BUDGET VOTE SPEECH BY THE MINISTER OF MINERALS AND ENERGY, PHUMZILE MLAMBO-NGCUKA
22 June 2004
Hon. Speaker
Hon. Members
Distinguished guests and
Stakeholders
Since the advent of democracy in 1994, the South African society has undergone fundamental changes. Our people are now free from state condoned racial discrimination. Our youth can aspire to reach for the stars and live for their country. The masses of our people can now be the masters of their own destiny through the exercise of their democratic rights.
The Month of June has significant meaning in the history of our struggle. The Freedom Charter, that perennial document, was adopted by the congress of the people in 1955. This time-less document still constitutes the lodestar that guides the development of our policies even today.
The gallant youth of our country challenged the might of the apartheid state in 1976. We would like to take this opportunity to salute the youth of our country.
Since 1994, the DME has intensified the transformation of the Minerals and Energy Sectors, The White Papers Development, and legislation, regulations and regulations
The combined results from our efforts together with our stakeholders has been the opening up of the Minerals and Energy industries to new entrants, Historically Disadvantaged South Africans (HDSA), and women. Further the reform of these sectors has resulted in;
* SMME development,
* Foreign Direct Investment
* Job creation.
* the unprecedented provision of electricity and energy infrastructure by Municipalities, NER and Eskom,
* consolidation of the state's liquid fuels assets, with the formation of PetroSA.
To name a few
Highlights and Challenges
* A satisfactory regulatory framework for the gas industry. The first major cross boarder gas project between SA and Mozambique has been successfully executed by Sasol. The first gas from Mozambique arrived in South Africa in March 2004; we would like to applaud Sasol. The state retains the 25 % share option in the gas pipeline project, through iGas a subsidiary of CEF.
* The long awaited Safety Standards for paraffin stoves, which the Manufacturers need to adhere to, are about to be completed by SABS. Non-compliant stoves will be banned from the market, as they have been responsible for accidents, affecting unsuspecting poor consumers and customers. An announcement will be made before year-end.
* There has been an increase of manufacture and export of South Africa's Mineral Technology from Mintek. As we speak Mintek has completed a smelter in Dubai.
* All our nuclear capability is now unequivocally dedicated to peaceful use, mostly in nuclear energy research; it is also used for medical, agricultural and for the production of High-value chemicals.
* The Council for GeoScience is involved in assessing South Africa's potential claim to an extended continental shelf. This project may eventually be extended, through NEPAD, to other countries in Africa with a coastline.
* We led the Kimberly process and has also met the requirements for the Kimberly Process Certification Scheme. We need to thank the Kimberly Process Certification Scheme for the reduction in the trade of blood diamonds from the continent.
* DME takes environmental protection very seriously; hence 40% of DME's mining budget is going towards rehabilitation of ownerless and derelict mines.
* The DME is hosting the Designated National Authority (DNA), which is responsible for promoting South Africa as a destination for climate change investment. We are grateful that Cabinet delegated this task to us. Through this institution we will ensure greater investments in cleaner technologies that promotes sustainable development, local job creation and economic development. There will be opportunities for private and public sector investment in a clean environment in this regard. Watch this space
* The Cabinet approved the establishment of National Energy Research Institute (NERI), which will be jointly coordinated between the DME and Department of Science and Technology and will conduct research and innovation in the energy sector.
* We have supported the formation of Women in Nuclear South Africa (WINSA), thus creating a forum for exchange of information among women from different nuclear institutions locally, regionally and internationally. WINSA will also communicate benefits of nuclear technology to the broader public. We thank the previous Deputy Minister Susan Shabangu for her work in nurturing this institution.
* The Department has continued its support for Women in Oil and Energy (WOESA). This body supports and accommodates women in oil and other fields of energy and is developing projects for women involvement in Renewable Energy.
* We have also supported South African Women in Mining Association (SAWIMA). The women are positioning themselves in both major transactions as well as making their presence felt beyond the well-known Minerals. SAWIMA has formed SAWINI, an investment company, which is championing the acquisition of business opportunities.
* Our Department is active in Youth Development, especially in the development of young scientists and entrepreneurs. We have an annual youth camp during the June holidays. This year's mining camp, which is back by popular demand, will be held in Richards Bay and hosted by Richards Bay Minerals (RBM). The Energy camp will be held at the ESKOM Conference Centre and Sasol has supported the one for last year. We thank all the sponsors. We are also supporting the Youth Chamber of Mines in its endeavour to educate the Youth about careers and business opportunities in mining.
