2012/13 annual report presentation to the portfolio ...2012/13 annual report presentation to the...

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2012/13 Annual Report Presentation to the

Portfolio Committee on Energy

10 October 2013

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Overview

• Restructuring of the Group • Presentations by Subsidiaries

– African Exploration – Petroleum Agency SA – Strategic Fuel Fund – SASDA – PetroSA (to present at 2pm today)

• CEF Group Consolidated Results • Audit Chairperson’s Comments • Way forward and next steps

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Restructuring of the Group

Why Restructure the CEF Group? – CASE FOR CHANGE context and background!!!

• Lapses in processes, systems and controls while facing requirements to comply with the Companies Act 2008 and King III

• Gaps in people’s skill set posing a significant challenge to deliver the agenda on large scale projects

• Credit crunch of 2008 and general pressure to deliver sustainable financial results / long term viability of the business

• A disparate and fragmented Group of companies, not able to optimise

and leverage on its economies of scale

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Restructuring of the Group CEF is currently undergoing a major transformation process on the back of two key resolutions to Restructure!!!

• Resolution 1 - Streamline the Group by reducing the number of subsidiaries

– Smaller entities are now being consolidated into larger subsidiaries thereby creating critical mass and scale, as well as reducing administration costs

• Oil Pollution Control SA is currently being consolidated into SFF with all its functions now sitting under the administration of SFF.

• iGas is currently being incorporated into PetroSA. Nexia SAB&T have been appointed as Transaction Advisors to assist management in evaluating optimal legal and tax efficient options of incorporation. The estimated date of completion is around 4Q2013

– Unique and / or distinctive subsidiaries are being given more latitude, autonomy and therefore a direct reporting line to the most relevant State Departments

• SANEDI now reports directly to the Department of Energy, allowing the organisation more space to fulfil the Research and Development needs and mandate of the Department

• AE is currently in the process of being hived off and will report directly to DMR. Similar to iGas, Nexia SAB&T have been appointed as Transaction Advisors to assist management in evaluating optimal legal and tax efficient options of incorporation. The estimated date of completion is around 4Q2013

• While it was not part of the strategic plan, it is now inevitable that PASA will be absorbed into the DMR (MPRDA outcome). CEF is in support of this proposal and will ensure that there is a smooth transition process in place and the change is managed appropriately

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Governance and Oversight • Resolution 2 - Position CEF to act as a Holding Company – provide oversight and assurance

– CEF is now adopting a new Board/s Governance Framework and the implementation of this Framework is already underway. In this approach, the Board committees of all the subsidiaries will carry dual reporting lines.

• Board Audit and Risk Committee

– All subsidiary audit committee chairs have now been appointed to the respective Boards of the subsidiaries as the first step towards complying with the Companies Act of 2008 and King III recommendations.

– All subsidiary audit committees are now properly resourced with the requisite skill sets to discharge their duties. An opportunity still exist to further capacitate perhaps on or two other audit committees

– The audit chair of PetroSA is a member of the CEF audit committee, and through this appointment, transparency in reporting between CEF and PetroSA has improved dramatically

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Governance and Oversight • Projects Assessment and Monitoring Committee

– The PAMC provides oversight for all major projects / approvals undertaken by the Group. The Committee has standing meetings dates every month to screen, assess, monitor and recommend projects to the Board of CEF

– All major projects in the group are now therefore being screened through the PAMC prior to them being tabled before the CEF Board

– A Technical Working Group has been formed to support the Chairman of the PAMC in the assessment, filtering and prioritisation of the Group’s large scale projects

• Human Resources Committee

– So far, the HRC has paid very particular attention to the Skills profile and the HR Strategy at the Holding Company level. This area was also identified as critical in the restructuring process.

– The Skills Audit at the Holding Company is now complete and the roll out has commenced by appointing a GM Corporate Services and a CFO who can operate at Group level and provide oversight and assurance

– The entire functions of Human Resources and Finance will require capacitation as the current bench strength is not able to meet the challenges of today, let alone the challenges of the future

– Various other areas including how we manage large scale projects will be properly resourced with the right calibre skills

– The Framework developed will be rolled out throughout the Group once the HR Forum is fully established

• Nominations & Governance and Social & Ethics Committees

– The Nominations & Governance Committee has been quite instrumental in fully and properly capacitating all the Board and Committee structures of the Group and its subsidiaries; with stable delivery achieved

– The Social and Ethics Committee and just been formed recently, meeting only once so far this year

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The role of the Executive • Key Executive Appointments made since April 2013 until December 2013

– General Manager: Clean Energy Division – appointment effective 01 April 2013

– Chief Operations Officer at PetroSA – appointed effective 01 April 2013

– General Manager: SHEQ at SFF – appointed effective 19 April 2013

– General Manager: Corporate Services – appointment effective 01 August 2013

– Vice President Comm’s and Corporate Affairs at PetroSA – appointed 14 August 2013

