Tag Archive | auditor general

Central Energy Fund hatches fuel plan

A lot going on at Central Energy Fund…..

Central Energy Fund (CEF), the state utility which controls the Strategic Fuel Fund (SFF) and fosters PetroSA, cef logohas again been outside of a plan that has Parliamentary approval or, it appears, Treasury knowledge.    CEF falls under the aegis of the Department of Energy (DOE) and is therefore responsible to Minister of Energy, Tina Joemat-Pettersson.  Clearly there is much going on of which Parliament knows nothing – in recess as it is.

The history of CEF’s  problems go way back before the period during which  previous Minister of Energy, Ben Martins, held office and even before Ben Martins, as an MP was chairperson of the Parliament Portfolio on Energy. Most of CEF’s troubles appear to involve the fuel storage facilities  at Saldanha Bay on the West coast and PetroSA’s operation on the East coast, causing considerable negative comment from the portfolio committee and Ben Martins himself at the time. Sadly, Minister Martins was not chosen to remain by President Zuma.

tina-joemattQuite clearly a plan has been hatched to meet Cabinet ambitions.

Glaring omission

It was only after  Minister Joemat-Pettersson’s current budget vote speech did the investigative journalism of the newspaper media discover the sale of almost completely the entire SA reserve oil stock of the Strategic Fuel Fund (SFF) held at Saldanha Bay.

Not only was the sale concluded without any mention but the quantity of fuel involved appears to have been a major financial  decision  undisclosed in any cabinet statement.    It appeared that CEF had allowed SSF to sell 10 million barrels of crude — close to the entire stockpile — in a closed tender at the point that the oil price had bottomed at somewhere around R34 Brent.

It also appears that this was without the agreement of Finance Minister Pravin Gordhan and Treasury whosepravingordhan concurrence is needed under the Central Energy Fund Act.  How this will play with Treasury and the Auditor General is not clear, nor whether when and how CEF intends to replace this. The Democratic Alliance will no doubt be asking for answers in parliamentary question papers.

What the Minister said

It is interesting to note exactly what the Minister had to say to Parliament about SFF in holding back, it appears, on such major financial move. She told MPs that in line with the Presidential Review Commission on State Owned Entities (SOEs) that her Ministry had been working towards “a review of the composition of the CEF Group of companies.”

She went on to say, “Our work in this area includes the strengthening of the entities in the oil and gas sector and the stated policy objective of the creation of a stand-alone national oil company, using PetroSA as a nucleus.”
SFF had a good revenue base, she said.

saldanah bay 2“We shall finalise this work by October 2016”, Minister Joemat-Pettersson said and she would revert to Parliament on Cabinet views and strategies for a revised energy sector framework. “Accordingly, in 2015, the Ministry of Energy issued a ministerial directive for the rotation of strategic stocks in the SFF and this has resulted in an increased revenue base for SFF whilst at the same time maintaining stocks within our storage tanks for security of supply.”

Long term view

“This as a result, the Minister continued, “of a long term lease and contractual agreements with the buyers. The estimated revenue to accrue from this process is around R 170 million per annum, significantly boosting the balance sheet of the SFF.”

The Minister concluded that through the rotation of strategic stocks and trading initiatives the SFF had further consolidated its ability to be self-sustainable. “This has also allowed us to replace the unsuitable stock that we have been storing in our tanks which has been both uneconomical and did not contribute to security of supply.”

“The SFF will continue to ensure that it is able to respond to any shock in the market, whilst optimally making use of the opportunities presented in an evolving oil sector”, she concluded regarding West coast activities.No figures were given nor a clear indication mentioned that a sale had been concluded.

  SASAL LOGOHowever she was particular in supplying numbers regarding the joint venture between Sasol and Total when she said, ” Effective from 1 July 2006, Sasol Oil sold 25% of its shares to Tshwarisano LFB (Pty) Ltd, a broad based black economic empowerment consortium comprising of 150,000 direct shareholders and 2,8 million beneficiaries. The value of this transaction amounted to nearly R1.5 Billion, making it a significant BEE transaction in the liquid fuels industry.”

Trading nightmare

Therefore, the sale of nearly the entire reserve held by SFF, whether it is kept in the same tanks at Saldanha or not, at an oil price when at it’s very lowest, “suitable” or not, and being obliged by the Act to eventually replace it some later point should get an explanation.   However, it seems that there was an incentive to sell.

