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Date : 15/05/2003
Source: Ministry of Minerals and Energy
Title: Mlambo-Ngcuka: Minerals and Energy Dept Budget Vote 2003/2004


BUDGET VOTE SPEECH BY THE MINISTER OF MINERALS AND ENERGY, PHUMZILE MLAMBO-NGCUKA, Parliament, 15 May 2003

MINERALS AND ENERGY: A CATALYST IN PUSHING BACK FRONTIERS OF POVERTY

Madam Speaker
Honourable Members of Parliament
Ministers
Distinguished Guests
Ladies and Gentleman

The year under review 2002/2003 was a very significant year for DME. We made groundbreaking progress, faced challenges and also had setbacks. It was a year of great service by the officials of my department and our parastatals, who also excelled in their fields. Our relations with stakeholders were enhanced through disagreements, engagements and agreements.

The vision of DME is: Sustainable development and growth through minerals and energy resources for the benefit of all South Africans.

(It has been a year of pushing back the frontiers of poverty)

Our work is being aligned with this vision and the review of the year 2002/3 needs to be tested against this vision.

OUR HIGHLIGHTS IN 2002/3:

Let me give you a snap view of some of our 2002/3 highlights.

* We commissioned a Mine Health and Safety (MHS) Review focusing on implementation of the Mine Health and Safety Act of 1996 and subsequent Regulations, identifying gaps and required actions. The Deputy Minister will elaborate on this.

* The MQA has enabled young people to study for tertiary qualifications in mining through awarding a total of 135 scholarships mainly to Previously Disadvantaged South Africans.

* The President signed the Minerals and Petroleum Resources Development Act (MPRDA) of 2002 and the stakeholders signed the Broad Based Socio - Economic Empowerment (BBSEE) Charter. That was a very special moment and a highlight of the country's Mining Reforms. These changes address the historic distortions of more than 100 years of South African Mining Industry.

* Government, industry, labour, community and Junior Miners together travelled around the world to explain South Africa's mining reforms.

* We hosted a Mining Week alongside the Electra Mining Exhibition and enabled stakeholders and all interested parties to engage us on all aspects of the mining industry. On that occasion we also launched Kgabane, a beneficiation project based in Mintek providing jewellery-making skills to women.

* We hosted a successful HIV/AIDS Mining Summit that involved all the stakeholders and committed to a joint programme that the Deputy Minister will expand on. The Deputy Minister provided exceptional leadership and worked closely with our partners in business and labour. The agreed plan will contribute to pushing back frontiers of poverty for affected and infected people.

* We merged our upstream gas and oil assets, Soekor and Mossgas to form one company, a state oil company, PetroSA. This has released value for government and the people of South Africa who are the shareholders.

* We completed a Draft White Paper on Renewable Energy and were able to commit our country at WSSD to cleaner energy sources, a policy that will lead to the subsidisation of renewable energy and develop a sustainable market share for clean energy.

* We finished the long-awaited Integrated Energy Plan (IEP) and scientifically confirmed SA's need to use every energy source optimally: nuclear, coal, gas, oil and renewable energy.

* We opened two Integrated Energy Centres (IECs). These centres are aimed at bringing energy solutions closer to poor communities and are also intended to reduce income spent on energy in the poor households. Total and Sasol have pledged their support for this initiative. This is part of pushing back the frontiers of poverty.

* We successfully procured strategic stock for the country, using a Black Economic Empowerment (BEE) company to the value of $ 87.439 million and total of 3.75 million barrels of crude oil.

* We employed 61 interns, providing them with experience and income to unemployed graduates. We are set to continue with this in the current and future years. (Pushing back the frontiers of poverty for these young people).

* We electrified 338 572 homes, 974 schools and 49 clinics. 5 321 solar home systems were installed. This is a 3% increase from last year. It is our critical contribution against poverty.

* The Radioactive Waste Policy has been completed. Cabinet will deliberate on it in June and then release it for further public input.

