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ANNUAL REPORT 2007/2008

national energy regulator of south africa 3

VisionTo be a world-class leader in energy regulation

MissionTo regulate the energy industry in accordance

with government laws and policies, standards and

international best practices in support of sustainable

development

4 Annual Report 2007/2008

PROFILE OF NERSA 6

MEMBERS OF THE ENERGY REGULATOR 7

THE ENERGY REGULATOR AND ITS SUBCOMMITTEES 8

MEMBERSHIP OF THE ENERGY REGULATOR SUBCOMMITTEES 9

NERSA STRUCTURE 12

HIGHLIGHTS OF NERSA’S ACHIEVEMENTS 13

CHAIRPERSON’S REPORT 16

CHIEF EXECUTIVE OFFICER’S REPORT 20

Electricity Industry Regulation 21

• Licences granted, amended or withdrawn

• Regulations made and directives issued by the Minister of Minerals and Energy

• Strategies of the Energy Regulator

• Existing position and envisaged commercial developments with respect to the electricity industry

• Health, Safety and Environmental matters

• Access to Network Infrastructure

• Tarif fs or tarif f structures set or approved

• Distribution maintenance

• Independent technical audits

• Implementation of compliance framework for transmission

• Implementation of compliance framework for distribution

• Development of the third National Integrated Resource Plan (NIRP3)

• Grid code amendments

• Electricity Distribution Industry (EDI) restructuring

• Energy Efficiency and Demand Side Management (EEDSM)

• Legislative Matters

Petroleum Pipelines Industry Regulation 32




• Existing position and envisaged commercial developments with respect to the petroleum pipelines industry

• Health, safety and environmental matters

• Access to network infrastructure

• Tarif fs set or approved

• Rules

Piped-gas Industry Regulation 36



CONTENTS


Contents


• Existing position and envisaged commercial developments with respect to the piped-gas industry

• Health, safety and environmental matters

• Access to network infrastructure

• Tarif fs set or approved

• Administering the Mozambique Gas Pipeline Agreement

Cross-cutting Regulatory Matters 41

• Compliance monitoring

• Regulatory Reporting Manuals

• Contribution to the socio-economic development programmes of Government

Externally Focused Responsibilities and Initiatives 42

• Customer Relations

• Engagement with the Public

Corporate Governance 47

• NERSA as an entity

• Code of practices and conduct

• The Energy Regulator and its Members

• Subcommittees of the Energy Regulator

• Financial planning and management

• Ring Fencing Methodology

• Administration and procurement

• Property management and administration of NERSA facilities

• Internal monitoring systems

• Human resources management

• Knowledge Centre

• Information Technology (IT)

Acknowledgements 67

PERFORMANCE AGAINST OBJECTIVES 69

ANNUAL FINANCIAL STATEMENTS 138

• STATEMENT OF RESPONSIBILITY

• REPORT OF THE AUDITOR-GENERAL

• REPORT OF THE AUDIT AND RISK SUBCOMMITTEE

• ACCOUNTING AUTHORITY’S REPORT

• STATEMENT OF FINANCIAL POSITION

• STATEMENT OF CHANGES IN NET ASSETS

• STATEMENT OF FINANCIAL PERFORMANCE

• CASH FLOW STATEMENT

• NOTES TO THE ANNUAL FINANCIAL STATEMENTS

ABBREVIATIONS 192

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), 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 published government policies as well as regulations issued by the Minister of Mine-

rals and 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 regulation of 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.

PROFILE OF NERSA



Members of the Energy Regulator

MEMBERS OF THE ENERGY REGULATOR

Mr Collin Matjila (Chairperson)

Par t-Time Regulator Member

BA LLB

CEO: Kopano Ke Matla Investments

Ms Dolly Mokgatle

(Deputy Chairperson)


B Proc, LLB, HDip Tax Law

Executive Director: Peotona

Group Holdings

Mr Smunda S Mokoena

Full-Time Regulator Member

BSc (Eng), MBA

Chief Executive Officer: NERSA

Mr Thembani Bukula


BSc (Eng), Post Graduate Dip

(Engineering Business Management)

Member primarily responsible for

Electricity Regulation

Dr Rod Crompton


BA Hons HED, PhD (Humanities)


Petroleum Pipelines Regulation

Adv Linda Makatini


LLM (International Law)

CEO: Ngwane Mining

Mr Sango Ntsaluba


BCom, BCompt (Hons), HDip Tax, CA (SA)

CEO: Amabubesi Investments (Pty) Ltd

Prof Divya Singh


BA (LAW), LLB, LLM

Advocate of the High Court of South Africa

Deputy Registrar: University of South Africa

(UNISA)

Ms Ethèl Teljeur


BA Hons, MSc (Economics)


Piped-gas Regulation


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 are divided into three categories, namely,

cross-cutting regulatory subcommittees, industry-specific

regulatory subcommittees and governance subcommittees.

The subcommittees are:

Cross-cutting Regulatory:

• Policy Subcommittee (POS)

• Regulator Executive Committee (REC)

Industry-specific:

• Electricity Subcommittee (ELS)

• Petroleum Pipelines Subcommittee (PPS)

• Piped-Gas Subcommittee (PGS)

Governance:

• Audit and Risk Subcommittee (ARS)

• Finance Subcommittee (FIS)

• Human Resources Subcommittee (HRS)

• Remuneration Subcommittee (REMCO)

In the event of a need for a special task to be executed,

the Energy Regulator may establish an additional Ad Hoc

Subcommittee with terms of reference to oversee the

completion of that task.

The regulatory subcommittees that existed since NERSA’s

establishment on 1 October 2005 were:

- Licensing Subcommittee (LIS);

- Pricing and Tarif fs Subcommittee (PTS); and

- Compliance and Dispute Resolution Subcommittee

(CDS).

On 12 September 2007 the Energy Regulator revised its

regulatory subcommittees into the three above industry-

specific regulatory subcommittees. A new cross-cutting

regulatory subcommittee, the Regulator Executive Committee

(REC), was established.

THE ENERGY REGULATOR AND ITS

SUBCOMMITTEES


MEMBERSHIP OF THE ENERGY

REGULATOR SUBCOMMITTEES

SUBCOMMITTEE MEMBERSHIP

CROSS-CUTTING REGULATORY SUBCOMMITTEES

Policy Subcommittee (POS) Mr C Matjila – Chairperson

Mr SS Mokoena

Dr R Crompton

Adv L Makatini

Mr S Ntsaluba

Ms E Tel jeur

Regulator Executive Committee (REC) Mr S Mokoena – Chairperson

Mr T Bukula

Dr R Crompton

Ms E Tel jeur

REGULATORY SUBCOMMITTEES

Licensing Subcommittee (LIS) � Dr R Crompton – Chairperson

Mr SS Mokoena

Adv L Makatini

Mr S Ntsaluba

Prof D Singh

Mr T Bukula

Pricing and Tarif fs Subcommittee (PTS) � Mr T Bukula – Chairperson

Mr C Matjila

Mr SS Mokoena

Mr S Ntsaluba

Ms D Mokgatle

Ms E Tel jeur

Compliance and Dispute Resolution Subcommittee (CDS) � Ms E Tel jeur – Chairperson

Mr SS Mokoena

Mr T Bukula

Prof D Singh

Dr R Crompton

Adv L Makatini

The Energy Regulator and its Subcommittees



INDUSTRY-SPECIFIC REGULATORY SUBCOMMITTEES

Electricity Subcommittee (ELS) Mr T Bukula – Chairperson

Mr SS Mokoena

Ms E Tel jeur

Dr R Crompton

Ms D Mokgatle – (permanent member)

Mr C Matjila – (alternate member)

Petroleum Pipelines Subcommittee (PPS) Dr R Crompton – Chairperson

Mr SS Mokoena

Ms E Tel jeur

Mr T Bukula

Adv L Makatini – (permanent member)

Mr S Ntsaluba – (alternate member)

Piped-Gas Subcommittee (PGS) Ms E Tel jeur – Chairperson

Mr SS Mokoena

Mr T Bukula

Dr R Crompton

Prof D Singh – (permanent member)

Ms D Mokgatle – (alternate member)

GOVERNANCE SUBCOMMITTEES

Audit and Risk Subcommittee (ARS) * Professor 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 Tel jeur


The Energy Regulator and its Subcommittees


Human Resources Subcommittee (HRS) Adv L Makatini – Chairperson

Mr SS Mokoena

Mr T Bukula

Prof D Singh

Remuneration Subcommittee (REMCO) * Ms D Mokgatle – Chairperson

Adv L Makatini

Mr S Ntsaluba

Mr J Mabaso (External member)

Ms N Joubert (External member)

� Subcommittees – existed since the establishment of NERSA until 11 September 2007.

* Revised membership of Audit and Risk Subcommittee as well as that of Remuneration Subcommittee.


NERSA STRUCTURE

Electricity

Regulation

Pricing

and Tarif fs

Licensing and

Compliance

Regulatory

Reform

Electricity

Infrastructure

Planning

Hydrocarbons

Regulation

Licensing and

Infrastructure

Planning

Gas Tarif fs and

Compliance

Petroleum Tarif fs

and Compliance

Support Services

Finance and

Administration

Information

Resources

Management

Human

Resources

Corporate Af fairs

Customer

Services

Communication

and Stakeholder

Management

International

Coordination and

Partnerships

Legal Advisory

Services

Strategic Planning and Monitoring

Regulator Support

Internal Audit

Regulatory Analysis & Research

Of fice of the CEO

Minister of Minerals and Energy

Energy Regulator

Chief Executive Of ficer


Highlights of NERSA’s Achievements

Electricity Industry Regulation:

• The Energy Regulator approved Eskom’s generation

licence application for Medupi and return to serve licence

application for Komati and Grootvlei power stations;

• Completed the Third Stage: Electricity Resource Needs

Analyses: Adequate Reserve Margin and the Fourth

Stage analysis of the Third National Integrated Resource

Plan (NIRP3);

• Completed the procurement process for consulting

services for development of the renewable energy

framework;

• Approved the industry risk assessment and mitigation

strategies;

• Approved the Distribution Grid Code;

• Held public consultation meetings in Polokwane,

Bloemfontein, Durban and Cape Town from 16 to

21 November 2007 and a public hearing on 22 November

2007, which was preceded by a community outreach

programme to sensitise communities about Eskom’s

application to the Energy Regulator for the Multi-Year

Price Determination (MYPD) rule changes and its

implications;

• The Energy Regulator approved Eskom’s revenue of

R45.449 billion which equates to an average price

increase of 14.2% for the 2008/09 period on 20 December

2007;

• The Energy Regulator approved the Municipal tarif f

guideline increase of 12% for 2008/09 financial year and

tarif f benchmarks which are based on Eskom’s increase,

approved on 20 December 2007;

• On 18 March 2008 Eskom made a submission for the new

application requesting a 53% real (60% nominal) increase,

equating to 40% over-and-above the approved increase

of 14.2%. At a meeting on 28 March 2008, the Energy

Regulator agreed that due process would be followed

and timelines for the evaluation of this application were

approved. A final determination will be made at a special

meeting on 18 June 2008;

• Assessed Eskom’s proposal for modification of the

Demand Side Management and Energy Efficiency

(DSMEE) framework;

• The Energy Regulator established an Ad-Hoc

Subcommittee to conduct an inquiry into the national

electricity supply shortage and the subsequent load

shedding by Eskom and other licensees for the period

1 November 2007 to 31 January 2008 assisted by a

NERSA Load Shedding Task Team, comprising eight (8)

work streams;

• Approved licensing and registration rules;

• Completed all sixteen (16) of the planned audits for

2007/08 by the end of January 2008.

Piped-Gas Industry Regulation:

• Calculated the pricing provisions of Schedule One of the

Agreement concerning the gas pipeline from Mozambique

between the Minister of Minerals and Energy, the Minister

of Trade and Industry and Sasol Limited;

• Approved the Price Capping Mechanism including

European Benchmark Prices (EBP) and the Sasol Volume

Weighted Average Gas Price (SVWAGP) for 2005/06;

HIGHLIGHTS OF NERSA’S

ACHIEVEMENTS

NERSA experienced a number of highlights during 2007/08. These are grouped according to

industry-specific regulatory, cross-cutting, statutory, governance and other highlights.


• The Energy Regulator awarded a licence to Engen

Montague Gardens to construct three additional tanks;

• The Energy Regulator awarded a licence to Engen

Upington to construct one additional tank;

• Awarded a petroleum storage construction licence to

Chevron Waltloo;

• Awarded a construction licence to Chevron Alrode to

construct a fourth tank;

• Considered and declined iPayipi pipeline application;

• The Energy Regulator awarded operating licences to:

— Engen for sixty-five (65) storage facilities

— Chevron for twenty-one (21) storage facilities

— BP for nineteen (19) storage facilities, and

— Shell for fourteen (14) storage facilities;

• Substantially reduced the backlog in licensing of existing

facilities. Only small and complex storage facilities

licences outstanding;

• The Energy Regulator approved the Tarif f Methodology

for the Petroleum Pipeline Industry on 26 February

2008;

• Received tarif f applications from Transnet Limited and

Petroline Holdings;

• Undertook Natref Neutrality Study; and

• Undertook the Durban-Johannesburg Pipeline (DJP)

Decommissioning Study.

Cross-cutting Industry Regulation:

• Public hearing and one on one industry stakeholder

workshops on the Regulatory Reporting Manuals took

place; and

• NERSA participated in a number of dif ferent fora to

address national electricity emergency programmes

such as the Forum for Energy Executives (FEE) and the

National Electricity Response Team (NERT). NERSA also

participated in the Energy Summit called by the Minister

of Minerals and Energy; the Presidency Round Table

on Economic Regulation; the Rand Easter Show, Africa

• Approved and published maximum prices for gas

distributors and reticulators for 2005 to 2006;

• Approved and published maximum prices for Greenfields

customers for 2005 and 2006;

• Approved and published minimum prices for gas for

2005 and 2006;

• Approved and published aggregated results (i.e.

average piped-gas prices for 2006) for the categories of

customers in Gauteng, Free State, KwaZulu-Natal and

Mpumalanga provinces;

• Held public hearings regarding the Sasol Gas application

for the operation of existing gas distribution facilities in

eighty-four (84) areas in Gauteng, Mpumalanga and the

Free State and the trading in gas in these areas;

• Approved the Geographic Information System (GIS) to

demarcate gas distribution area boundaries;

• Public hearing on Transnet Limited’s licence application

for the operation of an existing gas transmission facility

from Secunda to Durban, i.e. the “Lilly” Pipeline was

held; and

• The Energy Regulator awarded the following gas

construction licences to Sasol Gas:

— Gas distribution facilities in Clairwood, Clayville-

Olifantsfontein Charmdor-Krugerdorp Wadeville;

Nuffield -Springs

— Gas transmission facilities in Centurion, Spartan

(Chestnut Rd) and Xstrata, and

— Compressor Station (transmission) in Komatipoort

(STS4).

Petroleum Pipeline Industry Regulation:

• The Energy Regulator awarded Transnet Pipelines a

licence to construct a New Multiple-Product Pipeline

(NMPP) from Durban to Johannesburg on 20 December

2007. The reasons for decision document was finalised,

as were the conditions of the licence following a public

hearing;


Highlights of NERSA’s Achievements

Power Congress, African Utility Week and an exhibition

at the Minister of Minerals and Energy’s Budget Vote

Speech.

Governance and Other:

• As a result of the approval of the revised Regulatory

Operations Model and Decision Making Framework,

the Energy Regulator reconfigured its functional

subcommittees into industry-specific subcommittees

and established a new subcommittee in the Regulator

Executive Committee;

• Following an independent assessment of the Energy

Regulator and its subcommittees and the Quality

Assurance Review of the internal audit function of

NERSA, the Energy Regulator approved a revision of the

membership of the Audit and Risk Subcommittee and

the Remuneration Subcommittee;

• Completed, approved and submitted the Annual Financial

Statements and Performance Against Objectives for the

year ended 31 March 2007 to the Auditor-General; the

Minister of Minerals and Energy; and National Treasury;

• Approved the Strategic Framework and Intent for 2008/09

– 2010/11 that highlights the priorities of the Energy

Regulator in the period indicated;

• Completed, approved and submitted the Strategic Plan

(2008/09 – 2010/11) and Business Plan with Budget

(2008/09) to the Minister of Minerals and Energy;

• Completed, approved and submitted all quarterly

performance reports to the Minister of Minerals and

Energy;

• Approved the treatment of NERSA’s surplus and cash

flow mitigating reserve by the Minister of Finance on 29

February 2008;

• Approved the 2007/08 as well as the 2008/09 NERSA

budgets by the Minister of Minerals and Energy in

concurrence with the Minister of Finance;

• The Minister of Minerals and Energy inaugurated the

NERSA Auditorium;

• Provided input into the submission to the Parliamentary

Constitutional Portfolio Committee on the review of the

Constitution. The focus of the review of the Constitution

for this year is on the Role, Powers and Functions of the

three Spheres/Tiers of Government;

• Finalised and tabled the NERSA Annual Report for

2006/07 in parliament;

• Completed the development of Information

Communication Technology and Disaster Recovery

Strategy policies for NERSA; and

• Recovered levies due to the Energy Regulator from the

petroleum pipelines industry for the years 2006/07 and

2007/08.

Delays and Backlogs:

NERSA however also experienced a number of delays and

backlogs during 2007/08.

• High staff turnover experienced by NERSA;

• Long lead times for recruitment, ultimately affecting

delivery on projects;

• Delays in finalising the revised Supply Chain Management

Policy for consideration by the Finance Subcommittee of

the Energy Regulator;

• Delay in the completion of the NIRP3 Stage 4 due to

the Advisory and Research Committee requirement for

validation of the expansion models;

• Unavailability of certified proven sales reserves

information in the administration of the Mozambique Gas

Pipeline Agreement;

• Focus on the national electricity emergency programme

diverted resources from other projects on the approved

NERSA 2007/08 Business Plan;

• The backlog in gas transmission and distribution licensing

was not cleared; and

• Delay in the finalisation of the Operations Model,

especially on the reporting of regulatory staff.


NERSA’s mandate essentially involves maintaining a delicate

balance between the regulated energy industries on the one

hand, and end users and consumers on the other.

This balance is taking place within a policy environment

provided by our normative stakeholder, Government, with a

view to providing a conducive environment for investment.

Whilst events in the energy arena in the review period have

in no way changed NERSA’s mandate, nor steered us away

from our firm commitment to ensuring that Government

policy objectives are achieved, customer objectives are met

and energy industries are sustainable, they have certainly

CHAIRPERSON’S REPORT

In presenting this report for the review period 2007/08 to the Minister of Minerals and Energy,

Ms Buyelwa Sonjica, and to all stakeholders in the energy sector and to the public in general, I

do so against the background of a period which has, with few exceptions, been a challenging

one for all.

extended the scope of our involvement and in many ways put

us to the test.

The review period was and is still mainly characterised by

challenges in the electricity supply industry. For a country

which has never had to make any concessions when it comes

to electricity, the combination of healthy economic growth;

the availability of tight generation reserve margins; challenges

in primary energy; skills challenges; and the resultant

maintenance and slippage on the generation capacity build

programme, which plunged us into electricity supply shortage

and subsequent load shedding, lef t the country reeling.

Mr Collin Matjila


Chairperson’s Report

For the first time, many suddenly understood the efforts that

have been made for some years now to inculcate a culture of

energy efficiency in our country.

The solution to our current electricity emergency lies both in

the supply and demand side of the electricity industry. It is

indeed the combination of energy efficiency and demand

side management, together with the de-mothballing of certain

power stations, the construction of new power stations and

other innovations, such as cogeneration and the mid-term

power purchase programme (MTPPP) that will carry us

through this dif ficult period and into the future.

The Energy Regulator, at its meeting of 30 January 2008,

expressed its concerns about the national electricity emergency

and subsequently established an Ad-Hoc Subcommittee to

conduct an inquiry into the national electricity supply shor-

tage and the subsequent load shedding by Eskom and other

licensees for the period 1 November 2007 to 31 January 2008.

At the time of writing this report, the load shedding inquiry

report was scheduled to be released in the first quarter of the

2008/09 financial year.

During the review period, the Energy Regulator approved

Eskom’s generation licence application for the construction

of Medupi, a conventional coal fired power station as well

as the return to service application of Komati and Grootvlei

power stations. The Energy Regulator will continue to monitor

Eskom’s return to service and build programme so as to

avoid additional slippage. We are looking forward to the

Government’s competitive bidding process for the two

peaking generation stations to get back on track again.

It is significant to note that on 30 April 2007 the Energy

Regulator received an application from Eskom requesting

an 18.7% (nominal) increase for the 2008/09 financial year

instead of the 6.2% allowed in the MYPD. After an extensive

public consultation process and a public hearing, the Energy

Regulator approved a 14.2% increase on 20 December 2007.

On 18 March 2008 the Energy Regulator received another

application from Eskom requesting a revision of the 14.2%

decision. This time Eskom applied for a 60% nominal increase

for the 2008/09 financial year. Given the electricity emergency,

the Energy Regulator shortened the timelines for processing

the application without compromising due process.

In response to the Government’s National Electricity

Emergency Programme (GNEEP) and other earlier develop-

ments in the energy sector, NERSA continued to participate

in a number of fora such as the Forum for Energy Executives

(FEE) and the National Electricity Response Team (NERT).

NERSA is now in its third year of regulating the petroleum

pipelines and piped-gas industries. In the previous two years

much effort was put into developing processes, procedures

and methodologies in order for the Energy Regulator to have

mechanisms to regulate these industries.

In the regulation of the petroleum pipelines industry, the

Energy Regulator awarded Transnet Pipelines a licence to

construct a New Multiple-Product Pipeline (NMPP) from

Durban to Gauteng on 20 December 2007. The project is

scheduled to commence in the last quarter of 2009/2010.

The pipeline capacity will be increased in phases by the intro-

duction of additional pumps and pump stations beyond

2015. The initial pipeline capacity will be sufficient to meet

the inland demand until 2015.

As reported in the previous financial year, the Energy Regu-

lator issued a licence to Petroline, a private company to

construct a petroleum products pipeline from Maputo to

Mpumalanga. The Energy Regulator received the first progress

report on the construction of the multi-product pipeline from

Maputo to the Witbank-Kendal area by Petroline.


The construction of these pipelines will go a long way to

addressing security of fuel supply in the inland markets,

especially the economic heartland of South Africa, Gauteng.

The Energy Regulator also approved the tarif f methodology

for the petroleum pipelines industry during the review

period. An application for the setting of tarif fs for Petroline’s

Mozambique to South Africa pipeline was submitted to the

Energy Regulator on 29 January 2008.

Transnet Limited submitted a tarif f application to the Energy

Regulator on 29 March 2008. The application was for tarif f

increases for the Transnet Pipelines petroleum pipeline

system.

Regarding the piped-gas industry, the Energy Regulator

has continued to monitor the Mozambique Gas Pipeline

Agreement as required by section 36 of the Gas Act. The

Energy Regulator considered the operation of existing gas

distribution facilities in eighty four (84) areas in Gauteng,

Mpumalanga and the Free State and the trading in gas in

these areas and issued nine (9) construction licences.

In order for the Energy Regulator to harmonise the collection

of relevant and correct information from the three industries,

Regulatory Reporting Manuals were developed through a

comprehensive consultative process. In this regard, one-

on-one consultations, a stakeholder workshop and a public

hearing on the Regulatory Reporting Manuals were con-

ducted. The Regulatory Reporting Manuals are scheduled to

be implemented in the next financial year.

NERSA actively participated in the Energy Summit; called by

the Minister of Minerals and Energy from 25 to 27 September

2007. Strategic involvements such as these are a means

of ensuring that NERSA is not only involved in developing

policies but also in sensitising the sector, at the highest level

possible, to the challenges which lie ahead.

On governance matters, as a result of the approval of the

revised Regulatory Operations Model and Decision Making

Framework, the Energy Regulator reconfigured its functional

subcommittees into industry-specific subcommittees and

established a new subcommittee, the Regulator Executive

Committee (REC).

In order to improve its operations, following an independent

assessment of the Energy Regulator and its subcommittees

and the Quality Assurance Review of the internal audit

function of NERSA, the Energy Regulator approved a revision

of the membership of the Audit and Risk Subcommittee and

the Remuneration Subcommittees.

The Energy Regulator applied for the treatment of NERSA’s

cash flow mitigating reserve which was approved by the

Minister of Finance on 29 February 2008.

It is also pleasing to report that the Minister of Minerals and

Energy inaugurated the state of the art NERSA Auditorium

during the period under review to further enhance our

regulatory process of public hearings for transparency.

Human capacity-building still remains a challenge. However,

it is heartening to note that NERSA is addressing this at an

immediate level through its internal Skills Development Training

Programme, amongst others. There is little doubt that, as we

grow our human resource base, particularly our scarce skills

base, many of the challenges we are facing within the energy

sector will be resolved.

Significant Events af ter Year End

We also witnessed the following significant events in the

energy industry after the financial year end:

• On 4 April 2008, Regulations made in terms of the

Petroleum Pipelines Act, 2003 (Act No. 60 of 2003) were

promulgated (Government Notice No. R 342 of 4 April


Chairperson’s Report

2008). The Regulations introduced other concepts and

approaches not contemplated in the Tarif f Methodology

for petroleum pipelines.

• On 12 May 2008, the Energy Regulator approved and

adopted the report on the inquiry into the national

electricity supply shortage and load shedding for the

period November 2007 to January 2008. The report was

published on 19 May 2008.

• On 16 May 2008, the National Economic Development and

Labour Council (NEDLAC) held a National Stakeholder

Summit on Electricity Price Increases.

• On 3 June 2008, the Department of Minerals and Energy

published the National Energy Bill in Government Gazette

No. 31124.

• On 9 and 10 June 2008, the 2008 Electricity Distribution

Maintenance Summit, under the theme “Towards a

Sustainable Electricity Distribution Industry”, was hosted

by key partners, which included the Department of

Minerals and Energy (DME), NERSA, EDI Holdings, the

Department of Public Enterprise (DPE), Eskom and the

South African Local Government Association (SALGA).

The Summit was addressed by amongst others, the

Deputy President and the Minister of Minerals and

Energy.

• On 18 June 2008, the Energy Regulator decided to allow

Eskom to recover additional primary energy costs of

R2.827 billion through the electricity tarif f. This approval

amounts to a 13.3% average increase additional to the

14.2% already approved on 20 December 2007, resulting

in a 27.5% average increase year on year.

• On 18 June 2008, the Energy Regulator set tarif fs for the

Petroline pipeline system.

• On 20 June 2008, the Department of Minerals and Energy

published the Electricity Pricing Policy in Government

Gazette No. 31152 inviting comments.

In closing, thanks are due to the Minister of Minerals and

Energy for her unwavering leadership and her Department for

its support. Without the Regulator Members, CEO and staff

members, NERSA’s successes as recorded in this Annual

Report would not have been possible and my own task would

have been considerably more dif ficult. I thank you all.

Collin Matjila

Chairperson


We are proud of our commitment to good corporate

governance and sound administration. Because many of

these vital issues have bearing on the financial reporting

requirements, we have chosen to report these together with

the financial section of this report.

In today’s frenzied, modern business environment, the work

that was achieved in one week ten years ago is often achieved

in one day. It would be impossible therefore even to touch on

the myriads of matters that have been dealt with by NERSA

in the reporting period. The aim of the report, therefore, is

to highlight the key achievements of NERSA in respect of its

strategic objectives for the period 1 April 2007 to 31 March

2008.

We entered the reporting period under no illusions. We

knew that the year would be a challenging one. Indeed, the

ability to balance the interests of consumers with the rigours

of power shedding and the regulation of the piped-gas and

petroleum pipelines (two sectors that remain relatively new

in terms of our business model) have caused us at times to

have to pause and take stock.

As a result, there are some areas in terms of our objectives,

CHIEF EXECUTIVE OFFICER’S REPORT

It is my pleasure to present this, the third Annual Report of NERSA. This report indicates the

organisation’s performance in terms of implementing all planned activities relating to the core

function of regulating the electricity, piped-gas and petroleum pipelines industries for the

2007/08 financial year.

Mr Smunda S Mokoena


Chief Executive Officer’s Report

where we have made little or no progress. In others, however,

we have made excellent headway. In particular here, I would

like to mention:

- The successful approval of the Price Capping Mechanism

including European Benchmark Prices (EBP) and the

Sasol Volume Weighted Average Gas Price (SVWAGP)

for 2005/06. In addition, maximum prices have been

determined for Distributors, Reticulators, Greenfields

customers, and Small customers.

- Levies due to NERSA from the petroleum pipelines

industry for the years 2006/07 and 2007/08 were recovered

and two licence applications for the construction of a

multi-product pipeline from the coast to Gauteng were

successfully evaluated and awarded to Petronet.

Finally, through the careful allocation of resources, we

were able to establish an Ad Hoc Committee of the Energy

Regulator to conduct an inquiry into the national electricity

supply shortage and the subsequent load shedding by

Eskom and other licensees for the period 1 November 2007

to 31 January 2008 assisted by a NERSA Load Shedding

Task Team, comprising eight (8) work streams.

Electricity Industry Regulation

(a) Licences granted, amended renewed or withdrawn

NERSA is responsible for the licensing of the electricity

industry. Consequently, a number of licence applications from

regulated entities in the electricity sector were considered

during the review period.

Licences that were granted, amended, withdrawn renewed or

transferred are as follows:

Licences granted

Three generation licences were issued to Independent Power

Producers, all of which will assist in improving reserve margins

in the generation industry in South Africa. One distribution

licence was issued to a District Municipality.

• Independent Power South Africa (IPSA) was issued with

a generation licence to operate a 17 MW Combined

Gas Fired and Power Cycle plant, located in Newcastle,

KwaZulu-Natal. The licence will be used for commissioning

of the plant.