Also, to have to buy back at an oil price which is currently already well over double would appear to be completely against the tenets of the Public Finance Management Act; what the Auditor General is bound to call “fruitless and wasteful expenditure”; and contradictory terms of the Minister’s statement to Parliament that the SFF “has the jacob zumaability to be self-sustainable”. Unless, of course it is bolstered by external funds. 

Gas nightmare.

Parliament is of course closed for the election recess but no doubt there will be a parliamentary uproar on the subject – if not an investigation, which will come on top of the further current investigation of CEF’s activities as far as PetroSA is concerned.Once again the question will arise on how it was possible for PetroSA to continue with Project Ikhwezi when drilling for gas for two years in an area already defined by experts as impractical in lieu of fault lines in the projected gas field.

Central Energy Fund seen as politically driven

R11.7bn was the total “impairment” of PetroSA, the result of underperformance of Project Ikhwezi in its efforts to supply gas onshore to Mossgas. The total PetroSA loss for 2014/5 was in reality R14.6bn after tax. Currently a team comprising of industry experts is now defining a new strategy to save the PetroSA in its offshore struggle on the East coast, according to DOE reports to Parliament.

Roughnecks wrestle pipe on a True Company oil drilling rig outside WatfordThe experts were not named but the exercise is entitled Project Apollo and reports were also given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund during 2015.

PetroSA was originally flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”.     Last year, CEF described at the time PetroSA’s performance in their annual report to Parliament as “disappointing”, resulting in harsh criticism last year from the Portfolio Committee on Energy. The subject was not raised this year by the Minister in her Budget vote speech.

Failed deal

What, however, was raised in opposition questioning in the National Assembly by Pieter van Dalen, DA Shadow Deputy Minister of Energy, was Central Enegy Funds venture into the proposed purchase of Engen’s downstream activities from Malaysian company Petronas, known as “Project Irene”. This was understood to be the Cabinets secret plan to own the promised state oil company.

fuel tanker engenThe purchase from Petronas, who own 80% of Engen, was an attempt through Central Energy Fund to gain a foothold in the fuel retail and forecourt space by acquiring a stake in Engen, South Africa’s largest fuel retailer. The remaining stake is held by the Pembani Group.

First try

The board of PetroSA was repeatedly advised by both transaction advisers and the Treasury, according to Deputy Shadow Minister van Dalen, “that the proposal to buy the Engen stake did not make good business sense.”
“However,” van Dalen said to MPs, “the project was strongly championed by Minister Joemat-Pettersson and President Jacob Zuma. In the end, the deal fell through due to lack of financing.’These sort of things cannot go on”, he said.

The last word

This particular meeting in the National Assembly was completed by Shadow Minister of Energy, Gordon Mackay,gordon mackay DA attacking the Minister for “misleading the country on nuclear energy deals.”

He concluded after a long speech on the subject of the proposed nuclear build programme and what he referred to as “anomalies”, with the remark “We must ask ourselves Chair – why is our government doggedly pursuing this nuclear deal. It is clearly not a deal in the interests of the poor. It is clearly not a deal in the interests of business. It is clearly not a deal in the interest of the nation.”

Gordon Mackay did not know about the Chevron approach, or at least he did not indicate that he did.

Previous articles on category subject
Central Energy Fund slowly gets its house in order – ParlyReport
PetroSA on the rocks for R14.5bn – ParlyReportSA
Chevron loses with Nersa on oil storage – ParlyReportSA

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MPs attack DPE on energy communications

DPE has a tough time on energy issues…

business-communicationsPoor communications with the public on the energy crisis and the limited ability of the ministries involved to communicate with state owned companies (SOCs) were issues raised during a report on SOCs falling under control of the department of public enterprises (DPE) during a meeting of the relevant portfolio committee.

The meeting was called to respond to the AG’s report on the performance targets of the DPE.

One opposition member complained that all bonuses paid to Eskom executives should be keyed to whether the lights stayed on or not. Despite there being six state utilities being reported on, it was questions on Eskom that occupied most of question time.

AG report about targets only

AGSA logoWaleed Omar, audit manager, auditor general’s office (AGSA), indicated to Parliament that no significant findings representing failings on issue targets were identified in their review of the DPE annual performance plan for the 2015/16 financial year.

It was explained by Sybrand Struwig, manager of AGSA, that any annual audit of actual performance period was prepared against pre-determined objectives, coupled with indicators and targets as contained in the annual performance report of a department.  Such confirmed compliance with laws and regulations.

The usefulness of this performance information against targets and the reliability of performance reporting enabled AGSA to compile an audit of a department or SOC to reflect an opinion or conclusion on performance against predetermined objectives and how risk had been managed.

