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6 June 2008

Madam Speaker
Honourable Members
Board Members and Executives of State-Owned Enterprises
Members of the Labour Movement
Members of the Business Community
Honoured guests
Ladies and gentlemen

It is my privilege to address you on this Budget Vote of the Department of Minerals and Energy, the second during my tenure.

This budget is inspired by the confluence of the ideals of the Freedom Charter and the gallantry of the Youth of 1976. Oliver Tambo, one of the greatest leaders of the liberation movement, once said, "A country that does not value its youth has no future". Those of us who come from the liberation movement understand that we have got to do everything in our power, within our area of responsibility, to implement policies designed to ensure that we do not betray the sacrifices of the gallant youth of our country.

It is also our duty to ensure that we bring to fruition the aspirations of the masses of our people who gathered during this month in Kliptown and declared amongst others that "the wealth of this country will be shared by all". It is through the prism of this noble and perennial document that during this budget we ought to reflect on what we promised last financial year, on what has been achieved, as well as to set new targets and plans for the current budget cycle. This is particularly important in order to ensure a smooth transition to the next administration that will be assuming the reins more or less around this time next year.

Before I present the department's budget vote, allow me to congratulate and welcome the chairperson of the portfolio committee Comrade Nqaba Ngcobo and to bid farewell and thank the erstwhile Chairperson of the Parliamentary Portfolio Committee on Minerals and Energy, Comrade Nathi Mthethwa, for his leadership and guidance over the past 3½ years.

The Department of Minerals and Energy 2008/09 budget

The department's budget of R3,595 billion for the 2008/9 financial year indicates an increase of 5,21% from last year's budget of R2,925 billion of which 0,93% was unspent. This budget includes 79,77% that is to be transferred to the state-owned entities (of which 66,95% is set aside for the national electrification programme)

Electricity

Our country is facing an emergency with regard to the generation and supply of electricity. It is quite clear that unless drastic interventions and sacrifices are made we are going to be in this emergency situation for many years to come. Madam Speaker, it can no longer be business as usual.

It was with this realisation in mind that Cabinet instructed me earlier this year to lead a team that will implement our national electricity response plan. We have established the National Emergency Response Team (NERT) – a partnership between government, business, labour and civil society – to mobilise all of us and ensure that, as South Africa Incorporated, we respond in a co-ordinated manner to the emergency. This, we believe, will lead to the permanent across-the-board behavioural change required to power our country towards a more energy-conscious and sustainable future where pre-emptive or emergency load shedding would be a bad memory.

In addition, we are establishing a Programme Management Office (PMO) to co-ordinate the activities that are currently being undertaken to streamline the processes and to obtain maximum benefit from our collective efforts.

We are finalising a regulatory framework to ensure that our Power Conservation Programme (PCP) is enforced. This is expected to be finalised by the end of June this year. The regulations provide for sanctions against excessive use and wastage of electricity. These sanctions will be in the form of a tariff-based penalty, meaning excessive electricity users will pay more, especially where their excess adversely impacts upon the supply to other users.

The Power Conservation Programme seeks to ensure that we reduce our electricity consumption by at least 3 000 megawatt in the next three years. I am pleased to announce that through our collective and much-vaunted fighting spirit as South Africans we have been able to conserve at least 100 megawatt through demand-side management and energy savings campaigns since the beginning of the emergency. An additional 1 000 megawatt have been achieved through energy saving efforts of our industrial sector and local government. I would like specifically to thank the mining sector for their contribution to the energy saving campaign.

Electricity distribution

The current electricity emergency underlines the fact that our economy requires a viable and sustainable electricity supply industry. The challenge is not only on the generation but also the distribution front. As we have said on numerous occasions and on various platforms, the consolidation of the electricity distribution industry into six viable REDS will provide a reliable, affordable and accessible electricity supply. EDI Holdings and my department have visited all the nine provinces and we have been heartened by the support we have received. Hundred and twenty-one (121) of the 187 municipalities that distribute electricity have to date signed co-operative agreements with EDI Holdings.