– Chief Financial Officer at PetroSA – appointment effective 01 November 2013

– Chief Financial Officer at CEF Group – appointment effective 01 December 2013

– Chief Audit Executive and Chief Legal Advisor will be appointed before end of the year

• Profile of the Key Executive Appointments made and Transformation

– Out of the seven appointments made since April 2013, six of them are EE candidates

– Out of the six EE candidates appointed since April 2013, four of them are African female

– All candidates have a minimum of a Bachelors degrees, while two have a CA (SA) qualifications

– At least four of the candidates have a minimum Masters degree qualifications; one also has a PHD qualification

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The role of the Executive • Processes at Executive level to support the Restructuring of the Group

– The CEO Forum kicked off in April 2013 and will meet every quarter to discuss key strategic issues of the Group. All subsidiary CEO’s and key executives of the Holding Company are members of this Forum

– The PAMC Technical Working Group supports the Chairperson of the PAMC in the assessment, monitoring and evaluation of large scale Group Projects. the Group is facilitated by a convenor who is a member of the CEO Forum

– The Group Legal Risk and Compliance Forum met for the first time in June 2013 and will be meeting every three to four months focussing on key compliance issues facing the Group. Heads of Legal, Secretariat, Internal Audit and Risk Management are members of this Forum. Outcomes of this Forum will be presented to the CEO Forum

– The Human Resources Forum is yet to be formed. This Forum will focus on Group HR Policy Framework, Skills Development, Group Talent and many other areas of transformation in Human Resources. The new General manager: Corporate Services will convene this Forum which in turn will also report to the CEO Forum

– The Procurement function of the Holding Company is under review with an objective of strengthening the capacity in this area by closing all gaps that have reflected badly in the past. This review is at its final stage and should be followed up by the formation of a Procurement Forum, which will help standardise our processes across the Group

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Group Strategic Framework

Stabilise Grow

BASICS (housekeeping)

• Restructuring of the CEF Group • Contain costs and optimise margins • Improve processes and efficiencies • Return the Group to commercial viability • Resolve Darling Wind Power and CCE • Attend to SASDA and OPCSA • Hive-off AEMFC and iGas transfer

FOSSIL ENERGY (strengthen our core

business)

• FO / Ikhwezi GTL Feedstock • LNG-2 Project; Asset Development • NMPP Line Fill and Tank Bottoms • Milnerton Tank Farm Refurbishment

• Upstream / Sabre • Downstream Entry • Vlakfontein Extension • T-Project • Strategic Stocks and Infrastructure • Project Mthombo

RENEWABLES (new energy / sources of

income)

• Solar Park Feasibility • Solar Water Heaters • EnerG Joburg LFG • Stakeholder engagement for REIPPPP • Other Renewables / Clean Energy • Cooperation Agreements

• TFST Project • Solar Park Implementation??

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Group Structure 2011

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CEF (Pty) Ltd

Fossil fuel subsidiaries

PetroSA SFF

iGas AEMFC

OPCSA

Renewable energy

subsidiaries

ETA Energy (SWH)

CCE (biomass to electricity)

Cross-cutting subsidiaries

Saneri SASDA

CEF Carbon PASA

EDC

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Target Structure 2014

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CEF

Clean Energy Division (CED)

Renewable subsidiaries

ETA Energy (SWH)

CCE

Other subsidiaries

PetroSA (incl. iGas)

SFF (incl. OPC)

AE (to DMR) PASA (to

DMR)

SASDA

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Presentations by Subsidiaries

• Subsidiaries will address the following topics:

– Financial Performance for 2012-13

– Auditor-General findings for 2012-13

– Performance against objectives for 2012-13

– Any other relevant topics

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Subsidiaries of the CEF Group

• African Exploration

• Petroleum Agency SA

• Strategic Fuel Fund

• SASDA

• PetroSA (will be presenting at 2pm)

AFRICAN EXPLORATION MINING

AND FINANCE CORPORATION

SOC LTD

POR TFO LI O C OM M I T T EE ON ENERGY ( PCE) PRE SE N TATI O N

1 0 O C T O B E R 2 0 1 3

D O I N G W H A T W E S A I D W E W O U L D D O . . 14

AEMFC

FINANCIAL PERFORMANCE

AUDITED TO MARCH 2013

D O I N G W H A T W E S A I D W E W O U L D D O . .

