PRESENTATION TO PORTFOLIO COMMITTEE ON MINERALS AND ENERGY MS PHINDILE NZIMANDE CEO – EDI HOLDINGS 20 OCTOBER 2004

Current Industry Structure Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path Scheduling Metering & Billing Industry Business Residential Municipalities ESKOM Physical Energy Flow Financial Flow Transmission Generation Distribution 02 May 2019

Challenges Facing the Industry Current industry structure is highly inefficient owing to fragmentation Inadequate maintenance of networks Inability to supply electricity to the indigent Unequal treatment of consumers across the country Significant disparities in tariffs Absence of economies of scale in respect of investing in assets, sharing of facilities, services, regulation, people development etc. Limited opportunity to introduce competition 02 May 2019

History of Restructuring Early 1990s Considerable Debate over EDI 1997 REDs Approach Endorsed ERIC Report 1999 Cabinet Approved Start of Restructuring Process End 1999 EDIRC Established April 2000 Appointment of PWC Aug 2000 Blueprint Submitted to EDIRC Blue Print Approved by Cabinet: May 2001 02 May 2019

EDI Restructuring Context THE WHITE PAPER ON ENERGY 1. The energy white paper instructs a restructuring approach that: Is transparent Builds public confidence Seeks to clarify organisational roles Communicates policy effectively Integrates policy processes 02 May 2019

EDI Restructuring Context (cont.) 2. The key policy drivers to energy restructuring is: To redress economic and social power imbalances To recognise and cope with multi-causal linkages in the energy sector 02 May 2019

EDI Restructuring Context (cont.) 3. Energy restructuring occurs within the context of a macro-economic framework that: Promotes growth Promotes redistribution by creating jobs and Reallocates resources through the budget 02 May 2019

EDI Restructuring Context (cont.) 4. Electricity as a critical energy form has the following challenges: Increasing access and affordability energy services Improving governance and delivery Stimulating economic development 02 May 2019

EDI Restructuring Context (cont.) 5. Key achievables will include: A comprehensive electrification programme Establishment of a consolidated electricity distribution industry Industry conducive to effective regulation Creation of an authority to manage the restructuring of the electricity distribution industry Creation of sustainable distribution entities (Regional Electricity Distributors [REDs]) 02 May 2019

EDI Restructuring Context (cont.) 6. The multi-causal linkages within the electricity distribution industry sector include: The Municipal fiscal challenges Economic growth impact Consumer Price Index impacts (including PPI) 02 May 2019

EDI Restructuring Context (cont.) 7. The Intergovernmental challenges for the electricity distribution industry: Definition of the “electricity service” The revenue generation potential of electricity to local government Universal access and indigency 02 May 2019

Main Features of Blue Print Six REDS Creation of EDI Holdings EDI Holdings to have effective control over REDS Human Resources Planning including Social Plan RED ownership Cost reflective tariffs Prices to poor households to be capped Local Government levy on electricity prices 02 May 2019

Main Features of Blue Print (cont.) Special deals for large industry to be honoured Mitigate the required increase in tariffs Electrification to continue Competition for large customers Regulation of electricity distribution industry Transitional support to the weakest distributors Support for EDI Holdings for the restructuring process 02 May 2019

Industry Vision for Restructuring To Consolidate the South African Electricity Distribution Industry Into Six Financially Viable Regional Electricity Distributors 02 May 2019

Blueprint view of Electricity Distribution Industry Current Blueprint view is focusing on resolving current issues within the Electricity Distribution Industry Scheduling Metering & Billing Industry Generation Residential Transmission 6 REDs Physical Energy Flow Financial Flow Business Physical and financial flows follow the same path, allowing for in-house cross subsidisation. 02 May 2019

REDs Boundaries Limpopo Gauteng Mpumalanga North West Free State Provincial Boundaries Limpopo Gauteng Mpumalanga North West Free State Kwa-Zulu Natal Northern Cape Eastern Cape Western Cape Metros 02 May 2019

EDI Holdings Established March 2003, chaired by the Director General of Department of Minerals and Energy Plan, control and manage the process of the establishment and implementation of 6 financially viable regional electricity distribution (REDs) companies Retain effective control over the REDs through special voting shares Manage the provision of short-term support by strong and capable electricity providers Prepare and implement an electricity distribution industry-wide social plan and other plans. 02 May 2019

EDI Holdings Board Members Advocate S Nogxina Ms Phindile Nzimande Mr Willem de Beer Mr Abel Mawela Dr Zavareh Rustomjee Ms Nelisiwe Magubane Ms Judy Parfitt Ms Dolly Mokgatle Mr Ashley Ally Mr Jacob Maroga Ms Annelies Jacobs Mr Clive Dunstan Ms Thokozile Mashiane Mr Oupa Komane Dr Steve Lennon Mr Thabo Mokwena 02 May 2019

What Informs Our Approach There is a government decision on restructuring There is government agreement on 6 REDs There is government agreement on the spirit and letter of the co-operative agreement There is industry enrolment on the broad objectives of the restructuring process The current legislative framework is not an impediment to restructuring but there are challenges of alignment Government is committed to creating enabling legislative mechanisms for the restructuring process 02 May 2019

