1. Chief Operations Officer
AMEU Presentation
PRESENTED BY :
Willie de Beer
Chief Operations Officer
EDI HOLDINGS
11 October 2004
Richards Bay

2. Presentation Outline The technical reality of the current industry
The approach to restructuring
An update on a number of focus areas
Conclusion
07 December 2018
Confidential

3. A view of the Technical Reality of the current industry
The estimated replacement cost of national distribution infrastructure is in the order of R84 billion
Most of the national networks are between 20 and 40 years old
Based on the cost of unserved electricity, the national cost of power interruptions could be between R2.8 and R8.6 billion per year
Under funding of maintenance within the municipal sector is estimated at being in the order of R500 million per year
The under funded refurbishment backlog is in the order of R 6.2 billion
Customer satisfaction is on a constant decline. Based on a recent representative customer survey,
53% were unhappy with frequency and duration of power interruptions
48% were unhappy with response times to repair faults
28% believed that they are not adequately consulted when outages are planned
47% indicated that power quality in the form of low voltage or dips is inadequate
An NER survey found that:
There is little active management of network performance
Basic maintenance is generally not done
Many networks are overloaded due to load growth
… and more statistics could be quoted to demonstrate that the industry is not in a healthy state and that long term sustainability of the current state is questionable.
Source: Africon,April 2004
07 December 2018
Confidential

4. A reminder of the objective of restructuring the Electricity Distribution Industry

5. Industry Vision for Restructuring
To Consolidate the South African
Electricity Distribution Industry
Into
Six Financially Viable
Regional Electricity Distributors
07 December 2018
Confidential

6. Approach to Restructuring
Restructuring process will take place in a controlled manner with minimal risk to ongoing operations
.... whilst maintaining sufficient momentum to ensure completion
Two non negotiable deadlines as announced by President Mbeki to Parliament on 21 May 2004:
First Regional Electricity Distributor will be ready to operate by June 2005
… the whole process of the establishment of these structures will be completed by January 2007
07 December 2018
Confidential

7. Role of EDI Holdings Company
EDI Holdings core role is to plan, control and manage the process of the establishment and implementation of 6 financially viable regional electricity distribution (REDS) companies
EDI Holdings will retain effective control over the REDs during the transformation phase through special voting shares
As an interim measure, EDI Holdings will manage and facilitate the provision of short-term support in areas where ongoing reliable electricity supply is at risk by utilising existing industry capability and capacity
EDI Holdings will prepare and implement an electricity distribution industry-wide social plan to ensure equitable treatment of all employees
07 December 2018
Confidential

8. What informs our approach
There is a government decision on restructuring
There is government agreement on six REDs
There is government agreement on the spirit and the 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
07 December 2018
Confidential

9. Business Entity Model
The proposed direction will include elements that result in:
An accelerated transition where the timing and structure of the transition is predictable
An industry that presents incentives:
Attractive to investors
Promotes sound business practices and behaviour
Has clear legal accountability
The ability to operate within a governance framework which, inter alia, allows for:
Effective financial decision making and budgeting
Unrestricted borrowing powers within the context of sound business practice
Sound investment decisions
Network maintenance, refurbishment and expansion planning
Customer service and satisfaction
Effective execution of its responsibilities as a service provider
The ability to provide the market with clear tariff signals
07 December 2018
Confidential

10. Wires Business model

11. The proposed Wires Business Model
Purpose of the Wires business: to drive customer satisfaction through safe, efficient and effective distribution of reliable electricity to end customers
Characteristics
Asset intensive
Capital intensive
Geographical monopoly
Regulated
Service provider
Strategies
Customer focus achieved through availability and reliability of supply and effective communication
Adopt an asset management approach to ensure optimisation of the lifecycle value contribution of the asset
Process driven through core value chains
07 December 2018
Confidential

12. Retail Business model

13. The proposed Retail Business Model
Purpose of the Retail business: to provide an end to end customer support and interaction business model that enables effective interaction and service delivery to all customers
Characteristics
Geographical monopoly for the medium term future (excluding potential contestable customers)
Service provider with a range of service offerings to meet the service requirements and expectations of all customer segments within the RED
Self sustaining
Strategies
Holistic approach to the management of the Retail business
Utilisation of shared services to obtain economies of scale in a number of generic function e.g. Contact Centres and Account Operations
Process driven through core value chains
Procure Energy and Network Services
Develop and Market Products and Services
Acquire Customer
Manage Revenue Cycle
Optimise Customer Interaction
07 December 2018
Confidential