In addition, four out of the six metros together with Eskom and 13 other municipalities have completed the process of ring-fencing their electricity distribution businesses. Let me express my appreciation to all the Premiers, MECs, Mayors and officials involved in this major transformational step.

We are in the process of finalising legislation governing the establishment of the REDS. We hope that once it is served before this house Honourable Members will engage with it fully conscious of the need to realise the vision of a viable and transformed electricity distribution industry.

The recent National Energy Regulator of South Africa's (NERSA's) audit shows, currently, R7 billion maintenance and infrastructure backlog which is increasing annually. That concerns me gravely. We have accordingly commissioned EDI Holdings urgently to analyse this untenable situation and suggest some solutions. I am urging all relevant stakeholders to attend the summit called for this purpose early next week.

Independent power producers

Following our disappointment with the termination of the contract negotiations with the preferred bidder, I am pleased to announce that we have opted to open negotiations with Suez Energy, who were the next preferred bidder. Had we not done this and followed all the necessary governance processes, we would have caused a further delay to the introduction of the Peaking Independent Power Producer in South Africa.

In response to our tender Suez Energy has shown a strong commitment to becoming a developer by submitting a binding offer. We have details about Suez's offering, including the proposed pricing and the extent to which they accept or reject the risk allocation proposed by us. This in our view will result in an irreversible process of establishing the independent power producers (IPPs) and therefore begin the journey to achieve our target of 30% private power generation.

Electricity price hikes

I am pleased to announce that we have finalised our Electricity Pricing Policy. As agreed at the Electricity Summit, we will be presenting this policy at National Economic Development and Labour Council (Nedlac) within the next two weeks. This seeks to address the policy gaps that were identified at the Summit. It will also guide NERSA in their future price determinations. The intentions of this policy are to:

* set a clear framework on determining electricity prices
* achieve an appropriate balance between meeting social equity and economic growth
* create certainty and predictability
* ensure long-term financial sustainability of the industry.

The National Electrification Programme

The absence of bulk infrastructure, especially in rural areas, has put a strain on the delivery of the electrification programme. Last year R282 million had to be re-routed from electricity connections funds towards the development of bulk infrastructure, resulting in a reduced number of connections planned for the year. We committed ourselves to building ten substations. I am pleased to report that we have completed all but one substation – Zwelethu substation. This was caused by the need to conform to environmental management issues.

Last month we launched three substations in the Eastern Cape and before the end of June we will be launching the Benedict substation in Nkandla. We will make a determined effort in the next few years to focus on the Eastern Cape, KwaZulu-Natal and Limpopo. As of 31 March this year we electrified 187 925 households, 948 schools and 163 clinics. We have reached universal access in so far as the electrification of clinics is concerned.

This year, once more, R380 million out of R1,4 billion allocated for the electrification programme, has been set aside for the building of another 10 substations. Accordingly, I have instructed my department to ensure that by the end of this financial year all schools throughout our country are electrified.

Liquid petroleum gas (LPG) and liquefied natural gas (LNG)

As part of the National Emergency Response Plan, we have decided to increase our efforts of diversifying the sources of energy. In this regard, we are increasing our efforts of introducing natural gas into the South African economy for thermal applications of energy. This will be a long journey that will start with LPG, go through imported LNG and hopefully ending up with natural gas from our own shores or our neighbours.

Current LPG retail prices are too high. This has prompted us to investigate an appropriate and cost effective way to deliver LPG to our people hence our decision to embark on pilots in partnership with municipalities in Tshwane and Thembisile. These pilots have proved very successful. The demand of LPG in both pilots is on the increase as households are demonstrating a keenness to use this form of energy. We have through these pilots indicated that the price of LPG can be reduced from about R25 per kg to about R10 per kilograms. This is being given effect through the regulations which will come into effect before the end of June.

