CORPORATE PROFILE VALUES BACKGROUND EDI RESTRUCTURING OBJECTIVES VISION MISSION STRATEGIC PILLARS

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1 CORPORATE PROFILE BACKGROUND VALUES Electricity Distribution Industry Holdings (Pty) Ltd was established in 2003 to lead the restructuring of the electricity distribution industry in South Africa. This restructuring mandate is guided by the Energy White Paper of 1998, the Blueprint on EDI Reform of 2001 as well as related Cabinet Decisions. In terms of the Cabinet Decision of 25 October 2006, the restructuring process must culminate in the creation of six wall-to-wall Regional Electricity Distributors (REDs) as public entities regulated by the National Energy Regulator of South Africa (NERSA). VISION A consolidated and sustainable Electricity Distribution for the benefit of the economy and the people of South Africa. MISSION To create and oversee six (6) wall-to-wall REDs as viable and efficient public entities. STRATEGIC PILLARS Industry Leadership RED Creation RED Oversight Advocacy Excellence Results oriented Commitment Passion Transparency Learning Organisation Professionalism EDI RESTRUCTURING OBJECTIVES The Electricity Distribution Industry Holdings (Pty) Ltd is guided by the national objectives of restructuring as encapsulated in the Energy White Paper of 1998 and the Blueprint on Electricity Distribution Industry Reform of These are: to provide low cost electricity to all customer segments, with equitable tariffs for each customer segment; to provide a reliable and high quality supply and service to all customers, in support of Government s social development and economic goals; to meet the country s electrification targets in the most cost-effective manner; and so ensure that electrification is contributing to social and economic development; to meet the legitimate employment, economic and social interests of all employees in the sector, and to ensure their safety; and to operate in a financially sound and efficient manner in order to provide a reliable and sustainable future for both consumers and employees. 3

2 SUBMISSION OF THE ANNUAL REPORT TO THE EXECUTIVE AUTHORITY STATEMENT OF RESPONSIBILITY The Public Finance Management Act, 1999 (Act No. 1 of 1999), as amended, requires that the accounting authority ensure that the company keeps full and proper records of its financial affairs. The annual financial statements are the responsibility of the accounting authority, i.e the Board of Directors of EDI Holdings. The Auditor-General is responsible for independently auditing and reporting on the financial statements. The office of the Auditor-General has audited the entity s financial statements and the Auditor-General s report appears on pages 35 to 37. The annual financial statements fairly present the state of affairs of EDI Holdings, its financial results, its performance against predetermined objectives and its financial position at the end of the year in terms 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 Practice (GRAP) issued by the Accounting Standards Board replacing the equivalent GAAP statement, and the Companies Act, 1973 (Act No. 61 of 1973). These annual financial statements are based on appropriate accounting policies, supported by reasonable and prudent judgements and estimates. The Board of Directors has reviewed the company s budgets and cash flow for the year ended 31 March On the basis of this review, and in view of the current financial position, the Board of Directors has every reason to believe that EDI Holdings will be a going concern in the year ahead, and has continued to adopt the going concern basis in preparing the financial statements. The Board of Directors sets standards to enable management to meet the above responsibilities by implementing systems of Internal Control and Risk Management that are designed to provide reasonable, but not absolute, assurance against material misstatements and losses. The company maintains internal financial controls to provide assurance regarding: 1. The safeguarding of assets against unauthorised use or disposal; 2. The maintenance of proper accounting records and the reliability of financial information used within the business or for publication. These controls contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Even an effective system of Internal Control, no matter how well designed, has inherent limitations, including the possibility of circumvention or the overriding of controls. EDI Holdings system of Internal Control aims to provide reasonable assurance with respect to the reliability of financial information and, in particular, the presentation of financial statements. Furthermore, because of changes in objective conditions, the effectiveness of internal financial controls may vary over time. The Board of Directors has reviewed the company s systems of Internal Control and Risk Management for the period 1 April 2008 to 31 March In the opinion of the Board of Directors, the company s systems of Internal Control and Risk Management were effective for the period under review, and based on the information available to date, the annual financial statements fairly present the financial position of EDI Holdings as at 31 March 2009 and the results of its operations and cash flow information for the year. The annual financial statements for the year ended 31 March 2009, set out on pages 31 to 77, were submitted for auditing on 31 May 2009 and approved by the Board of Directors in terms of section 51(1) (f) of the Public Finance Management Act, 1999 (Act No. 1 of 1999), as amended, and section 298 (1) of the Companies Act, 1973 (Act No. 61 of 1973), as amended on 28 July 2007, and are signed on its behalf by: P Nzimande (Ms.) Chief Executive Officer DM Nkosi (Mr.) Chairman 4

