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19 May 2005

Madame Speaker, it is instructive that we present our budget at the time when we are celebrating the 50th anniversary of the Freedom Charter, that evergreen blueprint which guided us during the struggle against apartheid and continues to be our lodestar in our efforts to rid our society of the vestiges of this horrendous system. As we do so, I would like to quote former President Mandela when he, way back in 1994 said, “If freedom is the crown which the fighters for liberation sought to place on the head of mother Africa, let the upliftment, the happiness, prosperity and comfort for her children be the jewel of the crown.” It was the same ideals that inspired our forebears in Kliptown 50 years ago to declare that the people shall govern and that the wealth of the country shall be shared by all. In response to this clarion call, the government has ensured that the quest for upliftment of our people, their prosperity and comfort are at the centre of its policies and programmes since 1994. It is my honour and privilege to present to this house the contribution of my department towards the realisation of the aspirations of the mothers and fathers of the Freedom Charter.

DME Budget for the 2004/05 financial years

The Department received a budget of R1.945 billion. Of the total budget of R1,9 billion, 82% was allocated to transfers and subsidies to public entities and municipalities leaving the Department with a net budget of R360 million.

Compensation of Employees (R194 million) accounted for 54% of the net budget, Use of Goods and Services (R156 million) accounted for 43%. The remaining 3% was allocated to Capital Assets (R8 million) and other Financial Transactions (R205 000).

The department managed to spend 98% of our budget for Compensation of Employees, 85% of the budget for Goods and Services and 96% of the budget allocated to public entities and municipalities. The issue of the post retirement medical aid liability remains a major problem for some of our public entities. The South African Nuclear Energy Corporation (Necsa) and National Nuclear Regulator (NNR) had, as at 31 March 2005, liabilities of R206 million and R22,7 m on their respective balance sheets. These liabilities virtually render our public entities technically insolvent. There is a need to take a holistic view of the problem and address it.

The Department also received donor funding of R14.77 million from several foreign donors for the implementation of capacity building and non-grid electrification programmes. The Department was able to utilise 89.3% of donor funding during the 2004/05 financial year. The Minister of Finance would be pleased to hear that the Department collected more revenue than what was initially projected. The actual revenue collection for the year under review was R4 million more that the projected revenue of R109 million. Looking forward at the 2005/06, 2006/07 and 2007/08 MTEF, the Department received R2.117 billion, R1.065 billion and R1.119 billion respectively. The decrease in budget allocations from 2006/07 MTEF years is due to the re-allocation of funds for National Electrification Programme to the Department of Local and Provincial Governments (DPLG).

With regard to our internal procurement in the 2005/6 35 million was spent on internal procurements and 22,6 million (64.5%) worth of contracts has been awarded to black economic empowerment (BEEs) and small, medium and micro enterprises (SMMEs).

ENERGY

Our Energy Policy is based on the following key objectives:

* attaining universal access to energy by 2014
* accessible, affordable and reliable energy especially for the poor
* diversifying primary energy sources and reducing dependency on coal
* good governance which must also facilitate and encourage private sector investments in the energy sector
* environmentally responsible energy provision.

Progress has been made with regard to each of the above objectives:

We have continued to progress the electrification programme although we have slowed down as we do sparsely populated areas. We now do 635 connections per day as opposed to 800-day connections in the past. Access to electricity is now at 71%.

We have advanced plans for the establishment of the South African National Energy Regulator (NERSA), which will replace the National Electricity Regulator (NER) and also regulate gas and petroleum pipelines.

We are ready to establish National Energy Research Institute (NERI). The Department of Minerals and Energy (DME) and the Department of Science and Technology (DST) will be putting a board in place and recruiting the chief executive officer (CEO).

The liquid petroleum gas (LPG) industry has begun rolling out among poor households on a pilot basis.

We are ready to hand over Free Basic Electricity policy implementation to DPLG and we have identified barriers and solutions to implementation. Our intervention has added 3.5 million qualifying recipients and much more needs to be done, to bring in more recipients

We have an energy efficiency strategy, which sets targets to be achieved by 2014. The strategy has been embraced by large companies, which will implement energy efficiency in their own companies and adopt our targets, for reduced energy demand of 12% by 2015.

