Government favours struggling nuclear SOE over electrification of homes
Where do you want your money to be spent?
Do you want your money to go into a state-owned enterprise (SOE) that has been consistently late providing annual reports to Parliament and received the worst possible audit outcome from the Auditor-General in the last two years? Or should it go towards improving the lives of South Africans? It's 2020 and families still don't have access to electricity, which is a necessity for safety and economic development.
In May 2020, in response to the Covid-19 pandemic, when it was necessary to redirect resources away from business as usual, National Treasury published guidelines for how government departments might reduce government spending and change spending priorities, so R130 billion could be reprioritised within the budget for 2020/21. These cuts are reflected in the Supplementary Budget of 24 June, which is now being processed by Parliament.
The guidelines to departments included this:
"In order to find resources to fund the response package, departments are required to identify programmes or activities that can be temporarily suspended without negatively impacting the longevity of such programmes. These would typically be programmes or activities that have already been put on hold during the lockdown period, projects where implementation dates could be moved out to the next financial year or projects and spending activities that are not critical to the core service delivery requirements of the department."
The Department of Mineral Resources and Energy (DMRE) has reduced its budget by R1.574 billion, from R9.337 billion to R7.763 billion.
Of the DMRE reductions, the lions’ share comes from cutting a total of R1.5 billion from the Integrated National Electrification Programme (INEP) grants. These grants go to Eskom and the municipalities to fund the electrification of households.
Due to these reductions, the money that Eskom will spend on electrification of households goes down from R3 billion to R2 billion (a reduction of R1billion or 33%) and the money that municipalities will have to spend on this goes down from R1.9 billion to R1.4 billion (a reduction of R500 million or 27%).
The DMRE told Parliament's Portfolio Committee on Mineral Resources and Energy on 7 July that this reduces the number of homes being electrified by at least 43 000 (the DMRE provided different numbers in its submission).
Such households are among the poorest and most vulnerable in South African society, and it can be surmised are those who have been hardest hit by Covid-19, both from compromised health and lack of ability to participate in the informal livelihoods economy.
The DMRE transfers to the Nuclear Energy Corporation (NECSA) remain untouched.
NECSA is a nuclear industry state-owned entity, its financial record is woeful, and the pursuit of new nuclear power which is not within the Integrated Resource Plan finalised in October last year (IRP2019) is definitely something that fits within the Treasury guideline for cuts – “where implementation dates could be moved out to the next financial year or projects and spending activities that are not critical to the core service delivery requirements of the department”.
In addition, transfers towards nuclear energy operations towards research and new build should certainly be something that can be “temporarily suspended without negatively impacting the longevity of such programmes”.
Also, within the DMRE's own budget, there is little reduction of the nuclear programme.
The conclusion is that this department appears to have opted to sacrifice the electrification of poor households in order to maintain its support of a nuclear industry SOE which has failed to be financially accountable.
The transfers to NECSA take place in the context that NECSA has failed to achieve a clean audit in the last two years. In 2014/15 and 2015/16, the AG cast doubt on NECSA's ability to operate as a going concern, in 2016/17 the financial statements did not reflect the full extent of irregular expenditure and, for the last two years, NECSA received a disclaimer (the worst audit outcome that the AG can give).
OUTA has made a submission to Parliament on this. This includes suggesting alternative ways of cutting the department’s budget.
OUTA recommendations on the DMRE budget cuts:
• OUTA would support the shifting of funds from administration to mine health and safety monitoring during this Covid-19 period.
• OUTA recommends that electrification is maintained as far as possible, and with some reductions taken from municipalities with an inability to spend responsibly.
• OUTA recommends that much of the R1.5 billion reduction presumably required by Treasury should be removed from other DMRE programmes, with a significant reduction from NECSA’s allocation.
The Portfolio Committee on Mineral Resources and Energy is expected to consider the department's budget again on 14 July. After that the full budget is due to be considered by the Standing Committee on Appropriations.
OUTA's submission to Parliament on the DMRE budget cuts is here.