DEPARTMENT’S STRATEGIC AND ANNUAL PERFORMANCE PLANS - BUDGET VOTE 29

2014/15 FINANCIAL YEAR

Presentation to the Select Committee on Economic Business Development

Mr Tseliso MaqubelaActing Director General

22 July 2014

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PRESENTATION LAYOUT

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• Introduction

• Highlights and challenges of the first five (5) years

• Key focus areas for the 2014/15 financial year

• 2014/15 Budget and alignment to the department’s programmes

• Conclusion

INTRODUCTION

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• Introduction of the DOE Team

• Establishment and mandate of the Department of Energy/Who we are

• DOE was established in 2009 – outcome of the split of the Department of

Minerals and Energy into Department of Energy and the Department of

Mineral Resources

• The Department is mandated with the responsibility of ensuring secure and

sustainable provision of energy for socio-economic development in our

country – a mandate that has been reconfirmed via the NDP and the

President’s 2014 SONA.

• Since its establishment, the Department’s financial and human capacity has seen

a steady increase.

INTRODUCTION

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• The Department is supported by six state-owned entities reporting to the

Minister of Energy.

• These include regulators in the electricity, petroleum, gas and nuclear sectors,

researchers in clean and renewable energy and other energy sectors, as well as

promoting development within the sector.

• The Department ensures that the strategic plans and annual performance plans of

these entities are aligned to the overall Government priorities.

• On the international front, the Department’s approach to international

engagements focuses on energy security through maintaining and sourcing

agreements with countries of interest – for skills development, technology, funding

support and energy supply within the region.

MACRO ORGANISATIONAL STRUCTURE OF DOE

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MinisterMinister Deputy MinisterDeputy MinisterAssociated InstitutionsAssociated Institutions

Department of EnergyDepartment of Energy

Office of the DGOffice of the DGMinisterial and Parliamentary

ServicesMinisterial and Parliamentary

Services

Directorate Audit ServicesDirectorate Audit Services

BranchEnergy Policy,

Planning and Clean Energy

BranchEnergy Policy,

Planning and Clean Energy

BranchPetroleum

and Petroleum Products

Regulation

BranchPetroleum

and Petroleum Products

Regulation

BranchNuclear Energy

BranchNuclear Energy

BranchEnergy

Programmes and

Projects

BranchEnergy

Programmes and

Projects

BranchCorporate Services

BranchCorporate Services

BranchFinancial

Management Services

BranchFinancial

Management Services

BranchGovernance

and Compliance

BranchGovernance

and Compliance

STRATEGIC OUTCOMESThe Department has identified the following Strategic Outcomes:

•Security of Supply by ensuring that energy supply is secure and demand well managed;

•Infrastructure development by facilitating an efficient, competitive and responsive energy infrastructure

network;

•Regulation and Competition certainty by ensuring that there is improved energy regulation and

competition in the energy sector;

•Universal Access and Transformation by ensuring that there is an efficient and diverse energy mix for

universal access within a transformed energy sector;

•Environmental Assets that are well protected and continually enhanced by cleaner energy technologies.

•Climate Change response by implementing policies that adapt to and mitigate the effects of climate

change.

•Prudent Corporate Governance through implementation of good governance practices for effective and

efficient service delivery.

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THE FIRST FIVE YEARS OF DOE

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• In its first five years of existence, the department has been focusing on the

development and improvement of policy in support of energy security (as

mandated), through an integrated energy planning approach while

strengthening the regulatory framework within the energy sector and playing

our role in helping to reduce the impact of greenhouse gas emissions.

• New and old relations were established and reviewed, respectively, within the

regions as well as the international platform at large with greater focus on

promoting regional integration and promoting our participation in the international

energy platform.

HIGHLIGHTS FOR THE FIRST FIVE YEARS

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• Improved access to energy services in rural communities through electrification

of over 1.1 million new connections and the construction of Integrated Energy

Centres.

• This brought the figures of electricity connections to 6 mil for the past 20 years

• Produced the country’s 20 year plan (IRP 2010) for electricity, with a deliberate

bias towards cleaner energy.

• Introduction of Independent Power Producers (IPPs)

• The Department has gone a long way in creating regulatory certainty, which is

bearing fruit through significant investments in energy infrastructure.

CHALLENGES

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• Inadequate generation capacity;

• Distribution Infrastructure and management of distribution business;

• Cost of energy;

• Access to electricity;

• Energy efficiency;

• Lack of adequate skills levels and

• Economic transformation.