15

• First full year

of operations

• Gross Profit

Margin of 48%

• A promising

turnaround

• Current year

is also positive

• Looming and

severe Eskom

challenges to

be expected

AEMFC




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• A promising

cash position

• Exploration

Assets

rationalised

• Improved

working

capital

(inventory,

debtors and

creditors)

• Solvency

• A growing

Financial

Position

• Improved

liquidity

AEMFC




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• Operations

performing

well

• Poised for

growth

• Challenges

with the

required

investments

for

accelerated

growth

AEMFC

AUDITOR GENERAL FINDINGS


1. Governance

• Submission of plans and appointment of BARC members to main Board

2. Revenue recognition

• Classification of revenue and document sequence

3. Exploration Assets

• Correction of adjustments to prior year

4. Property Plant and Equipment

• Completeness and reconciliations

5. Provisions and accruals

• Estimation and accounting treatment

6. Accounts Receivable

• Reconciliations

7. Inventories

• Accounting in cost of sales, cost of unit sold and accounting policy

8. Operating Expenses

• Classification

9. Procurement

• Administration and record keeping

10. Objectives

• Adequate/complete description of targets and measurement thereof

11. Information Systems

• Security risk and user access management

AEMFC

PERFORMANCE AGAINST TARGETS

2013


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1. Overall Performance 98.3%

Key areas of achievement

a. Production and sales

b. Safety

c. Exploration to Competent Persons Report

Areas of concern

Finalisation of the T Project (funding delays)

Vlakfontein Extension Environmental Management

Plan (regulatory delays and extra vigilance)

AEMFC

KEY COAL PROJECT(S) TIMELINES


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2012/13

PETROLEUM AGENCY SA

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CORPORATE PERFORMANCE

OBJECTIVE ACTIVITY TARGET ACTUAL COMMENT

Regulate

Upstream

Petroleum

industry

• Process applications timeously

• Monitor and enforce

compliance

• Ensure transformation

3

5

• All applications processed on time or

ahead of time

• All compliance and monitoring

activities undertaken as required, or

better

• Transformation objective exceeded

Evaluate

resources and

promote

opportunities

• Basin Evaluations

-OBBA Phase 3

-Springbok Flats Phase 3

-South Central Karoo Basin

Phase 2 year 1

• Maintain Resource

Catalogue

• Promote prospectivity

• Extended Continental Shelf

claim

-Discovery Ridge Extension

submission

-Preparation for defense of

claim

3

5

•Planned reports completed and 2

additional reports, 3 external

publications and 2 presentations at

AAPG

•Planned cataloguing exceeded

•Promotional Plan exceeded

•Discovery Ridge Claim submitted

•Preparation Plan for defense of claim

exceeded

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Preservation

of / access to

geo-technical

upstream

petroleum

information

• Provide data to clients timeously

• Acquire additional data

• Access to metadata via internet

3

4

• Timeous delivery of data

commitments exceeded

•Additional data plan exceeded

•Webportal system developed and

tested internally

Ensure

optimal

financial

sustainability

• 5% annual savings on budget

• Funding sub-committee

• Benchmark and review charges

for data

3

3

• 40% savings on budgeted

operating costs

•Committee formed

•Review completed and

implemented

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Contribute to

Shale Gas

Exploitation

strategy

• Proposal for resource

evaluation alternatives

• Contribution to regulatory

framework

3

3

•Report containing 8 alternatives

completed

•Process for drafting inputs /

contributions to shale gas regulatory

framework is ongoing

Ensure

optimal

Human

Resource

provision and

transformation

• Skills needs scenarios

• Performance management

• Conducive working

environment

3

4

•Needs analysis report completed and

new organogram proposed

•VIP Performance Management

System adopted

• Improved results on Climate and

Culture Survey

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PROMOTIONAL ACTIVITIES

• Very high percentage of acreage under licence /permit

– Due to increased number of exploration rights, 8 surveys and the drilling of a well were undertaken by operators

• Exhibits and presentations at AAPG and APPEX, South African Oil and Gas Summit, Africa Upstream, GSSA Energy Conference, IEP Colloquium, Shale Gas 2012 and African Economic Forum.

• Forest oil completed its skills transfer programme

• UN Economic Commission for Europe Expert Group on resource classification

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PROMOTIONAL ACTIVITIES • Increased focus on resource evaluation and technical understanding

of basin evolution

– Orange Basin (phase 3)

– Greater Outeniqua Basin

– Durban and Zululand Basins

– Onshore Karoo Basins (shale gas and CBM)

• Shale Gas play

• CBM Play

• Deep biogenic Gas play

– Frontier offshore areas – Gas Hydrate play

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SHELF CLAIM PROJECT

• Technical advisor to 18th session of the International

Seabed Authority in Jamaica

• Likely sub-commission date for defence of mainland

claim 2014, and Island claim 2015

• Addendum to Joint South African – French submission

submitted on 26 March 2013

• Plans for revision to the RSA mainland claim to be

submitted in September 2013

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LICENCING AND REGULATION

• All applications received were processed within the

legislated time frames

• 67 new submissions

• 57 submissions finalised

• The Agency continues to monitor and enforce

compliance with legislation, particularly environmental

compliance

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SHALE GAS

• Continued interest in shale gas play from majors and local

players

• Contributions to Regulatory framework are ongoing

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DATA MANAGEMENT

• Massive interest in data both on and offshore

• R10 million income from data sales

• All newly acquired data catalogued and indexed

• Web portal system completed for internal testing

• Provision of services to Namcor

• Internal review of data charge out rates

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OTHER INITIATIVES

• Benguela Current Commission

• WPC

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CORPORATE SOCIAL RESPONSIBILITY