3 CORPORATE GOVERNANCE REPORT INTRODUCTION Good corporate governance is at the heart of EDI Holdings business operations. EDI Holdings subscribes to the highest level of corporate governance and is fully committed to the principles of good corporate governance, as set out in the King Report on Corporate Governance for South Africa 2002 (the King II). As a public entity, EDI Holdings also complies with the Public Finance Management Act 1 of 1999, as amended (the PFMA). The company upholds the principles of fairness, discipline, independence, accountability, transparency and social responsibility. The Board of EDI Holdings and the employees are committed to these principles, which underpin the company s Code of Ethics. In addition to the King II and the PFMA, the company also takes cognisance of corporate governance requirements advocated in the Protocol on Corporate Governance in the Public Sector CORPORATE PLAN Each year EDI Holdings reviews its Corporate Plan which is submitted to the Department of Minerals and Energy for approval. The Plan, inter alia, contains EDI Holdings strategic objectives and indicators against which the company s performance is measured by the Minister of Minerals and Energy as the executive authority. Reports on organisational performance are submitted quarterly by the company to the Department of Minerals and Energy. These reports are used by EDI Holdings to demonstrate on a quarterly basis its performance against the strategic objectives as set out in the Corporate Plan. During the year under review, all quarterly reports due to the Department of Minerals and Energy were submitted. BOARD OF DIRECTORS The Board has the responsibility to lead and control EDI Holdings towards achieving its strategic objectives, amongst other things. The Board comprises 13 non-executive directors and three executive directors, being the Chief Executive Officer, Chief Financial Officer and the Chief Operations Officer. The non-executive directors are appointed for a three year term which expires at different times in order to ensure continuity. This is in line with the practice of rotating directors at regular intervals. During the year under review, the following changes occurred to the Board of Directors: The following directors term of office expired and they vacated their positions: Ms. Dolly Mokgatle (Chairman) with effect from 30 November The following directors were appointed to the Board: Mr. Duma Moses Nkosi was appointed Chairman with effect from 1 December 2008; Mr. Thabang Audat was appointed a director with effect from 1 January The appointments of the following directors were renewed for a further three year term: Mr. Ashley Ally (Independent) with effect from 1 April 2009; Dr. Zavereh Rustomjee (Independent) with effect from 1 April 2009; Mr. Ron Field (IMATU) with effect from 1 September 2008; Mr. Kevin Morgan (EIUG) with effect from 1 January The following directors had their terms of office renewed for a further 12 months: Mr. Lance Joel (SALGA) with effect from 1 February 2009; Mr. Sandile Maphumulo (SALGA) with effect from 1 December 2009; Mr. Oupa Komane (COSATU) with effect from 1 April

4 Board meetings are scheduled annually in advance. Special meetings are convened as and when necessary to deal with specific matters. The names of the directors, as well as members of the various Board Committees can be found on page 32 to 33 of the report. Board Charter The Board has a charter which is reviewed annually. According to its charter, the Board s responsibilities include the following: Approval of the strategic plan, policies and organisational structure Identifying appropriate performance indices Ensuring compliance with relevant legislation, regulations and supervisory requirements Monitoring the implementation of Board plans and strategies Overseeing enterprise wide risk management Appointment of the chief executive officer and other directors Development of a succession plan Approval of internal and external communication protocols and monitoring relations with shareholders and other stakeholders. Board Effectiveness In terms of article of the Protocol on Corporate Governance in the Public Sector read with the King II Report on Corporate Governance, the performance of the Board and all its Committees must be assessed on an annual basis. There are processes in place to ensure that the Board and all its structures operate effectively and efficiently. Every financial year the performance of the Board and individual directors is evaluated by an independent body. In the year under review, the evaluation was undertaken by the Institute of Directors. The areas that were assessed included the following: Visible corporate governance Board meetings Roles and responsibilities of directors Committees of the Board Skills needed at Board level Accountability of the board for risk Relationship of the Board with management Stakeholder relations Communication between meetings Effectiveness of the Board and individual directors Meetings And Related Matters The Board meets regularly and retains full and effective control over the company. It monitors management in implementing Board plans and strategies. The Board agenda is designed to focus on strategy and performance monitoring, governance and related matters. The directors have unrestricted access to all information, records and documents of the company to enable them to discharge their responsibilities and to enable them to take informed decisions. Information regarding the attendance at meetings can be found on page 41 to 45. BOARD COMMITTEES In order to assist the Board and its directors in discharging their duties and responsibilities, specific responsibilities have been allocated to the Board Committees listed below which have specific Terms and References. The Terms and References deal with or address issues such as the Committee s composition, duties and responsibilities and their scope of authority. Membership of the various Committees is outlined on page 32 to 33 of the annual report. Executive directors and members of the executive management team are always invited to attend relevant meetings of the various Committees. During the year under review, the Board complied with the charter. A list of the Board committee follows: 6

