BUDGET REVIEW AND RECOMMENDATIONS REPORT Presented by : Ms N Magubane Director General 20 October 2010 -Confidential-

DoE Management Team Mrs. Thandeka Zungu: COO Mr. Dakalo Netshivhazwaulu: Acting CFO Mr. Ompi Aphane: Acting DDG of Electricity, Nuclear & Clean Energy Ms Tshilidzi Ramuedzisi: Chief Director Energy Planning Mr Muzi Mkhize: Chief Director Hydro Carbons Ms Yolisa Mapekula: Office of the Director General -Confidential-

Presentation outline Overall Departmental budget review Personnel budget outlook. Austerity measures adopted to contain expenditures. Unfunded key activities. Overview of Programme(s) performance. Conclusion. -Confidential-

Introduction Last week we presented and certain issues were raised by the Committee. The presentation has taken into account these issues: Further breakdown of expenditure per Programme Consolidated and detailed Programme Performance More details on previous slides 11-17: INEP SWH Liquid Fuels Masterplan Integrated Energy Plan Etc. -Confidential-

Departmental budget per Programme 2010/11 Initial R’000 Roll Overs Adjusted Allocation Expenditure YTD Exp as % Of Budget Administration 104,205 60,257 57.83 Hydrocarbons and Energy Planning 1,558,608 402,196 25.80 Electricity, Nuclear and Clean Energy 408,817 29,132 7.13 Associated Services 3,463,760 1,618,750 46.78 Total 5,535,390 2,110,335 38.12 -Confidential-

Budget per Economic Classification 2010/11 Initial R’000 Expenditure YTD Exp as % Of Budget Compensation of Employees 132,994 64,354 48.39 Goods and Services 69,129 47,981 69.41 Payment of Capital Assets 4,600 2,882 63.66 Transfers and Subsidies 5,328,667 1,995,118 37.44 Total 5,535,390 2,110,335 38,12 -Confidential-

Departmental ENE Allocations 2009/2010 2010/2011 2011/2012 2012/2013 % Share of total budget 2009/10 Programmes Revised Estimate Medium term expenditure estimates MTEF Baseline Current Payments 194,5 202,1 235,6 220,7 3.65 Transfer and Subsidies 3 543,1 5 328,7 5 499,1 5 312,8 96.27 Payments of Capital Assets 2,6 4,6 5,0 5,3 0.08 Total 3 740,2 5 535,4 5 739,6 5 538,7 -Confidential-

Adopted Austerity Measures Restriction on international travelling Restriction of internal catering Review of international commitments for affiliations Stringent measures for control of tele- communication costs Review of internship programme Restriction of advertisement on commercial media Review of process for appointment of consultants -Confidential- 8

Key unfunded activities Area Amount (R’000) NERT 10,000 FIFA tournament 150,000 Clean Energy operations 3,420 International Affiliations 11,000 Accommodation 9,000 Establishment of SANEDI 17,000 Electrification Internship Programme 3,000 Total 203,420 -Confidential- 9

Programme 1 (Admin): Budget per Economic Classification 2010/11 Initial R’000 Expenditure YTD Exp as % Of Budget Compensation of Employees 46,789 22,618,118.67 48.34 Goods and Services 52,194 35,162,054.62 67.37 Transfers and Subsidies 329 34,650.76 10.53 Payment for Capital Assets 4,891,590.00 2,642,661.70 54.02 Total 104,204,998.00 60,457,485.75 58.02 -Confidential-

Programme 1: Key Projects Filing of vacancies Payment turn around time Procurement spent on HDSA Internship programme Bursaries Training Presidential Hotline Employment Equity -Confidential-

Programme 1: Key Activities – Filling of Vacancies Structure No. of posts Interim Structure (initial) 325 Additional funded Positions 206 Filled Positions 458 Vacant posts 73 Total funded posts 531 Unfunded posts 394 Approved structure 925 -Confidential- 12

Programme 1: Key Activities Cont… Activity Target Progress Payment turn around time 30 days 19 days Procurement spent on HDSA 40% 41% Internship programme 1 per Directorate 55 Bursaries 52 Training R1,4Million R85,623 Presidential Hotline 78 raised 3 outstanding Employment Equity -Confidential- 13

Programme 2 (HEP): Budget per Economic Classification 2010/11 Initial R’000 Expenditure YTD Exp as % Of Budget Compensation of Employees 44,604,002.00 23,210,809.33 52.04 Goods and Services 14,003,999.00 7,280,767.94 51.99 Transfers and Subsidies 1,500,000,000.00 375,000,000.00 25.00 Total 1,558,608,001.00 405,491,577.27 26.02 -Confidential-

