EDI HOLDINGS ANNUAL REPORT (2005/6) PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON MINERALS AND ENERGY- CAPE TOWN DOLLY MOKGATLE AND PHINDILE NZIMANDE 31 JANUARY 2007

TABLE OF CONTENTS 31 January 2007 CHAIRMAN’S OVERVIEW CEO’S REPORT Introduction Mandate of EDI Holdings Corporate Governance Performance Our Future Acknowledgements CEO’S REPORT Highlights Revised Strategic Approach / Strategic Pillars Staff Establishment Employee Management Level / Job Level / Gender Classification - Graphs Employee Racial Classification – Total / Males / Females - Graphs Employment Equity Statistics ANNUAL FINANCIAL STATEMENTS Report of the Auditor-General to Parliament Statement of Financial Position Statement of Financial Performance Cash Flow Statement PLANS FOR THE FUTURE ACKOWLEDGEMENTS 31 January 2007

CHAIRMAN’S OVERVIEW DOLLY MOKGATLE 31 January 2007

CHAIRMAN’S OVERVIEW: INTRODUCTION The Annual Report is presented in compliance with the Public Finance Management Act (Act No. 1 of 1999): Fairly presents the state of affairs of the company, Its business, Its performance against predetermined objectives, and Its financial position at the end of the year in terms of Generally Recognised Accounting Practice (GRAP). The annual financial statements are the responsibility of the Accounting Authority, i.e. the Board of Directors of EDI Holdings. The office of the Auditor-General has audited EDI Holdings’ financial statements, and issued an unqualified audit report . 31 January 2007

CHAIRMAN’S OVERVIEW: MANDATE OF EDI HOLDINGS Our mandate is guided by the White Paper on Energy for South Africa (1998) and the Blue Print on EDI Reform (2001). The main object of EDI Holdings is to restructure the electricity distribution industry and invest in financially viable independent REDs in South Africa in accordance with national Govt policy in order to ensure a more effective and efficient electricity distribution industry capable of providing affordable and accessible electricity to consumers. RED1 was established in accordance with the Presidential deadline, as outlined in the President’ State of the Nation Address of 21 May 2004. 31 January 2007

CHAIRMAN’S OVERVIEW: CORPORATE GOVERNANCE The Board of Directors is established as the Accounting Authority Annual Financial Statements presented in terms of Generally Recognised Accounting Practice EDI Holdings Board direct and guide the business in compliance with applicable legislation and has instituted the necessary policies and monitoring procedures to give effect thereto, through the following Board Committees: Audit and Risk Management Committee Internal Audit Function - outsourced Risk Management Function - outsourced Human Capital and Remuneration Committee Finance and Procurement Committee Operations Management Committee 31 January 2007

CHAIRMAN’S OVERVIEW: CORPORATE GOVERNANCE EDI Holdings maintains world class systems of corporate governance by: subscribing to the principles of good governance; adhering to and encouraging good governance practices and the highest ethical behaviour; continuing to comply with the broad principles set out in the King II Report; and assessing its systems of governance for improvement on an ongoing basis. EDI Holdings endeavours to observe all principles of corporate governance in all dealings with its stakeholders EDI Holdings will continue to comply with relevant shareholder, statutory and treasury requirements Regular compliance submissions are made to relevant authorities 31 January 2007

CHAIRMAN’S OVERVIEW: PERFORMANCE EDI Holdings complied with Corporate Governance, Shareholder, Statutory and Treasury requirements, in all its dealings with Stakeholders. The 1st RED was launched in the City of Cape Town on 1 July 2005 in line with the Presidential deadline. Creation of RED 1 represents an instructive pilot project for the overall EDI restructuring process. In line with the Cabinet decision of 14 September 2005 the company; Commenced with preparatory work for establishment of Metro REDs, Established a Multi Stakeholder Forum, and Developed a model to determine the viability of establishing a National RED and or other REDs. 31 January 2007

CHAIRMAN’S OVERVIEW: OUR FUTURE The outcome of the modelling exercise will assist Cabinet in deciding the optimal end state of the industry to ensure the establishment of financially viable and sustainable REDs The achievements for the year have laid a foundation for the attainment of EDI restructuring objectives. Key Challenges to be overcome, working closely with our stakeholders include: Enactment of enabling legislation, Development of a shared vision among stakeholders, Preparations and readiness for RED Day One 31 January 2007

CHAIRMAN’S OVERVIEW: ACKNOWLEDGEMENTS We sincerely appreciate: The leadership and guidance of the then Minister of Minerals and Energy, Ms Lindiwe Hendricks and Deputy Minister Ms Lulu Xingwana; The leadership and support of the erstwhile Chairman of EDI Holdings and Director General of the DME, Advocate Sandile Nogxina; Board of Directors of EDI Holdings CEO of EDI Holdings, Ms Phindile Nzimande; The Management and staff of EDI Holdings; and All our Stakeholders 31 January 2007