THE 2014/15 ANNUAL PERFORMANCE PLAN

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• The Department has reviewed its 2014/15 APP tabled in February 2014 to align it

to the MTSF targets as well as the SONA;

• For the 2014/15 financial year, the Department is appropriated R7.4bn, with 93%

of the total budget earmark for transfer payments.

• The bulk of the budget increase from the 2013/14 budget is allocated to the

electrification programme and the solar water geyser programme.

• The next two slides indicate the department’s areas of contribution to the twelve

government outcomes and participation in the PICC and SIPs.

DOE - CONTRIBUTION TO 12 GOVERNMENT OUTCOMES AND PICC

The department contributes directly or indirectly to the following Outcomes Based Planning Approach:

Outcome 4 – Employment: Decent employment through inclusive economic growth;

Outcome 6 – Economic Infrastructure: An efficient, competitive and responsive economic infrastructure network Outcome 7 – Rural Development: Vibrant, equitable and sustainable rural communities with food security for allOutcome 8 – Integrated Human Settlements: Sustainable human settlement and improved quality of household life Outcome 9 – Local Government: A responsive, accountable, effective and efficient local government system.Outcome 10 – Environment: Protect and enhance our environmental assets and natural resources.

INEP is also reporting at this stage into SIP 1, 4, 6, 8, 9 and 10 of the PICC.

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PICC AND STRATEGIC INTEGRATED

PROJECTS (SIPs)

• SIP1: Unblocking the Northern Mineral Belt with the Waterberg as the catalyst

• SIP 4: Unlocking the economic opportunities in North West Province

• SIP 6: Integrated Municipal Infrastructure

• SIP 8: Green Energy in Support of the South African Economy

• SIP 9: Electricity generation to support socio-economic development

• SIP10: Electricity Transmission and Distribution for All.

KEY FOCUS AREAS FOR THE 2014/15 (FY)

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• Increase access to electricity with an additional 265 000 grid connections and 15

000 non-grid installations;

• Increase momentum on the installation of solar water heating units;

• Finalise the Integrated Energy Plan (IEP) with more detailed infrastructure plans;

• Address maintenance and refurbishment backlogs in the electricity distribution

industry;

• Strengthen the liquid fuels industry; and

• Facilitate the process leading to the implementation of decisions taken on the

nuclear programme.

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2014/15 BUDGET COMMENTS

•Earmarked transfer payments to public entities, municipalities and other implementing institutions amounts to R6.89 billion which is equivalent to 92.94% of the Department’s total budget of R7.42 billion.•The remaining budget is for operational expenditure and this has been the trend of the budget for the past 4 years

•The history of the fiscus allocation is as follows:

2010/11 - R5.648 Billion2011/12 - R6.200 Billion (Increased by 9.7%)2012/13 - R6.734 Billion (Increased by 8.6%)2013/14 - R6.503 Billion (Decreased by 3%)2014/15 - R7.415 Billion (Increased by 14%)

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2014/15 BUDGET BREAKDOWN

2014 ENE BUDGET SHARE

Administration 244,122 3.29%Energy Planning and Policy 52,583 0.71%Petroleum and Petroleum Products Regulation 82,745 1.12%Electrification and Energy Programme Projects Management 49,896 0.67%Nuclear Energy 44,072 0.59%Clean Energy 50,485 0.68%

SA National Energy Development Institute 162,685 2.19% Foreign International Atomic Energy Agency and International Renewable Energy Agency 12,055 0.16%

Demand Side & Efficiency Programme 1,773,305 23.91%Necsa 760,678 10.26%National Nuclear Regulator 33,697 0.45%Integrated National Electrification Programme 4,149,316 55.95%TOTAL 7,415,639 100%

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2014/15 BUDGET ILLUSTRATION

2014 ENE ALLOCATIONOVERVIEW – PER PROGRAMME

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VOTE 29: PROGRAMMES

2013/14 2014/15 2014/15Final

AppropriationCompensatio

n of staffGoods & Services

Transfer Payments CAPEX) TOTAL

R'000 R'000 R'000 R'000 R'000 R’000

Administration 233,142 132,787 105,766 374 5,195 244,122Energy Policy and Planning

47,201 35,495 17,088 - - 52,583

Petroleum and Petroleum Products Regulation

39,865 50,347 32,398 - - 82,745

Electrification and Energy Programme and Project Management

3,967,700 35,343 14,553 4,149,316 - 4,199,212

Nuclear Energy 723,998 20,100 23,972 806,430 - 850,502Clean Energy 1,490,550 17,875 32,610 1,935,990 - 1,986,475Total 6,503,244 291,947 226,387 6,892,110 5,195 7,415,639

