Establishment

1
PRESENTATION OUTLINE

• Establishment
• Governance
• Performance
• Annual Financial Statements
• Current Status Update
• Conclusion

2
ESTABLISHMENT
3
ESTABLISHMENT

• EDI Holdings was established in March 2003
• Objective
• Facilitate the restructuring of the Electricity
  Distribution Industry in accordance with the
  requirements of the Energy White Paper of 1998,
  Blueprint report of 2001 and subsequent Cabinet
  decisions

4
ORIGINAL TIME LINE
EDI Oversee and Support
Eskom Distribution 726 migration
Municipal ring fencing and preparation
EDI Implementation
EDI Planning
Refinement
EDI Holdings Establishment
1st RED
2nd RED
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY03
FY04
FY05
FY06
FY07
Business Plan Period April 2004 to March 2007
5
PERIOD UNDER REVIEW
EDI Oversee and Support
Eskom Distribution 726 migration
Municipal ring fencing and preparation
EDI Implementation
EDI Planning
Refinement
EDI Holdings Establishment
1st RED
2nd RED
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY03
FY04
FY05
FY06
FY07
Business Plan Period April 2004 to March 2007
6
GOVERNANCE
7
GOVERNANCE

• Annual Report presented in terms of the Public
  Finance Management Act,1999 (Act No.1 of 1999)
• The Annual Report reflects
• Financial statements of EDI Holdings (Pty) Ltd
  for the 2004/2005 Financial Year
• Prepared in terms of Generally Accepted
  Accounting Practice (GAAP)
• Audited by the Office of the Auditor-General
• Financial position at the end of the financial
  year
• Performance against predetermined objectives

8
GOVERNANCE

• Board of Directors in place
• Board Committees established
• Audit Risk Management
• Human Capital Remuneration
• Programme Management
• Finance Procurement
• Operations
• Regular meetings held

9
GOVERNANCE

• Internal Audit
• Independent auditors
• Annual audit plan
• Risk management
• Fraud prevention
• Compliance
• Code of Ethics
• Stakeholder Communication

10
PERFORMANCE
11
PERFORMANCE

• Period under review focussed on
• Planning for EDI restructuring
• Preparation for establishment of the first RED
• Development of key positions for engagement
• Stakeholder management
• Communication
• Concluding level 3 and below recruitment
• Embedding governance and project management
  practices

12
PERFORMANCE

• Performance highlights
• Preparation for establishment of the first RED
• Finalisation of Ringfencing framework and toolkit
• Finalisation of Section 78 framework and toolkit
• Request for relevant exemptions to the Public
  Finance Management Act / Municipal Finance
  Management Act to facilitate RED creation
• Draft profiles for REDs Board members
• Reservation of company name
• Preparation of initial financial and 3 year
  business case
• Establishment agreements
• Sale of Business, Service Delivery Agreement,
  Shareholder Agreement Operating Lease Agreement
• Articles and memorandum of association

13
PERFORMANCE

• Performance highlights
• Development of key positions for engagement
• Valuation and compensation framework
• Wholesale Energy Purchasing and Pricing Approach
• Tariff Approach Framework
• Embedded Generation Strategy
• Asset Condition Assessment Model Maintenance
  Management Framework
• Industry change management strategy
• Transfer, appointment, migration of employees
  bargaining structures

14
PERFORMANCE

• Performance highlights
• Stakeholder management
• Launch of Transitional Labour Relations Structure
  (October 2004)
• Stakeholder management and engagement strategy
• Stakeholder analysis
• Stakeholder engagements programme including
• Parliamentary Committees, Ministries,
  Legislatures, Municipalities, Eskom, SALGA,
  NEDLAC, NER, etc.
• Communication
• Media
• Communities

15
ANNUAL FINANCIAL STATEMENTS
16
ANNUAL FINANCIAL STATEMENTSBalance Sheet
2005 2004
R'000 R'000
ASSETS
Non-current assets Non-current assets
Capitalised refurbishments, furniture equipment Capitalised refurbishments, furniture equipment Capitalised refurbishments, furniture equipment Capitalised refurbishments, furniture equipment 13 819 1 250