• 5 internships

• Promotion of science in schools and tertiary institutions

• UTT Bursaries

• Habitat for Humanity housebuild

• Breadbin interactive kiosks

• Barefoot no more

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CURRENT CHALLENGES

MPRDA draft amendment bill

• Location- current reporting (Energy and Mineral Resources)

• Capacity

– Loss of technical skills

– Defence of continental shelf

• UTT

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STATEMENT OF COMPREHENSIVE INCOME

2013

R’m

2012

R’m

2011

R’m

REVENUE 77.3 101.4 75.4

OPERATING EXPENDITURE (75.5) (60.6) (84.5)

OPERATING (LOSS) / PROFIT 1.8 40.8 (9.1)

INVESTMENT INCOME 17.9 15.2 16.4

TOTAL COMPREHENSIVE INCOME 19.7 56.0 7.3

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STATEMENT OF FINANCIAL POSITION

2013

R’m

2012

R’m

2011

R’m

NON-CURRENT ASSETS 5.0 5.1 7.0

CURRENT ASSETS 373.3 353.1 302.5

TOTAL ASSETS 378.3 358.2 309.5

EQUITY 367.2 347.6 291.7

CURRENT LIABILITIES 11.1 10.6 17.8

TOTAL EQUITY AND LIABILITIES 378.3 358.2 309.5

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STATEMENT OF CASH FLOWS

2012

R’m

2012

R’m

2011

R’m

CASH GENERATED/(UTILISED) BY

OPERATIONS

(9.4)

47.8

(25.5)

INTEREST INCOME 17.9 15.2 16.4

NET CASH FROM OPERATING ACTIVITIES

8.5

63.0

(9.1)

CASH UTILISED IN INVESTING ACTIVITIES

(2.9)

(0.8)

(2.7)

CASH AND CASH EQUIVALENT

MOVEMENT FOR THE YEAR

5.6

62.2

(11.8)

CASH - BEGINNING OF THE YEAR 313.0 250.8 262.6

CASH - END OF THE YEAR 318.6 313.0 250.8

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• Unqualified audit report – no matters of emphasis

• Continued income from unconverted old order rights

(R56.6million)

• R10 million from data sales

• Operational costs remained consistent with those of the

previous financial year

• No fruitless and/or wasteful expenditure

THANK YOU

STRATEGIC FUEL FUND PORTFOLIO COMMITTEE ON ENERGY

M NKUTHA

ACTING CHIEF EXECUTIVE OFFICER

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RAISON D'ÊTRE

To procure and store strategic oil reserves for South Africa

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42

SFF BUSINESS MODEL

• Lender of last resort

• Leasing of unused storage capacity

• Leasing of property

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43

MARKET FACTORS IMPACTING 2013 FY

PERFORMANCE

• Crude oil price volatility

• Crude oil futures market structure

• Impact of US quantitative easing on

investor risk aversion

43

44

5 YEAR VOLATILITY

44

Oil markets are becoming less volatile The lower the volatility, the lower the opportunity to make trading returns Data from Chicago Board Options Exchange

45

MARKET STRUCTURE

45

60

70

80

90

100

110

120

-2 3 8 13 18 23 28 33 38 43 48

US

$/B

arr

el

MONTH AHEAD

Current 1 year 2 year 3 year 4 year

BACKWARDATION

CONTANGO

47

IMPACT ON INCOME (SOURCE)

47

Source %-Change 2013 2012 CONTR.

