Annual Report 2009/2010

ANNUAL REPORT 2009/2010

VISION

To be a world-class leader in energy regulation

MISSION

To regulate the energy industry in accordance with government laws and policies, standards and international best practices in support of sustainable development

1 CONTENTS PROFILE OF NERSA 5 MEMBERS OF THE ENERGY REGULATOR 6 THE ENERGY REGULATOR AND ITS SUBCOMMITTEES 8 MEMBERSHIP OF THE ENERGY REGULATOR SUBCOMMITTEES 9 HIGHLIGHTS OF 2009/10 12 CHAIRPERSON’S REPORT 16 STRATEGIES OF THE ENERGY REGULATOR 20 CHIEF EXECUTIVE OFFICER’S REPORT 28

Electricity Industry Regulation 28 (a) Licences granted, amended renewed or withdrawn (b) Regulations made and directives issued by the Minister of Energy (c) Existing position and envisaged commercial developments with respect to the electricity industry (d) Health, Safety and Environmental matters (e) Access to Network Infrastructure (f) Tariffs or tariff structures set or approved (g) Distribution maintenance (h) Independent technical audits (i) Rules, Guidelines and Codes issued by NERSA (j) Grid Code Amendments (k) Electricity Distribution Industry (EDI) restructuring (l) Energy Efficiency and Demand Side Management (EEDSM)

Piped-Gas Industry Regulation 36 (a) Licences granted, amended or withdrawn (b) Regulations made and directives issued by the Minister of Energy (c) Existing position and envisaged commercial developments with respect to the piped-gas industry (d) Health, safety and environmental matters (e) Tariffs set or approved (f) Piped-Gas Prices (g) Administering Schedule One of the Agreement

Petroleum Pipelines Industry Regulation 39 a) Licences granted, amended or withdrawn b) Existing position and envisaged commercial developments with respect to the petroleum pipelines industry c) Health, safety and environmental matters d) Access to network infrastructure e) Tariffs set or approved f) Implementation of compliance frameworks g) Rules h) Tariff Methodologies

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Cross-cutting Matters 42 (a) Constitutional Review (b) Legislative Matters (c) Regulatory Reporting Manuals (d) Regulatory Reporting System (e) Benchmarking the Regulator against international best practices (f) Complaints Resolution (g) Customer Education (h) Development, Implementation and Maintenance of the Licensee Information System (LIS) for Electricity, Piped-Gas and Petroleum Pipelines Regulation (i) Integration of the GIS for all three regulated industries

Organisational Matters 46 (a) Human Resources Management (b) Information Resource Management (c) Financial Management (d) Management of NERSA’s Corporate Image (e) International Coordination and Partnerships

Corporate Governance 54 (a) Code of practices and conduct (b) The Energy Regulator and its members (c) Subcommittees of the Energy Regulator

Acknowledgements 65

PERFORMANCE AGAINST PRE-DETERMINED OBJECTIVES 68

ANNUAL FINANCIAL STATEMENTS 163

Statement of Responsibility 164 Report of the Auditor-General 165 Report of the Audit and Risk Subcommittee 167 Accounting Authority’s Report 169 Statement of Financial Position 177 Statement of Changes in Net Assets 178 Statement of Financial Performance 179 Cash Flow Statement 180 Notes to the Annual Financial Statements 181

ABBREVIATIONS 203

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PROFILE OF NERSA

The National Energy Regulator of South Africa (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), the Gas Act, 2001 (Act No. 48 of 2001) and the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003).

NERSA’s mandate is further derived from written government policies as well as regulations issued by the Minister of Energy. NERSA is expected to pro-actively take the necessary regulatory actions in anticipation of and/or in response to changing circumstances in the energy industry.

NERSA was established on 1 October 2005 and began regulating the piped-gas and petroleum pipelines industries on 1 November 2005. The regulation of the electricity industry was taken over from the erstwhile National Electricity Regulator (NER) on 17 July 2006.

5 MEMBERS OF THE ENERGY REGULATOR (1 APRIL 2009 TO 31 DECEMBER 2009) The Regulator Members were appointed by the Minister of Minerals and Energy on 1 October 2005. The Full-Time (Executive) Regulator Members were appointed for a period of five years until 30 September 2010 and the Part-Time (Non-Executive) Regulator Members were appointed for a period of four years until 30 September 2009. The term of office of the Part-Time Regulator Members was extended until 31 December 2009. The Regulator Members for the period 1 April 2009 to 31 December 2009 were:

Mr Collin Matjila Ms Dolly Mokgatle Mr Smunda S Mokoena

(Chairperson) (Deputy Chairperson) (CEO) Part-Time Regulator Member Part-Time Regulator Member Full-Time Regulator Member BA, LLB B Proc, LLB, HDip Tax Law BSc (Eng), MBA CEO: Kopano Ke Matla Investments Executive Director: Peotona Group Holdings Chief Executive Officer: NERSA

Mr Thembani Bukula Dr Rod Crompton Ms Linda Makatini

Full-Time Regulator Member Full-Time Regulator Member Part-Time Regulator Member BSc (Eng), Post Graduate Dip (Engineering BA Hons, HED, PhD (Humanities) LLM (International Law) Business Management) Member primarily responsible for CEO: Ngwane Mining Member primarily responsible for Electricity Petroleum Pipelines Regulation Regulation

Mr Joe Lesejane Prof Divya Singh Ms Ethèl Teljeur

Part-Time Regulator Member Part-Time Regulator Member Full-Time Regulator Member BCom, Hons B Compt, CA (SA), Fellow BA (LAW), LLB, LLM BA Hons, MSc (Economics) Chartered Management Accountant (UK) and Advocate of the High Court of South Africa Member primarily responsible for Certificate in Control Self Assessment (CCSA). Deputy Registrar: University of South Africa Piped-Gas Regulation Director: Mokwalo Training & Consulting Services (UNISA)

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MEMBERS OF THE ENERGY REGULATOR (1 JANUARY 2010 – 31 MARCH 2010) New Part-Time Regulator Members were appointed by the Minister of Energy for a period of four years with effect from 1 January 2010. The Energy Regulator consisted of the following Regulator Members for the period 1 January 2010 to 31 March 2010:

Ms Cecilia Khuzwayo Mr Joe Lesejane Mr Smunda S Mokoena

(Chairperson) Part-Time Regulator Member (CEO) Part-Time Regulator Member B.Comm, Hons B Compt, CA (SA), Fellow Full-Time Regulator Member BCom (Economics, Business Economics and Chartered Management Accountant (UK) BSc (Eng), MBA Private Law); Industrial Relations Diploma, BA and Certificate in Control Self Assessment Chief Executive Officer: NERSA (Hons) Human Resource Development (CCSA). Effective Director Programme and Certificate Director: Mokwalo Training & Consulting Programme in Coaching. Services Executive Coach and Independent Consultant

Mr Thembani Bukula Dr Rod Crompton Ms Khomotso Mthimunye

Full-Time Regulator Member Full-Time Regulator Member Part-Time Regulator Member BSc (Eng), Post Graduate Dip (Engineering BA Hons, HED, PhD (Humanities) BCom, BCompt (Hons), CA Business Management); Member primarily Member primarily responsible for Petroleum (SA), Higher Diploma in Tax responsible for Electricity Regulation Pipelines Regulation Law; Independent Financial Consultant

Ms Ethèl Teljeur Ms Gillian Whittington Banda

Full-Time Regulator Member Part-Time Regulator Member BA Hons, MSc (Economics) Masters in Modern History; MBA Member primarily responsible for Management and Economic Development Piped-Gas Regulation Consultant

7 THE ENERGY REGULATOR AND ITS SUBCOMMITTEES

In terms of Section 8 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), the Energy Regulator reconstituted the subcommittees in order to efficiently and effectively carry out its mandate. The subcommittees for the period 1 April 2009 to 31 March 2010 were divided into three categories, namely, Cross-cutting Subcommittees, Industry-specific Regulatory Subcommittees and Governance Subcommittees. The Subcommittees are:

Cross-cutting: • Policy Subcommittee (POS) • Regulator Executive Committee (REC)

Industry-specific Regulatory: • Electricity Subcommittee (ELS) • Piped-Gas Subcommittee (PGS) • Petroleum Pipelines Subcommittee (PPS)

Governance: • Audit and Risk Subcommittee (ARS) • Finance Subcommittee (FIS) • Human Resources Subcommittee (HRS) • Remuneration Subcommittee (REMCO)

In January 2010, the Energy Regulator approved that: • The Human Resources Subcommittee and Remuneration Subcommittee be merged into one subcommittee called Human Resources Subcommittee; and • The Policy Subcommittee be dissolved. The implications thereof are that: − The REC considers all cross-cutting regulatory and other organisational matters except those matters dealt with by the Governance Subcommittees; − Industry-specific regulatory matters are considered by the specific and relevant regulatory subcommittees.

Therefore, the subcommittees for the period 1 January 2010 to 31 March 2010 are divided into three categories, namely, Regulatory Subcommittees, Governance Subcommittees and Cross-cutting Subcommittees. The subcommittees are:

Cross-cutting • Regulator Executive Committee (REC)

Industry-specific: • Electricity Subcommittee (ELS) • Piped-Gas Subcommittee (PGS) • Petroleum Pipelines Subcommittee (PPS)

Governance: • Audit and Risk Subcommittee (ARS) • Finance Subcommittee (FIS) • Human Resources Subcommittee (HRS)

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MEMBERSHIP OF THE ENERGY REGULATOR SUBCOMMITTEES (1 April 2009 to 31 December 2009)

SUBCOMMITTEE MEMBERSHIP

CROSS-CUTTING SUBCOMMITTEES Policy Subcommittee (POS) Mr C Matjila – Chairperson Mr S Mokoena Dr R Crompton Ms L Makatini (Alternate Member) Mr J Lesejane Ms E Teljeur Regulator Executive Committee (REC) Mr S Mokoena – Chairperson Mr T Bukula Dr R Crompton Ms E Teljeur INDUSTRY-SPECIFIC REGULATORY SUBCOMMITTEES Electricity Subcommittee (ELS) Mr T Bukula – Chairperson Mr S Mokoena Dr R Crompton Ms D Mokgatle Ms E Teljeur Mr C Matjila – (Alternate Member) Piped-Gas Subcommittee (PGS) Ms E Teljeur – Chairperson Mr S Mokoena Mr T Bukula Dr R Crompton Prof D Singh Ms D Mokgatle – (Alternate Member) Petroleum Pipelines Subcommittee (PPS) Dr R Crompton – Chairperson Mr S Mokoena Mr T Bukula Ms L Makatini Ms E Teljeur Mr J Lesejane – (Alternate Member)

9 SUBCOMMITTEE MEMBERSHIP

GOVERNANCE SUBCOMMITTEES Audit and Risk Subcommittee (ARS) Prof D Singh – Chairperson Ms D Mokgatle Mr M Nkhabu (External member) Ms M Joubert (External member) Finance Subcommittee (FIS) Mr S Ntsaluba – Chairperson Ms D Mokgatle Mr S Mokoena Ms E Teljeur Human Resources Subcommittee (HRS) Ms L Makatini – Chairperson Mr S Mokoena Mr T Bukula Prof D Singh Remuneration Subcommittee (REMCO) Ms D Mokgatle – Chairperson Ms L Makatini Mr J Lesejane Mr J Mabaso (External member) Ms N Joubert (External member) Remuneration Subcommittee (REMCO) Plus NERSA Chair- Ms D Mokgatle – Chairperson person Mr C Matjila Ms L Makatini Mr J Lesejane Ms N Joubert (External member) Mr J Mabaso (External member)

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MEMBERSHIP OF THE ENERGY REGULATOR SUBCOMMITTEES (1 January 2010 to 31 March 2010)

SUBCOMMITTEE MEMBERSHIP

REGULATORY SUBCOMMITTEES Electricity Subcommittee (ELS) Mr T Bukula – Chairperson Mr S Mokoena Dr R Crompton Ms E Teljeur Ms G Whittington Banda Ms C Khuzwayo (Alternate) Piped-Gas Subcommittee (PGS) Ms E Teljeur – Chairperson Mr S Mokoena Mr T Bukula Dr R Crompton Mr J Lesejane (Alternate) Ms K Mthimunye (Temporary)* Petroleum Pipelines Subcommittee (PPS) Dr R Crompton – Chairperson Mr S Mokoena Mr T Bukula Ms K Mthimunye Ms E Teljeur Ms G Whittington Banda (Alternate) GOVERNANCE SUBCOMMITTEES Audit and Risk Subcommittee (ARS) Ms K Mthimunye – Chairperson Mr S Mokoena (Invitee) Dr Rod Crompton (Temporary)* Mr M Nkhabu (External Member) Ms M Joubert (external Member) Finance Subcommittee (FIS) Mr J Lesejane – Chairperson Mr S Mokoena Ms E Teljeur Ms G Whittington Banda Human Resources (HRS) Ms C Khuzwayo – Chairperson Mr J Lesejane Mr S Mokoena Ms G Whittington Banda Vacant (Regulator Member) Mr J Mabaso (External Member) Ms N Joubert (External Member) CROSS-CUTTING REGULATORY SUBCOMMITTEE Regulator Executive Committee (REC) Mr S Mokoena – Chairperson Mr T Bukula Dr R Crompton Ms E Teljeur * Subcommittee member until the 9th Member of the Energy Regulator is appointed

11 THE HIGHLIGHTS OF 2009/10

NERSA experienced a number of highlights during 2009/10. These are grouped according to industry-specific regulatory highlights, cross-cutting highlights, governance and other highlights.

Electricity Industry Regulation: • The Energy Regulator approved a 31.3% interim tariff increase for Eskom for 2009/10 on 25 June 2009; • The Energy Regulator approved one hundred and twenty five (125) municipal tariff applications for 2009/10; • The Energy Regulator approved the 2009/10 Free Basic Electricity Tariff in August 2009; • On 29 October 2009, the Energy Regulator approved the second phase of the Renewable Energy Feed-In Tariff (REFIT)as follows: o Concentrated Solar Power (CSP) trough without storage – R3.14 / kWh; o Large scale grid connected PV systems (≥ 1 MW) – R3.94 / kWh; o Biomass solid – R1.18 / kWh; o Biogas – R0.96 / kWh; and o CSP Tower with storage of 6 hrs per day – R2.31 / kWh. • On 9 December 2009, the Energy Regulator approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors; • The Energy Regulator approved on 24 February 2010 the Eskom tariff increase for the period 2010/11 – 2012/13 as follows: o 24.8% increase in 2010/11; o 25.8% increase in 2011/12; and o 25.9% increase in 2012/13. • On 24 February 2010, the Energy Regulator approved the municipal tariff guideline1 as well as the electricity tariff level benchmarks for the three year control period 2010/11 - 2012/13; • On 12 March 2010, the Energy Regulator approved Eskom’s schedule of retail tariffs for implementation on 1 April 2010; • On 24 February 2010, the Energy Regulator approved the Inclining Block Rates tariffs (IBTs) structure for implementation by Eskom and municipalities concurrently with the 2010/11 price increase in order to provide for cross-subsidies for low income domestic customers, as required by the Electricity Pricing Policy (EPP); • A consultation paper on the rules for the selection criteria of REFIT projects was finalised and published. A public hearing in this regard was held on 30 and 31 March 2010; and • The Energy Regulator approved the following: o Transfer of electricity distribution licence from uThungulu District Municipality to Nkandla Municipality on 25 March 2010; and o Transfer of Ingwavuma Town from Eskom’s area of supply to uMkhanyakude District Municipality on 25 March 2010.

1 The municipal guideline was however revised and a new one approved on 12 April 2010. This was after discussions with stakeholders and after receipt of the final Eskom retail tariffs

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o A gas distribution facility in the Clairwood area (eThekwini Metropolitan Municipality); o A gas distribution facility in the Prospecton area (eThekwini Metropolitan Municipality); o A gas distribution facility in the Wadeville area (Ekurhuleni Metropolitan Municipality); o A gas transmission facility in the Alton Industrial area (uMhlathuze Local Municipality); o A gas distribution facility in the Alrode area (Ekurhuleni Metropolitan Municipality); o A gas distribution facility in the Babelegi area (Tshwane Metropolitan Municipality); o A gas transmission facility in the Uitkijk 136 IS (Highveld East Local Municipality); o A gas distribution facility in the Jacobs area (eThekwini Metropolitan Municipality); and o A gas distribution facility in the Germiston East area (Ekurhuleni Metropolitan Municipality). • The Energy Regulator amended eight (8) licences granted to Sasol Gas Ltd to extend the construction period as the licensee failed to complete the construction activities within the period provided for in the original licence conditions, due to delays in obtaining environmental authorisations for the projects for the construction of: o A gas transmission facility in the Sasolburg area (Metsimaholo Local Municipality) o A gas distribution facility in the Mobeni area (eThekwini Metropolitan Municipality); o A gas transmission facility in the Olifantsfontein area (Ekurhuleni Metropolitan Municipality); o A gas distribution facility in the Boksburg area (Ekurhuleni Metropolitan Municipality); o A gas distribution facility in the Brakpan area (Ekurhuleni Metropolitan Municipality); o A gas distribution facility in the Elandsfontein area (Ekurhuleni Metropolitan Municipality); o A gas distribution facility in the Wadeville area (Ekurhuleni Metropolitan Municipality); and o A gas distribution facility in the Germiston Ext 15 area (Ekurhuleni Metropolitan Municipality). • The Energy Regulator granted a licence to trade in compressed natural gas (CNG) for the first time to Novo Energy (Pty) Ltd in six areas on 8 December 2009. The areas are: o Meyerton of the Midvaal local Municipality; o Durban of the eThekwini Metropolitan Municipality; o Pietermaritzburg of the Msunduzi Local Municipality; o Germiston East of the Ekurhuleni Metropolitan Municipality; o Pretoria of the Tshwane Metropolitan Municipality; and o Cottesloe of the City of Johannesburg Metropolitan Municipality. • The Energy Regulator granted a licence to Transnet Ltd trading as Transnet Pipelines for the operation of the Secunda to Durban gas transmission facility commonly referred to as the “Lilly Pipeline” on 11 November 2009; • The Energy Regulator decided on 12 October 2009 not to approve the licence applications of Gigajoule Africa Pipe (Cape) (Pty) Ltd for the construction of gas transmission and distribution facilities; and of Gigajoule Africa Gas (Cape) (Pty) Ltd for trading in gas in the Cape West Coast Region of the Western Cape Province; and • The Energy Regulator decided not to approve a licence application by Unigas Import and Export for the construction of gas facilities in the Eastern Cape, Western Cape and KwaZulu-Natal (KZN) provinces.

13 o Vopak storage facilities in Island View, Durban; o BP and Shell (SAPREF operates) for a pipeline and storage system in Durban; o Shell SA Marketing (operated by Mmanoto Distributors) for a storage facility in Lebowakgomo, Limpopo; o Total SA for storage facilities in Alrode Depot in Alberton; Island View Site 102 in Durban; and Island View Site 103 in Durban; o Chevron SA for a crude oil pipeline from Saldanha to Milnerton; a crude oil pipeline from Cape Town Docks to Calref refinery; a heavy fuel oil pipeline from Cape Town Docks to Caltex refinery; and a refined product pipeline from Cape Town Docks to Calref refinery; o The BP, Shell, Engen and Total Joint Venture (ORTIAFS) for a pipeline connecting the OR Tambo airport storage facility with the Transnet northern network ; o Engen/BP/Chevron/Shell/Total joint loading facility including two auxiliary connecting pipelines in East London harbour; o Wozani Berg Gasoline – storage in Western Cape; o Konet Diesel – storage Western Cape; o BP Drakensberg – storage in the Free State; o Shell SA Marketing – storage Potgietersrus, Limpopo; o Shell SA Marketing – storage Wesselsbron, Free State; o Chevron-Total– storage Kroonstad Free State; o Engen Refineries – loading, pipelines and storage Durban KZN; o Paul Eliz Distributors – storage Bethlehem Free State; and o Sunday Rivers Citrus Company – storage, Hermitage, Eastern Cape. • The Energy Regulator granted the following construction licences: o Sasol for the Alrode storage construction to enable Sasol to meet its timelines for completion before the FIFA 2010 Soccer World Cup on 28 May 2009; o A first construction licence for a marine loading facility to BP/Shell/Total for Berth 6 in Durban harbour; and o Engen Petroleum Ltd to construct new pipeline infrastructure and upgrade existing storage facilities to connect to Transnet’s New Multi-Product Pipeline under construction. • The Energy Regulator amended the following licences granted for the construction of: o Timeframes for the construction of Transnet Pipelines were amended; and; o Petroline RSA – to allow for a 30 months construction period after the final Environmental Impact Assessment (EIA) Record of Decision (RoD) is received. • The Energy Regulator amended one licence granted for the operation of Transnet Pipelines – to include three new pipelines: Jameson Park to Alrode, Alrode to Langlaagte and Langlaagte to Waltloo; • The Energy Regulator decided not to approve the following licence applications: o Total SA, which applied for the operation of a pipeline connecting Cape Town Docks and the Paarden Eiland storage facility. This was due to the fact that the pipeline is not operational after earlier decommissioning due to a lack of structural integrity; and o BP Southern Africa to operate two marine loading facilities located at Hout Bay harbour and V&A Waterfront in the Western Cape. This was due to the fact that these are actually resellers retailing fuel to small boats and do not require licensing.

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o Engen Regulatory Reporting Manual Implementation Plan; o Transnet Pipelines Regulatory Reporting Manual Cost Allocation Manual; and o ROMPCO’s Regulatory Reporting Manual Cost Allocation Manual. • Fourteen (14) NERSA staff members of the Regulatory Reporting Manual task team attended a study tour to Canada; and • The electricity component of the Licensee Information System (LIS) was finalised with the adding of an on-line help function and were rolled out to licensees.

Governance and Other: • The Minister of Energy appointed Mr J Lesejane as a Part-Time Regulator Member in the vacant position with effect from 1 April 2009; • The Minister of Energy appointed the new Part-time Regulator Members, with effect from 01 January 2010; • The Minister of Energy visited NERSA on 25 January 2010 to welcome the newly appointed part-time members of the Energy Regulator and to bid farewell to the outgoing part-time members; • Approval and submission of: o Annual Financial Statements and Performance Against Objectives for 2008/09; o Annual Report for 2008/09; o Quarterly Performance Reports with Management Accounts for all four quarters of 2009/10; o Mid-term Review Report on progress made with regards to the implementation of the NERSA Business Plan for 2009/10; o Report on the assessment of the Energy Regulator and its Subcommittees; and o Strategic Plan (2010/11 – 2012/13) and Business Plan with Budget (2010/11). • NERSA received an unqualified Audit Report for 2008/09; • The proposed levies to be imposed on the piped-gas and petroleum pipelines industries were gazetted on 27 November 2009. No representation was received from stakeholders; • Approval of the Delegation Matrix for Regulatory Subcommittees by the Energy Regulator; • Approval of the revised Code of Conduct by the Energy Regulator; • NERSA was appointed as Chairperson of the Regional Electricity Regulatory Authority (RERA) for 2010 and 2011; • Participation in exhibitions at the Rand Show, Africa Power Congress, African Utility Week and the Budget Vote Speech of the Minister of Energy; • Attendance of the South African Development Community (SADC) Energy Officials and Ministers’ Meeting by two NERSA staff members; • Attendance of the Electricity Regulation Initiative Seminar in Oslo, Norway by seven (7) NERSA staff members; • NERSA was invited to attend the Round Table of Energy Regulators in Rome during June, which was one of the preparatory meetings for the G8 Summit, which took place in Italy during July 2009; • The Board of the newly established Swaziland Energy Regulator visited NERSA on 7 and 8 December 2009 as part of their induction programme and to establish relationships with NERSA; • Attachment of two officials from EWURA, Tanzania; • Approval of the integrated demand management plan for the organisation; and • The Disposal Committee for the disposal of the organisation’s redundant and obsolete assets was appointed and all redundant assets identified for disposal were approved for transfer during the fourth quarter.

Delays and Backlogs: NERSA however also experienced a number of delays and backlogs during 2009/10.

• Delay in the finalisation of the Renewable Energy Feed-In Tariff Power Purchase Agreement due to the promulgation of the Regulations on New Generation Capacity by the Minister of Energy on 15 August 2009 as well as the extensive stakeholder engagement that followed; • Delays in the receipt of requested information from licensees, including comments on audit reports, resulting in some projects being delayed; • Although the licensing of all the existing petroleum facilities applied for progressed to the final stage of the approval process, all the applications for existing facilities could not be finalised; and • Failure to fill some critical positions especially within the piped-gas and petroleum pipelines regulatory divisions impacting negatively on the completion of some planned activities within the organisation.

15 CHAIRPERSON’S REPORT Ms Cecilia Khuzwayo

It is my pleasure to present this Annual Report of the National Energy Regulator of South Africa (NERSA) for the period 1 April 2009 to 31 March 2010. It is my first report as Chairperson of this worthy organisation, having taken over the reins from my predecessor, Mr Collin Matjila, on 1 January 2010.

Mr Matjila’s tenure saw the growth of NERSA from the erstwhile National Electricity Regulator (NER) into a comprehensive Regulator of nearly all energy industries in the country. He skilfully steered the organisation through the first electricity emergency in South African history and the first global economic recession of the 21st Century. His diligence leaves NERSA in a strong position to take on the many challenges that lie ahead and for this we thank him most sincerely.

This is also the first NERSA report that will be delivered to the newly constituted Department of Energy (DoE) under the capable leadership of the Minister, Ms Dipuo Peters. We look forward to a mutually beneficial relationship between NERSA and the DoE in the future. We are also looking forward to visionary leadership, wisdom and guidance in the energy sector from Minister Peters.

During the period under review NERSA’s mandate and resources were seriously challenged. Balancing the needs of energy producers and consumers, within the policy environment of our Government during a recession, proved to be a big challenge.

Electricity regulation became a busy and testing area for the Energy Regulator particularly in the area of power generation and electricity price increases.

Regarding electricity generation, considerable effort went into creating new generation capacity, renewable energy, and cogeneration. One of the delays to the uptake of power production by Independent Power Producers was the designation of Eskom in September 2007, as the single buyer of power from Independent Power Producers in South Africa. In her budget speech of June 2009, the Minister of Energy announced the establishment of the Independent System and Market Operator (ISMO), to take up the critical role of power purchasing, amongst other things. It is our expectation that this enabling ISMO Bill will be published for comment early in NERSA’s 2010/11 financial year.

NERSA also approved feed-in tariffs to enable the generation of electricity from renewable energy sources. Through phases one and two, ten different technologies qualify for feed-in tariffs. Approval of the required selection criteria and contracting documentation should be effected early in the 2010/11 financial year. It is expected that the first renewable energy contracts will be signed soon thereafter. This will ensure compliance with the renewable energy policy targets of 10 000 gWh generated by 2013.

The awarding of Eskom’s Multi-Year Price Determination 2 (MYPD2) for the period 2011 to 2013 was another challenge that was executed with urgency and tenacity by NERSA. The contentiousness of Eskom’s application, aimed at generating reserves to implement its new build programme, saw the active participation of various stakeholders. These included National Treasury, the South African Local Government Association (SALGA), private individuals, small users, intensive users, government departments, political

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parties and trade unions – all intent on ensuring an equitable outcome. NERSA’s intensive stakeholder and public participation process culminated in a thorough review of evidence and the awarding of revised electricity price increases for the three-year period. The public participation process included briefing the National Economic Development and Labour Council (NEDLAC) and its social partners, and conducting public hearings in all provinces. A total of four hundred and twenty-seven (427) written comments were received and eighty-five (85) oral presentations were presented.

In the piped-gas industry regulation, rules in terms of the Gas Act, 2001 (Act No. 48 of 2001) were approved by the Energy Regulator and were published in the Government Gazette on 11 December 2009.

Exciting developments are currently afoot in the piped-gas industry. NERSA was delighted to contribute to the development of the use of compressed natural gas (CNG) in South Africa, by granting a licence to trade in gas to Novo Energy (Pty) Ltd. This is the first of many such endeavours that will tap into the landfill gas potential and other sources of gas. Novo Energy proposes to sell some of its compressed natural gas as a vehicle fuel. This will contribute to greater use of cleaner vehicle fuel, bringing diversification in South Africa’s energy mix.

A second application for gas storage and trading in gas using compressed natural gas was received from CNG Holdings (Pty) Ltd, providing a clear sign that the technological change that has made mobile storage units containing CNG possible, will greatly assist in the development of the gas market.

The construction of liquefied natural gas (LNG) regasification facilities is the second area of prime development within the gas market. Two applications to construct LNG facilities were received during the 2009/10 financial year, from Unigas Import and Export (Pty) Ltd and Gigajoule Africa (Pty) Ltd. Though both applications were unsuccessful, potential for LNG regasification facilities has clearly been demonstrated. The Energy Regulator is keen to facilitate the opening up and growth of this sector, as this will provide access to international LNG supply, thus providing potential fuel for gas-fired electricity generation. This development will certainly change the energy landscape in South Africa.

Progress has also been made in the enforcement of the Agreement concerning the Mozambican Gas Pipeline between the Government of RSA and Sasol Ltd. In this initiative, piped-gas customers participated in various customer education initiatives, including a workshop and public hearings by the Energy Regulator. The Energy Regulator has been requested to handle complaints and disputes regarding piped-gas pricing. Several pricing compliance reports and aggregated (average) price comparisons are available on our website. The results of this exercise will provide consumers across all categories with information to assess the accuracy of the billing and make informed decisions regarding their gas purchases. The Energy Regulator will continue to process licence applications and monitor compliance with licence conditions.

To meet further challenges that arise in regulating the piped-gas industry, the Energy Regulator will develop a methodology to determine maximum prices for piped-gas in line with the requirements of the Gas Act. The implementation of the Regulatory Reporting Manuals remains a priority for the Energy Regulator. It is rewarding to note that gas licensees are making good progress in adjusting their systems to implement the data requirements of the Energy Regulator. We trust that this project, complex and resource-intensive as it may be, will contribute to continued predictable and consistent regulation of the piped-gas sector.

To enhance the regulation of petroleum pipelines, NERSA completed a comprehensive Petroleum Pipelines Rule Book. This was approved by the Regulator at its meeting on 29 October 2009 and gazetted on 13 November 2009. A solid foundation for regulation of the industry as a whole and direction for industry players has been laid.

While the country is undergoing its biggest construction boom in the petroleum pipelines and storage markets in many decades, this boom has been in response to known challenges. The major petroleum pipeline challenge facing the country this year remained the capacity constraint to service the inland market. To compound this challenge those pipeline construction licensees building relieving

17 capacity have reported significant delays and cost increases. A similar storage capacity constraint, particularly in theinland areas, is being addressed by a notable increase in the number of storage construction licence applications from the established oil companies. There has also been a noticeable increase in interest in new investment in the storage sector from merchant storage companies. Bottlenecks have provided exciting opportunities for increased capacity. This is also true in the Durban port infrastructure where loading arm and storage capacity constraints are receiving attention.

In the cross-cutting regulatory arena, NERSA proceeded with Phase1 implementation of the Regulatory Reporting Manuals (RRMs). These manuals prescribe the accounting procedures and requirements necessary to achieve uniformity and consistent reporting of the financial information required by NERSA for tariff setting, monitoring and/or tariff approval. Once fully implemented, the RRMs will greatly assist NERSA and the reporting organisations in compliance with Generally Recognised Accounting Practice.

Our vision is “To be a world-class leader in energy regulation”. In our quest towards becoming a world class energy regulator, we have embarked on benchmarking ourselves against international best practice on energy regulation. The final phase of the project, which identified the gaps and the projects required to close them, was approved by the Regulator on 27 November 2009.

These implementation plans and their associated projects have been prioritised and will be included in the business planning process over the next three years according to their allocated priority. Some have already been included in the 2010/11 Business Plan and Budget.

The benchmarking exercise provided an excellent learning opportunity for the leadership of the organisation and staff.

During the review period, the Licensee Information System (LIS) for Electricity Regulation was tested and piloted. The system provides for the on-line submission of reports and will be rolled out to all licensees during the 2010/11 financial year.

On organisational matters, the implementation of the new organisational structure progressed well with 85% of the positions filled. The staff complement of the new structure is 168 and the staff strength during the review period was 143. The filling of remaining vacant positions will be completed in the first quarter of the 2010/11 financial year.

At year end the levies collected from the industries were R74 058 200 for the electricity Industry; R20 699 303 for the piped-gas Industry and R29 232 116 for the petroleum pipelines industry. The budgeted expenditure for the 2009/10 financial year was R173 648 649 and the total actual expenditure was R144 771 466. This resulted in under-expenditure of R28 877 182. The under-expenditure is mainly due to projects that were delayed during the reporting year.

Significant Events after Year End

The following significant events occurred in the energy industry after the financial year end: • On 12 April 2010, the revised municipal guideline was approved by the Energy Regulator. This was after discussions with stakeholders and after receipt of the final Eskom retail tariffs; • On 21 April 2010, Ms Dipuo Peters, the Minister of Energy, delivered the Budget Vote Speech of the Department of Energy in Parliament;

Conclusion In conclusion, I would like to express our sincere gratitude to the former Minister of Minerals and Energy, Ms Buyelwa Sonjica, for her leadership and support for NERSA. I also extend my thanks to our new Minister of Energy, Ms Dipuo Peters, who has so adeptly taken up the reins and her Department for their on-going co-operation and for her guidance and leadership.

The previous part-time Regulator Members, who steered this organisation over the past several years, especially the Chairperson,

18 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

have left behind a legacy that makes it considerably easier for our new part-time Regulator Members to take up the challenge and for this I thank them all. I have no doubt that with this solid foundation, working together as a collective, the new part-time Regulator Members will greatly contribute in ensuring that NERSA achieves its mandate.

Without its dedicated management and staff, NERSA would be powerless to achieve the myriad objectives it has in place to regulate the country’s energy industry in a fair and equitable manner. To these hardworking individuals, my sincere appreciation.

Finally, I wish to thank our stakeholders for their active participation and involvement in regulatory energy matters for which we have a mandate during the past year. I extend my appreciation to them for the contribution they have made in ensuring that NERSA continues the efficient and effective regulation of the energy industry in South Africa

Ms Cecilia Khuzwayo

Chairperson

19 STRATEGIES OF THE ENERGY REGULATOR

In order to ensure that NERSA is better positioned to deal with the dynamic challenges of the energy sector, it is important that strategies are determined which provide confidence, stability and security of supply in the industry and which provide comfort to all stakeholders that a robust regulatory environment has been created by NERSA.

For the 2009/10 financial year, the following strategic areas were used as the basis to develop NERSA’s business activities for the regulation of the energy industry:

1. To implement relevant energy policy efficiently and effectively

Electricity Industry Regulation

1.1 To engage with policy makers to clarify the reliance on competition for the market in the context of State Owned Entity-led infrastructure expansion.

To ensure that adequate electricity generation, transmission and distribution capacity is available to balance supply and demand.

1.2 To refine NERSA’s decision-making criteria in cross subsidies that are intended to facilitate universal access to electricity. The implementation of the tariff structures as indicated and envisaged in the Electricity Pricing Policy, 2008, in a manner that ensures the long-term sustainability of the electricity supply industry, is essential.