* The PBMR continues to attract investors and will soon conclude the research and development stage.

* We completed the pilot phase that started in 1999 on the technical support for small-scale miners. The identified projects employ 300 people, and 60 percent are women. This is also one of our Mining Summit commitments.

* We completed the free basic energy policy and plan. We are ready to implement to a minimum of 500 000 families in qualifying families by July 2003. (This is pushing back the frontiers of poverty).

* We changed our pricing method from In Bonded Landed Cost (IBLC) to Basic Fuel Price (BFP) that will be giving back to motorists and the economy an amount of R 1 Billion over a period of 12 months.

* We supported the creation of Women in Oil Energy South Africa (WOESA) and South African Women in Mining Association (SAWIMA) both aimed at facilitating the entry of women into the energy and mining industry. We are set to strengthen our support and cooperation with women through amongst other things, technical support for these two bodies, which will be announced by my Director-General shortly.

* We established a monitoring team to evaluate the sustainability of BEE deals in liquid fuels and the validity of the BEE groups. Two more oil companies have progressed in the year under review. The Caltex deal includes taxi association, workers and women whilst the Total deal includes groups of disabled people and women. These two companies recently announced their BEE partners and the details of their deals. We applaud the progress. Sasol is to make progress soon, we hope, while Engen still has to move BEE levels from 20% to 25%.

* The Minerals and Energy Human Resource Development (HRD) Master Plan is underway and will enable our previously disadvantaged South Africans to be developed and to take-up careers and opportunities in the minerals and energy sectors. The HRD Plan includes our Energy SETA, CHIETA and MQA.

* We launched Molato Publications, which provides news and views of government and stakeholders about our industries.

* We led the Kimberley Process aimed at stopping trade in blood diamonds to its logical conclusion. There is evidence of a decrease of blood diamonds in the market. With the assistance and support of the United Nations we have created an enforceable regime that is binding to all the world's diamond industries and approximately 70 countries. Thank you to our Abbey Chikane, the Chairman of the Kimberley Process, and his team.

* We completed the processes that will kick-start the restructuring of the EDI. Ms Phindi Nzimande has been appointed CEO of the EDI Holdings and the board has also been appointed with a budget, clear plan and timelines. The EDI process has now moved to the long unstoppable awaited implementation mode. The six regional electricity distributors will be in place in the next few years.

* A forum of Foreign Investors Mining Association (FIMA) was launched. It is a unique body through which we can consult foreign investors. It also confirms a long-term agenda to our country by FIMA members.

This is just a snapshot of the year under review and it is not all our work. I will review and elaborate on some of our activities.

DEPARTMENT'S BUDGET

The Department's adjusted appropriation is one comma nine billion (R1,9 bn) in 2002/03 and the Medium Term Expenditure Estimates for the 2003/04 to 2005/06 financial years are one comma eight billion rands (R1, 8bn), one comma nine billion (R1, 9 bn) and two billion rands (R2 bn) respectively. For 2002/03, we used 99% of our allocation. Last year's patterns and the current year, are consistent with the Growth and Development Summit themes i.e. investment, jobs, local action and human resource development and we intend to keep it that way.

The decrease in the Department's allocation is mainly due to a decrease in the provision for the redemption of NECSA loans in 2004/05 on Programme 5: Associated Services.

In reality the other programmes show an increase by an average of 8,9% over the MTEF period. This is mainly due to additional allocations for expenditure related to the expansion of the staff structure of the Department in line with our changing roles. An increase from nine hundred and sixty seven million rands (R967 million) in 2002/03 to one comma one billion rands (R1, 1 bn) in 2005/06 for the INEP and an increased allocation for the Electricity Distribution Industry Holding Company of R45 million in 2003/04 to R55 million in 2005/06.