• Transvaal Suiker Beperk (TSB) was issued with a

generation licence to operate a 19 MW Coal and Bagasse

fired Steam Turbine driven plant, located in Malelane in

Mpumalanga.

• Clackson Power Company was issued with a generation

licence to operate a 1.5 MW Hydro Electric power station,

located in Clanwilliam, Cederberg in the Western Cape.

• Central Karoo District Municipalit y was issued with a

temporary distribution licence to supply electricity to

Murraysburg town.

Licences withdrawn/transferred

No licences were withdrawn or transferred during the reporting

period.

Licences amended

Eight applications for amendments to licence conditions were

received and processed during the reporting period. Those

which were considered and approved are as follows:

• MethCap’s application for amendment to the Generation

Licence for its Gas Fired Combustion plant (SPV1)

located at PetroSA, Mossel Bay was approved.

• Eskom’s Generation Licence was amended to include

the Gourikwa, Ankerlig, Mosselbay, Atlantis and Medupi


power stations as well as the return to service of the

Komati and Grootvlei power stations.

• Bethlehem Hydro’s Generation Licence was amended to

allow for an increase in generation capacity from 3.9 MW

to 7 MW.

The following distribution licences were amended:

• City Power’s Distribution Licence was amended to

include Lawley extensions 2 and 3.

• uMhlathuze Municipalit y’s Distribution Licence was

amended to include uMhlathuze Village (Carsdale) in its

supply areas.

• Overstrand Municipalit y’s Distribution Licence was

amended to include portion 12 (Langbosch) of the farm

Strandfontein No 712, district Gansbaai in its supply

areas.

• uMhlatuze Municipalit y’s Distribution Licence was

amended to include Felixton village in its supply areas.

• Steve Tshwete Municipalit y’s distribution was amended

to include Komati village in its area of supply.

Licences renewed

All one hundred and eighty-eight (188) Electricity Distribution

licence holders were granted extensions on 25 April 2007.

These include: twelve (12) private distributors, one (1) Eskom

and one hundred and seventy-five (175) municipalities.

Notification letters were sent to all the licensees in the month

of June 2007.

(b) Regulations made and directives issued by the

Minister

The Electricity Regulation Amendment Act, 2007 (Act No. 28

of 2007) was passed.

(c) 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

to determine strategies that will provide confidence, stability

and security of supply in the industry and provide comfort

to all stakeholders that a robust regulatory environment has

been created by NERSA.

The following strategic areas are used as the basis to develop

NERSA’s business activities for the regulation of the electricity

industry:

1. To regulate the energy industr y ef fectively and ef ficiently

1.1. Ensure that licensees operations comply with

regulatory requirements via effective and efficient

setting, monitoring and enforcement of licensing

requirements.

1.2. Assess the risks facing the electricity industry and

ensure that mitigation measures are in place to

manage such risks.

1.3. Promote and advise on appropriate legislation to

regulate the future electricity industry.

2. To regulate in a manner that incentivises securit y and

reliabilit y of supply

2.1. Monitor the performance of the electricity industry

and share the information with stakeholders.

2.2. Establish future electricity capacity needs and least-

cost capacity plans for the energy industries to

meet the future capacity needs and provide such

information to stakeholders.

2.3. Promote energy efficiency and demand side

management as a more efficient option to new

generation capacity to meet demand requirements.

2.4. Monitor developments in alternative new energy

sources such as coal-bed methane and biofuels.



3. To ensure that regulatory decisions are consistent and

predictable, providing cer tainty for all stakeholders.

3.1. Develop and implement economic and technical

regulatory frameworks for the regulation of

generation, transmission, distribution and retail.

4. To provide stabilit y, cer tainty and predictabilit y in

regulating energy prices

4.1. Provide industry information on future prices taking

into consideration future industry requirements e.g.

Multi-Year Price Path.

5. To enable investment in the energy industr y

5.1. Participate in and support the competitive bidding

process for new generation capacity led by DME.

5.2. Facilitate the introduction of renewable energy and

cogeneration in the electricity generation mix.

6. To facilitate a fair balance between the interests of

customers and end users, licensees and investors.

6.1. Develop appropriate licensing and regulatory

frameworks for the implementation of the Electricity

Regulation Act.

6.2. Promote the establishment of customer

communication and education forums by licensees.

6.3. Develop and implement a framework for the

promotion of consumer advocacy and protection.

6.4. Mobilise resources for implementing activities on

national, regional and continental levels.

7. To establish ef fective and ef ficient pricing mechanisms

that balances the interests of consumers, suppliers and

sustainabilit y of the industr y.

7.1. Develop and implement methodologies for the

determination of required revenues and tarif f

structures that take consideration of changes in the

industry and customer needs.

8. To enable universal access to safe and af fordable energy

sources to all South Africans

8.1. Effectively contribute to the socio-economic develop-

ment programmes of government.

9. To promote and enable an environment for competition

9.1. Prepare for the establishment of Regional Electricity

Distributors (REDs) and influence the restructuring

process.

9.2. Develop and implement an appropriate framework

for the rationalisation of tarif f levels and structures

among municipal distributors in preparation for the

establishment of REDs.

9.3. Monitor, enforce and enhance the electricity grid

code.

10. To contribute to stated Government policies

10.1. Promote Historically Disadvantaged South Africans

(HDSA) as prescribed in the Gas Regulations.

10.2. Promote broad based Black Empowerment (BEE)

and competition in the energy sector and to develop

memoranda of understanding with government

departments and other regulatory authorities with

overlapping/concurrent jurisdiction.

10.3. Advise on governance arrangements in the energy

sector (e.g. roles and responsibilities between

government, the regulator and regulated entities).

(d) Existing position and envisaged commercial develop-

ments with respect to the electricity industry

During the reporting period, the ability of the electricity

generation industry to deliver a sustained and reliable supply

degenerated substantially, exacerbated by the high levels of

planned maintenance that were required. Extensive power

outages were experienced in most major centres. Emergency

response initiatives included:

Annual Report 2007/2008

• The Government National Electricity Emergency

Programme (GNEEP), in which NERSA, as part of the

National Electricity Response Team, is tasked with

implementing certain aspects of the government

programme;

• The initiation of a load shedding programme by Eskom to

allow industry, in particular, and the country in general,

to plan around power outages;

• The establishment, by the Energy Regulator, of an Ad

Hoc Subcommittee to conduct an inquiry into the national

electricity supply shortage and the subsequent load

shedding by Eskom and other licensees for the period

1 November 2007 to 31 January 2008; and

• The establishment of a NERSA Load Shedding Task

Team, comprising eight (8) work streams, to assist the

abovementioned subcommittee in the inquiry.

There is no ‘quick fix’ solution to this challenge and the

following multi-facetted approach is being followed:

• Eskom’s accelerated capital investment programme,

which includes the return to service of three mothballed

power stations, and envisages the construction of new

power stations. The latter includes a conventional coal

fired power station (Medupi), the Ingula pumped storage

scheme, two open cycle gas turbines (Gourikwa in

Mossel Bay and Ankerlig in Cape Town) and a wind

farm;

• Integration of the African network, which is being

examined under the Regional Integrated Resource Plan

and could facilitate increased cross border trading of

electricity;

• Demand side management (DSM), which influences

the time and usage patterns of electricity consumed,

reducing electricity demand at peak periods (07:00-

10:00 and 18:00-20:00) and shif ting the load to off-peak

periods. This mechanism is manifest in Eskom’s load

shedding programme and allows generated capacity to

be utilised more optimally;

• Energy Efficiency (EE), which promotes the use of

energy efficient equipment and processes, resulting in a

reduction in overall electricity consumption;

• Cogeneration, which in its broadest sense is the

simultaneous production of electricity and useful heat

from the same fuel or energy, allows excess process heat

to be used to produce steam for electricity production.

In this regard, NERSA completed the assessment of

the methodology for calculation of the avoided cost

of generation, to determine the ceiling price for the

Pilot National Cogeneration Programme (PNCP). The

licensing process for the PNCP was advanced further

and the cogeneration guidelines report and supporting

documentation were approved by the Energy Regulator

for public consultation; and

• Private sector investment via Independent Power

Producers (IPPs), which will alleviate some of the financial

constraints inherent in the current mix. In this regard, as

reported earlier in this publication, three (3) licences

were issued to IPPs during the period, one of which is

also a cogeneration producer. The combined potential

generation capacity of these is 37.5 MW.

(e) Health, safety and environmental matters

Health, safety and environmental matters surrounding

the electricity sector fall outside the ambit of NERSA. The

Department of Labour (DoL) is responsible for ensuring that all

employers adhere to the Occupational Health and Safety Act

(No. 85 of 1993) which includes measures to ensure the health

and safety of all workers in the workplace. The Department

of Environmental Affairs and Tourism (DEAT) is ultimately

responsible for matters relating to the environment.

24 Annual Report 2008


Power stations have site-specific procedures and standards

in place. In addition, the National Nuclear Regulator (NNR)

maintains vigilant 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 and

regulations is ensured on an ongoing basis. The municipal

power generation environment is managed in conjunction

with each Municipality’s Environmental Management

Department.

(f) Access to network infrastructure

By the end of 2007, approximately 80% of the country had

access to electricity.

Electricity distributors have the monopoly right to supply

customers in their licensed area of supply. Customer access

to electricity networks is influenced by the rate at which

distribution networks can be rolled out. This is constrained

by the funding available to the licensee and the ability of

consumers to pay for connections.

The Free Basic Electricity (FBE) rate to be used for billing

FBE units provided by Eskom to municipalities with effect

from 1 July 2007 was determined and approved by the

Energy Regulator, after consultation with stakeholders such

as the South African Local Government Association (SALGA)

and the Department of Provincial and Local Government

(DPLG). The project plan was revised and approved by the

Energy Regulator to include a review of the methodology of

determining this rate before the next municipal financial year.

(g) Tarif fs or tarif f structures set or approved

Multi-Year Price Determination (MYPD) of Eskom

Originally, price adjustments for Eskom were considered on

an annual basis, using the Rate of Return (RoR) methodology

to arrive at an annual tarif f increase that was considered

fair to all concerned. In February 2006, after considerable

deliberation and agreement from all the stakeholders in the

electricity industry, the multi-year price determination (MYPD)

process (incorporating a three year escalating increase) was

agreed upon. On 14 February 2006 the NER Board made a

determination on the first MYPD and the conditions in respect

of which the determination was made for the three year control

period starting from 2006 to 2009. The determination allowed

Eskom an average price increase of 5.1% for 2005/06, 5.9%

for 2006/07 and 6.2% for 2008/09.

On 30 April 2007 Eskom made an application for a price

increase of 18.7% and a request to change the rules on

primary energy, capital expenditure and triggers for re-

opening the MYPD. With that application Eskom proposed

the new rules that should apply and requested an immediate

implementation, with effect from 1 April 2008.

The Rule change application was analysed by NERSA with

a Stakeholder consultation paper issued on 7 September

2007 followed by a staff workshop on 2 October 2007. The

key issue highlighted by NERSA was the need for Eskom to

undertake an analysis of the business risks and in particular

the short term security of supply in the primary energy sector

and develop mitigation strategies.

With Eskom’s application the Energy Regulator was faced

with the need to strike a balance between sustainability of

the utility and affordability for customers. Key issues included



Eskom’s capital needs ahead of the expansion programme

and the need to maintain investment grade credit rating and a

healthy balance sheet. The Energy Regulator allowed Eskom

an additional R1.27 billion to cater for additional return and

depreciation on the increased regulatory asset base and

R2.4 billion to cater for additional primary energy costs for

2008/9 with no changes to the rules.

On 20 December 2007 Eskom was allowed revenue of

R45.449 billion, which equates to an average price increase

of 14.2% for Eskom customers for the 2008/09 period.

On 18 March 2008 Eskom made a submission for the new

application requesting a 53% real (60% nominal) increase,

equating to 40% over-and-above the approved increase of

14.2%. At a meeting on 28 March 2008, the Energy Regulator

decided that due process would be followed and timelines

for the evaluation of this application were approved. A final

determination will be made at a special meeting on 18 June

2008.

On 12 September 2007, the Energy Regulator approved

that:

• The Eskom 20A supply option would become the base

electrification option with immediate effect;

• The current connection fee for these 20A supplies would

be reduced to R0; and

• The new tarif f proposal (Landlight) would be assessed by

the NERSA secretariat before making recommendations

to the Energy Regulator.

In parallel with the aforementioned MYPD rule change

considerations, the Energy Regulator was engaged in a

prescheduled MYPD2 review process, ahead of Eskom’s

MYPD2 application for the period 2009/10 to 2011/12.

MYPD2 followed due process including discussions between

NERSA and Eskom as to the areas of proposed rule changes.

Proposed time lines were determined and amongst others,

the Energy Regulator has incorporated the following issues in

the review process: making the control sustainable; demand

uncertainty; a risk management device; conclusions re the

handling of uncertainties (correction factor); rolling forward of

the Regulatory Asset Base; and the regulatory mechanism.

In the light of the primary energy problems experienced by

Eskom and the impact of load shedding, discussions also

included the possibility of a new tarif f structure to deal with

issues of power shortages.

Eskom Tarif fs

NERSA undertook a preliminary analysis of the Eskom Retail

Tarif f Restructuring Plan for 2008/09, which will ultimately

impact on all Eskom customers including municipal tarif fs.

Following due consideration, it was concluded that any

restructuring should be deferred to the 2009/10 financial year

for the following reasons:

• The 14.2% increase in the MYPD with effect from

1 April 2008, which could be aggravated by the Municipal

Finance Management Act (MFMA) adjustments for

municipalities, will result in a large overall increase for all

customers;

• The re-opening of the MYPD through the rule change

application impacts significantly on the timing of any

retail tarif f restructuring proposal;

• In its application Eskom proposed that all rates should

be based on the 2007/08 cost of supply study. An

intensive analysis of this cost of supply study would

have to be undertaken by NERSA in order to determine

its appropriateness and ensure that it conforms to the

NRS058 principles;

• Eskom proposed un-bundling of the transmission

and distribution network charges for certain tarif f

categories; the splitting of one of the tarif fs into two (size

dif ferentiated) categories; the realignment of the voltage



dif ferential; the realignment of the rate rebalancing levy

to socio economic subsidies in a phased approach; and

the removal of the time-of-use conversion surcharge.

Intensive analysis of each of these components would be

required, starting with an assessment on the underlying

principles before unpacking the calculations of the tarif f

components. Furthermore, uncertainty exists with regard

to the policy to be applied to certain of these proposed

changes; and

• At the time, the DME was in the process of finalising

the National Electricity Pricing Policy. This draft policy,

scheduled for March 2008, will provide a basis for an

informed approval of the restructuring proposals by

aligning any decision with the policy.

Annual Municipal Tarif f Approval

NERSA is responsible for approval of tarif fs for all

municipalities in South Africa. The Municipal Tarif f Guideline

Increase of 12% and Tarif f Benchmarks for 2008/09 which are

based on Eskom’s increase were approved by the Pricing and

Tarif fs Subcommittee on 10 September 2007 and following

due process, were approved by the Energy Regulator on

20 December 2007. A 12% tarif f guideline increase was

approved for the financial year 2008/09 and communicated

to municipalities. The guideline is meant to assist municipal

distributors in setting their tarif fs prior to applying to NERSA

for approval of these tarif fs. The guideline is developed taking

into account the increase to Eskom’s price and taking some

views on the expected inflation rate for the year and expected

increases in other costs after consideration of efficiency and

performance incentives for municipalities. It is noted that

following Eskom’s application for a price increase received

on 18 March 2008, this may change.

During the review period, one hundred and sixty three (163)

municipal tarif f applications were received, reviewed and

approved.

Ten (10) tarif f appeals were received from Buffalo City, City

of Tshwane, Delmas, George, Oudtshoorn, Umjindi, Lukhanji,

Mossel Bay, Steve Tshwete and Ubuntu municipalities, all of

which were reviewed and approved.

(h) Distribution maintenance

The improvement of maintenance practices remains high

on the agenda of the Electricity Regulator. To this end a

Maintenance Summit, planned as a follow-up to the 2003

National Maintenance Summit, was scheduled for October

2007. Due to a clash with the Association of Municipal

Electricity undertakings (AMEU) council meeting, the Summit

was rescheduled for March 2008 and subsequently to June

2008, to allow enough time for discussions and the formulation

of resolutions. This date was approved by the Minister of

Minerals and Energy. Twenty one (21) organisations attended

the first external stakeholder meeting to steer the Summit

forward and ensure its success.

(i) Independent technical audits

During the previous reporting period, NERSA undertook

independent technical audits of electricity distributors in South

Africa to determine the condition of the electricity networks,

the state of execution of maintenance and refurbishment

programmes, and the level of readiness of each distributor to

address the shortcomings in the networks.

It emerged that whilst the larger municipalities and metropolitan

councils were generally well managed, with a good quality

of supply, there was evidence of insufficient investment in

refurbishment and maintenance processes as well as a lack

of skilled technical staff. The smaller municipalities, on the

other hand, were generally in poor shape, heavily under-

resourced, and often without formal systems or the basic

contingencies in place to manage the maintenance process.

Annual Report 2007/2008

Given the gravity of these findings, it was agreed that Phase

II, involving the auditing of a further twenty (20) electricity

distributors, would be undertaken by independent auditors

working closely with NERSA staff. These were completed

during the reporting period, however the draft final report was

discussed with consultants; thereby delaying final outcome.

The benchmarking model for the maintenance benchmark

study was updated with the information received from seven

(7) municipalities involved in the initial technical audit (Phase

I). It was determined that the data was not reliable and the

values of the assets used in the model were outdated by

a factor of more than 50%. The model was amended with

new asset values and tested during the third quarter. The

information from municipalities is based on the replacement

value of their ringfenced electricity assets and this information

is currently not available or is unreliable. A submission will be

made to the Energy Regulator with regard to reviewing the

project.

It was hoped that this model, developed mainly for large

municipalities and metropolitans, could be adapted for

application to smaller municipalities. This can only be tested

once disparities in the model have been resolved.

The response rate on the submission of corrective action

plans from Phase I of the independent technical audits was

initially poor, resulting in delays in the assessment thereof. By

the end of the reporting period 75% of the reports received

had been assessed. Assessment outcomes will be delivered

in the next reporting period.

(j) Implementation of compliance framework for

transmission

The Transmission Compliance Monitoring Framework for the

South African Transmission Industry of 2005 requires that

an Independent Technical Audit of Eskom Transmission be

carried out every three years or when necessary to assess its

level of compliance to licence conditions.

The audit focuses on all the technical business units of Eskom

transmission as per the licence conditions, and on Eskom

Transmission’s role as:

• Systems Operator;

• Transmission System Planner; and

• Transmission Network Service Provider.

Independent audits of the twenty (20) substations around

the country were completed during the reporting period.

A Barometer was developed and the first draft of the skills

transfer report was completed by the consultants and

submitted to NERSA for comment. Following due process,

the report was approved by the Energy Regulator on 25 April

2007 and published on the NERSA website. Communication

was sent to Eskom with regards to action plans.

As part of NERSA’s efforts to monitor and enforce compliance

with Quality of Supply standards, the NERSA Power Quality

Directive requires that licensees provide the Energy Regulator

with annual statistical power quality reports. These reports

analyse the technical performance of Eskom transmission for

the year with reference to previous years, dating back to 1999.

Because the quality delivered by the Eskom Transmission

Grid provides the foundation for the quality delivered by

regional distributors, the Transmission Operator’s annual

reports include information on performance of the national

grid with regards to:

• voltage waveform quality (voltage magnitude, harmonics

and unbalance);

• voltage dips; and

• interruption performance.

28 Annual Report 2008



At its meeting on 26 October 2007, the Energy Regulator

noted a submission on the Eskom Transmission Performance

report.

(k) Implementation of compliance framework for

distribution

In terms of section 4 (a) (vi) of the Electricity Regulation Act,

2006 (Act No. 4 of 2006) the Energy Regulator must enforce

performance and compliance and take appropriate steps

in the event of non-performance. In fulfilling this mandate,

NERSA conducts compliance audits specifically focusing on

licence conditions.

During the review period, a total of sixteen (16) compliance

audits were completed, at the following municipal electricity

distributors: Kungwini (Gauteng); Great Kei (Eastern Cape);

Kouga (Eastern Cape); Mamusa (North West); Ditsobotla

(North West); Lekwa Teemane (North West); Phokwane

(Northern Cape); Swellendam (Western Cape); Witzenberg

(Western Cape), Abaqulusi (KwaZulu-Natal); Ulundi (KwaZulu-

Natal); Lekwa (Mpumalanga); Greater Letaba (Limpopo);

Ba-Phalaborwa (Northern Province); Maluti A Phofung (Free

State); and Msukaligwa (Mpumalanga).

Draft reports for all conducted audits were developed and will

be sent to the relevant municipalities for comment.

Information received in the Quality of Supply reports from

Eskom Distribution, Eskom Transmission, large metropolitan

municipal electricity distributors and some of the other

municipal electricity distributors also informs compliance

assessments. These reports, received and analysed in the

reporting period, led the Licensing Subcommittee and the

Energy Regulator to approve six amendments to the Power

Quality Standards NRS 048 Part 2.

The Quality of Supply annual reporting format for Eskom

Distribution and Transmission was revised and, in agreement

with Eskom, will be implemented in 2008. In future, the reports

will include:

• Historical data going back five (5) years, not eight (8);

• The total number of dips, not the exceedances;

• Load shedding together with interruption reporting;

• Technical comments on all reported quality of supply

parameters; and

• Reporting on quality of supply complaints.

The combined report on Eskom Distribution Performance is

being prepared for Eskom’s comments.

(l) Development of the third National Integrated

Resource Plan (NIRP3)

The National Integrated Resource Plan is based on a

comprehensive review of the electricity demand forecast;

generation plant performance characteristics; construction

and fuel costs for new generation plant options and demand

side options including interruptible load contracts; and

changes in the electricity demand load shape. Preparation

of NIRP3 (the update on NIRP2) began in 2006, when Stages

1 and 2 were completed. It reviews the long-term, least-cost

electricity supply options for the country, and is informed

by the Integrated Energy Plan (IEP), the Regional Integrated

Resource Plan (RIRP and utilities’ plans such as Eskom’s

Integrated Strategic Electricity Plan (ISEP).

Specifically, NIRP3 provides an assessment of the generation

plant reserve margin required to provide a reliable supply of

electricity; a base case least cost plan; the cost impact of

alternative generation portfolios; and sensitivity studies.


During the reporting period, NIRP3 Stage 3 (Electricity

Resource Needs Analyses: Reserve Margin Assessment) and

NIRP3 Stage 4: (Reference Case with and without Renewable

Energy Target) were completed and published on the NERSA

website. The production simulation results have provided

valuable and critical input into the MYPD analyses.

Due to comments and concerns from the Advisory and

Research Committee (ARC) during the preparation of the Stage

4 analyses, a task team (TT) was established to interrogate

the report and validate the reference case expansion models,

resulting in delays to the projected completion date of the

NIRP3 in its entirety.

A proposal for three diversified resource portfolios including

gas, nuclear and environmental options, subject to Stage 5

analyses, was completed and approved by the ARC. The

capacity expansion plans for the three diversified portfolios

were also completed and the results provided information

regarding the impact of diversification on the electricity price

path.

(m) Grid Code amendments

Officially established in 2004, the South African Grid

Code defines the basic rules, procedures, requirements

and standards that govern the connection, operation,

maintenance, planning and development of the Electrical

Distribution System. It includes technical aspects and working

relationships between distributors, end-use customers,

embedded generators, grid-connected renewable energy

systems and other users with entities connected to the

distribution system.

As a dynamic document, the Grid Code remains under

constant review and is periodically revised after consideration

by the Grid Code Advisory Committee (GCAC) of amendment

or exemption proposals received.

In September 2007, Revision 5.1 of the Distribution Code was

published after due process, including the System Operating

Code, Information Exchange Code, Metering Code, Network

Code and Tarif f Code.

Twenty one (21) workshops were held during the review period

to facilitate awareness of the requirements of the Distribution

Code, and a pilot programme was initiated for all licensees

having installed capacity in excess of 100 MVA.

From January 2008, the Electricity Subcommittee began

deliberations on proposed amendments to the Transmission

Grid Code, with particular reference to investment.

(n) Electricity Distribution Industry (EDI) restructuring

On 25 October 2006, Cabinet re-affirmed its position on

electricity distribution restructuring through its decision to

establish six (6) wall-to-wall Regional Electricity Distributors

(REDs). This was largely seen as a means to end fragmentation

and inefficiency in the industry; improve governance of the

sector in general; promote equal treatment of consumers

through a national pricing system; and stimulate economic

development.

Numerous challenges have presented themselves in setting

up the REDs, including the fact that associated legislation is

needed to support the process. The Municipal Fiscal Powers

and Functions Act, promulgated on 7 September 2007, is

seen as a significant enabler to move the process forward.

The NERSA secretariat continued to participate in and

represent NERSA in EDI restructuring related issues. NERSA



participated in EDI Holdings Working Group subcommittees,

with emphasis on technical aspects on EDI Restructuring,

including the Wires Subcommittee, Retail Subcommittee and

Governance Subcommittee.

During the reporting period, an inter-governmental workshop

was held, including representatives from the Department of

Minerals and Energy (DME), Department of Public Enterprises

(DPE), National Treasury (NT) and Department of Provincial

and Local Government (DPLG), EDI Holdings and NERSA, to

discuss the implementation and key issues of contest around

the restructuring.

This project is closely linked with the development of

wholesale trading arrangements and the rationalisation of

tarif fs. Regulation methodologies are being refined and

shared with consultants appointed by EDI Holdings, and

other stakeholders, to ensure synergy of proposed structures

and data provision.

In this regard, extensive interactions and discussions were held

with the DME and their consultants with respect to the draft

National Electricity Pricing Policy (EPP). NERSA submitted

consolidated input to the DME after internal workshops. The

draft EPP was work-shopped with stakeholders, and a revised

document will be published by the DME for further formal

stakeholder input during the first quarter of 2008/09. The

final policy positions will direct the policy on rationalisation of

tarif fs. In addition, a National Retail Forum was established for

all distribution stakeholders, to focus on tarif f related issues.

(o) Energy Ef ficiency 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.

During the reporting period, Eskom submitted an interim

EEDSM performance report which was evaluated by the

NERSA secretariat.

Eskom also proposed a complete revision of the EEDSM

regulatory framework, to accommodate the requirements

of the accelerated EEDSM programme. This proposal was

assessed and approved by the Energy Regulator.

The Energy Regulator constantly monitors the amounts

allowed to Eskom through regular meetings and reports that

are forwarded by Eskom to NERSA.

(p) Legislative Matters

The Electricity Regulation Act, 2006 (Act No. 4 of 2006) was

passed on 1 August 2006. This Act establishes the national

framework for the electricity supply industry, making the

National Energy Regulator the custodian and enforcer of the

national electricity regulatory framework. It also provides for

licensing and registration to regulate the manner in which

generation, transmission, distribution, trading and the import

and export of electricity are undertaken.

Subsequent to the passing of the Act, it became apparent

that the need for certain amendments, including a mandate

for the Energy Regulator to regulate municipalities, existed.

Following on-going engagement with the Department of

Minerals and Energy (DME) on the Electricity Regulation

Amendment Bill, the Bill was adopted by the National Council

of Provinces by the end of the reporting period was awaiting


the signature of the President of the Republic of South Africa

before enactment.

Further engagement with the DME surrounded the Electricity

Regulation Act Regulations and in particular focused on

trading, since this has not been satisfactorily incorporated

into the regulations. NERSA is furthering the consultation

processes with the Department of Minerals and Energy

to find commonality in interpretation and development of

regulations. Trading, as an undertaking under the Electricity

Regulation Act, has not yet been finalised.

Against the background of the energy emergency in the

country, NERSA’s participation in projects and programmes

led by the DME and EDI Holdings increased, with NERSA

assisting the DME in the development of power conservation

regulations.

Petroleum Pipelines Industry Regulation

(a) Licences granted, amended or withdrawn

NERSA is responsible for the licensing of the petroleum

pipelines industry. Consequently, a number of licence

applications from regulated entities in the petroleum pipelines

industry sector were considered during the review period.

Licences that were granted, amended, withdrawn or

transferred are as follows:

Licences granted for construction

• Pipeline construction licences were granted to the

following companies:

— Transnet Pipelines for the construction of the new

multiple-product pipeline (NMPP) from Durban to

Jameson Park in Gauteng

— Engen Montague Gardens to construct three

additional petroleum storage tanks

— Engen Upington to construct one additional

petroleum storage tank

— Chevron Waltloo, and

— Chevron Alrode to construct a fourth petroleum

storage tank;

• A storage facility construction licence, for the addition

of three (3) storage tanks at an existing facility in Cape

Town, was granted to Chevron; and

• Considered and declined iPayipi pipeline application.

Licences granted for operation of existing facilities

• Operating licences were granted to:

— Engen for sixty-five (65) storage facilities

— Chevron for twenty-one (21) storage facilities

— BP for nineteen (19) storage facilities, and

— Shell for fourteen (14) storage facilities.

The backlog in licensing of existing facilities was all but

eliminated, with just forty (40) of the two hundred and

seventy-six (276) facilities applied for still to be considered. Of

the forty (40) outstanding applications, twenty-nine (29) were

due for consideration in the first quarter of 2008/09 while the

remainder did not have sufficient information for processing.

It is expected that the licensing of existing petroleum pipelines

facilities will be completed by the end of the next financial year.

Of continued concern however is the lack of sanctions within

the Act against unlicensed operation of existing petroleum

pipelines facilities.

Licences amended

No licences were amended during the reporting period.