* The exchange rate has reversed the positive effect that would have been experienced by local producers due to the relatively higher revenue in dollar terms. As a result some of the local producers have scaled down their projected expenditures on expansion project, whilst other have threatened to retrenched workers in marginal operations. Clearly this is a source of concern. At the same time the stronger rand has enabled the whole nation to cope better with the exceptionally high price of oil.
DME Budget
During the year under review, the Department received R1.8 billion of which R1bn was for the electrification programme. We were able to spend 98.5% of the voted funds. We also received R1.5m from Norad for capacity programme in the Electricity Branch. The Department also received a once off budget of R11m for Information Management for addressing our legacy systems, which was utilised in upgrading our network and hardware.
For the 2004/5, 2005/6 and 2006/7 MTEF, the department is receiving 1.9 billion, R2bn and 1.9 billion respectively. Ngesabelo sezimali sangonyaka ka 2004/5-imali elinganiselwa ezigidigidini ezimbili zamarandi (R1.9 B) izosetshenziselwa ekufakeni ugesi emakhaya abantu. Lemali iyingxenye engamashumi amahlanu nanhlanu (55%) esabelweni sezimali eyahlulelwe kuMnyango woZokumbiwa naMandla. Amashumi amabili nantathu (23%) ahlulelwe eZimbonini zikaHulumeni, bese kuthi ingxenye engamashumi amabili nambili (22%) isetshenziswe ngaphakathi emnyangweni (DME).
Internal environment restructuring
* As at 31 May 2004 employment equity in terms of race and gender, representation stood at 71 % black and 30% women in the department. At both senior and middle management levels, female representation is at 24% against the national target of 30% by March 2005. We have done well with regard to target groups, but we are still lagging in the disabled persons category, which currently stands at 1% of the total employees in the DME against the national target of 2%.
* According to the National Youth Commission, we are the department with the highest number of Young Managers and we would ensure that those Young Managers whose performance was outstanding are recognised outstandingly performance and rewarded annually during the youth month.
Lebowa Minerals Trust (LMT)
* When we presented to this house the Legislation abolishing Lebowa Mineral Trust, we committed that the communities of Limpopo would benefit, we have now completely abolished LMT. I am glad to announce that we will be repatriating significant resources that previously belonged to LMT, to the Limpopo Province to support small-scale mining, skills development, and job creation. We will also announce the exact financial contribution to this process, once we have finished discussions with National Treasury.
Electricity
* Due to our growing energy needs, new generation capacity will be required by end of 2008. A process to call for bids to build the new power station has commenced and a tender will be issued by end of the year as directed by the President in his State of the Nation Address. Transaction advisors have already been appointed. It is estimated that this project will bring over R10 billion into the economy.
* We have continued what we believe is an outstanding performance in the Integrated National Electrification Programme. This year we reached a target and connected the 7.5 millionth households to the national grid. This was an achievement of 4 million new household electricity connections since 1994. Enkosi Eskom ngenkuthalo nensebenziswano yenu entle!
* I would like to assure the House that we are willing and able to achieve universal access to electricity, within the 8-year time frame as announced by the President. We however, need to ensure that we have financial resources. We will leave no stone unturned to generate those resources even outside the fiscus.
* We remain concerned that electrification has not directly contributed to other development objectives as was expected and hoped for. We need a coordinated approach to service delivery with other Departments to achieve this. We will announce a detailed plan in this regard in line with the ruling party's electoral mandate of creating jobs and fight poverty.
* We will launch a coordinated energy related public education programme to ensure higher benefits for the poor..
* Legislation that has not been completed in energy all this is because we needed to re-think the legislation following events around the world affecting the electricity industry, the California Crisis, the Black out in North America and Western Europe, Enron; all of these events suggested that the state has to put security of supply above all and above competition especially, this is also now a new position of the World Bank, who previously championed competition.
* In line with the government strategy to reduce the cost of doing business in South Africa, we intend to improve governance of the electricity sector. This will be done through creation of a robust electricity regulation regime and by modernising the existing Electricity Act. The new legislation will create an enabling environment for new Independent Power Producers (IPP's) and improve governance of the electricity suppliers. We are also advanced in the creation of one Energy Regulator. We welcome Mr Smunda Mokoena as CEO of NER and wish Mr Mkhwanazi well in his new life.
Mining and Minerals
* On the Minerals side we have completed the legislative programmeas envisaged in the White Paper on Mining and Minerals. Thanks to our partners and stakeholders, namely, NUM, Chamber of Mines, and SAMDA. The Minister of Finance will also ensure the royalty bill is brought to closure.