Propery Rentals 284% 20 747 5 398 9.1%

Tank Rentals -47% 198 891 376 583 87.6%

Nitrogen Sales -32% 3 494 5 106 1.5%

Pollution Services 4 041 - 1.8%

TOTAL -41% 227 173 387 087 100.0%

ZAR ’000

48

STATEMENT OF COMPREHENSIVE INCOME

48

2013 2012

Revenue 227 173 387 087

Other Income 1 026 1 269

Operating expenses -146 176 -203 189

Operating Surplus 82 023 185 167

Finance Income 99 552 189 169

Finance expenses -27 397 -15 289

Surplus before taxation 154 178 359 047

Taxation 40 975

Surplus for the year 154 178 400 022

ZAR ’000

49

2013 2012

Cash flows from operating activities

Cash generated (utilised) by operations -919 077 301 941

Finance income 99 552 189 169

Finance expense -27 397 -15 289

Tax refunded - 17 553

Net cash from operating activities -846 922 493 374

Cash flows from investing activities

Purchase of PPE -33 500 -9 553

Sales of PPE 4 18

Purchase of intangible assets - -367

Net cash from investing activities 33 496 9 902

Cash and cash equivalents movement for the year -880 418 483 472

Cash and cash equivalents at the beginning of the year 2 685 473 2 202 001

Effect of exchange rate movement on cash balances - -

Cash and cash equivalents at the end of the year 1 805 055 2 685 473

49

ZAR ’000

50

AUDITOR GENERAL REPORT

50

Explanation of indicators as used by the AG

54

PERFORMANCE AGAINST TARGETS 2013 FY

54

Target Achieved

Maintain Strategic Stocks 3 2.3

Maintain Commercial Stocks 3 2.3

Facilities availability 3 2.3

SHEQ 3 1.7

Contract Management 3 2.3

Stakeholder Management 3 2.9

Scanning the Environment 3 3

A. IMPROVE ENERGY SECURITY OF SUPPLY

55

PERFORMANCE AGAINST TARGETS 2013 FY

55

Target Achieved

Sound Financial Management 3 3.0

Contracting 3 1.9

Litigation 3 2.6

Compliance 3 2.8

Directive Management 3 0.3

Infrastructure Investment Management 3 2.6

Oil Pollution Control Merger 3 1.5

Skills Audit 3 1.0

B. EFFECTIVE AND EFFICIENT BUSINESS MANAGEMENT

56

2013-14 Key Deliverables

• Refurbishment of Milnerton

• Draft Strategic Stock Policy

• Focus on AG Findings

• Recruitment of Key Personnel

56

57

THANK YOU

“The driving forces behind the Liquid Fuels

Charter”

14 October, 2013 58

Presentation to the Portfolio Committee on Energy

Presented by: Lunga Saki – Acting CEO, SASDA

10th October, 2013

South African Supplier Development

Agency (SASDA)

Table of Contents

Financial Performance FY2012/13

Key Performance Indicators

Feedback on AG Findings

14 October, 2013 59

Financial Performance: Statement of

Comprehensive Income – FY2012/13

14 October, 2013 60

Statement of Comprehensive

Income

For the period ended 31 March

Revenue 1 852 2 188 6 500 (4 312)

SRA unit closed down

in during the year.

Other Income 633 (400) - (400)

No deferred income

was accrued in current

year as was in 2012

Gross Revenue 2 485 1 788 6 500 (4 712)

Operating expenses (20 641) (16 587) (17 718) 1 131

Savings on SRA and

delayed projects

Operating Loss before

depreciation (18 156) (14 799) (11 218) (3 581)

Depreciation and Amortisation (177) (176) (168) (8)

Profit before interest (18 333) (14 975) (11 386) (3 589)

Interest received 20 - - -

Interest paid - - - -

Profit before tax (18 313) (14 975) (11 386) (3 589)

Taxation - - -

Profit for the year (18 313) (14 975) (11 386) (3 589)

2012

ACTUAL

R'000

2013

ACTUAL

R'000

2013

BUDGET

R'000

VARIANCE

R'000

COMMENT

Financial Performance: Statement of

Financial Position - FY2012/13

14 October, 2013 61

Statement of Financial Position Mar-13 Mar-12

At 31 March R'000 R'000

Assets

Non-current assets 273 421

Furniture and fittings 237 389

Intangible assets 36 32

Current assets 1 051 898

Trade and other receivables 1 051 898

Total Assets 1 324 1 319

Equity & Liabilities

Equity (58 701) (43 731)

Share Capital - -

Accummulated loss (58 701) (43 731)

Liabilities

Non Current Liabilities 55 571 40 598

Loans CEF (SOC) Ltd 55 571 40 598

Current liabilities 4 454 4 452

Trade and other payables 2 064 1 878

Deferred Income - 1 062

Provisions 2 390 1 512

Total Equity and Liabilities 1 324 1 319

Key Performance Indicators Against

Objectives…………………………………….…(1)

14 October, 2013 62

Objective Weight Output Indicator Progress

Undertake Supplier Development initiatives

20 Selection of suppliers & Assess

Supplier Shortlist & complete Assessments Training & contract awarding

Shortlist and Assessments completed. Training programme in progress. No contracts awarded.

Establishment of SASDA as supplier Dev. Of choice

20 Appointed by PetroSA for CSDP

Appointment by PetroSA. Input document to LFC

Appointment not done by PetroSA still in progress.

Development of existing & new suppliers with participating SOE’s

10 Develop 15 companies with SOE’s

Approved ED plan with committed budget

No progress on this front with SOE’s. GM- SOE contract not renewed.

Key Performance Indicators Against

Objectives…………………………………….…(2)

14 October, 2013 63

Objective Weight Output Indicator Progress

Development of existing & new suppliers with participating companies

20 Develop 30 companies with participating oil companies

Approved ED plan with committed budget

Target exceeded. Developed 44 companies with approved ED plan and budget

Operate a sustainable Verification unit

30 Obtain SANAS accreditation and achieve turnover target

SANAS accreditation. Achieve revenue target

Verification unit proposal to shut down during the year. Targets not met.