CEO’S REPORT PHINDILE NZIMANDE 31 January 2007

CEO’s REPORT: HIGHLIGHTS ESTABLISHMENT OF RED1 … 1 City of Cape Town (CCT) followed required legislative prescription prior to choosing the RED as the vehicle for electricity service provision: Municipal Systems Act (MSA) – Sections 78 and 80 Municipal Finance Management Act (MFMA) – Section 84 Registered by EDI Holdings as company – 02 November 2004 RED established as a Municipal Entity by City of Cape Town – 31 May 2005 Licensed by NERSA Commenced Operations – 01 July 2005 31 January 2007

CEO’s REPORT: HIGHLIGHTS ESTABLISHMENT OF RED1 … 2 Various agreements concluded: Service Delivery Agreement (SDA) between CCT and RED 1 Operating and Transitional Plan for Transfer Agreements (OTPTAs) between RED 1 and CCT Electricity RED 1 and Eskom (Cape Town Metro Portion) RED 1 Board appointed Business Plan and Budget Approved 31 January 2007

CEO’s REPORT: HIGHLIGHTS Stakeholder Engagement EDI Holdings embarked on an intensive stakeholder engagement process to brief various stakeholders about the EDI restructuring process and the 14th September 2005 Cabinet, with the aim to: Clarify the revised restructuring approach Minimise uncertainty in the industry Continue to debate issues relating to staff within the EDI 31 January 2007

CEO’s REPORT: HIGHLIGHTS Completion of Industry Modelling within stipulated time frame A representative Multi Stakeholder Forum (MSF) established Peer Review and Independent validation of the model Completed and submitted to DME on time & within budget Preparatory Work Towards Other Metro REDs Developed a generic Day One definition, agreed with all stakeholders Developed of regional roadmaps for Metro RED creation Created Governance structures for Metro RED establishment 31 January 2007

CEO’s REPORT: Revised Strategic Approach EDI Holdings is a flexible learning organisation that is highly responsive to changes in the restructuring environment. Having been in existence for three years and armed with the practical experience of launching RED 1, it was necessary to review the company’s strategic approach, owing to complexities brought about by: a lack of enabling legislation, varying stakeholder interests, and uncertainty regarding the desired industry end-state Our organisational structure has been realigned to revised strategy. 31 January 2007

CEO’s REPORT: Revised Strategic Approach Strategic Pillars Mandate INDUSTRY LEADERSHIP CREATION OVERSIGHT ADVOCACY EDI Holdings are the catalyst & the champion of the EDI Restructuring process: Proactive and continuous Advocacy Provide Industry thought Leadership, guiding & influencing the restructuring process Establishment of viable REDs EDI Holdings plays an oversight role in the success of the REDs; through efficiency Improvements Vision, Mission and Values 31 January 2007

Staff Establishment 31 January 2007

Staff Establishment (continued) 31 January 2007

Staff Establishment (continued) TABLE OF TOTAL EMPLOYEES BY RACIAL COMPOSITION 31 January 2007

Staff Establishment (continued) TOTAL EMPLOYEES BY RACIAL COMPOSITION 31 January 2007

Staff Establishment (continued) MALE EMPLOYEES BY RACIAL CLASSIFICATION 31 January 2007

Staff Establishment (continued) FEMALE EMPLOYEES BY RACIAL CLASSIFICATION 31 January 2007

Staff Establishment (continued) EMPLOYMENT EQUITY Employment equity figures for “Black”, “Female” and “Disabled” employees: “Black” employees (i.e. African, Asian and Coloured): Target = 70%; Actual = 72% (over-target by 2%) “Female” employees Target = 50%; Actual = 66% (over-target by 16%) “Disabled” employees): Target = 10%; Actual = 4% (under-target by 6%) BASIS OF REMUNERATION All EDI Holdings posts have been evaluated according to the T.A.S.K. grading systems. This system has been used to update job profiles and benchmark salary structure. 31 January 2007

ANNUAL FINANCIAL STATEMENTS (ABRIDGED) FOR THE YEAR ENDED 31 MARCH 2006 31 January 2007

ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2006 2005 Note R'000 ASSETS Non-current assets 10 398 13 819 Plant and equipment 2 9 283 12 079 Intangible assets 3 1 115 1 740 Current assets 15 460 31 220 Trade and other receivables 4 809 1 755 Staff loans 7 Cash and cash equivalents 14 648 29 458 TOTAL ASSETS 25 858 45 039 NET ASSETS AND LIABILITIES Net Assets Contribution from owners 5 Current liabilities Current portion of deferred income 6 13 400 13 471 Trade and other payables 7 100 16 410 Provisions 8 5 358 15 158 31 January 2007

ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT OF FINANCIAL PERFORMANCE FOR YEAR ENDED 31 MARCH 2006 2 006 2 005 Note R '000 INCOME Government grants 6 64 847 99 747 Interest received 9 1 111 3 534 TOTAL INCOME 65 958 103 281 EXPENDITURE Administrative expenses 10 21 488 65 725 Audit fees 11 152 161 Depreciation and amortisation 2 and 3 3 577 1 381 Loss on disposal / Write-off of assets 107 - Marketing costs 2 652 2 896 Project expenses 204 128 Staff costs 32 540 25 669 Other operating expenses 5 238 7 321 TOTAL EXEPENDITURE NET INCOME / (DEFICIT) FOR THE YEAR 31 January 2007

ANNUAL FINANCIAL STATEMENTS (abridged) CASHFLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2006 2005 Note R'000 Cash flows utilised in operating activities Cash receipts 946 42 Cash paid to suppliers and employees ( 81 383) ( 75 053) Cash generated from operations 12.1 ( 80 437) ( 75 011) Interest received 1 111 3 534 Net cash outflow ( 79 326) ( 71 477) Cash flows from investing activities ( 261) ( 13 951) Intangible assets ( 51) ( 1 860) Capital refurbishments ( 27) ( 5 662) Furniture and equipment ( 229) ( 6 429) Less: Proceeds from disposal of furniture and equipment 46 -   ( 79 587) ( 85 428) Cash flows from financing activities - Government Grant 64 776 54 027 Increase/(decrease) in cash and cash equivalents ( 14 810) ( 31 401) Cash and cash equivalents at beginning of the year 29 458 60 859 Cash and cash equivalents at end of the year 12.2 14 648 31 January 2007

CABINET DECISION: PLANS FOR THE FUTURE…1 Having considered technical submissions on: The financial viability of the different RED models; The institutional and governance arrangements for the REDs; and How the various models respond to the restructuring policy objectives. The Cabinet (on 25 October 2006) 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 Eskom becomes a shareholder in the respective REDs for a transitional period and that they reduce their shareholding over time; That DME, through EDI Holdings, will oversee and control the REDs; That a roadmap will be put in place to move from the current scenario into the future industry structure That a strategy needs to be developed to deal with capital investment requirements for the REDs That EDI Restructuring legislation will be introduced; and That a National electricity pricing system will be developed 31 January 2007

6 Wall-to-Wall RED Model Limpopo Provincial Boundaries RED 1 RED 6 RED 5 RED 4 RED 2 RED 3 31 January 2007

CEO’s REPORT: PLANS FOR THE FUTURE…2 Six Wall to Wall Regional Electricity Distributors (REDs) geographically anchored by the metropolitan cities, covering the whole of South Africa both rural and urban areas; Financially viable entities with a business strategy as well an asset investment strategy that will ensure sustainable and reliable quality of supply and revenue flow in perpetuity serving all South Africans; Enabling working environment, employing empowered and highly skilled people with the ability to leave, but a strong desire to remain (retention of skills) contributing to the socio-economic development of their immediate communities REDs to be setup seamlessly with minimum disruption to service delivery for the consumers Consolidation of RED1 to ensure full transfer of distribution businesses and staff (Take steps required to ensure alignment with 25 October Cabinet Decision) EDI Holdings will continue to provide thought leadership and strategic advice on EDI restructuring in order to influence policy and strategic direction 31 January 2007

CEO’s REPORT: PLANS FOR THE FUTURE…3 Key Considerations and Implementation Enablers: Governance of the REDs; Promulgation of Asset Transfer Framework to enable effective and orderly transfer of assets from local government and Eskom to the REDs; National Tariff Harmonisation Framework to ensure rationalisation of tariffs nationally; Infrastructure Investment Strategy; Salary Harmonisation Framework; Surcharge principles; Consolidation of RED 1 in the Western Cape to ensure that the pilot is a success. 31 January 2007

ACKNOWLEDGEMENTS We sincerely appreciate: The leadership and guidance of the then Minister of Minerals and Energy, Ms Lindiwe Hendricks and Deputy Minister Ms Lulu Xingwana; The leadership and support of the erstwhile Chairman of EDI Holdings and Director General of the DME, Advocate Sandile Nogxina; The Chairman and Board of Directors of EDI Holdings Stakeholders, including all spheres of Government, Eskom, SALGA, City of Cape Town, Labour, Business, the Parliamentary Portfolio Committee and all Political formations The Management and staff of EDI Holdings. 31 January 2007

THANK YOU 31 January 2007