DPE met standards set

Ms Matsietsi Mokholo, DPE acting DG, expanded on this by saying what in fact AGSA was saying to parliamentarians was that the exercise had been to assess DPE’s compliance according to AGSA’s matrix; how it aligned with the National Development Plan (NDP); and how issues were dealt with in terms of the medium strategic frameworks report (MTFs) made regularly to Parliament over the given period 2014 -2019.

She said the auditor general had confirmed that DPE was on track with regards to this alignment.  Indeed, she said, DPE had identified its key challenges and the risks which “could materialize” if measures within state owned entities under their control were not taken.

Eskom the only real SOE problem

In answer to MPs questions on Eskom, Ms Mokholo said that DPE has identified that the tense situation of load shedding needed to be carefully managed and monitored in order to avoid a blackout.   Currently the country has moved towards stage three of load shedding in order to avoid a blackout.

The issue was the only matter in the DPE portfolio of state owned companies (SOCs) that had major problems; otherwise DPE had a good record. However, she said, there were questions still being asked about how Eskom would prevent stage four which would apply in the case of a total blackout. This issue was now being addressed in its strategy plan and, consequently, the AG was satisfied that issues had been addressed not ignored. That was what the report was all about.

Medupi on or off

Other issues addressed were the unrest at the partly constructed Medupi power plant, which was difficult because the workers involved were not public servants, but the matter had been addressed and a resolution hoped for.   Another issue covered was a strategy to how further avert any downgrading of Eskom from a shareholder perspective, again most difficult because much was outside of DPE’s control.

DPE’s control over SOEs limited

Other matters being discussed were the whole issue of the reliance of SOCs on government guarantees and the reliance SOCs on road transportation.   It emerged during the discussion how little DPE could intervene in SOC management and parliamentarians said that thought should be given to this as the success of an SOC was imbedded in a minister’s performance agreement.

Ms Mokholo concluded that DPE currently was responsible for six SOCs. She said, “The challenges currently faced by Eskom should not be seen as a reflection on the performance of the entire portfolio. Eskom was the only SOC which was facing serious challenges”.

She repeated the fact that the others were doing well. AGSA confirmed that the corporate plan of any SOC was audited consistently throughout the portfolio of DPE’s SOCs and, as was reported in October 2014, the current portfolio at that time, with the exclusion of SA Express, did not have any material findings that worried AGSA.

Financials to come at end of year

Waleed Omar, audit manager, explained that AGSA did not wait until the end of a financial year to audit a department or entity’s financial plans. Financial audits were a completely separate issue. AGSA would provide input before the end of the financial year.

In this case, internal auditors of each SOC looked at the reliability of the information reported and whether the quarterly results were supported by the matching documents. AGSA would then rely on the work of internal audits. He said there have not been any instances at this stage within DPE at this stage showed any material differences between the findings of internal audits and those of AGSA.

Mr Omar explained that AGSA has considered the work of internal audits for the first two quarters of the financial year for 2014/15. AGSA followed a process according to international standards but this particular meeting showed that DPE’s operational plans were compliant.

DPE admits private sectors skills needed

When the committee started to discuss the gradual development of DPE into commercial sectors, Mr Ratha Ramatlhape, DPE director, added that many of the new strategies being triggered in the core entities of energy, manufacturing and transport would require bringing in technical experts from the outside to deal with the challenges being faced within the DPE portfolio.

Ms N Mazonne (DA) raised the fact that Eskom had paid bonuses to executives, none of which had achieved 100% of their key performance indicators (KPIs) which were therefore far too easy to reach.  DPE needed to tell Eskom, she demanded, that executive KPIs had to be aligned to whether the lights were kept on or not.

This indicated, the DA said, what the minister of public enterprises had been telling Parliament for some time to the effect that the level to which the DPE could intervene with SOCs was far too limited.   DPE could only play an advisory role it seemed, Mazonne said, and there needed to be legislation in place urgently to resolve this.

Legislation expected on minister’s powers

Ms Mokholo responded that DPE has already started working on giving ministers the power to intervene based on the Companies Act.  For example, she said, the DPE had a meeting with the Eskom board to deal with interventions which were not necessarily based on legal prescripts, an example being the co-generation contracts. She confirmed legislation was being looked at.

Opposition members were of one voice that although it was unfair to blame DPE for the electricity crisis, nevertheless, with the country at stage three of load shedding, there was no way DPE could deny that the economy and people’s lives were being badly affected. Current communication with Eskom was very poor, they said, and a national broadcast was needed to allay the air of panic that existed in some quarters of the economy.