Cross subsidisation: To ensure mechanisms are available (e.g. free basic electricity and Inclining Block Tariffs) to ensure affordability of electricity for poor and low-income communities.

1.3 To continue to contribute to policy formulation for the restructuring of the electricity distribution industry.

1.3.1 To regulate the distribution industry during its transition phase with pending legislation and the fixed timelines dictated by existing legislation. 1.3.2 To rationalise tariff structures and tariff levels.

1.4 To promote the introduction of diverse energy services, Energy Efficiency and Demand Side Management.

1.4.1 To promote Energy Efficiency and Demand Side Management as a more efficient option to new generation capacity to meet demand requirements. 1.4.2 To facilitate the introduction of renewable energy and cogeneration in the electricity generation mix while considering their impact on the overall cost of electricity.

1.5 To regulate the industry where there are policy gaps.

Piped-Gas Industry Regulation

1.6 To engage with policy makers to clarify the reliance on competition in the market in the context of State Owned Entity-led infrastructure expansion.

20 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

To monitor and facilitate the development of new piped-gas infrastructure.

1.7 To seek to clarify Government policy on strategic security of supply and to secure policy certainty.

To develop strategies that promote security of supply in the piped-gas industry.

1.8 To seek to influence planning so that NERSA can exercise its legal mandate to promote competition.

To facilitate common carrier and Third Party Access to the piped-gas infrastructure.

1.9 To promote investment primarily by providing regulatory certainty through high quality regulatory decisions. To undertake, on a sector by sector basis, other modest activities intended to promote investment.

To promote investment in the piped-gas industry.

1.10 To strive for greater policy clarity in the administration of energy pricing intended to incentivise economic development.

To develop and implement appropriate pricing and tariff methodology for the piped-gas industry.

1.11 To draw Government’s attention, where necessary, to gaps in the policy framework that impinge upon energy regulation.

To develop annual reports on the status of the piped-gas industry.

1.12 To seek to clarify NERSA’s role and mandate in implementing socio-economic development programmes so as to better give effect to these.

To promote participation of historically disadvantaged South Africans in the piped-gas industry.

Petroleum Pipelines Industry Regulation

1.13 To obtain sufficient information in order to forecast availability and adequacy of petroleum supply in the inland market.

1.14 To seek to influence planning so that NERSA can exercise its legal mandate to promote competition.

To facilitate common carrier and Third Party Access to the petroleum pipeline infrastructure.

1.15 To promote investment primarily by providing regulatory certainty through high quality regulatory decisions. To undertake, on a sector by sector basis, other modest activities intended to promote investment.

To promote investment in the petroleum pipelines industry.

1.16 To strive for greater policy clarity in the administration of energy pricing intended to incentivise economic development.

1.16.1 To refine, clarify and implement the Tariff Methodology for the petroleum pipeline industry. 1.16.2 To provide tariff certainty for long term infrastructure investments.

1.17 To draw Government’s attention, where necessary, to gaps in the policy framework that impinge upon energy regulation.

21 To develop annual reports on the status of petroleum pipeline industry.

Cross-Cutting Regulatory

1.18 To be pro-active in advising policy-makers and taking all opportunities afforded to NERSA to comment on Government policy and engage with policy formulators.

To promote and advise on appropriate legislation to regulate the electricity industry in the future.

1.19 To seek to clarify NERSA’s role in energy planning and in instances where planning is not carried out by other authorities.

To develop an integrated energy plan for hydrocarbon projects.

1.20 To promote coordination between the various levels of planning.

To monitor developments in alternative new energy sources such as coal-bed methane, biofuels and LNG.

1.21 To seek to achieve regulatory certainty through improved policy certainty regarding the authorisation of additional capacity in network infrastructure.

1.22 To strive for greater policy clarity in the administration of energy pricing intended to incentivise economic development.

1.22.1 To develop and implement methodologies for the determination of required revenues and tariff structures that take into consideration all changes in the industry and customer needs. 1.22.2 To provide Industry information on future prices taking into consideration future industry requirements e.g. Multi-Year Price Path.

1.23 To seek to clarify NERSA’s role and mandate in implementing socio-economic development programmes so as to better give effect to these.

1.23.1 To promote the establishment of customer communication and education forums by licensees. To develop and implement a framework for the promotion of consumer advocacy and protection. 1.23.2 To effectively contribute to the socio-economic development programmes of government.

2. To implement relevant energy law efficiently and effectively

Electricity Industry Regulation

2.1 To strive to implement the legislation that NERSA is responsible for in an efficient and professional manner.

2.1.1 To develop and implement economic and technical regulatory frameworks for the regulation of generation, transmission, distribution, import/export and trading of electricity. 2.1.2 To license facilities in the electricity industry. 2.1.3 To review the licence conditions framework for electricity licensees. 2.1.4 To ensure that licensees’ operations comply with regulatory requirements via effective and efficient setting, monitoring and enforcement of licensing requirements. 2.1.5 To implement the regulatory reporting manuals in the electricity industry and monitor and enforce compliance therewith.

22 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

2.1.6 To monitor, enforce and enhance the South African Transmission and Distribution grid codes.

2.2 To identify and seek to remedy weaknesses and gaps in the sectoral legislation that NERSA implements, based on experience.

To contribute to the review of the Electricity Regulation Act and the development of the Electricity Regulation Levies Bill.

Piped-Gas Industry Regulation

2.3 To strive to implement the legislation that NERSA is responsible for in an efficient and professional manner.

2.3.1 To license facilities in the piped-gas industry. 2.3.2 To review the licence conditions framework for piped-gas. 2.3.3 Monitor, improve and if necessary regulate tariffs for transmission and storage of piped-gas. 2.3.4 To develop and implement a compliance mechanism for transmission, storage, distribution, liquefaction, re- gasification and trading in gas. 2.3.5 To ensure that licensees’ operations comply with regulatory requirements via effective and efficient setting, monitoring and enforcement of licensing requirements. 2.3.6 To implement the regulatory reporting manuals in piped-gas and monitor compliance therewith. 2.3.7 To assess the effectiveness of the current metering system for gas entering South Africa. 2.3.8 To monitor and enforce Sasol’s obligation to supply. 2.3.9 To monitor Sasol’s exploration commitments in terms of Section 3 and 4 of the Mozambique Gas Pipeline Agreement. 2.3.10 To monitor and enforce pricing provisions of Schedule One to the Agreement concerning the Mozambican Gas Pipeline between the Government of South Africa and Sasol Ltd. 2.3.11 To monitor and enforce access to the Mozambique Gas Pipeline. 2.3.12 To develop and maintain a database for the piped-gas industry.

2.4 To identify and seek to have remedied weaknesses and gaps in the sectoral legislation that NERSA implements, based on experience.

To contribute to the review of the Gas Act and Gas Levies Act.

Petroleum Pipelines Industry Regulation

2.5 To implement the legislation that NERSA is responsible for in an efficient and professional manner.

2.5.1 To license facilities in the petroleum pipeline industry. 2.5.2 To review the licence conditions framework for petroleum pipelines. 2.5.3 To develop and implement a compliance mechanism for petroleum storage, loading and pipelines. 2.5.4 To ensure that licensees’ operations comply with regulatory requirements via effective and efficient setting, monitoring and enforcement of licensing requirements. 2.5.5 To set and approve tariffs. 2.5.6 To implement Regulatory Reporting Manuals. 2.5.7 To facilitate 3rd party access. 2.5.8 To develop and maintain a database for the petroleum pipeline industry.

23 2.6 To identify and seek to have remedied weaknesses and gaps in the sectoral legislation that NERSA implements, based on experience.

To contribute to the review of the Petroleum Pipelines Act and Petroleum Pipeline Levies Act.

Cross-Cutting Regulatory

2.7 To utilise opportunities to consult with Government Departments and other economic regulators in pursuit of NERSA’s strategic objectives.

To advise on governance arrangements in the energy sector (e.g. roles and responsibilities between government, the regulator and regulated entities; and Regulatory Compact).

3. To implement relevant energy regulations efficiently and effectively

Electricity Industry Regulation

3.1 To influence the regulations, made under the Electricity Regulation Act, to be the best possible and enabling regulations.

To contribute to the development of Electricity Regulations.

Piped-Gas Industry Regulation

3.2 To influence the regulations, made under the Gas Act, to be the best possible and enabling regulations.

To contribute to the review of the Gas Regulations.

Petroleum Pipelines Industry Regulation

3.3 To influence the regulations, made under the Petroleum Pipelines Act, to be the best possible and enabling regulations.

To contribute to the review of the Petroleum Pipeline Regulations.

4. To identify, develop and implement relevant energy rules efficiently and effectively

Electricity Industry Regulation

4.1 To develop, implement and monitor all rules necessary to allow NERSA to carry out its mandate whilst carefully considering the regulatory burden of such rules.

Piped-Gas Industry Regulation

4.2 To develop, implement and monitor all rules necessary to allow NERSA to carry out its mandate whilst carefully considering the regulatory burden of such rules.

To ensure that all rules relating to the Gas Act have been adequately developed and implemented.

24 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

4.3 To develop, implement and monitor all rules necessary to allow NERSA to carry out its mandate whilst carefully considering the regulatory burden of such rules.

To ensure that all rules relating to the Petroleum Pipelines Act have been adequately developed and implemented.

Cross-Cutting Regulatory

4.4 To develop, implement and monitor all rules necessary to allow NERSA to carry out its mandate whilst carefully considering the regulatory burden of such rules.

To develop regulatory rules and practices for efficient and effective regulation of the energy sector.

5. To establish the credibility, legitimacy and sustainability of NERSA as an independent and transparent energy regulator

Cross-Cutting Regulatory

5.1 To enhance its credibility, legitimacy and sustainability by making good, high quality regulatory decisions, in a transparent manner, based on sound economic and legal prescripts that are capable of being benchmarked as amongst the best in the world.

5.1.1 To ensure a consistent and uniform regulatory approach in the energy sector. 5.1.2 To ensure effective and efficient regulation of the energy sector through accurate decisions of the Energy Regulator based on reasons, facts and evidence. 5.1.3 To ensure that regulatory decisions are supported by the required consultation and information disclosure. 5.1.4 To improve the image of NERSA through consistent decisions of high quality. 5.1.5 To consider the impact of regulatory decisions on macro-economic conditions.

5.2 To be constantly alert to shifts in NERSA’s mandate.

5.3 To strive for optimum coordination with near and overlapping regulators.

To promote Broad-Based Black Empowerment (BBBEE) and competition in the energy sector and to develop memoranda of understanding with government departments and other regulatory authorities with overlapping/concurrent jurisdiction.

5.4 To keep abreast with new developments and adapt appropriate regulatory tolls in line with increasing sophistication in the energy businesses.

6. To create an effective organisation that delivers on its mandate and purpose

Organisational

6.1 To exercise high quality corporate governance and in so doing to develop and implement measurable plans to improve institutional culture, skills, and administrative systems as well as to meet Public Finance Management Act (PFMA) reporting requirements and to measure NERSA’s performance.

25 6.1.1 To improve internal management policies, procedures, systems and processes. 6.1.2 To evaluate and improve the effectiveness of risk management, control and governance processes within NERSA. 6.1.3 To establish and maintain an effective and efficient record keeping system. 6.1.4 To monitor the implementation of NERSA Balanced Scorecard and its congruence with the performance management system. 6.1.5 To develop a knowledge sharing culture within NERSA and ensure that all staff effectively utilise the supporting systems and tools.

6.2 To continuously strive to ensure that the organisation’s business model is appropriate and improved where necessary.

To develop and implement a governance model for NERSA.

6.3 To continuously identify, develop and protect the right capabilities and resources for NERSA’s current and future success.

6.3.1 To develop and implement a comprehensive talent management strategy (recruitment, development, deployment and separation). 6.3.2 To implement a human resource management strategy. 6.3.3 To co-ordinate the development of capacity building as well as training and development programmes on national, regional, continental and international levels. 6.3.4 To implement an HR model to provide an efficient and effective HR service.

6.4 To ensure sound management by building a team, shaping the decision-making to meet the Energy Regulator’s mandate, and ensuring effective information flows that will keep Regulator Members and staff focused on the mandate.

6.4.1 To develop strategies for optimum utilisation of resources. 6.4.2 To provide effective support to the Energy Regulator and its subcommittees, Executive Management Committee (EXCO) and Management Committee (MANCO). 6.4.3 To ensure that NERSA has appropriate and secure IT systems and tools to support business objectives.

6.5 To lead by example and take the right symbolic actions to ensure committed followership by internal and external stakeholders.

6.5.1 To manage legal opinions. 6.5.2 To establish and implement procedures to safeguard the legal interests and legislative requirements with regards to the levy process of NERSA. 5.5.3 To mobilise resources for implementing activities on national, regional, continental and international levels.

6.6 To communicate messages that will engender an organisational culture that relates to purpose, personality and performance.

6.6.1 To improve the image of NERSA through a public awareness campaign. 6.6.2 To facilitate the publication of reports on the performance of NERSA and licensees. 6.6.3 To review and enhance the internal communication programme. 6.6.4 To promote sound relationships with stakeholders in the regulatory environment on national, regional and continental levels.

26 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

7. To evaluate the Energy Regulator’s effectiveness

Electricity Industry Regulation

7.1 To assess and review the impact of the decisions of the Energy Regulator on the regulated industries and economy.

Piped-Gas Industry Regulation

7.2 To measure the risks in regulated industries and assess the impact of regulation on these industries.

To undertake a risk assessment of the piped-gas industry.

Petroleum Pipelines Industry Regulation

7.3 To measure the risks in regulated industries and assess the impact of regulation on these industries.

To undertake a risk assessment of the petroleum pipelines industry.

Cross-Cutting Regulatory

7.4 To regularly audit NERSA’s regulatory practices and benchmark them against the practices of the best economic regulators in the world.

To ensure that world class regulatory processes and methodologies are used in NERSA through regulatory analysis, research, benchmarking and auditing of regulatory methodologies and practices.

Organisational

7.5 To regularly conduct an internal performance assessment in preparation for an external performance assessment.

7.5.1 To develop and implement performance measurement criteria for the Energy Regulator. 7.5.2 To operationalise the code of conduct.

27 CHIEF EXECUTIVE OFFICER’S REPORT Smunda S Mokoena

At an operational level, I am pleased to report that NERSA has held its own during the reporting period despite several challenging moments, particularly during the awarding of Eskom’s Revenue Application for the MYPD2, when our staff was stretched to the limit with the organising and attendance of public hearings and the review of inputs. I have no doubt that the restructuring of NERSA, which was implemented during the reporting period, assisted in this regard. The restructuring not only addressed the complexity of the organisation but also helped to ensure the effective and efficient regulation of the dynamic industries that NERSA regulates.

The recruitment of scarce skills is a challenge not only to NERSA, but to organisations throughout the world. In this regard, it was heartening to finalise the appointment of a service provider, accredited by the ESETA, to develop training material for NERSA’s Learnership Programme (Certificate in Energy Regulation – National Qualifications Framework [NQF] Level 5). This will assist to build a pool of scarce skills from which to recruit employees, based on NERSA’s operational requirements.

In the busy and dynamic NERSA environment, it is easy to focus on the business at hand, while overlooking the background support systems that play an integral role in facilitating ‘business as usual’. In this regard I should like to make special mention of the support committees, without which much of our ‘muscle’ would not be possible.

Indeed, NERSA has flexed its muscles across the full area of its mandate during this financial year and I am pleased to report this work as follows.

Electricity Industry Regulation

(a) Licences granted, amended, renewed or withdrawn

In terms of its mandate, NERSA is responsible for granting, amending, renewing or withdrawing the licences of regulated entities in the electricity sector. The following licensing matters were finalised during the review period.

Licences granted • No new licences were granted.

Licences withdrawn/transferred The following licence transfer was completed: • The electricity distribution licence was transferred from uThungulu District Municipality to Nkandla Local Municipality.

28 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Licences amended One licence was amended during the period: • Ingwavuma Town was transferred from Eskom’s area of supply to uMkhanyakude District Municipality’s area of supply on 25 March 2010;

Licences renewed • No licences were renewed during the period.

(b) Regulations made and directives issued by the Minister of Energy

New Generation Capacity Regulations On 05 August 2009, the Department of Energy published, in the Government Gazette, the R721 Electricity Regulation Act, 2006 (Act No. 4 of 2006): Electricity Regulation on new generation capacity. The regulations apply to all types of generation technology including renewable generation and cogeneration technology, but excluding nuclear power generation technology.

The objectives of the regulations are: • The regulation of entry by a buyer and an Independent Power Producer (IPP) into a power purchase agreement; • The facilitation of fair treatment and the non-discrimination between IPP generators and the buyer; • The facilitation of the full recovery by the buyer of all costs incurred by it under or in connection with the power purchase agreement and an appropriate return based on the risks assumed by the buyer thereunder and, for this purpose to ensure the transparency and cost reflectivity in the determination of electricity tariffs; • The establishment of rules and guidelines that are applicable in the undertaking of an IPP bid programme and the procurement of an IPP for purposes of new generation capacity; • The provision of a framework for the reimbursement by the regulator, of costs incurred by the buyer and the system operator in the power purchase agreement; and • The regulation of the framework of approving the IPP bid programme, the procurement process, the REFIT programme, and the relevant agreements to be concluded.

Integrated Resource Plan (IRP1) On 29 January 2010, the Minister of Energy, Ms Dipuo Peters approved IRP1 for implementation as per the requirement of the electricity regulations on new generation capacity (Regulation No. 9116, dated 5 August 2009).

IRP1 outlines new generation capacity required in accordance with Section 34 of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), and gives effect to the following policy objectives: i. 10 000 gWh (approximately 4% of the energy mix) of renewable energy usage; ii. The implementation of Energy Efficiency and Demand Side Management through financial incentives scheme; and iii. Installation of one million solar water heaters.

Projects listed in IRP1 must comply with the codes and rules prescribed by NERSA.

Further to the 2007/08 Eskom power outages, the Energy Regulator continued to focus on areas that contribute towards the ability of the electricity generation industry to deliver a sustained and reliable supply. These included:

29 • Monitoring developments within the proposed Power Conservation Programme (PCP), including developing rules, directives and licence conditions to facilitate power conservation. Delays were experienced due to policy gaps, which affected finalisation of the process. Once government’s strategic position on the PCP has been finalised, the proposed rules and licence requirements will follow the appropriate NERSA processes.

• Continued NERSA participation in government’s initiatives to resolve challenges within the electricity industry, including: − Input into the changes required in terms of the licensing framework. Progress was hindered by a lack of enabling regulations, and has been referred to the Department of Energy for resolution. The issue of retail traders/resellers received ongoing attention and included the resolution of numerous customer complaints. Guidelines will be finalised once the licensing framework is in place; and − Ongoing inputs into the proposed Electricity Regulation Act amendments.

While work continued on the development of the Regulatory Framework for the Wholesale environment, the decision made at the Cabinet Meeting of 5 September 2007, where Eskom was designated as the single buyer of power from Independent Power Producers (IPPs) in South Africa, was changed. The new position, highlighted in the Minister of Energy’s budget speech of June 2009, embodies the establishment of an Independent System and Market Operator (ISMO). It is expected that the enabling ISMO Bill will be published for comment early in NERSA’s 2010/11 financial year. The relevant rules and guidelines will then be finalised in line with this policy.

(d) Health, Safety and Environmental matters

Section 15 (1)(s) of the Electricity Regulation Act , 2006 (Act No. 4 of 2006) provides that the Energy Regulator may make any licence subject to conditions relating to compliance with health, safety and environment standards and requirements. The value judgment required to perform such duties, however, goes beyond the statutory duties which define NERSA’s responsibilities. In this regard NERSA applies the NRS047 and NRS048 standards and other quality of service and supply standards as part of licensing conditions that should be met by licensees.

The regulation of health, safety and the environment is already in place and enforced by the responsible authorities. Environmental regulation is the responsibility of the Department of Environmental Affairs and Tourism under the National Environmental Management Act, 1998 (Act No. 107 of 1998). Similarly, the regulation of health and safety is the responsibility of the Department of Labour under the Occupational Health and Safety Act, 1993 (Act No. 181 of 1993).

This does not mean that NERSA is not aware of the fact that electricity activities in general can contribute to serious safety, health and environmental risks. The electricity industry in particular can also impact negatively on safety, health and the environment.

Power stations have site-specific procedures and standards in place. In addition, the National Nuclear Regulator (NNR) maintains a vigilant health and safety oversight over South Africa’s only nuclear power plant, Koeberg, through stringent licensing, auditing, assessment and remediation. This extends to the health and safety of employees, the public and the environment.

Municipal generators report prescribed data to the relevant authorities, in compliance with their permit directives. Compliance with the Occupational Health and Safety Act, 1993 (Act No. 181 of 1993) and regulations is ensured on an ongoing basis. The municipal power generation environment is managed in conjunction with each Municipality’s Environmental Management Department.

(e) Access to Network Infrastructure

Access to electricity remains at approximately 80%. Accelerated urbanisation in the country and ongoing population growth, create an ever increasing target. Access is further inhibited by the fact that certain distributors have the monopoly of supply within their licensed areas and, in some instances, are limited by funding constraints or the ability of consumers to pay for connections.

30 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

After approval and implementation of the Transmission Grid Code in 2007, NERSA approved that the South African Distribution Grid Code would form part of the licence conditions for distributors. One of the main objectives of the Distribution Code is to ensure fair and open access to the Distribution System. The Distribution Code is currently being implemented in phases. Since increased participation by players in the industry, including independent power producers, is expected, the Code is necessary to ensure the non-discriminatory treatment of such players with respect to accessing the network infrastructure.

(f) Tariffs or tariff structures set or approved

Multi-Year Price Determination (MYPD) for Eskom • Eskom’s Multi-Year Price Determination 2 (MYPD2) application was initially delayed due to the fact that government’s funding model had not yet been finalised. • Eskom made an interim application for a price increase for the 2009/10 financial year, thereby postponing the implementation of the MYPD2 by one year. • In its interim application Eskom applied for an average price increase of 34% for which NERSA approved a 31.3% increase for implementation with effect from 1 July 2009. • On 30 September 2009, NERSA received Eskom’s MYPD2 application requesting average annual price increases of 45% per annum over the three year MYPD2 period, with annual revenues of R104b, R152b and R223b respectively. The application was for implementation with effect from 1 April 2010 to 31 March 2013. • In line with the Municipal Finance Management Act (MFMA), 2003 (Act No. 56 of 2003) Eskom received comments from the National Treasury and the South African Local Government Association (SALGA). Given these comments and some intervention by Government, Eskom then revised its application. • On 30 November 2009, NERSA received a revised application from Eskom requesting average price increases of 35% per annum over the MYPD2 period with annual revenues of R98b, R132b and R180b respectively. • In reviewing the application, due process was followed, with four hundred and twenty-seven (427) written comments received from stakeholders, including private individuals, small users, intensive users, government departments, political parties and trade unions. Public hearings were conducted in all provinces of South Africa where affected parties and the applicant made presentations. A total of eighty-five (85) oral presentations by various stakeholders were heard. • On 24 February 2010, having duly considered the application, the written submissions and the reasons, facts and evidence provided, NERSA approved the following price increases for the period 1 April 2010 to 31 March 2013:

Year Average increase - % Average price – c/KWh Revenue – Rbn

2010/2011 24.8 41.57 85 2011/2012 25.8 52.30 109 2012/2013 25.9 65.85 141

• To provide for cross-subsidies for low income domestic customers, as required in terms of the Electricity Pricing Policy (EPP), Eskom was required to implement residential inclining block rate tariffs concurrently with the price increase. • NERSA agreed that the revaluation of assets will be phased-in over a period of five years to allow for the smoothing of prices while allowing Eskom adequate revenues and cash flows for its capital expansion programme. The Modern Equivalent Asset Value (MEAV) provided by Eskom was accepted for the purpose of MYPD2 but will be verified during the control period and adjustments may be made in line with the MYPD2 rules. • Finally, in order to allow Eskom to repay its loans, interest during construction was catered for within the increased depreciation and the allowed return on assets.

31 Eskom Retail Tariffs After the approval of the MYPD2 applications, Eskom submitted its schedule for retail tariffs to NERSA for approval. These schedules included Eskom’s proposals on the implementation of Inclining Block Tariffs as per NERSA’s request. The schedule of retail tariffs was then approved on 12 March 2010 for implementation on 1 April 2010 for Eskom’s non-municipal customers and on 01 July 2010 for municipalities.

Annual Municipal Tariff Approval The Energy Regulator is responsible for the approval of tariffs for all municipalities and other electricity distributors in South Africa.

• During the review period, 125 applications to increase municipal tariffs were received, analysed, reviewed and approved. • After the implementation date of 1 July, twenty-one (21) tariff applications were received. In addition, six (6) appeals to the tariff determination and one (1) revised application were made, all of which were still under review at year-end. • For those municipal distributors who implemented the 34% increase in the 2009/10 financial year, a municipal guideline increase of 15.33% was approved on 24 February 2010 for implementation with effect from 1 July 2010 followed by 16.03% from 1 July 2011 and another 16.16% from 1 July 2012. Due to further information received, the guideline increases were revised to 19% for municipalities who had increased their tariffs by 34% in the previous year and to 22% for municipalities who had increased their tariffs by 25%. • For those municipal distributors who implemented different increases to the above, applications will be considered on a case- by-case basis based on the merits of the application.

Renewable Energy Feed-In Tariff (REFIT) Renewable energy harnesses naturally occurring, non-depletable sources of energy, such as solar, wind, biomass, hydro, tidal, wave, ocean current, and geothermal to produce electricity, gaseous and liquid fuels, heat or a combination of these energy types. It provides a wide range of environmental, economic and social benefits.

To promote competitiveness between renewable energy and conventional energies to deliver long-term sustainable growth, the REFIT framework was developed in December 2008 with agreement that tariffs would be based on the Levelised Cost of Electricity.

On 29 October 2009 NERSA approved the REFIT Phase II, including the eligibility criteria and tariffs for the following renewable energy technologies:

(1) biogas; (2) biomass solid; (3) concentrated solar power: solar trough without storage; and central tower; and (4) photovoltaic systems: large ground or roof based ≥ 1MW and concentrating photovoltaic (CPV).

The approved tariffs for Phase II, based on the Levelised Costs of Electricity are as listed in Table 2 below:

32 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Table 2: REFIT Tariffs – 2009 (R/KWh) REFIT PHASE 2 REFIT PHASE 1 DAY UNITS WIND per day) BIOGAS METHANE PARAMETER LANDFILL GAS SMALL HYDRO CONNECTED PV BIOMASS SOLID CONCENTRATED CONCENTRATED POWER TROUGH LARGE SCALE GRID CSP (TOWER) WITH SYSTEMS ( > 1 MW) SOLAR PLANT (CSP), WITHOUT STORAGE WITH STORAGE (6 hrs PARABOLIC THROUGH PARABOLIC STORAGE OF 6 HRS PER CONCENTRATED SOLAR CONCENTRATED Capital cost: enginneering procurement & construction (EPC) $/kW 4700 4000 3000 2750 5638 2000 2600 2400 4700 Land cost % 2% 2% 2% 2% 2% 5% 2% 2% 2% Allowance for funds under construction (AFUC) % 4.40% 0.00% 4.40% 4.40% 4.40% 4.40% 10.63% 4.40% 4.40% Tx/Dx integration cost % 3% 3% 3% 3% 3% 3% 3% 3% 3% Storage (CSP) % * 0 0 0 8.00% TOTAL INVEST- MENT COST $/kW 5152 4200 3289 3015 6180 2255 3020 2631 5545

Fixed O&M 2009$/kW/ yr 70 40 54 170 66 24 39 116 66 Variable O&M 2009$/kWh 0 0 0 0 0 0 0 0 0 Economic life years 20 20 20 20 20 20 20 20 20 Discount rate real after tax % 12% 12% 12% 12% 12% 12% 12% 12% 12% Plant lead time years 2 1 2 2 2 2 3 2 2 Fuel type 85% renewable/ 15% renew- renew- renew- renew- renew- renew- renew- fossil able able able able able able able renewable Fuel cost $/10^6BTU 3.00 1.5 Fuel cost $/kWh 0.0027 - - 0.00106 - - Heat rate BTU/kWh - - 15750 - - - 13500 - Assumed load factor % 25% 16% 80% 80% 40% 27% 50% 80% 40% Levelised cost of electricity production $/kWh 0.314 0.394 0.118 0.096 0.231 0.125 0.094 0.090 0.209 Exchange Rate R/$ ZAR/$ 10 10 10 10 10 10 10 10 10

Levelised cost of electricity production R/kWh 3.14 3.94 1.18 0.96 2.31 1.25 0.94 0.90 2.09

33 (g) Distribution maintenance

NERSA undertakes to develop and implement mechanisms to determine and rectify the existing electricity maintenance backlog and prevent future backlogs in the South African distribution industry.

In June 2008, an Electricity Distribution Maintenance Summit was held under the theme ‘Towards a sustainable electricity distribution industry’, resulting in 39 resolutions. On 17 December 2008, the Energy Regulator approved an implementation plan of the resolutions taken at the Electricity Distribution Maintenance Summit.

Action items and the responsibility matrix from the maintenance summit resolutions were shared with summit partners EDI Holdings (EDI), the Department of Energy (DoE), Eskom, Department of Cooperative Governance and Traditional Affairs (COGTA), the South African Local Government Association (SALGA) and the Association of Municipal Electricity Undertaking (AMEU).

The Electricity Subcommittee of the Energy Regulator, monitors progress on a six (6) monthly basis and approved the first Progress Report on Monitoring the Implementation of Maintenance Summit Resolutions at its meeting of 17 March 2010. The report will be considered by the Energy Regulator in the new financial year.

(h) Independent technical audits

NERSA undertakes to develop and implement mechanisms to determine and rectify the existing electricity maintenance backlog and prevent future backlogs in the South African distribution industry. To this end, technical audits are undertaken, corrective action plans are requested and these plans are monitored through subsequent compliance audits.

Generation In the last reporting period, independent technical audits were conducted on eleven Eskom Power Stations: Arnot, Acacia, Camden, Duvha, Drakensberg, Gariep, Koeberg, Tutuka, Majuba, Hendrina and Kendal as well as Kelvin Power Station, an independent power producer.

The report on the Independent Generation Technical Audit was approved by the Electricity Subcommittee of the Energy Regulator. NERSA is currently monitoring the implementation of the corrective action plans resulting from the Independent Generation Technical Audit on an ongoing basis. These plans address the findings and recommendations. It is expected that the implementation of the corrective action plans by audited licensees will improve the performance of the electricity generators significantly.

Transmission The main focus during the financial year was on monitoring the implementation of the corrective action plan by Eskom Transmission. The corrective action plan addresses the findings and recommendations of the Independent Transmission Technical Audit. Itis expected that the implementation of the corrective action plan by Eskom Transmission will improve the performance of the electricity transmission network significantly.

Distribution The Electricity Subcommittee of the Energy Regulator approved the report on the 2007/08 Independent Distribution Technical Audit.

NERSA is currently monitoring the implementation of the corrective action plans of the Independent Distribution Technical and Compliance Audit on an ongoing basis. The corrective action plans address the findings and recommendations. It is expected that the implementation of the corrective action plans by audited licensees will improve the performance of the electricity distribution networks significantly.

34 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Infrastructure Analysis and Review In terms of the New Generation Regulations of August 2009, the System Operator (SO) in consultation with the Energy Planner (DoE) and the Energy Regulator are responsible for the development of the National Integrated Resource Plan (NIRP). NERSA conducted intensive consultations with the SO on the development of the IRP1, published in January 2010.

(i) Rules, Guidelines and Codes issued by NERSA

In terms of the provisions of the New Generation Regulations in February 2010, NERSA developed and published a consultation paper on the rules for selection of renewable energy projects under the REFIT programme. A public hearing was held on 30 and 31 March 2010. The final decision of the Regulator on the rules will be issued by June 2010.

(j) Grid Code Amendments

Review of the Governance Code The reviewed Governance Code was discussed and approved by the Electricity Subcommittee and is scheduled for approval by the Energy Regulator in April 2010.

Incorporation of the NERSA Load Shedding Recommendations into the Grid Code NERSA’s recommendations were discussed at Industry Expert Team (IET) and Grid Code Advisory Committee (GCAC) level. The IET made its comments on the document and Eskom submitted a counter-proposal to the original recommendations to NERSA. At the time of reporting, NERSA was discussing Eskom’s counter proposal internally after which NERSA’s position will be discussed at the next GCAC and IET meetings in April 2010. These are envisaged to be complete and submitted for the Energy Regulator’s approval in June 2010.

Assessment of Grid Code connection requirements for alternative generation Wind connection requirements were compiled and discussed at IET and GCAC level. These were considered by the GCAC which recommended that, because there were other interested stakeholders that did not get an opportunity to participate in commenting on these connection requirements, these should be taken through a public participation process in April 2010. It is envisaged that the requirements will be completed and submitted for the Energy Regulator’s approval in June 2010.

(k) Electricity Distribution Industry (EDI) restructuring

During February 2001, Cabinet approved the Blueprint for the reform of the Electricity Distribution Industry (“EDI”) in South Africa. The intentions for the establishment of EDI were, amongst others, the establishment of the 6 (six) wall-to-wall Regional Electricity Distributors (“REDs”) as public entities. Since the Blueprint was adopted, attempts have been made to restructure the EDI on a voluntary basis and this could not be achieved, therefore, the establishment of the REDs was not possible.

The Department of Justice and Constitutional Development, in the Government Gazette of 17 June 2009, published the Constitution Seventeenth Amendment Bill of 2009 (“the Bill”) for public comments. The Bill intends to amend section 156 of the Act by insertion of the new subsection (1A) in section 156 of the Act.

The Bill is intended to empower or vest the national government of the Republic of South Africa with the authority to further regulate the executive authority of the municipalities in respect of local government matters listed in Part B of Schedule 4 and Part B of Schedule 5 of the Constitution of the Republic of South Africa Act, 1996 (Act No. 108 of 1996) when it is necessary to achieve regional efficiencies and economies of scale in respect of municipal functions and to provide for other matters connected therewith.

NERSA commented on the Bill and forwarded its comments to the Department of Justice and Constitutional Development.

35 (l) Energy Efficiency and Demand Side Management (EEDSM)

Energy Efficiency (EE) promotes the use of energy efficient equipment and processes, resulting in a reduction in overall electricity consumption, whilst Demand Side Management (DSM) is a structured process to influence the time and usage patterns of electricity consumed. South Africa’s generation capacity shortage and low generation plant reserve margin prompted acceleration of DSM implementation by government as a measure to alleviate it. This included economic and legislative changes, efficiency labels and performance standards, energy management activities and energy audits, as well as the promotion of efficient usage practices.

In support of this initiative, NERSA completed an audit of the EEDSM fund and compliance with the EEDSM regulatory framework during the review period. It is expected that the consultation paper on the revision of the rules for EEDSM programmes will be published in the middle of 2010.

