POST-CABINET MEDIA BRIEFING By Phindile Nzimande CEO Holdings (Pty) Ltd 31 October 2006
Summary of Who We Are EDI HOLDINGS is a 100% state owned company We were established in 2003 to restructure the electricity distribution industry in South Africa Our parent Ministry is Minerals & Energy We are based in Tshwane, with regional representation in Cape Town; Nelson Mandela Bay and ethekwini Our mandate is to restructure the EDI into financially viable and sustainable Regional Electricity Distributors (REDs) for the benefit of the economy and the people of South Africa Wemaintain a full-time staff complement of between 50 and 60 employees Rely on Service Providers to scale up and down resources Slide 2
Presentation Outline Electricity Distribution Industry (EDI) Historical Context Cabinet Decisions 14 September 2005 25 October 2006 Key considerations and implementation enablers Conclusion Slide 3
Electricity Distribution Industry (EDI) Historical Context Slide 4
Current Electricity Supply Industry Structure Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path Scheduling ESKOM Industry 180 Physical Energy Flow Financial Flow Municipalities Metering & Billing Residential Business Slide 5
The Electricity Distribution Industry Revenue : R33.5 bn Customers : ~8.3 m Staff : ~31 000 Asset value : ~R30 bn Energy Purchases : ~110 GWh Distribution Lines : >370 000 km Distribution Cables : >210 000 km Slide 6
Why Restructure the Industry? Current industry structure is highly inefficient owing to fragmentation Absence of economies of scale in respect of investing in assets, sharing of facilities, services, people development Inadequate maintenance of networks Estimated maintenance backlog: R5 bn accumulated over the past 10 years Supply interruptions cost to the Economy: R2.9 bn to R 8.6 bn p.a Inequitable treatment of consumers across the country Significant variance in average tariffs by Distributors: Range: 19c/kWh 71c/kWh (medium sized business) 16c/kWh 60c/kWh (domestic customers) Unfair discrepancies exist between Eskom Distribution and Municipal Distribution purchasing tariffs from Eskom Transmission Slide 7
Why Restructure ( 2) Inconsistent Electrification Performance Access to electricity: ~73 % (National) Institutional misalignment adds complexity Slow and inconsistent roll-out of FBE Reliability of supply and the ability of the distributors to offer a basic and secure supply to low income households differs markedly across the country Current rollout is less than 40% of targeted community # Source: NUS Consulting Study - 2005 Slide 8
EDI Restructuring Objectives Energy White Paper Objectives (1998) EDI Restructuring Blueprint Objectives (2001) Ensure electrification targets are met Achievement of government s electrification programme Universal access to electricity for all South Africans Provide low-cost electricity Sustainable electricity supply to low-income consumers, Facilitate better price equality regardless of location, at affordable prices Improve the financial health of the industry Future REDs to operate on a sustained, financially viable basis as independent businesses Improve quality of service and supply Acceptable and sustainable levels of supply security and Foster proper co-ordination of operations and quality investment capital Attract and retain competent employees Future REDs to provide secure employment to their employees, provide skills development and training consistent with a high technology, modern distribution business Transition to be done within the context of a comprehensive human resources strategy and an agreed social plan Planned and managed transition Slide 9
History of Restructuring Considerable Debate over EDI RED s Approach Endorsed ERIC Report Cabinet Approved Start of Restructuring Process EDIRC Established Appointment of PWC Blueprint Approved by EDIRC Early 1990s 1997 1999 End 1999 April 2000 Aug 2000 Blueprint approved by Cabinet EDI Holdings established RED 1 established Cabinet decision Cabinet decision May 2001 July 2003 July 2005 Sept 2005 Oct 2006 Slide 10
RED 1 First RED: RED 1 commenced operations on 1 July 2005, in line with Presidential deadline 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, CFO & COO appointed Preparations for Transfer of Business Slide 11
Cabinet Decisions Slide 12
Cabinet Decisions 14 September 2005 Conduct a feasibility study to determine the viability of different RED configurations In the meantime, establish 6 Metro REDs 25 October 2006 Having considered technical submissions on: The financial viability of the different RED models; and The institutional and governance arrangements for the REDs The Cabinet approved the following: That 6 wall to wall REDs be implemented; That the REDs be established as public entities and be regulated according to the PFMA and the Electricity Regulation Act; That DME, through EDI Holdings, will oversee the establishment of the REDs; That a roadmap will be put in place to move from the current scenario into the future industry structure Slide 13
6 Wall-to-Wall RED Model RED 1 RED 2 RED 3 RED 4 RED 5 RED 6 Provincial Boundaries Limpopo Slide 14
Key considerations and Implementation Enablers Slide 15
Key Considerations and Implementation Enablers The following key issues, amongst others, will have to be addressed during implementation: Legislation Governance of the REDs Asset Transfer Framework Tariff Harmonisation Framework Infrastructure Investment Strategy Slide 16
Conclusion Slide 17
Conclusion EDI Holdings welcomes the certainty created by the Cabinet decision to create 6 wall to wall REDs as Public Entities, regulated under the PFMA A strategy to implement this Cabinet decision is currently being finalised and will, inter alia, include: A comprehensive communication plan to ensure common understanding amongst all stakeholders; The development of an EDI Restructuring legislation which will cover, amongst others, the preparatory steps that municipalities and Eskom must undertake to prepare for transfer of their electricity distribution business and staff to the REDs; as well as the governance arrangements for the REDs; and A roadmap/absorption strategy to guide moving from the current scenario into the future industry structure EDI Holdings will continue to work with all stakeholders to ensure fast-tracking of the restructuring process in order to ensure the realisation of the restructuring objectives Slide 18
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