Government has previously stated its intention to diversify energy sources and specifically the need to increase gas in that mix. Over the past year PetroSA has developed this opportunity to a point where there are plans to import LNG for power as well as fuel production. This initiative will reduce Eskom's reliance on diesel as a fuel for the power stations in the Cape and, obviously, make more fuel available for transportation purposes. The implementation of this initiative will go a long way towards establishing a viable gas industry in South Africa.

Energy security and the role of PetroSA

Over the past few years we have experienced significant economic growth which has placed pressure on our country's capacity to supply the resultant increased demand for fuels, particularly for the inland markets. In response to this, after consultation with the stakeholders involved, we have gazetted the Energy Security Master Plan, which is designed to address the challenges that we are facing in the liquid fuels energy sector. Energy security is not just about availability but also about affordability of energy.

We have started addressing challenges related to continued availability. These challenges lie, primarily, in the areas of current insufficient local production of refined product for the country, necessitating expensive, and growing, imports, and the inadequacy of logistics infrastructure to support uninterrupted supply.

Traditionally, South Africa has relied, mainly, on international oil companies for its refined product requirements. With the fierce competition for project finance within these companies' global organisations, new expansion investment in their South African refineries, owing to the relatively small size and isolation of our market, has been limited. The consequence of this is the growing dependence on imported products, which brings with it several associated and unfavourable issues.

However, in order to ensure the security of supply and to reduce balance of payments pressures, we have taken a firm policy position to give preference to local manufacturing over the importation of refined products.

We have therefore concluded that South Africa's National Oil Company, PetroSA is well placed to play a leading role in providing a sustainable solution to the fuel supply challenges facing the country.

We fully endorse PetroSA's plan to fast-track and build an $11billion mega, world-class and commercially robust crude refinery at Coega. This refinery will have a capacity of 400 000 barrels per day and will produce gasoline and diesel of the highest quality designed to meet our proposed Clean Fuels specification legislation.

The recently-completed deep-water port of Coega has been selected as the location for the new refinery to alleviate South Africa's strategic reliance on Durban, which currently handles 75% of the country's crude imports. The refinery project will create 8 000 direct and 39 000 indirect employment opportunities and, once commissioned, will bring much-needed commercial growth to a relatively under-developed part of our country.

Work being done includes upgrading discharge and storage facilities at Cape Town, additional storage cover at Mossel Bay and product handling terminals at Coega - which is an investment of R2,5 billion. This will be completed by 2010.

A 40 000 bbl/day CTL plant, utilising PetroSA's proven world-class technology, is currently being considered for introduction into the energy supply pool around 2020. This project is at an early stage with PetroSA presently evaluating options with BEE coal companies in the Waterberg and Springbok Flats regions.

PetroSA is undertaking initiatives to replenish its gas feedstock in Mossel Bay GTL refinery. Besides the plans for LNG importation, a two-phase, R5 billion, eight well-drilling programme has commenced in order to maintain fuel production beyond 2010.

We are confident that the aforementioned initiatives will attract foreign direct investment into the infrastructure, research and other developments with which we continue to expand our liquid fuels presence in South Africa, Africa and the world.

In collaboration with the oil industry and Transnet, we are working very hard to ensure adequate port, pipeline and rail capacities to guarantee uninterruptible supply of liquid fuels into the country.

The Energy Bill

To address the issues of energy security in a comprehensive and integrated manner, we have tabled the Energy Bill. This bill will address energy research, the introduction of renewable energy and general energy security concerns. It will also ensure that sufficient stocks of primary energies are maintained for both electricity and liquid fuels production. We urge members to engage with this bill once it has been tabled before this democratic parliament.

Increase in the price of crude oil

The difficult part of energy security is ensuring affordability of energy. We have been watching, with alarm, the consistently upward movement of the price of crude oil. This has to do with a number of factors, including - but not solely restricted to - geopolitics and the role of speculators. It is a great source of alarm that there are not enough platforms in the world to debate and challenge this uneven balance of forces.