Piped-Gas Industry Regulation

(a) Licences granted, amended or withdrawn

NERSA is responsible for the licensing of the construction, and operation of gas transmission, storage, distribution, liquefaction and re-gasification facilities, as well as trading in the piped-gas industry. The following represent all licence activities during the review period:

Licences granted for construction Eleven (11) distribution and three (3) transmission construction licences were granted to Sasol Gas Limited as follows:

• Six (6) distribution licences in areas of the Ekurhuleni Metropolitan Municipality; • Three (3) distribution licences in areas of the eThekwini Metropolitan Municipality; • Two (2) transmission licences in the Highveld East Local Municipality area; • One transmission licence in the Midvaal Local Municipality area; • One transmission licence in the uMhlathuze Local Municipality area; and • One distribution licence in the Tshwane Metropolitan Municipality area.

Two (2) licences were not granted by the Energy Regulator for the construction of gas facilities by: • Gigajoule Africa Pipe (Cape) (Pty) Ltd for the construction of gas transmission and distribution facilities in the Western Cape Province; and • Unigas Import and Export (Pty) Ltd for the construction of a re-gasification facility in the Port of Ngqura, and transmission facilities in the Eastern Cape, Western Cape and KZN Provinces.

Licences granted for trading Two (2) trading licences were granted as follows:

• One licence to Novo Energy (Pty) Ltd for trading in gas in the following six geographic areas of the Gauteng and KZN Provinces:

(1) Meyerton of the Midvaal local Municipality; (2) Durban of the eThekwini Metropolitan Municipality; (3) Pietermaritzburg of the Msunduzi Local Municipality; (4) Germiston East of the Ekurhuleni Metropolitan Municipality; (5) Pretoria of the Tshwane Metropolitan Municipality; and

36 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

(6) Cottesloe of the City of Johannesburg Metropolitan Municipality.

• One licence to Spring Lights Gas (Pty) Ltd for trading in gas in the following five geographic areas of KZN province:

(1) Durban South; (2) Merebank; (3) Prospecton; (4) Caneland-Verulam; and (5) Umbogintwini.

One licence for trading in gas was not granted to Gigajoule Africa Gas (Cape) for trading in gas in the Western Cape Province.

Licences amended Requests were received from Sasol Gas Limited for the amendment of eight (8) construction licences. These amendments were to extend the construction period as the licensee failed to complete the construction activities within the period provided for in the original licence conditions, due to delays in obtaining environmental authorisations for the projects.

Licences withdrawn One licence application for the construction of a gas distribution facility in the Prospecton area was withdrawn by Sasol Gas Ltd.

(b) Regulations made and directives issued by the Minister of Energy

The Piped-Gas Regulations as promulgated by the Minister of Energy came into effect on 20 April 2007. The Act is continuously reviewed with the aim of suggesting possible amendments to the Minister of Energy should these be deemed necessary. No amendments were proposed during the reporting period.

Sasol Limited continues to dominate the piped-gas industry in South Africa. Further developments by Sasol Limited, along with the potential for coal-bed methane in both Botswana and South Africa, and landfill gas opportunities are expected. During the reporting period the industry saw new developments with regard to the use of CNG as a vehicle fuel and as a source of gas for the industry.

(d) Health, safety and environmental matters

The Gas Act, 2001 (Act No. 48 of 2001) states that NERSA is responsible “to ensure the safe, efficient, economic and environmentally responsible transmission, distribution, storage, liquefaction, and re-gasification of gas”. The functions surrounding the safety of employees are entrenched in the Occupational Health and Safety Act, 1993 (No. 85 of 1993) of the Department of Labour (DoL). Environmental matters are entrenched in the legislation of the Department of Environmental Affairs (DEAT).

NERSA enhances and monitors public safety in the piped-gas industry by continuously ensuring that above-ground pipeline markers, which indicate the existence of buried pipelines, are installed during pipeline construction. Pipeline markers are placed at a minimum at each point where the pipeline crosses a public road to warn the public of its existence. Through technical conferences and seminars, members of the natural gas industry, NERSA and gas customers share information and experiences on all aspects relating to the safe operation of gas systems.

37 (e) Tariffs set or approved

The Piped-Gas Tariff Guidelines were approved by the Energy Regulator on 26 April 2009.

The proposed sources of information to be used as input variables in the calculation of tariffs were documented and, following due process, including the recommendations of stakeholders, were approved.

The Reasons for Decision on sources of information was approved by the Energy Regulator on 11 February 2010 and published on the NERSA website.

(f) Piped-Gas Prices

Reseller’s reference price and maximum price levels for gas The reseller’s reference price as well as maximum prices for Greenfields customers, distributors and reticulators were finalised and approved by the Piped-Gas Subcommittee on 09 September 2009.

Minimum prices for gas The landed price at Secunda was approved by the Piped-Gas Subcommittee on 09 September 2009

Discounts to customers Report on Sasol Gas’ compliance in terms of discounts to customer showed that the prescribed discounts had not been passed on to some customers. Sasol Gas was requested to provide a detailed explanation.

The submission received on Sasol Gas’ compliance with clause 12 of Schedule One of the Agreement Concerning the Mozambique Gas Pipeline between the Government of the Republic of South Africa, and Sasol Gas regarding discounts to customers was reviewed and approved by the Piped-Gas Subcommittee on 3 December 2009.

The Price Capping Mechanism was approved by the Piped-Gas Subcommittee on 10 March 2010.

(g) Administering Schedule One of the Agreement

Tariffs The tariff for the ROMPCO pipeline was calculated using the method that is prescribed in Clause 4.2.4 (7) of the Pipeline Agreement. In terms of Clause 4.2.4 (7) of the Agreement, the tariff for the ROMPCO pipeline for the transportation of 120 million Gigajoules of natural gas per annum from Mozambique to South Africa is R4.64/GJ as at January 2000. This tariff is adjusted quarterly with the South African PPI, excluding any expansion related charges, based on a ship or pay for 80% of the abovementioned 120 million Gigajoules per annum.

Furthermore, the Energy Regulator is currently assessing the tariff for the gas pipeline from Secunda to Kwazulu-Natal which is owned by Transnet Pipelines.

Sasol Limited’s exploration commitments In terms of Clauses 3 and 4 of Schedule One of the Agreement between the Government of South Africa and Mozambique, Sasol Limited agreed to significant exploration commitments to provide the additional reserves required to support 120 million Gigajoules of gas sales to South African markets for 25 years after 26 March 2004. In terms of the Agreement, Sasol Limited is required to fulfil these commitments by means of a development and exploration programme in 2003, 2006 and 2008.

38 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Sasol Limited accepted the Energy Regulator’s preliminary determination of the Special Regulatory Dispensation period of between 9.18 and 9.68 years after First Gas and committed to obtaining and providing certified proven gas reserves for the 2006 and 2008 work programmes.

To date, Sasol Gas has submitted the gas reserves information compiled by the two independent petroleum engineering consultants. However, NERSA is still awaiting further details of Sasol’s exploration programme.

Petroleum Pipelines Industry Regulation

(a) Licences granted, amended or withdrawn In terms of its mandate, NERSA is responsible for granting, amending, renewing or withdrawing the licences of regulated entities in the petroleum pipelines sector. The following licensing matters were concluded during the review period.

Licences granted for construction The following construction licences were granted during the review period: • Sasol Alrode to construct storage facilities; • Engen Montague Gardens to construct petroleum storage facilities; • Engen Petroleum Ltd to construct new pipeline infrastructure and upgrade existing storage facilities to connect to Transnet’s New Multi-Product Pipeline, which is still under construction; • BP/Engen/Shell/Total jointly to construct a new marine loading facility on Berth 6, Island View in Durban harbour; • Reatile Vopak to construct storage facilities; and • Sunrise Energy to construct storage facilities.

In addition, an application to construct a Liquefied Petroleum Gas (LPG) Storage terminal in Saldanha Bay was received. Delays in processing resulted because the application did not meet the minimum requirements and further information was requested regarding their confidentiality request.

Licences granted for operation of existing facilities The following licences were granted to existing facilities: • Chevron for a Joint Venture storage facility (BP operates) in Rustenburg; • Vopak storage facilities in Island View, Durban; • BP and Shell (SAPREF operates) for a pipeline and storage system in Durban; • Shell SA Marketing (operated by Mmanoto Distributors) for a storage facility in Lebowakgomo, Limpopo; • Total SA for storage facilities in Alrode Depot in Alberton, Island View Site 102 in Durban, and Island View Site 103 in Durban; • Chevron SA for a crude oil pipeline from Saldanha to Milnerton; a crude oil pipeline from Cape Town harbour to Calref refinery; a heavy fuel oil pipeline from Cape Town harbour to Caltex refinery; and a refined product pipeline from Cape Town harbour to Calref refinery; • The BP, Shell, Engen and Total Joint Venture (ORTIAFS) for a pipeline connecting the OR Tambo airport storage facility with the Transnet northern network; • The Engen/BP/Chevron/Shell/Total joint loading facility including two auxiliary connecting pipelines in East London harbour; • Wozani Berg Gasoline – storage in Western Cape; • Konet Diesel – storage Western Cape; • BP Drakensberg – storage in the Free State; • Shell SA Marketing – storage Potgietersrus, Limpopo; • Shell SA Marketing – storage Wesselsbron, Free State; • Chevron-Total – storage Kroonstad Free State; • Engen Refineries – loading, pipelines and storage Durban KZN;

39 • Paul Eliz Distributors – storage Bethlehem Free State; • Sunday Rivers Citrus Company – storage, Hermitage, Eastern Cape; and • BERTH 6 operations, to BP, Shell, Engen and Total.

Licences amended Amendments were made to the following three licences: • Transnet Pipelines applied in terms of section 23 (1) (a) of the Act to amend its petroleum pipeline system operation licence and include the new Jameson Park to Alrode, the Alrode to Langlaagte and the Kendal to Waltloo pipeline sections in their operations licence; • Petroline RSA – to allow for a 30 months construction period after the final Environmental Impact Assessment Record of Decision is received; and • Engen – for the inclusion of new tanks at its Polokwane storage site

Licences withdrawn Two licences were withdrawn, namely: • Shell South Africa for operation of storage facilities in Cape Town and Boksburg; the facility in Cape Town has been dismantled and the one in Boksburg is excluded from the Petroleum Pipelines Act; and • Total in Paarden Eiland, for a redundant, disused pipeline.

(b) Existing position and envisaged commercial developments with respect to the petroleum pipelines industry

Durban-Johannesburg Pipeline (DJP) Commissioning of the New Multi-Product Pipeline (NMPP) was delayed and is only expected to take place in 2012. As a result, the decommissioning of the Durban-Johannesburg Pipeline (DJP) was delayed. Transnet will carry out a new integrity study on the DJP in 2010 for review by NERSA.

Petroline Maputo to Kendal Construction of this line has not started resulting in severe delays to the commissioning date due to difficulties in obtaining servitudes and relevant Environmental Impact Assessment (EIA) approvals.

Sasol Oil Secunda-Natref Pipeline Difficulties were experienced in obtaining servitudes and a water licence and expropriation may be required if the project is to proceed. The latest expected Ready for Operation date was extended by ten (10) months to July 2011.

Commercial Developments After a relative investment drought in this sector for the past 30 years, the boom in construction of petroleum infrastructure continued this year despite the economic recession. This is reflected in the growing investment in storage and loading facilities as well as the pipeline construction that has been underway. When these construction projects become operational over the next few years South Africa will once again have adequate pipeline, storage and loading capacity.

There is increased interest in storage facilities from independent or merchant storage companies and a number of meetings were held with prospective applicants wanting to invest in new infrastructure.

During consideration of licence applications, a number of the oil majors indicated that they intend selling some of their storage facilities to the facilities operators (“resellers”) in the near future.

40 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

The Petroleum Pipelines Act includes a provision that requires NERSA to ‘ensure the safe, efficient, economic and environmentally responsible transport, loading and storage of petroleum.’

NERSA can only monitor compliance with the relevant legislation. Unfortunately NERSA lacked sufficient personnel to carry out inspections.

(d) Access to network infrastructure

The Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) provides for a type of “common carriage” access to pipelines. Transnet Pipelines has procedures that appear to accommodate most shippers and has attempted to accommodate shippers with small volumes.

The Act provides for third party access to petroleum storage and loading facilities. The implementation of this provision has been a cause for concern among some new entrants and would-be new entrants, a concern that has been exacerbated by the national shortage of storage capacity. Consequently, two workshops were held with industry stakeholders to discuss issues around third party access and the allocation of capacity at storage facilities, as well as a number of individual consultations with knowledgeable persons. Flowing from these consultations NERSA approved on 26 November 2009 Allocation Mechanism Guidelines for Third Party Access to Petroleum Storage Facilities which are intended to facilitate access to uncommitted capacity.

(e) Tariffs set or approved

Pipelines The Energy Regulator set tariffs for Transnet Ltd’s petroleum pipelines as follows:

• for 2009/10 on 30 April 2009; • for 2010/11 on 25 March 2010

The Energy Regulator approved the Transnet Ltd’s starting regulatory asset base (SRAB) for the petroleum pipelines and Tarlton storage facility assets on 25 March 2010.

No new tariff application was received from Petroline (Pty) Ltd. during the reporting period.

Loading and Storage facilities • A tariff application was received on 11 November 2008 for Transnet Ltd’s storage facility. Further information was requested and the application was finalised on 9 December 2009, with effect from 01 January 2010.

• A tariff application was received from Engen on 31 July 2009 for sixty-five (65) facilities. Aspects of the application were reviewed, including the request that certain information should remain confidential. NERSA is awaiting clarity as to why this information should be regarded as confidential.

(f) Implementation of compliance frameworks

Guidelines for compliance with the requirements prescribed by regulation were published for public comment. These guidelines will be used to assist licensees submit information to NERSA.

41 (g) Rules

In terms of section 33(3) of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) NERSA may make rules regarding most aspects of licensing, including the formulation of tariffs and the manner in which objections may be made.

A revised and comprehensive set of “Rules in terms of the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)” was developed and approved by the Energy Regulator at its meeting on 29 October 2009. These Rules were gazetted on 13 November 2009.

(h) Tariff Methodologies

The third and fourth amendments to the Petroleum Pipelines tariff methodology were approved by the Energy Regulator on 23 September and 26 November 2009. These amendments better align the methodology with the gazetted Regulations (GN R342 Government Gazette No. 30905 of 04 April 2008) and with the Petroleum Pipelines Act 2003 (Act No. 60 of 2003).

In addition, the Tariff Methodology for Petroleum Loading Facilities and Storage Facilities was approved by the Energy Regulator on 25 March 2010.

Cross-cutting Matters

(a) Constitutional Review

The Department of Justice and Constitutional Development, in the Government Gazette of 17 June 2009, published the Constitution Seventeenth Amendment Act of 2009 (“the Bill”) for public comment. The Bill intends to amend section 156 of the Constitution of the Republic of South Africa Act, 1996 (Act No. 108 of 1996) (“the Act”) by insertion of the new subsection (1A) in section 156 of the Act.

The Bill is intended to empower the national government of the Republic of South Africa to further regulate the exercise by municipalities of their executive authority in respect of local government matters listed in Part B of Schedule 4 and Part B of Schedule 5 of the Act when it is necessary to achieve regional efficiencies and economies of scale in respect of a specific municipal function; and to provide for matters connected therewith.

NERSA commented on the Bill and forwarded its comments to the Department of Justice and Constitutional Development.

(b) Legislative Matters

The Minister of Energy, in terms of section 2 of the Petroleum Products Act, 1977 (Act No. 120 of 1977), published Regulations in the Schedule for public comment (the Regulations). The Regulations repeal the Regulations promulgated in Government Notice R1100 of 17 January 1992. The Regulations seek to address the retail price maintenance and method of payment for the sale of petrol and diesel.

NERSA commented on the Regulations on the Petroleum Products Act, 1977 (Act No. 120 of 1977) and forwarded its comments to the Department of Energy. The Regulations became effective on 01 June 2009.

The Regulatory Reporting Manuals (RRMs) prescribe accounting procedures and requirements in order to achieve uniformity and consistent reporting of the financial information required for tariff setting, monitoring and/or tariff approval and help licensees/ municipalities to prepare and submit their regulatory financial reports to the Energy Regulator in a consistent format.

42 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

In order to ensure alignment between NERSA RRMs and National Treasury and Accounting Standards Board (ASB) standards of Generally Recognised Accounting Practice (GRAP), a document titled “RRM implementation guidance for municipal electricity businesses” was developed which highlights, as exceptions, only those points of departure between the RRM and the GRAP reporting framework and provides guidance on how those divergent requirements should be resolved in incremental steps to arrive at the Regulatory Financial Reporting for submission to NERSA, while allowing the licensee to continue to extract the information from GRAP-based statutory financial statements as is currently the case.

Phase 1 implementation continued during the reporting period as follows:

Electricity In the electricity industry the following Phase 1 implementers were targeted: • Eskom • eThekhwini • City of Cape Town • Ekurhuleni • City Power • Nelson Mandela Bay • Tshwane

Meetings were held with all licensees to introduce the RRM project and to highlight the benefits associated with the project. Licensees were requested to submit their implementation plans and follow-up letters were sent to all licensees.

Eskom submitted its implementation plan which has been approved by the Energy Regulator. Of the six (6) metros, only Nelson Mandela Bay’s implementation plan was received and approved by the Energy Regulator. Lack of commitment by the majority of municipalities was of great concern, resulting in:

• A workshop attended by NERSA , the six (6) metros and SALGA to discuss the challenges NERSA was encountering with municipalities regarding the implementation of the RRMs; • A meeting with the Auditor General to request that compliance with RRMs be included in the audit of the metropolitan municipalities; • A meeting with EDI Holdings (EDI) to explore synergies between EDI’s ring-fencing project for the Regional Electricity Distributors (REDs) and NERSA’s RRMs; • A refresher Activity Based Costing and Activity Based Management course on 24 and 25 November 2009; and • A second meeting with the Office of the Auditor General to update them on the status of the implementation of the RRMs.

Piped-Gas In the Piped-Gas industry Phase1 implementers are: • SASOL • ROMPCO (Volunteered)

Both SASOL and ROMPCO’s IPs were approved. ROMPCO’s Cost Allocation Manual (CAM) was approved but that of SASOL was referred back for further modification. The first RRM reports from SASOL and ROMPCO are expected in December 2010.

Petroleum Pipelines In the Petroleum Pipelines industry the targeted Phase 1 implementers are: • Transnet Limited • Chevron • Engen (Volunteered)

43 On 26 June 2009 Transnet Limited submitted its Petroleum Pipelines Implementation Plan (IP) and its CAM. The CAM was resubmitted by Transnet on 3 November 2009. The IP was approved by the Energy Regulator on 03 August 2009 and the CAM on 30 November 2009. Transnet Limited is expected to submit its first regulatory financial report in July 2010.

On 03 February 2010 Chevron submitted its IP which was approved by the Regulator on 23 March 2010. Its CAM is expected in July 2010.

In June 2009, Engen volunteered to become part of phase 1 RRM implementation. By 14 October 2009 Engen had submitted its IP which was approved by the Regulator on 7 December 2009. Its CAM is expected in April 2010. Despite its late entrance, Engen’s project is on track.

(d) Regulatory Reporting System (RRS)

The Regulatory Reporting System (RRS) is a system which is required for the implementation of Regulatory Reporting Manuals for the regulated energy industries of South Africa. This need was identified from the diagnosis of the capability of the current state of energy information management within the regulatory landscape. From the diagnosis it was identified that NERSA should:

• Develop a business data warehouse with analytic/business intelligence tools so as to effectively receive, process, analyse, store and retrieve RRMs financial information received from licensees in a secure manner; and • Improve web-based reporting communication layer to enable licensees to communicate seamlessly with NERSA, minimising manual intervention, thereby reducing the regulatory burden and increasing efficiencies.

Significant progress was made which included the development of the NERSA IT master plan and the appointment of a service provider to assist with the development of the RRS.

(e) Benchmarking the Energy Regulator Against International Best Practice

To facilitate the accomplishment of its vision “To be a world-class leader in energy regulation”, the Energy Regulator set the measurement of its performance against other regulators as a strategic objective. The project was undertaken with the assistance of experienced international consultants, with the inclusion of the transfer of skills to NERSA staff as part of the contract.

In the period under review two Reports of the project were approved by the Energy Regulator, marking the successful completion of the project. The following Reports were completed:

• Stage 2 Report: Performance evaluation using the NERSA Benchmarking Better Regulation Framework, which determined the framework against which the comparison with other regulators would be done; tested the framework; and examined NERSA’s alignment to its mandate; and • Stage 3 Report: Improvement opportunities and implementation plan, which identified the gaps and the projects required to close them.

These implementation plans and their associated projects have been prioritised and will be included in the business planning process over the next three years according to their allocated priority.

The benchmarking exercise was a tremendous learning opportunity for the organisation. The improvement opportunities were presented in “project ready” format to all the departments, with extensive staff participation. As a result, the high degree of staff buy-in has already influenced the way staff members work.

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A staff training course remains to be undertaken on the use of the resulting data base. The incorporation of the improvement opportunities in the business planning process will ensure the project is kept alive at NERSA.

(f) Complaints Resolution

NERSA received two hundred and eighty-two (282) complaints and resolved one hundred and fifty-eight (158) during the reporting period. This represents resolution of 56% of the complaints received.

The majority of the complaints involved municipalities implementing tariff increases which were not approved by NERSA and in some cases implementing the tariff before the approved implementation date. Thirty-eight (38) mediation meetings were held during the period.

(g) Customer Education

The following customer education events were conducted during the review period: • Peddie in the Eastern Cape on 18 April 2009 • Winburg in the Free State on 29 April 2009 • Community meeting in Bluegum • Radio Talk Show on Vukani FM • Presentation to Consumer Affairs Department in Durban • Customer Education Conference in Bloemfontein partnering with the Free State Department of Economic Development, Tourism and Environmental Affairs (DETEA) • Learner Focus Week in East London partnering with the DoE • Customer Education Workshop for teachers in Ladybrand partnering with DETEA • A Customer Education Workshop on Natural Gas Pricing at Blue Valley Golf Estate on 1 December 2009 • A Customer Education presentation to the Alldays Forum which was incorporated into the Nzhelele Customer Communication Forum

(h) Development, Implementation and Maintenance of the Licensee Information System (LIS) for Electricity, Piped-Gas and Petroleum Pipelines Regulation

During the reporting period, the Licensee Information System (LIS) for Electricity was tested internally and an Online Help function was developed. Fifteen (15) municipalities were approached to participate in the rollout of the LIS as a pilot project. Out of the fifteen (15) licensees chosen, eight (8) responded and visiting dates were secured with them. The eight (8) licensees were visited by the LIS Project team and the LIS was rolled out to them accordingly. There was very positive feedback provided and interest shown in using the new reporting system on the part of the visited licensees. The licensees that were visited are listed below: • Drakenstein • Emfuleng • Maluti a Phofung • Umhlathuze • Centlec Mangaung • Sol Plaatjie • Buffalo City • King Sabata Dalindyebo

45 (i) Integration of the GIS for all three regulated industries

The geographic information system (GIS) software was renewed and configured on the NERSA network. A rollout and training strategy was developed and the GIS for the Piped-Gas and Electricity industries was loaded on the GIS Server. The petroleum pipelines industry did not see the value in a GIS for them

The GIS application was moved from the IT development environment to the live environment and is now accessible by all staff within NERSA.

Organisational Matters

(a) Human Resources Management Restructuring of NERSA commenced during the previous reporting period to address the complexity of the organisation and ensure the effective and efficient regulation of the dynamic industries that the organisation regulates. The new structure resulted in cross transfers of some staff members into the new divisions and departments. The new NERSA structure has a complement of 168 staff members and the process of filling vacant positions is nearing completion.

The tables below provide information on employment and vacancies, staff movements, recruitments and internal appointments within NERSA for the period under review:

Employment and Vacancies

Employment and Vacancies by Division

Division Number of posts Number of posts filled Vacancies Electricity Regulation 51 44 7 Piped-Gas Regulation 14 7 7 Petroleum Pipelines Regulation 14 8 6 Finance & Administration 15 15 0 Corporate Services 34 31 3 Human Resources 7 7 0 Specialised Support Units 33 29 4 Total 168 141 27 Employees with disabilities 0 0 0

180 Vacancies 160 140 Number of posts lled

120 Number of posts 100 80 60 40 20 0 Elec Reg PGR PPR FAD CA HR SSU Total

14 Number 12

8 46 NATIONAL ENERGY REGULATOR 6

Total Other Retirement Resignation requirements performance Expiry of contract Dismissal - ill health Dismissal - operationalDismissal -Dismissal misconduct - poor work

12 Unskilled 10 Semi-skilled

8 Skilled

6 Mid-management

4 Senior management

Top management 2

White White African Indian African Indian Coloured Coloured

2,5 Unskilled

2 Semi-skilled

Skilled 1,5 Mid-management 1 Senior management

0,5 Top management

White White African Indian African Indian Coloured Coloured Annual Report 2009/2010

Staff Movements

Staff Movements by Reason

Termination type Number % of actual Death 180 Vacancies Resignation 160 13 9.2 Expiry of contract 140 Number of posts lled Dismissal – operational120 requirements Number of posts 100 Dismissal – misconduct 80 Dismissal – poor work performance60 Dismissal – ill health 40 20 Retirement 0 Other Elec Reg PGR PPR FAD CA HR SSU Total Total 13 9.2

14 Number 12

Total Other Retirement Resignation requirements performance Expiry of contract Dismissal - ill health Dismissal - operationalDismissal -Dismissal misconduct - poor work

Recruitment 12 Unskilled Male Female 10 Occupational Semi-skilled band African8 Coloured Indian White African ColouredSkilled Indian White Total

Top management 6 Mid-management Senior manage- 4 1 Senior management 1 Top management ment 2 Mid-management 10 6 16 0 Skilled 9 8 17 White White African Indian African Indian Semi-skilled 1 Coloured Coloured 4 5 Unskilled Total 2,520 19 39 Unskilled

2 Semi-skilled

Skilled 1,5 Mid-management 1 Senior management 47 0,5 Top management

White White African Indian African Indian Coloured Coloured 180 Vacancies 160 140 Number of posts lled

120 Number of posts 100 80 60 40 20 0 Elec Reg PGR PPR FAD CA HR SSU Total

14 Number 18012 Vacancies 16010 140 Number of posts lled 8 120 Number of posts 6 100 804

602 40 0 20 Total 0 Other Elec Reg PGR PPR FAD CA RetirementHR SSU Total Resignation requirements performance Expiry of contract Dismissal - ill health Dismissal - operationalDismissal -Dismissal misconduct - poor work

14 Number 12 12 Unskilled 10 10 Semi-skilled

8 Skilled

6 Mid-management 4 4 Senior management 2 Top management 2 0

0 Total Other

White Retirement White ResignationAfrican Indian African Indian Colouredrequirements performance Coloured Expiry of contract Dismissal - ill health Internal Appointments Dismissal - operationalDismissal -Dismissal misconduct - poor work

2,5 Male UnskilledFemale Occupational 12 band 2 UnskilledSemi-skilled African Coloured Indian White African Coloured Indian White Total 10 Skilled 1,5 Semi-skilled Top management 8 SkilledMid-management Senior manage- 1 6 Mid-managementSenior management ment 0,5 Top management 4 Senior management Mid-management Top management Skilled 220 1 3

White White 0 African Indian African Indian Semi-skilled Coloured Coloured

White White Unskilled African Indian African Indian Coloured Coloured Total 2 1 3

2,5 Unskilled

2 Semi-skilled

Skilled 1,5 Mid-management 1 Senior management

0,5 Top management

White White African Indian African Indian Coloured Coloured

Staff Development and Training A Training and Development Plan to address skills requirements of new and existing staff was completed and submitted to the Energy Sector Education and Training Authority (ESETA).In the review period one hundred and twenty-one (121) staff members attended forty-nine (49) local training courses and forty-seven (47) staff members attended eighteen (18) international courses.

48 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Skills Development Training Programme The NERSA Learnership Programme (Certificate in Energy Regulation – NQF Level 5) was approved by the South African Qualifications Authority (SAQA) in May 2009 and has been registered with the Energy Sector Education and Training Authority (ESETA). A service provider accredited by ESETA was appointed to develop training material for the Learnership Programme. This will assist NERSA to build a pool of scarce skills from which to recruit employees, based on its operational requirements. It will also provide on-the-job experience to prepare learners for future employment opportunities in the regulatory environment or energy industry.

Wellness Programme NERSA employees participated in the following wellness programmes during the reporting period: • The highly successful World AIDS Day Fair which presented a number of health awareness interventions; • The 702 Walk the Talk event in which fifty-one (51) employees participated; and • Free eye screening which was utilised by thirty (30) employees.

NERSA Employee Awards An award ceremony was held during NERSA’s Year End Function where the organisation gave recognition to its achievers. The nomination process for these awards was spearheaded by the HR Department and the highlight of the evening was the announcement of the winners of the CEO’s Award for Outstanding Performance and the CEO’s Emerging Leader Award.

Pension Fund The NERSA Pension Fund is administered by Coris Capital on behalf of Sanlam. There is a Board of Trustees representing the pension-related interests of NERSA and its employees. The Trustees are 50% Employer and 50% Employee appointed. The fund is governed by the Pension Fund Act, 1956 (Act No. 24 of 1956), (as amended).

Employee Representative Body NERSA recognises freedom of association and concluded a recognition agreement with the National Education Health and Allied Workers Union (Nehawu) as the representative body for staff members on matters that affect them, such as conditions of employment and salary increases.

(b) Information Resource Management

A number of information resource projects were undertaken during the reporting period, with the following outcomes:

• As part of the implementation of the NERSA IT Disaster Recovery Plan, NERSA secured an off-site data back-up storage facility, to enable the recovery of NERSA computer information in the event of disaster; • The Electricity Supply Statistics publication for 2005/2006 was finalised. The 2006/2007, 2007/2008 and 2008/2009 publications will be finalised during the 2010/2011 financial year; • NERSA completed the definition and design of a Knowledge Management Strategy; and • The design of the Licensee Management System was completed, which will enable the tracking of licence applications at each step of the licensing process.

Financial planning and management NERSA is listed as a public entity in terms of Schedule 3A of the Public Finance Management Act, 1999 (Act No.1 of 1999) (as amended) (PFMA).

NERSA’s annual business is conducted in terms of its Strategic Plan and its Business Plan and Budget, prepared in the year prior

49 to the review period, and submitted to the Minister of Energy. The outcomes of NERSA’s pursuits and results are reported annually in its Annual Financial Statements (AFS), which are published in its Annual Report. The AFS are prepared in accordance with the requirements of the PFMA, the National Energy Regulator Act, 2004 (Act No. 40 of 2004), Treasury Regulations and Generally Accepted Accounting Practice (GAAP).

Following due process, NERSA’s Strategic Plan, Business Plan and budget for 2010/11 were prepared and submitted to the Minister of Energy.

The imposition of the electricity levy was gazetted by the Minister of Energy on 24 June 2009 taking effect from 24 July 2009. The budget for the regulation of the piped-gas industry was only approved on 18 June 2009 and the correspondence received on 1 July 2009. The imposition of the levies was gazetted on 8 July 2009.

All levies for the 2009/10 financial year were billed by 31 March 2010.

Cash flow mitigating reserve NERSA’s cash flow mitigating reserve, approved by the Minister of Finance on 29 February 2008, now stands at R 18.928 million (2008/09: R23.972 million).

Administration, policy approvals and audits The following policies and/or operating procedures were approved by the Management Committee of NERSA during the reporting period: • Induction Policy; • Integrated Development Management Plan Framework; • Balanced Scorecard Policy; and • Team-based network structure Project Management Body of Knowledge.

Property management and administration of NERSA facilities The management and maintenance of Kulawula House, the building which NERSA owns and resides in, is undertaken using internal resources. Where necessary private companies are sourced to undertake specialist maintenance.

Administration services are provided internally using procedures and processes that have been developed to manage the issuing of petty cash and stationary; document delivery; logistic services; chauffeur services; cleaning; provision of refreshments and the management of the NERSA cell phone and land line accounts.

Audit & Risk Management

• Internal Audit Unit NERSA’s Internal Audit Unit assists Management and the Audit and Risk Subcommittee to effectively discharge their responsibilities by means of independent internal control and operational reviews. The Internal Audit Unit reports administratively to the CEO and functionally to the Audit and Risk Subcommittee. The Unit also provides consulting services, attending meetings of the Finance Subcommittee, the Operational Risk Committee and the Auditor Steering Committee.

During the review period, NERSA’s Internal Audit Unit completed twenty (20) planned audits and two ad hoc assignments.

• Fraud Prevention Organisational Risks in the approved Strategic Risk Register contains, amongst others, fraud risks. NERSA has a zero tolerance policy on fraud, corruption and misuse of public resources. A Fraud Hotline is in place, which is operated by an external service provider and guarantees the anonymity of any person calling in to report suspected fraud, corruption or the misuse of public

50 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

resources. Two cases of fraud were reported through the Fraud Hotline during the review period and followed up.

An approved Fraud Policy and Fraud Prevention Plan is in place and is reviewed every second year. The Operational Risk Committee operates as a Fraud Prevention Committee.

• Operational Risk Committee The Operational Risk Committee (ORC) is a management committee established by the Chief Executive Officer to monitor the risk, control and governance processes within NERSA. The objectives of the ORC are to: a. Provide general guidance in matters of risk management and agreed action plans on audit findings that may impact on NERSA’s strategies and objectives; b. To monitor the implementation of agreed management action plans in areas where the Internal Audit Unit and the Auditor General have identified significant weaknesses in the control environment; and c. To act as a fraud prevention committee.

• Risk Management NERSA reviewed its Risk Management Policy during the review period. The purpose of this Risk Management Policy is to develop processes and principles to identify and manage risk in a cohesive, structured and effective manner. The policy also serves as a basis to understand, manage and communicate risk strategies more effectively.

The Strategic Risk Register was approved by the Energy Regulator. This Register includes industry specific regulatory risks, cross- cutting risks and operational risks. The Strategic Risk Register also includes strategies to reduce the realisation of risks. Implementation of strategies to mitigate risk is done through submissions from the ORC to the ARS on a bi-annual basis.

(d) Management of NERSA’s Corporate Image

In general, NERSA gained widespread ground during the review period as a result of the extended process surrounding Eskom’s revenue application for MYPD2 for the 2010/11, 2011/12 and 2012/13 periods.

Parliamentary Portfolio Committee At Parliamentary Portfolio Committee level, NERSA interacted on three notable occasions, firstly to brief the new Committee on NERSA’s mandate, secondly through the presentation of NERSA’s 2008/09 Annual Report and thirdly to brief the Committee on Eskom’s MYPD2.

Media Coverage Two press conferences were held in the review period as follows: • Media conference on 25 June 2009 to announce the Energy Regulator’s decision on Eskom’s interim price increase application; and • Media conference on 24 February 2010 to announce the Energy Regulator’s decision on Eskom’s revenue application for MYPD 2.

In addition, more than thirty-three (33) media interviews were facilitated with print and electronic media and seventeen (17) media statements were issued.

Daily media monitoring and analysis was conducted on NERSA’s behalf by a specialist service provider. Relevant articles were circulated throughout the organisation.