Licences withdrawn

No licences were withdrawn by the Energy Regulator during

the reporting period; however one applicant withdrew one

(1) licence application for the operation of a pipeline. The



pipeline is integral to a manufacturing facility and is thus not

licensable under the Petroleum Pipelines Act, 2003.



In terms of Section 33(1) of the Petroleum Pipelines Act,

Regulations for the governing of the Petroleum Pipelines

sector must be formulated by the Minister.

During the reporting period, the Draft Petroleum Pipelines

Act Regulations were published for comment by the DME.

NERSA reverted to the DME with a number of comments.

Several meetings were subsequently held to discuss these

concerns and it was agreed that the Regulations would be

sent to the State Law Advisor to address assertions by both

NERSA and industry that aspects of the Regulations were

ultra vires (beyond the power/jurisdiction).

The Draft Regulations were subsequently amended, taking

into consideration comments from the State Law Advisor.

Some of the concerns raised by NERSA were addressed. The

revised draft was published by the DME for further comment

on 15 February 2008. The Energy Regulator submitted further

comments to the DME and most of the comments were taken

into account in the final Draft Regulations.

Although amendments to the Act have not been proposed,

the Petroleum Pipelines Act is continuously being reviewed

with the aim of suggesting possible amendments to the

Minister of Minerals and Energy in the event that they become

necessary.


In an endeavour to position the Energy Regulator as a world-

class leader in energy regulation, the following strategies were

identified for the pipeline industry, and used as the basis on

which to develop business activities:

1. To regulate the energy industr y ef fectively and ef ficiently.

1.1 Licence facilities in the petroleum pipelines industry.

1.2 Provide guidelines for the format of unbundled

accounts in petroleum pipelines and monitor the

compliance thereof.

1.3 Contribute towards a review of the Petroleum

Pipelines Act and Regulations made thereunder.

1.4 Prepare NERSA to administer the Petroleum Products

Act.

1.5 Develop and review a licence conditions framework

for petroleum pipelines.

1.6 Develop and maintain a database for the petroleum

pipelines industry (licensee information; acts; tarif f

information; 3rd party access information).

1.7 Develop regulatory Rules and practices for efficient

and effective regulation of the energy sector.

2. To regulate in a manner that incentivises an adequate

supply of petroleum products.

2.1 Develop strategies that promote an adequate supply

of petroleum products in the pipelines industry.

2.2 Develop and implement a compliance mechanism for

petroleum storage, loading facilities and pipelines.

2.3 Contribute to energy planning with regard to

petroleum pipelines.



3.1 Ensure that all Rules relating to the Petroleum

Pipelines Act have been adequately developed and

implemented.

4. To provide stabilit y, cer tainty and predictabilit y in

regulating energy prices.


4.1 Set tarif fs for petroleum pipelines.

4.2 Approve tarif fs for storage and loading facilities.

5. To promote investment in the energy industr y.

5.1 Promote investment in the petroleum pipelines

industries.

5.2 Monitor and facilitate developments of new petroleum

pipelines infrastructure.


that balance the interests of consumers, suppliers and


6.1 Develop and implement methodologies for the

determination of allowed revenues and tarif f

structures that take into consideration changes in

the industry and customer needs.

6.2 Develop and implement an appropriate pricing

and tarif f methodology for the petroleum pipeline

industry.


sources to all South Africans.

7.1 Effectively contribute to the socio-economic

development programmes of government.

8. To promote and enable an environment for competition.

8.1 Facilitate common carrier and third party access to

the petroleum pipelines infrastructure.

9. To contribute to stated Government policies.

9.1 Promote broad based Black Economic Empowerment

(BEE) and competition in the energy sector.

9.2 Develop memoranda of understanding with

government departments and other regulatory

authorities with overlapping/concurrent jurisdiction.

9.3 Advise on governance arrangements in the energy



(d) Existing position and envisaged commercial

developments with respect to the petroleum

pipelines industry

Work towards the construction, by Transnet Pipelines, of the

new multi-product pipeline (NMPP) from Durban to Jameson

Park in the East Rand commenced with the establishment of a

project office and the initiation of negotiations for servitudes.

The Petroline project also commenced, with the Environmental

Impact Assessment studies and servitude negotiations on

the identified route under way. At the time of reporting, there

was no indication that either of the two projects would be

delayed.


The Petroleum Pipelines Act includes a provision which

requires NERSA to ‘ensure the safe, ef ficient, economic and

environmentally responsible transpor t, loading and storage of

petroleum.’

Following consultations with the Department of Labour (DoL)

and the Department of Environmental Affairs and Tourism

(DEAT), NERSA compiled a report indicating how and when

it can enforce compliance with issues relating to health,

safety and the environment. Due to overlaps in the mandates

of NERSA, the DoL and the DEAT, NERSA drew up a draft

memorandum of understanding (MoU), to be discussed and

signed with these departments, in order to ensure a clear

and focussed approach to safety and environment related

matters within the petroleum industries. The MoUs were sent

to the DEAT and the DoL for their signatures and a response

is awaited.

Consultations were held with the South African Bureau of

Standards (SABS) to assess the implications of incorporating

relevant safety management systems, such as OHSAS



18001 and ISO 14001, into the system that NERSA will use to

regulate safety within the petroleum pipelines sector.

A public safety report was drafted during the period and will

be work-shopped internally prior to further development.


With the operation of the existing Transnet Pipelines (the

Petronet) refined products pipeline (the Durban-Johannesburg

Pipeline (DJP)) and the crude oil pipeline (COP) from the

coast to Natref having been licensed in the previous reporting

period, most of the country’s petroleum pipeline industry

infrastructure is regulated, and subject to mandatory access

by prospective users.

The South African Petroleum and Energy Guild (SAPEG)

formally wrote to NERSA and the DME regarding alleged

discrimination and/or disregard within the Petroleum Pipelines

Act in terms of granting access to BEE wholesalers at various

petroleum storage and loading facilities in the Durban and

inland areas. SAPEG also alleged that the loading facilities

were being used by unlicensed, non-BEE fuel importers. It

is a concern that fuel import licences intended to promote

historically disadvantaged South African (HDSA) enterprises

are rendered irrelevant through the undermining of the

empowering legislation on fuel imports permissions. The

allegations are under investigation by both NERSA and the

DME.

NERSA received informal complaints regarding the allocation

of capacity on the DJP. The situation is currently being

monitored.

(g) Tarif fs set or approved

By way of background, during the fourth quarter of 2006/07

NERSA received the final consultation paper from the

consultants on approaches towards regulating tarif fs within

the petroleum pipeline industry. Feedback from industry

on the report indicated that the paper provided only broad

guidelines and that there was a need for rules to give clear

direction on specific requirements that industry will need to

conform to in the design of tarif fs.

During the first quarter of 2007/08 a draft methodology

was developed by NERSA for public comment. In so doing,

cognisance was taken of developments elsewhere in the

world, while specific direction was taken from the Petroleum

Pipeline Act, 2003 (Act No. 60 of 2003). Public comments

were received and used to update the draft, which covered

the following areas:

• Ways to value the rate base of regulated entities;

• Ways for determining the Cost of Capital; and

• Ways on allowable operating expenses.

The Draft Regulatory Framework for the Setting and/or

Approval of Tarif fs within the Petroleum Pipelines Industry of

South Africa was approved for public comment by the Energy

Regulator and the document was posted on the NERSA

website for further public comment.

Comments on the Draft Regulatory Framework were received

from stakeholders and consolidated. A public hearing on the

draft tarif f methodology was held on 14 November 2007,

during which presentations were made by BP-South Africa,

Petroline, Transnet Pipelines and Sasol.

The draft tarif f methodology was presented to the Petroleum

Pipelines Subcommittee of the Energy Regulator on 20

November 2007 and a task team was established to

address the issues raised by the stakeholders and the

Subcommittee.


On 26 February 2008, the tarif f methodology was

recommended by the Petroleum Pipelines Subcommittee

and approved by the Energy Regulator.

(h) Rules

In terms of section 33(3) of the Petroleum Pipelines Act, 2003

(Act No. 60 of 2003) NERSA may make rules regarding the

following:

a. the public notification of and the procedures to be

followed at meetings of the Authority;

b. the keeping of records by the Authority;

c. the form, manner and contents of licence applications;

d. the publishing of licence applications and the contents

thereof;

e. the form and manner in which objections to licence

applications must be lodged and the furnishing thereof

to the applicant for his or her response thereto;

f. the procedure to be followed in considering licence

applications;

g. the publishing of information relating to uncommitted

capacity;

h. the procedure to be followed in the variation, suspension,

removal or the revocation of licence conditions;

i. the procedures to be followed in investigations, including

the summoning of witnesses and the payment of witness

fees;

j. the inspection of and enquiry into the construction and

operation of petroleum pipelines, loading facilities or

storage facilities; and

k. consultation with interested and affected parties.

In addition, NERSA may make rules regarding the fees for

licence applications (section 16(1)) and the period within and

manner according to which complaints may be brought to

NERSA.

During the 2005/06 financial year, rules on licensing

(c, d, e and f) and inspection (j) were finalised and came into

operation in 2006.

During the reporting period, the balance of the rules were

drafted and circulated internally for comment and direction.

The final draft will be presented to the Policy Subcommittee for

approval. This will be followed by publication for stakeholder

comment. It is intended that the complete Petroleum Pipelines

Rule Book will be finalised during the next financial year..

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 the trading

in the piped-gas industry. Consequently, a number of licence

applications from regulated entities in the piped-gas industry

were considered during the review period.

Licences granted

• Four (4) gas transmission facility construction licences

were awarded for gas transmission pipelines in the

Centurion, Spartan, Zaaiwater Farm No.11 IS and

Komatipoort areas; and

• Seven (7) gas distribution facility construction licences

were issued in the Clairwood, Clayville, Chamdor,

Wadeville (2 licences), Duncanville and Nuffield areas.

Licences amended

No licences were amended during the review period.

Licences withdrawn

No licences were withdrawn during the review period.



On 11 February 2008, the Energy Regulator approved that a

Geographic Information System (GIS) based grid mapping

method be used for defining geographic gas distribution

and trading area boundaries in licence applications. Also

approved was the aggregating of gas distribution areas under

a common pressure reduction station (PRS) or under a high

pressure customer metering station (HPCMS). This approach

significantly facilitated and paved the way for the efficient

licensing of gas facilities. This method allows for the rear-

seamless transfer of information on gas facilities between

applicants and the Energy Regulator, as well as allowing

for the creation of a world-standard information database of

licensed areas.

Subsequent to the abovementioned approval, a public

hearing was held for the licensing of eighty-four (84) existing

Sasol Gas gas distribution areas in the Gauteng, Mpumalanga

and the Free State provinces. The eighty-four (84) areas as

defined by the applicant were aggregated in twenty-nine

(29) geographic distribution areas and 29 trading licences.

At the end of the reporting period, a recommendation to the

Regulator Executive Committee (REC) regarding the licensing

of existing facilities was being finalised.

Data is currently being collected to populate the GIS system

for the licensing of areas and facilities in the KwaZulu-Natal

province.



The Piped-Gas Regulations, which NERSA had the opportunity

to comment on during the previous financial year, came into

effect on 20 April 2007.

Although amendments to the Act were not proposed, the Act

is continuously reviewed with the aim of suggesting possible

amendments to the Minister of Minerals and Energy during

the next financial year.


Key strategic areas that are used as a basis for the regulation

of the piped-gas industry are the following:

1. To regulate the energy sector ef fectively and ef ficiently.

1.1 License facilities in the piped-gas industry.

1.2 Provide guidelines for the format of unbundled

accounts in the piped-gas industry and monitor the

compliance by stakeholders therewith.

1.3 Contribute towards the review of the Gas Act and the

Gas Regulations.

1.4 Determine a metering system for gas entering South

Africa.

1.5 Develop and review a licence conditions framework

for piped gas.

1.6 Report annually on the status of the piped-gas

industry.

1.7 Develop regulatory rules and practices for efficient

and effective regulation of the piped-gas sector.

2. To regulate in a manner that incentivises securit y and

reliabilit y of supply.

2.1 Develop and implement a compliance mechanism for

the transmission, storage, distribution, liquefaction,

re-gasification and trading in gas.

2.2 Monitor and enforce Sasol Limited’s obligation to

supply in terms of Schedule One of the Agreement

concerning the Mozambique Gas Pipeline between

the Government of the Republic of South Africa and

Sasol Limited (“Schedule One of the Agreement”).

2.3 Develop strategies that promote security of supply

in the piped-gas industry.

2.4 Develop an integrated energy planning strategy for

hydrocarbon projects.




3.1 Ensure that all Rules relating to the Gas Act have

been adequately developed and implemented.

4. To enable investment in the energy industr y.

4.1 Monitor Sasol Limited’s exploration commitments in

terms of Clauses 3 and 4 of Schedule One of the

Agreement.

4.2 Promote investment in the piped-gas industry.

5. To facilitate a fair balance between the interests of cus-

tomers and end users, licensees and investors.

5.1 Promote the establishment of customer commu-

nication and education fora by licensees.

5.2 Develop and implement a framework for the

promotion of consumer advocacy and protection.

5.3 Mobilise resources for implementing activities on

national, regional and continental levels.




6.1 Develop and implement methodologies for the

determination of required revenues and tarif f

structures that take into consideration changes in

the industry and customer needs.

6.2 Monitor and enforce the pricing provisions of

Schedule One of the Agreement.

6.3 Develop and implement appropriate pricing and

tarif f methodologies for piped gas.


sources to all South Africans.

7.1 Effectively contribute to the socio-economic develop-

ment programmes of government.

8. To promote and enable an environment for competition.

8.1 Develop a network code for gas transmission

network.

8.2 Monitor and enforce access to the Mozambique to

Secunda gas transmission pipeline (“the ROMPCO

pipeline”).

8.3 Facilitate common carrier and Third Party Access to

the piped-gas infrastructure.

9. To contribute to stated Government policies

9.1 Promote Historically Disadvantaged South Afri-

cans (HDSA) as prescribed in the Piped-Gas

Regulations.

9.2 Promote broad based Black Empowerment (BEE)

and competition in the energy sector.

9.3 Develop memoranda of understanding with

government departments and other regulatory

authorities with overlapping/concurrent jurisdiction.

9.4 Advise on governance arrangements in the energy



(d) Existing position and envisaged commercial develop-

ments with respect to the piped-gas industry

At present, Sasol Limited dominates the piped-gas industry in

South Africa. The Energy Regulator has approved construction

licences to increase the capacity of the natural gas pipeline

from Temane in Mozambique to Secunda in South Africa.

Whilst the industry remains very much in its infancy, further

developments by Sasol Limited, together with the potential for

coal-bed methane in both Botswana and South Africa, and

landfill gas opportunities are being considered.


In terms of the Gas Act, NERSA is required “to ensure the

safe, ef ficient, 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 (No. 85 of 1993) of the Department of Labour (DoL).

Environmental matters are entrenched in the legislation of the

Department of Environmental Affairs and Tourism (DEAT).

The monitoring of public safety in the piped-gas industry,

however, was introduced as a new NERSA project, which will

commence in the next reporting period.


Section 36 of the Gas Act binds NERSA in terms of Schedule

One of the Agreement. Schedule One of the Agreement

prescribes conditions for the eligibility to mandatory access

to Sasol Limited’s gas transmission pipelines.

Through the drafting of a comprehensive compliance

mechanism for the piped-gas industry, NERSA is currently

developing the means to facilitate third party access to

the transmission network infrastructure. The final draft

was approved by the Piped-Gas Subcommittee as a basis

for further development of the Compliance Mechanism

Framework for the transmission, distribution and trading of

gas in the piped-gas industry.

(g) Tarif fs set or approved

The Energy Regulator approved the appointment of a

service provider to develop a piped-gas transmission and

storage tarif f methodology for the piped-gas industry. The

methodology will assist the Energy Regulator to approve and

monitor, and if necessary regulate, the tarif fs for transmission

pipelines and gas storage facilities.

The draft tarif f methodology was finalised during the reporting

period. As part of finalising the methodology the following

activities were undertaken:

• Revision of the first draft document taking into con-

sideration comments received; and

• The arrangement of public consultation and a workshop

with interested parties.

(h) Piped-Gas Prices

On 25 October 2007, the Energy Regulator determined the

Sasol Volume Weighted Gas Average Price (SVWGAP) and

the European Benchmark Price (EBP) for the year 2005/06 in

terms of Clause 8.2 of Schedule One of the Agreement. As the

average SVWAGP for the year 2005/06 was below the EBP,

no mandatory refund by Sasol Limited to External customers

was required for the period. Sasol Limited therefore complied

with the requirements of the price capping mechanism for the

year 2005/06, with the exception of the provision of information

to the Energy Regulator regarding the transportation tarif f

payable to Petronet.

On 25 October 2007, the Energy Regulator determined and

approved the maximum prices of piped-gas applicable

between 1 July 2004 and 30 June 2006 and the minimum

piped-gas prices applicable between 1 July 2004 and 30 June

2006. The maximum and minimum prices were determined

as prescribed in Clauses 9, 10 and 14.4 of Schedule One of

the Agreement.

While collecting data for the calculation of the price cap and

minimum and maximum piped-gas prices, it was found that

the following data sources are no longer published:

• SEIFSA Steel (all types) Price Index, Table E, as published

by the SEIFSA Economics Division;

• The ‘sell’ exchange rate published by the Central Energy

Fund (Pty) Limited (CEF) on behalf of the Government of

the Republic of South Africa; and

• Oil Price Assessment Limited’s (OPAL) price index.


The Compliance and Dispute Resolution Subcommittee

approved the following for the purpose of proceeding with

the calculations:

(a) The discontinued OPAL price index for the 125 900

volume category used in the calculation of the price

cap as prescribed by Clause 8 of Schedule One of the

Agreement be replaced by a straight average of the price

indexes in the volume categories 37 700 Gigajoules per

annum and 377 000 Gigajoules per annum.

(b) For the purposes of the calculation of maximum prices

for Greenfields Customers, the discontinued SEIFSA

Steel (all types) Price Index be replaced by the weighted

average of the sub-categories (hot rolled plate, hot

rolled, cold rolled, galvanized, heavy sections, medium

sections, light sections, and wire rod) as published by

SEIFSA.

(c) The sell rate of exchange published by the Central Energy

Fund Limited (Pty) (CEF), be used as the index for

calculating the reference price for Greenfields customers

whilst further attempts are made to obtain the average

rate from CEF.

A new price adjustment formula was agreed upon between

Sasol Limited and its largest customer in the metal industry,

providing a more favourable price adjustment formula. The

new price adjustment formula was used to calculate the

maximum prices for Greenfields customers.

The Energy Regulator determined the minimum gas prices for

the periods (i) 1 July 2004 to 30 June 2005 and (ii) 1 July 2005

to 30 June 2006, respectively:

It should be noted that Sasol Limited did not provide the

Energy Regulator with data regarding delivery costs to

customers. Therefore, the minimum prices for gas were

calculated without taking the delivery costs to customers into

account. It is expected that this data will become available

in due course so that the minimum gas prices applicable in

2007/2008 will include the delivery costs.

An investigation was launched into Sasol Gas Limited’s

pricing compliance with the Market Value Pricing (MVP)

principle as contained in Schedule One of the Agreement.

As part of the investigation on MVP, ten outliers (five large

customers (including those with negative turnovers) and

five small customers), were identified. A comparison of

the general impact on prices per customer using a volume

component compared to the price per geographical site was

undertaken.

Further information on MVP was requested from Sasol Gas

Limited but had not been received by the end of the reporting

period.

A pricing brochure as well as a general brochure on piped-

gas regulation were drafted and approved by the Energy

Regulator.

(h) Administering Schedule One of the Agreement

Tarif fs

In terms of the Agreement, the tarif f for the transportation

of 120 million Gigajoules per annum “from Mozambique to

South Africa shall be R4.64 per Gigajoule (as at January

2000), adjusted quarterly with South African PPI, excluding

any expansion related charges.” NERSA therefore continues

to play a monitoring and enforcement role for gas tarif fs set

by the operator for the Republic of Mozambique Pipeline

Investment Company (Pty) Ltd (ROMPCO) transmission

pipeline.

The abovementioned tarif f is applicable to the first 120 million

Gigajoules of gas transported through this pipeline. Any



additional volume of gas transported is subject to monitoring

and approval, and if necessary, regulation of the transmission

tarif f by the Energy Regulator.

Access to Infrastructure

Criteria for eligibility of access are provided for in Schedule

One of the Agreement and enforced by NERSA. During the

reporting period no requests for third party access were

received.

Exploration commitment and Sasol Limited’s order of supply

Sasol Limited has taken significant exploration commitments

as per Clause 3 and 4 of Schedule One of the Agreement.

These exploration commitments relate to Sasol Limited’s

obligation to prove the additional reserves required to

support the 120 million Gigajoules of gas sales to South

African markets for 25 years after 26 March 2004, by means

of a development and exploration drilling programme in 2003,

2006 and 2008.

The period of validity of the Special Regulatory Dispensation

contemplated in Schedule One of the Agreement is linked to

the Certified Proven Sales Reserves, and is determined by a

formula up to a maximum of 10 Years after First Gas, which

occurred on 26 March 2004.

NERSA requested that Sasol Gas Limited provide information

on Certified Proven Sales Reserves and subsequently the

special regulatory dispensation period as stipulated in Clause

3.1 of Schedule One of the Agreement. The assessment of

Certified Proven Sales Reserves was required for the year

2003 and was to be provided by two independent auditors

as prescribed in Clauses 3 and 4 of Schedule One of the

Agreement.

However, the information provided by Sasol Gas Limited on

Certified Proven Sales Reserves did not meet the requirements

of Schedule One of the Agreement.

Subsequently the Energy Regulator requested Certified

Proven Sales Reserves as at after the 2006 work programme.

Outstanding issues include the determination of Royalty Gas

and the audited results of the exploration programme.

Cross-cutting Regulatory Matters

(a) Constitutional Review

In terms of section 45(1) (c) of the Constitution of the Republic

of South Africa, the Joint Constitutional Review Committee

must review the Constitution at least every year. During the

review period, members of the public were invited to make

written submissions to the Joint Constitutional Review

Committee on any specific section of the Constitution they

felt needed to be reviewed. The focus for this review was on

the role, powers and functions of the three Spheres/Tiers of

Government. NERSA participated in the process and in its

submission recommended that the words “electricity and gas

reticulation” in Part B of Schedule 4 be deleted, or alternatively,

after the words “electricity and gas reticulation” the phrase

“excluding the regulation thereof, which shall be a competence

of national government” should be added. NERSA, in its

submission welcomed the opportunity, if requested, to make

oral presentations and to answer questions to clarify the

issues cited in its submission.

(b) Regulatory Reporting Manuals

During the review period, NERSA undertook a project in

unbundling accounts and establishing Regulatory Reporting

Manuals with emphasis on the separation between regulated

and unregulated business, in line with international best

practice. In the first phase, the scope of the project was

increased to further separate the business of all three of the

industries regulated by NERSA.


International best practice reviews were completed and

Regulatory Reporting Manuals were developed for the three

regulated sectors.

The Policy Subcommittee approved the publishing of the

Draft 3 of the Regulatory Reporting Manuals for stakeholder

comment. Following due processes, including a stakeholder

workshop, Draft 3 comments were being incorporated at

the end of the reporting period. These include alignment of

Regulatory Reporting Manual Volume 4 (Petroleum Pipelines)

with Petroleum Pipeline Regulations as well as the addition

of inputs from the Independent Regulatory Board of Auditors

into Regulatory Reporting Manual Volume 1 (General

Administrative issues).

(c) Contribution to the socio-economic development

programmes of Government

A position paper on NERSA’s contribution to the socio-

economic development programmes of government,

including the Accelerated and Shared Growth Initiative for

South Africa (ASGISA), Universal Access and Development

nodes was considered by the Policy Subcommittee of

the Energy Regulator. Following a comprehensive internal

consultation process, the position paper was revised by the

Regulator Executive Committee.

A number of themes emerge where the Energy Regulator

can support government’s socio-economic development

objectives. These are:

• Support to ASGISA and contribution to the removal of

constraints that are slowing down the progress with

ASGISA;

• Support and influence the DME’s energy programmes

and policies to take account of NERSA’s experience of

the realities in the energy sector;

• Actively participate in developmental energy programmes

and in particular the achievement of universal access by

2012;

• Adapt regulatory processes to support the socio-

economic development objectives of government. This

includes removing regulatory obstacles to achieving the

socio-economic development objectives of government;

• Adapt tarif f principles and policies to support the socio-

economic development objectives of government and to

balance pro-poor regulation with world class economic

regulatory principles.

• Support Government’s National Electricity Emergency

Programme (GNEEP) by participating in a number of fora


National Electricity Response Team (NERT).

Externally Focused Responsibilities and Initiatives

(a) Electricity Customer Relations

Electricit y Complaints Resolution

During the review period, NERSA commissioned a study

to enhance the customer complaint report component of

the information management system to generate monthly

management reports. Training was conducted with the

relevant staff members on completion of the project.

A total of one hundred and forty-one (141) customer

complaints were received and resolved during the reporting

period, and thirteen (13) mediation sessions were held.

Complaints were chiefly about undue disconnections,

prolonged estimation of consumption, claims for damages,

outages, Time of Use tarif fs, electrification and quality of

service in the resale market.

The issue of the resale of electricity is under consideration

and will be finalised in the second quarter of the new reporting

period.



A project to tackle the issue of alleged high disconnection

and reconnection fees is under way.

Notable successes in the resolution of some of these

complaints include:

• The acceleration of the electrification of Marloth Park;

and

• Cases concerning account queries with two (2) dif ferent

suppliers which resulted in three (3) customers receiving

a combined credit in excess of R1 000 000.00.

In addition, NERSA dealt with a complaint received from

Eskom regarding four (4) licensees that had not honoured

their bulk debt accounts. In protecting the rights of paying

customers who would be affected by the cut-offs, NERSA

liaised and participated in meetings with Eskom and the

licensees, resulting in a payment plan to assist struggling

licensees.

Resale of Electricit y

With constant complaints surrounding the resale of electricity

in the distribution sector, NERSA embarked on the finalisation

of the draft guidelines for the resale of electricity during the

reporting period.

Research on the magnitude of resale of electricity in the

country was commissioned in the second quarter of 2007/08.

The research highlighted gaps that need to be addressed in

the resale of electricity market.

(b) Engagement with the Public

Electricit y Customer Education

Customer Education is constantly reviewed, in line with NRS

047: Customer Service Standard, to ensure that customers

remain informed of the roles of NERSA and stakeholders and

are aware of their rights and obligations. Topical issues, such

as the load shedding experienced throughout the country,

were added to the presentations as and when appropriate.

Topics raised at customer education events during the review

period included the importance of public participation, the

complaints handling procedure (particularly in the electricity

industry) and the electrification of new dwellings. A common

complaint raised by customers was the lack of communication

by suppliers with regard to tarif fs and the complaints-handling

procedures of licensed entities.

Partnerships with other regulators, such as the National

Credit Regulator, Financial Services Board, Competition

Commission as well as Provincial Consumer Offices enabled

NERSA to reach more stakeholders.

In addition, forty-eight (48) Customer Education Events on

rights and responsibilities of both customers and licensees

and role and responsibilities of NERSA were conducted

throughout the dif ferent provinces during the reporting

period

Major inroads were made towards consumer advocacy by

sensitising close to one hundred and twenty (120) Advisors

and Consumer Affairs Officers. NERSA compiled a Training

Resource File which was distributed amongst other regulatory

and consumer bodies. The file included all NERSA educational

material and the consultation document on Eskom’s MYPD.

The consultation document was included to enable users to

participate meaningfully in the NERSA consultation process

and the public hearing on the MYPD process.

To promote participation, NERSA successfully reached out to

consumer organisations, business forums, Non-governmental

Organisations (NGOs) and communities to raise awareness

of the Eskom application for the MYPD rule changes.

The outreach preceded the officially scheduled NERSA

consultation sessions and public hearing. In the absence of


access to print and electronic media, the approach used to

reach out was through local structures and other regulatory

bodies. Communities were taken through the process of

consultation and public hearings. They were also invited to

attend the NERSA consultation sessions to expose them to

these regulatory forums.

Electricit y Customer Communication Forums

Customer Communication Forums (CCFs) are formally

constituted structures by licensees, intended to strengthen

the relationship between customers and suppliers and

provide a platform through which information can be shared

and customer concerns addressed.

During the review period, one (1) new CCF was established in

Lenasia, Gauteng and eleven (11) monitoring exercises were

carried out on existing CCFs in various towns throughout

South Africa. The latter were all found to be functioning well.

The assessment of existing CCFs allowed for the gathering

of data to inform the best practicable approach to provide

funding and ensure the sustainability of these forums. A draft

Consultation Paper, intended to give effect to Clause 6 (b)

of the Electricity Regulation Act on the funding of CCFs, was

completed and submitted to the Electricity Subcommittee for

consideration.

Electricit y Customer Service Monitoring

Twelve (12) Licensees were monitored in the reporting

period. The monitoring formed part of the NERSA Technical

Audits. Six (6) of the licensees had fairly adequate structures

to deal with customer service issues, while the rest needed

to improve certain areas. NERSA issued relevant service

standards to those that did not have them.

Stakeholder Engagement

Public hearings have become one of NERSA’s primary tools

for interaction with its external stakeholders on regulatory

matters that may affect them.

Three project team members attended a course on Public

Participation in the USA, to capacitate them on how to

effectively mobilise the public to participate in NERSA’s public

hearings. Subsequently, a stakeholder liaison programme was

developed for the MYPD process as well as a communication

action plan for the MYPD public consultation sessions and

the key stakeholder database was updated.

