NATIONAL RED/7thRED SUBMISSIONS AND HEARINGS. SUBMISSION BY CENTLEC (PTY) LTD. PRESENTED IN CAPE TOWN JUNE 2006

1. INTRODUCTION & BACKGROUND

Service area

KEY BUSINESS (CENTLEC) STATISTICS CUSTOMER BASE = 150 000 Domestic (96.7%) Commercial (2.9%) Industrial (0.4%) REVENUE BASE = +/_ R 500 million AREA OF SUPPLY = 154.4 km2 Maximum Demand = 270 MW Energy Demand = 1 404 GWh Total Overhead Lines = 3 914 km (equivalent of 2 return trips from JHB to Cape Town) Total Underground Lines = 2 254 km (equivalent of 1 return trip from JHB to Cape Town) Streetlights = 31 304

ACHIEVEMENTS OF CENTLEC (“LOCAL RED”) TO DATE 99.9% of ALL proclaimed erven are electrified. Initially a number of Southern Free State Towns had high Technical and Non-Technical Losses (as high as 30%) and those have been reduced to desirable levels (i.e. below 10%). FBE is rolled-out in all areas were CENTLEC is a service provider (including Southern Free State) - but NOT in Eskom supplied part of Townships. This results in a discrepancy in the provision of FBE to customers in the same area. In 2005 CENTLEC was awarded the International GOLD award by B.I.D, this year (2006) CENTLEC will again be the recipient of the International PLATINUM award B.I.D. Quality of Supply in CENTLEC areas is compliant with all license conditions - recent NERSA Audit

2. OUR UNDERSTANDING OF CABINET’s DECISION - 14 September 2005

CABINET’s DECISION Six Metro REDs Establishment ff. March 06 Local Government Elections Finalisation of metro REDs boundaries by 30 March 06 Modeling Exercise by EDI holdings in order to determine the viability of National RED/ LOCAL RED were feasible

3. CHALLENGES AROUND THE 7TH RED/NATIONAL RED

7th RED CHALLENGES Formation of the National RED does not translate to automatic address of Cabinet concerns viz. (i) Financial impact on municipalities and Eskom (ii) Credit rating impact (iii) Credit Control Implications Definition of reticulation if based on an inductive manner stand to undermine the well researched work of the EDI restructuring Blue Print (Approved by cabinet in 2001). Wherein restructuring was meant to affect the value chain of the Electricity Industry from 132kV and below i.e. Six wall to wall REDs Model. Electricity reticulation not a core business of Eskom Proposed National RED model outcomes are unknown to the Industry. Lack of Policy Decision around Asset Valuation Methodology, Compensation; Ownership and Nature of the entity (ME/PE). Network Control is of concern. The area is vast from Cape to Mesina - In the case of CENTLEC MLM is a SINGLE customer to Eskom. In the event of the National RED the entity will have around 150 000 customers in our area alone. This will lead to multiple control centers, which will be difficult to co-ordinate. Challenges around Staff Transfers in terms of pension funds, parity on remuneration. Tax implications to the entity and parent municipalities etc

4. RECOMMENDATIONS

CENTLEC’s RECOMMENDATIONS Re-CONSIDER THE SIX WALL TO WALL REDs MODEL AS APPROVED BY CABINET IN 2001. In the Interim Allow for roll-out of LOCAL REDs where feasible. Financial assistance to be provided for smaller municipalities when it comes to S78 of MSA. The process of tariff rationalisation to be definite in terms of time frame and empowered by legislative mechanism e.g. NERSA tariff processes. In order to ensure a unified service delivery in localities, that Eskom hand over the customers and Assets to LOCAL REDS-especially residential and commercial-as was the case in Cape Town. Such a move will expedite the FBE roll-out and electrification especially in the jurisdiction areas of category B municipalities. Conduct a detailed study on the tax implications on surplus revenue by a municipal entity and tax exemption where possible.

PULA !!!