Programme 2 (HEP): Key Projects Fuel strategic stock policy LPG price regulations Fuel specifications and standards 25 year Fuel Liquid Infrastructure Plan Petroleum pricing framework Transnet Multi Product Pipeline 20 Year Integrated Energy Plan National Integrated Energy Modelling System SANERI/SANEDI -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Development of the fuel strategic stocks policy & the relevant regulations March 2011 None The Strategic Stocks Regulations were published for public comments on 23rd Sept. 2010. Deadline for submission of comments is 23 October 2010 The draft Policy is still under discussion in the Department. Development of the LPG Price Regulations July 2010 The Regulations were Promulgated on 14th July 2010 Review of the fuel specifications & standards March 2011 A draft position paper is currently under discussion in the Department and would thereafter be presented to the Inter-Departmental Task Team. Once considered by IDTT it will be published for public comments. Electricity Chief Directorate: Progress Reporting. -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Development of the 25 year fuel liquid infrastructure plan March 2011 R 4 million The TOR was published on 1st October 2010 & compulsory briefing session to potential Bidders will be held on 18th November 2010. The project should be completed within 6 months after signing the contract. Development of petroleum pricing framework R2.5 million (2010/11) R200k p.a The Regulatory Accounting Models for BSS, Coastal storage, secondary distribution, and secondary storage and handling has been finalised. The final report will be completed by 22 October 2010. Transnet Multi Product Pipeline R1.5 billion pa Delays due to environmental and technical challenges (to Dec 2011) Electricity Chief Directorate: Progress Reporting. -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Development of the Integrated Energy Plan March 2011 R3 million for the energy modelling exercise Governance structure which includes relevant government departments established. IEP methodology developed and approved Draft plausible futures complete. Development of the Integrated Energy (Implementation ) Strategy None Draft IEP Strategy completed and circulated for comment by other government departments. Electricity Chief Directorate: Progress Reporting. -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Development of the National Integrated Energy Modelling System March 2012 R3 million for phase 1 R90 million for entire system Process of acquiring service provider to develop model for IEP in progress. Centralisation of energy data which is currently collected by the Department has started Regulations for the Mandatory Provision on Energy Data March 2011 None Draft regulations have been gazetted & stakeholder engagement process held. Amended regulations have subsequently been reviewed by State Law Advisors. Stakeholder inputs obtained & amended regulations forwarded to relevant government departments for inputs. Electricity Chief Directorate: Progress Reporting. -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Establish the South African National Energy Development Institute (SANEDI) March 2012 2011/12: R491million 2012/13: R601 million 2013/14: R787million Business case for the establishment of SANEDI updated after input from National Treasury and DPSA Final recommendations made to the Minister Publish Energy Digest and Energy Price Report March 2011 None Data collection in progress and skeletal structures started Electricity Chief Directorate: Progress Reporting. -Confidential-

Programme 3 (ENCE): Budget per Economic Classification 2010/11 Initial R’000 Expenditure YTD Exp as % Of Budget Compensation of Employees 35,450 20,892 58.93 Goods and Services 8,789 6,872 78.19 Payment of Capital Assets 27 0.00 Transfers and Subsidies 364,578 1,368 0.37 Total 408,817 29,132 7.12 -Confidential-

Programme 3 (ENCE): Key Projects IRP 2010 ISMO Electricity Regulation Act, 2nd amendment bill Independent Power Producers REDs Standard offer policy INEP Solar Water Heaters Nuclear -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Integrated Resource Plan 2010 December 2010 None Draft report presented to IMC –Energy. Draft report released to general public for consultation. Establishment of Independent System and Market Operator (ISMO). July 2010 Draft Establishment Bill sent to other government departments Electricity Regulation Act, Second Amendment Bill June 2010 Awaiting finalization of ISMO Bill in order to incorporate and align. DoE 1000MW IPP PPA negotiations 95% complete. Expected Financial Close Feb 2011 Establish Regional Electricity Distributors None Directly Cab memo prepared for IMC on way forward. Standard Offer Policy on Energy Efficiency and Demand Side Management. Done and sent to NERSA for implementation. Electricity Chief Directorate: Progress Reporting. -Confidential-

Electricity Chief Directorate: Progress Reporting. Project Planned Completion date Financial Implications Comment/Status Nuclear March 2011 None Radioactive Waste Management framework and institutional arrangements Electricity Chief Directorate: Progress Reporting. -Confidential-

Programme 3 (ENCE): Key Projects Contin… TRANSFER PAYMENTS Original Budget 2010/11 Exp YTD Sep 2010 Available balance Act Exp as a % of Budget Allocation   R'000 % REFSO 20,700 488 20,212 2.36% EDSM - Eskom 108,900 62,221 46,679 57.14% EDSM - Municipalities 220,000 57,510 162,490 26.14% Working Energy Project 20,000 0.00% -Confidential- 25

