PRESENTATON TO PORTFOLIO COMMITTEE ON MINERALS AND ENERGY PHINDILE NZIMANDE CEO - EDI HOLDINGS 1 JUNE 2005

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PRESENTATON TO PORTFOLIO COMMITTEE ON MINERALS
AND ENERGYPHINDILE NZIMANDECEO - EDI
HOLDINGS1 JUNE 2005
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Industry Vision for Restructuring
To Consolidate the South African Electricity
Distribution Industry Into Six Financially
Viable Regional Electricity Distributors
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• Key Issues
• and
• Emerging Trends

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Governance

• A sound governance framework will
• Improve sustain the economic viability of the
  electricity distribution industry
• Improve overall reliability and service
  orientation of the industry
• Facilitate the fair treatment of all customers
• Build a foundation for economic development
  throughout South Africa
• Legal form of entity
• Agreement reached that REDs will be Municipal
  Entities with certain exemptions.
• Exemptions required to create a more conducive
  environment to achieve the objectives of
  restructuring

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Governance

• DAY ONE

City Municipality
Service Delivery Agreement
ME Metro RED
Control over Municipal Area of Jurisdiction
Operating Agreement
Operating Agreement
Eskom
City Electricity Business
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Governance

• Transfer instrument
• DAY ONE Operating Agreement between the RED and
  CCT and the RED and Eskom
• Key attributes
• Services will be provided by Eskom City of Cape
  Town
• Eskom City of Cape Town will report to the RED
  on performance against national standards and
  other regulatory requirements
• Eskom and City of Cape Town will continue to be
  responsible for making new investment and serving
  new customers in their service areas
• The RED will introduce operational improvements
  through standardisation of processes and
  integrating operations. This will be done in
  conjunction with an action plan to address
  maintenance backlog
• RED ONE will develop tariff framework in its
  area, subject to the Citys tariff policy and the
  NERs regulatory approval (as at present)

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Governance

• Transfer instrument
• End State Transfer Agreement
• Key attributes
• Full business transfer including assets,
  liabilities staff
• Incorporation of all municipalities
• RED delivering all services
• SALGA currently reviewing transfer agreements in
  order to standardise across all municipalities

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EDI Restructuring Legislation

• Would provide National Government with tools to
  achieve EDI reform objectives
• Establish regulatory and governance frameworks
  specially designed for REDs
• Exemptions from, or amendments to, provisions in
  the Systems Act and the MFMA
• e.g. to facilitate budget approval processes, or
  s.78 processes
• Address dual regulation issues (e.g. tariff
  regimes) and reduce regulatory uncertainty
• Provide legislative guidance and parameters for
  
• The establishment of REDs, as approved by Cabinet
• The transfer by Eskom of its distribution
  divisions into REDs
• The transfer by municipalities of their
  reticulation businesses
• Metering, billing, credit control and surcharge
  issues
• The transfer of employees to the REDs
• s. 93C co-operation between municipalities

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EDI Restructuring Legislation

• Legislation would also contain provisions, inter
  alia, to
• Streamline existing legislation governing the EDI
• Provide for the conditions under which a RED may
  be wound up
• Regulate RED reporting and oversight requirements
• Spell out enabling provisions regulating
• Ring-fencing of municipal and Eskom distribution
  businesses
• Resolution of disputes between municipalities,
  REDs and Eskom
• Treatment of transfers affecting the Registrar of
  Deeds
• Exemption from transfer duties / vesting
  provisions for property transfer
• Dealing with way-leaves, servitudes, rights of
  access etc.
• Safeguard unforeseen exits from REDs
• Standard set of by-laws
• Contain essential provisions for Service Delivery
  Agreements
• Legislation not impacting on DAY ONE of RED ONE
• Conversion provisions for when legislation is in
  place

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Finance

• Ownership and control
• Shareholding structure of the RED
• Municipalities to have majority shareholding
• Eskom and National Government to hold the rest of
  the shares
• Compensation
• Recommended approach is to use a weighted
  combination of asset values, income stream and
  profits
• The compensation of existing owners is neither
  intended to generate windfall gains, nor should
  it result in unreasonable loss of income or
  security
• Impact on customers to be minimised

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Finance

• Impact on Municipalities
• Guidelines from the 2001 Blueprint on EDI
  Restructuring
• Local Government should not suffer financially
  from the creation of REDs
• Current levels of financial transfers from
  electricity local government should be
  maintained, through an explicit levy on tariffs
  and dividends
• Levy on electricity should be transparent.
• Local government levy or charge on electricity
  should be applied as a percentage to all
  customers except poor households
• Principles developed to cover
• Staff cost harmonisation
• Credit control
• Credit rating

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• PROGRESS UPDATE

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Progress towards RED ONE

• Target date for RED ONE is June 2005
• RED DAY ONE aimed at City of Cape Town and Eskom
  Western Region delivering services on behalf of
  RED ONE in the area of jurisdiction of City of
  Cape Town
• Incorporation of other municipalities to happen
  over 18 to 24 months after DAY ONE
• City of Cape Town and Eskom Western Region
  co-operating and working together towards RED DAY
  ONE