The NERSA Auditorium on the second floor was inaugurated

on 21 May 2007 by the Minister of Minerals and Energy and

will be used for public hearings conducted by the Energy

Regulator.

Following Eskom’s application on 30 April 2007 to NERSA

to consider changing some of the current rules under which

Eskom’s electricity prices are determined in the MYPD, NERSA

embarked on a country wide public consultation process

to provide stakeholders in all provinces the opportunity

to participate in this important process. A focused media

campaign, using regional/local radio stations, television and

newspapers, was implemented to inform stakeholders about

the planned MYPD public consultation meetings. Meetings

followed in Polokwane, Bloemfontein, Durban and Cape Town

between 16 and 21 November 2007.

In addition, breakfast meetings were arranged and held with

the Mayor of Polokwane, the acting Mayor and Councillors

of Maung, the MEC for Finance and Economic Development

in KwaZulu-Natal, the MEC for Environment, Planning and

Economic Development in the Western Cape as well as the

Executive Mayor of Cape Town.

During the latter part of the review period, the National

Consumer Forum (NCF) submitted a proposal to explore



co-operative involvement in assisting NERSA with its public

hearings. The proposal will be revisited in the new financial

year.

NERSA participated in the following selected exhibitions

during the year, interacting with its stakeholders in the

process:

• Rand Easter Show;

• Africa Power Congress;

• African Utility Week;

• Minister of Minerals and Energy’s Budget Vote speech in

Parliament;

• Science Unlimited Exhibition in Tshwane and

Pietermaritzburg;

• AMEU Convention Exhibition in Durban; and

• University of Fort Hare Exhibition during a visit by the

Minister of Minerals and Energy.

In addition, advertisements, advertorials, regular press

releases and press conferences, and the NERSA website

were employed to keep stakeholders informed of events,

outcomes and decisions, with particular emphasis on the

electricity supply shortage and load shedding in the latter

part of the reporting period.

Various publications, including the Annual Report, newsletters

and information brochures were disseminated in conjunction

with exhibitions and public hearings.

Internal stakeholders were kept abreast of developments within

NERSA and motivated through the following communication

mechanisms and events:

• Departmental and Divisional meetings;

• Staff meetings;

• Management briefing sessions;

• The annual team-building exercise;

• Electronic messages;

• Weekly Bulletin Board Notices;

• Lif t News;

• Monthly ‘Get Togethers’;

• The Year-end function; and

• Intranet (InNERSA).

International Co-ordination and Par tnerships

NERSA’s involvement in international, regional and national

regulatory organisations remains a critical component in

ensuring not only that NERSA remains abreast of international

developments and best practice, but is able to devolve its

expertise to regional and national levels. Partnerships benefit

NERSA and South Africa at large.

• The World Forum on Energy Regulation (WFER)

The CEO, as chairperson of AFUR, as well as the Full-

Time Regulator Member primarily responsible for

electricity at NERSA, were nominated to represent AFUR

in the Steering Committee for the preparation of the

World Forum on Energy Regulation (WFER) IV.

• The African Forum for Utility Regulators (AFUR)

NERSA chairs the African Forum for Utility Regulators

(AFUR) and hosts the AFUR Secretariat at its Kulawula

House premises in Pretoria, South Africa. During the

review period NERSA facilitated and participated in the

following AFUR events both as Chair and host of the

Secretariat:

- The 4th AFUR Conference and Annual General

Assembly, attended by more than 150 delegates,

which took place in Livingstone, Zambia from

24 – 27 April 2007. The theme of the 4th Conference

and AGA was: “A re-assessment of regulatory

independence and accountability: How effective

are Africa’s Infrastructure regulators in facilitating

investment and protecting consumers?”


- The 14th AFUR Executive Committee Meeting,

which was held at the NERSA Offices in Pretoria on

23 August 2007. All ten substantive Executive

Committee members attended and the Implemen-

tation Agreement between GTZ and the AFUR

Secretariat, which was signed by the AFUR

Chairperson and the GTZ Programme Manager.

- The Water and Sanitation Sectoral Committee

(WSSC) Workshop from 02 to 03 October 2007 at the

Kievitskroon Estate, outside Pretoria, South Africa;

- The 4th WSSC Committee Meeting on 04 October

2007, at the Kievitskroon Estate, outside Pretoria,

South Africa;

- A training workshop on “Minimum Quality of

Service and Reliability Standards for Electricity”

from 03 – 04 December 2007, at the Indaba Hotel

in Johannesburg, for members of the AFUR Energy

Sectoral Committee (ESC) and other delegates. This

was attended by the Full-time Regulator Member

primarily responsible for electricity and other

members of the NERSA secretariat.

- The 4th Meeting of the ESC on 04 December 2007 in

Johannesburg, South Africa.

- The 15th AFUR Executive Committee Meeting which

met on 05 December, and was hosted and chaired

by NERSA at the Indaba Hotel in Johannesburg.

- A delegation of AFUR officials met with a

representative of the Swedish International

Development Cooperation Agency (SIDA) which has

indicated its willingness to support AFUR energy

projects for the period of 2008 – 2011.

- Preparations for the 5th AFUR Conference and

General Assembly, scheduled for late April 2008 in

Accra, are under way.

• The Regional Electricity Regulatory Association of

Southern Africa (RERA)

NERSA is a member of RERA and participates in all

RERA Executive Committee meetings as well as Portfolio

Committee meetings on Facilitation of Electricity

Supply Industry Policy, Legislation and Regulations;

Regional Regulatory Cooperation and Capacity

Building and Information Sharing. The CEO of NERSA

chairs the Portfolio Committee on Regional Regulatory

Cooperation.

From 28 to 30 November 2007, a NERSA delegation led by

the CEO participated at the 4th RERA Annual Conference

and General Meeting on the theme: “Contributing towards

a sound investment climate for the power sector through

effective regulation”. The RERA events were hosted by

the Zimbabwe Electricity Regulatory Commission (ZERC)

at Victoria Falls in Zimbabwe.

The following were approved during the current financial

year:

- Position Paper on Best Practices, Gaps and

Recommendation: this document is an extensive

comparison of issues in the electricity regulatory

framework containing comparative information on all

RERA members and is updated as and when new

members join RERA.

- Technical Norms, Codes, Standard and Practices/

Initiatives: the focus areas on this document are Grid

Codes, Quality of Supply, Energy Efficiency Practices,

Safety Codes and Off-Grid Codes and Practices. The

report looks into issues of:

o Confirmation of existence or absence of focus

areas;

o Licensee reporting requirements for dif ferent types

of licensees;

o Collection, collation, storage and management of

technical information from licensees; and

o Compliance monitoring and enforcement

mechanisms for dif ferent types of licensees.



- Power Institute for Eastern and Southern Africa (PIESA)

1048 Standard on Power Quality ; PIESA is a regional

power utility association established in 1998 to

coordinate information and technology sharing in areas

of technology and engineering support, applied research,

standardisation, technical development and training and

environmental management. The PIESA 1048 Standard

covers volate quality parameters that might affect the

normal operation of the electricity dependent processes

of customers.

- Guidelines on Licensee Reporting System: from a

regulatory perspective, this is a form of regulatory

accounts.

- RERA approved a formal collaboration between RERA

and the Southern African Global Competitiveness Hub

(USAID Trade Hub). This is a USIID funded project that

works with regional institutions, the governments of

eligible countries, private sector firms and associations,

US government partners, regional organisations and

other donors.

- RERA also approved a partnership between RERA

and the Renewable Energy and Energy Efficiency and

Partnership (REEEP). REEEP is a global partnership

for accelerating and expanding the global market for

renewable energy and energy efficiency technologies.

REEEP partners include governments, businesses,

NGOs, financiers and other representatives of civil

society.

Swaziland passed legislation to establish an energy regulator

and has embarked on activities to operationalise the regulator.

The Minister of Natural Resources and Energy of Swaziland

requested RERA’s assistance in operationalising the energy

regulator in Swaziland. RERA appointed two of its Executive

Committee Members: Mr Smunda Mokoena (South Africa)

and Dr Mavis Tshidzonga (Zimbabwe) to be part of the

delegation to oversee the process.

Corporate Governance

(a) NERSA as an entity

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).

(b) Code of practices and conduct

Staf f induction

A staff induction programme was reviewed during the

reporting period to ensure that new staff members are familiar

with NERSA’s code of practices and conduct.

Compliance with the Promotion of Access to Information Act

Fif ty-eight (58) requests for information were received and

all were dealt with within the time period allowed for by the

Promotion of Access to Information Act. The report on all the

requests for information is in the process of development and

will be submitted to the Human Rights Commission (HRC)

during the third week of April 2008.

(c) The Energy Regulator and its Members

The Minister of Minerals and Energy appoints Members of

the Energy Regulator. The Energy Regulator consists of nine

Members, five of whom are part-time and four of whom are

full-time including the Chief Executive Officer (CEO). The

Energy Regulator is supported by staff under the direction

of the CEO.


The Energy Regulator Members were appointed by the

Minister on 1 October 2005. The full-time Members were

appointed for a period of five years until 30 September 2010

and the part-time Members were appointed for a period of

four years until 30 September 2009.

The Minister appointed one of the Part-Time Regulator

Members as Chairperson and another as Deputy Chairperson.

The Minister also appointed one of the Full-Time Regulator

Members as the Chief Executive Officer, who is, subject to

the directions of the Energy Regulator, also responsible for:

• The day-to-day management of the business/affairs of

NERSA;

(d) Subcommittees of the Energy Regulator

In terms of Section 8 of the National Energy Regulator Act,

the Energy Regulator has established subcommittees and

defined their terms of reference in order to efficiently and

effectively carry out its mandate.

On 12 September 2007, the Energy Regulator approved

restructured regulatory subcommittees as part of the review

of the Regulatory Operations Model. The new industry-

specific subcommittees established are the Electricity

Subcommittee (ELS), Piped-Gas Subcommittee (PGS) and

Petroleum Pipelines Subcommittee (PPS).

The subcommittees with the attendance of the Regulator

Members are the following:

• The appointment of members of the NERSA secretariat/

staff;

• Administrative control over the NERSA Secretariat; and

• Recommending to the Energy Regulator the staff and

resources that may be required by Full-Time Energy

Regulator Members.

The Minister appointed three Full-Time Members who are

primarily responsible for electricity regulation, piped-gas

regulation and petroleum pipelines regulation.

During the reporting period (1 April 2007 to 31 March 2008),

the Regulator Members and their attendance at the meetings

of the Energy Regulator were as follows:

Members of the Energy Regulator and Meetings Held

Members Position Meetings held Meetings at tended

Mr C Matjila Chairperson and Part-Time Member 11 11

Ms DD Mokgatle Deputy Chairperson and Part-Time Member

and

11 10

Mr SS Mokoena CEO and Full-Time Member 11 11

Mr T Bukula Full-Time Member primarily responsible for


11 10

Dr R Crompton Full-Time Member primarily responsible for

Petroleum Pipelines Regulation

11 11

Adv L Makatini Part-Time Member 11 10

Mr S Ntsaluba Part-Time Member 11 6

Prof D Singh Part-Time Member 11 8

Ms E Tel jeur Full-Time Member primarily responsible for

Piped-gas Regulation

11 11



• Cross-cutting Regulatory Subcommit tees

Regulator Executive Commit tee (REC)

Members of the Regulator Executive Committee and Meetings Held


Mr SS Mokoena Chairperson 9 9

Mr T Bukula Member 9 8

Dr R Crompton Member 9 8

Ms E Tel jeur Member 9 7

Workshops Attended: Regulator Executive Committee


Mr SS Mokoena Chairperson 1 1




Policy Subcommit tee (POS)

Members of the Policy Subcommittee and Meetings Held


Mr C Matjila Chairperson 7 6

Mr SS Mokoena Member (CEO) 7 7


Adv. L Makatini Member 7 7

Mr S Ntsaluba Member 7 2


Public Hearings Attended: Policy Subcommittee

Member Position Total At tended

Mr C Matjila Chairperson 1 0







• Regulatory Subcommit tees

Replaced with effect from 12 September 2007 with industry-specific regulatory subcommittees:

Licensing Subcommit tee (LIS)

Members of the Licensing Subcommittee and Meetings Held

Member Position Meetings held Meetings at tended

Dr R Crompton Chairperson 12 12




Prof. D Singh Member 12 10


Public Hearings Attended: Licensing Subcommittee








Workshops Attended: Licensing Subcommittee

Member Status Total At tended









Pricing and Tarif fs Subcommit tee (PTS)

Members of the Pricing and Tarif fs Subcommittee and Meetings Held


Mr T Bukula Chairperson 8 8

Mr C Matjila Member 8 4



Ms DD Mokgatle Member 8 6


Public Hearings Attended: Pricing and Tarif fs Subcommittee



Mr C Matjila Member 2 1



Ms D Mokgatle Member 2 1


Compliance and Dispute Resolution Subcommit tee (CDS)

Members of the Compliance and Dispute Resolution Subcommittee and Meetings Held


Ms E Tel jeur Chairperson 2 2







• Governance Subcommit tees

Audit and Risk Subcommit tee (ARS)

Members of the Audit and Risk Subcommittee and Meetings Held


Prof. D Singh Chairperson 4 4



Mr M Nkhabu External Member 4 3

Ms M Joubert* External Member 2 1* Appointed to the Subcommittee in October 2007

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

Human Resources Subcommit tee (HRS)

Members of the Human Resources Subcommittee and Meetings Held


Adv. L Makatini Chairperson 6 6




Finance Subcommit tee (FIS)

Members of the Finance Subcommittee and Meetings Held


Mr S Ntsaluba Chairperson 4 3






Remuneration Subcommit tee (REMCO)

Members of the Remuneration Subcommittee and Meetings Held


Ms DD Mokgatle Chairperson 2 2



Mr S Ntsaluba* Member 2 1

Ms N Joubert External Member 2 1

Mr J Mabaso* External Member 2 1* Appointed to the Subcommittee in late October 2007

Ad Hoc Subcommit tees

In the event that a special task must be executed, the Energy Regulator may establish an Ad Hoc Subcommittee with terms of

reference to oversee the completion of the task.

Ad Hoc Remuneration Subcommit tee

Members of the Ad Hoc Remuneration Subcommittee and Meetings Held


Ms DD Mokgatle Chairperson 3 3


Ms N Joubert External Member 3 2

Mr J Mabaso External Member 3 2

Ad Hoc Load Shedding Subcommit tee

Members of the Ad-hoc Load Shedding Subcommittee and Meetings Held





• Industry-specific Regulatory Subcommit tees

Electricit y Subcommit tee (ELS)

Members of the Electricity Subcommittee and Meetings Held




Mr C Matjila Alternate Member 6 3




Public Hearings Attended: Electricity Subcommittee






Ms D Mokgatle Permanent Member 5 2

Mr C Matjila Alternate Member 5 2

Piped-Gas Subcommit tee (PGS)

Members of the Piped-Gas Subcommittee and Meetings Held







Ms D Mokgatle Alternate Member 3 3



Public Hearings Attended: Piped-Gas Subcommittee






Prof. D Singh Permanent Member 1 1

Ms D Mokgatle Alternate Member 1 1

Workshops Attended: Piped-Gas Subcommittee






Prof. D Singh Permanent Member 2 0

Ms DD Mokgatle Alternate Member 2 2

Petroleum Pipelines Subcommit tee (PPS)

Members of the Petroleum Pipelines Subcommittee and Meetings Held







Mr S Ntsaluba Alternate Member 3 3


Public Hearings Attended: Petroleum Pipelines Subcommittee






Adv. L Makatini Permanent Member 3 2


Workshops Attended: Petroleum Pipelines Subcommittee






Adv. L Makatini Permanent Member 1 1


(d) 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.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 to the review period, and submitted to the Minister of

Minerals and Energy for ratification. The outcomes of NERSA’s

pursuits and results are reported annually in the Annual

Report, which reflects its performance against the objectives

set. The Annual Report is prepared in accordance with the

requirements of the Public Finance Management Act, 1999

(Act No. 1 of 1999) (PFMA), the National Energy Regulator

Act of 2004 (Act No. 40 of 2004), Treasury Regulations and

Generally Accepted Accounting Practice (GAAP).

In terms of Section 12 of the National Energy Regulator Act of

2004 (Act No. 40 of 2004), NERSA’s funds for the purposes

of regulation of the electricity, piped-gas and petroleum

pipelines industries, are generated, amongst others, from

levies imposed by or under separate legislation. NERSA’s

budget requirement for each of the three industries is used

as one of the determinants in establishing the levies for each

industry.

The procedure for the calculation and collection of levies

from generators of electricity is prescribed in section 5B of

the Electricity Act, 1987 (Act No. 41 of 1987) and is based on

Kilowatt Hours. In terms of this Act, the Minister of Minerals

and Energy is required to gazette the proposed levy and

entertain representation prior to imposition of the levy.

The 2007/08 budget was however approved by the Minister

of Minerals and Energy on 17 July 2007 and generators of



electricity were levied in alignment with this approval.

The procedure for the calculation and collection of levies from

the piped-gas industries is prescribed in section 2 of the Gas

Regulator Levies Act, 2002 (Act No.75 of 2002). The levy

is imposed on the holders of the title to gas as it enters the

system licensed by NERSA and is based on Gigajoules.

The procedure for the calculation and collection of levies from

the petroleum pipeline industry is prescribed in the Petroleum

Pipeline Levies Act, 2004 (Act No.28 of 2004). The levy is

imposed on the holders of the title to petroleum as it enters

the system licensed by NERSA and is based on litres.

In the case of the piped-gas and petroleum pipeline industries,

NERSA is required to gazette the proposed levies, receive and

analyse representations made and then submit them to the

Minister of Minerals and Energy for approval, indicating that

representation has been taken into account. The gazetting

of the 2007/08 levies took place on 13 October 2006 and no

representation was received in this regard.

All levies for the 2007/08 year were billed by 31 March 2008

except for the March 2008 petroleum pipeline volumes which

were not available as at 31 March 2008. Revenue has been

accrued in this regard. The majority of these levies have

been collected in the 2007/08 year along with a substantial

amount of the previous year’s petroleum pipeline levies which

were outstanding as at 31 March 2007 due to challenges

experienced with the implementation of the Petroleum Pipeline

Levies Act , 2004 (Act No.28 of 2004).

In terms of the proposed levy structure for the 2008/09 year,

only one objection was received, namely from Sasol Oil. This

was duly resolved and NERSA’s Strategic Plan and Business

Plan and Budget for the 2008/09 year were approved by the

Minister of Minerals and Energy on 25 February 2008.

(e) Ring-Fencing Methodology

The National Energy Regulator Act (Act No 40 of 2004)

stipulates that the costs incurred in regulating each of

the three regulated industries (electricity, piped-gas and

petroleum pipelines) must be ring-fenced and allocated to

that industry. Using the ring-fencing methodology, costs

that are directly attributable to a specific regulatory function

are charged directly to that function and costs that are not

directly attributable to a specific function, but are incurred

as common cost in order to support all three regulatory

functions, are allocated between the three functions using a

basis of allocation that fairly distributes costs.

During the reporting period the distribution of these common

costs was mainly based on the ratio of the employment cost

allocated to the industries. The percentage allocation for the

2007/08 year is as follows:

Electricity 60%

Piped-Gas 16%

Petroleum Pipelines 24%

(f) Cash Flow Mitigating Reserve

The Energy Regulator applied for the treatment of NERSA’s

cash flow mitigating reserve which was approved by the

Minister of Finance on 29 February 2008. NERSA will retain,

for its own use, the Cash Flow Mitigating Reserve amounting

to R18.928 million and R23.455 million of committed funds as

reported in the previous Annual Report.

(g) Administration and procurement

A draft Supply Chain Management (Procurement) Policy was

developed, taking Treasury Guidelines and the revised Broad-

Based Black Economic Empowerment (BBBEE) Policies,

among others, into account. As evaluation progressed, the


gravity and extent of the project became more evident and a

task team was established to develop terms of reference for

the appointment of consultants to assist with the refinement

and implementation of the Supply Chain Management Policy

for NERSA. It is anticipated that significant progress in this

regard will be made by the end of the second quarter in

2008/09.

With the pending review of the Supply Chain Management

Policy, the existing version is currently being applied and

supplemented by the approved Procurement Operating

Procedures to bring the procurement process in line with

procurement circulars provided by National Treasury from

time to time. Furthermore, the supplier database is currently

being developed.

During the audit process for the 2007/08 financial year it

was found that NERSA’s Procurement Policy documented

procurement thresholds that were not in alignment with the

Supply Chain Management Practice Note 2 of 2005 issued

by National Treasury. This resulted in non-compliance with

the said Practice Note in the procurement process in the first

quarter of the 2007/08 and the previous periods (2006/07 and

2006/05). As soon as NERSA management became aware

of the Practice Note, management developed procurement

operating procedures to address the non-alignment. These

procedures were approved by management in July 2007 and

the implementation thereof was with immediate effect.

Management went through a process of quantifying the

irregular expenditure incurred by the NERSA procurement

policy not being in alignment with the Supply Chain

Management Practice Note 2 of 2005 issued by National

Treasury and this has been disclosed in the Annual Financial

Statements.

(h) Property management and administration of

NERSA facilities

During the year under review, NERSA property was re-

evaluated in line with the accounting policy in this regard

and the value thereof has increased to R34,5 million.

The maintenance of the building is provided with internal

resources and where necessary with some co-sourcing from

private companies.

Administration services are provided internally through

developed procedures and processes with regards to the

issuing of petty cash; issuing of stationary; document delivery;

logistic services; chauffeur services; cleaning; provision of

refreshments and the management of the NERSA cell phone

and land line accounts.

(i) Internal monitoring systems

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. Internal Audit operates independently

of Executive Management, reporting administratively to the

CEO and functionally to the Audit and Risk Subcommittee.

During the review period, NERSA completed nine (9) planned

internal audits and three (3) ad hoc assignments.

All Internal Audit reports were arranged in a format to

facilitate the monitoring of progress made with regards to the

implementation of agreed action plans.



Operational Risk Commit tee

The Operational Risk Committee monitors the implementation

of corrective action recommended by Internal Audit in areas

where internal audit have identified significant weaknesses

in the control environment. The revised control environment

is evaluated through follow-up audits. Internal Audit also

provides consulting services through attending meetings of

Supply Chain Management Task Team, Finance Committee,

Operational Risk Committee and Auditor General Steering

Committee.

The Operational Risk Committee undertook the monitoring of

recommendations made in the Internal Audit reports, based

on agreed operating procedures. The Management Letter

received from the Auditor-General on the 2006/07 Audit was

also arranged in a format that could be monitored.

The mitigating strategies for the identified residual risk register

is almost complete and implementation will be monitored on

a monthly basis.

A review of the Internal Risk Register, undertaken by the

Management Committee, was confirmed by the Operational

Risk Committee for approval by the Audit and Risk

Subcommittee.

Risk Policy

NERSA revised its Risk Policy and conducted a Strategic

Risk Assessment during the review period. The Strategic Risk

Register will inform the audit plan and will be presented to the

Audit and Risk Subcommittee of the Energy Regulator early

in the next financial year.

Fraud Prevention

NERSA has declared zero tolerance on fraud, corruption and

misuse of public resources. NERSA has in place a Fraud

Hotline system, 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 resources. No cases of fraud were reported through

the Fraud Hotline during the review period.

During the review period two employees faced disciplinary

charges. One employee resigned before the finalization of the

disciplinary hearing and the other disciplinary hearing of the

second employee is still pending.

(j) Human resources management

During the review period, workshops were held with all

NERSA staff on the draft Performance Management Systems

Policy and the Policy was revised taking feedback into account.

Following implementation, Performance Management

workshops took place to prepare staff for the performance

assessment, the last step in the performance management

cycle. All staff members completed and remitted their revised

Performance Contracts and Bonuses and salary increases

for 2007/08 for NERSA staff members were implemented and

paid timeously.

In addition to the current policies, a number of procedures

were developed for recruitment, payroll, handover, leave

administration, termination, training and development.


The Employment Equity and Training and Development Plans were developed for the year under review.

Employment and Vacancies

Employment and vacancies by division

Division Number of posts Number of posts filled Vacancies

Electricity Regulation 41 25 16

Hydrocarbons 20 18 2

Support Services 30 25 5

Corporate Affairs 28 20 8

Special Support Units 24 19 5

Total 143 107 36

Employees with disabilities 0

0

30

60

90

120

150Vacancies

Number of posts filled

Number of posts

TotalSSUCASSHydrocEL



Staf f movements

Staff movements by reason

Termination type Number % of total

Death

Resignation 21 20%

Expiry of contract

Dismissal – operational

Dismissal – misconduct 1 1%

Dismissal – inefficiency

Discharge – ill health

Retirement

Other

Total 22

0

5

10

15

20

25

% of Total

Number

Oth

er

Ret

irem

ent

Dis

char

ge -

ill h

ealth

Dis

mis

- in

effe

cien

cy

Dis

mis

- m

isco

nduc

t

Dis

mis

- op

erat

iona

l

Exp

of c

ontr

Res

ign

Dea

th


Recruitment

Occupational band Male Female

African Coloured Indian White African Coloured Indian White Total

Top management

Senior management 1 1

Mid-management 5 1 1 1 8

Skilled 10 7 17

Semi-skilled 4 4

Unskilled 1 1

Total 32

0

2

4

6

8

10

12

Top manag.

Senior manag.

Mid-manag.

Skilled

Semi-skilled

Unskilled

FemaleMale

African AfricanColoured ColouredIndian IndianWhite White



Promotions

Occupational band Male Female

African Coloured Indian White African Coloured Indian White Total

Top management

Senior management

Mid-management 1 1

Skilled 5 1 1 7

Semi-skilled 1 1

Unskilled

Total 9

Staf f Development and Training

Consultants have been appointed to conduct a skills audit and develop a competency framework. The Workplace Skills Plan

and Annual Training Report were completed and submitted to the Energy SETA.

FemaleMale

0

1

2

3

4

5

6

7

8

9

10

Top manag.

Senior manag.

Mid-manag.

Skilled

Semi-skilled

Unskilled

Total

African AfricanColoured ColouredIndian IndianWhite White Total


Staff development 2007/08 – Local training

Number of staf f

members

Name/nature of course

1 VIP Trilogy (Part 1, 2 and 3)

2 Public Relations for Office Professionals

1 Writing & Presenting & Proposal

3 Electricity Pricing Course

2 Training Workshop on Official Protocol and Communication

1 Leadership Programme for Junior Managers

6 Power Quality & Reliability Africa 2007 Conference

1 Facing the Media with Confidence

3 Management Programme in Petroleum Industry and Economics

1 Introduction to XML

2 Complete Continuity Training

1 Programme in Fuel Qualities Specifications and Compliance

1 Effective English for second Language Users

1 High Performance PA or Administrators – Essential Skills

4 Financial Modelling Masterclass

4 Targeted Selection Interviewing System

1 ERM Broadmap

1 People Management for New Managers

2 Microsoft Project Module 1 & 2

1 HTML and Dreamweaver

4 Introduction to Project Management

1 Microsoft Access Module 1 & 2

1 Conflict Resolution Course

2 Professional Business Writing Skills for Administrators

1 Eskom Distribution General Metering Course

2 Targeted Selection

4 Advanced Supervisory Effectiveness

2 Train the Trainer Course

3 Frontiers in Managing Reform and Regulation of Infrastructure Utilities in Africa

4 Regional Electricity Distribution 2007 Conference

1 Microsoft Project

1 Power System Basic Course

4 Project Management – A Business Approach

1 Understanding OHSAA 18001 Module 1



Staff development 2007/08 – Local training

Number of staf f

members

Name/nature of course

1 Financial Internal Audit for Internal Auditors

4 Institute of Retirement Funds Conference 2007

1 People Management

1 VIP Training Certificate Programme Study Guide and Assessment

1 Financial Modelling

3 Corrosion Engineering Course

3 GIMS User Conference

2 Commercialisation of Gas

3 IPM 51st Anniversary Convention and Exhibition

3 60th AMEU Convention

2 Microsoft Tech-Ed Conference

1 Business Communication and Report Writing

1 Advanced Supervisory Effectiveness

4 Advanced Electronic Document & Records Management

1 Project Management and Evaluation in the Public Sector

2 Mastering Minute and Meeting Protocol

1 Speedwriting Course

2 Tools & Techniques Block 4

4 National Certificate in Public Administration

2 Speedwriting for Effective Minute Taking

Total: 111 Total courses: 54

Staff development 2007/08 – International training

1 Leadership Development Programme

2 The utility rate make & NERA Model

1 CIRED International Conference

7 PURC

1 Powergrid Europe 2007 Conference

1 Regulating Quality Service

2 London School of Economics Short Course on Regulation

1 Issues in Regulating Electric and Water Utilities

2 World Energy Forum

2 Utility Price Review

1 Regulatory Impact Assessment (RIA)

2 International Training on the Utility Price Review

Total: 22 Total courses: 12


Skills Development Training Programme

As part of a dedicated drive to recruit and tailor new

employees to the very specific requirements of NERSA, an

advertisement was placed in December 2007, calling for

participants in NERSA’s Learnership Programme. More than

two thousand (2 000) responses were received. Following a

rigorous interviewing exercise, a total of twelve (12) Learners

were selected and allocated as follows: Electricity Regulation

Division - six (6) Learners; Hydrocarbons Regulation Division

- four (4) Learners; and the Regulatory Analysis and Research

Unit - two (2) Learners. The accreditation of the Programme

by the South African Qualification Authority (SAQA) is under

way. However, a decision has been made to proceed with

intake under a Skills Development Training Programme

pending the finalisation of the accreditation of the Learnership

with SAQA.