Project report: Non Grid Electrification Programme Start: 01 April 2010 Finish: 31 March 2011 Deliverable Completion date Funding Comment/Status Install 1,000 SHS in Limpopo (Solar Vision) 31 March 2011 R6 million Some areas identified and rollout will start immediately after material delivery Install 4,000 SHS in Central KZN (KeS) R24 million More than 50% of areas identified. Installations in progress Install 4,000 SHS in Northern KZN (NuRa) Areas identified and waiting for council resolution. Material ordered and installations will start after confirmation Install 1,500 SHS in Eastern Cape (Ilitha) R 9 million Areas are being identified and negotiated with Municipalities. There were delays due to availability of GIS data -Confidential-

SWH Roll-Out : tariff funded programme Roll out area Number of Units Remark Nelson Mandela Bay 120 000 Commenced 20 July 2010. 3600 Units already rolled out. Eskom agreed to ring fence the rebate for the 120 000 units. The plan is to roll out 5000 units per month. A launch for the programme is being planned with NMB awaiting Presidency on the availability of the President. Bloemfontein 40 000 MOU signed and 300 rolled already out Kroonstad MOU signed Ekurhuleni MOU is being finalised. Potchefstroom 8 000 MOU signed and roll out is being finalised. Roll-out commences 04 October -Confidential-

SWH Roll-Out : tariff funded programme Roll out area Number of Units Remark Mossel Bay 120 000 MOU signed and 400 rolled already out Saldanha Bay Target to be confirmed MOU signed and roll-out commences 04 October KZN (various munics) 270 000 MOU’s have been signed for total of 270 000 in KZN -Confidential-

SWH Roll-Out : fiscal funded programme Roll out area Number of Units Remark Sol Plaatje Municipality 5400 Committed 5400. Eskom tender is at advanced stage and negotiations with suppliers now completed. Transfer of funds to ESKOM targeted for 28 October. Roll out expected end of October 2010. Naledi Municipality Tshwane Municipality 10400 Eskom has been appointed as the roll out agent for the municipality and this project forms part of the Eskom tender Noupoort 6000 Committed 200 units for 2010 financial-year. Proposed inclusion in 2010/11 financial year. -Confidential-

Number of Units settled through Eskom rebate programme to date A total number of 10 600 claims has been received as of end of August 2010 Eskom confirmed that they have settled 8700 units through the rebate programme. The reason for the variance (1900 units) between the two figures is because of the delays in the Measurement and Verification process. Target of total 6500 units for October in Bloemfontein, Kroonstad, Mossel Bay, Potchefstroom and Saldanha -Confidential-

Roll out of High Pressure Systems DoE exploring programme with CEF to make funding available to cover the gap between the consumer willingness-to-pay and the installation cost. Modelling exercise to be completed end-October 2010 -Confidential-

Spending patterns- INEP (‘000) 2009-2010; 2% 2008-2009; 1% -Confidential-

SWH Program Objective Presentation outline -Confidential-

SWH Program Targets Presentation outline -Confidential-

Experience with Tariff Based Rebate Program - Eskom Presentation outline Experience with Tariff Based Rebate Program - Eskom -Confidential-

Comments from market on rebate programme “We are currently averaging 100 – 200 per month (reflected in Eskom stats)” - One big national player “Burst geyser is not good time to sell SWH” “Rebate programme just isn’t doing it for market” “Market needs a serious shake-up” “It would be embarrassing to give you our sales numbers” 3126 installed on Eskom rebate from Jan 2009 – Apr 2010 Average for 3 months of new rebate level = 443 units per month -Confidential-

Experience with new diversified approach Presentation outline -Confidential-

Presentation outline What is in the pipeline? Program funded from fiscus to install 40 000 systems – Eskom managed and due to start in November 2010 Program involving local banks and insurance industry to install residential systems without any rebates Voluntary program by industry in lieu of their contribution to energy efficiency -Confidential-

What are the key challenges that will increase rate of rollout if addressed? Presentation outline Capital cost of imported components and systems is too high (R18 000 for 150 liter) Funding Skills shortages – necessary for safe scaled up installations -Confidential-

Presentation outline Addressing the challenges Skills program initiated with CETA, eSETA, donors – unit standards developed and accredited training available Various initiatives to manufacture locally – preference will be applied for local systems when rebates are applied for Additional fiscal allocations applied for, plus tariff-based rebate cemented in Integrated Resource Plan (Nersa will be compelled to make adequate rebates available in the future) -Confidential-

Programme 4: Associated Services Entities 2010/11 Initial R’000 Expenditure YTD Exp as % Of Budget Necsa activities 474,458 436,267 91,95 Decommisioning projects 77,710 71,229 91,66 Security 9,401 8,444 89,82 Safari recactor 12,541 11,265 National Nuclear Regulator 19,954 9,762 48,92 EDI Holdings Company 61,582 31,036 50,83 Non grid service providers 68,200 National Portion - Eskom 1,719,810 783,337 45,55 Conditional grants to Local Governments 1,020,104 262,410 25,72 Total 3,463,760 1,618,750 46,73 -Confidential-

END….. -Confidential- 42