5 Audit and Risk Management Committee The Committee meets at least four times a year and is primarily responsible for assisting the Board in carrying out its duties relating to accounting policies and procedures, Internal Controls, financial reporting, Internal Audit, Risk Management and the functions of External Auditors. During the period under review, the Committee performed all its duties and responsibilities in terms of its Terms of Reference. The Chief Financial Officer, representatives of the External Auditors, Internal Auditors, Risk Management Team and members of the Finance Division attend every meeting of the Committee by invitation. The External and Internal Auditors have unrestricted access to the Chairman of the Committee, as well as the Chairman of the Board and every non-executive director on the Board. The Chairman of the Committee meets separately and in-committee with the External Audit team, the Internal Audit team, the Risk Management team and the Executive Management prior to or after every Committee meeting to discuss various matters of concern, if any. The Committee is also mandated to monitor the establishment of adequate financial and business systems and processes in respect of the proposed Regional Electricity Distributors. Finance and Procurement Committee The main areas of responsibility of this Committee include the monitoring of the financial position of the organisation and maintaining effective, equitable, transparent and fair procurement systems in order to safeguard the integrity of the procurement function of the company and ensure value for money. This Committee performed all its duties in terms of its terms of reference. Human Capital and Remuneration Committee The Human Capital and Remuneration Committee has developed terms of reference which are reviewed annually. Its main duties include formulation, development and implementation of remuneration and human capital strategies, policies, plans and programmes for the organisation. In addition, the Committee is responsible for assisting the Board in dealing with human capital matters relating to the restructuring of the Electricity Distribution Industry. This Committee has terms of reference. All its duties as set out in the terms were performed during the year under review. Communication and Advocacy Committee This Committee s function is to drive the communications and stakeholder management strategy and to facilitate decision making processes where required to ensure that EDI Holdings is well positioned as the industry leader and advocate of the EDI restructuring process. This Committee has its terms of reference. All its duties as set out in the terms were performed during the year under review. Programme Management Board Committee The primary responsibility of this Committee is to assist the Board in programme management for the RED creation process. The Committee also looks at operational strategic issues such as the Wires and Retail strategy as well as making input into national debates on technical aspects of the Electricity Distribution Industry. This Committee has terms of reference. All its duties as set out in the terms were performed during the year under review. Policy and Strategy Committee This Committee advises and makes recommendations to the Board on matters concerning EDI restructuring policy and strategy. It also assists the Board in overseeing the development of a legal and institutional framework for the Regional Electricity Distributors (REDs). This Committee has terms of reference. All its duties as set out in the terms were performed during the year under review. 7

6 BOARD REMUNERATION The remuneration of the Board members is determined by the Minister of Minerals and Energy and gets reviewed annually by the Minister. The Board members are paid for attending Board or Committee meetings. The details of the Board members remuneration for the year under review are stated in Note 21 to the Annual Financial Statements on page 68 to 69. INDEPENDENCE OF THE BOARD The independence of the Board is achieved and maintained through a number of measures, including the following: Board members being remunerated for attending meetings only. Separation of the positions of the Chief Executive Officer and that of the Chairman. All Board Committees being chaired by nonexecutive directors. The Board having access to independent external advice at the cost of the company. COMPLIANCE PUBLIC FINANCE MANAGEMENT ACT 1 OF 1999, AS AMENDED (PFMA) The PFMA is one of the laws that EDI Holdings has to comply with. The company has systems in place to ensure that it complies with this law. Its policies and procedures are responsive to the requirements of the PFMA and its Regulations. The company reports to the Department of Minerals and Energy on compliance with the PFMA and its Regulations on a quarterly basis. KING II EDI Holdings substantially complies with the requirements of the King II Report. Its corporate governance framework and structures are in line with the King II. Annual reviews are done to ensure compliance. OTHER LEGISLATION Systems have been put in place to monitor compliance with all other applicable laws. The company s policies and procedures are also regularly reviewed in order to ensure they are responsive to legal requirements. In order to ensure that the company remains abreast of developments in the legal environment, systems have been put in place to continuously scan the legal environment and to get regular updates. INTERNAL AUDIT The Internal Audit function exists, inter alia, to examine and evaluate the adequacy and effectiveness of the financial, operational, compliance and IT controls to reduce business risk to an adequate level in the most costeffective manner. The Internal Audit function is currently outsourced. It reports to the Board through the Audit and Risk Management Committee which approves its Internal Audit Plan and monitors the function s performance against the plan. The Function has an Internal Audit Charter which is developed in accordance with the Institute of Internal Auditors Guidelines. All its duties as set out in the Plan were performed during the year under review. RISK MANAGEMENT The Risk Management Function is currently outsourced. However, the Board recognises risk management as one of its responsibilities and has recommended the creation of a Risk Manager position to the organisational structure. The Audit and Risk Management Committee of the Board assists the Board in managing or overseeing risk management. The evaluation of risk processes is undertaken annually. Through this process, all strategic and operational risks facing the company are identified and measures put in place to manage them. CODE OF ETHICS The company has a Code of Ethics with which all employees and Board members have to comply. The Company s Code of Ethics is underpinned by the company values. 8