Pension Fund

The NERSA Pension Fund has made provision for a pension

fund scheme covering all its employees substantially. The

fund is governed by the Pension Fund Act, 1956 (Act No. 24 of

1956), (as amended). NERSA operates defined contribution

plans. The plans are generally funded by payments from

employer and employees.The fund is administered by Coris

Capital.

Payments to defined contribution retirement benefit plans

are charged to the income statement in the year to which

they relate. The total cost of R4 426 941 (2007: R5 727 989)

charged to income represents contributions paid to the

scheme. The liability of NERSA is limited to contributions it

agreed to pay to the fund.

The Fund has a Board of Trustee consisting of three

representatives for the employer and three employees. The

current members are:

• Mr S Hlobelo – Chairperson (and employer represen-

tative)

• Ms P Hadebe – Principal Officer

• Mr B van Heerden – Trustee member (employee represen-

tative)

• Ms N Sithole – Trustee member (employer represen-

tative)

• Mr M Murathi – Trustee member (employee represen-

tative)

• Mr M Magagula – Trustee member (employee represen-

tative)

• Vacant (employer representative)1

The role of the Pension Fund Board of Trustees is to oversee

the pension-related interests of NERSA staff members.

Wellness Programme

The comprehensive wellness programme, planned for

completion prior to the start of the reporting period did not

materialise. NERSA employees did, however, participate

in the following wellness programmes during the reporting

period:

• NERSA employees had the opportunity of a free eye

screening on site;

• Twenty five (25) employees participated in the 702 Walk

the Talk event; and

• Sixty five (65) NERSA employees attended the World

AIDS Day presentations in the NERSA Auditorium.

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 highlights of

the evening were the announcement of the winners for the

various categories. The winners were as follows:

1 The vacant employer representative was due to a change from the NER to NERSA since 2005.



• CEO’s Award for Outstanding Per formance: Ms Theodorah

Khoza, Compliance Engineer in the Hydrocarbons

Division.

• CEO’s Emerging Leader Award: Carlyn Keulder, Head of

the Finance and Administration Department. The prize

this year is a Management Development Programme

at the University of Pretoria Centre for Continuing

Education.

(k) Knowledge Centre

NERSA’s Knowledge Centre plays a pivotal role in ensuring

that current, relevant and up to date information sources,

printed and electronic, are collected and disseminated to all

NERSA staff.

The Knowledge Centre was actively marketed to staff through

several activities such as brochures, Open Day, in-house

exhibitions and newsletters.

Journal renewals, electronic subscriptions and newspaper

subscriptions were completed. A concerted effort was made

to develop the Hydrocarbons collection, and new titles were

added to the Piped-gas and Petroleum Pipelines Serial

subscription list in support of NERSA’s energy regulation

mandate.

(l) Information and Communications Technology (ICT)

It is critical that NERSA’s IT systems support its business

processes and are in line with NERSA’s information policy.

Network management, to ensure high availability of IT

services and desktop support, was provided on an on-going

basis. Network security audits were completed in June 2007.

A monitoring agent was installed on all servers and computers

to report on the performance status and assets register of all

equipment.

An ICT Strategy and Plan was developed in order to provide

a best practice framework for ICT infrastructure management

and sound ICT governance. The strategy was work-shopped

with management for adoption. A Disaster Recovery

Strategy and plan for ICT was also developed and the ICT

Steering Committee has approved the terms of reference for

implementation in the next financial year.

The development of NERSA’s new website was successfully

completed in consultation with the NERSA business units.

Acknowledgements

In conclusion, my thanks are extended to Mr Collin Matjila,

Chairperson of the Energy Regulator and the Members of the

Energy Regulator who have provided sympathetic guidance

and expert support through the duration of this challenging

period.

Over the years at NERSA, we have developed a strong

‘team’ ethic, which flows across the entire structure of our

organisation – the Energy Regulator, Management and Staff.

I am extremely grateful to you all for your unwavering support

and your on-going commitment to good governance within

the energy sector.

Smunda S Mokoena

Chief Executive Officer


Performance

Against Objectives


EXECUTIVE SUMMARY

On 15 September 2005, the National Energy Regulator

Act, 2004 (Act No. 40 of 2004) came into operation. This,

combined with the appointment of the Members of the Energy

Regulator with effect from 1 October 2005; the approval of

the bridging finance by the Minister of Minerals and Energy

on 23 September 2005; and the listing of the National Energy

Regulator of South Africa (NERSA) on 13 September 2005

by the Minister of Finance, led to the establishment of

NERSA on 1 October 2005. The National Energy Regulator

Act however allowed for the co-existence of the National

Electricity Regulator (NER) and NERSA, where the NER was

still responsible for all activities relating to the regulation of

the electricity industry, while NERSA was responsible for the

regulation of the piped-gas and petroleum pipeline industries.

The Minister determined that NERSA takes on the added

responsibility of regulating the electricity industry on 17 July

2006.

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. This report on the summary of the performance

against objectives, is in compliance with Section 55(2)(a) of

the PFMA.

Of the original 348 planned outputs, 46 (13%) were removed

by the Energy Regulator prior to the end of the 2007/08

Business Year. Of the remaining 302 activities, approximately

77% were executed as planned. The key factors impacting on

the planned implementation of the business activities were

human resource constraints (34%); re-prioritisation (12%);

delay in delivery by consultants (10%); delays in completion of

other projects impacting on execution (10%); non-publication

of the Regulations on the Electricity Regulation Act (9%); and

others (25%).

The removal of the 46 activities was necessitated mainly

due to human resource constraints, re-prioritisation and the

two unexpected mid-term applications by Eskom for a price

increase in the multi-year price determination for 2008/09.

It should be noted that human resource constraints are a

direct consequence of the high staff turnover experienced

by NERSA during 2007/08 as well as the above-mentioned

unexpected applications by Eskom.

It should further 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 two

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 re-prioritisation had to take

place.

PERFORMANCE AGAINST OBJECTIVES


Performance Against Objectives

NERSA believes that its services add value to the electricity,

piped-gas and petroleum pipeline industries in support of

government’s economic and social objectives. During the last

business planning cycle (2007/08), value was added in each

of the following strategic objectives:

1. To regulate the energy industry effectively and effi-

ciently;

2. To regulate in a manner that incentivises security and

reliability of supply;


predictable, providing certainty for stakeholders;

4. To provide stability, certainty and predictability in regu-

lating energy prices;

5. To enable investment in the energy industry;

6. To facilitate a fair balance between the interests of

customers and end users, licensees and investors;

7. To establish effective and efficient pricing mechanisms


the sustainability of the industry;

8. To enable universal access to safe and affordable energy

sources to all South Africans;

9. To promote and enable an environment for competition;

and

10. To contribute to stated Government policies.

In order to ensure that NERSA delivers on its mandate and

implements strategic objectives, a number of organisational

enablers were also identified by the Energy Regulator. These

enablers are the following:

1. To develop and implement (operationalise) the NERSA

governance model in compliance with the National

Energy Regulator Act and in line with best corporate

governance principles;

2. To attract, develop and retain requisite skills and com-

petencies;

3. To enhance the integrity of NERSA by improving internal

management policies, procedures, systems and

processes; and

4. To develop, improve and sustain the good image of

NERSA.


DETAILED PERFORMANCE AGAINST OBJECTIVESElectricity Industry Regulation

GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To regulate the

energy industry

effectively and

efficiently

Implement

Compliance frame-

work for electricity

generation

Compliance

Framework

2008/09 On Track

Outputs for

framework

2008/09 Delayed Human resource

constraints.

Implement

Compliance frame-


transmission

Quality of

Supply Report

Ongoing On Track

Licence Com-

pliance audit

Ongoing On Track

Implement

Compliance frame-


distribution

Compliance

Audits

Ongoing On Track

Quality of

Supply Report

Ongoing On Track

Audit Plan 30 June 2007 Completed

Conduct an annual

risk assessment

for the electricity

industry and develop

appropriate mitigation

strategies

Risk assess-

ment report

31 March 2008 Completed

Mitigation

strategy


Mitigation pro-

gress reports

Ongoing On Track

Evaluate Eskom’s

implementation of

NERSA approved

criteria for

Transmission (Tx)

expansion planning

Technical and

economical

evaluation

Ongoing Delayed Human resource

constraints.

Extend or renew

electricity distribution

licences

Review

performance

Ongoing On Track

Renewal

strategy

30 June 2007 Completed

Issue directives

and licences

Ongoing On Track

Implement customer

service monitoring

programme

Reports Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Electricity Distribution

Performance

Monitoring System

(EDPMS)

Performance

targets for

Eskom Distri-

bution (Dx)


Performance

targets

for large

municipalities

Ongoing On Track

Power Quality

directive

implementation

Ongoing On Track

Evaluate electricity

cogeneration

applications for

licence and funding

Proposals for

licences and

funding

Ongoing On Track

Technical and eco-

nomical evaluation of

electricity generation

licence applications

Evaluation

reports

Ongoing On Track

Submissions Ongoing On Track

Promote regula-

tory frameworks for

renewable energy

generation, efficient

use of electricity and

non-grid electricity

for rural development

with government

departments

Approved

Frameworks

Removed Removed As per Energy Regulator

approval on 31 July 2007.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Bi-annual Electricity

Industry development

and regulation

seminars

Event

Organisation


approval on 25 October

2007.

Speakers

Provisional

Programme

Participants

Event

Monitor the

implementation of

Free Basic Electricity

with the REDS

establishment

Quarterly

reports



Implement Customer

Communication

Forums (CCF)

Impact Study

on CCFs



Report on

Customer

Communica-

tion Forums

Monitoring

report of CCFs



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop a framework

for registration of

prescribed entities

Framework for

registrations

Ongoing Delayed This project was •

added to the NERSA

Business Plan

during the Energy

Regulator Midterm

Review in November

2006 of the NERSA

Business Plan.

Drafting rules for •

registration of

prescribed entities

has started, however

these cannot be

finalised until

Regulations for the


Act, 2006 (Act No.

4 of 2006) have

been finalised by

the Department of

Minerals and Energy.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Registration of

prescribed entities

Registrations

completed


added to the NERSA

Business Plan

during the Energy

Regulator Midterm

Review in November

2006 of the NERSA

Business Plan.

Once the framework •

for the registration

of the prescribed

entities has been

finalised, the actual

registration of the

entities will have

to take place in

accordance with the


Act, 2006 (Act No.

4 of 2006). This

project can therefore

only commence

once the framework

for the registration of

prescribed entities

has been approved

by the Energy

Regulator.

To regulate in

a manner that

incentivises

security and

reliability of

supply

Develop and

implement Education

programmes (EP)

Report on

Education

Programmes



Impact Study

on EP’s

Stage 2: De-

mand Forecast




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Stage 3: Re-

serve Margin

assessment


Stage 4:

Reference Plan

31 December

2007

Delayed It was approved •

that this output

be renamed from

Stage 4: Supply and

Demand Resource

Analysis to Stage 4:

Reference Plan by

the Energy Regulator

on 31 July 2007.

The NIRP3 Stage 4 •

analyses and report

were completed and

published on the

NERSA website. The

production simula-

tion results have

provided valuable

and critical input

into the Multi-Year

Price Determination

(MYPD) analyses.

This output was de-•

layed due to delays

by the consultant

in delivering what

was required. After

negotiations with

the consultants, the

project is on track

but the timeframes

had to be adjusted

to the second quar-

ter of 2008/09.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Stage 5: Risk

Analysis

2008/09 Delayed It was approved •

that this output be

renamed from Stage

5: Reference Plan to

Stage 5: Risk Analy-

sis by the Energy

Regulator on 31 July

2007.

This output will com-•

mence after comple-

tion of the stage 4

analyses.

Stage 6: Port-

folio Analysis



Stage 7: Risk

Assessment



Implement the

framework for Local

Integrated Resource

Plan (LIRP)

Discussion

paper

2008/09 Delayed Human resource con-

straints.

Implement the frame-

work for Regional

Integrated Resource

Plan (RIRP) (Regional

Expansion Plan)

First RIRP Removed Removed As per Energy Regulator

approval in November

2006.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitor the

implementation of

EEDSM policy

Develop

implementation

plan including

evaluation

criteria

(technical,

economical,

financial),

Monitoring

and Valuation

parameters

Ongoing On Track

Quarterly pro-

gress reports

Ongoing On Track

Monitor implementa-

tion of NIRP

Progress

reports

Ongoing Delayed This key performance

indicator can only

commence once the

development of the NIRP

has been completed.

To ensure that

regulatory

decisions are

consistent and

predictable,

providing

certainty for

stakeholders

Develop and

implement

mechanisms to

determine and rectify

the existing electricity

maintenance backlog

and prevent future

backlogs in the South

African distribution

industry

Liaising with

stakeholders

Ongoing On Track

Assessment

of mainte-

nance and

refurbishment

requirements

Ongoing On Track

Implement Com-

pliance framework for

electricity wholesale

trading

Licence

amendments

Ongoing On Track

Implement the

standard for

determining electricity

technical and non

technical losses

Monitoring

reports




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop and

implement the

guidelines for the

resale of electricity in

the distribution sector

Final Draft 31 March 2008 Delayed This output was delayed

due to delays by the

consultant in delivering

what was required.

The report has since

been received by the

consultants and the

output will be finalised

during the first quarter of

2008/09.

Guidelines

approved for

implementation

2008/09 Delayed Delayed as the

development of the

guidelines were delayed.

Quarterly

reports

Ongoing On Track

To provide

stability,

certainty and

predictability

in regulating

energy prices

Develop future price

path for electricity

industry

Price path Ongoing On Track

Stakeholder

communica-

tions


constraints.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To enable

investment

in the energy

industry

Participate and

support DME in

competitive bidding

for new Generation

capacity

Evaluated

bidders

Ongoing Delayed The licence applications

of the successful bidders

have been concluded as

well as the endorsement

of the Cost Recovery

Mechanism between

NERSA and Eskom

for the recovery of the

costs associated with

the Power Purchase

Agreement (PPA).

However, the proposal

was withdrawn by the

selected bidder due to

a lack of funding just

before the submission

was about to be tabled

at the Energy Regulator.

The process of selecting

a bidder therefore has to

start again.

Evaluation

of PPA, TCA,

TUOSA, FSA


Finalisation of

CRM


Licensing of

the successful

bidder(s)



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop and

implement a regu-

latory framework for

Renewable

Energy (RE)

RE Framework Removed Removed It was approved by the

Energy Regulator on

31 July 2007 that this

output be expanded to

three outputs. They are:

Tender approval; Draf t RE

Framework; and Final RE

Framework.

Tender Ap-

proval


Draft RE

Framework

2008/09 Delayed Human resource con-

straints.

To facilitate a

fair balance

between the

interests of

customers and

end users,

licensees and

investors

Develop electricity

framework for:

construction of •

Gx /Tx/ Dx;

operation of •

Gx /Tx/ Dx;

import and •

export;

traders; •

retailers; and•

wires•

Licensing

framework for

construction of

Gx /Tx/ Dx



Licensing

framework for

operation of

Gx /Tx/ Dx

Ongoing On Track

Licensing

framework for

import and

export

2008/09 Delayed Awaiting finalisation of

the Regulations for the

Electricity Regulation Act,

2006 (Act No. 4 of 2006)

by the Department of


Licensing

framework for

traders




2006 (Act No. 4 of 2006)





GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Licensing

framework for

retailers




2006 (Act No. 4 of 2006)



Licensing

framework for

wires




2006 (Act No. 4 of 2006)



Electricity export

pricing framework

Price

Evaluations

Ongoing On Track

Electricity

international Trading

Framework

Licence

Evaluations

Ongoing On Track

Implement Customer

Communication

Forums (CCF)

Impact Study

on CCFs

2008/09 On Track

Report on

Customer

Communica-

tion Forums

Ongoing On Track

Monitoring

report of CCFs

Ongoing On Track

Implement Customer

Education

programmes (CEP)

Report on

Customer

Education

programmes

Ongoing On Track

Impact Study

on CE

2008/09 On Track

Facilitate resolution of

Complaints

Quarterly com-

plaints reports

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Recognition/Awards

for service delivery

Annual event Removed Removed Removed as per Energy

Regulator approval on 30

January 2008.

Reports

Promote consumer

advocacy and

protection

Consumer

strategy

Removed Removed It has been approved •

by the Energy Regu-

lator on 31 July 2007

that the outputs of

the key performance

indicator be changed

to:

� Customer advo-

cacy strategy

developed; and

� Training

programme

implemented.

These outputs have •

thus been removed

from the NERSA

Business Plan.

Investigations

Report

Events

Customer ad-

vocacy strategy

developed

31 March 2008 Delayed Human resource con-

straints.

Training

programme

implemented

Ongoing On Track

To establish

effective and

efficient pricing

mechanisms

that balance

the interests

of consumers,

suppliers and

the sustainability

of the industry

Planning for the

next Multi Year Price

Determination (MYPD)

and price controls,

incorporating the

development of

independent NERSA

views for regulation of

Generation (Gx) and

Distribution (Dx) and

Comprehensive

evaluation of

methodology

Ongoing On Track

Approved

prices for

Eskom

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

monitoring and

reviewing of Eskom

Multi-Year Price

Determination

(MYPD) in the three

year period and

determine need for

a reset

Development and

implementation

of a multi-year

tarif f guideline for

municipalities based

on the Eskom MYPD

and price path

Approved

Guideline

31 December

2007

Completed

Review Eskom’s

annual tarif f structural

adjustment

Impact analysis

of proposed

structural

adjustments

31 December

2007

Delayed On 30 January 2008,


approved the deferment

of the Eskom Retail Tarif f

Restructuring Plan for

2008/09 to the 2009/10

financial year. This was

done because:

The increase in •

the Eskom price

with effect from

1 April 2008,

which could be

aggravated by the

Municipal Finance

Management Act

adjustments for

municipalities, will

result in a large

overall increase for

all customers;

Approved tarif f

structure for

Eskom

31 March 2008


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

The re-opening of •

the Multi-Year Price

Determination for

Eskom through

the rule change

application impacts

significantly on the

timing of any retail

tarif f restructuring

proposal;

In its application •

Eskom proposes

that all rates should

be based on the

2007/08 cost of

supply study. An

intensive analysis of

this cost of supply

study will have to

be undertaken by

NERSA in order

to determine its

appropriateness

and ensure that it

conforms to the

NRS058 principles.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Eskom also proposed •

un-bundling of the

transmission and

distribution network

charges for certain

tariff categories; the

splitting of one of

the tariffs into two

(size differentiated)

categories; the

realignment of the

voltage differential;

the realignment of the

rate rebalancing levy

to socio economic

subsidies in a phased

approach; and the

removal of the time-

of-use conversion

surcharge. Intensive

analysis of each of

these components

is required, starting

with an assessment

on the underlying

principles before

unpacking the

calculations of the

tariff components.

Furthermore,

uncertainty exists

with regard to the

policy to be applied

with regard to certain

of these proposed

changes.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

The Department of •

Minerals and Energy

(DME) is in the

process of finalising

the National

Electricity Pricing

Policy. This draft

policy will provide

a basis for an

informed approval

of the restructuring

proposals by

aligning any decision

with the policy.

Evaluate annual

municipal tarif f

applications

and monitor

implementation

Tarif f review

methodology

with quantified

parameters

and rules

31 December

2007

Completed

Approved

municipal

prices (within

guidelines)

Ongoing On Track

Approved

municipal

prices (outside

guidelines)

Ongoing On Track

Audited

implementation

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitor the

implementation

of WEPS

Progress

reports

Ongoing Delayed Due to the Cabinet

decision approving a

single buyer model for

all Independent Power

Producer (IPP) Electricity

Generation in South

Africa, the scope of

this key performance

indicator changed. This

had an impact on the

completion of the key

performance indicator.

Develop a

methodology to

evaluate the tarif fs

of large municipal

distributors

Reports on

pilot projects

of large

municipality

methodologies

Changed (see

below)

Changed

(see

below)

It was approved by the

Energy Regulator on

31 July 2007 that this key

performance indicator

be changed to ”Evaluate

and approve allowable

revenues and tarif fs

for large municipal

distributors using the rate

of return methodology

and tarif f determination

model” with outputs:

Arrange meetings •

with affected

government

departments

Publish the •

approved rate of

return framework

for the regulation

of large municipal

distributors

Approved

revised metho-

dology based

on results from

pilots


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Organise a •

stakeholder

workshop after

soliciting comments

Develop and pilot a •

tarif f determination

model.

Evaluate and

approve allowable

revenues and tarif fs

for large municipal

distributors using

the rate of return

methodology and

tarif f determination

model

Arrange

meetings

with affected

government

departments


Publish the

approved

rate of return

framework for

the regulation

of large

municipal

distributors


Organise a

stakeholder

workshop

after soliciting

comments

30 September

2007

Completed

Develop and

pilot a tarif f

determination

model

31 December

2007

Delayed Increased scope of key


Develop and

implement

economic regulation

methodologies for the

evaluation of small

municipality tarif fs




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop independent

NERSA views on

cost driver within the

MYPD process


Interruptible load/

DMP Framework

Regulatory

Framework

2008/09 Delayed This project can only

be initiated after the

completion of the NIRP.

To enable

universal access

to safe and af-

fordable energy

sources to all

South Africans

Monitor the

implementation of

Free Basic Electricity

with the REDS

establishment

Quarterly

reports

Ongoing On Track

To promote

and enable an

environment for

competition

Grid Code

Amendment

Quarterly

reports

Ongoing On Track

Evaluate the annual

price applications

for the existing REDs

using appropriate

methodologies –

Suite

Methodology

for determining

revenues for

the wires and

retail busi-

nesses that are

appropriately

ring-fenced

at distribution

level

Removed Removed Removed as per Energy

Regulator Approval on

26 July 2006.

Economic

framework for

distribution

using IBR with

a focus on

costs


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Methodology

for determining

RED tarif fs and

tarif f alignment

within REDs

in preparation

for the

establishment

of the first RED

by June 2005

Process for

managing

distribution

tarif fs

developed and

maintained

Approved

prices for the

REDs

Provide guidelines

to municipalities on

the rationalisation of

tarif fs within the RED

Tarif f

rationalisation

guideline

document to

municipalities

Ongoing On Track

EDI RED Rollout

programme

Liaison with

stakeholders

Ongoing On Track

Process

coordination

Ongoing On Track

Implement distribution

component of the

Grid Code

Amended

licences

Ongoing On Track

Support to EDI Progress

reports



25 October 2006.



Piped-Gas Industry Regulation

GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To regulate the

energy industry

effectively and

efficiently

To review guidelines

for the format of

unbundled accounts

in the piped-gas

industry and monitor

the compliance

thereof

Format for

unbundled

accounts



31 July 2007.

Develop and review

licence conditions

framework for piped-

gas

Draft licence

conditions



31 July 2007.Energy

Regulator

approve

licence

conditions

framework

Comments on draft

Gas Amendment

Act, review of Gas

Regulator Levies Act

and review of Piped-

Gas Regulations

Comments to

DME on Gas

Act and Gas

Regulations

Ongoing On Track

Participate

in Gas Act

and Gas

Regulations

review forums

Ongoing On Track

Implement metering

system for gas

entering South Africa

Assessment

report on

SASOL’s

current

metering

system

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Either approve

SASOL’s

existing

system or

require a meter

at the SA/

Mozambique

border

SASOL •

based

system

New •

system



31 July 2007.

License piped-gas

facilities

Applications

review and

processing

Ongoing On Track

Issuing of

licences

for existing

facilities

Ongoing Delayed The licensing of piped-

gas facilities has not yet

been completed due

to the unavailability of

a suitable Geographic

Information System

(GIS) to assist with

the delineation of

the distribution area

boundaries. The GIS has

been acquired during the

fourth quarter.

Exercise delegated

authority with regards

to of piped-gas

facilities

Report on

exercising

of delegated

authority within

approved

framework

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Gather information

on all piped-gas

activities and develop

an ongoing database

of registered entities

Database Removed Removed Removed as per Energy


31 July 2007.

To regulate in

a manner that

incentivises

security and

reliability of

supply

To develop and

implement a

compliance

mechanism for

transmission,

storage, distribution,

liquefaction, re-

gasification and

trading in gas

Draft

compliance

test for

consultation

with

stakeholders

Ongoing On Track

Approved

compliance

test for each

licence

conditions


Monitor and enforce

Sasol’s obligation to

supply

Report on

technical

feasibility and

/or economic

viability of

Sasol providing

access to the

pipeline(upon

complaint

or scenario

report)

Ongoing On Track

Conduct an annual

risk assessment

of the piped-gas

industry and develop

appropriate mitigating

strategies

Risk

assessment

reports



31 July 2007.

Mitigating

strategy

Ongoing review

Approved

provincial

energy plans


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To ensure that

regulatory

decisions are

consistent and

predictable,

providing

certainty for

stakeholders

Ensuring that all

Piped-Gas Rules

have been adequately

developed

Approved Rule

Book covering

the rules in Sec

34(3)

Ongoing On Track

Ensuring that all

developed Piped-

Gas Rules have been

implemented

Ensure

implementation

of rules


indicator can only

commence once the

Piped-Gas Rules


developed.

To provide

stability,

certainty and

predictability

in regulating

energy prices

Develop a multi-year

price and tarif f path

for gas facilities (not

determination)

Report Removed Removed Removed as per Energy


31 July 2007.

To enable

investment

in the energy

industry

Monitor Sasol’s

exploration

commitments in terms

of Section 3 and 4 of

the Mozambique Gas

Pipeline Agreement

Annual report

on SASOL’s

Compliance

with the drilling

commitment

by SASOL for

2006 and 2008

as per the

Agreement

Ongoing On Track

Annual report

on the calcula-

tion of the

dispensation

period

Ongoing Delayed Difficulty in obtaining the

required information from

Sasol.

Annual report

on the monitor-

ing of SASOL’s

order of supply

and the related

quantities of

gas

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Identify instruments

and tools for use in

facilitating investment

in the piped-gas

industry

Investment

strategy

document

2008/09 Delayed Priority being given to

licensing.

Monitor growth

of reticulation in

the piped–gas

industry and identify

regulatory gaps

Status Report

(Annual)

Ongoing On Track

To facilitate a

fair balance

between the

interests of

customers and

end users,

licensees and

investors

Monitor public safety

in the piped-gas

industry

Reports Ongoing Delayed Due to priority given

to licensing this key


will only commence in

the new financial year.

To establish

effective and

efficient pricing

mechanisms

that balance

the interests

of consumers,

suppliers and

the sustainability

of the industry

Administer price

caps, establish

reference prices and

monitor market value

pricing levels

Prices

Brochure

31 December

2007

Completed

Models to

calculate:

SASOL •

GAS

volume

weighted

average

gas price

(SVWAGP)

and

European

Bench-

mark Price

(EBP)

2008/09 On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Green-•

fields

Reference

Price and

the maxi-

mum price

level

Market •

Value

Price and

the dis-

counts

Resellers •

Reference

Price and

the maxi-

mum price

level

Monthly and

annual reports

on pricing

Ongoing On Track

Review and

implement tarif f

methodology for the

piped-gas industry

Tarif f rule book 2008/09 On Track

To promote

and enable an

environment for

competition

Develop and

implement a network

code for gas pipeline

network

Network

code for Gas

transmission

2008/09 Delayed This key performance

indicator is dependent

on the outputs of the

Implement metering

system for gas entering

South Africa key




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitor and enforce

access to the

pipelines (Sec 7 of

Mozambique Gas

Pipeline Agreement)

Report on

Greenfield

Customers

Ongoing Delayed The key performance

indicator has not

commenced yet. It

should be noted that

no complaints/requests

have been received.

Report on

Brownfield

Customers

Ongoing

Report on

the level of

uncommitted

capacity

should there be

any qualifying

customers

Ongoing

Develop mechanism

to determine

uncommitted

capacity for TPA to

the gas transmission

pipelines

Methodology

for uncommit-

ted capacity

2008/09 Delayed The key performance

indicator has not

commenced yet.

Implement

mechanism

to determine

uncommitted

capacity for TPA to

the gas transmission

pipelines

Implementation

reports


indicator is dependent on

the finalisation of Develop

mechanism to determine

uncommit ted capacit y

for TPA to the gas

transmission pipelines

key performance

indicator.


Petroleum Pipeline Industry Regulation

GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To regulate the

energy industry

effectively and

efficiently

To review guidelines

for the format of

unbundled accounts

in the petroleum

pipeline industry

and monitor the

compliance thereof

Format for

unbundled

accounts


Regulator approval on

31 July 2007.

Develop and review

licence conditions

framework for

Petroleum Pipelines

Draft licence

conditions



31 July 2007.Energy

Regulator

approve

licence

conditions

framework

Comments on draft

Petroleum Pipelines

Amendment Act,

review of Petroleum

Pipeline Levies

Act and review of

Petroleum Pipelines

Act Regulations

Comments

to DME on

Petroleum

Pipelines Act

Ongoing On Track

Participate

in Petroleum

Pipelines Act

review forums

Ongoing On Track

Prepare NERSA

for administering

Petroleum Products

Act

Setting up

appropriate

administration

systems and

frameworks for

administering

the Petroleum

Products Act



31 July 2007.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

License petroleum

pipelines facilities

Applications

review and

processing

Ongoing Delayed Delays were caused due

to insufficient information

submitted by customers

that had to be obtained.

This information has

since been obtained and

the process is on track

even though the time-

frames had to be moved.

Issuing of

licences

Ongoing Delayed

Annual

licensing

activities review

Ongoing On track

Exercise delegated

authority with regards

to licensing of

petroleum pipeline

facilities

Report on

exercising

of delegated

authority within

approved

framework

Ongoing On Track

To regulate in

a manner that

incentivises

security and

reliability of

supply

To develop and imple-

ment a compliance

mechanism for

petroleum pipelines,

loading facilities and

storage facilities

Draft

compliance test

for consultation

with stake-

holders

Ongoing On Track

Analyse and deter-

mine the adequacy

and efficiency of

petroleum storage

facilities jointly with

the DME

Report on

Status


constraints.