Progress is being made in the procurement of generation capacity. Eskom will bring to production 3000MW from mothballed power stations. DME is busy with a tender process for the procurement of 1000 MW through Independent Power Producers, which should be commissioned in 2008

The first Regional Electricity Distributor will be established in July as announced by the President.

The Designated National Authority will be launched at the end of this month with seven projects already identified.

All the oil companies have engaged BEE partners except for Sasol, which is yet to make significant progress on its transformation issues

Our energy sector is faced with some challenges as well, some of which are driven by external factors such as the escalating oil price. South Africa spends 15% of its total import bill on oil imports. The determination of the price at which we buy crude oil is out of our hands as South Africa is an importing country. The price of oil has a significant impact in the economy. The strong Rand has helped to mitigate the impact of the oil price spikes on the economy.

PetroSA, our State oil company, has been busy on three fronts: securing additional oil blocks in Africa, finding additional gas supplies and developing a new gas-to-liquids technology that may one day challenge the world leaders in this area. This new gas-to-liquids technology and its oil partnerships in Africa give PetroSA a strategic and geo-political importance out of all proportion to its size.

FUEL EFFICIENCY

May is Energy Efficiency Month and it gives us an opportunity to revisit the progress made on energy efficiency. As far as fuel efficiency is concerned and for motorists there is a huge potential to save money by using the fuel efficient tips that we have been publicising, R7.5 billion per annum could be saved by the South African motorists if the tips were followed.

ENERGY EFFICIENCY

We have a history of over capacity in electricity, which has made power in South Africa cheap and reliable for as long as most of us in this house can remember. Electricity has been a contributor to our economic growth and service delivery to the poor.

During this (Energy Efficiency) month, we announced the Energy Efficiency Strategy. It aims to reduce energy demand by 15% by 2015. It can be done! This Strategy includes Eskom’s Demand Side Management. Last year Eskom exceeded their efficiency targets. Municipalities are also implementing their own Energy Efficiency strategies. 32 large companies have joined forces with DME and Eskom by signing an Energy Efficiency accord, committing themselves to targets contained in the DME strategy. To encourage them we will recognise them at the annual ETA awards. This is an important beginning to a changed mindset.

Appliance labelling Campaign

To assist households to be more energy efficient we have the appliance labelling campaign. In future consumers will know how efficient an appliance is because of the label on it. We have started with refrigerators. We thank the appliance manufacturers for their cooperation.

Energy Efficiency Audits

We are working with Department of Public Works and Eskom to retrofit government buildings to make them more energy efficient. We are now saving R600 000 in electricity bills per annum. I thank Minister Sigcau and Eskom for their co-operation.

GENERATION CAPACITY

Once again I have to say there is no generation capacity crisis in South Africa, the diminishing capacity is underpinned by a plan to replace it and do so timeously.

To secure our future, South Africa is pursuing a policy of diversifying energy sources and no energy source should be discriminated against. The higher the contribution of an energy source in our energy mix, greater security of supply the more we are likely to support and invest in the development of that energy source. In that regard nuclear energy is here to stay, just so as renewable energy, which is mainly important for its contribution to the reduction of greenhouse gas emissions.

NUCLEAR REGULATION

We have continued to focus on improving nuclear safety and governance of the nuclear sector. We have published the nuclear waste management policy and we would like to thank the members of the public, for their comments as well as their participation in the public meetings. In order to enhance awareness on radioactive waste management, we have held capacity building workshops in Northern Cape, Western Cape and Gauteng.

We plan to take the radioactive waste policy to Cabinet for final approval in August 2005.

NUCLEAR ENERGY AND PBMR

Uranium and coal are the two raw materials that South Africa has in abundance for its power generation and can contribute to ensure security of supply. We intend to use our uranium to support our growing nuclear industry. South Africa is at the forefront of developing high temperature reactors in the form of a Pebble-bed Modular Reactor (PBMR) and we will for that reason, declare uranium a protected mineral resources in accordance with Section 49 of the Mineral and Petroleum Resources Development Act (MPRDA). We will announce a special dispensation for licensing uranium exploration, prospecting and mining.