TRANSFER PAYMENT SCHEDULE

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TRANSFER PAYMENTS - DOE

2013/14 2014/15 2015/16 2016/17

Final Appropriation Baseline

%Growth (13/14-14/15)

Baseline%Growth (15/15-15/16)

Baseline%Growth (15/16-16/17)

R'000 R'000 R'000 R'000 R'000 R'000 R'000

Employee social benefits 418 374 5.06% 388 3.74% 409 5.41%INEP Grant - Non-grid 119,224 96,621 -18.96% 101,067 4.60% 106,424 5.30%Eskom -INEP 2,141,027 2,488,037 16.21% 3,680,043 47.91% 3,875,085 5.30%INEP Grant - Munics 1,314,772 1,564,658 19.01% 2,056,090 31.41% 2,165,063 5.30%INEP - ADAM 320,000 - - - NECSA 592,182 760,678 28.45% 590,838 -22.33% 622,152 5.30%National Nuclear Regulator 48,360 33,697 -30.32% 34,887 3.53% 36,736 5.30%International membership fees 40,077 12,055 -11.21% 12,481 3.53% 13,142 5.30%National Radio Active Waste Disposal Institute 19,800

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-

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Eskom: Solar Water Geyser Project 1,149,900 1,636,400 42.31% 700,000 -57.22% 737,100 5.30%EEDSM Grant - Munics 180,722 136,905 -24.25% 188,305 37.54% 203,815 8.24%SANEDI 63,344 51,685 -18.41% 54,063 4.60% 56,928 5.30%SANEDI: Carbon capture and storage 69,000 103,000 49.28% 35,000 -66.02%

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SANEDI: Hydraulic fracturing 2,000 8,000 300.00% - - Total 6,060,826 6,892,110 14.22% 7,453,162 8.14% 7,816,854 4.88%

DEPARTMENT PROGRAMMES FOR 2014/15

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• Integrated National Electrification Plan

• Finalization of Mini-ADAM distribution infrastructure pilots

• Solar Water Gysers

• Independent Power Producers

• Nuclear Energy

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INEP - FUNDING MODEL

Allocations for 2013/14

PROVINCE Total

Allocation

Eskom allocations

(R’ 000)

Munic allocation(R’ 000)

Adam allocation

(R’000)

Eastern Cape 1 083 674 697 774 290 900 95 000

Free State 197 882 17 782 95 100 85 000

Gauteng 270 000 97 000 173 000 0

KwaZulu Natal 760 915 399 193 261 722 100 000

Limpopo 460 419 301 119 159 300 0

Mpumalanga 283 429 172 029 111 400 0

Northern Cape 94 270 17 170 57 100 20 000

North West 413 000 343 850 49 150 20 000

Western Cape 212 210 95 110 117 100 0

Total 3,775,799 2,141,027 1,314,772 320,000

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2013/14 connection target was 260 000 INEP manage to achieve 303 773 connections – over performed by 46 773 connections.

Good co-operation from Eskom and less so good from Municipalities

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INEP PERFORMANCE (13/14)

Entity MTEF Allocations

Planned connection

Connections INEP (including

roll-overs)

Connections Own funding

Total Connections

Eskom (bn) 2,141,027 157,839 174 521 28,422 202 943

Municipalities (bn) 1,314,772 87231 89 771   89 771

Non-grid (mil) 91,150 15 000 14 059   14 059

Total 3,546,951 260 000 278 351 28,422 303 773

Allocations 2014/152014/15

(R’000)

MUNICIPALITIES R 1 104 658

PLANNED CONNECTIONS 70 979

ESKOM (NATIONAL) R 2 948 310

PLANNED CONNECTIONS 180 031

NON - GRID R 96 621

PLANNED CONNECTIONS 15 000

TOTAL PLANNED CONNECTIONS 266 010

TOTAL ALLOCATIONS R 4 149 589

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The reduction in the municipality programme by R 460 million and increase in the Eskom programme by R460 mil are factored into the above table, which will have the result that an additional 30 000 connections will have to be achieved by Eskom in 2014/15.

