City of Cape Town 1 Electricity Distribution Industry (EDI) Restructuring RED 1 Creation Program for City of Cape Town

City of Cape Town 2 Agenda Background RED 1 details Corporate investigations MSA Section 78 MFMA Section 84 Ringfencing Organisational design External and Internal structures EDIH and City programs Key issues Observations

City of Cape Town 3 Background National Government decisions All existing electricity distributors to be rationalised into 6 Regional Electricity Distributors (REDs) – “PwC Blueprint” RED 1 to be the first (pilot) RED EDI Holdings defined Day 1 for RED 1 as City of Cape Town and Eskom (Western Region) Council resolution of 24 June 2004 CCT to fully support the process Initiated MSA Section 78 investigation TMT set up “Technical Corporate RED Team” to drive technical processes of participation

City of Cape Town 4 RED M RED ONE BOUNDARIES 39 Local Municipalities 16 District Management Areas 1 Metro Cape Town and Eskom have 75% of total customer base of RED 1

City of Cape Town 5 Corporate investigations required For Council to approve participation in an “external” entity, investigations and decisions in terms of the following are required: Municipal Systems Act, Section 78 Municipal Finance Management Act, Section 84

City of Cape Town 6 MSA Section 78 process Start Sec 78 Process upon Receiving Trigger Do Sec 78(1) Internal Assessment Council decides to also do an external Assessment Do Sec 78(3) External Assessment Council decides on appropriate Service Delivery mechanism Restructure To Internal Unit Restructure To External Municipal Entity Restructure To State Owned Entity NO YES Internal Entity External Municipal Entity (Sec 76(b)(I) & 80 (1)(a)) State Owned Entity (Sec 76(b)(iii)(bb) & 80(1)(aA)) Sec. 78(2) Sec. 78(4) Sec. 79 Sec. 80

City of Cape Town 7 MSA Section 78 investigation Contract awarded to Umbiko-Africon consortium Commenced 4 October 2004 Draft 78(1) report available To organised labour for comment/input (consultation process) Final 78(1) report to Council 8 December 2004 Depending on 78(2) decision, 78(3) process to run to end January 2005, and will incorporate technical aspects of MFM Act Section 84.

City of Cape Town 8 Municipal Finance Management Act Section 84 requires minimum 90 day consultation period before Council can decide on a proposed external entity Similar to MSA 78 process for public / labour consultation And must also solicit views of National Treasury National and Provincial Departments for Local Government MEC for Local Government This process has not yet started

City of Cape Town 9 Municipal Finance Management Act Section 84 represents a potential risk to the entire process Section 177 (3) provides for exemption from any specific provisions of the Act for EDI restructuring related purposes EDI Holdings has undertaken to facilitate obtaining exemption from the Section 84 process requirements before 8 December Section 78 investigation will cover MFMA Section 84 technical requirements

City of Cape Town 10 Ringfencing Mayco approved immediate commencement of ringfencing process for the Electricity function on 20 October 2004 Financial Operational Staffing Related support services Legal Ringfencing project team identified All internal stakeholders involved Process regarded as key for success of program Using EDI Holdings “Ringfencing Toolkit”

City of Cape Town 11 Organisational design Electricity Structure Part of City’s restructuring program Challenge of alignment of City and RED requirements Ringfence Electricity “as-is” until potential 78(4) decision If “external” decision taken - will be structured to RED based model from February 2005

City of Cape Town 12 External structures GOVERNMENT COORDINATING COMMITTEE TREASURY/DME RUN OPERATIONS & SYSTEMS FINANCE Regional Consultation National Consultation NATIONAL COMMITTEE ON EDI RESTRUCTURING REDCO (Tech.) (1 – 6) LABOUR AND HUMAN RESOURCES LEGAL AND INSTITUTIONAL EDI Holdings Sectoral Consultation B P & SRetailRingfencingWires Regional sectoral committees STAKEHOLDER MANAGEMENT REDCO (Political) (1 – 6) New EDIH proposal