Current high crude oil prices have got very little to do with inadequate supply, it should be of concern to producers as it is to consumers. These high prices can only lead to a shift away from oil, which might be good for the environment but disastrous for the stability of nations. Is this perhaps not a case of one talking above the heads of the peoples of the world? Does this mean that, for the world to take note, people confined to wheelchairs must abandon them before they are taken seriously and their grievances addressed?

Be that as it may, these are extraordinary times that require extra-ordinary solutions as analysts predict that the oil price will either in due course surge towards the $200 mark or as George Soros has predicted will result in the burst of this current crude oil bubble.

As a result of high crude prices, the prices of diesel, petrol and paraffin, which are derivatives of what has truly become "black gold", have surged in recent times. The price of diesel has outpaced all others because of tightening diesel specifications, limited investments in global refining capacity and increased demand of diesel emanating from power generation. As net importers of these products we are unable to influence them.

I am going to engage the Minister of Finance with a view to exploring possible steps that we could take with regard to the tax regime following these unacceptably high oil prices. This, I am doing in the context of the government's determination to reduce the impact of these surging crude oil prices on the poor.

Renewable energies

The DME renewable energy target of 10 000 gigawatt hours (GWh) will be met by 60% electric and 40% non-electric sources. The 6000 GWh electric target will be divided between Eskom and the potential IPPs in a 40:60 ratio and Eskom is encouraged to exceed this percentage. International Print Portfolio (IPP) will be established on a competitive bid basis. It will consist of biomass, small hydro and large wind projects.

Current initiatives have seen the inclusion of solar water heating in the DSM fund, while the draft bio-fuels strategy which proposes a 2,1% bio-fuels industry development in South Africa has been supported. This could achieve the country's renewable energy target of over a billion litres of bio-fuels by 2013. Eskom has an active programme to develop renewable energy and has set a target of 1 600 megawatt (MW) by 2025.

Nuclear energy

As part of the diversification of energy sources Government plans to expand the use of nuclear energy for electricity generation. The implementation of the Nuclear Energy Policy and Strategy will commence during the year to support the expansion of the nuclear sector. The mining of uranium cannot be handled in the same way as any other ordinary mineral. Uranium is a strategic mineral. Whilst we do this we will put more effort into the strengthening of the nuclear regulatory framework and improving efficiency of the Regulator.

We will finalise legislation to establish the National Radioactive Waste Management Agency. Our nuclear sector is being regulated to conform to international standards and benchmarks. The availability of people with the knowledge of the nuclear sector continues to occupy top priority in the department. We will achieve this through a nuclear and radiation science bursary programme for students in the nuclear and radiation sciences.

Wonderfonteinspruit catchment area

Following reports of possible radiological contamination in the Wonderfonteinspruit catchment area, the National Nuclear Regulator instituted an investigation. The investigation indicated that the situation does not pose a radiological risk to the surrounding communities.

Mining

Much progress has been made in implementing the provisions of the mining charter, for an example, prior to the release of the mining Charter in 2002, there were only two black owned mining companies in the coal industry. The two companies contributed 10,4% of the total coal production in 2002. After the release of the mining charter, 29 black economic empowerment (BEE) companies have been established in the industry.

This increased the production contribution of the BEE companies to 17% in 2005. With all these new developments it is envisaged that BEE companies in the coal industry will contribute 50% of the total production by 2009. However, I must express my disappointment with the lack of progress in implementing other pillars of the mining charter. The charter is not just about equity, it is about realising all the pillars that underpin it.

I would like to implore the mining advisory board to begin the process of the review of the mining charter as provided for in terms of the law. This has to be done by next year. This process has to yield two objectives. First, is to assess the impact of BEE as an instrument of deracialisation of the mining industry and second, as an instrument to ensure the alignment of the mining charter with the codes of good practice as it preceded the BEE Act.