The DPE responded that it had advised the Minister and the war room to release such a statement or the President to make a statement in his budget vote speech.

Other articles in this category or as background

Public enterprises reports on controversial year – ParlyReport

South Africa remains without rail plan – ParlyReport

SA Energy gets war room status – ParlyReportSA

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Minister Nene maps survival route

Not so merry Christmas….

Editorial……

candlesWithout wishing to put a dampener on festive arrangements, the last few weeks of the closing parliamentary session, which included the medium term budget from minister Nene, have seen a difficult period, not in the least caused by fiascos in the National Assembly with the EFF. Baiting President Zuma, whatever the reason, has nothing to do with running a country.

Such hooligan behaviour completely demeans the status of Parliament but worse, it also denigrates all the real work that is going on the engine room of Parliament, the working committees.  Some observers are quietly happy that the ANC Alliance is being called to account on certain matters but the overall effect has been to take South Africa perceptually into dangerous waters.

Nkandla unpleasant diversion

The Nkandla issue has clearly damaged the political standing of Parliament as well as giving the media a field day, or a field month as the case turned out to be.  But in the parliamentary portfolio, ad hoc, finance standing and NCOP select committees, the work has gone on and it has been a busy and difficult period as a result of the necessity to approve finance minister Nene’s medium term budget.

Difficult because some fifty utilities, government departments and section nine companies had to declare their objectives, say how things were going and reflect upon the auditor general’s findings on each of them.   Difficult because cabinet statements are really giving no true direction on questions being asked every day in Parliament.   Difficult because it is still the first year of a new Parliament and everything is running late with new MPs.

Whilst the auditor general (AG) may have declared that government departments only received 15% unqualified reports, the balance of 85% are qualified to some degree by the AG.  A learning process. This means the working committees have seen it, everyone knows about it and the system works. This is the difference between weekend newspaper reporting and monitoring. It is not just a question of putting a positive spin on things but recognising that there is, indeed, a force working for morality and financial correctness.

Focus is on medium term budget

Nevertheless, minister Nene’s budget speech was still the key issue of the last month, not Nkandla as the perception might be.  Nene’s remarks that “business is a key area in fostering the ideal that the NDP becomes a reality” had the all too familiar ring of what Alec Erwin had to say twenty years ago when the ANC promised private and public partnerships on energy matters. Nothing happened of course, the ANC embarking upon ten years of infrastructure inactivity.

In fact major private sector participation in the country’s development was totally halted at that point and has since never really got going.

When is when?

Now the question is being asked once again as to whether the government will actually ever embark upon real hard core private/public investments, other than dishing out a few solar and wind power projects. This is the question being asked by opposition MPs in Parliament at working committee level, ignoring for the moment the embarrassing fracas upstairs in the National Assembly.

It is difficult to imagine in parliamentary terms that minister Rob Davies, minister Tina Joemat-Pettersson, minister Jeff Radebe, minister Lindiwe Sisulu and minister Lynne Brown will ever truly understand the tenets, motivations and passion that drive businesses, even perhaps the President himself.  South Africa suffers from bad politicians, not necessarily bad government.

Circus with no ringmaster

What the presidential national planning commission is actually saying to the cabinet is an issue that cannot be guessed at by anybody at this stage, such private messages certainly not being conveyed in Parliamentary papers. In fact nobody seems to be talking, the DA having as little knowledge as half the SA cabinet, it appears.

Consequently minister Nene’s hopes appear somewhat lame at this stage. To be positive however, it may be that as next year’s parliamentary oversight programme on service delivery targets gains momentum, as it has already, accompanied with all the political pain that will occur if voters remain dissatisfied, political reality may force the governing party to at last start walking the talk that minister Nene espouses.

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AG suspects corruption in taxi recapitalisation

On corruption MPs ask for Hawks…

A number of  MPs, frustrated by hearing of corruption and by not knowing whom to believe, demanded that the SAP Priority Crimes unit and the Hawks be called in to investigate financial failures and mismanagement of the taxi recapitalisation programme.     The department of Transport (DoT) had been called before the portfolio committee to explain the qualifications contained in the AG’s annual report on the department’s financial performance.

The renewal without authority of the  e-NaTis vehicle registration contract, a further fact reported by the auditor general (AG) in the 2011/2 DOT departmental financials, also gave MPs considerable concern.

Indicative of the seriousness of the issue was the fact that the minister of transport, Ben Martins, himself previously a parliamentary chairperson, appeared before the portfolio committee of transport to give assurances that investigations would take place.