Municipalities 14/15 allocations

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PROVINCE14/15 allocated funding

R’(000) Planned

connectionsEastern Cape R 248,700 15 544

Free State R 92,700 6 320

Gauteng R 129,000 8 795

Kwazulu/Natal R 252,000 15,750

Limpopo R 167,000 10 438

Mpumalanga R 63,200 3 950

North West R 44,458 2 899

Northern Cape R 18,000 1174

Western Cape R 89,600 6,109

TOTAL R1,104,658 70 979

Eskom 14/15 allocations

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PROVINCE14/15 allocated funding

R'(000)Planned

connectionsEastern Cape R 660,000 38724Free State R 52,188 3 626Gauteng R 152,746 13 107Kwazulu/Natal R 666,962 46 072Limpopo R 620,782 28 820Mpumalanga R 296,752 19 063North West R 280,591 19 753Northern Cape R 79,319 2 241Western Cape R 138, 971 8 625TOTAL 2, 948, 037 180 031

Note that R662,7 mil of all municipal allocations, while R2,314 bil of Eskom allocations are earmarked for the 24 least resourced District Municipalities for the 14/15 financial year, in line with support of SIP 6 initiative. Total grid allocation of R2.977 bil, as well as the full non-grid allocation of R96 mil makes out 73 % of the total INEP allocations for 14/15.

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Renewable Energy Independent Power Producers (REIPP)

IRP 2030 and the Renewable Energy Independent Power Producers (REIPP)

To-date, the Department has: Under Bid Window 1, entered into 28 agreements on 5 November

2012 (about 1400 MW), of which about 600 MW of Green Energy is already been generated and supplied into the national grid by 14 IPPs.

Under Bid Window 2, entered into 19 agreements on 9 May 2013 (about 1 050 MW) .• 17 IPPs have started with construction

Under Bid Window 3, the DOE published the names of 17 preferred on 5 November 2013 (1 460 MW).• All bidders are currently busy with Financial Close.

Corrective measures are now been developed or in the process to be implemented with respect to the Socio-Economic Development.

DEPARTMENT PROGRAMMES FOR 2014/15 - SWH

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The Solar Water Heating Programme:

•Eskom is the designated implementation agent and the SWH system procurer under

the NSWHP

•Available funds will be shared between Low and High Pressure systems in the ratio

of 80:20.

• Municipalities, being the sphere of government at the coalface of service delivery will

provide required information, e.g select project sites, provide unemployment

information and create avenues for local SMMEs.

•Service level agreements will be signed between Eskom and Municipalities for project

implementation.

DEPARTMENT PROGRAMMES FOR 2014/15 - SWH

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PROVINCE AMOUNT

1.GAUTENG R337.0m

2.KWAZULU-NATAL R248.1m

3.EASTERN CAPE R163.0m

4.WESTERN CAPE R140.2m

5.FREE STATE R81.0m

6.NORTHERN CAPE R29.4m

7.LIMPOPO R127.6m

8.MPUMALANGA R92.9m

9.NORTH WEST R89.9m

Nuclear Programme

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• Within the Nuclear Energy Programme, the Department will:

Demystify nuclear energy through public awareness campaign;

Finalise financing and funding mechanisms for the nuclear programme;

Commission the economic impact assessment study of localization of

nuclear programme; and

Appoint a Transactional Advisor to conclude technical work as precursor to

launch the nuclear procurement.

2014/15 Legislative Programme

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In this financial year, we intend to develop the following pieces of legislation:

Electricity Regulation Amendment Bill which will provide a regulatory framework that

promotes IPP participation.

National Energy Regulator Amendment Bill which will:

Improve credibility of the decision making process by establishing an Appeal Board;

Improve the governance, accountability of the regulator; and

Promote efficient regulation of the energy sector and improve governance.

Gas Amendment Bill that will promote an efficient, competitive and responsive

economic growth; and leveraging available gas resources (appropriate dispensation

inclusive of Compressed Natural Gas, etc).

Independent Systems and Market Operator (ISMO) Bill to encourage IPP

participation in electricity generation through establishment of an independent buyer.

Closing Remarks

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The budget over the MTEF period does not respond to the following:

•The budget has been adapted and funds re-prioritised to meet the departments

strategic priorities, SONA, NDP, MSTF and broader government priorities

•Transfers to Entities and Municipalities will continue to represent a significant portion

of the departments budget, with an average of 93%, hence in line with service

delivery, however there are human & financial constraints in the departments

oversight role and policy development areas

•Overall performance expected of the department, especially in line function areas

•The funding priorities over the MTEF period will be discussed with National Treasury

on the 4th August 2014

Thank You!

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