Current assets Current assets 31 220 62 579
Trade and other receivables Trade and other receivables Trade and other receivables Trade and other receivables 1 762 1 720
Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents 29 458 60 859

TOTAL ASSETS TOTAL ASSETS 45 039 63 829

EQUITY AND LIABILITIES EQUITY AND LIABILITIES EQUITY AND LIABILITIES
Capital and reserves Capital and reserves Capital and reserves - -
Issued capital Issued capital Issued capital Issued capital - -
Current liabilities Current liabilities 45 039 63 829
Current portion of deferred income Current portion of deferred income Current portion of deferred income Current portion of deferred income 13 471 59 191
Trade and other payables Trade and other payables Trade and other payables Trade and other payables 16 410 4 503
Provisions 15 158 135

TOTAL EQUITY AND LIABILITIES TOTAL EQUITY AND LIABILITIES TOTAL EQUITY AND LIABILITIES 45 039 63 829
17
ANNUAL FINANCIAL STATEMENTSIncome Statements
2005 R'000 2004 R'000
Income
Government grants 99 747 14 796
Interest received 3534 1 358

Operating costs 103281 16 154

Net income/(deficit) (103 281) (16 154)

18
ANNUAL FINANCIAL STATEMENTSCash Flow Statements
2005 2004
R'000 R'000
Cash flows utilised in operating activities Cash flows utilised in operating activities Cash flows utilised in operating activities Cash flows utilised in operating activities Cash flows utilised in operating activities
Cash receipts Cash receipts Cash receipts Cash receipts Cash receipts 42 50
Cash paid to suppliers and employees Cash paid to suppliers and employees Cash paid to suppliers and employees Cash paid to suppliers and employees Cash paid to suppliers and employees (75 053) (11 453)
(75 011) (11 403)
Interest received Interest received Interest received Interest received Interest received 3 534 1 358
Net cash outflow Net cash outflow Net cash outflow Net cash outflow Net cash outflow (71 477) (10 045)
Cash flow from financing activities Cash flow from financing activities Cash flow from financing activities Cash flow from financing activities (13 951) (1 313)
Share capital issued Share capital issued Share capital issued Share capital issued Share capital issued - -
Capital refurbishments, furniture and equipment acquisitions Capital refurbishments, furniture and equipment acquisitions Capital refurbishments, furniture and equipment acquisitions Capital refurbishments, furniture and equipment acquisitions Capital refurbishments, furniture and equipment acquisitions (13 951) (1 313)
(85 428) (11 358)
Cash flows from investing activities Cash flows from investing activities Cash flows from investing activities Cash flows from investing activities 54 027 72 217
Government grant capital amount Government grant capital amount Government grant capital amount Government grant capital amount 54 027 72 217
Increase/(decrease) in cash and cash equivalents Increase/(decrease) in cash and cash equivalents Increase/(decrease) in cash and cash equivalents Increase/(decrease) in cash and cash equivalents Increase/(decrease) in cash and cash equivalents (31 401) 60 859
Cash and cash equivalents at beginning of the year Cash and cash equivalents at beginning of the year Cash and cash equivalents at beginning of the year Cash and cash equivalents at beginning of the year Cash and cash equivalents at beginning of the year 60 859 -
Cash and cash equivalents at end of the year Cash and cash equivalents at end of the year Cash and cash equivalents at end of the year Cash and cash equivalents at end of the year Cash and cash equivalents at end of the year 29 458 60 859

Cash at bank Cash at bank 2 679 60 859
Cash on call Cash on call 26 773 -
Petty cash Petty cash 6 -
29 458 60 859
19
CURRENT STATUSUPDATE
20
CURRENT STATUS NOVEMBER 2005
In Progress
EDI Oversee and Support
Eskom Distribution 726 migration
Municipal ring fencing and preparation
In Progress
EDI Implementation
EDI Planning
Refinement
EDI Holdings Establishment
1st RED
2nd RED
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY03
FY04
FY05
FY06
FY07
Business Plan Period April 2004 to March 2007
21
RED ONE

• First RED
• RED ONE Commenced operations on 1 July 2005, in
  line with Presidential deadline
• Initial area of supply consists of the area of
  jurisdiction of the City of Cape Town
• SDA signed between the RED CCT
• Operating agreements in place between the RED,
  City of Cape Town and Eskom whilst finalising
  transfer of business arrangements
• Issued with a license by the NER
• 6 Independent Board Members, CEO COO appointed