7 COMPANY SECRETARY The company secretary plays a significant role in the following: Induction of new directors Tabling to the Board relevant information on regulatory and legislative changes Providing guidance to directors individually and collectively on their duties and responsibilities to the company Providing guidance and advice to the Board on matters of ethics and good governance Providing the communication link with the shareholder. The directors have unrestricted access to the advice and services of the Company Secretary and those of the Secretariat department. The Company Secretary, amongst other duties, also facilitates and ensures compliance with the PFMA, Companies Act and other relevant legislation, and reports to the Board on these issues. STAKEHOLDER MANAGEMENT EDI Holdings believes it is in the company s best interest to maintain active and open communication with its stakeholders regarding the EDI restructuring process. The Company recognises its ongoing responsibility to disclose all relevant information to stakeholders. This recognition is coupled with the equal treatment of all stakeholders. Various methods of interaction, include, among others, interaction via stakeholder fora, publications and media. All reports to stakeholders present a comprehensive and objective assessment of the company so that all relevant stakeholders with legitimate interests in the company s affairs, operations and conduct, are apprised of a complete, fair and responsible account of its performance and impact. HUMAN RESOURCE MANAGEMENT SOCIAL RESPONSIBILITY Part of the key objectives of EDI Holdings is to be a good corporate citizen by amongst others, making a contribution to the country s efforts to uplift poor communities as well address the educational needs of children from disadvantaged families through corporate social investment programmes. Such interventions are coordinated and facilitated through the Office of the Chief Executive Officer. One such initiative was undertaken in the financial year 2008/9 through a donation of school uniforms, educational and sports materials, working in partnership with the Dinokeng Tsa Taemane Municipality as well as other social partners. HEALTH, SAFETY AND SECURITY The directors acknowledge their responsibility to all employees and the public for compliance with occupational safety and environmental health standards. Management are charged with ensuring that the requirements of the Occupational Health and Safety Act (OHSA) are complied with. The industry, within which the company is part, exerts a relatively low direct impact on the environment. WELLNESS PROGRAMME As a responsible corporate citizen, the company has committed to help prevent and combat diseases in the workplace, through promotion of good health, education, prevention and comprehensive wellbeing of staff. The wellness programme, which incorporates a wide spectrum of health issues, such as financial health, legal savvy, as well as managing other symptomatic diseases has been developed and rolled out in the organisation. The company has adopted a policy on HIV/AIDS and has launched bi-annual HIV/AIDS initiatives through workshops, education and testing initiatives for all employees. 9

8 CHAIRMAN S REPORT INTRODUCTION The 2008/09 reporting period, unlike all the preceding ones since the establishment of EDI Holdings some five years ago, will go down in history as a very unique period. This uniqueness was as a result of complex developments on the organisational, social, political as well as economic fronts. At the organisational level, we found ourselves in the unfamiliar position where my incumbency of the Chairmanship of the Board began in the very last quarter of the reporting period, with the term of the previous Chairman and my predecessor having ended at the end of This literally meant that as the incumbent Chairman, I now carry the responsibility of giving the Chairman s report from the points of view of two Chairmen. On the economic front, the world was indeed speedily moving towards a global recession that undoubtedly has had a profound negative impact on every country s economy; including our country s. Notwithstanding all these developments, we have continued on our sustained path to provide industry thought leadership in the electricity distribution industry and to implement our overall strategy and plans with the same resolve and dedication displayed over the years. All this is aimed at the attainment of the objective of restructuring and consolidating the electricity distribution industry as mandated by Government. THE RESTRUCTURING ENVIRONMENT Mr. D M Nkosi Chairman of the Board On the social front, the call for accelerated and improved service delivery from communities across the country was increasing in its tempo in a manner perhaps unprecedented before. On the political front, several significant developments also occurred towards the end of last year and in the last quarter of the reporting period. The effect of these on the national political landscape was fundamental. The detail in this regard is contained in the section dealing with the restructuring environment. As stated in the section above, the restructuring environment continued to be influenced by complex developments at organisational, social, political and economic levels, as well as the stakeholder environment in general. Despite these complexities, as the Board we continued to provide strategic leadership and guidance to the organisation in our quest to prepare for the establishment of the six viable wall-to-wall Regional Electricity Distributors (REDs). The smooth transition from the 10