Public Awareness Extensive public awareness was generated through participation in the following exhibitions: • The Rand Easter Show

51 • Africa Power • African Utility Week • The Minister of Energy’s budget vote speech • The Science Unlimited event in Pietermaritzburg • Department of Energy Learners Focus Week in East London • The Power and Electricity World Africa Exhibition

Advertisements Advertisements placed during the year included tenders, public hearing notices, and invitations to comment on published documents, which were published in a broad spectrum of newspapers. The Regulatory Rules for Power Cost Recovery were published in the Government Gazette.

In addition, advertisements were placed in the following three magazines to profile NERSA: Impumelelo 2010, Sawubona and Destination 2010.

NERSA Website NERSA regards its website as a powerful tool to communicate with both internal and external audiences. Relevant information such as tender notices, public hearing notices, consultation papers, regulator decisions and licence conditions were published on the site.

During the course of the year a service provider was appointed to redevelop the site to include links to additional systems in order to improve the user experience.

Publications The 2008/09 NERSA Annual Report was submitted to the Minister of Minerals and Energy for tabling in Parliament, including the audited financial statements of the organisation in compliance with Section 32 (a) of the Public Finance Management Act (Act No.1 of 1999 as amended by Act 29 of 1999) and Section 14 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004).

(e) International Coordination and Partnerships

International Conferences • The 4th World Forum on Energy Regulation (WFER) A delegation comprising Regulator Members and Management from NERSA attended the 4th World Forum of Energy Regulators (WFER) in Athens, Greece from 18 to 21 October 2009. The energy regulators worldwide constituted the International Confederation of Energy Regulators (ICER), which issued the World Energy Regulators’ Statement on Climate agreed by eleven (11) regional associations of regulators. The Full-Time Regulator Member responsible for Petroleum Pipelines was invited by the WFER to make a presentation at the Forum concerning security of supply issues in South Africa that was well received. • The African Forum for Utility Regulators (AFUR) A delegation from NERSA attended the 6th Annual General Meeting and Conference of AFUR in Abidjan, Côte d’Ivoire from 22 to 24 April 2009. ANARE from Côte d’Ivoire took over the Chairmanship of AFUR from NERSA. NERSA was elected as the Chair of the Energy Sub-committee. All AFUR EXCO meetings were held at NERSA, due to the AFUR Secretariat being housed in Pretoria. • The Regional Electricity Regulatory Association of Southern Africa (RERA) The Annual General Meeting (AGM) of RERA was hosted by NERSA on 20 November 2009 after the member country that was to host the AGM and Conference indicated that it was unable to do so. Due to the short notice period, only the AGM was held, during which NERSA was elected to Chair the Executive Committee. NERSA volunteered to host the 2010 AGM, which will be preceded by a conference. As NERSA was the only member that registered interest in this regard, it was elected by default to host the 2010 AGM and Conference. The RERA Portfolio Committee meetings were held in Centurion from 7 to 11 September 2009.

52 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

International visits – outbound • A delegation from NERSA, including the Chairperson and the CEO, attended the Africa Energy Forum 2009 in Bordeaux, France during July 2009; • Following the Africa Energy Forum, a delegation from NERSA paid a courtesy visit to the French Energy Regulator, CRE in France; • A delegation from NERSA visited Spain to study gas pipelines; • A delegation from NERSA undertook a study tour of Canada and visited the National Energy Regulator, as well as the Regulator of the state of Alberta; • Seven (7) NERSA officials attended the ELRI training course on energy regulation in Norway under the sponsorship of the NORAD Project (RSA-3001) • Two (2) of the Regulator Members (Gas & Petroleum) visited the Petroleum & Natural Gas Regulatory Body of India.

International visits – inbound During the review period, NERSA received delegations from Italy, The People’s Republic of China, Angola, Poland, Norway, Zimbabwe and Germany.

• NERSA hosted the Board of the newly established Swaziland Electricity Regulatory Authority. NERSA, along with RERA, is providing assistance to SERA in the creation of a fully functional regulator, based on best international practice. • NERSA hosted a number of officials from other energy regulators who were attached to the organisation, especially from the Energy and Water Utilities Regulatory Authority from Tanzania

Other international matters

• A database was compiled of all energy-related bilateral agreements that the Government of South Africa has signed with other governments; • A database of all foreign energy regulators will be completed in the new financial year; • Work is under way on the compilation of a database of all energy and energy regulation-related foreign training opportunities; and • Project Delta

Project Delta is the result of a bilateral agreement signed between the South African government and the Norwegian Agency for Development Cooperation (NORAD). The agreement made provision for the training of staff from identified stakeholders in the energy sector in South Africa, including the Department of Energy and NERSA. Project Delta, in its current format, comes to an end in March 2010.

A number of activities, funded by NORAD, have so far successfully taken place as part of this project, namely:

The Electricity Regulatory Initiative Seminar (ERLI) Seminar Seven (7) NERSA officials participated in this seminar which took place in Oslo, Norway. The topics covered were of great significance to all that attended and contributed towards capacity building and efficiency of the organisation.

NERSA/NVE Conference As part of its partnership programme with the Norwegian Government under RSA-3001, a delegation of eight (8) officials from the Norwegian Energy Regulator (NVE) participated in a week-long training conference with NERSA on all aspects related to energy regulation. Fifty-three (53) officials from NERSA attended the training conference, which was the first of its kind held at NERSA.

License Information Systems (LIS) This programme involves the roll-out of a reporting system (LIS), to all licensed entities in the electricity business in South Africa. The reporting system will allow collection, capture, storage, analysis and dissemination of Electricity information. The LIS has been developed, tested and piloted by identified licensees and will be rolled out to all licensees in a phased approach.

53 CORPORATE GOVERNANCE

(a) Code of practices and conduct

The National Energy Regulator is committed to complying with the recommendations to the King II and III Report, Protocol on Corporate Governance in the Public Sector. In its quest to adhere to best practices and sound governance principles, the Energy Regulator subjects itself to the annual assessment of the effectiveness of the Energy Regulator, Chairperson and Subcommittees. The Audit and Risk Subcommittee also conducts its own assessment.

In complying with the National Energy Regulator Act, 2004 (Act No. 40 of 2004) read with the Public Finance Management Act, 1999 (Act No. 1 of 1999), all Regulator Members are required to declare their interests, if any, before the start of each meeting of the Energy Regulator. In addition, Regulator Members are required to declare to the Minister of Energy, upon their appointment, any interest in the three regulated industries. Further, Regulator Members must declare gifts, shares and hospitality that they may receive from the regulated energy industry.

The Energy Regulator has a Code of Conduct that guides Regulator Members on how to conduct themselves in the execution of their duties. The Code of Conduct is reviewed on a regular basis together with the terms of reference and delegations to Subcommittees of the Energy Regulator.

Induction of Regulator Members The Energy Regulator has a comprehensive induction programme both locally and internationally which covers governance and regulatory issues.

Staff induction A staff induction programme is in place to acquaint new staff members with NERSA’s code of practices and conduct.

Compliance with the Promotion of Access to Information Act Forty-one (41) requests for information were received and were dealt with within the time period allowed for by the Promotion of Access to Information Act. The report on the requests was submitted to the Human Rights Commission (HRC).

(b) The Energy Regulator and its Members

The Minister of Energy appoints Members of the Energy Regulator (Board), comprising Part-Time (Non-Executive) and Full-Time (Executive) Regulator Members, including the Chief Executive Officer (CEO). The Energy Regulator is supported by staff under the direction of the CEO.

During the review period, the tenure of the Part-time Regulator Members came to an end on 31 December 2009, resulting in the appointment, by the Minister, of four (4) new Part-time Regulator Members including the Chairperson and the Deputy Chairperson whose term began on 01 January 2010 for a period of four years.

In addition, there are four (4) Full-time Regulator Members comprising the CEO and three (3) Full-time Members primarily responsible for electricity, piped-gas and petroleum pipelines regulation.

54 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

The CEO is, subject to the directions of the Energy Regulator, responsible for: • The day-to-day management of the business/affairs of NERSA; • The appointment of members of the NERSA staff; • Administrative control over the NERSA staff; and • Recommending to the Energy Regulator the staff and resources that may be required by Full-Time Energy Regulator Members.

During the reporting period, the Regulator Members and their attendance at the meetings of the Energy Regulator were as follows:

Energy Regulator

ENERGY REGULATOR MEETINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms C Khuzwayo Regulator Member (Current Chairperson)* 18 3 Mr C Matjila Regulator Member (Former Chairperson)# 18 14 Mr J Lesejane Regulator Member (Current Deputy Chairper- 18 14 son** and Former Regulator Member) Ms DD Mokgatle Regulator Member (Former Deputy 18 14 Chairperson)# Mr SS Mokoena Regulator Member (CEO) 18 18 Mr T Bukula Regulator Member 18 15 Dr R Crompton Regulator Member 18 17 Ms E Teljeur Regulator Member 18 16 Ms K Mthimunye Regulator Member* 18 3 Ms G Whittington Banda Regulator Member* 18 3 Ms L Makatini Former Regulator Member# 18 14 Prof D Singh Former Regulator Member# 18 13 * Appointed 1 January 2010 ** Appointed 1 April 2009 and re-appointed 1 January 2010 # Term of office ended 31 December 2009

In terms of Section 8 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) the Energy Regulator has established subcommittees and defined their terms of reference in order to efficiently and effectively carry out its mandate. The subcommittees with the attendance of the Regulator Members are as follows:

55 • Industry-specific Regulatory Subcommittees

Electricity Subcommittee (ELS)

ELECTRICITY SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr T Bukula Chairperson 12 12 Mr SS Mokoena Member (CEO) 12 11 Ms C Khuzwayo Member (Alternate)* 12 1 Ms E Teljeur Member 12 9 Dr R Crompton Member 12 12 Ms G Whittington Banda Member (Permanent)* 12 3 Mr C Matjila Former Member (Alternate)# 12 2 Ms DD Mokgatle Former Member (Permanent)# 12 7 Mr J Lesejane Attended by invitation** 3 Ms K Mthimunye Attended by invitation** 1 Prof D Singh Attended by invitation** 2 Ms L Makatini Attended by invitation** 3 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation # Term of office ended 31 December 2009

Piped-Gas Subcommittee (PGS)

PIPED-GAS SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms E Teljeur Chairperson 11 11 Mr SS Mokoena Member (CEO) 11 7 Mr T Bukula Member 11 10 Dr R Crompton Member 11 11 Mr J Lesejane Member* (Alternate) / Formerly attended by invitation** 11 3 Ms K Mthimunye Member (Temporary)* 11 1 Prof D Singh Former Member (Permanent)# 11 6 Ms D Mokgatle Former Member (Alternate)# 11 3 Ms L Makatini Attended by invitation** 2 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation # Term of office ended 31 December 2009

56 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Subcommittee (PPS)

PETROLEUM PIPELINES SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Dr R Crompton Chairperson 13 13 Mr S Mokoena Member (CEO) 13 13 Mr T Bukula Member 13 11 Ms E Teljeur Member 13 13 Ms K Mthimunye New Member (Permanent) 13 3 Ms G Whittington Banda New Member (Alternate) 13 2 Ms L Makatini Former Member (Permanent) 13 5 Mr J Lesejane Former Member (Alternate) 13 1

• Governance Subcommittees

Policy Subcommittee (POS)

SUBCOMMITTEE MEETINGS

POLICY SUBCOMMITTEE (disbanded during the 4th quarter)

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr C Matjila Chairperson 2 2 Mr SS Mokoena Member (CEO) 2 2 Dr R Crompton Member 2 1 Ms L Makatini Member 2 2 Mr J Lesejane Member 2 2 Ms E Teljeur Member 2 2 Ms DD Mokgatle Attended by invitation*** 2 Mr T Bukula Attended by invitation*** 2 Prof D Singh Attended by invitation*** 2 *** Not a Subcommittee Member – attended by invitation

57 Audit and Risk Subcommittee (ARS)

AUDIT AND RISK SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms K Mthimunye Chairperson* 6 1 Dr R Crompton Temporary Member 6 0 Mr M Nkhabu External Member 6 4 Ms M Joubert External Member 6 5 Mr S Mokoena CEO** 6 Prof D Singh Former Chairperson 6 4 Ms DD Mokgatle Former Member 6 5 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

A comprehensive report by the Audit and Risk Subcommittee is presented in the Annual Financial Statements of this Report.

Finance Subcommittee (FIS)

FINANCE SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr J Lesejane Chairperson 9 8 Mr SS Mokoena Member (CEO) 9 9 Ms G Whittington Banda Member* 9 1 Ms E Teljeur Member 9 7 Ms DD Mokgatle Former Member 9 8 Prof D Singh Attended by invitation** 4 Ms L Makatini Attended by invitation** 2 Dr R Crompton Attended by invitation** 3 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

58 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Human Resources Subcommittee (HRS)

HUMAN RESOURCES SUBCOMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms C Khuzwayo Chairperson* 9 3 Mr SS Mokoena Member (CEO) 9 9 Mr J Lesejane Member* 9 2 Ms G Whittington Banda Member* 9 3 Ms N Joubert External Member (REMCO until 31/12/09) 9 2 Mr J Mabaso External Member (REMCO until 31/12/09) 9 3 Ms K Mthimunye Attended by invitation** 2 Mr T Bukula Former Member and currently attending by 9 7 invitation** Dr R Crompton Attend by invitation** 2 Ms E Teljeur Attend by invitation** 4 Ms L Makatini Former Chairperson 9 6 Prof D Singh Former Member 9 5 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

Remuneration Subcommittee (REMCO)

REMUNERATION SUBCOMMITTEE (Disbanded during the fourth quarter)

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms DD Mokgatle Chairperson 9 9 Ms L Makatini Member 9 8 Mr J Lesejane Member 9 7 Ms N Joubert External Member 9 8 Mr J Mabaso External Member 9 7 Mr SS Mokoena CEO*** 9 *** Not a Subcommittee Member – attended by invitation

59 REMUNERATION SUBCOMMITTEE PLUS NERSA CHAIRPERSON (Disbanded during the fourth quarter)

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms DD Mokgatle Chairperson 3 3 Mr C Matjila Member 3 1 Ms L Makatini Member 3 3 Mr J Lesejane Member 3 3 Ms N Joubert External Member 3 3 Mr J Mabaso External Member 3 2 Mr SS Mokoena CEO*** 1 *** Not a Subcommittee Member – attended by invitation

Regulator Executive Committee (REC)

REGULATOR EXECUTIVE COMMITTEE

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr SS Mokoena Chairperson (CEO) 28 28 Mr T Bukula Member 28 21 Dr R Crompton Member 28 27 Ms E Teljeur Member 28 26

60 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Attendance of Public Hearings

ELECTRICITY SUBCOMMITTEE PUBLIC HEARINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr T Bukula Chairperson 19 19 Mr SS Mokoena Member (CEO) 19 18 Ms C Khuzwayo Member (Alternate)* 19 2 Ms E Teljeur Member 19 15 Dr R Crompton Member 19 19 Ms G Whittington Banda Member (Permanent)* 19 10 Mr C Matjila Former Member (Alternate) Until 31/12/09 19 0 Ms DD Mokgatle Former Member (Permanent) Until 31/12/09 19 3 Mr J Lesejane Attended by invitation** 3 Ms K Mthimunye Attended by invitation** 6 Prof D Singh Attended by invitation** 0 Ms L Makatini Attended by invitation** 2 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

PIPED-GAS SUBCOMMITTEE PUBLIC HEARINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms E Teljeur Chairperson 6 6 Mr SS Mokoena Member (CEO) 6 2 Mr T Bukula Member 6 3 Dr R Crompton Member 6 6 Mr J Lesejane Member (Alternate)* 6 0 Ms K Mthimunye Member (Temporary)* 6 1 Prof D Singh Former Member (Permanent) 6 0 Ms D Mokgatle Former Member (Alternate) 6 1 * Appointed 1 January 2010

61 PETROLEUM PIPELINES SUBCOMMITTEE PUBLIC HEARINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Dr R Crompton Chairperson 7 7 Mr S Mokoena Member (CEO) 7 5 Mr T Bukula Member 7 5 Ms E Teljeur Member 7 7 Ms K Mthimunye Member (Permanent)* 7 2 Ms G Whittington Banda Member (Alternate)* 7 2 Ms L Makatini Former Member (Permanent) 7 3 Mr J Lesejane Former Member (Alternate) 7 0 * Appointed 1 January 2010

REGULATOR EXECUTIVE COMMITTEE PUBLIC HEARINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr SS Mokoena Chairperson (CEO) 11 7 Mr T Bukula Member 11 7 Dr R Crompton Member 11 11 Ms E Teljeur Member 11 9

62 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Attendance of Workshops

ELECTRICITY SUBCOMMITTEE WORKSHOP/PANEL MEETINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr T Bukula Chairperson 6 6 Mr SS Mokoena Member (CEO) 6 6 Ms C Khuzwayo Member (Alternate)* 6 2 Ms E Teljeur Member 6 6 Dr R Crompton Member 6 6 Ms G Whittington Banda Member (Permanent)* 6 6 Mr C Matjila Former Member (Alternate) 6 1 Ms DD Mokgatle Former Member (Permanent) 6 3 Mr J Lesejane Attended by invitation** 2 Ms K Mthimunye Attended by invitation** 2 Prof D Singh Attended by invitation** 1 Ms L Makatini Attended by invitation** 1 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

PIPED-GAS SUBCOMMITTEE WORKSHOP/PANEL MEETINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms E Teljeur Chairperson 5 5 Mr SS Mokoena Member (CEO) 5 2 Mr T Bukula Member 5 4 Dr R Crompton Member 5 5 Mr J Lesejane Member (Alternate)* / Formerly attended by 5 1 invitation** Ms K Mthimunye Member (Temporary)* 5 0 Prof D Singh Former Member (Permanent) 5 2 Ms D Mokgatle Former Member (Alternate) 5 1 Ms L Makatini Attended by invitation** 1 * Appointed 1 January 2010 ** Not a Subcommittee Member – attended by invitation

63 PETROLEUM PIPELINES SUBCOMMITTEE PUBLIC HEARING/PANEL MEETINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Dr R Crompton Chairperson 2 2 Mr S Mokoena Member (CEO) 2 1 Mr T Bukula Member 2 2 Ms E Teljeur Member 2 2 Ms K Mthimunye Member (Permanent)* 2 1 Ms G Whittington Banda Member (Alternate)* 2 1 Ms L Makatini Former Member (Permanent) 2 1 Mr J Lesejane Former Member (Alternate) 2 0 * Appointed 1 January 2010

REGULATOR EXECUTIVE COMMITTEE WORKSHOP/PANEL MEETINGS

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Mr SS Mokoena Chairperson (CEO) 1 1 Mr T Bukula Member 1 0 Dr R Crompton Member 1 1 Ms E Teljeur Member 1 1

64 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

ENERGY REGULATOR MEETING WORKSHOP / INDUCTION

TOTAL ATTENDED MEMBER POSITION (2009/10) (2009/10) Ms C Khuzwayo Current Chairperson* 9 6 Mr C Matjila Previous Chairperson 9 3 Mr J Lesejane Current Deputy Chairperson and Former 9 8 Regulator Member* Ms DD Mokgatle Former Deputy Chairperson 9 3 Mr SS Mokoena Regulator Member (CEO) 9 8 Mr T Bukula Regulator Member 9 9 Dr R Crompton Regulator Member 9 8 Ms E Teljeur Regulator Member 9 5 Ms K Mthimunye Regulator Member* 9 6 Ms G Whittington Banda Regulator Member* 9 6 Ms L Makatini Former Regulator Member 9 1 Prof D Singh Former Regulator Member 9 2 * Appointed 1 January 2010

ACKNOWLEDGEMENTS

In closing this report, I would like to thank the respective Chairpersons and Members of the Energy Regulator, past and present, for their guidance and dedication to the organisation, its management and staff.

The Department of Minerals and Energy and its successor, the Department of Energy, for providing valuable assistance to NERSA and for this I am grateful.

Finally, at the operational level, there would be no NERSA were it not for its dedicated taskforce which works to stringent and exacting deadlines. Your enthusiasm is sincerely appreciated.

Smunda S Mokoena Chief Executive Officer

65 66 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

NERSA Performance Against Pre-Determined Objectives – 2009/10

67 NERSA PERFORMANCE AGAINST PRE- DETERMINED OBJECTIVES – 2009/10

1. EXECUTIVE SUMMARY

The National Energy Regulator (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum Pipelines Act, 2003 (Act No. 60 of 2003). The structure of the Energy Regulator consists of nine members, five of whom are part-time and four are full-time including the Chief Executive Officer (CEO). The Energy Regulator is supported by a secretariat under the direction of the CEO.

NERSA is a Public Entity as per the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), and therefore has to comply with the requirements of this Act. In terms of Treasury Regulation 29.3.1, NERSA is responsible for establishing procedures for quarterly reporting to facilitate effective performance monitoring, evaluation and corrective action. In line with this requirement, the Energy Regulator has approved a format for quarterly reporting to the Minister of Energy on the progress made with regards to the implementation of the Business Plan. Apart from these quarterly performance reports, this report on the summary of the performance against pre-determined objectives for 2009/10, is in compliance with Section 55(2)(a) of the PFMA.

The following table provides an analysis of the performance of NERSA on its planned activities for the 2009/10 business year. This table provides an indication of industry specific regulation, cross-cutting regulatory, organisational and overall performance for the organisation. Percentages indicated are of all planned activities not removed by the Energy Regulator during the course of the business year. Due to the responsive nature of the business conducted by the organisation, a number of delays in planned activities occurred due to synergies or dependencies on external parties. As NERSA does not have control over these parties, the table indicates the delay in planned activities due to external dependencies separately.

Delayed due Delayed Completed On track to external Removed Total* (Other) dependencies

Electricity Industry 19 (28%) 12 (18%) 27 (40%) 9 (13%) 33 67 Regulation Piped-Gas Industry 15 (33%) 3 (7%) 10 (22%) 17 (38%) 23 45 Regulation Petroleum Pipelines 10 (34%) 8 (28%) 4 (14%) 7 (24%) 12 29 Industry Regulation Cross-cutting 8 (28%) 12 (41%) 1 (3%) 8 (28%) 11 29 Regulatory Organisational 58 (40%) 62 (43%) 5 (3%) 19 (13%) 5 144

Total 110 (35%) 97 (31%) 47 (15%) 60 (19%) 84 314

* excluding those activities that have been removed

68 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

From the above table it is evident that of the original 100 planned activities to have taken place in electricity industry regulation (the total of 67 activities at year end plus the 33 removed activities), 33 (33%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 67 activities, 31 activities (46%) were executed as planned (those activities that were either completed or are on track). The key factors impacting on the planned implementation of the business activities in the electricity industry regulation were processes being dependant on other role players such as the non-gazetting of the regulations for the Electricity Regulation Act, 2006 (Act No. 4 of 2006), the legislative process around the restructuring of the Electricity Distribution Industry not being completed and others and therefore being outside of NERSA’s control (40%); reprioritisation due to emphasis given to other activities such as the mid-term application by Eskom for a price increase for 2008/09 and the application by Eskom for a Multi-Year Price Determination for the period 2009/10 to 2011/12 (10%); and others (3%).

Of the original 68 planned activities to have taken place in piped-gas industry regulation (the total of 45 activities at year end plus the 23 removed activities), 23 (34%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 45 activities, 18 activities (40%) were executed as planned (those activities that were either completed or are on track). The key factors impacting on the planned implementation of the business activities in the piped-gas industry regulation were human resource constraints (27%); processes being dependant on other role players such as the late or non-submission from Sasol Gas and ROMPCO on requested and legislated information and others and therefore being outside of NERSA’s control (22%); and others (11%).

Of the original 41 planned activities to have taken place in petroleum pipelines industry regulation (the total of 29 activities at year end plus the 12 removed activities), 12 (29%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 29 activities, 18 activities (62%) were executed as planned (those activities that were either completed or are on track). The key factors impacting on the planned implementation of the business activities in the petroleum pipelines industry were human resource constraints (24%); and delays in receiving information from stakeholders or consultants (14%).

Of the original 40 planned activities to have taken place in cross-cutting regulatory (the total of 29 activities at year end plus the 11 removed activities), 11 (28%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 29 activities, 20 activities (69%) were executed as planned (those activities that were either completed or are on track). The key factors impacting on the planned implementation of the business activities in cross-cutting regulation were human resources constraints (17%); reprioritisation (10%); and others (3%).

Of the original 149 planned activities to have taken place in the organisational (support) area (the total of 144 activities at year end plus the 5 removed activities), 5 (3%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 144 activities, 120 activities (83%) were executed as planned (those activities that were either completed or are on track). The key factors impacting on the planned implementation of the business activities in the organisational (support) area were human resource constraints (6%); reprioritisation (4%); and others (8%).

In summary, of the original 398 planned activities by NERSA (the total of 314 activities at year end plus the 84 removed activities), 84 (21%) were removed by the Energy Regulator prior to the end of the 2009/10 Business Year. Of the remaining 314 activities, 207 activities (66%) were executed as planned.

The removal of the 84 activities was necessitated mainly due to processes being dependent on other role players and therefore being outside of NERSA’s control, such as the Regulations around the Electricity Regulation Act not being promulgated by the Minister of Energy, the legislative process around the restructuring of the Electricity Distribution Industry not being completed; the mid-term application by Eskom for a tariff increase as well as the second Multi-Year Price Determination application received; the two tariff applications by Transnet Pipelines; reprioritisation due to emphasis given to other activities such as the mid-term application by Eskom for a price increase for 2008/09 and the application by Eskom for a Multi-Year Price Determination for the period 2009/10 to 2011/12 and human resource constraints.

69 It should be noted that the regulation of the piped-gas and petroleum pipeline industries is still in its infancy as NERSA has been regulating these industries for only four years. Even though NERSA planned a number of activities relating to the regulation of these industries, the legislated licensing activities took much longer and more resources than anticipated and therefore reprioritisation had to take place.

NERSA believes that its services add value to the electricity, piped-gas and petroleum pipelines industries in support of government’s economic and social objectives. During the last business planning cycle (2009/10), value has been added in each of the following strategic objectives: 1. To implement relevant energy policy efficiently and effectively; 2. To implement relevant energy law efficiently and effectively; 3. To implement relevant energy regulations efficiently and effectively; 4. To identify, develop and implement relevant energy rules efficiently and effectively; 5. To establish the credibility, legitimacy and sustainability of NERSA as an independent and transparent energy regulator; 6. To create an effective organisation that delivers on its mandate and purpose; and 7. To evaluate the Energy Regulator’s effectiveness.

HIGHLIGHTS FOR 2009/10:

NERSA completed a number of programmes and projects during 2009/10 in order to meet its objectives. These programmes and projects are grouped in industry specific regulatory; cross-cutting regulatory; and governance and other. The highlights for 2009/10 include:

Electricity Industry Regulation: • The Energy Regulator approved a 31.3% interim tariff increase for Eskom for 2009/10 on 25 June 2009; • The Energy Regulator approved one hundred and twenty five (125) municipal tariff applications for 2009/10; • The Energy Regulator approved the 2009/10 Free Basic Electricity Tariff in August 2009; • On 29 October 2009, the Energy Regulator approved the second phase of the Renewable Energy Feed-In Tariff (REFIT)as follows: oo Concentrated Solar Power (CSP) trough without storage – R3.14 / kWh; oo Large scale grid connected PV systems (≥ 1 MW) – R3.94 / kWh; oo Biomass solid – R1.18 / kWh; oo Biogas – R0.96 / kWh; and oo CSP Tower with storage of 6 hrs per day – R2.31 / kWh. • On 9 December 2009, the Energy Regulator approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors; • The Energy Regulator approved on 24 February 2010 the Eskom tariff increase for the period 2010/11 – 2012/13 as follows: oo 24.8% increase in 2010/11; oo 25.8% increase in 2011/12; and oo 25.9% increase in 2012/13. • On 24 February 2010, the Energy Regulator approved the municipal tariff guideline1 as well as the electricity tariff level benchmarks for the three years control period 2010/11 - 2012/13; • On 12 March 2010, the Energy Regulator approved Eskom’s schedule of retail tariffs for implementation on 1 April 2010; • On 24 February 2010, the Energy Regulator approved the Inclining Block Rates tariffs (IBTs) structure for implementation by Eskom and municipalities concurrently with the 2010/11 price increase in order to provide for cross-subsidies for low income

1 The municipal guideline was however revised and a new one approved on 12 April 2010. This was after discussions with stakeholders and after receipt of the final Eskom retail tariffs

70 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

domestic customers, as required by the Electricity Pricing Policy (EPP); • A consultation paper on the rules for the selection criteria of REFIT projects was finalised and published. A public hearing in this regard was held on 30 and 31 March 2010; and • The Energy Regulator approved the following: oo Transfer of electricity distribution licence from uThungulu District Municipality to Nkandla Municipality on 25 March 2010; and oo Transfer of Ingwavuma Town from Eskom’s area of supply to uMkhanyakude District Municipality on 25 March 2010.

Piped-Gas Industry Regulation: • The Energy Regulator approved the Tariff Guidelines for Gas Transmission and Storage Facilities on 30 April 2009; • The Energy Regulator approved the price capping mechanism for 2008 involving the European Benchmark Price (EBP) and Sasol Volume Weighted Average Gas Price (SVWAGP) on 9 September 2009; • The Energy Regulator approved the ROMPCO tariff for the period from January 2007 to September 2008 on 9 September 2009; • The Energy Regulator approved the sources for information for tariff variables on 16 November 2009 and the Reasons for Decision on 11 February 2010; • The Energy Regulator approved the Gas Act Rules, 2009 on 09 December 2009; • The Energy Regulator granted the following fourteen (14) construction licences to Sasol Gas: oo A gas transmission facility in the Kliprivier area (Midvaal Local Municipality); oo A gas distribution facility in the Spartan area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Boksburg-Benoni area (Ekurhuleni Metropolitan Municipality); oo A gas transmission facility in the Secunda area ( Highveld East Local Municipality); oo A gas distribution facility in the Clairwood area (eThekwini Metropolitan Municipality); oo A gas distribution facility in the Prospecton area (eThekwini Metropolitan Municipality); oo A gas distribution facility in the Wadeville area (Ekurhuleni Metropolitan Municipality); oo A gas transmission facility in the Alton Industrial area (uMhlathuze Local Municipality); oo A gas distribution facility in the Alrode area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Babelegi area (Tshwane Metropolitan Municipality); oo A gas distribution facility in the Wadeville area (Ekurhuleni Metropolitan Municipality); oo A gas transmission facility in the Uitkijk 136 IS ( Highveld East Local Municipality); oo A gas distribution facility in the Jacobs area ((eThekwini Metropolitan Municipality); and oo A gas distribution facility in the Germiston East area (Ekurhuleni Metropolitan Municipality). • The Energy Regulator amended eight (8) licences granted to Sasol Gas Ltd to extend the construction period as the licensee failed to complete the construction activities within the period provided for in the original licence conditions, due to delays in obtaining environmental authorisations for the projects for the construction of: oo A gas transmission facility in the Sasolburg area (Metsimaholo Local Municipality) oo A gas distribution facility in the Mobeni area (eThekwini Metropolitan Municipality); oo A gas transmission facility in the Olifantsfontein area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Boksburg area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Brakpan area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Elandsfontein area (Ekurhuleni Metropolitan Municipality); oo A gas distribution facility in the Wadeville area(Ekurhuleni Metropolitan Municipality); and oo A gas distribution facility in the Germiston Ext 15 area (Ekurhuleni Metropolitan Municipality). • The Energy Regulator granted a licence to trade in compressed natural gas (CNG) for the first time to Novo Energy (Pty) Ltd in six areas on 8 December 2009. The areas are: oo Meyerton of the Midvaal local Municipality; oo Durban of the eThekwini Metropolitan Municipality;

71 oo Pietermaritzburg of the Msunduzi Local Municipality; oo Germiston East of the Ekurhuleni Metropolitan Municipality; oo Pretoria of the Tshwane Metropolitan Municipality; and oo Cottesloe of the City of Johannesburg Metropolitan Municipality. • The Energy Regulator granted a licence to Transnet Ltd trading as Transnet Pipelines for the operation of the Secunda to Durban gas transmission facility commonly referred to as the “Lilly Pipeline” on 11 November 2009; • The Energy Regulator decided on 12 October 2009 not to approve the licence applications of Gigajoule Africa Pipe (Cape) (Pty) Ltd for the construction of gas transmission and distribution facilities; and of Gigajoule Africa Gas (Cape) (Pty) Ltd for trading in gas in the Cape West Coast Region of the Western Cape Province; and • The Energy Regulator decided not to approve a licence application by Unigas Import and Export for the construction of gas facilities in the Eastern Cape, Western Cape and KwaZulu-Natal provinces.

Petroleum Pipelines Industry Regulation: • The Energy Regulator approved the Transnet tariffs for 2009/10 on 30 April 2009; • The Energy Regulator approved the Transnet Tarlton Storage tariffs on 4 December 2009; • The Energy Regulator approved the 3rd and 4th Amendments of the Tariff Methodology for the Petroleum Pipelines Industry on 23 September and 26 November 2009 respectively; • The Energy Regulator approved the Storage and Loading Facilities Tariff Methodology on 25 March 2010; • On 25 March 2010, the Energy Regulator approved an allowable increase of 11.86% (6.87% tariff increase) for Transnet Limited’s petroleum pipelines application for 2010/11 as well as the Reasons for Decision; • On 25 March 2010, the Energy Regulator approved the Transnet starting regulatory asset base (SRAB) for its petroleum pipelines and Tarlton storage facility assets; • Following a public participation process, the Energy Regulator approved the Guidelines for the allocation mechanism for gazetting; • The Energy Regulator granted the following licences for the operation of existing facilities: oo Chevron for a Joint Venture storage facility (BP operates) in Rustenburg; oo Vopak storage facilities in Island View, Durban; oo BP and Shell (SAPREF operates) for a pipeline and storage system in Durban; oo Shell SA Marketing (operated by Mmanoto Distributors) for a storage facility in Lebowakgomo, Limpopo; oo Total SA for storage facilities in Alrode Depot in Alberton; Island View Site 102 in Durban; and Island View Site 103 in Durban; oo Chevron SA for a crude oil pipeline from Saldanha to Milnerton; a crude oil pipeline from Cape Town Docks to Calref refinery; a heavy fuel oil pipeline from Cape Town Docks to Caltex refinery; and a refined product pipeline from Cape Town Docks to Calref refinery; oo The BP, Shell, Engen and Total Joint Venture (ORTIAFS) for a pipeline connecting the OR Tambo airport storage facility with the Transnet northern network ; oo Engen/BP/Chevron/Shell/Total joint loading facility including two auxiliary connecting pipelines in East London harbour; oo Wozani Berg Gasoline – storage in Western Cape; oo Konet Diesel – storage Western Cape; oo BP Drakensberg – storage in the Free State; oo Shell SA Marketing – storage Potgietersrus, Limpopo; oo Shell SA Marketing – storage Wesselsbron, Free State; oo Chevron-Total – storage Kroonstad Free State; oo Engen Refineries – loading, pipelines and storage Durban KZN; oo Paul Eliz Distributors –storage Bethlehem Free State; and oo Sunday Rivers Citrus Company – storage, Hermitage, Eastern Cape. • The Energy Regulator granted the following construction licences:

72 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

oo Sasol for the Alrode storage construction licence to enable Sasol to meet their timelines for completion before the FIFA 2010 Soccer World Cup on 28 May 2009; oo A first construction licence for a marine loading facility to BP/Shell/Total for Berth 6 in Durban harbour; and oo Engen Petroleum Ltd to construct new pipeline infrastructure and upgrade existing storage facilities to connect to Transnet’s New Multi-Product Pipeline under construction. • The Energy Regulator amended the following licences granted for the construction of: oo Timeframes for the construction of Transnet Pipelines were amended; and oo Petroline RSA – to allow for a 30 months construction period after the final EIA RoD is received. • The Energy Regulator amended one (1) licence granted for the operation of Transnet Pipelines – to include three new pipelines: Jameson Park to Alrode, Alrode to Langlaagte and Langlaagte to Waltloo; • The Energy Regulator decided not to approve the following licence applications: oo Total SA, which applied for the operation of a pipeline connecting Cape Town Docks and the Paarden Eiland storage facility. This was due to the fact that the pipeline is not operational after earlier decommissioning due to a lack of structural integrity; and oo BP Southern Africa to operate two marine loading facilities located at Hout Bay harbour and V&A Waterfront in the Western Cape. This was due to the fact that these are actually resellers retailing fuel to small boats and do not require licensing.

