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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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
EDI Holdings
EDI Holdings Board
02 May 2019

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. Countdown
365–112= 253
02 May 2019

30. THANK YOU