City of Cape Town 13 City representation – external structures ForumConvenor(s)MembersRole NATIONAL CONSULTATION DME/National Treasury DPE DPLG SALGA EDIH National oversight NATIONAL COMMITTEE (NACEDI) EDIH CEO ESKOM CEO NER CEO SALGA METRO Mgr.s Strategic policy Monitor/oversee EDI process EDIH SECTORAL COMMITEES EDIH EDs Nominees from Eskom AMEU SALGA NER Inputs to policy Process monitoring REGIONAL COMMITTEES EDIH Functionary (Meeting Chair duty can be rotated) Nominees from Eskom & Municipalities Facilitating local incorporation activities. Providing advice / recommendations REGIONAL WORKGROUPS Nominated team leader Nominees from Eskom & Municipalities Operational inputs and data to the Regional committees Proposed CCT Involvement Via SALGA & DPLG City Manager (alternates: ED(D&I) / CFO) Ex officio, and as approved by City Appropriate officials, Project manager Nominated staff members NB - bearing in mind representivity and gender

City of Cape Town 14 Council and Mayco processes Council role in Section 78 decision making Proposal to delegate possible 78(4) decision to Mayco when Council makes 78(2) decision Regular reporting on progress to Mayco and Executive Mayor, and TMT by TCRT Regular review and direction of overall process by Mayco Acknowledgement of the need for urgent political decision making for RED 1 issues

City of Cape Town 15 Proposed internal structures ForumConvenor(s)MembersRole COUNCILMAYOR COUNCILLORS Overall direction and decision making MAYCOMAYOR PORTFOLIO MEMBERS Strategic policy Mandating Process oversight & monitoring Political guidance Ensure corporate cohesion TECHNICAL CORPORATE RED TEAM CFO / ED (D & I) ED (Corp.Serv.& Systems) Director (Budgets) Director (Strategy – D & I) Director (Electricity) HR Support Project Manager Program management and reporting CCT Workgroup Coordination Team Ringfencing Steering Committee Project Manager Nominees from Corporate Departments and Electricity Services Alignment / coordination of participants in committees and workgroups

City of Cape Town 16 Interim City representation Current City representation in committees and workgroups is on the following basis “Exploratory” only No mandate to commit the City to RED creation activities Can exchange information only This approach has to apply until Section 78(1) process is complete to avoid “pre-emption”

City of Cape Town 17 EDI Holdings program Activities OctNovDecJanFebMarAprMayJun Sectoral workstream preparations Implementation & transfer activities Critical deliverables Registered company; NER licence; Signed SOB; Signed shareholders agreement; Signed SDA (RED / CCT); Key staff appointments; HR migration and transfer policy; Signed SLAs for services not transferred on Day One; Asset valuations & compositions. From July RED DAY ONE

City of Cape Town 18 CCT program CCT activities OctNovDecJanFebMarAprMayJun Organisational Validation & Review MSA Section 78(1) (for 78(2) decision) Consultation with labour MSA Section 78(3) (for 78(4)/MFMA 84 decision) CCT participation in RED program Ringfencing Electricity and related support services Structuring Electricity per Metro/RED model Customer, staff, stakeholder interaction 78(2) decision Organisation review decision 78(4) decisionDependent on/influenced by: RED DAY ONE Info sharingOption evaluationImplementation activities

City of Cape Town 19 Key issues to be resolved during process Financial contributions from RED Basis Quantum (existing effective contribution from Electricity ~ R360m per annum) Frequency Customer Relations Whose customer? Billing and CRM systems Assets Valuation methodology Related support service assets Ownership of Eskom assets

City of Cape Town 20 Key issues (cont.) Shareholding Basis Ownership of Eskom share? Type of entity Municipal State owned Shared services Degree of ringfencing Initial SLAs Minimising stranded resources

City of Cape Town 21 Key issues (cont.) Authority / Provider relationship Future IDP process Impacts on Cash flow Credit rating Credit control (recovery of debt for other services) Tariff setting Service delivery Staff costs as percentage of operational expenditure

City of Cape Town 22 Key issues (cont.) Legal alignment of : Constitution Electricity Act Municipal Systems Act Municipal Finance Management Act EDI Restructuring Bill Being addressed by EDI Holdings

City of Cape Town 23 Observations RED Day 1 (July ) “non-negotiable” Program timelines and deadlines are incredibly tight For City of Cape Town to meet its obligations will require considerable effort, full-time commitment and rapid decision making in all areas of the organisation

City of Cape Town 24 Questions and discussion