Cross-cutting Regulatory: • The Energy Regulator approved the Stage 2: Performance Evaluation using the NERSA Benchmarking Better Regulation Framework Report at its meeting of 23 September 2009; • The Energy Regulator approved the Report: Benchmarking the National Energy Regulator of South Africa against international good practice — Stage 3: Improvement opportunities and implementation plan, at its meeting on 28 November 2009; • As part of the implementation of the Regulatory Reporting Manuals, the following has been approved by the Regulator Executive Committee as delegated by the Energy Regulator: oo Eskom’s Regulatory Reporting Manual Implementation Plan; oo Sasol Gas and ROMPCO Regulatory Reporting Manual Implementation Plans; oo Chevron’s Regulatory Reporting Manual Implementation Plan; oo Nelson Mandela Bay Municipality’s Implementation Plan; oo Transnet Pipelines Regulatory Reporting Manual Implementation Plan; oo Engen Regulatory Reporting Manual Implementation Plan; oo Transnet Pipelines Regulatory Reporting Manual Cost Allocation Manual; and oo ROMPCO’s Regulatory Reporting Manual Cost Allocation Manual. • Fourteen NERSA staff members of the Regulatory Reporting Manual task team attended a study tour to Canada; and • The electricity component of the Licensee Information System (LIS) was finalised with the adding of an on-line help function and were rolled out to licensees.

73 oo Report on the assessment of the Energy Regulator and its Subcommittees; and oo Strategic Plan (2010/11 – 2012/13) and Business Plan with Budget (2010/11). • NERSA received an unqualified Audit Report for 2008/09; • The proposed levies to be imposed on the piped-gas and petroleum pipelines industries were gazetted on 27 November 2009. No representation was received from stakeholders; • Approval of the Delegation Matrix for Regulatory Subcommittees by the Energy Regulator; • Approval of the revised Code of Conduct by the Energy Regulator; • NERSA was appointed as Chairperson of the Regional Electricity Regulatory Authority (RERA) for 2010 and 2011; • Participation in exhibitions at the Rand Show, Africa Power Congress, African Utility Week and the Budget Vote Speech of the Minister of Energy; • Attendance of the SADC Energy Officials and Ministers’ Meeting by two NERSA staff members; • Attendance of the Electricity Regulation Initiative Seminar (ELRI) in Oslo, Norway by seven (7) NERSA staff members; • NERSA was invited to attend the Round Table of Energy Regulators in Rome during June, which was one of the preparatory meetings for the G8 Summit, which took place in Italy during July 2009; • The Board of the newly established Swaziland Energy Regulator visited NERSA on 7 and 8 December 2009 as part of their induction programme and to establish relationships with NERSA; • Attachment of two officials from EWURA, Tanzania; • Approval of the integrated demand management plan for the organisation; and • The Disposal Committee for the disposal of the organisation’s redundant and obsolete assets was appointed and all redundant assets identified for disposal were approved for transfer during the fourth quarter.

Delays and Backlogs:

NERSA however also experienced a number of delays and backlogs during 2009/10.

• Delay in the finalisation of the Renewable Energy Feed-In Tariff Power Purchase Agreement due to the promulgation of the Regulations on New Generation Capacity by the Minister of Energy on 15 August 2009 as well as the extensive stakeholder engagement that followed; • Delays in the receipt of requested information from licensees, including comments on audit reports, resulting in some projects being delayed; • Although the licensing of all the existing petroleum facilities applied for progressed to the final stage of the approval process, all the applications for existing facilities could not be finalized; and • Failure to fill some critical positions especially within the piped-gas and petroleum pipelines regulatory divisions impacting negatively on the completion of some planned activities within the organisation.

2. PERFORMANCE ON PRE-DETERMINED STRATEGIC GOALS

The following tables provide an analysis of the performance of NERSA on its planned activities for the 2009/10 business year for each of the pre-determined strategic goals. These tables provide an indication of industry specific regulation, cross-cutting regulatory, organisational and overall performance for the organisation. Percentages indicated are of all planned activities not removed by the Energy Regulator during the course of the business year. Due to the responsive nature of the business conducted by the organisation, a number of delays in planned activities occurred due to synergies or dependencies on external parties. As NERSA does not have control over these parties, the tables indicate the delay in planned activities due to external dependencies separately.

74 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

2.1 Strategic Goal 1: To implement relevant energy policy efficiently and effectively

Delayed due to Delayed Completed On track external Removed Total* (Other) dependencies

Electricity Indus- 11 (31%) 4 (11%) 17 (47%) 4 (11%) 21 36 try Regulation Piped-Gas Indus- 2 (18%) 2 (18%) 2 (18%) 5 (46%) 0 11 try Regulation Petroleum 0 (0%) 1 (100%) 0 (0%) 0 (0%) 0 1 Pipelines Industry Regulation Cross-cutting 0 (0%) 2 (50%) 0 (0%) 2 (50%) 1 4 Regulatory Total 13 (25%) 9 (17%) 19 (37%) 11 (21%) 22 52 * excluding those activities that have been removed

2.2 Strategic Goal 2: To implement relevant energy law efficiently and effectively

Delayed due to Delayed Completed On track external Removed Total* (Other) dependencies

Electricity Industry 7 (23%) 8 (27%) 10 (33%) 5 (17%) 4 30 Regulation Piped-Gas Indus- 9 (32%) 0 (0%) 8 (29%) 11 (39%) 18 28 try Regulation Petroleum 8 (38%) 6 (29%) 4 (19%) 2 (14%) 9 21 Pipelines Industry Regulation Cross-cutting 1 (17%) 4 (67%) 1 (17%) 0 (0%) 0 6 Regulatory Total 25 (29%) 18 (21%) 23 (27%) 19 (22%) 31 85 * excluding those activities that have been removed

75 2.3 Strategic Goal 3: To implement relevant energy regulations efficiently and effectively

Delayed due to Delayed Completed On track external Removed Total* (Other) dependencies

Piped-Gas Indus- 4 (80%) 0 (0%) 0 (0%) 1 (20%) 2 5 try Regulation Petroleum 2 (25%) 1 (13%) 0 (0%) 5 (63%) 0 8 Pipelines Industry Regulation Total 6 (46%) 1 (8%) 0 (0%) 6 (46%) 31 13 * excluding those activities that have been removed

2.4 Strategic Goal 4: To identify, develop and implement relevant energy rules efficiently and effectively

Delayed due to Delayed Completed On track external Removed Total* (Other) dependencies

Electricity Industry 0 (0%) 0 (0%) 0 (0%) 0 (0%) 8 0 Regulation Cross-cutting 1 (25%) 2 (50%) 0 (0%) 1 (25%) 0 4 Regulatory Total 1 (25%) 2 (50%) 0 (0%) 1 (25%) 8 4 * excluding those activities that have been removed

76 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

2.5 Strategic Goal 5: To establish the credibility, legitimacy and sustainability of NERSA as an independent and transparent energy regulator

Delayed due to Delayed Total* Completed On track external Removed (Other) dependencies

Electricity Industry 1 (100%) 0 (0%) 0 (0%) 0 (0%) 0 1 Regulation Cross-cutting 0 (0%) 3 (50%) 0 (0%) 3 (50%) 1 6 Regulatory Total 1 (14%) 3 (43%) 0 (0%) 3 (43%) 1 7 * excluding those activities that have been removed

2.6 Strategic Goal 6: To create an effective organisation that delivers on its mandate and purpose

Delayed due to Delayed Total* Completed On track external Removed (Other) dependencies

Organisational 58 (40%) 62 (43%) 5 (3%) 19 (13%) 5 144

Total 58 (40%) 62 (43%) 5 (3%) 19 (13%) 5 144 * excluding those activities that have been removed

77 2.7 Strategic Goal 7: To evaluate the Energy Regulator’s effectiveness

Delayed due to Delayed Completed On track external Removed Total* (Other) dependencies

Piped-Gas Indstry 0 (0%) 1 (100%) 0 (0%) 0 (0%) 3 1 Regulation Petroleum 0 (0%) 0 (0%) 0 (0%) 0 (0%) 3 0 Pipelines Industry Regulation Cross-cutting 6 (67%) 1 (11%) 0 (0%) 2 (22%) 9 9 Regulatory Total 6 (60%) 2 (20%) 0 (0%) 2 (20%) 15 10 * excluding those activities that have been removed

The detailed analysis of the performance against the pre-determined strategic goals is elaborated upon in the section below. The section has been divided into five different areas. These are: a. Electricity Industry Regulation; b. Piped-Gas Industry Regulation; c. Petroleum Pipelines Industry Regulation d. Cross-cutting Regulatory; and e. Organisational.

A. Electricity Industry Regulation

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Review of the EDI Regulatory Framework 30 September Removed • Removed as per relevant energy EDI Regulatory framework document 2009 Energy Regulator policy efficiently Framework to cover approval on 31 July and effectively economic, 2009 technical and licensing issues Regulatory Draft princi- 30 September Completed • Added as per Energy Principles on ples 2009 Regulator approval restructuring EDI on 31 July 2009

78 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Approval by 31 October Delayed • Added as per Energy the ELS 2009 Regulator approval on 31 July 2009 • Delayed due to unavailability of key stakeholders Approval by December Delayed • Added as per Energy the Regulator 2009 Regulator approval on 31 July 2009 • Delayed due to a dependency on the previous milestone which is delayed EDI Regulatory Framework 30 March Externally • Added as per Energy framework for licensing 2010 delayed Regulator approval on 31 July 2009 • Delayed due to the regulations on the Electricity Regulation Act not being promulgated by the Minister of Energy Framework 30 March Externally • Added as per Energy for Technical 2010 delayed Regulator approval Regulation on 31 July 2009 of REDs • Delayed due to the regulations on the Electricity Regulation Act not being promulgated by the Minister of Energy Framework 30 March Externally • Added as per Energy for Econom- 2010 delayed Regulator approval ic Regulation on 31 July 2009 of REDs • Delayed due to the regulations on the Electricity Regulation Act not being promulgated by the Minister of Energy

79 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Energy conser- Rules and Approved 30 November Externally • The Energy Regula- vation scheme guidelines for rules for ECS 2009 delayed tor has approved on (ECS) the energy 31 July 2009 that conservation this completion date scheme is moved to what is indicated • Delayed due to the National Emergency Response Task Team who had to submit a proposal on the rules to the Energy Regula- tor for consideration Approved 28 February Externally • The Energy Regula- guidelines 2010 delayed tor has approved on for ECS 31 July 2009 that this completion date is moved to what is indicated • Delayed due to the National Emergency Response Task Team who had to submit a proposal on the guidelines to the Energy Regulator for consideration Continuous Quarterly from Externally • Delayed due to the management 28 February delayed National Emergency of ECS 2010 Response Task Team who had to submit a proposal on the rules to the Energy Regula- tor for consideration

80 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Regulatory Regulator’s Develop 30 November Removed • The Energy Regula- input in policy comments on position 2009 tor has approved on development Restructuring and provide 31 July 2009 that legislation and input into the this completion date regulations REDs estab- is moved to what is lishment Bill indicated • Removed as per Energy Regulator approval on 29 October 2009 Regulator’s Develop 30 September Removed • The Energy Regulator comments on position 2009 has approved on 31 the Independent and provide July 2009 that this out- System Opera- input put is renamed from tor Regulator’s comments on Energy Bill and energy master plan to what is indicated • Removed as per Energy Regulator approval on 29 October 2009 Alignment of Input into the 30 September Removed • Removed as per legislation government 2009 Energy Regulator affecting regula- task team approval on 29 tion of munici- process to October 2009 pal distributors align legislation affecting regulation of municipal distributors

81 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Eskom Multi- Eskom price de- Eskom price 1 April 2010 Completed • The Energy Regulator year Price termination for determina- has approved on 31 Determination the three years tion for the July 2009 that the (MYPD) from of the MYPD three years name of this key per- 1 April 2010 period of the MYPD formance indicator is to 31 March period changed from Moni- 2012 tor Eskom’s Multi-year Price Determination (MYPD) from 1 April 2009 to 30 March 2012 to what is indicated. • Added as per Energy Regulator approval on 31 July 2009 Eskom revenue Eskom 1 April 2010 Completed • Added as per Energy determination revenue Regulator approval for the three determina- on 31 July 2009 years of the tion for the MYPD period three years of the MYPD period

82 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Half yearly re- Half yearly 1 September On track • The Energy Regulator ports to Energy reports to 2010 to 31 has approved on 31 Regulator on Energy March 2012 July 2009 that this out- costs and vari- Regulator on put is renamed from ances in costs costs and Half yearly reports to in accordance variances Energy Regulator on with the MYPD in costs in Eskom’s compliance rule changes accordance with MYPD conditions with the to what is indicated. MYPD rule • The Energy Regulator changes has approved on 31 July 2009 that this milestone is changed from Half yearly reports to Energy Regulator detailing actions taken by Eskom to comply with regulatory conditions prescribed within the MYPD determination to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion dates are changed to what is indicated Annual reviews Revised 1 September On track • The Energy Regulator of Eskom’s revenues/ 2010 to 31 has approved on 31 performance prices when March 2012 July 2009 that the with intent to necessary completion dates are establish need in accord- changed to what is for re-opening ance with indicated or pass-through pass-through of costs mechanism and re-opening triggers

83 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Evaluate and Approved tariffs Approved 30 June 2009 Completed approve tariff for 2009/10 tariffs for applications (general imple- 2009/10 by municipal mentation is 1 and other non- July 2009) Eskom distributors in line with the approved guideline increase and benchmarks Evaluate Approve retail Submission 28 February Externally • The Energy Regulator and approve tariff structural to Electricity 2010 delayed has approved on 31 Eskom’s Retail adjustments for Subcommit- July 2009 that the Tariff Structural implementation tee name of the output Adjustments is changed from (ERTSA) Approve retail tariffs for implementation to what is indicated • To date no application regarding the structural adjustments have been submitted by Eskom Approve Eskom Submission 28 February Completed • Added as per Energy retail tariff rates to Electricity 2010 Regulator approval (based on Subcommit- on 31 July 2009 MYPD increase) tee Develop a pric- Approved Submission 31 May 2009 Removed • Removed as per ing mechanism municipal tariff to Electricity Energy Regulator for municipal guideline and Subcommit- approval on 31 July distributors that benchmarks tee 2009 is based on revenue requirement and incentive based methods

84 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Guidelines for Approved 31 March Removed • The Energy Regulator harmonising rules and 2010 has approved on 31 tariffs and deal- guidelines July 2009 that the ing with cross- on harmo- completion date is subsidies in nisation of moved to what is the restructured tariffs indicated environment • Removed as per Energy Regulator approval on 31 July 2009 Approved reve- Consultation June 2009 Removed • Removed as per nue requirement paper on Energy Regulator mechanism for municipal approval on 31 July municipalities tariff mecha- 2009 nism Public hear- August 2009 Removed • Removed as per ing on new Energy Regulator mechanism approval on 31 July 2009 Regulator October 2009 Removed • Removed as per approves Energy Regulator mechanism approval on 31 July 2009 Determine the Approved FBE Submission 28 February Completed • The Energy Regulator Free Basic rate methodol- to Electricity 2010 has approved on 31 Electricity ogy Subcommit- July 2009 that this out- (FBE) tariff for tee put is renamed from compensation Approved FBE rate to of Eskom by what is indicated municipalities on Eskom supply areas within the municipality

85 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Electricity Demand fore- Report 31 March Completed • The Energy Regulator Infrastructure cast update 2010 has approved on 31 Analysis and July 2009 that the Review (EIAR) name for this key performance indicator is changed from Review and Publish the National Integrated Resource Plan (NIRP) annually to what is indicated • The Energy Regulator has approved on 31 July 2009 that this output is renamed from Demand forecast to what is indicated Collection Report 31 March Completed • Added as per Energy and update of 2010 Regulator approval Generation cost on 31 July 2009 and performance data Update of Report 31 March Completed • Added as per Energy screening 2010 Regulator approval curves for on 31 July 2009 Generation technologies Reference plan Report 31 March Externally • Software problems 2010 delayed outside the control of NERSA prevented completion of the analysis. Sensitivity and Report 31 March Externally • Software problems Risk analysis 2010 delayed outside the control of NERSA prevented completion of the analysis.

86 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor Demand fore- Report Annually Completed • The Energy Regulator implementation cast has approved on 31 of the NIRP July 2009 that the established by name for this key the Department performance indica- of Energy tor is changed from Monitor implementation of NIRP to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated Eskom build Report 6-monthly On track • The Energy Regulator plan has approved on 31 July 2009 that the completion date is changed to what is indicated Reserve margin Report 6-monthly Completed • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated

87 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Methodology Avoided cost of Report Quarterly Externally • The Energy Regula- and determina- generation delayed tor has approved on tion of avoided 31 July 2009 that cost of genera- the name of this tion key performance indicator is changed from Methodology and determination of avoided cost of generation, transmission and distribution to what is indicated • Software problems outside the control of NERSA prevented completion of the analysis Avoided cost of Report 31 March Removed • Removed as per transmission 2010 Energy Regulator approval on 31 July 2009 Avoided cost of Report 31 March Removed • Removed as per distribution 2010 Energy Regulator approval on 31 July 2009 Monitor imple- Monitoring Quarterly Quarterly Delayed • Delayed due to repri- mentation of and valuation Reports oritisation EEDSM quarterly reports on DSMEE performance NERSA Pro poor tariff Inclining 31 March Completed contribution to block tariff 2010 Socio-Economic Smoothing 31 March Delayed • Delayed due to repri- Development tariffs 2010 oritisation programs of government

88 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Develop a Establishment of Receipt of 31 August Externally • Added as per Energy methodology starting regula- the finalised 2009 delayed Regulator approval on to evaluate the tory asset base report on 31 July 2009 tariffs of large (SRAB) SRAB • Delayed due to municipalities the late receipt of of South Africa comments from the using the rate of municipalities on the return methodol- draft SRAB report ogy and tariff Finalise the Approval of 30 November Externally • Added as per Energy determination consultation the regula- 2009 delayed Regulator approval on model paper on the re- tory frame- 31 July 2009 vised regulatory work based • Delayed due to framework on the Public the late receipt of hearing comments from the municipalities on the draft SRAB report Determine Determine 28 February Externally • Added as per Energy the revenue the allowed 2010 delayed Regulator approval on requirement rate of return 31 July 2009 for all metros for all metros • Delayed due to for 2010/11 the late receipt of financial year comments from the municipalities on the draft SRAB report Public hear- 31 March Externally • Added as per Energy ing based 2010 delayed Regulator approval on on the 31 July 2009 calculated • Delayed due to revenue the late receipt of requirement comments from the municipalities on the draft SRAB report Model the 30 April 2010 Externally • Added as per Energy tariffs based delayed Regulator approval on on the 31 July 2009 approved • Delayed due to revenue the late receipt of requirement comments from the municipalities on the draft SRAB report

89 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implement 01 July 2010 Externally • Added as per Energy the adjusted delayed Regulator approval on tariffs using 31 July 2009 the ROR • Delayed due to methodol- the late receipt of ogy comments from the municipalities on the draft SRAB report Regulator 31 October Externally • Added as per Energy approves 2009 delayed Regulator approval on mechanism 31 July 2009 • Delayed due to the late receipt of comments from the municipalities on the draft SRAB report Regulatory Approved Research on 31 August Removed • Added as per Energy Rules on distri- DUOS and International 2009 Regulator approval on bution use of TUOS Pricing best practice 31 July 2009 system (DUOS) Mechanism • Removed as per and transmis- Energy Regulator sion use of approval on 29 April system (TUOS) 2010 pricing Revise 30 September Removed • Added as per Energy currently 2009 Regulator approval on approved 31 July 2009 framework • Removed as per Energy Regulator approval on 29 April 2010 Consultation 30 September Removed • Added as per Energy Paper 2009 Regulator approval on 31 July 2009 • Removed as per Energy Regulator approval on 29 April 2010

90 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Submission 31 October Removed • Added as per Energy to Electricity 2009 Regulator approval on Subcommit- 31 July 2009 tee • Removed as per Energy Regulator approval on 29 April 2010. Publication 31 October Removed • Added as per Energy for com- 2009 Regulator approval on ments 31 July 2009 • Removed as per Energy Regulator approval on 29 April 2010 Consoli- 31 November Removed • Added as per Energy dation of 2009 Regulator approval on Stakeholder 31 July 2009 comments • Removed as per / Aide Energy Regulator Memoir approval on 29 April 2010 Public Hear- 20 December Removed • Added as per Energy ing 2009 Regulator approval on 31 July 2009 • Removed as per Energy Regulator approval on 29 April 2010 Consolida- 20 December Removed • Added as per Energy tion of Panel 2009 Regulator approval on Members 31 July 2009 and Public • Removed as per comments Energy Regulator approval on 29 April 2010

91 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Reasons for 31 January Removed • Added as per Energy Decision 2010 Regulator approval on 31 July 2009 • Removed as per Energy Regulator approval on 29 April 2010 Energy 31 January Removed • Added as per Energy Regulator 2010 Regulator approval on approval 31 July 2009 • Removed as per Energy Regulator approval on 29 April 2010 To implement Implement Monitor the Submis- 31 March Completed relevant energy Compliance implementation sion to the 2010 law efficiently framework for of the corrective Energy and effectively electricity gen- action plans Regulator eration as well from the recom- as transmission mendations of and distribu- the Independent tion grid code Technical audits administration on Generators Monitor the Submis- 30 November Delayed • Added as per Energy implementation sion to the 2009 Regulator approval on of the corrective Energy 31 July 2009 action plans Regulator • Delayed due to repri- from the recom- oritisation mendations of the Independent Technical audits on Transmitter

92 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implement Submis- 31 October Externally • Added as per Energy electricity licens- sion to the 2010 delayed Regulator approval on ing compliance Energy 31 July 2009 framework for Regulator • Delayed due to the operations of regulations on the Generation, Electricity Regulation Transmission, Act not being promul- Distribution, gated by the Minister traders, import of Energy and export Transmission Evaluation of 30 April 2009 Completed Grid Code applications 30 July 2009 amendments for amend- 30 October ments and 2009 exemptions 28 February to the trans- 2010 mission grid code Updating of 30 April 2009 On track Transmission 30 July 2009 grid code 30 October 2009 28 February 2010 Implementation Implemen- 30 September Phase 1 – of Distribution tation of 2009 completed Grid Code distribution code which Phase 2 – on includes track amendment of licenses

93 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Evaluation 30 November Completed of submis- 2009 sions by licensees for exemptions and amendments to the Distribution Code Updating of As and when Externally • Delayed due to Distribution required delayed the updating of the Grid Code governance code by the Grid Code Advisory Committee before submission to the Energy Regulator for consideration Amendment, Evaluate ap- Submis- As and when On track • The Energy Regula- renewal of plications and sion to the required tor has approved on electricity distri- make recom- Energy 31 July 2009 that bution licenses mendations Regulator the name of this key to the Energy performance indica- Regulator as tor is changed from and when we Amendment, renewal receive applica- and extension of tions electricity distribution licenses and finalise and implement guidelines for trading, import and export of electricity licences to what is indicated Guidelines on Study tour 30 July 2009 Removed • Removed as per trading, import on trading Energy Regulator and export approval on 31 July completed 2009 and approved by the Energy Regulator

94 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator 2nd draft 31 September Removed • Removed as per compiled 2009 Energy Regulator approval on 31 July 2009 Workshop 31 October Removed • Removed as per with stake- 2009 Energy Regulator holders approval on 31 July 2009 Develop and Monitor the Report on 31 August Delayed • The Energy Regulator implement implementation Technical 2009 has approved on 31 mechanisms to of corrective Audits July 2009 that this determine and action plans output is changed rectify the exist- from the recom- from Technical Audits ing electricity mendations of to what is indicated maintenance the Independent • The Energy Regula- backlog and Technical and tor approved on 31 prevent future compliance July 2009 that the backlogs in the audits on Dis- completion date is South African tributors changed to what is distribution indicated industry • Delayed due to reprioritisation Report on 31 December Delayed • The Energy Regula- analysis of 2009 tor approved on 31 corrective July 2009 that the action plans completion date is changed to what is indicated • Delayed due to reprioritisation

95 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Submis- 28 February Delayed • The Energy Regula- sion to the 2010 tor has approved Energy on 31 July 2009 Regulator that this milestone is changed from Moni- tor implementation of action plans to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Delayed due to reprioritisation Monitoring Submis- 31 December Completed • The Energy Regulator implementation sion to the 2010 has approved on 31 of Maintenance Energy July 2009 that this Summit resolu- Regulator milestone is changed tions from Monitoring Report to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated Technical and Evaluate ap- Submis- As and when On track economical plications and sion to the required evaluation of make recom- Energy electricity gen- mendations Regulator eration licence to the Energy applications Regulator as an when we receive applications

96 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Electricity Distri- Performance Report 31 March Completed bution Perform- targets for 2010 ance Monitor- Eskom Distribu- ing (EDPMS) tion

Performance Report 31 March On track • The Energy Regula- targets for large 2011 tor has approved on municipalities 31 July 2009 that the completion date is moved to what is indicated Power Quality Report 31 March On track • The Energy Regula- Directive Imple- 2011 tor has approved on mentation 31 July 2009 that the completion date is moved to what is indicated Ad-Hoc inves- Investigate Reports As and when On track tigations into power out- required power outages ages incidents, prepare report on the findings and give recommendations to the Energy Regulator for the corrective measures Evaluation of Evaluation Reports 30 September Removed • Removed as per cogeneration reports 2009 and 31 Energy Regulator license applica- March 2010 approval on 31 July tions 2009 Evaluate Evaluation of Reports 31 March Delayed • Delayed due to repri- Eskom’s transmission 2010 oritisation implementation plans of NERSA approved criteria for transmission expansion planning

97 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Renewable Qualifying Consultation 30 October On track • Added as per Energy Energy Feed–in criteria for addi- Paper 2009 and Regulator approval on Tariff (REFIT) – tional technolo- annual review 31 July 2009 Phase 2 gies thereafter • REFIT for the Reasons for 30 October On track additionally decision on 2009 and included tech- additional annual review nologies REFIT thereafter Develop rules Approved rules Draft rules 31 August Completed for licensing for licensing 2009 for generation, of generation, Submission 30 September Externally • Delayed due to the transmission, transmission, to Electricity 2009 delayed late publication of distribution, distribution , Subcommit- the New Generation trading, import trading, import tee Capacity regulations and export and export by Minister of Energy. operations Consultation 7 October Externally • Delayed due to the Paper 2009 delayed late publication of the New Generation Capacity regulations by Minister of Energy. Publication 14 October Externally • Delayed due to the for com- 2009 delayed late publication of ments the New Generation Capacity regulations by Minister of Energy. Consoli- 24 November Externally • Delayed due to the dation of 2009 delayed late publication of Stakeholder the New Generation comments Capacity regulations / Aide by Minister of Energy. Memoir Public Hear- 12 December Externally • Delayed due to the ing 2009 delayed late publication of the New Generation Capacity regulations by Minister of Energy.

98 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Consolida- 14 December Externally • Delayed due to the tion of Panel 2009 delayed late publication of Members the New Generation and Public Capacity regulations comments by Minister of Energy. Reasons for 31 January Externally • Delayed due to the Decision 2010 delayed late publication of the New Generation Capacity regulations by Minister of Energy. Energy 31 January Externally • Delayed due to the Regulator 2010 delayed late publication of approval the New Generation Capacity regulations Minister of Energy.

99 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Develop Rules for the Draft rules 30 November Removed • The Energy Regula- relevant energy Wholesale Buyer Office 2009 tor has approved on rules efficiently Trading ar- 31 July 2009 that and effectively rangements the name of this key – Rules for the performance indica- Buyer Office tor is changed from Develop Wholesale Trading arrangements – Single Buyer Model to what is indicated • The Energy Regulator has approved on 31 July 2009 that this output is renamed from Implementation of the single buyer model to what is indicated • The Energy Regulator has approved on 31 July 2009 that the milestone is renamed from Draft rules and guidelines to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Removed as per Energy Regulator decision on 28 January 2010

100 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Submission 30 January Removed • The Energy Regulator to Electricity 2010 has approved on 31 Subcommit- July 2009 that the out- tee put is renamed from Standard contracts to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Removed as per Energy Regulator decision on 28 January 2010 Consulta- 28 February Removed • The Energy Regulator tion Paper 2010 has approved on 31 publication July 2009 that this output is changed from Approved rules and guidelines to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Removed as per Energy Regulator decision on 28 January 2010 Consoli- 24 March Removed • Added as per Energy dation of 2010 Regulator approval Stakeholder on 31 July 2009 comments • Removed as per / Aide Energy Regulator de- Memoir cision on 28 January 2010

101 Electricity Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Public Hear- 20 April 2010 Removed • Added as per Energy ing Regulator approval on 31 July 2009 • Removed as per Energy Regulator decision on 28 January 2010 Consolida- 5 May 2010 Removed • Added as per Energy tion of Panel Regulator approval Members’ on 31 July 2009 and Public • Removed as per comments Energy Regulator decision on 28 January 2010 Reasons for 31 May 2010 Removed • Added as per Energy decision Regulator approval on 31 July 2009 • Removed as per Energy Regulator decision on 28 January 2010 Energy 30 June 2010 Removed • Added as per Energy Regulator Regulator approval approval on 31 July 2009 • Removed as per Energy Regulator decision on 28 January 2010 To establish Economic Quarterly Quarterly 30 July 2009 Completed credibility, Analysis reports on Reports 30 October legitimacy and the economic 2009 sustainability of developments 28 February NERSA as an (local and 2010 independent international) and transparent energy regulator

102 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

B. Piped-Gas Industry Regulation

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Monitor growth Report on gas Status Report 31 March Externally • Delayed due to relevant energy of reticulation in reticulation (Annual) 2010 delayed the project largely policy efficiently the piped–gas activities depending on and effectively industry and information gathered identify regula- from reticulators that tory gaps are companies not regulated by NERSA. As a result this makes it difficult to obtain the relevant information for compiling the required reports as these companies are not obliged to provide NERSA with such information. Assessment 31 March Externally • Delayed due to reports 2010 delayed the project largely depending on information gathered from reticulators that are companies not regulated by NERSA. As a result this makes it difficult to obtain the relevant information for compiling the required reports as these companies are not obliged to provide NERSA with such information.