PERFORMANCE AND CONTRIBUTION OF THE MINERAL SECTOR

Preliminary figures of 2002 indicate that mining contributes R30.6 billion or 8.5% gross value added an improvement of R13.86 billion from the previous year. Though I must hurry to add that in this industry long-term rather than short-term results give a true picture, hence the change of overplaying year on year indicators. A very pleasant surprise has been the fact that preliminary figures show 1.5% rise in employment from 407.154 in 2001 to 413.087 in 2002. The first recorded since 1986.

Earnings from platinum surpassed gold earnings for the first time in hundred years. Total revenue from PGMs in 2001 was 3.88 million US$ compared with gold revenue of 3.37 billion US$ for the 2001. But gold reclaimed its dominance in 2002.

Even with greater mineral value addition at R24.5 billion, SA continues to export a very high proportion of its raw mineral resources. The industry faces challenges of commodity cycles and is affected by the currency fluctuations. As we speak the Rand is much stronger and the exchange rate is affecting profits of mining companies, in a relatively good cycle for most commodities. Some of our producers threaten to retrench workers, which we think is very disturbing, and hope they will not proceed in that direction. This raises questions on the Business Model, which relies on retrenching workers when the profits are lower and always rewards management in good and bad times, in an industry where volatility is a given. As Mr Godsell said "Cowboys don't cry".

MINERALS AND PETROLEUM RESOURCES DEVELOPMENT ACT OF 2002

Undoubtedly a major event for 2002/3 was the signing of the Minerals and Petroleum Resources Development Act (MRPDA) by the President as well as the signing of the accompanying Broad Based Socio-Economic Empowerment Charter by stakeholders in 2003. These reforms have taken almost ten years of engagement with stakeholders by the ANC led government. The milestones in those ten years include Environmental Regulations, Mine Health and Safety Act, MRPDA and Mining Charter. The Money Bill is currently under discussion. The last and outstanding legislation in the reforms will be Mineral Beneficiation Act. Kobe kugqitshiwe. As far as the Beneficiation Bill is concerned we will be working with all the stakeholders in a healthy and robust manner that we have established. They are familiar with the tenets of this Bill, as it has been discussed for the last four years. Through this Bill we will address the barriers to value addition.

When our reforms faced challenges following the leaked Mining Charter, all the stakeholders worked hard and brought the process back on course and the Mining Charter was finally signed and endorsed by all stakeholders. The key stakeholders who led the process were:

* Junior miners led by Ms Radebe
* Chamber of Mines led by Mr Davidson
* Organised labour led by Mr Gwede Mantashe
* Government represented by Adv Sandile Nogxina

The team of stakeholders travelled to many corners of the world to explain the changes where there are significant investors and shareholders and that had positive results and it is ongoing work.

The implementation of the new legislation starts in as soon as it is promulgated later this year for all companies. The first 5 years are critical. We will proactively pursue companies to test their compliance with the scorecard progressively. All have to start from year one in order to meet the targets for the first 5 years especially in human resource development, employment equity, procurement and to reach 15% equity quantum targeted.

THE ADVISORY BOARD

The law requires that an Advisory Board be established. I am happy to announce that we have short listed nominees for this board. We will announce the names of the board members once the Cabinet has approved the appointments.

THE NEW DISPENSATION FOR JUNIOR AND SMALL SCALE MINERS

I am happy to announce that a Small-Scale Mining Committee (SSMC) is being established, and it will be geared towards full implementation of the assistance programme. The focus of the Directorate: Small-scale Mining for the current year will be:

* Establishment of kaolin processing plant and a ceramic production project in Ndwedwe, KwaZulu-Natal
* Full implementation of the coal and brick making projects at Indwe, Eastern Cape
* Development of Development of a travertine quarry in the OR Tambo District Municipality for the production of artwork and fertilizer
* A phosphate mine in the Western Cape for use in the agricultural sector
* Setting up of a dedicated diamond processing plant in the Northern Cape
* Full implementation of the Phuthaditjhaba sandstone project and Development of a slate quarry and beneficiation facility in Gopane, North West Province.

The above-mentioned projects, at full capacity, will create at least 1500 direct jobs and more indirect jobs thus pushing back the frontiers of poverty.