The price of uranium has more than doubled in the past two years, with those countries beneficiating uranium benefiting most. We will actively pursue uranium beneficiation in South Africa in line with our commitment to value addition on our minerals. Currently South Africa exports uranium ore concentrates. To match our obligations and plans we are also taking training of nuclear scientists very seriously. We have postgraduate students in France, thanks to Areva a French company that provided the sponsorship. The United States Department of Energy and International Atomic Energy Agency (IAEA) have also collaborated with us to train here at home. We welcome Mr Magugumela as new CEO of NNR and we implore that NNR has to maintain very high standards of nuclear oversight.

RENEWABLE ENERGY

The Act will be passed this year. A number of projects and initiatives are underway at the Central Energy Fund (CEF), including a low smoke fuel project, hydropower, and bio-diesel. We are grateful for the role that CEF is playing as a champion of RE in accordance with their new mandate. We also welcome Mr Mputhumi Damane the new CEO and thank the Board for their hard work and commitment. Later this year we will begin subsidising renewable energy investments.

LIQUID PETROLEUM GAS (LPG)

Phansi ngezi stoves ze parafini, zinobungozi, sifuna abantu basebenzise izitofi zegasi. Zona zinokushisa okusheshayo kwenza ukupheka lula. Kanti azinabo ubungozi umauzi sebenzisa ngendlela. IPrima stoves zibaqedile abantwana namatyoyombe kakhulu. Sibhizi ke manje sithetha ne zinkampani ezithintekayo ekuthengiseni igas ngokwehlisa ixabiso legas ngoba yilo ingxaki enkulu esinayo.

We want to see both poor and rich using LPG for cooking and heating, so as to reduce the need for big investments in power generation.

The LPG Association members have promised that they will ‘connect’ 250 000 low income households by March 2005 and a further 3 million by 2008. The targets have not been met because of many obstacles, which we have to address together. Only 23 000 households were ‘connected’. The price of LPG and the cost of the cylinders need to be addressed. Lowering the price of the cylinders, particularly the steel costs and the price of the gas itself is a must for us to make progress. Once we have affordable prices a large market will open up. We are having constructive discussions with the steel producers and of course the LPG association. These talks cannot go on forever though.

Eskom is supporting us and can only justify their support for the initiative if there are clear electricity DSM benefits. The industry is donating 120 LPG cylinders and stoves to Members of this House for use in their constituencies and homes to educate themselves and the public. Two workshops will be hosted here in Cape Town at parliament where Members will get vouchers, which they can use to redeem the stoves in different parts of the country.

Electricity Distribution Industry (EDI)

The progress made towards the establishment of RED 1, which will be in Cape Town, is another milestone for my department. We have to remind ourselves that this is the biggest industry restructuring South Africa has ever seen; EDI is valued at R50 billion. The path for RED 1 day one has been developed with greatest detail, 1 July is the RED1 day. There are overarching policy challenges which cabinet still need to help us resolve. Durban is also advanced and I look forward to their announcement sooner than later.

NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA)

The need for public education about energy remains a challenge. We need education on energy efficiency, cleaner energy, and dangers of paraffin and coal use in households. The health expenses associated with domestic coal combustion are about R1,2 billion per annum. We are continuing educating households about the basa njengo magogo technique, 16 000 households are now using this method in Orange Farm. This winter we hope to reach 40 000 more households.

MINING AND MINERALS

The last two years have brought in a lot of changes to the minerals and mining industry.

From 1 May 2005 the MPRDA became law.

We have processed 57 conversions for both exploration and mining, of which 22 have been granted and 35 returned to applicants for further information.

Those who applied for mining conversions in almost all cases were required to provide additional information. We required the companies to look deeper to address key transformation issues required by the scorecard. We look forward to their comeback.

In order to be more efficient we have restructured the Minerals Development Branch in order to increase capacity. We now have two Deputy Directors-General one responsible for Mineral regulation and the other for Mineral Policy and Promotion. Each will have additional staff and more focus.

We have finalised amendments to the Diamond Bill and Precious Metals Bill, which is to be deliberated by the Parliamentary Portfolio Committee in June 2005.

We will sign a MoU with the newly formed Small Enterprise Development Agency (SEDA) in a matter of days, as a partner in our SMME development.

We have agreed with DTI on aligning the mining charter with the BEE codes of practice and we have done that in consultation with the industry. The industry must relax on this one.

We have identified sections of MPRDA that need improving such as the timing for the implementation of the social and labour plan. Relaxation of the financial requirements for small-scale mines and BEE when applying for licenses.