Total 100

Feedback On the AG Findings

14 October, 2013 64

Internal control and Procedure Deficiency

Corrective Measure Target date for Implementation

1. No policy for long outstanding debtors and no provision for bad debts was raised.

The nature of SASDA’s main business activities did not require a specific policy on debtors, more specifically long outstanding debtors. Where it was necessary, judgement based on best business practices, which were benchmarked against the holding company’s policy would be applied. There was no firm indication from the relevant companies that owed these funds to SASDA that they will not honour on their commitments made to SASDA. Subsequent to year end, confirmation letters were once again resent to the relevant companies and with input from the Acting CEO, we were then able to formally make a determination on the correct treatment of these amounts on the Annual Financial Statements for SASDA for the year ended 31 March 2013. The necessary adjustments have been made; the details of the journals can be obtained from the finance department.

Responsible department: Finance

Implementation date: 04/07/2013

Feedback on the AG Findings……..........2



2. Debtors on the debtors list with credit balances

The payments relating to these balances had been misallocated to other accounts and have since been identified and resolved accordingly.



3. Debtors procedural policy was not applied by fair valuing all debtors outstanding for than longer than 30 days

The challenges with applying the above-mentioned procedure are that it is not supported by an approved policy. In the spirit of good governance, it was prudent for management to not over- rely on a procedure which is not drafted based on a policy document



14 October, 2013 65

Feedback on the AG Findings..……..…..3



4. Leave not approved in advance

.

Management should ensure that all the employee leave is approved before going on leave.

Documents are now in the employees’ personal files. Implementation Date: 04/07/13

5. Bonus provision incorrectly calculated

The bonus calculation is prepared by management, audited by Internal Audit and approved by the HR.

HR/Internal Audit Implemented: 04/07/2013

14 October, 2013 66

Feedback on the AG Findings..................4

Item Deviation from Laws and Regulations Comments

1. The corporate plan was not approved by the CEF (SOC) Ltd board, and the accounting authority of the entity did not submit corporate plan for the 2013 financial reporting period to the relevant treasury as required by sections 52 (b) of the PFMA.

SASDA management engaging all stakeholders on future of SASDA. Considering future options on SASDA

2. The accounting authority, in consultation with its executive authority, did not conclude a shareholder’s compact of the entity for the 2013 financial reporting period as required by Treasury regulation 29.2.1.

Considering future options on SASDA

14 October, 2013 67


Item Deviation from Laws and Regulations Comments

3. The corporate plan did not include the risk management plan, fraud prevention plan and financial plan (covering the next 3 years) that includes a projected balance sheet and projected cash flow statement as prescribed by Practice Note 4 of 2009/10.

Considering future options on SASDA

4. The accounting authority for a public entity did not ensure that that public entity has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective as required by section 51(1) (a) (iii) of the PFMA

The contract required Board

approval. Such approval was

obtained.


14 October, 2013 68


Item Performance Against Objectives

Comments

5. Certain performance targets could be not verified

Even though the portfolio of evidence was supplied to the auditors on certain targets the auditors were not completely satisfied. Need further explanations so that it is clear. Implementation date: 04/08/2013

6. Not all (100%) of the targets were met

There were other targets that were not met. The

SRA was shut down and corporate plan of SASDA

not approved by CEF Board.

7. Audit committee members are not directors

The director has now been appointed

Responsible depart: Company Secretary


14 October, 2013 69

Thank you

14 October, 2013 70

71

CEF GROUP CONSOLIDATED RESULTS

72

CEF Group Report

73

Presentation by the CEF Group

1. Annual Financial Results 2012/13

2. AGSA Opinion and Audit Findings

3. Performance Against Objectives

4. Clean Energy Projects

73

74

2012/13 GROUP CONSOLIDATED FINANCIAL RESULTS

75

CONSOLIDATED INCOME STATEMENT

Line Item Actual Reported 2012/2013 R’000

Actual Reported 2011/2012 R’000

Notes

Revenue 20 196 850 14 988 176

Weaker R/$ exchange rate Sabre contribution Coal sales increased by 243%

Cost of Sales (17 979 597) (11 965 889) More volumes of purchased product during the year

Gross Profit 2 217 253 3 022 287 Lower margins realised due to higher costs incurred in purchasing product

Other Income 819 362 126 689

Operating Expenditure

(2 358 603) (2 175 435) R360 Million write off on demo plant, increased depreciation due to new assets acquired

Investment Income 1 037 056 1 231 680 Cash utilised during the year reducing cash reserves

Finance Costs (879 106) (502 508) Financing raised on acquisition of Sabre

Other 195 573 111 456

Profit for the year after tax

1 031 535 1 814 169 Net reduction in profits by R782 million

76

CONSOLIDATED BALANCE SHEET



Notes

ASSETS

Property Plant and Equipment

15 090 067 6 917 939 Equipment purchased for Sabre of R 5.1 bn and Fair Value adjustments