THE MINING SOCIAL AND LABOUR PLAN

The new law includes a mining specific Social Plan process to manage downscaling and retrenchments. The Social Plan is particularly relevant to the mining industry because of the inevitable depletion of mineral deposits that are being exploited, such that we provide and anticipate, manage and ameliorate the impact of decline and closure much better. In the same way we provide for the rehabilitation of the environment.

Some of the objectives of the Social and Labour Plan are to: * Secure education, training and development of employees in line with employment equity targets and train those who will be retrenched;
* Avoid job losses and a decline in employment and
* When there is a new mine, avoid the unnecessary establishment of settlements, which cannot be sustained after the closure of the mine.

ENERGY MATTERS

You will see a much more intense focus on energy matters in the coming year.

GAS INDUSTRY

In accordance with the conclusions of the Integrated Energy Plan (IEP) the gas industry has a role in our future energy mix. Gas sales (Sasol) are currently expanding at approximately 10-12% per annum. This House passed the Gas Act to promote the orderly development of the piped gas industry; to establish a national regulatory framework; to establish a national gas regulator as the custodian and enforcer of the national regulatory framework.

The Government Gas Development Company called IGAS was established in CEF. Sasol is on course with the construction of a natural gas transmission pipeline from the Pande and Temane gas fields in Mozambique to Secunda in South Africa following an agreement signed with Government. First gas as per the agreement is scheduled for 15 February 2004.

One expects the contribution of natural gas to South Africa's primary energy supply to rise from its present 1.5% to nearly 10%. When the pipeline from Mozambique is complete and is carrying its capacity of 120 million Giga-Joules, this project alone will raise natural gas's contribution to our primary energy supply from 1.5% to just over 4%.

A gas infrastructure plan that has been developed addresses the reserves, infrastructure, markets and development plans. The plan envisages a national and regional gas transmission network from Namibia to Cape Town and around the east coast through Mossel Bay and Coega to Durban; and from the west coast through Sishen to Gauteng; as well as the existing pipeline from Gauteng to Richards Bay and Durban and the pipeline currently under construction from Mozambique to Secunda.

ENERGY EFFICIENCY

SA remains an energy intensive economy with a challenge as far as pollution is concerned. Yet relatively straightforward and low cost measures on energy efficiency could yield savings in a short space of time. My department has led the way by installing energy efficient lighting and hopes to roll this out to other Departments this year and to demonstrate the savings that will be made. It is estimated that my Department will save a whopping R97 000 per annum from this project.

We want to take this culture across to the nation with the assistance of Eskom's demand side management programme.

The Energy Bill currently being drafted will allow the regulation of energy efficiency standards for electrical appliances and buildings (both dwellings and commercial) as well as efficiency standards for certain industrial equipment. This Bill is as important for energy as is the MPRDA is for mining.

PROGRESS ON THE ELECTRICITY DISTRIBUTION INDUSTRY

Another big energy project is the Electricity Distribution Industry (EDI) Restructuring programme. The Industry is worth R30 billion and employing more than 30 000 personnel. At the heart of the electricity reforms is pushing back the frontiers of poverty. The EDI Restructuring is geared towards ensuring that the following objectives are achieved:

* Equity - so that our people do not pay much more
* Universal access - to energy by 2010
* Affordability - no unreasonable increases
* Growth - in the economy

All work has been done to demarcate six new Regional Electricity Distributors (REDS). The REDS will own the distribution businesses of Eskom and municipalities. While progressive rise of Energy prices cannot be avoided South Africa still intends to keep low electricity prices. DME shares the concerns of the Minister of Public Enterprises on the need for the National Electricity Regulator and Eskom to always operate within our macro economic framework and to stick to justifiable increases. We support government's review of how regulated prices are being handled.

