1 DEPARTMENT OF MINERALS AND ENERGY Presentation to Parliamentary Portfolio Committee Presentation to Parliamentary Portfolio Committee 9 June 2004 PRESENTATION BY: N Magubane Deputy Director General: Electricity and Nuclear Energy 012 – Minerals and Energy for Development and Prosperity

2 PRESENTATION OUTLINE 1.Mandate 2.Organogram and budget – Electricity & Nuclear 3.Associated agencies 4.Strategic objectives 5.Challenges 6.Programs 1.DISTRIBUTION INDUSTRY RESTRUCTURING (REDS) 2.SUPPLY INDUSTRY RESTRUCTURING (NEW POWER STATIONS) 3.Integrated National Electrification Program Department of Minerals and Energy Minerals and Energy for Prosperity and Development

3 MANDATE Policy Formulation, Improvement and Monitoring of existing policies – White Paper Servicing of Obligations in terms of Nuclear Energy Act and National Nuclear Regulator Act Exercising Oversight over NECSA and NNR Ensuring Adequate Capacity In Industry - Human & Infrastructure To facilitate the provision of alternative energy sources for the benefit of the poor and under- serviced households (no infrastructure) To facilitate the involvement of BEE companies in the electricity and nuclear sectors To facilitate the Skills Development of interested persons in the Energy Sector (ESETA) Policy regarding electricity pricing and cross-subsidization in context of administered prices Department of Minerals and Energy

4 Minerals and Energy for Prosperity and Development BUDGET STANDARD ITEMS R’ 000 Personnel Expenditure Administrative Expenditure Inventories 345 Equipment 869 Prof and Special Services Transfer Payments TOTAL Department of Minerals and Energy

5 NUCLEAR & ELECTRICITY STRUCTURE

6 Minerals and Energy for Prosperity and Development Strategic Objectives Department of Minerals and Energy NUCLEAR National Nuclear Regulator (NNR) Nuclear Energy Corporation of South Africa (NECSA) ELECTRICITY Electricity Distribution Industry Holdings (EDIH) National Electricity Regulator (NER) Eskom

7 Minerals and Energy for Prosperity and Development Strategic Objectives Department of Minerals and Energy Facilitate a Govt. Decision on PBMR Coal and Uranium are main primary energy resources in the RSA Capacity challenges for RSA – flexibility of PBMR Coal use has Kyoto challenges over long term Nuclear R&D increasing (Fuel price influence) PBMR can be used for Hydrogen production as heat source Integrated Energy Plan has nuclear option

8 Minerals and Energy for Prosperity and Development Strategic Objectives Administer Departmental Obligations Servicing International Obligations Capacity Building in the Nuclear Sector Improvement of Security at Installations and during Transport Improvement in Disaster Management planning Department of Minerals and Energy

9 Minerals and Energy for Prosperity and Development Strategic Objectives Department of Minerals and Energy To provide low cost electricity, with equitable tariffs for each consumer segment To provide quality supply & service, in support of economic & social development To meet electrification targets in the most cost-effective manner To meet the legitimate interests of all employees in the industry To operate in a financially sound & efficient manner, for consumers & employees.

10 Minerals and Energy for Prosperity and Development Challenges Export and Import permits for Nuclear Material and Technology Coordination of State Organs with respect to nuclear installation and material security (Key Points Act issue) Development of Cape Metro - Koeberg Managing Nuclear Knowledge – Skills Capacity at Nuclear Institutions Department of Minerals and Energy

11 Minerals and Energy for Prosperity and Development Challenges Radioactive Waste Management Public Understanding of Nuclear matters Future of Nuclear Energy in RSA Decision on PBMR Cooperative Governance Department of Minerals and Energy

12 Minerals and Energy for Prosperity and Development PROGRAMS Department of Minerals and Energy Six REDs will be established on the basis of the following criteria: financial viability equality in electrification burdens economies of scale Inadequate maintenance employees not to be worse off after restructuring DISTRIBUTION INDUSTRY RESTRUCTURING

13 Minerals and Energy for Prosperity and Development Challenges related to REDS process Department of Minerals and Energy Voluntary option of municipalities to join REDs Ownership of REDs Financial compensation for Eskom assets Alignment of processes with National Treasury and NER Legislative non-alignment Passing of EDI Restructuring Bill Maintenance and Infrastructure investment

14 Minerals and Energy for Prosperity and Development PROGRAMS Department of Minerals and Energy Introduction of competition in generation (IPP) Divest 30% of generation capacity with a minimum of 10% to BEE groups Create a separate state owned Transmission Company Establish the Multi Market Model Adapt the role of the regulatory system ESI CABINET DECISIONS

15 Minerals and Energy for Prosperity and Development Cabinet decisions cont. Department of Minerals and Energy Peak demand will exceed capacity by 2007/8 Process commenced for an Independent Power Producer (not Eskom) Feasibility study underway Investment of about $3bn over next 5 years (3 x 1000MW) Introduction of an IPP

16 Minerals and Energy for Prosperity and Development Introduction of IPP Department of Minerals and Energy To facilitate entry to RSA market in face of Eskom Transmission must become separate State Owned Entity (Legislation being drafted) Regulatory framework must be revamped (Act 41 of 1987 replaced by Electricity Regulation Act) Consistency, certainty and clarity Electricity, gas and pipelines regulation to be combined under Single Energy Regulator umbrella (Cabinet decision) Conditions precedent for an IPP

17 Minerals and Energy for Prosperity and Development Pending legislation Department of Minerals and Energy ELECTRICITY REGULATION BILL Governance of the Distribution Sector including the future REDs; Oversight regarding Multi Market ; Determination and oversight of the Transmission Grid Code, Non-Grid electricity industry regulation; and Oversight and Determination of Free Basic Electricity Tariff. EDI RESTRUCTURING BILL Powers and Functions of the EDI Holding Company; Establishment and Support of the RED; Determination and Establishment of Transfer Schemes; Compensation of participants and shareholding in the REDs Pending legislation

18 Minerals and Energy for Prosperity and Development Department of Minerals and Energy Capacity building and relations to promote regional and continental co-operation, trade and capacity building in electricity matters. International relations

19 Legislation/policy timelines Minerals and Energy for Prosperity and Development ITEMTARGETPROGRESS TO DATE Electricity Regulation BillMarch 2005Finalized and submitted EDI Restructuring BillJuly 2004 Redrafted Free Basic Electricity Policy Review Free Basic Energy FBS COMMUNICATION July 2004 June 2004 onwards Drafting commenced Phase 2 in process Department of Minerals and Energy

20 Minerals and Energy for Prosperity and Development Department of Minerals and Energy The Goal of INEP To achieve universal access to electricity to backlog and new households and to eliminate backlog schools and clinics Objectives To ensure access and equity To alleviate poverty Strategy To set up realistic targets To determine the an appropriate mix between grid and non-grid technology To determine allocation criteria To determine the priority areas in line with government priorities in nodal rural areas with major backlogs Integrated National Electrification Program

21 Minerals and Energy for Prosperity and Development Department of Minerals and Energy Strategy To effectively manage the INEP as per the PFMA and the Division of Revenue Act To develop the Electrification Sector Plans of various municipalities To determine the Infrastructure requirements to enhance the universal access goal To integrate with the Integrated Development Plans of Municipalities (USRDP, URP) To ensure participation of BEE companies in the Electrification Programme