The deadline for the conversion of the old order mining rights is looming large on the horizon and yet there are large pockets of mining companies that have not come forward to apply for conversions. What is even more disturbing is that even in the instance where mining companies do so they are submitting less than adequate social and labour plans.

I am worried about the tensions between mining companies and communities in the areas where mining activities take place. This is particularly the case in Limpopo and the Eastern Cape. I believe that communities would not oppose mining if they were meaningful beneficiaries of the mining operations. The Act makes provision for that and therefore we would like to implore mining companies that as they structure their BEE deals, they must ensure that employees and communities become the collective beneficiaries of this wealth redistribution process. The Charter calls for broad based empowerment and these social groupings are already organised as collectives.

I have instructed the department to get to the bottom of this and to ensure that this unacceptable situation is addressed as a matter of urgency.

Mine health and safety

The primary responsibility for ensuring a healthy and safe working environment in the mines rests with the employers. Employers must do everything in their power to guarantee the health and safety of persons employed in the mines, as well as others who may be affected by mining activities.

The recent tragic accident at the Goldfields South Deep mine has once again focused the attention of the entire nation on the appalling state of safety in the mining industry. Since the beginning of this year to the end of May we have lost 71 mine employees compared to the same period last year where we had 96 fatalities.

This figure excludes hundreds of people who have been permanently maimed during mine accidents. I have repeatedly expressed my extreme displeasure in the many interactions I have been having with the mining industry. They (mining companies) should not and cannot put profits before human lives. We expect CEOs of mining companies to take personal charge and responsibility with regard to safety in their operations.

We are resolute in our determination to prosecute those in the mining industry who are found to be negligent in the execution of their duties. On our side, as the department, we are conducting a review of the mental-health and substance-abuse (MHSA) in order to address some of these gaps. We will have the ability to impose appropriate penalties for non compliance.

Meanwhile, the safety audits conducted by our mining Inspectorate on the instruction of President Mbeki attest to a dismal and abysmally dark side of our mining industry. The Mine Health and Safety Inspectorate (MHSI) will be finalizing its report for submission to the President soon. The report will be completed before the end of the July. This cover the findings and recommendations from the audits conducted on the 333 high-risk mines that were identified and targeted.

Skills development

As part of our work in this area, I am pleased to report that we have a co-operation agreement with the University of Fort Hare in terms of which we are aiming to develop programmes relevant to the minerals and energy sector of our economy. We are doing this together with the mining and energy industry as well as state -owned entities. This we take seriously in the department and we trust that the industry will do likewise.

Fort Hare will churn out graduate geologists and mining engineers who should be able to compete with their counterparts anywhere in the world. May I also express a word of gratitude to all companies that are contributing to the success of this initiative.

Conclusion

My deployment to this Department has been a testing but exciting period for me. I must express my sincere thanks to the Boards and Managements of all the SOEs working with us to discharge our mandate.

I want to thank, as well, the Director General, Adv Sandile Nogxina, and his team for the excellent manner in which they have carried out their functions with dedication and diligence.

The same goes to my staff ably led by Debbie Hene for their support and dedication. The same also goes for my daughter, Nomfundo – for she has been a source of strength. In their own unique way, my grandchildren (Fikile and Lisolezwe) have also given me strength. I want to thank the members of the Labour Movement under the leadership of the National Union of Mineworkers (NUM).

Finally, let me thank members of the Portfolio Committee and the Select Committee for their continued support in matters pertaining to our portfolio. You have been a source of strength and a vital cog in our operations.

As we strive to build a better society, let us remember that we are talking about something possible. As John F Kennedy once said, "The world is very different now. For man holds in his mortal hands the power to abolish all forms of human poverty, and all forms of human life."

Madam Speaker, I request the House to support my department's budget of R3 595 billion for the 2008/09 financial year.

Issued by: Department of Minerals and Energy
6 June 2008