NUCLEAR MATTERS

I am happy to report that the reorganisation of South African Nuclear Energy Corporation (NECSA) has been approved. This reorganisation separates commercial activities from institutional activities of NECSA. NECSA has recently signed a 10 year contract worth R80 million Rand per annum with BOC (company) for the supply high value chemical, which is a critical removal agent in the IT manufacturing sector. This creates good business for NECSA. The Board and staff at NECSA have steered the boat away from troubled waters.

MAINTENANCE

For the current financial year, an amount of R731 million has been earmarked to improve the quality of supply. This will also provide an opportunity for job creation and also empowerment opportunities for emerging companies. The restructuring of the industry will also go a long way towards ensuring improved quality of supply and efficiency of operation for the industry. Through a maintenance strategy we will create the much-needed sustainable technical jobs especially in rural areas. A maintenance plan will end black and brown outs, which is now a regular occurrence especially in poor areas.

SOUTHERN AFRICAN POWER POOL

In November last year the Southern African Power Pool was officially opened in Harare. Southern African Power Pool is an energy market where Southern African utilities trade buy and sell electricity. It provides South Africa with a unique opportunity to diversify its energy mix, as some of the power traded is hydro generated. Progress in the energy trading has increased on the short-term energy market, and the managed liberalisation of these markets is being discussed. On the West corridor, a transmission line that will connect South Africa, Namibia Botswana, Angola and DRC is planned and an MOU has been signed by these utilities.

AFRICAN FORUM FOR UTILITY REGULATORS

One of the NEPAD aims is to harmonise legislation and regulations in Africa thus creating a favourable investment climate. It was with this plan in mind that African Forum for Utility Regulators (AFUR) was established last year to facilitate information sharing, training on regulation and safety and co - operation in general. I am pleased to announce that the National Electricity Regulator has been tasked to chair this esteemed African organisation, which is an example of African governments uniting to build a better life for Africans. Thirty-four countries are currently participating in this forum. This means we can enhance security of supply, access and quality to many more African countries.

AFRICAN MINING MINISTERS' FORUM

On the 17th of February 2003, we hosted the African Mining Ministers' Forum in Cape Town where we discussed issues of common interest in mining, especially those which have been identified as strategic in the New Partnership for Africa's Development, NEPAD.

The Ministers present agreed to establish the African Mining Partnership (AMP), whose main mandate would be to champion the NEPAD minerals and mining related initiatives. Critical factors that were discussed to ensure long term development of the strategy to maximize African minerals inputs include, promotion of finished and semi finished products development, local production of mineral inputs, access to markets and relocation of existing first world manufacturing capacities. It was also decided to identify four minerals projects in which Africa has sizable dispersed resources, which have local beneficiation potential. We will announce progress in this regard in due course.

HIGHLIGHTS OF PARASTATALS

The major events of the parastatals were:

MUSUKU TECHNOLOGY

The initiative, Musuku Beneficiation Systems (Musuku means 'gold' in Venda), is an alliance between Harmony Gold, which took the pioneering step of establishing its own gold refinery in the small Free State town of Virginia in 1997, and Mintek, South Africa's national minerals research organisation.

The partnership combines Harmony's existing refinery and gold beneficiation business with Mintek's capabilities in advanced technology, and the design and construction of refining and manufacturing facilities. In support of South Africa's Mining Charter, a 20 per cent shareholding in Musuku has been reserved for a soon-to-be-named black economic empowerment organisation.

Harmony Gold has already created 800 jobs in the jewellery manufacturing industry in Virginia as a result of the production of jewellery-grade alloys on-site.

THE FUTURE OF CENTRAL ENERGY FUND AND STRATEGIC FUEL FUND

The state's strategic oil stocks procurement and management has been transferred from SFF to PetroSA, on contract. Oil Pollution Control Company has been formed out of the remainder of SFF. The CEF group is being reorganized to accommodate a new "Energy for Development" initiative and possibly a future energy research facility.

COUNCIL FOR GEOSCIENCE

The year saw the completion of a 25-year project in which a metallogenic map of the African continent was produced under the auspices of the Commission for the Map of the World. This map is a significant South African offering to the NEPAD programme.