103 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Review and Monitor and Assess tariff 31 October Completed • The Energy Regulator Implement Tariff approve tariffs application 2010 has approved on 29 Guidelines October 2009 that the name of this key performance indicator is changed from Review and implement tariff methodology for transmission and storage to what is indicated Approve 31 March On track • The Energy Regula- tariffs 2011 tor approved on 29 April 2010 that the date for this milestone is changed to what is indicated Compliance 31 October On track report 2010 Monitoring Progress Quarterly Quarterly Completed progress in the Reports reports construction of new piped-gas infrastructure Develop and Set and monitor Develop 30 November Delayed • Added as per Energy implement a maximum prices draft meth- 2009 Regulator approval methodology odology on 31 July 2009 for the setting of • Delayed due to maximum prices cancellation and as per section re-advertisement of 21 (1)(p) of the request for proposals Gas Act due to insufficient information in the Terms of Reference

104 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Publish draft 31 December Delayed • Added as per Energy methodol- 2009 Regulator approval ogy on 31 July 2009 • Delayed due to cancellation and re-advertisement of request for proposals due to insufficient information in the Terms of Reference Stakeholder 31 January Delayed • Added as per Energy workshop 2010 Regulator approval on 31 July 2009 • Delayed due to cancellation and re-advertisement of request for proposals due to insufficient information in the Terms of Reference Public hear- 28 February Delayed • Added as per Energy ing 2010 Regulator approval on 31 July 2009 • Delayed due to cancellation and re-advertisement of request for proposals due to insufficient information in the Terms of Reference

105 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Approved 31 March Delayed • Added as per Energy methodol- 2010 Regulator approval ogy on 31 July 2009 • Delayed due to cancellation and re-advertisement of request for proposals due to insufficient information in the Terms of Reference To implement To Imple- Separation of Review the 31 March Completed relevant energy ment Regula- accounts for Regulatory 2010 law efficiently tory Reporting each licensed Reporting and effectively Manuals activity Manuals Develop an 31 March Completed implementa- 2010 tion plan Analyse 31 March Externally • Delayed due to the the income 2010 delayed delays in receipt of statement, the Cost Allocation balance Manuals sheet and cash flow statement of each licensed facility Review/ 31 March Externally • Delayed due to Assess the 2010 delayed stakeholders only Regula- submitting reports in tory Reports December 2010 submitted by stakeholders

106 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Compliance 31 March Externally • Delayed due to the report 2010 delayed need for Sasol Gas to rework their submitted Cost Allocation Manual Monitor the Report on Conduct two June 2009 Completed • The Energy Regulator metering system ROMPCO’s audits per and December has approved on 31 for gas entering current metering annum for 2009 July 2009 that the South Africa system the meters name of the output is in Secunda changed from Report and CPF on SASOL’s current metering system to what is indicated Monthly Monthly Externally • Delayed as ROMP- volume vari- delayed CO has not yet ance report submitted the last volume variance report for the 2009/10 financial year. Assess- 31 March Completed • The Energy Regula- ment of 2010 tor has approved ROMPCO on 31 July 2009 metering that the name of this system milestone is changed from Assessment of Sasol metering system to what is indicated

107 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Ensure compli- Develop a 31 December Delayed • The Energy Regula- a compliance ance with compliance 2009 tor approved on 31 mechanism licence condi- test for each July 2009 that the for transmis- tions licence completion date is sion, storage, condition changed to what is distribution, indicated liquefaction, • Due to human re- re-gasification source constraints, the and trading in focus of this project gas in this financial year was to develop a compliance mechanism which includes the audit framework Annual audit 31 January Delayed • The Energy Regula- schedule 2010 tor approved on 31 July 2009 that the completion date is changed to what is indicated • Due to human resource constraints, the focus of this project in this financial year was to develop a compliance mechanism which includes the audit framework Compliance 31 March Delayed • Due to human re- audit reports 2010 source constraints, the focus of this project in this financial year was to develop a compliance mechanism which includes the audit framework

108 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor Sasol’s Determination Annual 30 September Externally • The Energy Regula- exploration of Sasol’s Spe- report on 2009 delayed tor approved on 31 commitments cial Regulatory SASOL’s July 2009 that the in terms of Dispensation Compliance completion date is clauses 3 and Period with the drill- changed to what is 4 of Schedule ing commit- indicated One of the ment • Delayed due to Sasol Agreement Gas not submitting its Concerning the exploration pro- Mozambique gramme. Gas Pipeline Calcula- 31 December Externally • The Energy Regula- between the tion of the 2009 delayed tor approved on 31 Government dispensation July 2009 that the of the Republic period completion date is of South Africa changed to what is and Sasol Ltd indicated • Delayed due to Sasol Gas not submitting its exploration programme. Annual 31 March Externally • Delayed due to Sasol report on the 2010 delayed Gas not submitting its monitoring exploration pro- of Sasol’s gramme. order of supply and the related quantities of gas

109 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Establish Monitor and Report on December Removed • Removed as per reference prices approve prices implementa- 2009 Energy Regulator and maximum as prescribed tion of “mar- approval on 31 July prices for vari- by Schedule ket value 2009 ous categories One to the pricing” of customers Agreement according to Schedule One of the Agreement Concerning the Mozambique Gas Pipeline between the Government of the Republic of South Africa and Sasol Ltd

110 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Database to 31 July 2009 Completed • The Energy Regula- calculate: tor has approved on Discounts 29 October 2009 Resellers Ref- that the name of this erence Price key performance and the indicator is changed maximum from Administer price level price caps, establish Landed reference prices and price monitor market value pricing levels to what is indicated • The Energy Regula- tor approved on 31 July 2009 that the milestone is changed from Database to calculate: • SASOL volume weighted average gas price (SVWAGP) and European Bench- mark Price (EBP) • Discounts • Resellers Reference Price and the maximum price level • Landed price • to what is indicated Draft bro- 31 March Delayed • Delayed due to chures for 2010 human resource piped-gas constraints prices Energy 31 March Removed • Removed as per Regulator 2010 Energy Regulator approves approval on 31 July the network 2009 code

111 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Educate 31 March Removed • Removed as per stakeholders 2010 Energy Regulator on the net- approval on 31 July work code 2009 Categorise 31 December Completed • Added as per Energy customers as 2009 Regulator approval required by on 31 July 2009 the Piped- Gas Regula- tions Calculate 31 December Delayed • Added as per Energy prices 2009 Regulator approval for each on 31 July 2009 category of • Delayed due to customers human resource constraints Monitor and Ensure third Report on 31 March Removed • Removed as per enforce access party access Greenfields 2010 Energy Regulator to the pipelines Customers approval on 31 July (Clause 7 2009 of Schedule Report on 31 March Removed • Removed as per One of the Brownfields 2010 Energy Regulator Agreement Customers approval on 31 July Concerning the 2009 Mozambique Gas Pipeline between the Government of the Republic of South Africa and Sasol Ltd)

112 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Report on 31 March Removed • Removed as per the level of 2010 Energy Regulator uncommitted approval on 31 July capacity 2009 should there be any qualifying customers Annual review Review third Report 31 March Removed • Removed as per of piped-gas party access 2010 Energy Regulator industry issues and the approval on 31 July gas trading 2009 model Report on Report 31 March Removed • Removed as per developments 2010 Energy Regulator regarding new approval on 31 July gas sources 2009 and infrastructure Update Report 31 March Removed • Removed as per database on 2010 Energy Regulator developments approval on 31 July 2009 Monitor Review coal Report Every 6 months Delayed • Delayed due to time developments bed methane and human resource in new energy developments constraints resources Study into the Report Every 6 months Delayed • Delayed due to time extent of coal and human resource bed methane in constraints situ resources Bio Fuels Report Every 6 months Delayed • Delayed due to time projects and human resource progress constraints

113 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Work on Reports Review third Every 6 months Removed • Removed as per a strategy party access Energy Regulator towards amend- issues and approval on 31 July ing the Gas Act the gas trad- 2009 and unlocking ing model access and Identify Every 6 months Removed • Removed as per competition barriers to Energy Regulator new entry approval on 31 July both up and 2009 down stream Mitigation Every 6 months Removed • Removed as per action and Energy Regulator implementa- approval on 31 July tion plans 2009 Benchmarking Report Annual 28 February Delayed • Delayed due to studies gas: report 2010 human resource licence condi- constraints tions transmission and distribution Update the Updated Gas Published 31 March Delayed • the Energy Regulator Gas Pricing Customer edu- updated 2010 has approved on booklet cation booklet booklet 29 October 2009 that the name of this key performance indicator is changed from Update the Gas booklet to what is indicated • Delayed due to human resource constraints

114 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Propose chang- Comments Approved As and when Delayed • The Energy Regulator es to the Gas comments required has approved on 29 Act and Gas October 2009 that Regulations the name of this key performance indicator is changed from Comments on possible draft amendments to the Gas Act and the Gas Regulator Levies Act to what is indicated • Delayed due to human resource constraints Review of the Updated licens- Approved 31 March Removed • Removed as per Gas Licensing ing framework updated 2010 Energy Regulator Framework for piped-gas frameworks approval on 29 (practices, and petroleum October 2009 procedures) pipelines

115 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Administer Annual Report Develop a 31 October Completed • The Energy Regula- price capping data base 2009 tor has approved on mechanism as for all pric- 29 October 2009 per Schedule ing informa- that the name of this One of the tion key performance Agreement indicator is changed Concerning the from Administer price Mozambique caps as per Schedule Gas Pipeline One of the Agree- between the ment Concerning the Government Mozambique Gas of the Republic Pipeline between the of South Africa Government of the and Sasol Ltd Republic of South Africa and Sasol Ltd to what is indicated Categorise 31 December Removed • Removed as per customers as 2009 Energy Regulator required by approval on 31 July the Piped- 2009 Gas Regula- tions Calculate 31 December Removed • Removed as per prices 2009 Energy Regulator for each approval on 31 July category of 2009 customers Publish the 31 March Completed • The Energy Regula- price cap 2010 tor approved on 31 and reasons July 2009 that this for decision milestone is renamed from Publish the prices to what is indicated

116 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Database 31 July 2009 Completed • Added as per Energy to calculate Regulator approval SASOL on 31 July 2009 volume weighted average gas price (SVWAGP) and European Benchmark Price (EBP) Monitor Annual Report Progress 31 March Externally • Added as per Energy compliance Report 2010 Delayed Regulator approval by Sasol Gas on 31 July 2009 with Market • The Energy Regula- Value Pricing as tor has approved on per Schedule 31 July 2009 that One of the the completion date Agreement is moved to what is Concerning the indicated Mozambique • Delayed due to Sasol Gas Pipeline Gas’ non-compliance between the with Market Value Government Pricing of the Republic Publish the 31 March Removed • Removed as per of South Africa brochures 2010 Energy Regulator and Sasol Ltd approval on 31 July 2009 Calculate 31 December Removed • Removed as per prices 2009 Energy Regulator for each approval on 31 July category of 2009 customers Publish the 31 March Removed • Removed as per prices 2010 Energy Regulator approval on 31 July 2009

117 Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Calculation Aggregated Develop a October 2009 Completed • The Energy Regulator relevant energy of aggregate results of piped- data base approved on 31 July regulations ef- piped-gas gas prices for for all pric- 2009 that the output ficiently and prices all categories ing informa- is enhanced to read effectively of customers for tion as indicated 2008 Categorise 30 October Completed • The Energy Regula- customers as 2009 tor approved on 31 required by July 2009 that the the Piped- completion date is Gas Regula- changed to what is tions indicated Calculate 30 October Completed • The Energy Regula- prices 2009 tor approved on 31 for each July 2009 that the category of completion date is customers changed to what is indicated Publish the 31 December Delayed • The Energy Regula- prices 2009 tor approved on 31 July 2009 that the completion date is changed to what is indicated • Delayed due to human resource constraints Participate Report Approved 31 March Removed • Removed as per in possible report 2010 Energy Regulator reviews of the approval on 29 Gas Regula- October 2009 tions Ensure Imple- Report Approved 31 March Removed • Removed as per mentation of the report 2010 Energy Regulator Gas Regula- approval on 29 tions and Rules October 2009

118 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Piped-Gas Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Development Approved Rules Approved December Completed and publica- Rules 2009 tion of the rules in terms of the Gas Act, 2001 (Act No. 48 of 2001) To evaluate the Annual risk Report Consultants 31 June 2009 Removed • Removed as per Energy Regula- assessment of engaged Energy Regulator tor’s effective- the piped-gas approval on 31 July ness industry 2009 Risk model 31 September Removed • Removed as per development 2009 Energy Regulator and/or approval on 31 July reviewed 2009 Industry 31 December Removed • Removed as per consultation 2009 Energy Regulator workshops approval on 31 July / meetings 2009 schedule Licensing Piped- Licences Analysis of As and when On track • Added as per Energy Gas Activities licence ap- required Regulator approval plications on 29 October 2009.

119 C. Petroleum Pipelines Industry Regulation

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Security of Review and Demand v/s Quarterly On track relevant energy Supply maintain the Supply Bal- Reports policy efficiently model ance Report and effectively To implement Tariff setting Petroline tariff Setting tariff 31 March Externally • Delayed as Petroline relevant energy 2010 delayed did not submit an law efficiently application and effectively Transnet tariff Setting tariff 31 March Completed 2010 Natref Neutral- Remove 31 March Completed ity cross-subsidy 2010 Storage and Approved As and when On track loading facili- tariff required ties tariffs Tariff method- Review of Amended 30 September Completed • The Energy Regulator ologies the petroleum methodology 2009 approved on 31 July pipelines tariff 2009 that the name methodology of this key performance indicator is changed from Tariff methodology to what is indicated • The Energy Regulator approved on 31 July 2009 that the output is changed from Re- view of methodology to what is indicated Drafting of a Approved 31 March Completed • Added as per Energy tariff methodol- methodology 2010 Regulator approval ogy for the Pe- for Petroleum on 31 July 2009 troleum Storage Storage and and Loading Loading facilities facilities

120 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitoring Reports Usage Quarterly On track • The Energy Regulator progress in the Reports Reports has approved on 29 usage of the October 2009 that DJP the name of this key performance indicator is changed from Monitoring progress in the integrity of the DJP to what is indicated • The Energy Regula- tor has approved on 29 October 2009 that the name of this milestone is changed from Integrity Monitoring to what is indicated Review Bi-annual Removed • Removed as per of licence Reports Energy Regulator conditions approval on 29 October 2009 Review of Quarterly Removed • Removed as per criteria for Energy Regulator total decom- approval on 29 missioning October 2009 Development Access to stor- Benchmark- 31 December Completed • The Energy Regula- of guidelines age facilities by ing Study 2009 tor has approved on for Allocation Third Parties 29 October 2009 Mechanisms that the name of this key performance indicator is changed from Development of Access Code to what is indicated • the Energy Regulator has approved on 29 October 2009 that the name of this output is changed from Access Code to what is indicated

121 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Study tours 31 December Completed 2009 Guidelines 31 December Completed • The Energy Regula- for Alloca- 2009 tor has approved on tion mecha- 29 October 2009 nisms that the name of this milestone is changed from Revised Access Code to what is indicated Benchmark- 31 December Removed • Removed as per ing Study 2009 Energy Regulator approval on 29 October 2009 Uncommit- The method- 31 April 2009 Removed • Removed as per ted capacity ology Energy Regulator determination approval on 29 methodology October 2009 and replaced with the allocation guidelines Complaints As and when Removed • The Energy Regulator required has approved on 31 July 2009 that this output is changed to what is indicated • Removed as per Energy Regulator approval on 29 October 2009 Refinement December Removed • Removed as per of methodol- 2009 Energy Regulator ogy approval on 29 October 2009

122 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Construction Licences for Analysis of As and when On track • The Energy Regulator licensing pipelines, stor- applications required has approved on 29 age facilities October 2009 that and loading the name of this key facilities performance indicator is changed from Storage: Licensing of storage construction to what is indicated • The Energy Regula- tor has approved on 29 October 2009 that the name of this output is changed from Licences to what is indicated Monitoring Progress Analysis of Quarterly On track progress in the Reports applicants Reports construction reports licences of new Review Bi-annual On track infrastructure of licence Reports conditions

Monitoring and Ensure compli- Inspections Quarterly Delayed • The Energy Regula- Enforcement ance with – 2 facilities tor has approved on of operating license condi- per annum 29 October 2009 licences tions that this milestone is changed from Inspec- tions – 2 facilities per quarter to what is indicated • Delayed due to human resource constraints

123 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Regula- Implementation Review of 30 September Externally • The Energy Regulator tory Reporting of the Regula- Transnet’s 2009 delayed has approved on 31 Manuals tory Reporting financial 30 November July 2009 that the Manuals for statements 2009 name of this output Transnet 31 March is changed from 2010 Implementation of the Regulatory Reporting Manuals to what is indicated • The Energy Regulator has approved on 31 July 2009 that two additional completion dates are added. The completion dates are as indicated • Delayed due to delays experienced from the consultant in the determination of the Starting Regulato- ry Asset Base as well as the Regulatory Reporting System

124 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implementation Review of 30 September Externally • The Energy Regulator of the Regula- Chevron’s 2009 delayed has approved on 31 tory Reporting financial 30 November July 2009 that the Manuals for statements 2009 name of this output is Chevron 31 March changed from Review 2010 financial statements in line with roll-out plan to what is indicated • The Energy Regulator has approved on 31 July 2009 that the milestone is changed from Implementation of the Regulatory Reporting Manuals for Chevron to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Delayed due to late receipt of Chevron’s Regulatory Reporting Manual Implementa- tion Plan

125 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implementation Review of 30 September Externally • The Energy Regulator of the Regula- Engen’s 2009 delayed has approved on 31 tory Reporting financial 30 November July 2009 that the Manuals for statements 2009 name of this output is Engen 31 March changed from Review 2010 financial statements in line with roll-out plan to what is indicated • The Energy Regulator has approved on 31 July 2009 that the milestone is changed from Review financial statements in line with roll-out plan to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Delayed due to late submission of Engen’s Regulatory Reporting Manual Implementa- tion Plan Annual review Booklet Review of December Removed • Removed as per of petroleum loading 2009 Energy Regulator pipeline facilities approval on 31 July industry 2009 Review of Removed • Removed as per storage Energy Regulator facilities approval on 31 July 2009 Review of Removed • Removed as per pipelines Energy Regulator approval on 31 July 2009

126 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Comments on Comments Approved As and when On track the possible comments required draft amendments to the Petroleum Pipelines Act, Regulations and the Levies Act Review of Updated licens- Approved 31 March Completed • The Energy Regula- Petroleum Pipe- ing templates updated 2010 tor has approved on line Licensing for petroleum templates 29 October 2009 templates pipelines that the name of this key performance indicator is changed from Review of the Petroleum Pipelines Licensing Framework (practices, procedures)to what is indicated • The Energy Regulator has approved on 29 October 2009 that the name of this output is changed from Updated licensing framework for piped- gas and petroleum pipelines to what is indicated • The Energy Regulator has approved on 29 October 2009 that the name of this output is changed from Approved updated frameworks to what is indicated

127 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Licensing of ex- Licences Analysis of 31 March Delayed • The Energy Regulator isting petroleum awarded applications 2010 has approved on 29 facilities October 2009 that the completion date is changed to what is indicated • Delayed due to human resource constraints To implement Design uncom- Reporting Approval by 30 April 2009 Completed relevant energy mitted capac- template PPC regulations ef- ity reporting ficiently and template effectively

128 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor Annual consoli- Monthly Monthly Delayed • The Energy Regula- compliance dated report reports to tor has approved on with Petroleum PPS 29 October 2009 Pipelines Regu- that the name of this lation 3(2) and key performance 3(3) – Third indicator is changed Party Access from Monitor compli- to storage fa- ance with Petroleum cilities: monitor Pipelines Regulation compliance by 3(2) and 83(3) – storage facility Third Party Access licensees with to storage facilities: the reporting, monitor compliance submission of by storage facility information and licensees with the publication of reporting, submis- information sion of information and publication of information to what is indicated • The Energy Regula- tor has approved on 31 July 2009 that the name of the milestone is changed from Monthly reports to PPC to what is indicated • Delayed due to human resource constraints

129 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor capac- Report Reports to Within 6 Delayed • The Energy Regulator ity allocation PPS months of has approved on 31 mechanism receipt of July 2009 that the licence name of the milestone is changed from Re- ports to PPC to what is indicated • The Energy Regulator has approved on 31 July 2009 that the completion date is changed to what is indicated • Delayed due to human resource constraints Monitor compli- Annual consoli- Submission 31 August Delayed • The Energy Regulator ance with dated report to PPS 2009 has approved on 31 Petroleum Pipe- July 2009 that the lines Regulation name of the milestone 6 – Rendering is changed from of Information Submission to PPC to to Energy Regu- what is indicated lator: Monitor • Delayed due to a compliance human resource with electronic constraints submission of information relating to monthly volumes shipped, stored or loaded [R6(1) &(2)];

130 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor compli- Annual consoli- Submission As and when Delayed • The Energy Regulator ance with dated report to PPS required has approved on 31 Petroleum Pipe- July 2009 that the lines Regulation milestone is changed 6 - Rendering from Submission to of Information the PPC to what is to Energy: Reg- indicated ulator: Monitor • The Energy Regulator compliance has approved on 31 with reporting July 2009 that the by licensees completion date is of their liaison changed to what is with local au- indicated thorities [R6(3)] • Delayed due to human resource constraints Monitor Reports to PPS 6 monthly On Anniversa- Delayed • The Energy Regulator compliance reports ry of licences has approved on 31 with Petro- July 2009 that the leum Pipelines output is changed Regulation 8 from Reports to – Mechanisms the PPC to what is to promote indicated historically • The Energy Regula- disadvantaged tor has approved on South Africans: 29 October 2009 Monitor compli- that the milestone is ance with the changed from Anni- annual report- versary of licences to ing requirement what is indicated regarding • Delayed due to commercial human resource arrangements constraints made for the participation of historically disadvantaged South Africans

131 Petroleum Pipelines Industry Regulation

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Monitor compli- Reports to PPS Notice by 2 months after On track • The Energy Regulator ance with licence of receipt of de- has approved on 31 Petroleum Pipe- decommis- commissioning July 2009 that the lines Regulation sioning notice output is changed 9 – Rehabilita- from Reports to tion of land: the PPC to what is monitor compli- indicated ance with the requirement to submit plans for approval for the closure, removal and disposal of all installations relating to such licensed activities Development Rules Approved 31 December Completed and publica- and gazet- 2009 tion of the rules ted rules in terms of the Petroleum Pipelines Act To evaluate the Risk assessment Report Consultants 31 June 2009 Removed • Removed as per Energy Regula- of the petro- engaged Energy Regulator tor’s effective- leum pipelines approval on 31 July ness industry 2009 Risk model 31 September Removed • Removed as per development 2009 Energy Regulator and/or approval on 31 July reviewed 2009 Industry 31 December Removed • Removed as per consultation 2009 Energy Regulator workshops approval on 31 July / meetings 2009 schedule

132 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

D. Cross-Cutting Regulatory

Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Resolution of Reports Monthly Monthly On track relevant energy complaints Reports policy efficiently Customer Edu- Reports on Reports on Quarterly On track • The Energy Regulator and effectively cation presentations planned has approved on 31 to Municipal Customer July 2009 that this Councils and Education output be renamed relevant cus- Events from Reports to what tomer segments is indicated • The Energy Regula- tor has approved on 31 July 2009 that this milestone be renamed from Reports on presentations to Municipal Councils and relevant customer segments to what is indicated Promotion of Reports Reports on Quarterly Removed • Removed as per Consumer workshops Energy Regulator advocacy approval on 31 July 2009 Monitoring the Reports Quarterly Quarterly Delayed • Delayed due to establishment of reports on human resource customer and licensee constraints end-user forums visits NERSA Determination A report 31 March Delayed • Added as per Energy contribution to of NERSA’s Highlighting 2010 Regulator approval socio-economic contribution to NERSA’s on 31 July 2009 development socio-economic contribution • Delayed due to repri- programmes of development to socio- oritisation government programmes of economic government development programmes of government

133 Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To implement Monitoring Recognition for Letter of ac- Quarterly Externally • Delayed as only relevant energy of customer service excel- knowledge- Delayed 10% of completed law efficiently service levels lence (individu- ment questionnaires were and effectively al persons and received licensees) Contributing to Participating in Approved 31 March Completed the updating of the legislative updated 2010 existing legisla- drafting process frameworks tion impacting on regulatory mandate of NERSA Update of the Approved up- Approved As and when On track • The Energy Regula- interpretation dated booklet updated required tor has approved on guidelines for electricity booklet 31 July 2009 that for Electricity, industry regula- the name of this key Piped-Gas and tion performance indica- Petroleum Pipe- tor is changed from lines Regulation Update of the Inter- pretation guidelines for Hydrocarbons Regulation to what is indicated • The Energy Regulator has approved on 31 July 2009 that the name of this output is changed from Approved updated booklet to what is indicated Approved up- Approved As and when On track • Added as per Energy dated booklet updated required Regulator approval for piped-gas booklet on 31 July 2009 industry regulation

134 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Approved up- Approved As and when On track • Added as per Energy dated booklet updated required Regulator approval for petroleum booklet on 31 July 2009 pipelines industry regulation Implement Reg- Implementation Progress 31 August On track • The Energy Regulator ulatory Report- of the Regula- reports to 2011 has approved on 31 ing Manuals tory Reporting Policy Sub- July 2009 that the with emphasis Manuals - committee name of this output on the separa- Phase 1 is changed from Im- tion between plementation plan for regulated and roll-out to all licensees unregulated to what is indicated business in line • The Energy Regula- with interna- tor has approved tional best on 31 July 2009 practice (all that the name of this three regulated milestone is changed industries) from Implementa- tion Plans to what is indicated • The Energy Regulator has approved on 31 July 2009 that this completion date is changed to what is indicated To identify, Development, Approved Functional 31 March Delayed • Delayed due to develop and Implementation specifications LIS for piped- 2010 human resource implement and Mainte- for information gas and constraints relevant energy nance of the required from petroleum rules efficiently Licensee Infor- the piped-gas pipelines and effectively mation System and petroleum industries for Electricity, pipelines indus- Piped-Gas and tries Petroleum Pipe- lines Regulation

135 Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Roll-out of LIS Approved 30 April 2009 Completed system roll-out plan Quarterly Quarterly On track reports Integrate the Integrated and Quarterly Quarterly On track GIS for all functional GIS Progress three regulated for the three reports industries industries To establish Analysing Analysis of the Report on Quarterly Removed • Removed as per the credibility, decisions of the decisions of the consistency Energy Regulator ap- legitimacy and Energy Regula- Energy Regula- of all the proval on 28 January sustainability of tor tor in terms of decisions of 2010 NERSA as an legal basis, the Energy independent consistency Regulator and transparent (precedent) and energy regula- applicable laws tor Entering into Signed MoUs MoUs with 30 June 2009 Delayed • Delayed due to MoUs with Department human resource departments of Minerals constraints and entities and Energy, with concurrent Competition jurisdiction Commission, National Nuclear Regulator, Department of Envi- ronmental Affairs and Tourism and Department of Labour Develop Rules Establish the Approved 30 April 2009 Delayed • Delayed due to for Tribunals sitting as a Rules for human resource Tribunal by the Tribunals constraints Energy Regula- tor and Rules for Tribunals

136 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Establish regula- Written reports Reports Monthly On track tory contacts of meetings posted on between with stakehold- IDMS government ers and regulated Stakeholder Updated Monthly On track entities database Database available on IDMS Stakeholder Quarterly On track analysis reports Protocol Guide- Approved 30 April 2009 Delayed • Delayed due to line Guideline human resource constraints To evaluate the Review regula- Process innova- Review and 30 April 2009 Removed • Removed as per Energy Regula- tory processes tion to mandate research Energy Regulator tor’s effective- and compare reports on approval on 31 July ness internationally processed 2009 To establish Benchmarking Benchmark- 30 June 2009 Completed and implement ing method- a system to ology benchmark International 30 November Completed regulatory best prac- 2009 processes and tices report methodologies used in NERSA Benchmark- 30 November Completed against inter- ing system 2009 national best Benchmark- 30 November Completed practices and ing plan 2009 to measure its Benchmark- 30 November Completed impact on in- ing reports 2009 dustry performance Gap identifi- 30 November Completed cation report 2009

137 Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To establish and Process innova- Review and 30 April 2009 Removed • Removed as per implement a tion to mandate research Energy Regulator methodology to reports on approval on 31 July benchmark the innovation 2009 Energy Regula- processed tor’s performance against international best practices To establish Impact assess- Benchmark- 30 June 2009 Removed • Removed as per and implement ment ing method- Energy Regulator a methodology ology approval on 31 July to assess the im- 2009 pact of current International 30 November Removed • Removed as per and proposed best prac- 2009 Energy Regulator regulatory practices report approval on 31 July tices through 2009 regulatory impact assess- Benchmark- 30 November Removed • Removed as per ments (RIA) ing system 2009 Energy Regulator approval on 31 July 2009 Benchmark- 30 November Removed • Removed as per ing plan 2009 Energy Regulator approval on 31 July 2009 Benchmark- 30 November Removed • Removed as per ing reports 2009 Energy Regulator approval on 31 July 2009 Gap identifi- 30 November Removed • Removed as per cation report 2009 Energy Regulator approval on 31 July 2009 Regulatory Approved 30 December Delayed • Added as per Energy Impact Assess- methodology 2009 Regulator approval ment methodol- on 31 July 2009 ogy • Delayed due to reprioritisation

138 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Cross-Cutting Regulatory

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Determination Terms of 31 March Removed • Added as per Energy of the impact Reference 2010 Regulator approval of regulatory on 31 July 2009 decisions • Removed as per Energy Regulator approval on 28 January 2010 To establish Methodology Approved 31 December Delayed • Added as per Energy and implement to pro-actively methodology 2009 Regulator approval a methodology identify issues on 31 July 2009 to pro-actively that the Regula- • Delayed due to repri- identify issues tor needs to oritisation that the Regula- focus on tor needs to focus on Minimum Infor- Documents for Approved 28 July 2010 On track • Added as per Energy mation Require- the three regu- Documents Regulator approval ments for Tariff lated industries on 29 October Application to be used 2009 to determine the information needed to submit tariff applications

139 E. Organisational

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator To create an Management Quarterly Quarterly Quarterly Delayed • Delay due to a delay effective or- of the Contact reports Reports in the upgrading of ganisation that Centre the contact centre delivers on its system mandate and Develop and Stakeholder Hold Quarterly Delayed • Delayed due to repri- purpose implement an Management stakeholder oritisation integrated exter- Programme breakfast nal communica- in different tion programme provinces with practical Arrange Quarterly On track plans of action briefing sessions with Portfolio Committee Public Aware- Effective April, May Completed ness Pro- participation and August gramme in 5 exhibi- 2009 tions NERSA Day October 2009 Removed • Removed as per Energy Regulator approval on 28 January 2010 Media Rela- Quarterly Quarterly On track tions Pro- media brief- gramme ing sessions Media 31 March Delayed • the Energy Regulator training for 2010 has approved on 29 executives October 2009 that the completion date is moved to what is indicated • Delayed due to human resource constraints

140 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Conduct If and when On track press confer- necessary ences Conduct If and when On track media inter- necessary views Issue media If and when On track statements necessary Effective Daily and On track media moni- Monthly toring Co-ordinate Updated corpo- All printed June 2009 Completed and manage rate material corporate the corporate material in image of line with NERSA NERSA corporate identity Adverts on Quarterly On track print and electronic media Profile the Improved March 2010 Completed NERSA brand brand awareness Co-ordinate Annual report Printed An- August 2009 Completed and manage nual Report NERSA publica- Quarterly Printed Quarterly Delayed • Added as per Energy tions Newsletters Quarterly Regulator approval Newsletter on 31 July 2009 • Delayed due to human resource constraints Pamphlets Printed If and when On track pamphlets required Ad hoc publica- Printed publi- If and when On track tions cations required

141 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Co-ordinate Updated Update Monthly On track and manage website contents of the content of website on the a monthly website basis and as the need arises Implement an Implementation Arrange Monthly On track annual internal plan monthly get communication together ses- programme sions with practical Logistical ar- If and when On track • Added as per Energy plans of action rangements required Regulator approval for ad-hoc on 31 July 2009 events Arrange November Completed Year End 2009 Function Produce Weekly Delayed • Delayed due to weekly news human resource bulletins constraints Produce Quarterly Removed • Removed as per quarterly Energy Regulator newsletter approval on 31 July 2009

Conduct Audits Approved An- Approved 30 April 2009 Completed • Added as per Energy in the Risk nual Plan Annual Audit Regulator approval Based Plan Plan on 31 July 2009 Audit Reports Conducting 31 March Completed 11 audits 2010 Manage the Awareness Conduct 1 31 March Completed Fraud Hotline of the Fraud workshop 2010 Hotline

142 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Manage the Approved Approved 30 September Completed development 3-year rolling NERSA Stra- 2009 and imple- strategic plan tegic Plan mentation of and annual (2010/11 the 2010/11 business plan – – 2012/13 2012/13) Strategic Plan and Busi- and 2010/11 ness Plan Business Plan – (2010/11) estimated consultant budget Annual Plan- Planning 31 March Completed for 2009/10 ning and Moni- Cycle ap- 2010 toring Cycle proved by MANCO Mid-term review Mid-term re- 31 October Completed view report 2009 Revised Busi- 31 October Completed ness Plan (if 2009 applicable) Manage the Approved Approved 30 April 2009 Completed • The Energy Regulator compilation of quarterly and 4th Quarter has approved on 31 the quarterly annual or- Perform- July 2009 that the and annual ganisational ance Report name of this milestone organisational performance (2008/09) be changed from performance reports Approved Annual reports Quarter Performance Report (2008/09) to what is indicated Approved 31 July 2009 Completed 1st Quarter Performance Report Approved 31 October Completed 2nd Quarter 2009 Performance Report

143 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Approved 31 January Completed 3rd Quarter 2010 Performance Report Report on Approved 31 May 2009 Completed performance Performance against objec- Against tives Objectives Report Monitor the im- Implementation Annual 31 March Delayed • Delayed due to repri- plementation of Report Report on 2010 oritisation the team-based implementa- network system tion of TBNS (TBNS) at NERSA Staff Survey on Report on 31 October Delayed • Delayed due to repri- TBNS Policy staff survey 2009 oritisation and implementation Revised TBNS Approved 31 January Completed Policy (if neces- revised 2010 sary) TBNS Policy (if necessary) Coordinate Updated MANCO 31 July 2009 Completed • The Energy Regulator and monitor the residual risk Risk Assess- has approved on 31 management of register ment / re- July 2009 that this business risk view report completion date be in line with changed as indicated Risk Policy REC Risk 31 May 2009 Completed Assessment / Review Energy Regu- 31 July 2009 Completed lator Risk Assessment / Review

144 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Quarterly 4th Quarter 31 April 2009 Completed progress reports 2008/09 on the mitiga- progress tion strategies report 1st Quarter 31 July 2009 Completed 2009/10 progress report 2nd Quarter 31 October Completed 2009/10 2009 progress report 3rd Quarter 31 January Removed • Removed as per 2009/10 2010 Energy Regulator ap- progress proval on 28 January report 2010 Quarterly 4th Quarter 31 April 2009 Completed reports on 2008/09 implementation progress of Internal Audit report Reports 1st Quarter 31 July 2009 Completed 2009/10 progress report 2nd Quarter 31 October Completed 2009/10 2009 progress report 3rd Quarter 31 January Completed 2009/10 2010 progress report Monitor imple- Implementation Annual Re- 31 March Delayed • Approval of BCP mentation of the report port on the 2010 delayed due to Business Conti- implementa- volume of documents nuity Plan (BCP) tion of the to be approved by for NERSA BCP MANCO Updated BCP Approved 31 March Completed (if necessary) revised BCP 2010 (if necessary)

145 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Conduct a Report on top Identification 30 September Delayed • The Energy Regulator Business Proc- 3 Business report of top 2009 has approved on 31 ess Analysis at Processes in 3 Business July 2009 that the NERSA three selected Processes name of the output be departments in three renamed from Report selected on top 3 Business departments Processes in every department to what is indicated • The Energy Regulator has approved on 31 July 2009 that the name of this milestone be changed from Identification report of top 3 Business Processes in every Department to what is indicated • The Energy Regula- tor has approved on 31 July 2009 that the completion date be moved to what is indicated • Delayed due to reprioritisation Descrip- 30 November Delayed • The Energy Regulator tion of 2009 has approved on 31 current top July 2009 that this 3 Business milestone is changed Processes from Description of in three current business proc- selected ess for top 3 in every departments department to what is indicated • Delayed due to reprioritisation

146 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Proposed en- 28 February Delayed • The Energy Regulator hancements 2010 has approved on 31 of Business July 2009 that this Process milestone is changed identified from Proposed enhancements of business process for top 3 in every department to what is indicated • Delayed due to reprioritisation Preparation of Annual Finan- Submission 31 May 2009 Completed the 2008/09 cial Statements of annual Annual Finan- financial cial Statements statements to in line with the Auditor PFMA, Treasury General Regulations, Audit Report Audit report 31 July 2009 Completed GAAP and obtained GRAP from the Auditor General and annual financial statements finalised Treasury Tem- Submission 31 July 2009 Completed plate of Treasury Template to National Treasury

147 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implementation External Manage- 15 July 2009 Completed of internal and Audit Manage- ment com- external audit ment Letter ment pro- findings 2008/09 vided to the 2008/09 external audit management letter Implemen- Various (as On track tation of documented in action items the manage- documented ment comment in the provided) 2008/09 external audit management letter Internal Audit Manage- Depends on Completed Reports ment internal audits comment carried out provided to internal audit reports Implemen- Various (as On track tation of documented in action items the manage- documented ment comment in the provided) internal audit reports Reports to the Submission Depends on On track Operational of reports to ORC meetings Risk Committee the ORC set (ORC)

148 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Preparation 4th Quarter Submission 30 April 2009 Completed of Quarterly Management of 4th Quar- Management Accounts for ter Man- Accounts the period 1 agement January 2009 Accounts for to 31 March the period 2009 1 January 2009 to 31 March 2009 to the Minister of Minerals and Energy 1st Quarter Submission 31 July 2009 Completed Management of 1st Quar- Accounts for the ter Man- period 1 April agement 2009 to 30 Accounts for June 2009 the period 1 April 2009 to 30 June 2009 to the Minister of Minerals and Energy 2nd Quarter Submission 31 October Completed Management of 2nd 2009 Accounts for Quarter the period 1 Manage- July 2009 to ment 30 September Accounts for 2009 the period 1 July 2009 to 30 Septem- ber 2009 to the Minister

149 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator 3rd Quarter Submission 31 January Completed • The Energy Regula- Management of 3rd Quar- 2009 tor has approved on Accounts for ter Man- 31 July 2009 that the period 1 agement the completion date October 2009 Accounts for for this milestone is to 31 Decem- the period changed to what is ber 2009 1 October indicated 2009 to 31 December 2009 to the Minister of Energy Prepara- Budget Pa- Approval of 31 July 2009 Completed tion of the rameter and the Budget 2010/2011 Assumptions Parameter budget Document and Assump- tion Docu- ment by the Finance Subcom- mittee and the Energy Regulator Budget Submis- 30 September Completed 2010/2011 sion of the 2009 budget to the Minister of Energy Government Publication 1 November Completed • The Energy Regulator Gazette of of proposed 2009 has approved on 29 proposed levies for the October 2009 that levies for the 2010/11 the completion date 2010/11 year year as is changed to what is as required by required by indicated the relevant the relevant legislation legislation

150 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Report to the Submission 15 December Completed Minister of of a report 2009 Energy on any to the Minis- representa- ter of Energy tion received on any rep- through the resentation gazetting proc- received ess through the gazetting process Letter of Approval 28 February Externally • NERSA has not yet approval of of Business 2010 delayed received approval of Business Plan Plan and the Business Plan and and Budget by Budget by Budget for 2010/11 the Minister of the Minister from the Minister of Energy in con- of Energy in Energy currence with concurrence the Minister of with the Finance Minister of Finance Gazetting Government Publica- 1 March Externally • NERSA has not yet of approved Gazette of the tion of the 2010 delayed received approval of levies for the imposition of imposition of the Business Plan and 2010/11 year levies for the levies for the Budget for 2010/11 as required by 2010/11 year 2010/11 from the Minister of the relevant as required by year as Energy legislation the relevant required by legislation the relevant legislation Monitoring Monthly cost Prepara- Monthly (by On track of 2009/10 centre reports tion and the 15th of budget distribution the following Preparation and of monthly month) distribution of cost centre monthly cost reports to centre reports all budget to all budget holders holders

151 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Financial Monthly Monthly On track Reports creditors reconcilia- tions General Monthly On track Ledger Rec- onciliations Monthly Monthly On track invoices Logistical Quarterly Quarterly Delayed • Delayed due to Reports Reports logistics processes not in line with Supply Chain Management procedures Administration Quarterly Quarterly Delayed • Delayed due to main- Reports Reports tenance plan being under review Support to Contracts Quarterly Quarterly On track NERSA depart- Reports ments, the Of- Opinions / Ad- Quarterly Quarterly On track • The Energy Regulator fice of the CEO vise / Disputes Reports approved on 31 July and the Energy 2009 that this output Regulator be enhanced from Opinions / Advise to what is indicated Provide Secre- Merged and vi- Formation of 30 June 2009 Externally • Delayed due to tariat support brant National a National delayed unavailability of services to Na- Regulatory Regulatory external members of tional Regula- Association Association SARF and SAURA for tory Initiatives through a meeting to discuss merging of the matter SAURA and SARF Provision of Quarterly Quarterly (from Externally • Delayed due to structured forum June 2009) delayed unavailability of to consult with external members of other national SARF and SAURA for regulators a meeting to discuss the matter

152 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Promote sound Coordinate Quarterly Quarterly Removed • Removed as per relationships and provide Reports Energy Regulator with Regional, Secretariat approval on 31 July Continental and support services 2009 International for NERSA’s Stakeholders participation in RERA, AFUR, WFER and other international regulatory initiatives RERA-SIDA Quarterly Quarterly On track • Added as per Energy Project: Reports Regulator approval Enhancement on 31 July 2009 of the Regional Electricity Regu- latory Environ- ment & Capacity development of RERA, funded by the Swedish International Development Cooperation Agency (Sida) SADC Energy Report 30 April 2009 Completed • Added as per Energy Officials and Regulator approval Ministers’ Meet- on 31 July 2009 ing RERA EXC) Report Quarterly On track • Added as per Energy Meetings, Port- Regulator approval folio Committee on 31 July 2009 Meetings and • other obligations in terms of membership AFUR Report Quarterly On track • Added as per Energy Regulator approval on 31 July 2009.