Recommen-

dations

2008/09

Conduct an annual

risk assessment

of the Petroleum

Pipeline industry and

develop appropriate

mitigating strategies

Risk Assess-

ment report



31 July 2007.Mitigating

strategy

Ongoing

review of

implementation


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To ensure that

regulatory

decisions are

consistent and

predictable,

providing

certainty for

stakeholders

Ensuring that

all Petroleum

Pipeline Rules have

been adequately

developed

Approved rule

book covering

the rules in Sec

33(3)

Ongoing On Track

Ensuring that all

developed Petroleum

Pipeline Rules have

been implemented

Ensure imple-

mentation of

rules


indicator can only

commence once the

Petroleum Pipeline Rules


developed.

To provide

stability,

certainty and

predictability

in regulating

energy prices

Develop a multi-

year tarif f path for

petroleum facilities

(not determination)

Report Removed Removed Removed as per Energy


31 July 2007.

Natref Neutrality Report 31 December

2007

Delayed Human resource

constraints.

Develop and

implement a tarif f for

the New Multi-Product

Pipeline

Approved tarif f 2008/09 On Track

To enable

investment

in the energy

industry

Identify instruments

and tools for

use in facilitating

investments in the

petroleum pipelines

industry

Investment

strategy docu-

ment

2008/09 Delayed Due to priority being

given to licensing,


indicator will be initiated

during the new financial

year.

Monitor and

facilitate investment

in new petroleum

infrastructure

Maputo pipeline•

New Multi-•

Product Pipeline

Status Report Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To facilitate a

fair balance

between the

interests of

customers and

end users,

licensees and

investors

Monitor public safety

in the petroleum

pipeline industry


To establish

effective and

efficient pricing

mechanisms

that balance

the interests

of consumers,

suppliers and

the sustainability

of the industry

Review and

implement a tarif f

methodology for the

Petroleum Pipelines

industry

Tarif f

methodology

guidelines


To promote

and enable an

environment for

competition

Develop and

implement a network

code for petroleum

pipeline transmission

network

Network code

for petroleum

pipeline

transmission

2008/09 On Track

Develop mechanisms

to determine

uncommitted

capacity for TPA

to the petroleum

storage facilities and

to facilities where

a common carrier

regime does not

supply

Methodology

for uncommit-

ted capacity


given to licensing, the key


will be initiated during the

new financial year.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Implement

mechanisms

to determine

uncommitted

capacity for TPA

to the petroleum

storage facilities and

to facilities where

a common carrier

regime does not

supply

Implementation

reports


indicator has not

commenced yet,

since it is dependent

on completion of the

Develop mechanism to

determine uncommit ted

capacit y for TPA to

the petroleum storage

facilities and to facilities

where a common

carrier regime does not

supply key performance

indicator.

Develop mechanisms

to determine common

carrier rights and

obligations for

petroleum pipelines

and loading facilities

and where applicable,

storage facilities

Guidelines for

access terms

and conditions


given to licensing, the key


will be initiated during the

new financial year.

Implement

mechanisms to

determine common

carrier rights and

obligations for

petroleum pipelines

and loading facilities

and where applicable,

storage facilities

Implementation

reports


indicator has not

commenced yet,

since it is dependent

on completion of the

Develop mechanisms

to determine common

carrier rights and

obligations for petroleum

pipelines and loading

facilities and where

applicable, storage

facilities key performance

indicator.



Cross-Cutting Regulatory

GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To regulate the

energy industry

effectively and

efficiently

Review licence

conditions to allow

the Regulator to

act in areas where

performance need to

improve

Review Licence

Conditions:

Distribution /

Transmission /

Generation



28 July 2006.

Issue licence

modifications

Comment on

industry regulation

development and

participate in

Portfolio Committee

discussions on

Energy Bills

Formal and

informal

meetings

with decision

makers in the

Department

of Mineral and

Energy (DME),

Department

of Provincial

and Local

Government

(DPLG) and

National

Treasury (NT)

Ongoing On Track

Submissions to

DME

Ongoing On Track

Submissions

to Portfolio

Committee

meetings

Ongoing On Track

Gather information on

all petroleum pipeline

and piped-gas

activities and develop

an ongoing database

of registered entities

Database Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Produce an annual

review on the status

of the Hydrocarbon

industry

Status report 2008/09 Delayed Due to priority given

to licensing this key

performance indicator will

only commence in the

new financial year.

Development,

Implementation

and Maintenance of

the LIS system for

Electricity, Piped-

gas and Petroleum

Pipeline Regulation

List and

purpose of

information

required from

piped-gas

industry

2008/09 On Track

List and

purpose of

information

required from

petroleum

pipeline

industry

2008/09 On Track

List and

purpose of

information

required from

electricity

industry

2008/09 On Track

Approved

specifications

for information

required from

the piped-gas

and petroleum

pipeline

industries

2008/09 On Track

Integrated LIS 2008/09 On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Quarterly and

annual Reports

on: tarif f

applications

licences

received,

approved

rejected

uncommitted

capacity and

statistical

information

Ongoing On Track

Produce

relevant

publications

(ESS and LSA)

Ongoing On Track

Implementation

of new licensee

information system

Integrated LIS Removed Removed Removed as per Energy


31 July 2007.

Expand integrated

LIS database to

include internally

generated information

(namely: tarif f / tarif f

applications received,

determination

of uncommitted

capacity and

statistical information

Quarterly and

annual Reports

on: tarif f

applications

licences

received,

approved

rejected

uncommitted

capacity and

statistical

information



31 July 2007.

Produce

relevant

publication

(ESS and LSA)


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Expand the electricity

GIS to include

the piped-gas and

petroleum pipelines

industries

List and

purpose of

information for

the piped-gas

industry to be

displayed on

the GIS

Ongoing On Track

List and

purpose of

information for

the petroleum

pipeline

industry to be

displayed on

the GIS

Ongoing On Track

Integrated and

functional GIS

for the three

industries

Ongoing On Track

Implement industry

information

management systems

for NERSA

Functional

LIS for all

industries

Ongoing On Track

Functional

customer

complaints

system

Ongoing On Track

Functional

GIS for all

industries

Ongoing On Track

Updated

licence

application

system

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Review regulatory

processes

and compare

internationally

Review report

on regulatory

processes

Ongoing On Track

Research

report on

international

best practice

with regards

to regulatory

processes


constraints.

Gaps

identification

report

Ongoing On Track

To establish and

implement a system

to benchmark

regulatory processes

and methodologies

used in NERSA

against international

best practices and to

measure its impact on

industry performance

Research

report

Ongoing On Track

To establish and

implement a

methodology to

benchmark the

Energy Regulator’s

performance against

international best

practices

Research

report



30 January 2008.Benchmarking

methodology

International

best practices

report

Benchmarking

system

Benchmarking

plan

Benchmarking

reports


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To establish and

implement a

methodology to

pro-actively identify

issues that the

Regulator needs to

focus on

Research

report



30 January 2008.Identification

Methodology

Annual reports

To establish and

implement a

methodology to

assess the impact of

current and proposed

regulatory practices

through regulatory

impact assessments

(RIA)

Research

report

2008/09 On Track

RIA Metho-

dology


constraints.

Develop a

framework for data

collection from

the hydrocarbons

industries

Approved

framework


added to the NERSA

Business Plan during


Midterm Review in

November 2006 of

the NERSA Business

Plan

Human resource •

constraints.

Ensure efficient

information gathering

and dissemination to

customers

Produce

Electricity

Supply

Statistics

publication

Ongoing On Track

Collection of

Data using

D-Forms from

the regulated

entities

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To regulate in

a manner that

incentivises

security and

reliability of

supply

Promote

harmonisation of

regulatory policies

and frameworks on

the continent

Survey

reports on

analyses and

comparison

of policies,

practices and

legislation by

sector and

region

Ongoing On Track

Further

elaboration

of the AFUR

framework

for utility

regulation in

Africa and the

development of

recommended

guidelines

Ongoing On Track

Develop a strategy

to consult on key

regulatory policies

and legislation to

stakeholders

Approved

strategy

Ongoing On Track

Collaborate with the

DME on an integrated

energy plan for the

energy sector

Attendance

at DME (TEP

meetings)

Removed Removed The Department of

Minerals and Energy,

who is leading this

key performance

indicator has decided

that it will not continue

and therefore the key


has been cancelled.

Strategy

documentation

Reports

on NERSA

industry

assessments

Reports

on NERSA

initiatives


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitor development

in new energy

sources

Coal bed •

methane

Bio fuels•

LNG•

Status Reports Ongoing Delayed Due to priority being

given to licensing,


indicator will commence

during the new financial

year.

Develop provincial

and local energy

plans in the

hydrocarbons

industry

Approved local

energy plans

Removed Removed This project was •

added to the NERSA

Business Plan

during the Midterm

Review of the

Energy Regulator in

November 2006.

Removed as per •

Energy Regulator

approval on 31 July

2007.

Approved

provincial

energy plans

To facilitate a

fair balance

between the

interests of

customers and

end users,

licensees and

investors

Mobilise resources

for implementing

activities that require

external assistance

AFUR and

SAURA

Updated

Business Plans

Ongoing On Track

Project

Proposals/

Terms of

Reference for

all activities

that require

external

assistance

to be

implemented

Ongoing On Track

Develop a

Dispute Resolution

Framework

Approved

Framework




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To establish

effective and

efficient pricing

mechanisms

that balance

the interests

of consumers,

suppliers and

the sustainability

of the industry

Establish Regulatory

accounts with

emphasis on

the separation

between regulated

and unregulated

business in line with

international best

practice

Signed

contract

with service

provider


Mobilisation

stage of the

project


Desktop

research report

on international

best practice

31 March 2008 Delayed This output was delayed

due to delays by the

consultant in delivering

what was required.

Negotiations with the

consultant resulted in

the consultant being

appointed for a period of

three years on a full-time

basis to assist NERSA

with this project. The

project is therefore back

on track.


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To enable

universal

access to safe

and affordable

energy sources

to all South

Africans

Define NERSA’s role

and responsibilities

in contributing to

the socio-economic

development

programmes of

government

Position paper

on NERSA’s

role in the

2012 universal

access target

Removed (see

below for the

revised key

performance

indicator)

Removed

(see below

for the

revised

key per-

formance

indicator)

During the mid-

term review of the

implementation of the

Business Plan by the

Energy Regulator in

November 2006, it

was decided to merge


indicator with the key


Identif y oppor tunities and

develop implementation

plans for NERSA’s

contribution to the

development of the

21 rural and urban

nodes with a new

name: NERSA’s

contribution to the socio-

economic development

programmes of

government: ASGISA;

Universal Access;

Development nodes.

The new key performance

indicator replaced this

one.

Position paper

on NERSA’s

role in the

implementation

of free basic

electricity

during RED’s

transition

Position paper

on common

understanding

of the first

and second

economy and

NERSA’s role in

this regard

NERSA’s contribution

to the socio-economic

development

programmes of

government: ASGISA;

Universal Access;

Development Nodes

Position paper

on NERSA’s

role in the 2012

universal ac-

cess target




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Position paper

on common

understand-

ing of the first

and second

economy and

NERSA’s role in

this regard


Identify opportunities

and develop

implementation

plans for NERSA’s

contribution to the

development of the

21 rural and urban

nodes

Identified areas

of contribution

Removed Removed During the mid-

term review of the


Business Plan by the

Energy Regulator in

November 2006, it

was decided to merge


indicator with the key


Define NERSA’s role

and responsibilities in

contributing to the socio-


programmes of

government with a

new name: NERSA’s

contribution to the socio-


programmes of

government: ASGISA;

Universal Access;

Development nodes.

The new key performance

indicator replaced this

one.

Implementation

plans


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To contribute

to stated

Government

policies

Enter into Memoranda

of Understanding:

with other a.

regulatory

authorities

regarding

overlapping

jurisdictions;

with other b.

government

departments,

deciding on

which safety,

environmental,

health and

security

standards to

use and how

to ensure

Compliance; and

with other c.

government

departments and

other entities on

matters within

the mandate of

NERSA

Quarterly

reports

31 March 2008 Delayed Some stakeholders are

reluctant to conclude

the process of signing

Memoranda of

Understanding. NERSA

is in the process of

communication with all of

these stakeholders.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitoring

compliance with

Memoranda of

Understanding with

relevant authorities:

Ports Authority•

Department of •

Environment

Affairs and

Tourism

Department of •

Labour

Competition •

Commission

Quarterly

reports

Ongoing Delayed It was approved by •


on 31 July 2007 that

the Local Authorities

be removed from

the name of this

key performance

indicator as NERSA

does not have

Memoranda of

Understanding with

Local Authorities.

This key •

performance

indicator will

commence once the

MoUs have been

finalised and signed.

Facilitate the

promotions of the

interests of HDSA

in the hydrocarbons

industry

Strategy

document

Ongoing Delayed Due to priority being

given to licensing, this key

performance indicator will

be initiated during the new

financial year.

Comments

on draft

Regulations

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Enter into a

memorandum of

understanding with

the DME on the

regulation of the

petroleum industry

(NERSA – petroleum

pipelines and DME –

petroleum products)

Signed MOU Removed Removed Removed as per Energy


31 July 2007.

Establish regulatory

contacts between

Government, the

Regulator and

Regulated entities

Reports on

consultations

Ongoing On Track



Organisational Enablers

GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

To develop

and implement

(operationalise)

the NERSA

governance

model in

compliance

with the

National Energy

Regulator Act

and in line with

best corporate

governance

principles

Development of

NERSA Governance

Model

Implementation

Plan

Ongoing On Track

Operationalising the

NERSA Governance

Model

Targeted TBNS •

approach

Submission •

System

Programmes and •

projects in the

Strategic Plan

and Business

Plan

Approved

Submission

system


Submissions

inclusive of

the PRRM for

the particular

industry

Ongoing On Track

Decisions

of NERSA

implemented

Ongoing On Track

Develop and

implement a quality

assurance system

for submissions and

reports

Implementation

Plan

Ongoing On Track

Develop and

implement a system

to manage legal

opinions

Development

of guideline

31 December

2007

Completed

Implementation

of guideline

Ongoing On Track

Complying with

NERSA Act in minute-

taking

Approved

minutes

Ongoing On Track

Develop technical

competence on

Report Writing and

Minute-Taking

Report writing

Skills


constraints.

Minute Taking

Skills


constraints.

Quality

Submissions

Ongoing On Track

Quality Minutes Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop a common

understanding of

key elements of the

National Energy

Regulator Act

Legal opinions

on all key

elements of

the National

Energy

Regulator Act

31 December

2007

Completed

Develop

Manual/

Guide or

Compendium

of relevant

material

31 December

2007

Completed

Develop a common

understanding of all

other key elements

of all the Acts that

impact on the NERSA

mandate

Legal opinions

on all key

elements of the

Acts

31 March 2008 Delayed Human resource

constraints.

Develop a

Manual/Guide

or Compen-

dium of relevant

material


constraints.

Develop and

implement an

electronic payment

system for Regulator

members

Payment of

Part-time

Regulator

Members

Ongoing On Track

Develop and

implement guidelines

for chairing at

Subcommittee

meetings

Approved

guidelines


constraints.

Develop and

implement a guideline

to assign ad hoc

projects by the

Regulator

NERSA

decisions

implemented

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Approved

schedule of

Rotational

serving of

Regulator

Members

on Subcom-

mittees

30 September

2007

Com-

pleted

Develop and

implement guidelines

to handle emergency

matters pertaining

to the Regulator and

involving external

parties

Operating

procedures

developed and

implemented

Ongoing On Track

Operationalising the


Code of Conduct

Progress

Reports

Ongoing On Track

Develop and

implement a logistics

system for supporting

NERSA

Diplomatic

Processes

Removed Removed It was approved •

by the Energy

Regulator that this

project name be

changed to “Develop

and implement a

logistics system for

suppor ting NERSA”.

This will broaden the

scope of the project

to include all NERSA

and not only the

Regulator.

Removed as per •

Energy Regulator

approval on

30 January 2008.

Determining

fees for Part-

time Regulator

Members

Travel

S&T

Accommoda-

tion

Approval

Process


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Develop and

implement strategies

for optimum utilisation

of resources

Identifying

gaps in existing

policies

Ongoing On Track

Develop and

implement the internal

self-assessment of

the Regulator

TOR 30 June 2007 Completed

Baseline

performance

assessment

2008/09 On Track

To attract,

develop and

retain requisite

skills and

competencies

Co-ordinate the

development of

capacity building

as well as training

and development

programmes

Regional train-

ing programme

schedule

Ongoing On Track

Schedule for

exchange

and twinning

arrangements

amongst

member

organisations

Ongoing On Track

NERSA/NARUC

Regulatory

Partnership

Approved •

work pro-

gramme

Reports •

on techni-

cal as-

sistance/

capacity

building

provided

Progress •

and ex-

penditure

reports

Removed Removed No partnership at the

moment with NARUC.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

NERSA/

NORAD/

NVE work

programme

Annual •

progress

reports

Approved •

annual

budget

and work

pro-

gramme

Expendi-•

ture

reports

Approved •

proposals

for techni-

cal as-

sistance/

capacity

building

Reports •

on techni-

cal as-

sistance/

capacity

building

provided

Ongoing On Track

Compile an annual

comprehensive

training and

development plan

to address skills

requirements of new

and existing staff

Workplace

skills plan

Ongoing On Track

Annual Training

Report

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Assessing whether

staff live the values

Development

of criteria for

assessment

2008/09 Delayed It was approved by •


that this output

be renamed from

“Repor t on criteria

for assessment”

to “Development

of criteria for

assessment”.

Human resource •

constraints.

Standardisation

of performance

contracts and

assessment

Standard

performance

contracts and

assessment

procedures

Removed Removed Removed as per Energy.


31 July 2007.

Develop and

implement

Learnership

programmes

Developed

progammes

31 March 2008 Delayed Still awaiting

accreditation of training

programmes.

Implementation

of the pro-

grammes

Ongoing Delayed The implementation

process will commence

once the programmes

and accreditation have

been finalised.

Progress

Reports

Ongoing Delayed The implementation

process will commence

once the programmes

and accreditation have

been finalised.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Co-ordinate the

delivery of core

regulatory training

Progress

Reports

Removed Removed This project was •

added to the NERSA

Business Plan during


Midterm Review in

November 2006 of

the NERSA Business

Plan.

Removed as per •

Energy Regulator

approval on 31 July

2007.

Conducting a skills

audit and develop a

competency

Report on skills

audit

2008/09 On Track

Develop and

implement a change

management

programme

Approved

programme

31 March 2008 Delayed The Human Resources

Subcommittee of the

Energy Regulator first

had to be satisfied

that no duplication of

work was taking place

before the output could

commence.

Reports Ongoing Delayed This output can only

commence once the

programme has been

approved.

To enhance

the integrity

of NERSA by

improving

internal

management

policies,

procedures,

systems and

processes

Provide legal support

to NERSA

Drafted

contracts

Ongoing On Track

Advise/opinion

on new and

existing

legislation

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Resolution

of disputes

through

mediation and

arbitration

Ongoing On Track

Managing

litigation

Ongoing On Track

Provide an effective

secretariat service to

the Regulator

Quarterly

reports on

logistics for

Regulator

meetings

(travel

arrangements,

distribution of

documentation,

filing of minutes

Ongoing On Track

Quarterly

reports on

Regulator

training

Ongoing On Track

Report on visits

to stakeholders

and public

hearings

Ongoing On Track

Maintained

and updated

member’s

declaration of

interest register

Ongoing On Track

Annual register

of Regulator

decisions

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Facilitate the

reviewing and

developing of internal

NERSA policies,

procedures and

guidelines including

the CGH, to facilitate

achievement of

strategic objectives

Updated

inventory

document

2008/09 On Track

Review and enhance

NERSA’s record

keeping system

Revised

registry

procedure

Ongoing On Track

Ensure the population

of information and

knowledge materials

in the Knowledge

Centre

Well stocked

knowledge

centre

Ongoing On Track

Ensure that NERSA

IT systems support

NERSA business

processes, and are

in line with NERSA

information policy

Stable NERSA

IT network

Ongoing On Track

Functional

electronic

workflows

Ongoing On Track

Monthly

management

reports

Ongoing On Track

IT master

systems plan

Ongoing On Track

IT disaster

recovery plan

31 December

2007

Completed

Functional

Integrated

Document

management

system (IDMS)

Ongoing On Track

Functional

FileSurf

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Ensure efficient

operation of the

Contact Centre

Quarterly

reports

Ongoing On Track

Develop and

implement

a system

to handle

queries and

stakeholder

interactions

Ongoing On Track

Provide an efficient

and effective HR

support service,

underpinned by

gender equity and

affirmative action

requirements

Report on

Performance

Management

System

Ongoing On Track

Report on staff

movement

Ongoing On Track

Report on

Employee

wellness

programme

Ongoing On Track

Employment

equity Report

Ongoing On Track

Health and

Safety Report

Ongoing Delayed The Health and Safety

Committee is still to

be established. The

establishment has been

delayed due to human

resource constraints.

Industrial

Relations

Report

Ongoing On Track

Review of

HR policies,

procedures

and strategy

Ongoing On Track

Induction

Programme

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monthly reconciliation

of payroll and leave

Monthly

reconciliation

of payroll and

leave

Ongoing On Track

Develop

effective

and efficient

systems and

procedures

for payroll and

leave.

Ongoing On Track

Preparation of the

annual financial

statement in line

with PFMA, Treasury

Regulations, GAAP

and GRAP

Annual

financial

statements

31 May 2007 Completed

Development and

implementation of

internal controls,

policies and

procedures in

line with Auditors’

recommendation,

PFMA, Treasury

Regulations, GAAP

and GRAP

Effective

and efficient

internal

controls,

policies and

procedures

Ongoing On Track

Development and

monitoring of budget

Annual budget 30 September

2007

Completed

Reporting on

management

accounts

Monthly

reports on

management

accounts

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Implementation of

procurement and

BEE policies and

procedures

Effective

and efficient

procuring of

goods and

services

Ongoing On Track

Management and

administration of

NERSA facilities

Quarterly

reports on

building,

assets and

safety of the

building

Ongoing On Track

Develop and

implement effective

and efficient

logistics support

system (National &

International)

Effective

and efficient

logistics

services

Ongoing On Track

Travel and ac-

commodation

policy


constraints.

Diplomatic

processes

Ongoing On Track

Subsistence

and travel

allowance

policy

Ongoing On Track

Prepare and conduct

audits in the annual

audit plan

Approved

annual audit

plan

30 April 2007 Com-

pleted

Audit reports Ongoing On Track

Conduct ad-hoc

audits requested by

the Regulator and

Management

Audit reports Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Co-ordinate

and monitor the

implementation of

the NERSA Balanced

Scorecard

Calculated

new values

for approved

measures

Removed Removed It was approved by the

Energy Regulator on

31 July 2007 that the

Outputs of this project be

changed to the following:

Approved Balanced •

Scorecard for

NERSA

Updated NERSA •

Balanced Scorecard

Policy

Baseline Values for •

measures on the

BSC

These outputs have thus

been removed.

Compiled BSC

performance

report based

on comparison

between the

new values and

the values for

the previous

year

Inform

organisational

annual perfor-

mance report

Inform

organisational

planning events

Approved

Balanced

Scorecard for

NERSA



25 October 2007.

Updated

NERSA

Balanced

Scorecard

Policy

Baseline

Values for

measures on

the BSC


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Monitor the


team-based network

structure

Quarterly

progress

reports

Ongoing On Track

Staff survey

on TBNS


constraints.

Reviewed

TBNS Policy

(if necessary)

Ongoing On Track

Review business

management

processes and

ensure the adoption

thereof

Implementation

of automation

of business

management

processes

work flows


Regulator decision on

25 October 2007.

Implementation

of automation

of reporting on

organisational

performance

Evaluation

report on

business

management

processes


constraints.

Manage the

development and


2008/09 – 20010/11

Strategic Plan and

2008/09 Business

Plan

Approved

3-year rolling

strategic plan

and annual

business plan

30 September

2007

Completed

Annual

Planning and

Monitoring

Cycle


Projectised

Business Plan


constraints.



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Project

schedules


constraints.

Resource load

document


constraints.

Manage the

compilation of the

quarterly and annual

organisational

performance reports

Quarterly

project status

reports

Ongoing On Track

Quarterly

reports on

delayed

projects

Ongoing On Track

Approved

quarterly

organisational

performance

reports

Ongoing On Track

Annual project

status report

30 April 2007 Completed

Annual reports

on delayed

projects


Approved

annual

organisational

performance

reports


Reports on

performance

against

objectives

31 May 2007 Completed


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Coordinate and

monitor the

management of

business risk

Updated top

ten risk register

Ongoing On Track

Quarterly

progress

reports on

the mitigation

strategies

Ongoing On Track

Annual

report on the

management

of business risk


Manage the fraud

prevention hotline

Initiated

investigations

as and when

necessary

Ongoing On Track

Quarterly

reports

Ongoing On Track

Ensuring the

implementation of

the levies Acts and

collection thereof

Gazetting of

proposed

levies

31 December

2007

Completed

Submission

on the

representation

and possible

responses

31 January

2008

Completed

Response

letters to

representees

31 January

2008

Completed

Report to

Minister on

representation

31 January

2008

Completed

Ministerial

approval for

cash-flow risk

mitigating

strategy




GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Review of the

cost allocation

methodology for

NERSA

Report with

recommenda-

tions on cost

allocation

methodology

2008/09 Delayed This key performance

indicator comprises part

of the first phase of the

budgeting process which

usually commences in

June/July of each year.

This key performance

indicator will therefore

be addressed in the

first/second quarter of

2008/09.

Provide effective

secretarial services to

Exco and Manco

Quarterly

reports

Ongoing On Track

To develop,

improve and

sustain the

good image of

NERSA

Develop and

implement an

integrated external

communication

programme

Communi-

cation pro-

gramme to

demonstrate

the socio-

economic

benefits of

the regulatory

initiatives



31 July 2007.

Communi-

cation pro-

gramme to

establish high-

level dialogue

and partner-

ships with key

stakeholders

Ongoing On Track

Approved pu-

blic awareness

programme

Ongoing On Track

Effective media

relation’s

programme

Ongoing On Track


GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Co-ordinate and

manage NERSA

publications

Monthly

newsletter

Ongoing On Track

NERSA Annual

Report

30 September

2007

Completed

Ad-hoc

publications

Ongoing On Track

Pamphlets Ongoing On Track

NERSA

Quarterly

Journals



31 July 2007.

Implement an

annual internal

communication

programme with

practical plans of

action

Implementation

plan and

evaluation of

the programme

Ongoing On Track

Co-ordinate and

manage the corporate

image of NERSA

Updated

corporate

material

Ongoing On Track

Provide secretarial

support services to

AFUR, SAURA, RERA

Annual

membership

subscriptions

Ongoing On Track

Quarterly

and annual

agendas

Ongoing On Track

Quarterly and

annual minutes

Ongoing On Track

Quarterly

and annual

progress

reports

Ongoing On Track



GOAL KEY

PERFORMANCE

INDICATOR

OUTPUTS COMPLETION

DATE

PERFOR-

MANCE

RESULT

REASONS FOR

VARIANCE

Ensure the

establishment and

development of

information sources

Development

and update of

AFUR website

Ongoing On Track

Calendar of

events

Ongoing On Track

Information

brochures/

banners

Ongoing On Track

Newsletters Ongoing On Track

Updated AFUR

and SAURA

database

Ongoing On Track

Promote sound

relationships

with international

stakeholders

Recognition by

stakeholders

such as

NEPAD, AU

and regional

economic

communities

Ongoing On Track

Ensure NERSA’s

Compliance with the

Promotion of Access

to Information Act

Quarterly and

annual report

on information

requests

Ongoing On Track

Living the NERSA

vision, mission,

values and

Regulatory Principles

Themes for

get-togethers



25 October 2007.Corporate

material


Annual Financial

Statements

138


Annual Financial StatementsAnnual Financial Statements


The Energy Regulator (Accounting Authority) is responsible

for the maintenance of adequate records and the preparation

and integrity of the financial statements and related

information. The annual financial statements fairly 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 Statements of Generally

Accepted Accounting Practice. The financial statements are

based on appropriate accounting policies consistently applied

and supported by reasonable and prudent judgements 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 safeguarding of assets against unauthorized use or

disposal;

• 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 2008.

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 2007

to 31 March 2008. The Energy Regulator acknowledges the

non-compliance with Treasury’s Supply Chain Management

Practice Note 2 of 2005 pertaining to procurement thresholds.

Except for the stated non-compliance, the Energy Regulator

is of the opinion that NERSA’s systems of control and risk

management were effective for the period under review.

In the opinion of the Energy Regulator, based on information

available to date the annual financial statements fairly

represent the financial position of NERSA at 31 March 2008.

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 20

August 2008 and are signed on its behalf by:

Smunda Mokoena Collin Matjila

Chief Executive Officer Chairperson

Date: 20/08/2008 Date: 25/08/2008

STATEMENT OF RESPONSIBILITY


REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT

ON THE FINANCIAL STATEMENTS AND PERFORMANCE

INFORMATION OF THE NATIONAL ENERGY REGULATOR

OF SOUTH AFRICA FOR THE YEAR ENDED 31 MARCH

2008

REPORT ON THE FINANCIAL STATEMENTS

Introduction

1. 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 2008, 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

notes, as set out on pages 152 to 191.

Responsibility of the accounting authority for the

financial statements

2. The accounting authority is responsible for the preparation

and fair presentation of these financial statements in

accordance with the basis of accounting determined

by the National Treasury, as set out in accounting policy

note 1 and in the manner required by the Public Finance

Management Act, 1999 (Act No. 1 of 1999) (PFMA) and

the National Energy Regulator Act, 2004 (Act No. 40 of

2004). 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

• making accounting estimates that are reasonable in

the circumstances.