9 erstwhile Chairman of the Board, Ms. Dolly Mokgatle, ensured that we kept our eyes on the ball at all material times; and that our focus on providing leadership and strategic direction to the organisation remained intact. As community expectations of accelerated and improved service delivery increased, so also did our pace and sense of urgency to get all stakeholders ready for the consolidation of the EDI and establishment of the six wallto-wall REDs. At the same time, we also had to grapple with rapid changes that were taking place in the political landscape during the 2008/09 reporting period. These were characterised by several changes in the entire country s administration, including the Presidency and the resultant formation of a transitional team at executive level; as well as the national and provincial election campaigns in the last quarter of Needless to say, this period brought with it some uncertainty, but I am proud to pronounce that we provided the best leadership possible in the circumstances, under the able leadership of the Ministry and the Department of Minerals and Energy, to which we report. Regarding the management of financial resources under our charge, we ensured that we maintained cost effective and efficient management of the limited resources at our disposal so as to ensure that we could continue to fulfil our mandate during the trying times that lay ahead. On the legislative front, more ground was covered with the leadership and guidance of our parent Ministry and Department in our quest to bring about a legislative and policy regime necessary to create the desired enabling environment. In this regard, the following developments are worth noting: The 17 th Constitutional Amendment Bill, which is central in ensuring movement of the current EDI restructuring environment, was finalised and submitted to Cabinet for consideration and approval. The RED Establishment Bill is currently in the process of being drafted by the Department of Minerals and Energy. OUR PERFORMANCE To give effect to the overall mandate of EDI Holdings and the business plan for the period under review, the Board continued to provide strategic leadership in line with the four pillars of our organisational strategy, viz Industry Leadership, RED Creation, Oversight and Advocacy. In relation to the industry leadership pillar, we provided the requisite leadership and support; thus enabling the organisation to contribute meaningfully to policy and legislative matters such as the 17 th Constitutional Amendment Bill, RED Establishment Bill and Asset Transfer Regulations. Equally so, our active participation and leadership in broader electricity supply industry issues such as the national interventions regarding the electricity shortages and the distribution infrastructure challenges culminated in the establishment of a Programme Management Unit that coordinates National Electricity Response Team (NERT) initiatives, as well as the development of a Rescue Plan to address the ailing EDI infrastructure. Under the Board s guidance and leadership, RED readiness activities were intensified; thus resulting in a greater number of municipalities committing to participation in the RED creation process as well as having many of them commencing with ring fencing and MSA Section 78 processes. The conclusion of the preliminary future industry design was also a key highlight of the period under review. This design covers the key aspects of the restructuring process as they relate to retail, human resources, asset management and tariff structures for the REDs. We further covered significant ground in relation to the oversight pillar. On this front, we managed to finalise the oversight strategy, which also entails the development of an EDI industry scorecard for measuring and tracking the implementation of the restructuring process. 11

10 Guided by the refined communication and stakeholder management strategy, we intensified our stakeholder engagements on all fronts to ensure continued buy-in into the restructuring process as well as ensuring that stakeholders are kept abreast of developments in the restructuring process. Our efforts aimed at promoting the EDI Holdings brand as well as profiling the restructuring process were also intensified during the year under review. A detailed account of the organisational performance during the period under review is elucidated in detail in the report of the Chief Executive Officer, as well as in the Organisational Performance Scorecard section of this Annual Report. OUR FUTURE In the year ahead, we will continue our mission of establishing the Regional Electricity Distributors as mandated by Government with renewed vigour. We will do so cognisant of the fact that, in spite of the challenges that we may face, the conclusion of our mission is not only critical for improved and accelerated service delivery and most importantly sustainable social and economic development for the country, but that the finish line looms on the horizon. In anticipation of a favourable environment to be ushered in by the expected enactment of the 17 th Constitutional Amendment Bill and RED Establishment Bill as well as approval of the Strategic Implementation Plan (SIP) by the Department and Cabinet, we are gearing ourselves for the final push in the journey that began almost five years ago. We will also seek to increase the tempo in respect of our leadership in addressing distribution infrastructure investment backlog through the EDI Infrastructure Rescue Plan. We will also enhance our participation in the National Electricity Response Team, thus entrenching our reputation as a formidable player and leader in the broader electricity supply industry as well as the energy sector at large. Furthermore, our readiness preparations as well as stakeholder engagements will be intensified as we seek to ensure that all stakeholders sing from the same sheet in as far as matters relating to the EDI restructuring process are concerned. The implementation of the organisational strategy will continue with improved pace and Deal negotiations with asset owners, signatories and influencers in the EDI restructuring process will be commenced with as soon as practically possible. Our track record in the last five years of our existence gives me the assurance that the unshakeable conviction that has become the trademark of our team remains firmly rooted. I have no doubt whatsoever that every member of our team and our critical stakeholders will put their shoulders to the wheel as we take the final steps on our journey. I am confident that we are all up to the challenge! ACKNOWLEDGEMENTS On behalf of the Board, executives and staff of EDI Holdings, I wish to extend our sincerest gratitude and heartfelt appreciation to the Honourable Minister of Minerals and Energy, Ms B P Sonjica, for her continued support, leadership and unwavering championship of the cause of EDI restructuring. We are also indebted to the Cabinet, Inter Ministerial Committee as well as the Parliamentary Portfolio Committee for Minerals and Energy for their steadfastness in providing political direction and support. Our sincerest and special thanks also go to the Director- General of the Department of Minerals and Energy, Advocate Sandile Nogxina for his special, sterling and consistent leadership together with the entire Department. We would also like to express our profound appreciation as well to the other National and Provincial Government Departments on whom we continued to rely for support and guidance. We extend also our sincerest thanks to Organised Labour, all the Premiers, Executive Mayors, Councillors and Municipal Mayors as well as critical stakeholders such as the South African Local Government Association (SALGA), Eskom, and Organised Business for their continued support and participation in the EDI restructuring process. 12