* Our commitment to greater value addition for South African Minerals has resulted in the creation of an enabling environment for beneficiation. The amendment of the Mining Rights Act and the Diamond Act, with a view to promoting access to both precious metals and precious stones for people who want to beneficiate. We shall be guided by the impact of these amendments and ongoing discussions we are having with other stakeholders as to whether there will still be a need for an overarching legislation for beneficiation.
* The Mineral and Petroleum Resources Development Act has mainstreamed and institutionalised transformation in the mining sector, in the initial phases, undue focus has been on equity. To achieve the completeness of the transformation of the mining industry we need to address all the elements of transformation, which include human resources development, employment equity, procurement with SMME development, better conditions of housing for workers and community development.
* A comprehensive review of the MHSI was concluded last year. The identified shortcomings were organisational structure and human resources development (HRD). The inspectorate has appointed an HR Consulting Company to assist in the management of learnerships, HR development and a change management strategy. The project will take approximately 18 months to complete.
* In mine Health and Safety Summit the stakeholders committed themselves to a zero rate of fatalities and injuries, for the first time in the industry's history to the following milestones to be achieved by 2013.
* Eliminate silicosis and noise induced hearing loss;
* Gold sector reduce fatality rate by 50%; and
* Coal, platinum and other mines to reduce their fatality rate by 20%.
Impendulo, yeyeme ekutheni lamazwe angomakhelwane awayifaki intela kawoyela uma bewuthengisa okuyinto engjwaylekile uma kuqhathaniswa neningi lamazwe omhlaba jikelele.
* To reduce the high costs of imported fuel on the consumers, we introduced the Basic Fuel Price in 2003, ending the In Bond Landed Cost (IBLC). Between April 2003 and January 2004 fuel consumers saved approximately R140 okusho ukuthi lendlela esesibala ngayo inako ukonga. Recently we used funds from the Equalisation Fund to cushion the consumers from the extremely high costs of petroleum products. The affordability of oil products will remain a challenge for SA, as we don't produce oil in significant quantities. The DME, S&T, and DoT will embark on the fuels efficiency strategy, Bio-fuels, making compulsory for the vehicle manufacturers to indicate fuel efficiency ratings and to distinguish fuel-efficient vehicles from guzzlers. As a very modest producer of oil and gas SA can only rely on fuel efficiency to make savings and contribute to clean air.
* CEF in the past financial year declared a dividend of about R1.6 Billion to the State.
* The past marketing activities, which were managed for the old Soekor by 3rd party agencies, have now been consolidated into a single operation run from PetroSA's offices in Amsterdam and the US. This has resulted in the growth in the market opportunities for PetroSA. There has been progress in PetroSA despite the spate of problems in the past year.
Nuclear
The Integrated Energy Plan (IEP) indicates that in addition to coal, nuclear energy will increase an energy option for South Africa for the foreseeable future. Nuclear will help us increase energy diversity, security of supply and reduce energy related emission levels because it is a cleaner burning fuel. South Africa needs to wake up to the reality that we do not have infinite coal reserves. In fact we have less than previously thought. We do not have oil and gas so we cannot avoid nuclear energy.
Following Cabinet approval of the draft "Radioactive Waste Management Policy and Strategy", several public consultation meetings were held near nuclear installations. We will also conduct extensive capacity building workshops to enable people to participate meaningfully in the policy development process. The workshops will be held in Northern Cape, Western Cape, North West and Gauteng, which are at close proximity to nuclear installations. The Nuclear Waste Management Policy and Strategy will then be finalised by the end of the year and implemented next
The South African Nuclear Safety record is highly commendable Koeberg power station has undergone a successful peer review process conducted by the World Association of Nuclear Operations (WANO). We came tops and as you know in the 20 years Koeberg operation we have never had an accident, masiqhwabeleni izandla bethuna!
Cabinet has endorsed a five to ten year plan for PBMR in order to grow a critical research and skills base to support the PBMR program and a sustainable nuclear industry in South Africa. Thanks to Department of Science and Technology for their support in this regard. As you may be aware, PBMR is poised to respond to the invitation to bid for building a reactor system in the United States, which will produce both electricity and use as a heat source for hydrogen production. In inviting the bids, my counterpart in the United States indicated that the system must be safer, small and flexible, which the PBMR meets.