The CGS was proud to be associated with the planned Freedom Park Monument in Pretoria, by undertaking the engineering-geological site investigation.

In support of the implementation of the Minerals and Petroleum Resources Development Act, the CGS assisted the DME in the development of the cadastre licensing system as part of the National Mining Promotion System.

PETROLEUM AGENCY SOUTH AFRICA

Petroleum Agency South Africa (PASA) is the designated agent in terms of the Petroleum and Mineral Resources Development Act to promote oil exploration in South Africa. Following the collection of new data on the deep-water blocks, a new licensing round for offshore deep-water acreage will be launched in deep water on the 1st August 2003.

ESKOM

The highlights as far as Eskom is concerned include a solar dish in Midrand and the demonstration wind farm in Stellenbosch. The race to universal access to energy and the progress in electrification programme remains our flagship.

EXPECTED 2003/4 KEY ACTIVITIES

UNIVERSAL ACCESS IN THE NODES

The department is expediting access to energy by the poorest people. A total amount of R86 million (16%) of the R600 million was spent in the Nodal Areas in 2001/2. The total spending in the nodal areas increased to 45,7% (R413 million) in 2002/3.

It is planned that amount of R530 million (51%) will be spend in the Nodal Areas during the 2003/4 financial year. Universal access in most nodal zones can be reached by 2008. We intend to finalise these plans by end of next month. This is pushing back the frontiers of poverty.

PETROSA ENTRY INTO THE RETAIL SECTOR

While PetroSA has returned a handsome dividend over the past two years, the market is however, changing which requires PetroSA to position itself if it is to continue to be a player of any significance. Sasol has given notice that it intends to terminate the 'main supply agreement, which restricts Sasol participation in the retail sector. The competitions authorities have given until December of this year to end the agreement. PetroSA will need to position itself strategically to enter the retail sector of the market, or else face pressures in other aspects. This process is in its initial stages, but is critical to the continued profitability of PetroSA's gas-to-liquids operation.

EVALUATION OF DME

I have commissioned an evaluation of my Department by stakeholders.

The study will assist to:

* To assess the quality of the service we deliver
* To evaluate the impact, affordability and accessibility of the services on the poorest of the poor
* To determine areas of improvement
* To assess Department's accessibility and turn around time
* To hear a perspective of users and stakeholders
* To gauge the values of the DME including Batho Pele.

The outcome of this evaluation will enable my department to measure its effectiveness and efficiency and thereby improve the quality of its service.

The Growth and Development Summit will help us focus on the broad themes of the GDS themes in the year ahead and beyond. These themes are:

* Investment promotion
* Job creation
* Local action
* Human Resource development

Our co-operation with organised labour reached a very high level. We were awarded a much-valued award by NUM: KGAU YA BAHALE. By this gesture the workers expressed their appreciation for our efforts. We are humbled and moved beyond words. This award has only pushed even higher the threshold of service delivery to me, the Deputy Minister and the Department.

Madam Speaker, I would like to thank all our partners; Portfolio Committee and Chairperson, for their meaningful contribution and dedication; my Deputy Minister and Director-General for their leadership; members of our Boards and CEOs; Thank you, Dr Frick, for your tireless contributions through the years; staff; my family, friends and the people of South Africa.

Pushing back the frontiers of poverty is a SHARED VISION, I would like to submit.

Sustainable development and growth through Minerals and Energy to the benefit of all South Africans is a SHARED VISION.

It is a shared ideal beyond DME. In our organisation it has to be a continuous creation of this vision in every individual who is part of our organisation. So that, like our fallen heroes, as epitomized by Tata Walter Sisulu, they each will be self propelled or represent an embodiment of this vision.

The Rivonia trialists were willing to die for us and according to Tata Walter "GO TO THE GALLOWS SINGING" and this was so that we, the future generation, could be inspired.

That is the courage and commitment we still need to push back the frontiers of poverty.

I thank you
Issued by Ministry of Minerals and Energy
15 May 2003

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