DoT denies claims

During the briefing, the deputy director general of transport, DoT, Mathabatha Mokonyama, maintained that the claims made by the auditor general were incorrect insofar as the scrapping payouts made by his department were concerned.

He maintained that despite the AG’s qualification that no supporting documents, or any form of accounting documents for any of the thousands of old taxis bought from their owners before scrapping could be accounted for, the claim by the AG was quite untrue despite the lack of documentation supplied.

He acknowledged that indeed R2.9bn, the amount under query, of the total of R7.7bn provided since the programme had started, had all been properly recorded but documents simply not provided with the reconciliations to the AG. The AG maintained that the only document that existed was a simple spread sheet of expenditure.

No backup documents ever came

The AG’s office, represented by deputy auditor general Kimi Makwetu, also stated that whatever the case no documents to support the disbursements had subsequently been supplied which were clearly asked for. As far her office was concerned, this meant unrecorded transactions had occurred and the department’s performance within DOT on this issue marked as “no information available”.

Minister of Transport Ben Martins promised his personal intervention in the matter and that investigations had already started within DOT.   During the course of the meeting it was noted that the consultants called were called in some years ago to manage the scrapping programme. The name was given as the Siyazi Consortium whom, it was stated, had been paid R640m to manage the scrapping programme.

Early ideals

In late 2006, the then minister of transport Jeff Radebe, now minister of justice, issued a statement saying, “I am therefore delighted to announce that for the first time in the history of the taxi recapitalisation programme, we will witness the real-time scrapping of old taxi vehicles.”

He said at the time, “ Our scrapping administration agency, Siyazi Consortium, is also far in advance in setting-up scrapping facilities in various provinces and has the target of ensuring that we recapitalise 85% of old taxi vehicles by 2010.”

e-NaTis also touched by fraud

Parliamentarians were also told by the AG at the meeting of the irregular extension of the e-NaTis vehicle registration programme, running currently at R1bn over its original contract value of R594m, without any formal tender process or regularity in terms of the public finance management act. Opposition MPs called for a police investigation.

The chief financial director, ministry of transport, confirmed during the meeting that neither the ministers of transport or finance were told of the extension by DOT officials but that national treasury had been informed.

Posted in Finance, economic, Fuel,oil,renewables, Trade & Industry, Transport0 Comments

Public service corruption and misconduct could hit 1bn mark

Parliament gets commission sum up for 2012……

The parliamentary session for 2012 came to an end on a sour note regarding corruption with an update from the Public Service Commission (PSC) informing the public service and administration portfolio committee that, based on auditor general outcomes for all government departments, the total sum representing  “financial misconduct” in the public service for 2011/2012 could well hit the R1bn mark by the time PSC report was ready.

PSC commissioner, Prof. Richard Levin, told parliamentarians that, in the view of PSC, offending heads and senior public servants should be charged criminally for failing to declare conflicts of interest and that senior public servants in the supply chain should be prohibited from doing any form of business whatsoever.

Last year misconduct findings on the increase

In 2011/12, the period under review, some 838 senior civil servants were charged with financial misconduct, a considerable increase over the previous two years, he noted.    An extraordinary 20% of senior managers in the department of co-operative governance and traditional affairs had interests in firms doing business with government; with department of transport standing at 19% and the department of public works reflecting 17%.

Prof. Levin said that departments around the country had “consistently failed” to take action against clear cases of misconduct, primarily due, he said, to an inadequate capacity to chair disciplinary hearings, resulting in a considerable number of public servants remaining for long periods on costly precautionary suspension.

More disciplinary powers called for

In his report to the committee, Prof. Levin recommended that the PSC be given more powers to enable it to “vigorously follow up” in the case of severe misconduct; that lifestyle audits of key staff be conducted where appropriate and with urgency, as well as indebtedness reports conducted where obvious implications were concerned.

He called for the PSC to have greater investigative powers and that government public service policy on whistle-blowing and access to information “needed to be developed and implemented”.

Call for all to join the fight

Meanwhile, public services and administration deputy minister, Ayanda Dlodlo, said at an anti-corruption day summit in Pretoria that “the battle against corruption is not only the responsibility of government and should be supported by civil society and the private sector”.

She said the entire South African society had a role to play in the fight against corruption.

“The word corruption irritates me, and I hope it will irritate more people and mobilise them to fight against it. This word must disappear entirely from our vocabulary. Our country has lost an unquantifiable amount of money as a result of corruption; money that could have been used to uplift the poor people”, she said

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