22
RED ONE

• Progress update
• Induction of the Board of Directors
• Operational strategy development
• Population of macro structure
• Preparation for transfer of business of City of
  Cape Town and Eskom Distribution in the area of
  jurisdiction of the City of Cape Town
• Stakeholder engagements

23
CURRENT STATUS NOVEMBER 2005
In Progress
EDI Oversee and Support
Eskom Distribution 726 migration
Municipal ring fencing and preparation
In Progress
EDI Implementation
EDI Planning
Revised Restructuring Approach
Refinement
EDI Holdings Establishment
1st RED
2nd RED
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY03
FY04
FY05
FY06
FY07
Business Plan Period April 2004 to March 2007
24
REVISED RESTRUCTURING APPROACH

• Key concerns raised over original
  boundaries/approach
• Fiscal and financial risks of transferring Eskom
  and Municipalities electricity businesses to the
  REDs
• Financial impact on municipalities and Eskom
• Credit rating impact
• Credit control implications
• Cost and liabilities implications of transferring
  Eskom and Municipalities staff to the REDs
• Impact on personnel benefits Pensions, medical
  aid, etc.
• Salary harmonisation
• Definition of reticulation to eliminate
  possibility of constitutional challenge

25
REVISED RESTRUCTURING APPROACH

• Restructuring approach
• Create 6 Metro REDs after Local Government
  Elections
• Conduct modelling, within 6 months, to determine
  feasibility of creating a National RED, its
  viability and sustainability, organisational
  structure and governance arrangements
• Based on modelling results, make recommendations
  on the best model to achieve the objectives of
  restructuring and to optimise service delivery
• Introduction of restructuring legislation to
  provide the legislative framework for RED
  formation and to remove the risk of the currently
  open-ended process

26
REVISED RESTRUCTURING APPROACH

• Structure of National RED(s) subject to
• modelling exercise

National RED(s)
27
REVISED RESTRUCTURING APPROACH

• Implementation principles
• Restructuring must be in accordance with the
  Constitution, taking into account that the
  responsibility of electricity reticulation is a
  municipal function
• Financial state of municipalities currently
  performing the electricity function must not be
  adversely affected
• Aggregate personnel costs must not increase in a
  way that undermines the objective of a single
  public service
• No additional funds or taxes (fiscus and/or local
  government) without the approval of Cabinet

28
REVISED RESTRUCTURING APPROACH

• Key Policy Assumptions
• National cross subsidy framework
• Constitutional powers of municipalities regarding
  reticulation
• Regulation of municipal surcharges
• Impact on Eskom
• Role of Eskom in National RED
• Contestable customers
• Transfer of assets
• Competition

29
REVISED RESTRUCTURING APPROACH

• Progress thus far
• Ministerial Committee in place
• Minerals Energy, Provincial Local Government,
  Public Enterprises and Finance
• Inter-governmental Forum established
• DDGs Minerals Energy, Provincial Local
  Government, Public Enterprises and Finance
• Modelling technical team established
• Commencement meetings held
• Agreed on approach, process and timeline to
  modelling
• Participation of all stakeholders critical

30
CONCLUSION
31
CONCLUSION

• Way Forward
• Consolidate the gains made
• Complete modelling and agree final REDs
  boundaries
• Ensure the creation of an enabling legislative
  environment for the establishment of the REDs
• Establish financially viable and sustainable REDs
  within the set timelines

32
CONCLUSION

• Acknowledgements
• Ms Phumzile Mlambo Ngcuka, Minister of Minerals
  and Energy for period under review
• Ms Lulu Xingwana, Deputy Minister of Minerals and
  Energy
• Advocate Sandile Nogxina, Director General DME,
  Chairman of the Board for period under review
• Board of Directors of EDI Holdings
• Stakeholders
• Parliamentary Committees, Ministries,
  Legislatures, Municipalities, Eskom, SALGA,
  NEDLAC, NER
• Management Staff of EDI Holdings (Pty) Ltd
• Welcome
• Mrs Lindiwe Hendricks, Minister of Minerals and
  Energy

33
THANK YOU