Proposed Time Line 02 May 2019 Q3 Q4 Q1 Q2 FY03 FY04 FY05 FY06 FY07 EDIH Establishment EDI Planning EDI Implementation EDI Oversee and Support Q3 Q4 Q1 Q2 FY03 FY04 FY05 FY06 FY07 Refinement Eskom Distribution 726 migration 1st RED 2nd RED Business Plan Period April 2004 to March 2007 Municipal ring fencing and preparation 02 May 2019

Phases of Restructuring STAKEHOLDER MANAGEMENT EDI Holdings RED Monitoring Process Planning and Ring fencing of EDBs Establish REDs Support and Oversee REDs CURRENT PERIOD JUNE 2005 - 2008 EDI Holdings EDI Holdings Board 02 May 2019

Highlights From Last Financial Year EDI Holdings Establishment on course RED Implementation Corporate Strategy Developed (Three Year Business Plan) Red Boundaries Finalised Financial Modeling for the REDs Done Ringfencing Framework and Toolkit Finalised Stakeholder Interaction Labour Consultation Transitional Mechanisms Various Forums established A number of municipalities have taken steps to prepare for the restructuring process 02 May 2019

Highlights From Last Financial Year (cont.) Core Strategic Frameworks Developed Stakeholder Management Finance Operations Human Resources Legal Level 2 recruitment 100% complete, Level 3 is about 50% complete 3 year Business Plan approved (Budget A) Metro / Municipality Status Buffalo City Council resolution to sign agreement Cape Town Council resolution to sign agreement Ekhurhuleni Signed Ethekwini Going through Section 78 Johannesburg Signed Mangaung Signed Motheo Signed Msunduzi Going through Section 78 Polokwane Signed Rustenburg Signed Tshwane Signed 02 May 2019

Plans And Projections First RED criterion finalised May 2004 RED DAY ONE definition finalised June 2004 Preparation for FIRST RED finalised March 2005 Legally registered March 2005 Organisational structure finalised March 2005 RED Board and CEO appointed March 2005 Operational Transitional Plan March 2005 Critical contracts in place March 2005 Ringfencing in FIRST RED finalised March 2005 Valuation and Compensation Strategy finalised August 2004 Shared services feasibility study August 2004 Tariffs and Regulatory Framework September 2004 RED creation economic impact study report finalised September 2004 Ringfencing in other REDs commences September 2004 Taxation impact analysis November 2004 02 May 2019

High Level Budget Figures SUMMARY OF TOTAL EXPENDITURE BY CATEGORY - R'000 EXTERNAL RESOURE EXPENDITURE I OPERATIONAL EXPENDITURE 169,156 49,454 57,931 61,771 1 DIVISION EXPENDITURE 123,220 34,502 42,631 46,087 2 CORPORATE EXPENDITURE 35,186 11,445 11,719 12,022 3 OFFICE OF THE CEO EXPENDITURE 10,750 3,506 3,581 3,663 II CAPITAL EXPENDITURE 5,135 4,012 722 401 4,003 3,127 563 313 974 761 137 76 159 124 22 12 GRAND TOTAL BEFORE CONTINGENCY PROVISION 174,291 53,466 58,653 62,172 CONTINGENCY 1.00% 1,743 535 587 622 GRAND TOTAL AFTER CONTINGENCY PROVISION 176,034 54,000 59,240 62,794 02 May 2019

High Level Budget Figures (cont.) SUMMARY OF TOTAL EXPENDITURE BY CATEGORY - R'000 I EXTERNAL RESOURE EXPENDITURE 1,180,536 399,746 606,408 174,652 1 EDI HOLDINGS ESTABLISHMENT 6,250 2 REDs PLANNING 833,486 393,226 437,884 2,376 3 REDs IMPLEMENTATION 188,500 93,524 94,976 4 REDs OVERSEE / SUPPORT 152,300 75,000 77,300 II OPERATING EXPENDITURE 255,348 81,453 84,985 88,909 III CAPITAL EXPENDITURE GRAND TOTAL BEFORE CONTINGENCY PROVISION 1,435,884 480,929 691,393 263,561 CONTINGENCY 1.00% 14,359 4,809 6,914 2,636 GRAND TOTAL AFTER CONTINGENCY PROVISION 1,450,242 485,738 698,307 266,197 02 May 2019

Key Challenges to the Process Financial viability of Municipality without electricity departments Assistance in completing the ring-fencing activities Review performance against budgeted performance and form assessment of budgeting skills Re-establish the financial control environment, including re-issuing financial regulations, monthly bookkeeping and administration procedures, financial skills audit and reporting Identify the difficulties in revenue management, particularly in billings, data and credit control Assess impact of bad debts Details of any other contingent liabilities to which the company is, or may be exposed 02 May 2019

Key Challenges to the Process (cont.) Municipalities have a constitutional obligation to ensure the provision of services listed in Schedule 4B and 5B of the Constitution Municipalities have a constitutional competence “to administer” electricity service (inter alia) National Government has an obligation to ensure national norms and standards, especially on matters that affect national economic policies and activities Electricity is the life blood of economic and social development in South Africa Electricity distribution industry restructuring seeks to achieve integrated co-operation within this context Interim and ultimate ownership of REDs by municipalities is meant to address this Centralised institutional leverage 02 May 2019

Countdown 365–112= 253 02 May 2019

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