11 I further wish to extend my sincerest thanks to my colleagues on the Board of EDI Holdings, whose collective wisdom, strategic guidance, commitment and determination was pivotal in ensuring that the restructuring process remained firmly on track. To my predecessor, Ms. Dolly Mokgatle, I remain grateful for the solid legacy she has left, upon which we continue to walk the last miles of our journey with confidence and assurance. To her I say, a million thanks, daughter of the soil! My task would not be complete without expressing my heartfelt appreciation and gratitude to the vital cog that keeps the wheel of EDI restructuring on its momentum, the Chief Executive Officer of EDI Holdings, Ms. Phindile Nzimande and her entire team. Undoubtedly, your commitment, energy and tenacity have been, and remain the pillar on which the EDI restructuring process rests. Many thanks. Duma Nkosi (Mr) Chairman 13

12 CHIEF EXECUTIVE OFFICER S REPORT INTRODUCTION The 2008/09 reporting period was one during which we directed our energies and efforts on meeting the goals we set for ourselves for this particular period, as encapsulated in our organisational plans and highlighted in the report of the preceding year. Amongst these were the implementation of the Strategic Implementation Plan (SIP) and related activities, ensuring that the requisite enabling legislative and policy environment is realised, ensuring the advancement of municipal readiness to join the REDs as well as enhancing our advocacy work and our involvement in multi- stakeholder efforts to find solutions to the national energy challenge that the country experienced, particularly in the first quarter of the 2008 calendar year. It is now common cause that certain developments that occurred in the political arena during the period under review had an enormous influence on many a front, with the broader electricity industry not being an exception to the rule. In spite of these challenges, we at EDI Holdings continued with the task at hand in a manner characterised by discipline, tenacity and remarkable focus. tremendous boost to our image and a confirmation of the country s confidence in our ability to provide leadership in the electricity distribution industry. The development of a visionary plan, named the Approach to Distribution Asset Management (ADAM), is our comprehensive response to this call by the nation. Thus the 2008/09 reporting was, for all intents and purposes, another remarkable one in the history of our existence and has confirmed that, as an organisation, we continue to grow from strength to strength. RESTRUCTURING LEGISLATIVE ENVIRONMENT The period under review confirmed that an enabling policy and legislative environment remains a critical necessity for the fulfilment of the restructuring mandate. To this end, EDI Holdings intensified its assistance to the Department of Minerals and Energy, the EDI Restructuring Task Team (EDIRTT) and the Inter Ministerial Committee in working towards the finalisation of the outstanding pieces of legislation necessary for creating an enabling legislative and policy environment. Ms. P Nzimande Chief Executive Officer Over and above this, we were given the additional task of leading efforts to find lasting solutions to the ailing electricity distribution infrastructure by both the Presidency and the 2008 EDI Maintenance Summit. This was a The following achievements on the legislative front are therefore worthy of mention: The 17th Constitutional Amendment Bill, which is 14

13 central in ensuring the participation of all current distributors as contemplated in the Energy White Paper and the Blueprint on EDI Restructuring of 1998 and 2001, respectively. The RED Establishment Bill, which will give implementation effect to the proposed constitutional amendment in as far as EDI restructuring is concerned, was tabled before Cabinet in April 2008, but was referred back for further work and consultation with impacted stakeholders. PERFORMANCE OVERVIEW Financial Management During the year ended 31 March 2009, we continued to strive for prudent management of our finances. We have an approved restructuring budget of R1,2 billion, which is funded through the Eskom Multi Year Price Determination (MYPD) of To date we have received R365 million (2007/08 R272 million) of which R223 million (2007/08 R33 million) has already been spent. Total income received for the year amounts to R233 million, which consists of conditional grants of R10 million (2007/08 R Nil million) received from DME in respect of the National Energy Response Team (NERT), and R69 million for the Corporate Operating budget allocated through the National Treasury Medium Term Expenditure Framework (MTEF). An amount of R154 million was recognised from the Eskom MYPD funding to cover restructuring related expenditure. Other income consists of R28 million in respect of interest received on surplus funds invested with the Corporation for Public Deposits (CPD). Operating results for the year reflects a surplus amount of R2.1 million. This amount, together with the cumulative surplus of R14 million as at 31 March 2008, will be utilised for future expenditure in line with the company s three year budget cycle. Business strategy We continued with the implementation of our business strategy, which is premised on and guided by the four strategic pillars, namely Industry Leadership, RED Creation, Oversight and Advocacy. The strategy is further complemented by our mandate, vision, mission and values. We are pleased to report key progress towards RED establishment under each pillar as follows: Industry leadership We provided input towards the finalisation of the 17 th Constitutional Amendment Bill through the EDI Restructuring Task Team. As at 31 March 2009, this matter was concluded and awaiting Cabinet approval. We further provided inputs on the RED Establishment Bill and the Asset Transfer Regulations, which have since been promulgated. We continued to serve on the National Electricity Response Team (NERT) and its sub-structures, continuing in our assigned role as convener and chairman of the Co- Generation Task Team as well as host of the Programme Management Unit of NERT. On the charge of the Presidency and in accordance with the resolutions of the 2008 EDI Maintenance Summit, we led the process of finding solutions to the ailing electricity distribution infrastructure and duly completed a business case and plan called the Approach to Distribution Asset Management (ADAM). This business plan proposes a comprehensive set of interventions aimed at addressing the inadequate investment in infrastructure by current distributors. RED Creation We have progressed with the development of the Strategic Implementation Plan which contains the National Goals; the Deal; Transition Path as well as Impact Assessment. Key progress in this regard includes the following: The National distribution industry scorecard and associated metrics have been developed. We have finalised the Deal project, aimed at 15