Renewable Energy
Exactly a year after the World Summit on Sustainable Development, held in Johannesburg, South Africa produced its Renewable Energy White Paper with clear and achievable targets for the development and promotion of Renewable Energy sources. We aim to produce 5% of our energy requirements from Renewable by the year 2013.
For the renewable energy industry to grow and be sustainable in South Africa it needs a large, growing and sustainable market. The rural communities in SA cannot provide that kind of a market. The renewable energy market in South Africa will only succeed if we reclaim the urban and large energy consuming market of the urban areas, both households and the industry. We are committed to broadening the market for renewable energy sources to all sectors of the society. Towards this end, we have completed a Renewable Energy Market Transformation study in collaboration with the World Bank, aimed at meeting the 1000 Giga Watt hours target by 2005. We further believe that large hydropower schemes are important for Africa, contrary to what our colleagues in the west believe. Their campaign smags of forcing us to buying their Renewable Energy products. In the recent International Renewable Energy Conference in Bonn our Deputy Minister articulated this position, which is a shared position with the rest of the continent. We intend to vigorously promote this position and to work for the development of hydropower from Great Inga in the DRC. This is one of our NEPAD actions.
The Central Energy Fund (CEF) has been restructured to ensure that it plays a greater role in the development and promotion of renewable energy sources and technologies. It is the already involved with the development of the wind farm and the solar cooker project.
Energy Efficiency
We plan to introduce energy efficiency in all sectors of energy consumption, as specified in the Draft Energy Efficiency Strategy of South Africa. We have launched our appliance-labelling programme in May 2004. In this way, we will raise awareness amongst our domestic consumers regarding the consumption of energy by standard household appliances. We will further extend this programme to include vehicles, as part of our strategy to introduce efficiency in the transport sector.
Free Basic Electricity and EDI
As one of the Government's poverty alleviation initiatives, we commenced a pilot study in 2002 to inform the free basic electricity (FBE) policy to determine the most effective and financially viable delivery process. This year, about 490 000 households are receiving FBE through Eskom and municipalities.
We intended to provide at least 1 million households with free basic electricity in the past financial year. This was not achieved due to the challenges problems associated with lack of capacity, fragmentation of the electricity industry and a plethora of electricity tariffs. The most serious problem of fragmentation can only be solved by EDI restructuring.
Fortunately, the process of restructuring the distribution industry has now gained momentum. Thanks to SALGA, DPLGG, EDI holding, Labour and professionals. This has been observed in the growing support of the process by municipalities of Mangaung, Motheo, Tzaneen and Polokwane who have charted the way towards restructuring through signing the cooperative agreement. We salute them.
We are glad that the President shares our anxiety on the EDI. We will meet the deadline he has set for us for the establishment of the first RED by June 2005. Cape Town and eThekwini municipalities came up top in terms of these criteria. One of them will have the honour of launching the first RED within the Presidential timeframes.
Liquid Petroleum Gas (LPG)
Department is committed to the promotion of LPG which is a more cleaner, safer and efficient burning energy source. LPG is a better burning fuel for cooking and heating. Its fire is easier to make and generally makes cooking a lot more quicker. It does not generate smoke, dust and choking fumes like most other hydrocarbon fuels. Contrary to general belief, LPG is a lot safer to use, especially when used with appropriate equipment and appliances.
However in South Africa LPG has for many decades been a fuel for the rich and the elite and has therefore been very expensive. It comes out of the refinery at R3.00 per kg and it retails at R11 per kg with very little value added in between. Government will pilot a different approach to the retailing of LPG before the end of this financial year. Along with the pilot, an appropriate regulatory framework will be developed. Lokhu kufanele ukuthi kwehlise intengo yeLPG kakhulu kubantu bonke base - South Africa. Sicela amalunga ePhalamende abe ngamashoshozela kulomkhankaso. Intengo ephansi yeLPG izokwenza ukuthi umphakathi ukwazi ukuthola isiphethu samandla esishibile ophephile futhi ongangcolisi indalo.
Integrated Energy Centres and Poverty
The new model for retailing of LPG forms a good backbone for the creation of sustainable IeCs. As the President enjoined us to promote cooperatives, we have already started in the creation of viable cooperatives. Creation of these will facilitate job creation in the poorest of our people; help improve access to modern energy carriers by the poor; educating the poor about energy uses and to use energy efficiently to lower the cost to the households and lead to a better understanding of energy economics by the poor. IeCs will not only make communities consumers of energy products but owners of their own energy businesses. Members, please support IeC's in your poor constituencies. Encourage municipalities, NGOs and business to initiate IeCs.