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Progress towards RED ONE

• Accomplished so far
• City of Cape Town
• Section 78 Approval to have RED ONE as an
  external provider 31 January 2005
• Section 84 Feasibility Study Approval 31 May
  2005
• Service Delivery Agreement issued for public
  comment as per Section 80 (2)
• Electricity Business Ringfencing Completed. Due
  Diligence currently in progress
• Mayoral Committee support for Operating Agreement
  and Transfer Agreement for consideration by
  Council on 31 May 2005
• Eskom
• Region ringfenced within Eskom operations.
• Support for Operating Agreement
• Support for Transfer Agreement subject to certain
  conditions

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Progress towards RED ONE

• Accomplished so far
• License application submitted to the National
  Electricity Regulator (NER)
• Recruitment of board members and Executive
  Management in progress
• Company registered as Regional Electricity
  Distributor ONE
• Operational preparations in progress
• SLAs required identified and included in
  Operating Agreement
• Minimum operational requirements and processes
  identified
• Banking and Treasury manual developed
• 3 year business plan developed
• Transitional plan and playbook being developed

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Progress in other REDs

• Target
• To launch second RED towards end 2005 or early
  2006
• Co-operative agreement
• Municipalities that have signed the agreement
  18 (January 2005 7)
• Municipalities in negotiations to sign the
  agreement 19 (January 2005 6)
• Ringfencing
• Ringfencing toolkit available to all
  municipalities from EDI Holdings
• City of Johannesburg Mangaung have independent
  municipal
• electricity distribution businesses
• Municipalities currently in the process of
  ringfencing 11 (January 2005 4)

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Progress in RED TWO

• Ekurhuleni
• Council resolution for restructuring support
  and accession to sign Co-operative Agreement.
  Ringfencing asset evaluation processes
  commenced. Target date for completion Dec 05
  (early) or March 06(latest).
• Motheo
• Signed the Co-operative Agreement.
• Mangaung
• Signed the Co-operative Agreement. Created
  Centlec (Pty) Ltd and continuing with the full
  establishment of a corporatised entity. Dedicated
  resources and eager to participate in EDI
  Holdings regional consultation structures.
• Matjhabeng
• Negotiations underway to sign the Cooperative
  agreement.

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Progress in RED THREE

• Nelson Mandela
• Co-operative Agreement signed. Dedicated
  resources and participating in EDI Holdings
  regional consultation structures. Committed to
  finish ringfencing and Section 78 by October
  2005.
• Buffalo City
• Co-operative Agreement signed. Section 78(1) and
  (2) complete and busy with Section 78(3) and (4).

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Progress in RED FOUR

• City of Johannesburg
• Signed the Co-operative Agreement. City Power
  fully ringfenced and operating as an ME.
  Dedicated resources and participating in EDI
  Holdings regional consultation structures.
• Emfuleni
• Council decision to sign Co-operative Agreement.
  Financial ringfencing of electricity business
  concluded. Council resolution to embark on
  Section 78 process.
• Mogale City
• Financial ringfencing complete. Discussion
  underway to sign Co-operative Agreement.
• Klerksdorp
• Council decision to sign Co-operative Agreement.
  
• The following municipalities signed Co-operative
  Agreements
• Potchefstroom
• Merafong
• Ditsobotla

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Progress in RED FIVE

• eThekwini
•   S78(4) complete. Council resolutions for
  full ringfencing/due diligence.
• uMhlatuze
• Signed the Co-operative Agreement.
• Newcastle
• Consultants busy with asset and financial
  ringfencing almost complete Council resolution
  for S78 and Ops ringfencing but need financial
  support to complete.
• Msunduzi
• S78(4) complete and Council resolution.
  Ringfencing and asset evaluation in process
  estimated time for completion mid 2005.
• Ladysmith /Emnambithi
• Consultants busy with ringfencing and asset
  evaluation. Assistance with S78 necessary -
  report to be submitted to Council.

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Progress in RED SIX

• Tshwane
• Co-operative Agreement signed. Dedicated
  resources and participating in EDI Holdings
  regional consultation structures. Committed to
  finish ringfencing and Section 78 by October
  2005.
• The following municipalities signed co-operative
  Agreements
• Greater Tzaneen
• Makhado
• Polokwane
• Mogalakwena
• Rustenburg
• Modimolle
• Umjindi
• Emalahleni
• Govan Mbeki

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Challenges

• Legislative alignment
• Voluntary participation and enrolment
• Overall stakeholder support and buy-in

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Conclusion

• RED ONE DAY ONE attainable on 1 July 2005
• Good progress among other RED areas
• 2nd RED to be launched before end 2005 or early
  2006
• REDs to be Municipal Entities with exemptions
• Restructuring Legislation required to
• Regulate restructuring
• Ensure alignment among current suite of
  applicable legislation
• Impact on municipalities customers to be
  minimised
• Inter-governmental process in place between DME,
  DPE, DPLG National Treasury

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THANK YOU