14 quantifying various policy options relating to asset valuation, compensation, shareholding, governance and impact analysis. We further developed a draft business case for the establishment of REDs as public entities. We developed the transition path highlighting, amongst others, the need for industry consolidation and stabilisation. A draft Impact Assessment study is under development and due to be completed early in the new financial year In advancing readiness preparations to join the REDs: We established all project governance structures as well as consultation fora to ensure broader participation by all municipalities. We secured the signing of Accession to Cooperative Agreements by 143 out of 187 electricity distributing municipalities. We approved funding for ringfencing and Municipal Systems Act Section 78 processes for 103 municipalities, 56 of which have commenced with ringfencing their electricity distribution businesses. We also concluded preliminary future industry design through interalia: Developing a Business Processes and Systems as well as the future Wires and Retail blueprints for the REDs. Adopting, together with organised labour, the transfer and placement and migration agreements in the Transitional Labour Relations Structure (TLRS). Completion of commercially-based guidelines for Asset Management Planning for the REDs. Completion of current state assessment of tariffs and tariff structures as well as developed a tariff model. Completion of a funding strategy for the REDs. Oversight We have developed an EDI industry scorecard and associated metrics which will be used to measure and track the implementation of the restructuring agenda and, most importantly; the realisation of the restructuring objectives as articulated in both the Energy White Paper (1998) and the Restructuring Blueprint (2001). The Transition Path component of the SIP also provides for industry oversight through distinct phases. Advocacy During the period under review, we continued to proactively and continuously advocate for the EDI restructuring process and promoting the EDI Holdings brand. Our activities in this regard were based on the communication and stakeholder management strategy and the refined strategic approach, as adopted by the Board. Some of the key highlights for the year ended 31 March 2009 are: The 2008 EDI Maintenance Summit, which we hosted jointly with the National Energy Regulator of South Africa (NERSA) and the Department of Minerals and Energy The 2008 Amalgamated Municipal Electricity Undertakings (AMEU) Convention The 2008 NEDLAC Summit The 2009 Institute for Local Government Management (ILGM) Conference SALGA Provincial and National Members Assemblies Engagement with Organised Labour through the Transitional Labour Relations Structure International Seminar on EDI Restructuring EMBA Roundtable Discussion on the appropriate business model for the EDI We utilised these platforms to promote EDI restructuring through presentations and exhibitions, providing feedback on progress with the restructuring process as well as solicited stakeholder views and concerns on the process. 16