Responsibility of the Auditor-General

3. As required by section 188 of the Constitution of the

Republic of South Africa, 1996 read with section 4 of the

Public Audit Act, 2004 (Act No. 25 of 2004) (PAA), my

responsibility is to express an opinion on these financial

statements based on my audit.

4. I conducted my audit in accordance with the International

Standards on Auditing and General Notice 616 of

2008, issued in Government Gazet te No. 31057 of 15

May 2008. Those standards require that I comply with

ethical requirements and plan and perform the audit to

obtain reasonable assurance on whether the financial

statements are free from material misstatement.

5. 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.

6. An audit also includes evaluating the:

• appropriateness of accounting policies used

• reasonableness of accounting estimates made by

management

• overall presentation of the financial statements.

7. I believe that the audit evidence I have obtained is

sufficient and appropriate to provide a basis for my audit

opinion.

REPORT OF THE AUDITOR-GENERAL


Annual Financial Statements

• Not complying with the procurement thresholds

specified in Practice Note 2 of 2005, issued in terms

of section 76 (4)(c) of the PFMA, for goods and

services procured to the amount of R15 738 807

(2007:R15 712 406).

OTHER MATTERS

Without qualifying my audit opinion, I draw attention to the

following matters that relate to my responsibilities in the audit

of the financial statements:

Non-compliance with applicable legislation

Treasury Regulations

11. The following deviations from the Treasury Regulations

were identified:

• A supply chain management unit was not established,

as required by Treasury Regulation 16A4.

• The entity did not check the National Treasury’s

database of blacklisted suppliers prior to awarding

contracts, as required by Treasury Regulation

16A9.1.

Preferential Procurement Policy Framework Act, 2000 (Act

No.5 of 2000) (PPPFA)

12. The preference point scoring system prescribed for use

by the PPPFA was used incorrectly.

Delay in finalisation of the audit report

13. The audit was delayed due to a request from the

accounting authority to enable the entity to quantify and

disclose the irregular expenditure relating to current and

prior periods.

Basis of accounting

8. The public entity’s policy is to prepare financial statements

on the basis of accounting determined by the National

Treasury, as set out in accounting policy note 1.

Opinion

9. 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 2008

and its financial performance and cash flows for the year

then ended, in accordance with the basis of accounting

determined by the National Treasury, as set out in

accounting policy note 1 and in the manner required by

the PFMA.

Emphasis of matter

Without qualifying my audit opinion, I draw attention to the

following matters:

Highlighting critically important matters presented or

disclosed in the financial statements

10. As disclosed in note 23 to the financial statements,

irregular expenditure to the amount of R20 249 587 was

incurred and this was due to:

• Employees circumventing controls and not

complying with proper tender and procurement

processes for transactions amounting to R1 376 918

(2007 : R1 322 731).

• The entity entering into finance lease contracts for

office equipment where the period was in excess of

36 months and the approval of the National Treasury

was not obtained. The instalments on these contracts

amounted to R3 133 862 (2007: R3 262 038).


Matters of governance

14. The PFMA tasks the accounting authority with a number of responsibilities concerning financial and risk management and

internal control. Fundamental to achieving this is the implementation of certain key governance responsibilities, which I

have assessed as follows:

Matter of governance Yes No

Audit committee

• The public entity had an audit committee in operation throughout the financial year. X

• The audit committee operates in accordance with approved, written terms of reference. X

• The audit committee substantially fulfilled its responsibilities for the year, as set out in

section 77 of the PFMA and Treasury Regulation 27.1.8.

X

Internal audit

• The public entity had an internal audit function in operation throughout the financial year. X

• The internal audit function operates in terms of an approved internal audit plan. X

• The internal audit function substantially fulfilled its responsibilities for the year, as set out in

Treasury Regulation 27.2.

X

Other matters of governance

• The annual financial statements were submitted for audit as per the legislated deadlines

(section 55 of the PFMA).

X

• The financial statements submitted for audit were not subject to any material amendments

resulting from the audit.

X

• No significant dif ficulties were experienced during the audit concerning delays or the

unavailability of expected information and/or the unavailability of senior management.

X

• The prior year’s external audit recommendations have been substantially implemented. X



OTHER REPORTING RESPONSIBILITIES

REPORT ON PERFORMANCE INFORMATION

15. I have reviewed the performance information as set out

on pages 69 to 137.

Responsibility of the accounting authority for the

performance information

16. The accounting authority has additional responsibilities

as required by section 55(2)(a) of the PFMA to ensure

that the annual report and audited financial statements

fairly present the performance against predetermined

objectives of the public entity.

Responsibility of the Auditor-General

17. I conducted my engagement in accordance with section

13 of the PAA read with General Notice 616 of 2008,

issued in Government Gazette No. 31057 of 15 May

2008.

18. In terms of the foregoing my engagement included

performing procedures of an audit nature to obtain

sufficient appropriate evidence about the performance

information and related systems, processes and

procedures. The procedures selected depend on the

auditor’s judgement.

30. I believe that the evidence I have obtained is sufficient

and appropriate to report that no significant findings

have been identified as a result of my review.

OTHER REPORTS

Investigations

19. With reference to note 23 to the financial statements

dealing with irregular expenditure, an investigation was

conducted by an independent consulting firm on request

of the entity. The investigation was initiated based on

the allegation of possible procurement irregularities by

employees. The investigation has resulted in a disciplinary

hearing and criminal proceedings being instituted.

APPRECIATION

20. The assistance rendered by the staff of the National

Energy Regulator of South Africa during the audit is

sincerely appreciated.

Pretoria

25 August 2008


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 Statements of Generally Accepted Accounting

Practices.

• Reviewed accounting policies and practices.

• 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 the performance of the internal auditors in

carrying out their audit plans for the year.



• Reviewed internal audit’s compliance with Institute of

Internal Auditors (IIA)’s Standards and Code of Ethics for

the Professional Practice of Internal Auditing.

With regards to compliance with NERSA’s Code of

Conduct

• Reviewed, with management, NERSA’s philosophy with

respect to business ethics and corporate conduct, its

written code of conduct and the programme it has to

monitor compliance with that code.

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.

The Audit and Risk Subcommittee is satisfied that management

has established processes to ensure compliance with Supply

Chain Management Practice Note 2 of 2005 as identified by

the Auditor General.

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 2008 comply with the

requirements of the Public Finance Management Act, No1

of 1999 (as amended) and South African Statements of

Generally Accepted Accounting Practice (GAAP).

The Audit and Risk Subcommittee meeting of 28 July 2008

agrees that the adoption of the going concern premise is

appropriate in preparing the annual financial statements. The

Audit and Risk Subcommittee has therefore recommended

the adoption of the annual financial statements by the Energy

Regulator at its meeting held on 31 July 2008.

The Audit and Risk Subcommittee notes and supports the

findings of the Auditor-General.

Prof. D Singh

CHAIRPERSON OF AUDIT AND RISK SUBCOMMITTEE

DATE: 20/08/2008

Audit and Risk Subcommittee members:

Prof D Singh (Chairperson)

Mr SS Mokoena (Member (period 1 April 2007 to 11 September

2007) Ex-Officio Member (appointed as at 12 September

2007) & CEO)

Mrs. D Mokgatle (Member)

Mr. M Nkhabu (External Member)

Ms M Joubert (External Member) (Joined on 24 October

2007)


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 2008.

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 pipeline 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, No 1 of 1999 (as amended) (PFMA).

The Energy Regulator acts as the accounting authority in

terms of the PFMA.

2. Regulator Members and secretary of NERSA

The structure of the Energy Regulator consists of nine

Regulator Members (appointed on 1 October 2005), five of

whom are part-time and four of whom are full-time (including

the CEO), as appointed by the Minister of Minerals and

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:

Mr C Matjila (Chairperson)

Mrs D Mokgatle (Deputy Chairperson)

Mr SS Mokoena (Full-time Member : CEO)

Mr T Bukula (Full-time Member :

Electricity Regulation)

Dr R Crompton (Full-time Member :

Petroleum Pipeline Regulation)

Ms E Tel jeur (Full-time Member :

Piped-Gas Regulation)

Prof. D Singh (Part-time Member)

Adv L Makatini (Part-time Member)

Mr S Ntsaluba (Part-time Member)

In addition to the Regulator Members the Energy Regulator

has appointed the following external members in terms of

Governance Subcommittees:

Mr M Nkhabu (External Member:

Audit and Risk Subcommittee)

Ms M Joubert (External Member:

Audit and Risk Subcommittee)

Ms N Joubert (External Member:

Remuneration Subcommittee)

Mr J Mabaso (External Member:

Remuneration 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

ACCOUNTING AUTHORITY’S REPORT



Relevant financial information

Year ended

31 March 2008

Year ended

31 March 2007

R’000 R’000

Levies received 137,193 165,270

Expenditure (103,182) (83,774)

Surplus 36,350 80,522

Capital

Expenditure

4,547 4,742

6. Performance Against Objectives

NERSA completed a number of programmes and projects

during 2007/08 in order to meet its objectives. These

programmes and projects are grouped in industry specific

regulatory; cross-cutting regulatory; and governance and

other. The programmes and projects include:

Electricity Industry Regulation:

1. The Energy Regulator approved Eskom’s generation

licence application for Medupi and return to serve licence

application for Komati and Grootvlei power stations;

2. Even though the Third National Integrated Resource Plan

(NIRP3) has not yet been completed the Third Stage:

Electricity resource Needs Analyses: Adequate Reserve

Margin and the Fourth Stage analysis have been

completed;

3. Approval of the Grid Code amendments and exemptions

by the Energy Regulator;

4. Approval of the Distribution Code for implementation by


5. Approval of the industry risk assessment and mitigation

strategies;

6. Public consultation meetings in Polokwane, Bloemfontein,

Durban and Cape Town from 16 to 21 November 2007

3. Organisational structure

The Minister of Minerals and Energy appoints Regulator

Members (part-time and full-time), and once appointed,

the Energy Regulator acts independently and reports to

Parliament through the Minister of Minerals and 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 pipeline regulation.

NERSA staff is organized into four divisions : Electricity

Regulation, Hydrocarbons Regulation, Support Services,

Corporate Affairs and five Specialised Units.

4. Principal Activities

The Energy Regulator is the regulatory authority over the

energy industry, and it currently regulates electricity, piped-

gas and petroleum pipelines industries in terms of the

Electricity Regulation Act No.4 of 2006, the Gas Act No.

75 of 2002 and the Petroleum Pipelines Act No. 28 of 2004

respectively.

5. Operating results and review of operations

The net surplus for NERSA for the year amounted to R36,4

million. The surplus is considerably lower if the outstanding

commitments as at 31 March 2008 of R16,4 million (Refer note

21) are taken into account. The remaining surplus is mainly

due to the fact that NERSA is currently operating at a staff

complement significantly lower than what has been approved.

As at 31 March 2008, of the approved staff complement of

143, 36 positions (25%) are vacant. The salary budget for the

2007/2008 financial period is underspent in the amount of

R7,9 million.


and a public hearing on 22 November 2007 which was

preceded by a community outreach programme to

sensitize communities about Eskom’s application to the

Energy Regulator for the Multi-Year Price Determination

rule changes, and its implications;

7. The Energy Regulator announced its final determination

on Eskom’s electricity price increase application and

Municipal Electricity Tarif f guideline and benchmarks for

2008/9 on 20 December 2007;

8. Assessment of Eskom’s proposal for modification of

the Demand Side Management and Energy Efficiency

(DSMEE) framework;

9. The Energy Regulator commissioned an enquiry into

the load shedding by Eskom. In order to carry out the

enquiry, the Energy Regulator established an Ad Hoc

Committee. In order to assist the Subcommittee in

finalizing its report on Eskom’s load shedding, a NERSA

Load Shedding Task Team was established comprising

seven (7) works streams;

10. Approval of licensing and registration rules; and

11. All sixteen (16) of the planned audits for 2007/08 were

completed by the end of January 2008.

Piped-Gas Industry Regulation:

1. Calculation of the pricing provisions of Schedule One

of the agreement concerning the gas pipeline from

Mozambique between the government of South Africa

and Sasol Ltd:

1.1. Approval of the Price Capping Mechanism including

European Benchmark Prices (EBP) and the Sasol

Volume Weighted Average Gas Price (SVWAGP) for

2005/06;

1.2. Approval and publication of maximum prices for gas

distributors and reticulators for 2005 to 2006;

1.3. Approval and publication of maximum prices for

Greenfields customers for 2005 and 2006; and

1.4. Approval and publication of minimum prices for gas

for 2005 and 2006.

2. Public hearings took place regarding Sasol Gas’

application for the operation of existing gas distribution

facilities in eighty four (84) areas in Gauteng, Mpumalanga

and the Free State and the trading in gas in these areas;

3. Public hearing on Transnet Limited’s licence application

for the operation of an existing gas transmission facility

from Secunda to Durban, i.e. the “Lilly” Pipeline was

held;

4. Ten (10) gas construction licences were awarded by the

Energy Regulator;

5. Approval and publication of aggregated results (i.e.

average piped-gas prices for 2006) for the categories of

customers in Gauteng, Free State, KwaZulu-Natal and

Mpumalanga provinces; and

6. Approval of the Geographic Information System to

demarcate gas distribution area boundaries.

Petroleum Pipeline Industry Regulation:

1. The Energy Regulator awarded Transnet Pipelines a

licence to construct a New Multiple Product Pipeline from

Durban to Johannesburg on 20 December 2007. The

reasons for decision document was finalised, as were

the conditions of the licence following a public hearing;

2. The Energy Regulator informed the Ministers of Minerals

and Energy and Public Enterprises about Transnet’s

conditions precedent to its licence application that are

beyond the authority of NERSA;

3. First progress report received on construction of the

Maputo pipeline by Petroline;

4. The final draft document of the Petroleum Pipeline

Compliance Mechanism Framework submitted by the

consultants;

5. Establishment of a joint NERSA/DME task team on

security of supply infrastructure and the review of the

Draft Petroleum Pipelines Regulations;



3. Completion, approval and submission of the Annual

Financial Statements and Performance Against

Objectives for the year ended 31 March 2007 to the

Auditor-General; the Minister of Minerals and Energy;

and National Treasury;

4. Approval of the Strategic Framework and Intent for

2008/09 – 2010/11 that highlights the priorities of the

Energy Regulator in the period indicated;

5. Completion, approval and submission of the Strategic

Plan (2008/09 – 2010/11) and Business Plan with Budget

(2008/09) to the Minister of Minerals and Energy;

6. Completion, approval and submission of all quarterly

performance reports to the Minister of Minerals and

Energy;

7. Approval of the treatment of NERSA’s surplus and cash

flow mitigating reserve by the Minister of Finance on 29

February 2008;

8. Approval of the 2007/08 as well as the 2008/09 NERSA

budgets by the Minister of Minerals and Energy in

concurrence with the Minister of Finance;

9. The inauguration of the NERSA Auditorium by the Minister

of Minerals and Energy;

10. Provided input into the submission to the Parliamentary

Constitutional Portfolio Committee on the review of the

Constitution. The focus of the review of the Constitution

for this year is on the Role, Powers and Functions of the

three Spheres/Tiers of Government;

11. Finalisation and tabling of the NERSA Annual Report for

2006/07 in parliament;

12. Completed the development of Information

Communication Technology Strategy and Disaster

Recovery Plan for NERSA; and

13. Recovery of levies due to the Energy Regulator from

petroleum pipelines industry for the years 2006/07 and

2007/08.

6. The backlog in licensing of existing facilities has

substantially reduced. Only small and complex storage

facilities licences outstanding;

7. Approval of the tarif f methodology for the Petroleum

Pipeline Industry by the Energy Regulator;

8. Expedited processing of the Petroline tarif f application;

and

9. Received application by Transnet Pipelines for tarif fs.

Cross-Cutting Industry Regulation:

1. Public hearing and one on one industry stakeholder

workshops on the Regulatory Accounts Manuals took

place; and

2. NERSA participated in a number of dif ferent fora to

address national electricity emergency programmes


National Electricity Response Team (NERT). NERSA also

participated in the Energy Summit called by the Minister

of Minerals and Energy; the Presidency Round Table

on Economic Regulation; the Rand Easter Show, Africa

Power Congress, African Utility Week and an exhibition

at the Minister of Minerals and Energy’s Budget Vote

Speech.

Governance and Other:

1. As a result of the approval of the revised Regulatory

Operations Model and Decision Making Framework,

the Energy Regulator reconfigured its functional

Subcommittees into industry-specific Subcommittees

and established a new Subcommittee in the Regulator

Executive Committee;

2. Following an independent assessment of the Energy

Regulator and its Subcommittees and the Quality

Assurance Review of the internal audit function of

NERSA, the Energy Regulator approved a revision of the

membership of the Audit and Risk Subcommittee and

the Remuneration Subcommittee;


Delays and Backlogs:

NERSA however also experienced a number of delays and

backlogs during 2007/08.

1. High staff turnover experienced by NERSA;

2. Long lead times for recruitment, ultimately negatively

affecting delivery on projects;

3. Delays in finalising the revised Supply Chain Management

Policy for consideration by the Finance Subcommittee of


4. Delay in the completion of the NIRP3 Stage 4 due to

the Advisory and Research Committee requirement for

validation of the expansion models;

5. Unavailability of certified proven sales reserves

information in the administration of the Mozambique Gas

Pipeline Agreement;

6. Focus on the national electricity emergency programme

and Eskom’s price application diverted resources from

other projects on the approved NERSA 2007/08 Business

Plan; and

7. The backlog in gas transmission and distribution licensing

has not been cleared.

Of the original 348 planned outputs, 46 (13%) were removed

by the Energy Regulator prior to the end of the 2007/08

Business Year. Of the remaining 302 activities, approximately

77% were executed as planned. The key factors impacting on

the planned implementation of the business activities were

human resource constraints (34%); re-prioritisation (12%);

delay in delivery by consultants (10%); delays in completion of

other projects impacting on execution (10%); non-publication

of the Regulations on the Electricity Regulation Act (9%); and

others (25%).

The removal of the 46 activities was necessitated mainly due

to human resource constraints, re-prioritisation and the two

unexpected mid-term applications by Eskom for a re-opener

of the Multi-Year Price Determination for 2008/09.

It should be noted that human resource constraints is a direct

consequence of the high staff turnover experience by NERSA

during 2007/08 as well as the human resources that had to

be used in order to evaluate the two unexpected mid-term

applications by Eskom for a price increase in the Multi-Year

Price Determination for 2008/09.

7. NERSA Accumulated Surplus

Year ended

31 March 2008

Year ended

31 March 2007

R’000 R’000

Accumulated

Surplus

140,276 103,656

The surplus balance as reported as at 31 March 2007 above

consists mainly of:

- An amount of R40.297 million transferred from the

National Electricity Regulator on the commencement of

NERSA in October 2005

- Under expenditure of R50.7 million in the 2006/2007

financial year due to the late collection of levies from the

hydrocarbons industry (and the resultant curtailment of

expenditure in order to manage the cash flow of NERSA)

and a higher than normal staff turnover rate.

The Minister of Finance has granted approval on 29 February

2008 for the Energy Regulator to retain its surplus funds, on

the understanding that:

1) NERSA will refund a total of R63.528 million to industry

comprising of; R40.297 million in the form of reduced

levies to the electricity industry over three years beginning

in 2008/09 and concluding in 2010/11; and R23.231

million to be refunded to the regulated industries by

means of reduced levies in 2008/09. The latter reduction

will be done in the ratio of underexpenditure per industry



determined for the 2006/07 year namely: 54,12% to the

electricity industry, 20.83% to the piped-gas industry

and 25.06% to the petroleum pipeline industry. Interest

accumulated on retained funds sourced from industry

will also be refunded in this way.

2) NERSA will retain for its own use the Cash Flow Mitigating

Reserve amounting to R18.928 million and R23.455

million of committed funds as reported in the 2006/07

Annual Report.

8. Levies

NERSA is funded as follows to cover its expenditure :

Electricity

A levy is imposed on licensed generators of electricity in

terms of Section 5B of the Electricity Act (No.41 of 1987). This

levy is based on kilo Watt hours.

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 Pipelines

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 Pipelines 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 af ter 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.


Statement of Financial Position

2008 2007

Notes R R

ASSETS

Non-current assets

Property, plant and equipment 2.1 40,615,635 27,325,656

Intangible Assets 2.2 656,470 495,264

Current assets 137,849,102 106,172,018

Inventory 3 319,015 263,291

Trade and other receivables 4 19,725,797 42,472,865

VAT receivable 5 - 289,104

Cash and cash equivalents 6 117,804,290 63,146,757

TOTAL ASSETS 179,121,206 133,992,938

NET ASSETS AND LIABILITIES

Reserves 161,865,286 112,861,717

Accumulated surplus 140,275,551 103,656,309

Revaluation surplus 21,589,735 9,205,407

Non current liabilities

Finance lease obligation 7 949,995 1,738,413

Current liabilities 16,305,924 19,392,808

Trade and other payables 8 15,517,506 18,744,659

Current portion of non current liabilities 7 788,418 648,149

TOTAL NET ASSETS AND LIABILITIES 179,121,206 133,992,938

ANNUAL FINANCIAL STATEMENTS as at 31 March 2008



National Energy Regulator of South Africa (NERSA)


for the year ended 31 March 2008

Statement of changes in net assets

Accumulated Surplus Revaluation Reserve Total

Note R R R

Balance at 31 March 2006 24,741,762 9,608,564 34,350,326

Prior year errors corrected 9 (1,739,626) - (1,739,626)

Change in accounting policy 10 (271,419) - (271,419)

Change in accounting policy 10 134,386 (134,386) -

Restated balance as at 31 March 2006 22,865,103 9,474,178 32,339,281

Net surplus for the year 80,522,436 - 80,522,436

- As previously reported 81,169,432 - 81,169,432

- Restatement due to prior period

error

9 (98,642) - (98,642)

- Restatement due to change in

accounting policy

10 (548,353) - (548,353)

- Ammortisation of revaluation

surplus over useful life of buildings

10 268,771 (268,771) -

Restated balance at 31 March 2007 103,656,309 9,205,407 112,861,717

- Accumulated surplus as previously

reported

105,911,194 9,608,564 115,519,758

- Prior year errors corrected 9 (1,838,269) - (1,838,269)

- Change in accounting policy 10 (416,615) (403,157) (819,772)

Net surplus for the year 36,350,471 - 36,350,471

Revaluation - 12,653,099 12,653,099

Ammortisation of revaluation surplus

over useful life of buildings

268,771 (268,771) -

140,275,551 21,589,735 161,865,286





Statement of Financial Performance

2008 2007

Notes R R

Revenue 11 137,193,235 165,269,632

Gross surplus 137,193,235 165,269,632

Other income 358,794 250,843

Operating expenditure (103,182,439) (83,773,630)

Finance Cost 12 (2,902,445) (3,232,543)

Surplus from operations 13 31,467,144 78,514,302

Finance income 14 4,883,327 2,008,134

Net surplus for the year 36,350,471 80,522,436






Cash Flow Statement

2008 2007

Notes R R

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 146,255,377 123,521,871

Cash paid to suppliers and employees (88,673,952) (77,179,633)

Cash generated from operations 15 57,581,424 46,342,238

Interest received 4,883,327 2,008,134

Interest paid (2,902,445) (3,232,543)

Net cash inflows from operating activities 59,562,306 45,117,829

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of furniture, equipment and software (2,962,114) (3,660,174)

Improvements to buildings (1,584,691) (1,081,855)

Proceeds from disposal of assets 290,180 29,627

Net cash out flows from investing activities (4,256,625) (4,712,402)

CASH FLOWS FROM FINANCING ACTIVITIES

(Repayment)/increase in finance lease (648,149) 50,015

Net increase in cash and cash equivalents for the year 54,657,532 40,455,442

Cash and cash equivalents at the beginning of the year 63,146,758 22,691,316

Cash and cash equivalents at end of the year 6 117,804,290 63,146,758

Notes to the Annual Financial Statements





1 Accounting Policies

1.1 Basis of preparation

The annual financial statements have been prepared in accordance with Statements of Generally Accepted

Accounting Practice (GAAP) including any interpretations of such statements issued by the Accounting Practices

Board, with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by the

Accounting Standards Board replacing the equivalent GAAP statements as follows:

Standard of GRAP Replaced Statement of GAAP

GRAP1: Presentation of Financial Statements AC101: Presentation of Financial Statements

GRAP2: Cash flow statements AC118: Cash flow statements

GRAP3: Accounting policies, changes in accounting AC103: Accounting policies, changes in accounting

estimates and errors estimates and errors

The recognition and measurement principles in the above GRAP and GAAP statements do not dif fer or result in

material dif ferences in items presented and disclosed in the financial statements. The implementation of GRAP1, 2

and 3 has resulted in the following significant changes in the presentation of the financial statements:

1.1.1 Terminology dif ferences:

Standard of GRAP Replaced Statement of GAAP

Statement of financial performance Income Statement

Statement of financial position Balance Sheet

Statement of changes in net assets Statement of changes in equity

Net assets Equity

Surplus/deficit for the period Profit/loss for the period

Accumulated surplus/deficit Retained Earnings

Contribution from owners Share Capital

Distribution to owners Dividends

Reporting date Balance Sheet date

1.1.2 The cash flow statement can only be prepared in accordance with the direct method.

1.1.3 Specific information, such as those documented directly below, must be presented separately on the statement of

financial position:







a) receivables from non-exchange transactions, including taxes and transfers;

b) taxes and transfers payable;

c) trade and other payables from non-exchange transactions.

1.1.4 The amount and nature of any restrictions on cash balances is required to be disclosed.

Paragraph 11-15 of GRAP1 has not been implemented as the budget reporting standard is in the process of being

developed by the international and local standard authorities. Although the inclusion of budget information would

enhance the usefulness of the financial statements, non disclosure will not affect fair presentation.

The annual financial statements are prepared on the historical cost bases, except as modified for the revaluation of

Land and Buildings. The following are the principal accounting policies of NERSA, which are in all material respects,

consistent with those applied in the previous year, except as otherwise indicated.

1.2 Ring Fencing Methodology

Section 13 (2) and (3) of the National Energy Regulator Act, 2004 (Act No.40 of 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 therefore 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

are 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%






1.3 Property, plant and equipment

Land and Building

IAS 16 (AC123) Property, Plant and Equipment requires land and buildings to be reflected as separate assets

and furthermore requires buildings to be allocated a useful life and depreciated accordingly. In prior periods the

accounting policy was not in alignment with this requirement and has therefore been changed in the current year

(refer note 10).

The land and building is carried at a revalued amount being its fair value at the date of the revaluation. 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 profit or loss to the extent that it reverses a revaluation decrease for the same asset

previously recognized as an expense.

The revaluation surplus which is attributable to the building is transferred to retained earnings as the building is

utilized. The amount of the surplus transferred would be the dif ference between depreciation based on the revalued

carrying amount of the building and depreciation based on the building’s original cost. Transfers from revaluation

surplus to retained earnings are not made through profit or loss.

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. 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

Assets costing less than R2 000 are depreciated fully in the year they are purchased.

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.

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.

All other expenditure is expensed as incurred.

Amortisation is charged to the Statement of Financial Performance on a straight line basis over useful lives of intangible

assets

1.5 Inventory

Inventory is stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in

the ordinary course of business, less the estimated costs of completion and selling expenses.






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 of 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

Shor t -term employee benefits

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

related service.

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 Financial Instruments

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 receivables

Trade receivables are stated at their fair value as reduced by appropriate allowances of estimated irrecoverable

amounts.

1.10 Trade and other payables

Trade and other payables are stated at fair value.

1.11 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.

1.12 Lease Rentals

The entity as lessor

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

The entity as lessee

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.

1.13 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.

1.14 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.

1.15 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.

1.16 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.

1.17 Irregular and fruitless and wasteful expenditure

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.






2.1 Property, plant and equipment

Land Buildings Motor

Vehicles

Office

Equipment

Computer

Hardware

Computer

Software

Totals

R R R R R R

Carrying amount at

31 March 2006

1,200,000 19,135,004 380,526 3,499,105 1,647,260 123,304 25,985,200

Gross carrying amount 1,200,000 19,406,423 596,675 7,341,375 5,166,778 607,272 34,318,523

Accumulated depreciation - (271,419) (216,149) (3,842,269) (3,519,518) (483,968) (8,333,323)

Additions - 1,081,855 - 2,110,520 710,988 - 3,903,363

Reclassification - Cost - - - (118,232) 113,862 4,370 -

Reclassification -

Accumulated Depreciation

- - - 118,195 (113,862) (4,333) -

Disposals - - - (17,259) (45,170) - (62,429)

Disposals - depreciation - - - 3,164 11,066 - 14,230

Depreciation - (548,353) (119,335) (828,636) (910,662) (107,724) (2,514,710)

Carrying amount at

31 March 2007

1,200,000 19,668,507 261,191 4,766,858 1,413,482 15,617 27,325,656


Accumulated depreciation - (819,771) (335,484) (4,549,545) (4,536,586) (596,025) (10,837,411)

Additions - 1,584,691 256,740 288,146 1,433,078 - 3,562,655

Revaluation 800,000 11,853,099 - - - - 12,653,099

Disposals - - (407,386) - - - (407,386)

Disposals - depreciation - - 290,194 - - - 290,194

Depreciation - (606,297) (87,301) (998,929) (1,100,442) (15,617) (2,808,585)

Carrying amount at

31 March 2008

2,000,000 32,500,000 313,439 4,056,077 1,746,119 - 40,615,635


Accumulated depreciation - (1,426,068) (132,590) (5,548,474) (5,637,028) (611,642) (13,355,802)







2.2 Intangible Assets 2008

Cost or Valuation

Opening

Balance

Additions Revaluation Disposals Closing

Balance

R R R R R

Computer Software 5,367,599 984,150 - - 6,351,749

5,367,599 984,150 - - 6,351,749

Accumulated Amortisation

Opening

Balance

Amortisation Revaluation Disposals Closing

Balance

R R R R R


4,872,335 822,944 - - 5,695,279

2007

Cost or Valuation

Opening

Balance

Additions Revaluation Disposals Closing

Balance

R R R R R


4,528,933 838,666 - - 5,367,599

Accumulated Amortisation

Opening

Balance

Amortisation Revaluation Disposals Closing

Balance

R R R R R


4,168,503 703,832 - - 4,872,335

2008 2007

Net book value

Computer Software 656,470 495,264






2.3 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.The revaluation surplus

at the date of revaluation was R12,653,099 and was charged directly to equity. Had the land and buildings been

carried at cost it would be carried at R11,710,264 (2007: R10, 463,099).The mortgage bond on the building was

repaid on the 6th of May 2003.