Intangible Assets 2 133 178 30 921 Exploration license acquired

Strategic Inventory 3 126 074 3 101 842 No additions to the barrels held in the current year, 9.6 million barrels in total

Inventories 3 052 384 2 591 028 Normal production inventory

Financial Asset 2 594 000 - Cash restricted for specific purposes

Trade and other receivables 3 676 192 2 843 887 Trade debtors as per normal debtors cycle

Cash and cash equivalents 13 073 314 19 144 932 Cash utilised during the year mainly from investing activities

Other Assets 1 110 631 984 694 Smaller balances not separately presented

TOTAL ASSETS 43 854 840 35 648 381

77

CONSOLIDATED BALANCE SHEET



Notes

EQUITY AND LIABILITIES

Total Equity 27 538 081 26 416 234 Increase due to current year’s profit realised

Deferred Taxation 1 744 235 460 Fair Value adjustment of Sabre on consolidation

Provisions- Non current 8 547 811 6 191 807 Rehabilitation costs of Sabre asset and Pioneer’s share of purchased field

Other financial liabilities

2 037 200 - Loan raised on acquisition of Sabre

Trade and other payables

3 540 951 2 491 630 Normal operating creditors as per creditors cycle

Provisions- Current 317 156 424 066 Payable within a year mainly influenced by current operational matters: Bonus, Leave Pay etc

Other liabilities 129 406 124 184 Smaller balances not separately presented

TOTAL EQUITY AND LIABILITIES

43 854 840 35 648 381

78

CONSOLIDATED CASH FLOWS



Notes

Cash and Cash Equivalents as at 31 March 2013

13 073 314 19 144 932

Cash inflow from operating activities

5 891 512 2 421 238 Normal operations, including interest income and finance costs paid

Cash outflow from investing activities

14 001 285 507 447 Purchase of PPE and Intangible Assets

Cash inflow from financing activities

2 038 155 (300 591) Additional financing raised during the year for Sabre deal

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3. AGSA OPINION AND AUDIT FINDINGS

79

80

CEF GROUP AUDIT OUTCOMES: 2012/13

The CEF Group received an Unqualified Audit Opinion.

However, certain matters of emphasis were raised which did not result in a modification of the overall audit opinion issued:

– RESTATEMENT OF CORRESPONDING FIGURES:

The financial statements were restated to reflect the effects of errors discovered during the financial year

– SIGNIFICANT UNCERTAINTIES:

Additional fruitless and wasteful expenditure which could still be uncovered as a result of the ongoing investigations which could not be quantified at the date the audit opinion was issued.

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CEF GROUP AUDIT OUTCOMES: 2012/13 Report on Legal and Regulatory Requirements

• Predetermined Objectives:

– Usefulness and reliability of information, 25% of reported targets were found to not be aligned with strategic goals and objectives and were not reliable when compared to evidence provided

• Annual Financial Statements:

– Material adjustments were made to the AFS after being submitted for audit as per section 55 (1) of PFMA, AFS were subsequently adjusted to reflect these changes

82

CEF GROUP AUDIT OUTCOMES: 2012/13 Report on Legal and Regulatory Requirements

• Expenditure Management:

– Effective steps not taken to prevent Fruitless and Wasteful Expenditure and Irregular Expenditure as per section 51(1)(b) of PFMA, total of R 38.612 million incurred as Fruitless and R 875.204 million incurred as Irregular

• Audit Committee:

– Audit committee member who also served as an executive during the year (Section 94 (4) (b) of Co. Act)

– Members of audit committee not appointed as directors (Section 94 of Co. Act)

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3. PERFORMANCE AGAINST OBJECTIVES

83

84

Objectives

• Three high level objectives

• Ten principal objectives of which 5 were fully achieved

• Thirty three sub-objectives of which 26 were fully achieved

85

2012/13 Strategic Objectives

85

Objective Result 1 To operate a financially sustainable group

Develop a 10 year business plan, which includes a long-term cash flow plan, that demonstrates long-term financial sustainability

Partially achieved. One of two sub-components achieved

2 To design and implement a range of internal business processes, systems and structures to improve the management and effectiveness of the organisation

To reorganise the CEF Group and improve accountability Partially achieved. Three out of four sub-objectives fully achieved

To review past projects in order to identify gaps in the project management system Fully achieved. Six of six sub-objectives fully achieved

To develop systems, which incorporate lessons learned on past projects, that will be used to identify, develop and execute viable projects in pursuit of the CEF mandate

Fully achieved. Two of two sub-objectives fully achieved.