15 We also succeeded in our efforts to ensure visibility in the media by proactively and timely disseminating appropriate and accurate information on EDI reform. We have also leveraged the various engagement structures such as Regional Engagement Forums, District Workshops as well as the introduction of the new Board Chairman to the market in the last quarter of the period under review. OUR PEOPLE We intensified our investment of time and resources towards the development of our employees, driven in this by our belief in the maxim: Our people are our greatest assets. To this end, we maintained the implementation of our institutionalised performance management system. Through this we accordingly rewarded performance excellence and put employees on training and development programmes to ensure not only the closing of identified skills gaps in terms of their Personal Development Plans, but to also ensure the acquisition of new knowledge and skills that will enhance their ability to deliver in their various capacities. We also remained consistent in our compliance with all employment laws and the attainment of employment equity targets. LOOKING AHEAD Having laid a solid foundation from which we can successfully give effect to the Strategic Implementation Plan (SIP), we are now gearing ourselves to enter into meaningful deal negotiations with current asset owners, signatories and influencers in a bid to ensure amicable agreement amongst critical stakeholders. This deal negotiation process will be further complemented and supported by intensive stakeholder engagement and consultation. In anticipation of a favourable outcome in relation to the proposed 17 th Constitutional Amendment and RED Establishment Bills, we are also readying ourselves to take advantage of the impending favourable legislative environment to fast-track the process of creating the Regional Electricity Distributors (REDs) as mandated. We will however not rest on our laurels on account of this favourable environment, rather we will intensify our RED readiness preparations by ensuring amongst others, the signing of Accession to Cooperative Agreements by the remaining municipalities, the completion of ringfencing and MSA Section 78 processes as well as the formal signing and effecting of the agreements reached in the Transitional Labour Relations Structure. Furthermore, we will also continue to provide assistance and participate in all National Electricity Response Plan initiatives as has become the norm as well as continue to champion the implementation of the Approach to Distribution Asset Management plan through, amongst others, working with the Department of Minerals and Energy and National Treasury to design appropriate funding mechanism for this initiative that is aimed at resolving the ailing EDI infrastructure challenges. ACKNOWLEDGEMENTS I wish to acknowledge and thank the Honourable Minister of Minerals and Energy, Ms. Buyelwa Sonjica for her continued and unwavering support and leadership. We remain eternally grateful and indebted to her for her activism and for leading the cause of EDI restructuring from the front. To the Director General of Minerals and Energy, Advocate Sandile Nogxina and the staff in the Department, sincerest thanks and appreciation are due to you for your undiminished inspiration, guidance and leadership. I also acknowledge the support of other Government departments, National and Provincial Governments and their structures, Premiers, Executive Mayors as well as SALGA, Eskom and various other stakeholders. Your support and continued participation continue to strengthen and enrich the EDI restructuring process. I salute the current Chairman, Mr. Duma Nkosi and my other colleagues on the Board of EDI Holdings, whose wisdom, support, guidance and advice have been and remain invaluable in providing strategic direction and focus on the EDI restructuring journey. I also wish to single out the former Chairman of the Board, Ms. Dolly Mokgatle, who, during her tenure, provided inspirational and visionary leadership to the organisation and the industry. Her priceless contribution, acumen and 17

16 insight will remain ever-critical in our quest to fulfil the mandate of restructuring and consolidating the electricity distribution industry. I pay special tribute to all my colleagues at EDI Holdings at all the levels in the organisation. I am truly humbled by your support, commitment and dedication to both the organisation and the cause of EDI restructuring and I am immensely proud to be a member and captain of a wonderful team of winners. I once again confirm my confidence in the ability of the EDI Holdings team and our various stakeholders in successfully meeting our mandate and eventually establishing viable and efficient REDs to ensure affordable, accessible, reliable and sustainable electricity for all. Thank you once more! Phindile Nzimande (Ms) Chief Executive Officer 18

17 EDI HOLDINGS ORGANISATIONAL STRUCTURE ** Executive: 19

18 BOARD OF DIRECTORS Mr. D Nkosi Chairman Ms. P Nzimande Chief Executive Officer Dr. WJ de Beer Chief Operating Officer Mr. MM Ntsokolo Dr. ZZR Rustomjee Mr. X George Mr. RS Maphumulo Programme Management Committee (Chairman) Mr. OJ Komane Human Capital and Remuneration Committee (Chairman) Mr. EC Kieswetter Mr. RJ Field Mr. TA Audat Mr. AB Ally Finance and Procurement Committee (Chairman) Mr. L Joel Communication and Advocacy Committee (Chairman) Mr. KJ Morgan Mr. JRD Modise Audit and Risk Management Committee (Chairman) 20

19 EXECUTIVE MANAGEMENT Ms. P Nzimande Chief Executive Officer Dr. WJ de Beer Chief Operating Officer Mr. J Moshesh Act Chief Financial Officer Mr. M Musi Executive: Communication and Stakeholder Management Mr. S Dlamini Company Secratary Mr. S T Nkese Executive: Human Capital and Corporate Services 21

20 STAFF ESTABLISHMENT REPORT Employees by management level Employees by job level Employees by gender category Number of employees Number of employees Number of employees Operational Support Male Female Management levels Management levels Management levels Management Levels Employees Job Levels Gender Classificatioon Number % Operational Support Total Male Female Total Executive Management 5 5% Senior Management 16 17% Management 16 17% Specialist Skills 35 37% Discretionery Skills 18 19% Basic Skills 4 4% Grand Total % Executive Management Senior Management Management Specialist Skills Discretionary Skills Basic Skills Grand Total % Total Employees 100% 35% 65% 100% 43% 57% 100% 22

21 Male employees by racial composition Female employees by racial composition Total employees by racial composition Number of employees Number of employees African Asian Coloured White African Asian Coloured White African Asian Coloured White Management levels Management levels Management levels Number of employees Management Levels AFRICAN ASIAN COLOURED WHITE Male Female Total Male Female Total Male Female Total Male Female Total Executive Management Senior Management Management Specialist Skills Discretionery Skills Basic Skills Grand Total % Total Employees 46% 54% 100% 20% 80% 100% 13% 88% 100% 55% 45% 100% Executive Management Senior Management Management Specialist Skills Discretionary Skills Basic Skills Grand Total 23