153 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Coordinate the Development Quarterly Quarterly On track development of capacity Reports of international building as well capacity build- as training and ing as well as development training and programmes development programmes [NORAD/NVE and other bilateral partnerships] Implementing Implementation Approved Monthly On track a guideline to of NERSA deci- monthly manage ad sions reports hoc projects by Approve sched- Approved 30 April 2009 Completed • At the Energy Regula- the Regulator ule of Regulator guideline tor meeting of 29 Members serv- January 2009, the ing on Subcom- Energy Regulator ap- mittees proved that this output is renamed from “Schedule of Rota- tional Chairs serving on Sub-committees“ to what is indicated Monitoring Decision Approved 30 April 2009 Completed implementation implementation revised of decisions of matrix decision the Regulator implementation matrix Approved Monthly On track monthly reports

154 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Improving in- Operating Approved 30 April 2009 Completed ternal manage- Procedures operating ment policies, procedures procedures, Approved Monthly On track systems and monthly processes reports Handover As and when On track Reports required Annual Delega- Letters of 30 April 2009 Completed tion of Authority statutory ap- (Statutory) pointments Ensure provision Quarterly Approved Quarterly On track of effective sec- Reports reports retarial services Approved Monthly On track to EXCO and minutes MANCO Schedule of Approved 30 April 2009 Completed Meetings revised schedule of meetings Revised 30 April 2009 Completed Terms of Ref- erence for EXCO and MANCO Report-back Organised Monthly On track mechanism “Imbizo/ Get-together” sessions Regular De- Within three On track partmental days after meetings meetings Scheduled Quarterly Delayed • Delayed due to repri- Quarterly oritisation reviews Effective follow- Approved Monthly On track up system reports

155 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Provide effec- Approved Approved After every On track tive secretarial minutes in line with meeting services to the operating Energy Regula- procedures tor and its Public Hearings Approved After every On track subcommittees in line with public hearing operating procedures Updated Revised code of To con- 30 September Completed • The Energy Regula- Energy Regula- conduct duct one 2009 tor approved on 31 tor code of workshop July 2009 that the conduct before it is completion date be approved revised as indicated Preparation for Appointment To conduct 31 March Completed the end of term of new part- at least three 2010 of part-time reg- time regulator induction ulator members Members programmes and induction for part-time for new part- regulator time regulator members members Updated Terms Revised terms of To conduct 31 March Delayed • Delayed due to of Reference for reference at least one 2010 the changes in the Subcommittees workshop structure of the Energy of the Energy before ap- Regulator and its Regulator proval Subcommittees Delegation of Revised delega- Approved 31 March Completed Authority tion framework by relevant 2010 subcommittee and the Energy Regulator Providing legal Legal opinion Legal opin- As and when On track support to the and legal ion required Energy Regula- reports as per tor and its the direction Subcommittees of the Energy Regulator and Subcommittees

156 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implement an Effective payroll Monthly rec- Monthly On track effective and system onciliation of efficient payroll payroll system and Payroll proce- Effective 31 March Completed procedures dures procedures 2010 Compile an Workplace Submit 30 June 2009 Completed annual compre- skills plan workplace hensive training skills plan to and develop- Energy SETA ment plan to Annual Training Submit An- 30 June 2009 Completed address skills Report nual Training requirement of Report to new and exist- Energy SETA ing staff Assessing Report on Updated 30 August Delayed • Delayed due to whether staff criteria for as- criteria of 2009 human resource live the values sessment Assessment constraints Implementation Implementa- Quarterly Delayed • Delayed due to of recommen- tion reports human resource dations constraints Implement skills Implementation Report on Quarterly On track development of the pro- training programmes grammes provided to Learners Provide an Report on Performance 30 June 2009 Contracting – efficient and Performance contracts completed effective HR Management and assess- Assessments support service system ments – on track Report on Quarterly Quarterly On track Recruitment, reports on Selection and recruitment, resignation terminations report and staff movements Report on Quarterly Quarterly On track Employee reports on Wellness Pro- Employee gramme Wellness Programme

157 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Health and Incident As and when On track safety reports on required health and safety matters Employment Approved 30 August Delayed • Delayed due to Equity Report Employment 2009 human resource and Plan Equity Plan constraints Report on Report Quarterly On track • Added as per Energy Training and Regulator approval Development on 31 July 2009 Ensure efficient Collect, 80% of data 30 July 2009 Externally • Delayed due to non- information validate and obtained delayed submission of informa- gathering and analyse data from licen- tion by licensees dissemination to from NERSA sees customers and regulated 100% of 30 July 2009, On track stakeholders entities and data collec- 30 October produce annual tion forms 2009, 31 report based (Distribution, January 2010 on the data Generation, and information Transmis- collected sion) and reminder letters distrib- uted on time 100% of re- 31 March Completed ceived data 2010 captured Produce 30 September On track Electricity 2009 Supply Sta- tistics (ESS) publication Review and en- Development Implementa- Quarterly On track hance NERSA’s and implemen- tion reports record keeping tation of func- of records system tional Records management Centre procedure

158 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Develop a 31 March On track file plan for 2010 other NERSA departments Quarterly Quarterly On track report on Registry activities Ensure the Well stocked Quarterly Quarterly On track population of knowledge Reports information and centre knowledge Evaluation of Quarterly Quarterly On track materials in the the use of the Reports Knowledge knowledge Centre centre Ensure effective Up to date Quarterly Quarterly Removed • Removed as per maintenance and functional Reports Energy Regulator of NERSA NERSA data- approval on 31 July databases bases 2009 Implementation Reports Implementa- Quarterly Delayed • Delayed due to of NERSA’s ICT tion Report human resource Strategy in sup- constraints port of NERSA IT systems Ensure NERSA’s Quarterly and Quarterly Quarterly On track Compliance annual report and annual with the Promo- on information report on tion of Access requests information to Information requests Act Ensure that Stable NERSA Quarterly Quarterly On track NERSA IT IT network and Reports systems support Desktop Sup- NERSA busi- port ness processes and are in line with NERSA information policy

159 Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Implementation Quarterly Quarterly On track of IT Disaster Reports Recovery Plan Functional Quarterly Quarterly On track NERSA Intranet Reports Comment on Participation in Reports As and when On track • Added as per Energy industry regula- public con- necessary Regulator approval tion develop- sultations on on 31 July 2009 ment and legislation and • The Energy Regulator participate in regulations has approved on 29 Portfolio Com- October 2009 that mittee discus- the name of this out- sions on Energy put is changed from Bills Approved comments on legislation and regulations to what is indicated Participation in Reports As and when On track public con- necessary sultations on legislation and regulations Participation in Reports As and when On track the PPC public necessary hearings Develop and Approved Report 30 September Completed • Added as per Energy implement Framework on 2009 Regulator approval a system to the drafting of on 31 July 2009 manage legal legal opinions opinions Develop a Approved an- Report 30 September Delayed • Added as per Energy common notated NERSA 2009 Regulator approval understanding Act and opin- on 31 July 2009 of key elements ions on some • Delayed due to of the National sections of the human resource Energy Regula- NERSA Act constraints tor Act

160 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Organisational

Key Completion Performance Goal Performance Output Target Reasons for Variance Date Result Indicator Develop a Opinions/Clari- Reports As and when On track • Added as per Energy common under- fication and/or necessary Regulator approval standing on all Advice on the on 31 July 2009 other key ele- Acts that impact ments of all the on the mandate Acts that impact of NERSA on the NERSA mandate

Create a Monitor the Quarterly Quarterly On track • Added as per Energy knowledge progress made progress Regulator approval management with regards to reports on 31 July 2009 culture that is the creation of conducive to a knowledge knowledge management creation, culture sharing, appreciation and preservation RSA3001 – Successful Completion Quarterly On track • Added as per Energy Project Delta completion of and imple- Regulator approval the NERSA Sub- mentation of on 31 July 2009 programme all projects • The Energy Regulator under the has approved on 29 sub-pro- October 2009 that gramme the completion date in changed to what is indicated Coordinate the Successful Reports Quarterly On track • Added as per Energy operationalisa- implementation Regulator approval tion of NERSA of the approved on 31 July 2009 Operations NERSA Opera- Model tions Model Management of Effective and ef- Monthly Monthly On track • Added as per Energy Reception Area ficient reception Performance Regulator approval area Reports on 29 October 2009

161 162 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

Annual Financial Statements

163 STATEMENT OF RESPONSIBILITY

The Energy Regulator is responsible for the maintenance of adequate records and the preparation and integrity of the financial statements and related information. The annual financial statements represent the state of affairs of the National Energy Regulator of South Africa (NERSA), its financial results, its performance against predetermined objectives and its financial position at the end of the financial year. The financial statements are prepared in accordance with South Africa Standards of Generally Recognised Accounting Practice. The financial statements are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates.

The Energy Regulator has set standards and implemented systems of internal control and risk management that are designed to provide reasonable assurance, but not absolute assurance against material misstatements and losses. NERSA maintains internal financial controls to provide assurance regarding:

• The maintenance of proper accounting records; and • Reliability of financial information used within the business or for publication.

These standards and control systems are contained in the Corporate Governance Handbook of NERSA, which is reviewed and amended periodically.

The Energy Regulator has reviewed NERSA’s assets, liabilities and cash flow forecasts for the period ended 31 March 2010. On the basis of this review, and in light of the current financial position, the Energy Regulator has every reason to believe that the National Energy Regulator of South Africa (NERSA), will be a going concern in the foreseeable future. For this reason, the Energy Regulator adopted the going concern basis in preparing the financial statements.

The Energy Regulator has reviewed NERSA’s system of internal control and risk management for the period from 01 April 2009 to 31 March 2010. The Energy Regulator believes that NERSA’s systems of control and risk management were effective for the period under review.

The annual financial statements were approved by the Energy Regulator in terms of section 51(1)(f) of the Public Finance Management Act, 1999 (Act No1 of 1999, as amended) on 30 July 2010 and are signed on its behalf by:

Smunda Mokoena Cecilia Khuzwayo CHIEF EXECUTIVE OFFICER (CEO) CHAIRPERSON DATE: 30/07/2010 DATE: 30/07/2010

164 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

REPORT OF THE AUDITOR-GENERAL REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF NATIONAL ENERGY REGULATOR OF SOUTH AFRICA FOR THE YEAR ENDED 31 MARCH 2010

REPORT ON THE FINANCIAL STATEMENTS

Introduction I have audited the accompanying financial statements of the National Energy Regulator of South Africa, which comprise the statement of financial position as at 31 March 2010, and the statement of financial performance, statement of changes in net assets and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information, accounting authority’s report, as set out on pages 28 to 202.

Accounting authority’s responsibility for the financial statements The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with have been prepared in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP), issued by the Accounting Standards Board and in the manner required by Section 55(1)(b) of the Public Finance Management Act of South Africa (Act 1 of 1999)(PFMA). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor-General’s responsibility As required by section 188 of the Constitution of South Africa and section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with International Standards on Auditing and General Notice 1570 of 2009 issued in Government Gazette 32758 of 27 November 2009. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the National Energy Regulator of South Africa as at 31 March 2010 and its financial performance, and its cash flows for the year then ended in all material respects, in accordance with SA Standards of GRAP and in the manner required by the PFMA.

165 Emphasis of matter I draw attention to the matters below. My opinion is not modified in respect of these matters:

Irregular Expenditure As disclosed in note 20 to the financial statements, irregular expenditure to the amount of: • R1 952 615 is due to finance leases entered into without approval from the National Treasury during 2003-04 • R1 376 918 is due to procurement irregularities detected in July 2007 and is still in process with the SAPS • R16 017 206 due to the thresholds of procurement policies of NERSA still not being in line with the Supply Chain Management Practice Note 8 of 2007-08 and Treasury Regulations during 2008-09 • R7 315 841 due to the thresholds of procurement policies of NERSA still not being in line with the Supply Chain Management Practice Note 8 of 2007-08 and Treasury Regulations.

Significant uncertainties With reference to note 23 to the financial statements, the entity is the defendant in a tender that was cancelled after the service provider was informed of the intention of NERSA to award the recruitment tender.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In terms of the PAA of South Africa and General notice 1570 of 2009, issued in Government Gazette No. 32758 of 27 November 2009 I include below my findings on the report on predetermined objectives, compliance with the PFMA and financial management (internal control).

Findings Predetermined objectives No matters to report.

Compliance with laws and regulations No matters to report.

INTERNAL CONTROL

I considered internal control relevant to my audit of the financial statements and the report on predetermined objectives and compliance with the PFMA but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported are limited to the deficiencies identified during the audit. No matters to report.

Pretoria 30 July 2010

166 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

REPORT OF THE AUDIT AND RISK SUBCOMMITTEE

The Audit and Risk Subcommittee has adopted an appropriate charter which includes formal terms of reference, which have been confirmed by the Energy Regulator and has fulfilled its responsibilities as set out in these terms of reference. The Audit and Risk Subcommittee is an advisory committee of the National Energy Regulator of South Africa (NERSA), operating as overseer with an independent and objective stance.

In performing its responsibilities the Audit and Risk Subcommittee has :

With regards to financial control and accounting systems • Assessed the policies and procedures introduced by management to ensure that the accounting systems and related controls are adequate and are functioning effectively. • Identified major risks which NERSA may be exposed to, and verified that the related internal control systems are adequate and are functioning effectively. • Reviewed, with management, the philosophy with respect to controlling NERSA’s assets and information systems, the staffing of key functions and plans for enhancements of operations • Reviewed the annual financial statements, including significant judgmental decisions that may have an impact on the financial statements, for example, the adequacy of the provision for doubtful debts. • Reviewed the annual financial statements prior to publication, both for fair presentation, and for conformity with reviewed accounting policies and practices as disclosed in the accounting policies. • Reviewed any periodic financial reporting process and any unaudited financial statements or information before their release. • Reviewed the adequacy of the Energy Regulator’s insurance coverage.

With regards to external auditors • Considered all issues in connection with the appointment i.e. independence, objectivity, scope and remuneration of external auditors. • Reviewed any significant matters reported by external auditors, including reports on weaknesses in internal controls and recommendations for improvement. • Reviewed the report of external audit, including any significant unresolved accounting and auditing problems encountered during the external audit.

With regards to internal auditors • Reviewed the independence of the internal audit. • Assessed the effectiveness of the internal audit and ensuring that it has adequate resources. • Reviewed the activities of internal audit function, including its annual work programme, co-ordination with external audit, and the reports of significant investigations and the responses of management to specific recommendations. • Approved the internal audit charter. • Approved a rolling three-year strategic internal audit plan based on NERSA’s risk management strategy. • Approved the internal audit plan for the first year of the rolling plan. • Reviewed internal audit’s compliance with Institute of Internal Auditors (IIA)’s Standards and Code of Ethics for the Professional Practice of Internal Auditing.

167 Internal Control System The Audit and Risk Subcommittee considers NERSA’s internal controls and systems appropriate in all material respects to:

• Reduce NERSA’s risk to an acceptable level. • Meet the business objectives of NERSA. • Ensure NERSA’s assets are adequately safeguarded; and • Ensure that the transactions undertaken are recorded in NERSA’s records.

Annual Financial Statements The Audit and Risk Subcommittee has satisfied itself that, in all material respects, the Annual Financial Statements of NERSA for the year ending 31 March 2010 comply with the requiremnts of the South African Statements of Generally Recognised Accounting Practice (GRAP), issued by the Accounting Standards Board in accordance with the Section 55 (1)(b) of the Public Finance Management Act (Act 1 of 1999).

The Audit and Risk Subcommittee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements and has therefore recommended the adoption of the annual financial statements by the Energy Regulator.

Ms K Mthimunye CHAIRPERSON OF AUDIT AND RISK SUBCOMMITTEE DATE:

168 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 ACCOUNTING AUTHORITY’S REPORT

1. Introduction

The Energy Regulator presents its annual financial statements that forms part of the annual report of the National Energy Regulator of South Africa (NERSA) for the year ended 31 March 2010.

The National Energy Regulator (NERSA) is a regulatory authority established as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004). NERSA’s mandate is to regulate the electricity, piped-gas and petroleum pipelines industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum pipelines Act, 2003 (Act No. 60 of 2003). It is listed as a national public entity in terms of the schedule 3A of the Public Finance Management Act (PFMA), No 1 of 1999 (as amended) .

2. Regulator Members and Secretary of NERSA

The structure of the Energy Regulator consists of nine Regulator Members, five of whom are part-time and four of whom are full-time (including the CEO), as appointed by the Minister of Energy. The part-time and full-time Regulator Members are appointed for a period of four and five years respectively.

The current Regulator Members are:

Ms C Khuzwayo (Chairperson: Appointed 01 January 2010) Mr J Lesejane (Appointed as a member on 01 April 2009 and as a Deputy Chairperson on 01 January 2010) Mr S S Mokoena (Full-time Member : CEO) Mr T Bukula (Full-time Member : Electricity Regulation) Dr R Crompton (Full-time Member : Petroleum pipelines Regulation) Ms E Teljeur (Full-time Member : Piped-Gas Regulation) Ms K Mthimunye (Part-time Member: Appointed 01 January 2010) Ms. G Whittington Banda (Part-time Member: Appointed 01 January 2010)

169 The former Regulator Members* are:

Mr C Matjila (Chairperson: Terminated on 31 December 2009) Mrs D Mokgatle (Deputy Chairperson: Terminated on 31 December 2009) Adv L Makatini (Part-time Member: Terminated on 31 December 2009) Prof. D Singh (Part-time Member: Terminated on 31 December 2009)

In addition to the Regulator Members the Energy Regulator has appointed the following external members in terms of Governance Subcommittees:

Ms M Joubert (External Member: Audit and Risk Subcommittee) Ms N Joubert (External Member: Human Resources Subcommittee) Mr J Mabaso (External Member: Human Resources Subcommittee) Mr M Nkhabu (External Member: Audit and Risk Subcommittee)

The Secretary of NERSA is Mr. Sandile Ntanzi and his business and postal addresses are as follows:

Business Address: Kulawula House 526 Vermeulen Street Arcadia Pretoria 0007

Postal Address: P O Box 40343 Arcadia Pretoria 0007

3. Organisational structure

The Minister of Energy appoints both part-time and full-time Regulator members. The Energy Regulator acts independently and reports to Parliament through the Minister of Energy. The full-time Regulator Members consist of the CEO, member primarily responsible for electricity regulation, member primarily responsible for piped-gas regulation and member primarily responsible for petroleum pipelines regulation.

4. Principal Activities

The Energy Regulator is the regulatory authority over the energy industry, and it currently regulates electricity, piped-gas and petroleum pipelinesss industries in terms of the Electricity Regulation Act, 2006 (Act No. 4 of 2006), Gas Act, 2001 (Act No. 48 of 2001) and Petroleum pipelines Act, 2003 (Act No. 60 of 2003) respectively.

170 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

5. Operating results and review of operations

The net deficit for NERSA for the year amounted to R7.5 million. The summary for the financial results is detailed below.

Relevant financial information

Actual Budget R’000 R’000 Levies 127 028 134 791 Expenditure (144 252) (173 649) Deficit (7 514) (38 858) Capital Expenditure (5 455) (12 029)

6. Highlights for the financial year

Electricity Industry Regulation: • The Energy Regulator approved a 31.3% interim tariff increase for Eskom for 2009/10 on 25 June 2009; • The Energy Regulator approved one hundred and twenty five (125) municipal tariff applications for 2009/10; • The Energy Regulator approved the 2009/10 Free Basic Electricity Tariff in August 2009; • On 29 October 2009, the Energy Regulator approved the second phase of the Renewable Energy Feed-In Tariff (REFIT)as follows: oo Concentrated Solar Power (CSP) trough without storage – R3.14 / kWh; oo Large scale grid connected PV systems (≥ 1 MW) – R3.94 / kWh; oo Biomass solid – R1.18 / kWh; oo Biogas – R0.96 / kWh; and oo CSP Tower with storage of 6 hrs per day – R2.31 / kWh. • On 9 December 2009, the Energy Regulator approved the principles to be used in determining the electricity tariff guideline increase for electricity distributors; • The Energy Regulator approved on 24 February 2010 the Eskom tariff increase for the period 2010/11 – 2012/13 as follows: oo 24.8% increase in 2010/11; oo 25.8% increase in 2011/12; and oo 25.9% increase in 2012/13. • On 24 February 2010, the Energy Regulator approved the municipal tariff guideline1 as well as the electricity tariff level benchmarks for the three years control period 2010/11 - 2012/13; • On 12 March 2010, the Energy Regulator approved Eskom’s schedule of retail tariffs for implementation on 1 April 2010; • On 24 February 2010, the Energy Regulator approved the Inclining Block Rates tariffs (IBTs) structure for implementation by Eskom and municipalities concurrently with the 2010/11 price increase in order to provide for cross-subsidies for low income domestic customers, as required by the Electricity Pricing Policy (EPP); • A consultation paper on the rules for the selection criteria of REFIT projects was finalised and published. A public hearing in this regard was held on 30 and 31 March 2010; and • The Energy Regulator approved the following:

1 The municipal guideline was however revised and a new one approved on 12 April 2010. This was after discussions with stakeholders and after receipt of the final Eskom retail tariffs

171 oo Transfer of electricity distribution licence from uThungulu District Municipality to Nkandla Municipality on 25 March 2010; and oo Transfer of Ingwavuma Town from Eskom’s area of supply to uMkhanyakude District Municipality on 25 March 2010.

172 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

• The Energy Regulator decided on 12 October 2009 not to approve the licence applications of Gigajoule Africa Pipe (Cape) (Pty) Ltd for the construction of gas transmission and distribution facilities; and of Gigajoule Africa Gas (Cape) (Pty) Ltd for trading in gas in the Cape West Coast Region of the Western Cape Province; and • The Energy Regulator decided not to approve a licence application by Unigas Import and Export for the construction of gas facilities in the Eastern Cape, Western Cape and KwaZulu-Natal provinces.

173 • The Energy Regulator amended one (1) licence granted for the operation of Transnet Pipelines – to include three new pipelines: Jameson Park to Alrode, Alrode to Langlaagte and Langlaagte to Waltloo; • The Energy Regulator decided not to approve the following licence applications: oo Total SA, which applied for the operation of a pipeline connecting Cape Town Docks and the Paarden Eiland storage facility. This was due to the fact that the pipeline is not operational after earlier decommissioning due to a lack of structural integrity; and oo BP Southern Africa to operate two marine loading facilities located at Hout Bay harbour and V&A Waterfront in the Western Cape. This was due to the fact that these are actually resellers retailing fuel to small boats and do not require licensing.

Governance and Other: • The Minister of Energy appointed Mr J Lesejane as a part-time Regulator Member in the vacant position with effect from 1 April 2009; • The Minister of Energy appointed the new Part-time Regulator Members, with effect from 01 January 2010; • The Minister of Energy visited NERSA on 25 January 2010 to welcome the newly appointed part-time members of the Energy Regulator and to bid farewell to the outgoing part-time members; • Approval and submission of: oo Annual Financial Statements and Performance Against Objectives for 2008/09; oo Annual Report for 2008/09; oo Quarterly Performance Reports with Management Accounts for all four quarters of 2009/10; oo Mid-term Review Report on progress made with regards to the implementation of the NERSA Business Plan for 2009/10; oo Report on the assessment of the Energy Regulator and its Subcommittees; and oo Strategic Plan (2010/11 – 2012/13) and Business Plan with Budget (2010/11). • NERSA received an unqualified Audit Report for 2008/09; • The proposed levies to be imposed on the piped-gas and petroleum pipelines industries were gazetted on 27 November 2009. No representation was received from stakeholders; • Approval of the Delegation Matrix for Regulatory Subcommittees by the Energy Regulator; • Approval of the revised Code of Conduct by the Energy Regulator; • NERSA was appointed as Chairperson of the Regional Electricity Regulatory Authority (RERA) for 2010 and 2011; • Participation in exhibitions at the Rand Show, Africa Power Congress, African Utility Week and the Budget Vote Speech of the Minister of Energy;

174 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

• Attendance of the SADC Energy Officials and Ministers’ Meeting by two NERSA staff members; • Attendance of the Electricity Regulation Initiative Seminar (ELRI) in Oslo, Norway by seven (7) NERSA staff members; • NERSA was invited to attend the Round Table of Energy Regulators in Rome during June, which was one of the preparatory meetings for the G8 Summit, which took place in Italy during July 2009; • The Board of the newly established Swaziland Energy Regulator visited NERSA on 7 and 8 December 2009 as part of their induction programme and to establish relationships with NERSA; • Attachment of two officials from EWURA, Tanzania; • Approval of the integrated demand management plan for the organisation; and • The Disposal Committee for the disposal of the organisation’s redundant and obsolete assets was appointed and all redundant assets identified for disposal were approved for transfer during the fourth quarter.

Delays and Backlogs:

NERSA however also experienced a number of delays and backlogs during 2009/10.

• Delay in the finalisation of the Renewable Energy Feed-In Tariff Power Purchase Agreement due to the promulgation of the Regulations on New Generation Capacity by the Minister of Energy on 15 August 2009 as well as the extensive stakeholder engagement that followed; • Delays in the receipt of requested information from licensees, including comments on audit reports, resulting in some projects being delayed; • Although the licensing of all the existing petroleum facilities applied for progressed to the final stage of the approval process, all the applications for existing facilities could not be finalized; and • Failure to fill some critical positions especially within the piped-gas and petroleum pipelines regulatory divisions impacting negatively on the completion of some planned activities within the organisation.

7. NERSA Accumulated Surplus

2010 2009 R’000 R’000 Accumulated Surplus 130 165 137 299

The surplus reported as at 31 March 2010 consists of the following:

2010 2009

130 164 957 137 299 441 Approved Commitments 13 537 927 22 107 329 Cash Flow Mitigating Reserve 18 928 233 18 928 233 Reserves Accumulated by National Electricity Regulator over ten year period 40 296 944 40 296 944 * Unallocated surplus to be refunded to the industries in 2011/2012 57 401 853 55 966 935

* As per the PFMA, entities are not allowed to retain surplus funds without the prior approval of the Minister of Finance. The funds reflected relates to the underspending by the Energy Regulator in 2009/2010 financial year. A request for approval will be made to the Minister to reduce levies for the 2011/2012 financial year with the surplus.

175 8. Levies

NERSA is funded as follows to cover its expenditure :

Electricity With regard to the electricity industry, the budget for regulating this industry uses the variable of “net kilowatt-hour generated” to determine the relative percentage contribution of each generation licensee to the levy as prescribed by Section 5B of the Electricity Act.

Piped Gas A levy is imposed on the holders of the title to gas as it enters the system licensed by NERSA in terms of Section 2 of the Gas Regulator Levies Act (No. 75 of 2002).This levy is based on Giga Joules.

Petroleum pipeliness A levy is imposed on the holders of the title to petroleum as it enters the system licensed by NERSA in terms of Section 2 of the Petroleum pipeliness Levies Act (No. 28 of 2004). This levy is based on litres.

The above levies are approved as part of the annual budget process.

9. Materiality and significance framework

A materiality and significance framework policy has been developed for reporting any act of misconduct, losses, irregular and fruitless and wasteful expenditure, as well as for significant transactions envisaged per section 54 (2) of the PFMA that requires Ministerial approval.

10. Events after balance sheet date

The Energy Regulator is not aware of any material event which occurred subsequent to the compiling of the annual financial statements which may significantly affect the position of the organisation or the results of its operations.

176 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Statement of Financial Position

2010 2009 Notes R R

ASSETS

Non-current assets 42 930 334 38 636 078 Property, plant and equipment 38 465 836 38 472 608 Intangible Assets 4 464 498 163 470

Current assets 131 087 876 136 016 455 Inventory 3 224 019 282 060 Trade and other receivables 4 25 208 757 23 760 032 Cash and cash equivalents 5 105 655 101 111 974 363

TOTAL ASSETS 174 018 210 174 652 533

NET ASSETS AND LIABILITIES

Reserves 150 969 411 158 483 199 Accumulated surplus 130 164 957 137 299 441 Revaluation reserve 20 804 454 21 183 758

Current liabilities 23 048 799 16 169 334 Trade and other payables (SPO) 7 23 048 799 15 524 591 Current portion of non current liabilities 6 - 644 743

TOTAL NET ASSETS AND LIABILITIES 174 018 210 174 652 533

177 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Statement of changes in net assets

Accumulated Revaluation Total Surplus Reserve R R R Note Balance as at 31 March 2008 140 275 551 21 589 735 161 865 286 Net deficit for the year (3 382 087) - (3 382 087) Realization of revaluation reserve over useful life of 405 977 (405 977) - buildings Balance as at 31 March 2009 137 299 441 21 183 758 158 483 199 Realization of revaluation reserve over useful life of 379 304 (379 304) buildings Net deficit for the year (7 513 788) - (7 513 788)

Balance as at 31 March 2010 130 164 957 20 804 454 150 969 411

178 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Statement of Financial Performance

2010 2009 Notes R R

Revenue 8 127 027 915 110 030 337

127 027 915 110 030 337

Other income 675 122 556 816 Operating expenditure (144 252 094) (116 470 742) Finance Cost 9 (1 376 378) (3 259 585) Net deficit from operations (17 925 435) (9 143 174) Finance income 11 10 411 647 5 761 087 Net deficit for the period (7 513 788) (3 382 087)

179 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Cash Flow Statement

2010 2009

Notes R R

Cash receipts from customers 128 379 692 106 277 867 Cash paid to suppliers and employees (135 625 637) (113 374 909) Cash applied to operations 12 (7 245 945) (7 097 042)

Interest received 7 297 396 5 479 321 Interest paid (270 667) (2 039 010) Net cash outflows from operating activities (219 217) (3 656 731)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of furniture, equipments and software (5 455 303) (990 316) Improvements to buildings - (143 837) Proceeds from disposal of assets - 54 628 Net cash outflows from investing activities (5 455 303) (1 079 525)

CASH FLOWS FROM FINANCING ACTIVITIES Repayment of finance lease (644 743) (1 093 670) Net decrease in cash and cash equivalents for the year (6 319 262) (5 829 927) Cash and cash equivalents at the beginning of the year 111 974 363 117 804 290 Cash and cash equivalents at end of the year 5 105 655 101 111 974 363

180 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

1 Accounting Policies

1.1 Basis of preparation

The annual financial statements have been prepared in accordance with South African Standards of Generally Recognised Accounting Practice (GRAP), issued by the Accounting Standards Board in accordance with the Section 55 (1)(b) of the Public Finance Management Act (Act 1 of 1999). As a consequence of the requirements of paragraphs 20 and 21 of Directive 5 Determining the GRAP Reporting Framework which note that IFRSs should not be applied if they are in conflict with the ASB's Framework for the Preparation and Presentation of Financial Statements or existing Standards of GRAP or IPSASs, the requirements of GRAP 23 Revenue from Non-exchange Transactions (Transfers and Taxes) have consideredin formulating an appropriate accounting policy (i.e. determining the appropriate recognition and measurement requirements to be used) to account for its grant, transfers and other non-exchange revenue. Under the new accounting policy, assets and revenue arising from transfer transactions are recognised in the period in which the transfer arrangement becomes binding, except for some services in-kind. Where a transfer is subject to conditions that if unfulfilled, require the return of the transferred resources, the liability is recognised until the condition is fulfilled. Assets and revenue recognised as a consequence of a transfer are measured at the fair value of the assets recognised as at the date of recognition. Monetary assets are measured at their nominal value unless the time value of money is material, in which case present value is used, calculated using a discount rate that reflects the risk inherent in holding the asset. Non-monetary assets are measured at their fair value, which is determined by reference to observable market values or by independent appraisal by a member of the valuation profession. Receivables are recognised when a binding transfer arrangement is in place but cash or other assets have not been received.