Complete an internal resource assessment (skills and funding) to support the development of a new resource allocation plan

Partially achieved. One of four sub-objectives achieved by due date, a further one achieved but after target date

To develop and implement guidelines and systems to improve treasury performance Fully achieved. Three of three sub-objectives fully achieved

To develop and implement processes and systems to improve oversight of the business

Partially achieved. Five out of six sub-objectives fully achieved

3 To develop a portfolio of projects that will enhance the country’s energy security of supply

To collate and analyse data on hydrocarbons to support policy and strategy to enhance security of supply of hydrocarbon fuels

Partially achieved. Inputs were fully achieved for one of two sub-objectives

To develop a pipeline of clean energy and manufacturing projects that will generate commercial returns

Achieved. All three sub-objectives achieved

To develop education and public awareness programmes that will help change energy utilisation behaviours

Achieved. Only one sub-objective and it was achieved

86

Review/Comment on Objectives

• CEF is moving towards strengthening holding company oversight and objectives are now formulated at holding company level

• Need for alignment across Group has been recognised and implementation will be accelerated once resources are engaged

• Recognition that Results and Performance are linked and are part of a consolidated performance management structure

86

87

4. CLEAN ENERGY PROJECTS

87

88

Progress of Renewable Energy Projects

• Existing Portfolio of Projects (enhance, extract or protect value)

– MethCap SPV1 Waste-to-energy

– Philips Maseru Lighting (exiting)

– Cape Clean Energy (woodwaste)

• Projects in Intensive Care

– The Darling Wind Farm project is at a critical stage whereby CEF and other key investors have to make key decisions and implement a strategic way forward without loosing the resources invested into this project since its inception.

• Projects Pipeline (new potential value creation)

– Solar Park Feasibility Study

– ENER G Landfill gas to electricity

– TFST (thin film solar technology)

– Solar Water Heaters

89

AUDIT CHAIRPERSON’S COMMENTS

90

WAY FORWARD AND NEXT STEPS

91

CEF Mandate

Fossil / Hydrocarbon

A E M F C PASA

PetroSA S F F

SASDA (current)

Clean Energy Clean Energy Division (RE;

Solar Park; COJ Landfill; etc) LP SWH; SASDA

(future)

Commercial Developmental

92

CEF Group Activities

Entity

1. CEF

2. CED

3. PetroSA

4. SFF

5. PASA

6. AEMFC

7. SASDA

Area of focus

1. Holding company

2. Renewables

3. Oil and gas, NOC

4. Strategic oil

5. Regulating and Licensing

6. Mining, coal

7. Supplier development

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93

Group Strategic Projects

1. Project Ikhwezi (PetroSA) 2. Project Irene (PetroSA) 3. LNG Project (PetroSA) 4. Project Mthombo (PetroSA) 5. Solar Park Feasibility (CED) 6. Vlakfontein Extension and T-

project (AE) 7. Strategic Petroleum Stocks

(SFF) 8. Continental Shelf Claim

(PASA) 9. Renewable Energy Projects

including contributions to the SWH rollout (CED)

1. June 2014 2. 2014/15 3. 2018 4. 2021/22 5. March 2014 6. 2016

7. Dependent on strategic stock

policy 8. 2015/16?

9. 2014+

94

Strategy outline

94

Immediate design and implementation of both systems and

projects to stabilise Group Stabilise

Longer-term build and implementation of projects Security

of supply

Long-term strategic direction: Contribute to national security of energy supply through appropriate strategic projects

Short term strategic imperative: Stabilize business, governance and systems

95

Group Strategic Framework

Stabilise Grow

BASICS (housekeeping)

• Restructuring of the CEF Group • Contain costs and optimise margins • Improve processes and efficiencies • Return the Group to commercial viability • Resolve Darling Wind Power and CCE • Attend to SASDA and OPCSA • Hive-off AEMFC and iGas transfer

FOSSIL ENERGY (strengthen our core

business)

• FO / Ikhwezi GTL Feedstock • LNG-2 Project; Asset Development • NMPP Line Fill and Tank Bottoms • Milnerton Tank Farm Refurbishment

• Upstream / Sabre • Downstream Entry • Vlakfontein Extension • T-Project • Strategic Stocks and Infrastructure • Project Mthombo

RENEWABLES (new energy / sources of

income)

• Solar Park Feasibility • Solar Water Heaters • EnerG Joburg LFG • Stakeholder engagement for REIPPPP • Other Renewables / Clean Energy • Cooperation Agreements

• TFST Project • Solar Park Implementation??

95

96 96

Strategy: to contribute to national energy security of supply Pe

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p

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SFF

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Good Corporate Governance and oversight, SHEQ, HR and Financial sustainability. All support functions operate to ensure strategy is effectively

delivered

Long-term strategic analyses to support both strategic and operational decisions

97

Summary

• Restructuring of the Group

• Overview of the Subsidiaries Results

• Overview of the CEF Group Results

• Way forward and next steps

98

Thank you

98

Contact details: Phone: 0102014700 Internet: www.cefgroup.co.za Email: [email protected]

http://www.cefgroup.co.za/

mailto:[email protected]