2.4 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. 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.

2008 2007

R R

3. Inventory

Stationery 319,015 263,291

4. Trade and other receivables

Trade receivables 15,064,257 24,126,399

Accrued income 2,783,540 17,561,226

NORAD 75,524 75,524

NERSA launch sponsorships 24,478 24,478

Other receivables 1,887,213 914,378

Loans to employees 432,171 158,411

Other receivables 612,905 316,101

Prepayments 842,137 439,866

19,835,012 42,702,005

Discounting of receivables (338,355) (229,140)

Reversal of prior year discounting of receivables 229,140 -

19,725,797 42,472,865







Included in the trade receivables balance are debtors with a carrying amount of R9 million (2007: RNil) which are past

due at the reporting date for which the entity has not provided as the amounts are still considered recoverable (R8,6

million of this value has been received subsequent to 31 March 2008).

2008 2007

R R

Ageing of trade receivables past due but not impaired

60-90 days 4,198,344 -

90-120 days 4,829,857 -

9,028,201 -

The Energy Regulator consider 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 (2007:30 days) of year end.

5. VAT receivable

South African Revenue Services (SARS) - 289,104

NERSA as a schedule 3A public entity was registered as a VAT vendor and was liable to pay VAT to the South African

Receiver of Revenue (SARS) on a monthly basis. However, due to amendments in the VAT Act which were introduced

in the Revenue Laws Amendments Act No.45 of 2003 and 32 of 2004, effective 01 April 2005, NERSA no longer met

the requirements for a VAT registration. Consequently, the output tax that the Electricity Generators paid to NERSA in

2005-2006 financial year had to be paid over to SARS without claiming back the input tax for the 2005-2006 financial

period.

6. 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 of this investment approximates their fair value. Cash and cash equivalents further include cash on hand.






2008 2007

R R

Funds in South African Reserve Bank - Corporation for Public Deposits 18,464,176 16,758,459

Standard Bank current account 99,339,118 45,161,854

Shell Solar Electrification funds held at NERSA (Refer Note 8.3) - 1,224,471

Petty cash 996 1,974

Diners club - -

117,804,290 63,146,758

The effective interest rate on short-term bank deposits was 9.2% p.a.

7. 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 (Refer note 9).

Reconciliation between the total of the minimum lease payments and the

present value:

Minimum lease payments

- No later than 1 year 2,102,915 3,133,862

- Later than 1 year and no later than 5 years 1,072,919 3,175,835

- Later than 5 years - -

3,175,835 6,309,696

Future finance charges on finance leases (1,437,421) (3,923,134)

Present value of finance lease liabilities 1,738,413 2,386,562

Non-current portion of finance lease obligation 949,995 1,738,413

Current portion of finance lease obligation 788,418 648,149

1,738,413 2,386,562







2008 2007

R R

8. Trade and other payables

Trade creditors 1,296,161 3,203,926

Accruals 14,209,610 11,628,650

Creditors 5,706,962 3,612,738

Nominated Bonus 249,698 235,108

Leave Pay 2,275,267 2,738,221

Performance Bonus 5,977,684 5,042,583

Income received in advance - 2,432,898

Shell Solar Electrification Fund - 1,224,471

Sundry Creditors 8,606 248,717

Discounting of payables (27,649) (30,778)

Discounting of payables - prior year reversal 30,778 36,775

15,517,506 18,744,659

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

8.2 The performance bonus accrual relates to performance bonuses payable to NERSA employees for services rendered

by them from 01 April 2007 to 31 March 2008. These bonuses are payable in April 2008.

8.3 Shell Solar Electrification Fund

Opening balance 1,224,471 1,229,057

Less: Travel costs (9,723) (4,586)

Less: Amounts transferred to DBSA (1,214,748) -

Closing balance - 1,224,471

Represented by:

Cash and Cash Equivalents (Refer note 6) - 1,224,471






NER was mandated by the Minister of Minerals and Energy to manage the electrification fund and DBSA was

mandated to be the Treasury of the electrification fund. NER managed the non-grid and Electrification programme,

Mini Grid Pilot projects and the Special Ministerial Grid Electrification projects. Once work in a project is completed,

service providers invoice the fund through the NER. NER assessed the work done and if satisfied recommends

payment to the DBSA. The duties and responsibilities assigned to the NER regarding the fund are now being carried

out by NERSA. The above amount was allocated to NERSA to cover expenditure to be incurred by NERSA in fulfilling

the requirements of managing the fund.

The NER's mandate with regards to the management of the electrification fund (the DBSA funds) expired in March

2004. In January 2005 the Minister of Minerals and Energy granted an extension which subsequently ended on 31

July 2005. Subsequent to this the Department of Minerals and Energy indicated that they would like to take this

project over from NERSA and in March 2008 an amount of R1 214 748 was transferred to the Development Bank of

Southern Africa.

8.4 The fair value calculation pertaining to trade creditors is based on the assumption that all outstanding creditor

payments will be made within 60 days (2007:30 days) of year end.

2008 2007

R R

9. Prior period error

Correction of errors in respect of the opening balance of bank and VAT receivable that was misstated. Furthermore,

correcting entries processed in terms of leases historically incorrectly accounted for as operating leases and not

finance leases. Opening balances of retained earnings has been appropriately restated and the correction resulted

in the following:

Change in opening retained earnings

Decrease in VAT receivable - 245,213

Decrease in cash and cash equivalents - 35,839

Adjustments due to leases incorrectly accounted for as operating leases and

not finance leases

- 1,458,574







2008 2007

R R

- Increase in depreciation cost - 885,578

- Increase in interest cost - 6,885,464

- Decrease in operating lease cost - (6,312,468)

Decrease in retained earnings - 1,739,626

Change in current year retained earnings

Adjustments due to leases incorrectly accounted for as operating leases and

not finance leases

- 98,642


- Increase in interest cost - 2,960,522

- Decrease in operating lease cost - (3,262,038)

Decrease in retained earnings - 98,642

- 1,838,269

10. Change in accounting policy

The accounting policy pertaining to land and buildings was revised during the current year. The previous accounting

policy pertaining to land and buildings did not provide for the depreciation of buildings over it's anticipated useful life.

This is not in line with Generally Accepted Accounting Practice (specifically IAS 16) and the accounting policy was

revised accordingly.

Change in opening retained earnings


- Ammortisation of revaluation surplus over useful life of buildings - (134,386)







2008 2007

R R

Change in current year retained earnings


- Ammortisation of revaluation surplus over useful life of buildings - (268,771)


- 416,615

11. Revenue

Revenue comprises invoiced levies on three industries as follows:

Levies received from generators of electricity 81,541,644 85,779,920

Levies received in respect of piped gas 23,494,163 39,186,119

Levies received in respect of petroleum pipelines 32,157,428 40,303,594

137,193,235 165,269,632

12. Finance cost

Interest due to discounting of payables 416,532 272,021

Interest on finance leases 2,485,914 2,960,522

2,902,445 3,232,543

13. Surplus from operations

Surplus from operations was calculated after taking the following into account:







2008 2007

R R

Auditors' remuneration 671,745 550,349

Depreciation 3,631,529 3,218,542

Buildings 606,297 548,353

Motor vehicles 87,301 119,335

Office equipment 998,929 828,636

Computer hardware 1,100,442 910,662

Computer software 838,561 811,556

Energy Regulator members remuneration (Refer note 17) 5,838,665 6,053,851

Executive managers remuneration (Refer note 18) 4,306,572 3,845,478

Compensation of employees

Includes Executive managers remuneration but excludes Energy Regulator

members remuneration

Wages and Salaries 39,952,726 31,362,865

- Basic salaries 35,914,860 26,667,145

- Performance awards 4,037,866 4,695,720

Social Contributions 5,973,427 9,640,622

- Pension 4,000,042 5,727,989

- Medical Aid 1,896,371 2,076,110

- Leave Pay (78,006) 1,556,007

- UIF 155,021 280,516

45,926,153 41,003,487






2008 2007

R R

14. Finance income

Interest received in respect of short-term investments 1,705,718 1,266,271

Interest due to discounting receivables 3,177,609 741,863

4,883,327 2,008,134

15. Cash generated from operations

Surplus for the year 36,350,471 80,522,436

Adjustments for:

Depreciation 3,631,529 3,218,542

Interest income (4,883,327) (2,008,134)

Interest expense 2,902,445 3,232,543

(Profit)/loss on disposal of asset (172,989) 48,199

Proceeds from insurance - (29,627)

Changes in working capital 19,753,295 (38,641,720)

Increase in inventory (55,724) (263,291)

Decrease/(Increase) in trade and other receivables 23,036,173 (42,282,078)

(Decrease)/Increase in trade and other payables (3,227,153) 3,903,649

57,581,424 46,342,238







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

2008 2007

R R

16.1 Electricity Regulation

Revenue 81,541,644 85,779,920

Gross surplus 81,541,644 85,779,920

Recoupment from Piped Gas and Petroleum Pipeline Regulation - 21,059,763

Other income 254,033 152,361


Finance costs (1,741,467) (1,939,526)

Surplus from operations 13,485,584 51,461,086

Finance income 1,998,582 1,826,184


16.2 Piped Gas

Revenue 23,494,163 39,186,119

Gross surplus 23,494,163 39,186,119






2008 2007

R R

Other income 41,971 49,116


Finance costs (464,391) (528,087)

Recoupment to Electricity Regulation - (10,544,369)


Finance income 201,930 142,198


16.3 Petroleum Pipelines

Revenue 32,157,428 40,303,594

Gross surplus 32,157,428 40,303,594

Other income 62,789 49,366


Finance costs (696,587) (764,929)

Recoupment to Electricity Regulation - (10,515,394)


Finance income 2,682,815 39,753








17. Energy Regulator Members' Remuneration

Sal

ary

Car

Allo

wan

ce

Per

form

ance

an

d N

om

inat

ed

Bo

nuse

s

Pen

sio

n co

ntri

but

ions

Med

ical

Rei

mb

ursi

ve

allo

wan

ces

Sp

ecia

l A

ssig

nmen

ts

and

Ad

-Ho

c M

eet

ing

s *

Total

NERSA Full-Time

Regulator Members

R R R R R R R R

Mr SS Mokoena (CEO) 866,128 240,000 55,009 134,939 51,858 11,561 - 1,359,495

Dr R Crompton 839,522 25,785 - 99,241 22,263 9,440 - 996,251

Ms E Tel jeur 833,570 54,000 - 99,241 - 17,613 - 1,004,424

Mr T Bukula 736,340 96,000 - 99,241 55,230 28,358 - 1,015,169

3,275,560 415,785 55,009 432,662 129,351 66,972 - 4,375,339

Fees

Tra

vel

Rei

mb

urse

-m

ents

Bo

nuse

s

Pen

sio

n co

ntri

but

ions

Med

ical

Rei

mb

ursi

ve

allo

wan

ces

Sp

ecia

l A

ssig

nmen

ts

and

Ad

-Ho

c M

eet

ing

s *

Total

NERSA Part-Time

Regulator Members

R R R R R R R R

Ms N Joubert 21,820 - - - - 166 - 21,986

Mr J Mabaso 13,092 - - - - 446 - 13,538

Mr M Nkhabu 17,520 - - - - 125 - 17,645

Ms M Joubert 8,728 - - - - - - 8,728

Mr MC Matjila 259,296 - - - - 4,536 44,928 308,760

Prof. D Singh 210,438 - - - - 8,814 4,364 223,616

Mr S Ntsaluba 152,980 - - - - 5,320 - 158,300

Ms D Mokgatle 272,496 - - - - 16,593 66,752 355,841

Adv. L Makatini 342,072 - - - - 12,840 - 354,912

1,298,442 - - - - 48,840 116,044 1,463,326

Total NERSA Energy

Regulator members

remuneration 4,574,002 415,785 55,009 432,662 129,351 115,812 116,044 5,838,665

* The above fees paid to members of the Energy Regulator include fees for activities such as public hearings, meeting

with stakeholders, meetings with the Minister of Minerals and Energy, special assignments etc.






ATTENDANCE AT REGULATOR MEETINGS

NERSA Energy Regulator Attended Total Held

1. Mr C Matjila Chairperson 11 11

2. Ms DD Mokgatle Deputy Chaiperson 10 11

3. Mr SS Mokoena Member (CEO) 11 11

4. Mr T Bukula Member 10 11

5. Dr R Crompton Member 11 11

6. Adv. L Makatini Member 10 11

7. Ms E Tel jeur Member 11 11

8. Mr S Ntsaluba Member 6 11

9. Prof. D Singh Member 8 11

ATTENDANCE AT SUBCOMMITTEE MEETINGS

Industry Subcommittee Meetings

On 12 September 2007, the Energy Regulator approved restructured regulatory subcommittees as part of the review of

the Regulatory Operations Model. The new industry-specific subcommittees established are the Electricity Subcommittee,

Piped-Gas Subcommittee and Petroleum Pipelines Subcommittee. These Subcommittees will deal with all industry specific

matters and replace the Pricing and Tarif fs Subcommittee, Licensing Subcommittee and Compliance and Dispute Resolution

Subcommittees. These Subcommittees started their functions in October 2007.

1. Electricity Subcommitee

1. Mr T Bukula Chairperson 6 6


3. Mr C Matjila Alternate Member 3 6


5. Ms DD Mokgatle Member 6 6








2. Piped-Gas Subcommitee Attended Total Held

1. Ms E Tel jeur Chairperson 3 3





6. Ms DD Mokgatle Alternate Member 3 3

3. Petroleum Pipelines Subcommitee

1. Dr R Crompton Chairperson 3 3





6. Mr S Ntsaluba Alternate Member 3 3

Cross-Cutting Regulatory Subcommittee Meetings

1. Policy Subcommit tee

1. Mr C Matjila Chairperson 6 7











2. Pricing and Tarif fs Subcommit tee Attended Total Held

Replaced with effect from 12 September 2007 with industry specific subcommittees.



3. Mr C Matjila Member 4 8




3. Licensing Subcommit tee














4. Compliance and Dispute Resolution Subcommit tee Attended Total Held








5. Regulator Executive Commit tee

The Energy Regulator approved on 15 June 2007 the establishment of the Regulator Executive Committee (REC), the Energy

Regulator Subcommittee which was established in terms of section 8 (10) (a) of the National Energy Regulator Act, 2004 (Act

No. 40 of 2004). This subcommittee started operating during the second quarter of 2007/08.

1. Mr SS Mokoena Chairperson (CEO) 9 9




Governance Subcommittee Meetings

6. Audit and Risk Subcommit tee

1. Prof. D Singh Chairperson 4 4



4. Mr M Nkhabu External Member 3 4

5. Ms M Joubert ** External Member 1 2






7. Finance Subcommit tee Attended Total Held

1. Mr S Ntsaluba Chairperson 3 4




8. Human Resources Subcommit tee

1. Adv. L Makatini Chairperson 6 6




9. Remuneration Subcommit tee

1. Ms DD Mokgatle Chairperson 2 2



4. Mr S Ntsaluba ** Member 1 2

5. Ms N Joubert External Member 1 2

6. Mr J Mabaso External Member 1 2

** Appointed to the Subcommittee in October 2007







ATTENDANCE AT WORKSHOPS Attended Total Held

1. Piped-Gas Subcommitee






6. Ms DD Mokgatle Alternate Member 2 2

2. Petroleum Pipelines Subcommitee






6. Mr S Ntsaluba Alternate Member 0 1

3. Licensing Subcommit tee












4. Regulator Executive Commit tee Attended Total Held





ATTENDANCE AT AD-HOC SUBCOMMITTEES

1. Ad-Hoc Remuneration Subcommit tee

1. Ms DD Mokgatle Chairperson 3 3


3. Ms N Joubert External Member 2 3

4. Mr J Mabaso External Member 2 3

2. Ad-Hoc Load Shedding Subcommit tee









18. Executive Managers and Chief Financial Officer Remuneration

Sal

ary

Car

Allo

wan

ce

Per

form

ance

and

No

min

ated

Bo

nuse

s

Pen

sio

n

Co

ntri

but

ions

Oth

er

Co

ntri

but

ions

Rei

mb

ursi

ve

allo

wan

ces

Total

18.1 Executive Manager

Mr Mbulelo Ncetezo 829,501 - - 93,994 1,440 22,310 947,245

(EM: Electricity Regulation)

Ms Nomalanga Sithole 750,550 42,000 110,742 95,436 20,418 - 1,019,146

(EM: Support Services)

Mr Kabelo Mothobi 776,710 150,000 196,794 107,874 1,440 5,665 1,238,484

(EM: Corporate Affairs)

Mr Themba Tsela 498,216 246,000 208,252 95,603 42,513 11,113 1,101,697

(EM: Hydrocarbons Regulation)

2,854,977 438,000 515,788 392,907 65,811 39,088 4,306,572

18.2 Chief Finance Of ficer

Ms Carlyn Keulder 450,101 72,000 - 63,698 23,703 1,753 611,255

450,101 72,000 - 63,698 23,703 1,753 611,255






19. 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 Statement of Financial Performance

in the year to which they relate. The total cost of R4,426,941 (2007: R5,727 989) charged to income represents

contributions paid to the scheme. The liability of NERSA is limited to contributions it agreed to pay to the fund.

20. Risk management

In the course of the entity's operations it is exposed to liquidity, interest rate and credit risk. The entity has developed

a comprehensive risk strategy in terms of TR 28.1 in order to monitor and control these risks. The risk management

process relating to each of these risks is discussed under the headings below.

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.

Liquidit y 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 the electricity, piped-gas and petroleum pipelines industry 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:

Fair values of financial assets and financial liabilities

Weighted

average rate

of interest

1 year or less More than

a year

Non Interest Total

Assets

Cash - - 99,340,114 99,340,114

Short-term investments 9.20% 18,464,176 - - 18,464,176

Trade receivables - - 19,725,797 19,725,797

Total financial assets 18,464,176 - 119,065,910 137,530,086

Liabilities

Finance lease obligations 788,418 949,995 - 1,738,413

Trade payables - - 15,517,506 15,517,506

Total financial liabilities 788,418 949,995 15,517,506 17,255,919

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.






2008 2007

R R

21. Commitments

Capital commitments

Buildings - 1,358,318

Computer Hardware 113,880 389,788

Computer Software 9,059 17,370

Office Equipment 58,922 -

181,861 1,765,476

Commitments for operating expenditure

Total commitments for operating expenditure at year end 16,173,383 20,482,201

Total commitments at year end 16,355,244 22,247,677

22. 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 of 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 a going concern for the foreseeable future.







23. Irregular expenditure 2008 2007

R R

Procurement irregularities identified

In July 2007 a forensic investigation was conducted into perceived procurement irregularities. Two employees faced

disciplinary charges in this regard. There are a total of 23 irregular transactions the value of which is reflected below.

Of the amounts disclosed only the amounts as reflected in 2007 have physically been paid by NERSA. Of the R1

376 918 recorded below , R1 161 211 is currently recorded under creditors with the balance (R215 707) not yet

being accounted for due to management's view that no obligation exists. This matter was reported to the Executive

Authority, National Treasury and the Auditor General as required by the PFMA and Treasury Regulations 33.2 on 2

October 2007. In addition, a criminal case docket has been opened with the Commercial Crimes Unit.

Irregular expenditure - procurement irregularities 1,376,918 1,322,731

Irregular expenditure with regards to non-compliance with Treasury Regulations pertaining to finance leases

In the previous periods the lease transactions of NERSA were reflected as operating leases. During the current

period however these leases were found to be finance leases in nature due to the fact that substantially all the risks

and rewards incidental to ownership were transferred (refer prior period error - note 9 ). This is synonymous with the

definition of a finance lease as defined in South African Statements of Generally Accepted Accounting Practice IAS

17 – Leases and Treasury Regulation 32.2.2. In accordance with Treasury Regulation 32.2.5(b) finance leases need

to be entered into through the Minister of Finance. The above finance leases were not entered into in this manner and

consequently all expenditure incurred with regards to these leases is being disclosed as irregular.

2008 2007

2006 and

prior

R R R

Instalments paid 3,133,862 3,262,038 6,312,468

Interest expenditure 2,485,713 2,960,522 6,885,464

Finance lease obligation 1,738,413 2,386,562 2,336,548

Depreciation 367,365 400,158 885,578

Asset value - 351,530 1,763,552






Irregular expenditure as a result of non-compliance with Supply Chain Management Practice

Note 2 of 2005 pertaining to procurement thresholds

The National Energy Regulator (NERSA) Procurement Policy documented thresholds that were not in alignment

with the Supply Chain Management Practice Note 2 of 2005 issued by National Treasury. The irregular expenditure

incurred in this regard is disclosed below.

2008 2007 2006

Irregular expenditure 15,738,807 15,712,406 10,738,309

In order to address the non-alignment, management developed procurement operating procedures which were

approved in July 2007 and implemented soon thereafter. Management has also started a process of reviewing the

NERSA Supply Chain Management Policy.

2008 2007

R R

24. Operating Leases

The minimum future lease receipts under non cancelable operating

leases are with respect to the use of the NERSA premises by the

current canteen service provider and amount to:

1 year or less 4,200 -

2 - 5 years - -

4,200 -







25. Related Parties

Executive Authority

The Executive Authority to whom NERSA reports is the Minister of Minerals and Energy. No transactions took place

between NERSA and the Ministry and the Department of Minerals and Energy for the period under review.

Key Management Personnel

Full-time Regulator Members

Mr SS Mokoena (Full-time Member : CEO)

Mr T Bukula (Full-time Member : Electricity Regulation)

Dr R Crompton (Full-time Member : Petroleum Pipeline Regulation)

Ms E Tel jeur (Full-time Member : Piped-Gas Regulation)

Executive Managers

Mr M Ncetezo (Executive Manager : Electricity Regulation)

Ms N Sithole (Executive Manager : Support Services)

Mr K Mothobi (Executive Manager : Corporate Affairs)

Mr T Tsela (Executive Manager : Hydrocarbon Regulation)

Eskom

An amount of R78,632,342 has been received from Eskom with regards to the payment of levies 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 R488 551.The amount due to Telkom at 31 March 2008 amounts to R36 264 which represents

the value of services rendered during March 2008 and payable in April 2008.

Annual Report 2007/2008192 Annual Report 2007/2008

AFUR AFRICAN FORUM FOR UTILITY REGULATORS

AMEU ASSOCIATION OF MUNICIPAL ELECTRICITY

UNDERTAKINGS

ARC ADVISORY AND RESEARCH COMMITTEE

ARS AUDIT AND RISK SUBCOMMITTEE

ASGISA ACCELERATED AND SHARED GROWTH FOR

SOUTH AFRICA

BBBEE BROAD-BASED BLACK ECONOMIC EMPOW-

ERMENT

BEE BLACK ECONOMIC EMPOWERMENT

CCFS CUSTOMER COMMUNICATION FORUMS

CDR COMPLIANCE AND DISPUTE RESOLUTION

SUBCOMMITTEE

CEF CENTRAL ENERGY FUND

CEO CHIEF EXECUTIVE OFFICER

COP CRUDE OIL PIPELINE

DEAT DEPARTMENT OF ENVIRONMENTAL AFFAIRS

AND TOURISM

DJP DURBAN-JOHANNESBURG PIPELINE

DME DEPARTMENT OF MINERALS AND ENERGY

DPE DEPARTMENT OF PUBLIC ENTERPRISES

DPLG DEPARTMENT OF PROVINCIAL AND LOCAL

GOVERNMENT

DoL DEPARTMENT OF LABOUR

DSM DEMAND SIDE MANAGEMENT

EBP EUROPEAN BENCHMARK PRICES

EDI ELECTRICITY DISTRIBUTION INDUSTRY

EE ENERGY EFFICIENCY

EEDSM ENERGY EFFICIENCY AND DEMAND SIDE

MANAGEMENT

ELS ELECTRICITY SUBCOMMITTEE

EPP ELECTRICITY PRICING POLICY

FBE FREE BASIC ELECTRICITY

FEE FORUM FOR ENERGY EXECUTIVES

FIS FINANCE SUBCOMMITTEE

GAAP GENERALLY ACCEPTED ACCOUNTING

ABBREVIATIONS

PRACTICE

GCAC GRID CODE ADVISORY COMMITTEE

GIS GEOGRAPHIC INFORMATION SYSTEM

GNEEP GOVERNMENT’S NATIONAL ELECTRICITY

EMERGENCY PROGRAMME

HDSA HISTORICALLY DISADVANTAGED SOUTH

AFRICANS

HPCMS HIGH PRESSURE CUSTOMER METERING

STATION

HRC HUMAN RIGHTS COMMISSION

HRS HUMAN RESOURCES SUBCOMMITTEE

ICT INFORMATION AND COMMUNICATION TECH-

NOLOGY

IEP INTEGRATED ENERGY PLAN

IERN INTERNATIONAL ENERGY REGULATORY

NETWORK

IIA INSTITUTE OF INTERNAL AUDITORS

IPP INDEPENDENT POWER PRODUCERS

ISEP INTEGRATED STRATEGIC ELECTRICITY PLAN

LIS LICENSING SUBCOMMITTEE

MFMA MUNICIPAL FINANCE MANAGEMENT ACT

MOU MEMORANDUM OF UNDERSTANDING

MTPP MID-TERM POWER PURCHASE PROGRAMME

MVP MARKET VALUE PRICING

MYPD MULTI-YEAR-PRICE DETERMINATION

NCF NATIONAL CONSUMER FORUM

NEDLAC NATIONAL ECONOMIC DEVELOPMENT AND

LABOUR COUNCIL

NER NATIONAL ELECTRICITY REGULATOR

NERSA NATIONAL ENERGY REGULATOR OF SOUTH

AFRICA

NERT NATIONAL ELECTRICITY RESPONSE TEAM

NGO NON-GOVERNMENTAL ORGANISATION

NIRP3 NATIONAL INTEGRATED RESOURCE PLAN

NMPP NEW MULTI-PRODUCT PIPELINE

NNR NATIONAL NUCLEAR REGULATOR


NT NATIONAL TREASURY

OHSA OCCUPATIONAL AND HEALTHY AND SAFETY

ACT

OPAL OIL PRICE ASSESSMENT LIMITED

PFMA PUBLIC FINANCE MANAGEMENT ACT

PGS PIPED-GAS SUBCOMMITTEE

PIESA POWER INSTITUTE FOR EASTERN AND

SOUTHERN AFRICA

PNCP PILOT NATIONAL COGENERATION PRO-

GRAMME

POS POLICY SUBCOMMITTEE

PPS PETROLEUM PIPELINE SUBCOMMITTEE

PRS PRESSURE REDUCTION STATION

PTS PRICING AND TARIFFS SUBCOMMITTEE

PURC PUBLIC UTILITY RESEARCH CENTER

REC REGULATOR EXECUTIVE COMMITTEE

RED REGIONAL ELECTRICITY DISTRIBUTOR

REEEP RENEWABLE ENERGY AND ENERGY EFFI-

CIENCY AND PARTNERSHIP

REMCO REMUNERATION SUBCOMMITTEE

RERA REGIONAL ELECTRICITY REGULATORY AS-

SOCIATION OF

SOUTHERN AFRICA

RIRP REGIONAL INTEGRATED RESOURCE PLAN

ROMPCO REPUBLIC OF MOZAMBIQUE PIPELINE IN-

VESTMENT COMPANY (PTY) LIMITED

ROR RATE OF RETURN

SABS SOUTH AFRICAN BUREAU OF STANDARDS

SALGA SOUTH AFRICAN LOCAL GOVERNMENT AS-

SOCIATION

SAPEG SOUTH AFRICAN PETROLEUM AND ENERGY

GUILD

SAQA SOUTH AFRICAN QUALIFICATION AUTHOR-

ITY

SEIFSA STEEL AND ENGINEERING INDUSTRIES FED-

ERATION OF SOUTH AFRICA

SIDA SWEDISH INTERNATIONAL DEVELOPMENT

COOPERATION AGENCY

SVWAGP SASOL VOLUME WEIGHTED AVERAGE GAS

PRICE

TT TASK TEAM

WEPS WHOLESALE ELECTRICITY PRICING SYS-

TEMS

WFER WORLD FORUM ON ENERGY REGULATION

ZERC ZIMBABWE ELECTRICITY REGULATORY COM-

MISSION

Abbreviations


NOTES


Notes

National Energy Regulator (NERSA)

Kulawula House

526 Vermeulen St,

PO Box 40343, Arcadia, 0007 South Africa

Tel: + 27(0)12 401-4674

Fax: +27(0)12 401-4700

www.nersa.org.za

RP205/2008

ISBN: 978-0-621-38055-2

Designed and produced by Puisano

0861 110 110

www.puisano.com

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