14. Valuation Methodology

15. EDI Holdings Position on the Valuation Methodology
The transfer of electricity distribution entities to the REDs will take the form of a sale of business.
That Depreciated Replacement Cost (DRC) methodology will be applied for the valuation of assets, including the assessment of age and condition of assets for the purpose of take on values for the balance sheet.
The Discounted Cash Flow (DCF) be used to value the entire businesses/enterprises in terms of its contribution to the RED, for the purposes of compensation and assessment of viability.
That a delicate balance between the needs of the customers (tariffs), the industry (viability) and the shareholders (compensation) be reached to minimise the negative impacts on any one of these stakeholders.
That no significant change to the position of any of these stakeholders should occur, e.g. windfall gains/losses to the existing owners.
07 December 2018
Confidential

16. Human Capital developments

17. Labour Relations Progress
There are approximately staff in the Electricity Distribution Industry currently, who will be impacted by the creation of REDs
A Transitional Labour Relations Committee Establishment Agreement has been agreed to and signed by the following parties:
Employer Organisations
EDI Holdings
Eskom
SALGA
Organised Labour
National Union of Mineworkers
National Union of Mineworkers of South Africa
Solidarity Trade Union
Independent Municipal and Allied Trade Union
South African Municipal Workers Union
07 December 2018
Confidential

18. Labour Relations Progress (cont.)
Purpose of the Agreement:
To regulate the way parties deal with one another and take decisions.
To promote a sound relationship between the parties.
To endeavour to maintain and enhance industrial peace during the period of restructuring.
To deal with any other relevant issues that may arise out of the restructuring process
07 December 2018
Confidential

19. Legal and Constitutional Matters

20. Legal and Constitutional Matters: Plans and Projections
Cabinet Memo proposals leading to a redraft of the EDI Restructuring Bill: 20 October 2004 Parliamentary Portfolio Committee meeting
Legal status; ownership and governance model: 31 October 2004
Section 78 toolkit is complete and is ready for roll-out to Municipalities
MFMA exemption to be published in the Government Gazette by 31 October 2004
Resolve by-laws applicability by 31 December 2004
07 December 2018
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21. CONCLUSION
07 December 2018
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22. Countdown
365 – 103 =262
07 December 2018
Confidential

23. Our Approach moving forward
EDI Holdings does not underestimate the complexity of moving the industry forward to a point of RED establishment and longer term industry viability. International research and experience points to a number of common reasons for the failure of large scale industry restructuring, including:
Failure to maintain focus on the customer
Overestimation of synergies
Poor cultural fit
Inability to transfer skills
Lack of vision and strong leadership
Loss of momentum or focus
Flight of talent/knowledge capital
Organisational confusion and division
Inadequate emphasis on pace of change
Inadequate attention paid to sound governance
Meeting notes
Critical Path suggestions:
BRING CAPE TOWN AND ESKOM ON BOARD WITH THE PROCESS
VALUATION OF ASSETS & SHAREHOLDING
EMPLOYEE MIGRATION PLAN
SENIOR MANAGEMENT APPOINTMENTS
FINANCIAL VIABILITY
07 December 2018
Confidential

24. Our Approach moving forward
Given the challenges facing the industry and the enormity of the task of restructuring an industry of this magnitude, it must be stated that EDI Holdings is committed to the fulfilment of its mandate to create a sustainable electricity distribution industry serving the best interests of all the people of South Africa, and in particular, the electricity customers.
To this end a vigorous Programme Management approach has been adopted to ensure delivery.
We look forward to the continued support of the AMEU in the pursuit of the achievement of a viable and sustainable electricity distribution industry in South Africa.
Meeting notes
Critical Path suggestions:
BRING CAPE TOWN AND ESKOM ON BOARD WITH THE PROCESS
VALUATION OF ASSETS & SHAREHOLDING
EMPLOYEE MIGRATION PLAN
SENIOR MANAGEMENT APPOINTMENTS
FINANCIAL VIABILITY
07 December 2018
Confidential

25. THANK YOU