It is envisaged that the review of IeCswill be completed by end of August 2004. A minimum of 7 IeCs will be launched in this financial year. These will be in KZN, Eastern Cape, Northern Cape, North West and Mpumalanga.
The DME has generally not done well on public education on energy amongst the poor. This is a matter that has concerned the Ministry and Cabinet, it therefore will be elevated to one of the major programme of the department requiring the Ministry and the DG to take direct responsibility.
BEE
On the empowerment front, there is the New Africa Mining Fund (NAMF), which is a private equity fund that exclusively finances exploration activities, whilst facilitating the entry of the previously disadvantaged entrepreneurs into the mining industry. In South Africa, no other institution provides funding in this area. Therefore the NAMF occupies a niche in the financing dynamics of the mining environment. To date NAMF has received 130 applications, which demonstrate a high activity of BEE's in exploration, while virtually all big mining companies in South Africa has taken some steps on BEE. In the current year not less than eight BEE transactions to the value of R10 billion have been finalized. Those who are sceptical and are thinking of discrediting MPRDA in South Africa and abroad must be aware they are working against the mainstream.
I remain very worried about the tendency of companies who prefer to ignore the capable and less transacted HDSA and Women companies on the basis that the first generation BEE who have now fully emerged and excelled are the only ones who can raise capital as well as their failure to do Employee Share Option Scheme and the role of financiers who refuse to find starters. The need for Broad Based BEE and operational BEE companies is being ignored by the industry big time. This is sabotage and neglect of the transformation imperatives. This will be a problem for companies when they present their scorecards!!! We also need our BEE's to demonstrate shareholder activism, we cannot sleep on the job be it in the liquid fuels and mining sector and beyond. BEEs are not really creating new jobs, or transforming the sectors they are entering or investing in communities.
My Department will not support and promote over concentration of mining resources to a few BEE gentlemen. Where we can we will use our muscle to oppose this actively. Which does not mean we are blind to the needs of growth by the bigger BEE who are established. Growth beyond certain levels must be achieved without displacing and competing with smaller BEE and compromising broad based BEE. Broad base BEE constitutes one of the basis on which the government has made a contract with all the people of South Africa. We cannot be seen to limit this contract to a few by default. I also reject that Blacks must be empowered without getting rich. However, it is important that those who have been empowered whether they are Black or White must develop a social conscience, which must enable them to empower others.
The spirit and letter of these policies forms the bedrock of the contract that the government has recently entered into with all South Africans. We dare not fail, because if we do history will judge us harshly.
As I conclude Madam Speaker, I would like to highlight that he programme of the department in the next financial year will include the implementation of the following projects, some of which were announced by the President in his State of the Nation Address.
* The rollout of IeCs in response to the call for the promotion of co-operatives
* To ensure free basic energy and assure that EDI is unstoppable. The first RED will be in place in 2005.
* The bridging of the two economies through the development of regulations and markets for LPG
* Investment in electricity infrastructure in conjunction with DPE and DPLG for better quality of supply for all.
* Procurement of the new generating capacity within the time frames given.
* The establishment of the new Single Energy Regulator and proceed with guidelines on administered prices
* Youth Award for best performing young managers
* Public Education on Energy.
* A more aggressive approach to ensure Broad Based empowerment in general and more especially in women owned empowerment deals
* More deliberate linkage of INEP and job creation, as well as poverty alleviation
The Minerals and Energy industry and labour must be commended for adopting a broad-minded rather than a narrow-minded position to issues of national interest. The approach has indeed been the basis on which mutual trust between Government and stakeholders has been founded. I would accordingly like to acknowledge with gratitude the efforts of the Chamber of Mines, SAPIA, SAMDA and AMEF. I would like to thank the National Union of Mineworkers for their leadership, enthusiasm for the transformation agenda, more particularly in Human Resource development and community development. Their continued vigilance will ensure that the ideals envisioned in the Charter do not become a fleeting mirage.
I would like to acknowledge the presence here today of Refilwe Monageng, from a Community radio station, Jozi FM. He is an inspirational example of youth leadership, who has become a good friend of the department, Kgosi Leruo Molotlegi and Ex-PPC members.
Last but not least, I would like to express my gratitude to the members of the Portfolio Committee for their commitment and wisdom. To my new and old Deputy Minister, the DME management especially the DG and his staff, your unwavering support and loyalty has not gone unnoticed, please keep it up. You will be rewarded with more work and blessings.