We will be launching the advisory board on 28 June 2005, which will among other things advise me on the sustainable development of the nation’s mineral resources.

Mintek has continued to be closely involved with the advanced metals initiatives, which focus on research and development, within our four specialised field namely light metals, precious metals, stainless steels and new metals.

The South African Women in Mining Association (SAWIMA) has made much progress in organisational development but together with them we are facing challenges of ensuring that they get the deals.

BENEFICIATION

Judging from what is happening not just in South Africa, but in the Southern African Development Community (SADC) and beyond, Africa mining has a future. One way of sustaining the future of our mining and minerals industry is by diversification of the minerals basket through value addition. The jewellery we wear today is all ‘proudly South African’ we wanted the House to note that we have 100% South African manufactured jewellery, that we need to brand aggressively with new amended legislation we will see more manufacturing of jewellery like this. The amendments that will make us to see more of what we are wearing today are contained in the proposed, Precious Metals Bill and Diamond Amendment Bill. It will create an enabling environment for beneficiation by widening access to both rough diamonds and precious metals, while addressing security concerns. To give meaning to these amendments the Department and DTI have engaged with stakeholders in the development of the Gold Loan Scheme, which is to be launched in July 2005. There are already advanced plans for training and manufacturing for Precious Metals/Jewellery Manufacturing Precincts at the Johannesburg International Airport, Kimberly, Cape Town, Durban, Midrand and Phelindaba. A precious metals precinct is being established at the Johannesburg International Airport Industrial Development Zone (IDZ). The IDZ we will have a VAT Free Customs Management area, which will allow for duty free imports and exports of finished goods with great advantage to the industry.

In South Africa, rough diamonds volumes retained in the country will be in line with the demand from cutters, polishers and manufacturers. We have asked the would be manufacturers to indicate how much rough they will use, jobs they will create, investment in training and how long will it take them to set up business in the country. We have assurance from the interested investors that they will be able to relocate in a short space of time and that is a fresh approach to the issue of skills compared to what we have been told before.

In the proposed Diamond Bill there is a State Diamond Trader (SDT) will take responsibility to market rough diamond such that the people working in diamond in South Africa will benefit. In the gallery we have Mr Charles Bornstein, our Honorary Consul from Belgium and diamante of note. He is here because he cannot wait for the process to be completed for him and his colleagues to come and work from here.

Also in our midst we have representatives of LLD, an Israel company with a track record of training of very high standards with a big appetite for South African goods, are here. There are more potential investors who are waiting in the wings. We cannot wait to welcome them. Jewellery industry of South Africa is not taking full advantage of Africa Growth and Opportunities Act (AGOA), we want to change that. To all the mining companies I will like to make them aware that we have the following as baseline beneficiation levels as per requirement of the charter: for gold it is 99,99 % purity and for platinum 99,95 purity.

PERFORMANCE OF THE MINERAL SECTOR

Preliminary figures for 2004 indicate that South Africa’s mining contributed R87,1 billion or 7,1% gross value added, an increase of R8,6 billion from the previous year. It must be added though that in this industry long-term, rather than short-term, results give a true picture. The trend where foreign revenue earnings are dominated by platinum-group metals at US$ 4,6 billion, followed by gold at US$4,5 billions, has continued also in 2004.

From this, one can see that the South Africa’s mining industry is showing an increase in foreign revenue earnings and as well as creating new jobs. However, the gold sector, which has been declining due to the challenges of aging infrastructure in deep mines, which is a unique phenomenon for South African Mines has also meant that we have also lost many jobs. The industry faces challenges of commodity price cycles and also is affected by the currency fluctuations, business models that seem not to be aligned with a current Rand value. The strength of the Rand by itself is not a make or break factor. Some of the local producers have scaled back their projections on extending projects. Some have threatened and retrenched workers or even closed low margin operations. I do not welcome this development. I hope that companies will find other ways of retaining rather than retrenchments. South Africa requires a business model, which does not solve the problem of lower profits by first retrenching workers and always rewarding management during good and bad times. Shareholders and bosses must align their business model to the South African economy that is growing stronger, and USD that is weaker against the Rand and deep gold mines with old infrastructure where working costs are high. We as DME together with our partners, labour and business, are evolving a strategy to manage this decline and the impact on defenceless workers. We will give details in due course. South Africa still produces 14% of world’s gold, and has 41 % of world’s known reserves. We therefore need to find solutions and new ways of working to mine the remaining gold.