1.2 Ring Fencing Methodology

Section 13 (2) and (3) of the National Energy Regulator Act, 2004 (Act No.40 2004) require that the Energy Regulator keeps separate accounts for the electricity, piped-gas and petroleum pipelines regulatory functions and that the costs of the Energy Regulator must be shared between the electricity, piped-gas and petroleum pipeline regulatory functions in proportion to the costs incurred by the Energy Regulator in respect of each of those regulatory functions. The costs of the Energy Regulator are shared between electricity, piped gas and petroleum pipelines using a ring fencing methodology. The primary accounting principles upon which the ring-fencing methodology is based on the following:

Costs that can be directly attributable to a specific regulatory function will be charged directly to that function. Costs that are not directly attributable to a specific regulatory function, but are incurred as common costs in order to support the three regulatory functions, will be allocated between the three regulatory functions using a basis of allocation that fairly distributes the costs. During the year under review the distribution of these costs was as follows:

Electricity 60% Piped Gas 16% Petroleum Pipelines 24%

181 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

1.3 Property, plant and equipment

Land and Building

Land and buildings are reflected as separate assets and complies with the GRAP 17. The land and building is carried at a revalued amount being its fair value at the date of the revaluation in accordance with GRAP17. The revaluation is performed every three years except for where there have been material improvements to the building in which case a revaluation exercise will be conducted at the end of the year in which those improvements have been effected. The last revaluation took place on 31 March 2008. An increase to the carrying amount of land and buildings arising from the revaluation is credited directly to equity under the heading revaluation surplus, however, the increase is recognized in surplus/deficit to the extent that it reverses a revaluation decrease for the same asset previously recognized as an expense. Land is not depreciated. The building is depreciated on the straight line method to allocate the revalued amount to the residual value over the estimated useful life of the building which is 40 years from date of acquisition.

Other Assets

All other assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Each part of an item of asset with a cost that is significant in relation to the total cost of the assets is depreciated separately. The depreciation is calculated on a straight line basis to write off the cost of the asset over its estimated useful life. The method is reviewed each financial year end to reflect the pattern in which asset’s future economic benefits are expected to be consumed. In the case of computer programs purchased, all computer operating programmes are classified as fixed assets, while all other programs (software) are classified as Intangible Assets (see Accounting Policy 1.4)

Assets are depreciated as follows:

Office Furniture and Equipment 10 years Computer Software 2 years Computer Hardware 3 years Motor Vehicles 5 years

Leased Assets

Leases in terms of which NERSA assumes substantially all the risks and rewards of ownership are classified as finance leases. Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases. Lease payments are accounted for as described in accounting policy note 1.12. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the relevant lease.

182 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

1.4 Intangible Assets Intangible Assets that are acquired are stated at cost less accumulated amortisation and impairment losses (see accounting policy 1.13). Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. Included in the trade receivables balance are debtors with a carrying amount of R 1.04 million (2009: R 9.2 million) which are past due date at the reporting date for which the entity has not provided as the amounts are still considered recoverable. Amortisation is charged to the Statement of Financial Performance on a straight line basis over useful lives of intangible assets. The method is reviewed each financial year end to reflect the pattern in which asset’s future economic benefits are expected to be consumed. The method is reviewed each financial year.

1.5 Inventory Inventory is stated at the lower of cost and net realisable value (lesser of market value and cost price). The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

1.6 Revenue Recognition

Revenue is recognized on an accrual basis in accordance with the substance of the relevant agreements based on the provisions of the National Energy Regulator Act, 2004 (Act No.40 2004).

The following Acts have specific reference in this regard:

Act Regulation

Section 5B of the Electricity Act (No.41 of 1987) Electricity Section 2 of the Gas Regulator Levies Act (No. 75 of 2002) Piped-Gas Section 2 of the Petroleum Pipelines Levies Act (No. 28 of 2004) Petroleum Pipelines

Revenue is measured at the fair value of the consideration received or receivable and comprises of the net invoiced values funded from levies imposed by and other services rendered in terms of the National Energy Regulator Act.

1.7 Employee Benefits

Short -term employee benefits

The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.

183 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

The provisions for employee entitlements to wages, salaries, annual leave represent the amount which NERSA has a present obligation to pay as a result of employees’ services provided to the reporting date. The provisions have been calculated at undiscounted amounts based on current wage and salary rates.

Defined contribution plans

NERSA operates a defined contribution plan, which is held by the Sanlam Pension Fund. The plans are generally funded by payments from the employer and employees.

Obligations for contributions to defined contribution plans are recognised as an expense as they are incurred.

1.8 Trade and other receivables

Financial assets and financial liabilities are recognized on the Statement of Financial Position when NERSA has become a party to the contractual provisions of the instrument.

1.9 Trade and other payables

Trade and other payables are stated at fair value.

1.10 Provisions

Provisions are recognized when NERSA has a present obligation as a result of past events and it is probable that this will result in an outflow of economic benefits that can be reliably estimated.

1.11 Lease Rentals

Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.

Assets held under finance leases are initially recognised as assets of the entity at their fair value at the inception of the lease, or if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

184 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

1.12 Impairment

At each Statement of Financial Position date, NERSA reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount (highest of the assets fair value less costs to sell and its value in use) of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognized as an expense, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under the standard. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other standard.

1.13 Taxation No provision for South African normal taxation has been made as NERSA is exempted in terms of section 10 (1) (CA) (1) of the Income Tax Act.

1.14 Commitments

Commitments represent goods/services that have been approved and /or contracted, but where no delivery has taken place at the reporting date. Commitments are not recognised in the Statement of Financial Position as a liability or as expenditure in the Statement of Financial Performance but are included in the disclosure notes.

1.15 Prior period errors

Where necessary, comparative figures have been restated to conform with the changes in presentation in the current year and in the event of a change in accounting policy or prior period error.

Irregular expenditure means expenditure incurred in contravention of, or not in accordance with the requirements of applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. All irregular fruitless and wasteful expenditure is charged against income in the period in which it is incurred.

185 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010

Notes to the Annual Financial Statements 2.1 Property, plant and equipment Land Buildings Motor Office Computer Computer Totals Vehicles Equipment Hardware Software R R R R R R R

Carrying amount at 31 March 2008 2 000 000 32 500 000 313 438 4 056 077 1 746 119 - 40 615 635 Gross carrying amount 2 000 000 33 926 068 446 029 9 604 551 7 383 147 611 642 53 971 438 Accumulated depreciation - (1 426 068) (132 591) (5 548 474) (5 637 028) (611 642) (13 355 803)

Additions - 143 837 275 000 117 521 501 725 - 1 038 082 Revaluations ------Disposals - - - - (69 843) - (69 843) Disposals - depreciation - - - - 29 016 - 29 016 Depreciation - (1 012 940) (89 945) (1 019 457) (1 017 936) - (3 140 278)

Carrying amount at 31 March 2009 2 000 000 31 630 897 498 493 3 154 141 1 189 081 - 38 472 608 Gross carrying amount 2 000 000 34 069 905 721 029 9 722 072 7 815 029 611 642 54 939 673 Accumulated depreciation - (2 439 008) (222 536) (6 567 931) (6 625 948) (611 642) (16 467 065)

Additions - - - 31 589 1 042 994 - 1 074 583 Reclassification - 1 625 512 - (1 794 247) 168 735 - - Reclassification - depreciation - (386 563) - 491 559 (105 431) - (435) Useful life adjustment ------Revaluation ------(127 520) (3 289 150) (3 792 062) (611 642) (7 820 374) Disposals - depreciation - - 50 447 3 216 977 3 767 327 611 642 7 646 393 Depreciation (766 143) (28 872) 73 274 (185 202) - (906 943)

Carrying amount at 31 March 2010 2 000 000 32 103 703 392 548 1 884 143 2 085 442 - 38 465 836 Gross carrying amount 2 000 000 35 695 417 593 509 4 670 264 5 234 696 - 48 193 886 Accumulated depreciation - (3 591 714) (200 961) (2 786 121) (3 149 254) - (9 728 049)

The land and building is situated at 526 Vermeulen Street, Arcadia, Pretoria and is stated at a revalued amount. The last revaluation was done by an independent sworn appraiser on 31 March 2008 based on the market conditions, market rental, office space and the condition of improvements and amounted to R34,500,000. As a result of the revaluation, the revaluation reserve was R12,653,099 and was charged directly to equity. Had the land and buildings been carried at cost it would be carried at R11,307,928 (2008: R11, 854,101).

186 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 2.2 Intangible Assets

Carrying amount at 31 March 2008 656 470 Gross carrying amount 6 351 749 (5 695 279)

Additions 96 071 Revaluations - Disposals - Amortisation (589 071)

Carrying amount at 31 March 2009 163 470 Gross carrying amount 6 447 820 Accumulated depreciation (6 284 350)

Additions 4 380 720 Disposals (2 871 044) Disposals - Depreciation 2 846 750 Amortisation / Depreciation (55 398)

Carrying amount at 31 March 2010 4 464 498 7 957 496 Accumulated depreciation (3 492 998)

2.3 At Statement of Financial Position date, we reviewed all NERSA assets to determine whether there was any indication of impairment. The results of the review was that there is no indication that assets may be impaired. However there was a change in estimate with regard to intangible assets during the year under review. Assets are therefore stated at their carrying value which is the cost less accumulated depreciation. No impairment losses have been recognised in the current financial period.

2010 2009 R R 3. Inventory

Stationery 224 019 282 060

187 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 4. Trade and other receivables 2010 2009 R R

Trade receivables 19 786 079 20 445 988 Electricity Distribution Summit 505 559 501 774 NORAD - 75 524 Other receivables 4 788 418 2 775 493 Staff debtors 610 800 768 192 Other receivables 3 701 195 730 941 Prepayments 476 423 1 276 360

25 080 056 23 798 779 Discounting of receivables (248 401) (377 102) Reversal of prior year discounting of receivables 377 102 338 355 25 208 757 23 760 033

Included in the trade receivables balance are debtors with a carrying amount of R 1.04 million (2009: R 9.2 million) which are past due date at the reporting date for which the entity has not provided as the amounts are still considered recoverable.

Ageing of trade receivables past due but not impaired 60-90 days 156 017 294 582 90-120 days 880 952 8 908 069 1 036 969 9 202 651

The Energy Regulator considers that the carrying amount of all receivables approximates to their fair values. The fair value calculation pertaining to trade debtors is based on the assumption that all outstanding debtor payments will be received within 60 days of year end.

5. Cash and cash equivalents

Cash and cash equivalents comprise of short-term, highly liquid investments that are held with registered banking institutions with maturities of three months or less and that are subject to insignificant interest rate risk. The carrying amount if this investment approximates its fair value. Cash and cash equivalents further include cash on hand. 2010 2009 R R Funds in South African Reserve Bank - Corporation for Public Deposits 98 563 553 91 670 333 Standard Bank current account 7 087 036 20 301 319 Petty cash 4 511 2 711 105 655 101 111 974 363

The effective interest rate on short-term bank deposits was 7.26% p.a.

188 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 6. Finance lease obligations Finance leases relate to various office machinery including printers, copiers and faxes with lease terms of 5 years. The entity’s obligations under finance leases are secured by the lessor’s title to the leased assets. In prior years these leases were accounted for as operating leases. 2010 2009 R R Non-current portion of finance lease obligation - - Current portion of finance lease obligation - 644 743 - 644 743

7. Trade and other payables 2010 2009 R R Trade creditors 1 178 752 1 297 431 Accruals 21 851 936 14 218 596 Creditors 7 162 333 5 842 849 Nominated Bonus 271 016 229 370 Leave Pay 3 548 543 2 472 137 Performance Bonus 10 870 043 5 674 240 Sundry Creditors 7 079 7 079 Discounting of payables (15 131) (26 163) Discounting of payables - prior year reversal 26 163 27 649 23 048 799 15 524 592

7.1 The leave pay accrual relates to NERSA’s estimated liability arising as a result of services rendered by employees.

7.2 The performance bonus accrual relates to performance bonuses payable to NERSA employees for services rendered by them from 01 April 2009 to 31 March 2010.

7.3 The fair value calculation pertaining to trade creditors is based on the assumption that all outstanding creditor payments will be made within 60 days (2009:60 days) of year end.

8. Revenue 2010 2009 R R Revenue comprises invoiced levies on three industries as follows:

Levies received from Electricity 75 082 339 65 295 194 Levies received from Piped-Gas 20 989 091 19 410 520 Levies received from Petroleum Pipelines 30 956 485 25 324 623 127 027 915 110 030 337

189 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

9. Finance cost 2010 2009 R R Interest due to discounting of operations 1 090 579 1 220 576 Interest due to discounting of payables 15 131 86 394 Interest on finance leases 270 667 1 952 615 1 376 378 3 259 585

10. Deficit from operations 2010 2009 R R Deficit from operations was calculated after taking the following into account: Auditors' remuneration 881 107 683 651 Depreciation 962 341 3 729 349 - Buildings 766 143 1 012 940 - Motor vehicles 28 872 89 945 - Office equipment (73 274) 1 019 457 - Computer hardware 185 202 1 017 936 - Computer software /Intangible Assets 55 398 589 071

Regulator Members remuneration (Refer note 14) 9 073 047 7 123 523 Compensation of employees -Includes Executive management remuneration Wages and Salaries 69 767 985 49 289 305 - Basic Salaries 59 086 837 44 571 977 - Performance awards 10 681 148 4 717 328

Social Contributions 9 921 660 7 548 556 - Pension 6 127 872 4 709 102 - Medical Aid 2 734 564 2 181 578 - Leave Pay 856 161 481 526 - UIF 203 063 176 350

79 689 645 56 837 861

190 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

11. Finance income 2010 2009 R R Interest Accrued - 281 766 Interest received in respect of short-term investments 7 297 396 4 067 156 Interest due to discounting receivables 3 114 251 1 412 164 10 411 647 5 761 087 12. Cash generated from operations 2010 2009 R R Deficit for the year (7 513 788) (3 382 087) Adjustments for: Depreciation 962 341 3 729 349 Interest income (7 297 396) (5 479 321) Interest expense 270 667 2 039 010 Loss/(profit) on disposal of assets 198 704 (13 798)

Changes in working capital 6 133 526 (3 990 196) Decrease in inventory 58 042 36 955 Decrease/(Increase) in trade and other receivables (1 448 725) (4 034 236) Increase in trade and other payables 7 524 208 7 085 (7 245 945) (7 097 042)

13. Statements of Financial Performance for the Electricity, Piped-Gas and Petroleum Pipelines industries

13.1 Electricity 2010 2009 R R Revenue 75 082 339 65 295 194 Gross surplus 75 082 339 65 295 194 Other income 597 764 370 664 Operating expenditure (90 267 208) (71 964 025) Finance costs (1 014 646) (1 955 751) Deficit from operations (15 601 751) (8 253 918) Finance income 6 647 289 2 105 113 Net Deficit for the year (8 954 462) (6 148 805)

191 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

13.2 Piped-Gas 2010 2009 R R Revenue 20 989 091 19 410 520 Gross surplus 20 989 091 19 410 520 Other income 30 939 62 495 Operating expenditure (21 902 400) (19 250 106) Finance costs (266 537) (514 898) Deficit from operations (1 148 907) (291 989) Finance income 1 098 628 1 489 906 Net (Deficit) / Surplus for the year (50 279) 1 197 917

13.3 Petroleum Pipelines 2010 2009 R R Revenue 30 956 485 25 324 623 Gross surplus 30 956 485 25 324 623 Other income 46 419 123 657 Operating expenditure (31 777 875) (25 256 611) Finance costs (399 806) (788 936) Deficit from operations (1 174 777) (597 267) Finance income 2 665 730 2 166 067 Net Surplus for the year 1 490 953 1 568 800

192 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 14. Energy Regulator Members’ Remuneration

14.1 Remuneration for the year ended 31 March 2010

Salary Car Reimbursive Medical Pension Total Allowance allowances contributions R R R R R R NERSA Full-Time Regulator Members Mr SS Mokoena (CEO) 1 504 773 273 240 57 002 68 448 188 990 2 092 452 Mr T Bukula 1 102 090 108 967 90 206 68 436 121 640 1 491 339 Dr R Crompton 1 133 114 102 000 15 972 27 579 121 640 1 400 305 Ms E Teljeur 1 208 693 54 000 82 640 - 121 640 1 466 973 4 948 669 538 207 245 820 164 463 553 910 6 451 068

*The following bonuses were paid (in the 2009/10 financial year) to the Full Time Regulator Members with regards to the 2008/2009 financial year

Mr SS Mokoena (CEO) - Mr T Bukula 157 756 Dr R Crompton 137 829 Ms E Teljeur 140 384 435 970

Scheduled Special Reimbursive Medical Pension Total Meetings Assignments allowances contributions R R R R R R NERSA Part-Time Regulator Members - New Members

Ms CB Khuzwayo 183 560 - 4 376 - - 187 936 (Chairperson) Mr MJ Lesejane (Deputy 293 352 - 6 710 - - 300 062 Chairperson) Ms KR Mthimunye (Member) 131 760 5 490 3 625 - - 140 875 Ms GM Whittington Banda 203 130 16 470 6 053 - - 225 653 (Member)

NERSA Part-Time Regulator Members - Former Members

Mr MC Matjila (Chairman) 317 700 80 016 7 862 - - 405 578 Ms D Mokgatle (Deputy 457 286 23 422 11 680 - - 492 388 Chairman) Adv. L Makatini (Member) 320 004 43 920 59 227 - - 423 151 Prof. D Singh (Member) 224 568 - 6 240 - - 230 808 2 131 360 169 318 105 773 - - 2 406 451

193 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements NERSA Part-Time External Regulator Members Ms M Joubert * ------Ms N Joubert 94 896 6 634 1 720 - - 103 250 Mr J Mabaso 70 766 - 3 220 - - 73 986 Mr M Nkhabu 32 418 5 554 320 - - 38 292 198 080 12 188 5 260 - - 215 528

Total NERSA Energy Regulator members remuneration 7 278 109 719 713 356 852 164 463 553 910 9 073 047

14.2 Remuneration for the year ended 31 March 2009

Salary Car Reimbursive Medical Pension Total Allowance allowances contributions R R R R R R NERSA Full-Time Regulator Members Mr SS Mokoena (CEO) 1 560 338 240 000 40 726 62 141 167 384 2 070 589 Mr T Bukula 811 407 96 000 98 022 61 101 112 795 1 179 326 Dr R Crompton 837 106 106 781 62 777 24 621 112 794 1 144 079 Ms E Teljeur 914 508 54 000 71 529 - 112 795 1 152 832 4 123 360 496 781 273 055 147 863 505 768 5 546 827

Scheduled Special Reimbursive Medical Pension Total Meetings Assignments allowances contributions R R R R R R

NERSA Part-Time Regulator Members Mr MC Matjila 223 020 108 596 8 529 - - 340 145 Ms D Mokgatle 420 892 - 16 260 - - 437 152 Adv. L Makatini 245 516 49 680 22 361 - - 317 557 Mr S Ntsaluba 146 020 - 7 002 - - 153 022 Prof. D Singh 223 696 - 11 688 - - 235 384

NERSA Part-Time External Regulator Members Ms M Joubert * 28 600 14 904 506 - - 44 010 Mr J Mabaso 9 666 - 820 - - 10 486 Mr M Nkhabu 38 536 - 403 - - 38 939 Ms M Joubert - - - - - 1 335 947 173 180 67 569 - - 1 576 696

Total NERSA Energy Regulator members remuneration 5 459 307 669 961 273 055 147 863 505 768 7 123 523

* Ms Joubert does not receive any remuneration from NERSA due to her employment contract not allowing it.

194 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 15. Executive Managers Remuneration Salary Car Allow- Perform- Pension Other Con- Reimbur- Total ance ance Contribu- tributions sive al- Bonuses tions lowances R R R R R R R Mr Mbulelo Ncetezo 941 242 120 000 - 119 844 1 497 19 004 1 201 587 (Executive Manager: Electricity Regulation)

Ms Nomalanga Sithole 1 051 235 42 000 - 119 459 25 008 29 861 1 267 563 (Executive Manager: Corporate Services)

Ms Busisiwe Chaunzwa 731 445 100 800 - 100 929 46 806 1 094 981 074 (Chief Financial Officer)

Ms Pumla Mathibela 556 973 - - 68 072 998 9 491 635 534 (Chief Human Capital Officer : Appointed 11 August 2009)

Total 3 280 895 262 800 - 408 304 74 310 59 450 4 085 759

195 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 15.1 Remuneration for the year ended 31 March 2010

Salary Car Allow- Perform- Pension Other Con- Reimbur- Total ance ance Contribu- tributions sive al- Bonuses tions lowances R R R R R R R Mr Mbulelo Ncetezo 943 040 104 964,00 107 493 1 497 22 416 1 179 410 (Executive Manager: Electricity Regulation)

Ms Nomalanga Sithole 882 887 42 000 - 9 263 3 409 5 918 943 477 (Executive Manager: Corporate Services)

Mr Kabelo Mothobi 460 986 64 807 - 48 938 873 - 575 605 (Executive Manager: Corporate Affairs - Terminated 04 September 2008)

Mr Themba Tsela 275 783 123 000 - 52 447 21 725 7 034 479 988 (Executive Manager: Hydrocarbon Regulation - Terminated 30 September 2008)

Ms Busisiwe Chaunzwa 55 681 8 400 - 7 918 3 810 - 75 809 (Chief Financial Officer: Appointed 02 March 2009)

Total 2 618 376 238 207 104 964 226 059 31 314 35 368 3 254 289

196 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

16. Retirement Benefit Costs

NERSA has made provision for a pension scheme covering all its employees substantially. The funds are governed by the Pension Act, 1956 (Act no. 24 of 1956). NERSA operates defined contribution plans . The plans are generally funded by payments from employer and employees.

Payments to defined contribution retirement benefit plans are charged to the income statement in the year to which they relate. The total cost of R6,752,505 (2009: R5,208,881) charged to income represents contributions paid to the scheme. The liability of NERSA is limited to contributions it agreed to pay to the fund.

17. Risk Management

The entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the entity’s financial performance. The entity does not use derivative financial instruments to hedge risk exposures. Risk management is performed by management under policies approved by the Energy Regulator. Management identifies, evaluates and hedges financial risks in close co-operation with the entity’s operating units.

Liquidity risk The entity’s risk to liquidity is a result of the funds available to cover future commitments. The entity manages liquidity risk through an ongoing review of future commitments and credit facilities. Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored.

A cash-flow risk mitigation reserve is held by the Energy Regulator to overcome timing differences between the start of the financial year and the start of levy payment by the industries. The reserve target is 3 months employment cost for all staff members and 4,5% of the annual operating expenditure budget less employment costs. The reserve amount of R18.928 million was approved by the Minister of Finance on 29 February 2008.

Interest rate risk The entity manages its interest rate risk by obtaining competitive rates from approved financial institutions on a monthly basis. The entity’s policy is to manage interest rate risk so that fluctuations in variable rates do not have a material impact on surplus (deficit). The entity’s exposure to interest rate risk and the effective interest rates on financial instruments at the statement of financial position date are as follows:

197 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

Fair values of financial assets and financial liabilities

Weighted 1 year or less More than a Non Interest Total average rate year interest

R R R R Assets Cash - - 7 091 547 7 091 547 Short-term investments 7.26% 98 563 553 - - 98 563 553 Trade receivables - - 25 080 056 25 080 056 Total financial assets 98 563 553 - 32 171 603 130 735 156

Liabilities Finance lease obligations - - - - Trade payables - - 23 037 767 23 037 767

Total financial liabilities - - 23 037 767 23 037 767

Credit risk Credit risk refers to the risk that a counterparty will default on its obligations resulting in financial loss to the entity. NERSA collects it’s revenue based on three pieces of legislation namely Section 5B of the Electricity Act (No.41 of 1987); Section 2 of the Gas Regulator Levies Act (No. 75 of 2002) and Section 2 of the Petroleum Pipelines Levies Act (No. 28 of 2004). The risk of non payment is largely mitigated by the existence of the relevant legislation in this regard.

18. Commitments 2010 2009 R R Capital commitments Computer Hardware 61 310 90 105 Intangibles (Computer Software) 704 539 -

765 849 90 105 Commitments for operating expenditure

Total commitments for operating expenditure at year end 12 772 078 9 517 808

Total commitments at year end 13 537 927 9 607 913

198 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

19. Going Concern Management has carried out an assessment of the organisation’s ability to continue operating as a going concern. One of the areas that were looked at in conducting the above assessment was the organisation’s ability to finance its operations in the short term, taking into account the legal processes involved in the approval and payment of levies in terms the relevant acts. Cash forecasts were conducted incorporating the levies from electricity, piped-gas and petroleum pipelines and there is reasonable expectation that the cash will be received. Management therefore concludes that the organisation will be able to continue as ageing concern for the foreseeable future.

20. Irregular expenditure

2010 2009 R R Opening balance 19 346 739 1 376 918 Add: Irregular Expenditure – current year 7 315 841 17 969 821 Less: Amounts condoned - - Less: Amounts recoverable (not condoned) - - Less: Amounts not recoverable (not condoned) - - Irregular Expenditure awaiting condonation 26 662 580 19 346 739

Analysis of expenditure awaiting condonation per age classification

Current year - Non-compliance relating to Supply Chain 7 315 841 17 969 821 Management Practice Note 8 of 2007/08 Prior years 19 346 739 1 376 918 Total 26 662 580 19 346 739

Details of Irregular Expenditure – Current year Amount Incident

Non-compliance relating to Supply Chain Management Practice 7 315 841 Note 8 of 2007/08 7 315 841 The R 1 376 918 stated above is a results of fraud case that happened in July 2007. This was reported to the relevant authorities which includes Auditor General, National Treasury and SAPS. The SAPS have not yet concluded their investigation and the National Treasury condonation is still pending.

199 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

21. Operating Leases 2010 2009 R R The minimum future lease receipts under non cancellable operating leases are with respect to the use of the NERSA premises and amount to:

1 year or less 242 451 266 618 2 - 5 years 76 255 357 782 318 706 624 399

22. Related Parties

Executive Authority The Executive Authority to whom NERSA reports is the Minister of Energy. No transactions took place between NERSA and the Ministry and the Department of Energy for the period under review.

Eskom An amount of R 70 948 368 has been received from Eskom with regards to the payment of levies and R 3 984 804 is due from Eskom during the period under review.

Telkom Telkom provides telephone, internet and fax line services to NERSA. The total value of the services rendered during the year amounts to R 674 556. The amount due to Telkom at 31 March 2010 amounts to R 63 842 which represents the value of services rendered during March 2009 and payable in April 2010.

23. Contingent liabilities 2010 2009 R R Claims against Nersa 810 891 -

The claim relates to the tender that was cancelled after the service provider was informed of the intention by NERSA to award the recruitment tender. The cancellation was due to tenders that were received after the closing time being incorrectly evaluated.

200 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements

24. Budget Information ACTUAL BUDGET VARIANCE R R R

REVENUE 138 114 684 134 790 673 285 535 Levy Income* 130 142 167 134 790 673 (7 686 982) Other Income 7 972 517 - 7 972 517

EXPENDITURE 145 628 472 173 648 649 28 020 176 Interest due to discounting of operations Remuneration 88 762 694 92 873 926 4 111 232 Other operating costs 37 927 117 50 188 999 12 261 883 Consultants 18 938 661 30 585 723 11 647 062 - Net Surplus/(Deficit) for the period (7 513 788) (38 857 976) 28 305 711

* Levy Income per Statement of Financial Performance 127 027 915 Interest due to discounting receivables 3 114 252 130 142 167

201 National Energy Regulator of South Africa (NERSA) Annual Financial Statements for the year ended 31 March 2010 Notes to the Annual Financial Statements 25. Fruitless and Wasteful Expenditure 2010 2009 R R Overpayment of leave to ex-employee on termination, this has been disclosed 5 669 - under leave pay and accounts payable

Annexure - World Cup Expenditure 2010 2009 Quantity R R Tickets acquired 0 - - Purchase of other world cup apparel - - Total world cup expenditure - -

Tickets acquired after year-end 2010 Quantity R Distribution of tickets acquired after year-end 2 2 240 Clients/Stakeholders 0 - Accounting Authority 0 - Accounting Officer 0 - Senior Management 0 - Other employees: World Cup Soccer Friday winner 2 2 240 Total 2 2 240

World Cup related Expenditure incurred after year-end 2010 Purchase of other world cup apparel Quantity R Bafana T-shirts : World Cup Soccer Friday winner 2 1 198 World Cup Accessories - Staff members gift packs 180 30 500 World Cup Accessories -Reception decorations 13 500 World Cup - Soccer Friday competion winner 1 1 000 Total 196 33 198

202 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

ABBREVIATIONS

AFS ANNUAL FINANCIAL STATEMENTS AFUR AFRICAN FORUM FOR UTILITY REGULATORS AGM ANNUAL GENERAL MEETING ARS AUDIT AND RISK SUBCOMMITTEE ASB ACCOUNTING STANDARDS BOARD BBBEE BROAD-BASED BLACK ECONOMIC EMPOWERMENT CAM COST ALLOCATION MANUAL CEO CHIEF EXECUTIVE OFFICER CNG COMPRESSED NATURAL GAS COGTA DEPARTMENT OF COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS DEAT DEPARTMENT OF ENVIRONMENTAL AFFAIRS DETEA DEPARTMENT OF ECONOMIC DEVELOPMENT, TOURISM AND ENVIRONMENTAL AFFAIRS DJP DURBAN JOHANNESBURG PIPELINE DME DEPARTMENT OF MINERALS AND ENERGY DSM DEMAND SIDE MANAGEMENT DoE DEPARTMENT OF ENERGY DoL DEPARTMENT OF LABOUR EBP EUROPEAN BENCHMARK PRICE EDI ELECTRICITY DISTRIBUTION INDUSTRY EE ENERGY EFFICIENCY EEDSM ENERGY EFFICIENCY AND DEMAND SIDE MANAGEMENT EIA ENVIRONMENTAL IMPACT ASSESSMENT ELS ELECTRICITY SUBCOMMITTEE EPP ELECTRICITY PRICING POLICY ESETA ENERGY SECTOR EDUCATION AND TRAINING AUTHORITY EXCO EXECUTIVE COMMITTEE FBE FREE BASIC ELECTRICITY FIS FINANCE SUBCOMMITTEE GAAP GENERALLY ACCEPTED ACCOUNTING PRACTICE GCAC GRID CODE ADVISORY COMMITTEE GIS GEOGRAPHIC INFORMATION SYSTEM GRAP GENERALLY RECOGNISED ACCOUNTING PRACTICE gWh GIGAWATT HOUR HRS HUMAN RESOURCES SUBCOMMITTEE IBT INCLINING BLOCK RATE TARIFFS ICER INTERNATIONAL CONFEDERATION OF ENERGY REGULATORS IET INDUSTRY EXPERT TEAM IP IMPLEMENTATION PLAN IPP INDEPENDENT POWER PRODUCER IRP INTEGRATED RESOURCE PLAN ISMO INDEPENDENT SYSTEM AND MARKET OPERATOR kWh KILOWATT HOUR KZN KWAZULU-NATAL LIS LICENSEE INFORMATION SYSTEM LNG LIQUEFIED NATURAL GAS LPG LIQUEFIED PETROLEUM GAS

203 MANCO MANAGEMENT COMMITTEE MEAV MODERN EQUIVALENT ASSET VALUE MFMA MUNICIPAL FINANCE MANAGEMENT ACT MoU MEMORANDUM OF UNDERSTANDING MTPPP MEDIUM TERM POWER PURCHASE PROGRAMME MVP MARKET VALUE PRICING MW MEGAWATT MYPD MULTI-YEAR-PRICE DETERMINATION NEDLAC NATIONAL ECONOMIC DEVELOPMENT AND LABOUR COUNCIL NER NATIONAL ELECTRICITY REGULATOR NERSA NATIONAL ENERGY REGULATOR OF SOUTH AFRICA NIRP NATIONAL INTEGRATED RESOURCE PLAN NMPP NEW MULTI-PRODUCT PIPELINE NNR NATIONAL NUCLEAR REGULATOR NORAD NORWEGIAN AGENCY FOR DEVELOPMENT COOPERATION NQF NATIONAL QUALIFICATIONS FRAMEWORK OHSA OCCUPATIONAL AND HEALTHY AND SAFETY ACT ORC OPERATIONAL RISK COMMITTEE PCP POWER CONSERVATION PROGRAMME PFMA PUBLIC FINANCE MANAGEMENT ACT PGS PIPED-GAS SUBCOMMITTEE POS POLICY SUBCOMMITTEE PPA POWER PURCHASE AGREEMENT PPS PETROLEUM PIPELINES SUBCOMMITTEE PRRM PRIMARY RESPONSIBLE REGULATOR MEMBER REC REGULATOR EXECUTIVE COMMITTEE RED REGIONAL ELECTRICITY DISTRIBUTOR REFIT RENEWABLE ENERGY FEED-IN TARIFFS REMCO REMUNERATION COMMITTEE RERA REGIONAL ELECTRICITY REGULATORY ASSOCIATION OF SOUTHERN AFRICA RoD RECORD OF DECISION ROMPCO REPUBLIC OF MOZAMBIQUE PIPELINE INVESTMENT COMPANY (PTY) LIMITED RRM REGULATORY REPORTING MANUAL RRS REGULATORY REPORTING SYSTEM SADC SOUTH AFRICAN DEVELOPMENT COMMUNITY SALGA SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION SAPREF SOUTH AFRICAN PETROLEUM REFINERIES SAURA SOUTH AFRICAN UTILITY REGULATORS ASSOCIATION SAQA SOUTH AFRICAN QUALIFICATIONS AUTHORITY SO SYSTEMS OPERATOR SRAB STARTING REGULATORY ASSET BASE SVWAGP SASOL VOLUME WEIGHTED AVERAGE GAS PRICE TBNS TEAM BASED NETWORK SYSTEM WFER WORLD FORUM ON ENERGY REGULATION

204 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

NOTES

205 NOTES

206 NATIONAL ENERGY REGULATOR Annual Report 2009/2010

NOTES

207 NOTES

208 NATIONAL ENERGY REGULATOR

National Energy Regulator (NERSA) Kulawula House, 526 Vermeulen St PO Box 40343, Arcadia, 0007 South Africa Tel: + 27(0)12 401-4600 Fax: +27(0)12 401-4700 www.nersa.org.za

RP192/2010 ISBN: 978-0-621-39589-1