as a cash cow and they avoid the painful task of reviewing the tariffs they charge for other services.
Hon Minister, the ANC, the glorious movement of our people, supports this Budget Vote. Thank you. [Applause.]