JOB LOSSES

Over 8000 jobs have been lost in the gold sector just in the past 18 months. As we speak desperate workers of DRD are awaiting to know about the fate of their retrenchment packages. They have endured a very uncaring management, whose indifference to the plight of the workers left me and other officials shocked. They are being sent back to their sending areas without a skill to fall back-on at home, this cannot be fair. We are therefore saying no social and labour plans no retrenchments. I have to also add that we have a very large part of the industry, Chamber of Mines and South African Mineral Development Association (SAMDA) working with us very co-operatively. Thank you Dr Fauconnier.

My Department is being inundated with requests for provident funds, long service awards, Unemployment Insurance Fund (UIF) and death benefits due to the ex-mineworkers and the widows whose husbands died in the mining industry. I have instructed TEBA to conduct an investigation into the funds that should have been paid to these people but are accumulating interest in the coffers of the institutions which are supposed to pay out such benefits. To allow this situation to continue is a crime.

MINE HEALTH AND SAFETY

In respect of policy and legislation the following Mine Health and Safety Act Regulations were promulgated during the reporting period: Survey, Mapping and Mine Plans and Protection of the Surface and Workings. The Chief Inspector of Mines issued guidelines for mandatory codes of practices for dealing with slope stability related accidents on surface mines and Underground Railbound Transport. The Mine Health and Safety Council standing committee on research (Safety in Mines Research Advisory Committee) has a programme aimed at improving occupational health and safety performance. The programme currently addresses the following issues: Cultural change, Rockfalls and Rockbursts, Explosions and fires, Machinery and Transport systems, Airborne pollutants, Physical Hazards (noise, temperature, radiation, etc), Occupational Diseases (effect of HIV and AIDS on TB and Silicosis) and Special Projects (surveys for quantifying risk prevalence).

HIV and AIDS

HIV and AIDS remain one of the biggest challenges in the mining industry. Individual mines have done prevalence studies.

In 2004 the HIV and AIDS Summit commitments were translated into a plan of action around the following:

* Prevention and monitoring of HIV and AIDS.
* Socio-economic development.
* Research monitoring and evaluation.
* Treatment and care and wellness programmes. The implementation plan starts rolling out in the second quarter of 2005. We will be encouraging companies not to lag behind on this one.

HUMAN RESOURCES DEVELOPMENT

The Department of Minerals and Energy developed and endorsed the mentorship policy so as to implement the Skills Development Act and to support the principle of equal opportunities for all (EEA).

Mentorship programme will complement other initiatives like the internship, learnership programmes, scarce skills and retention programmes.

HRD Master Plan

The department developed an HRD Master Plan which is aimed at providing short, medium and long term solutions to the skills shortage and gaps that exist in the minerals and energy sectors in order to ensure an adequate and sustainable human resource supply for the entire industry.

This process was a consultative one, which involved all stakeholders that are responsible for skills development in the sectors. An implementation plan has been developed and it highlights all strategies that would be put into place to ensure that the minerals and energy sectors implement Growth and Development Strategy (GDS) agreements as well as ensuring that targets as contained in the Charters are met.

Conclusion

In his address to parliament in June 1999, President Thabo Mbeki referred to us a nation at work to build a better life. Indeed that is what my Department it is and I thank them for their dedication and including the staff in my Ministry. I thank my colleagues in the industry and labour especially the National Union of Mineworkers (NUM) for counsel and support

The freedom charter remains our guiding document and we remain convinced that this country can and should be a land of opportunity for all and not some, because South Africa belongs to all who live in it. Our freedom should be about the restoration of dignity to the mineworkers, whose efforts and sacrifices underpin the success of the mining industry and the prosperity of the country. The plight of those workers has been characterised by Vic Allen as follows “They never win nor are they beaten. They simply move from one form of struggle to another. At times however, the appearance is of defeat and despair”.

It is this situation that the freedom charter sought to address. Accordingly the Mineral Development Act and the Mining Charter were informed by the ideals enshrined in this document.

Issued by: Department of Minerals and Energy
19 May 2005