PRESENTATION OUTLINE Establishment Governance Performance Annual

PRESENTATION OUTLINE Establishment Governance Performance Annual Financial Statements Current Status Update Conclusion 2 November 2005 Slide 1

ESTABLISHMENT 2 November 2005 Slide 2

ESTABLISHMENT EDI Holdings was established in March 2003 Objective: Facilitate the restructuring of the Electricity Distribution Industry in accordance with the requirements of the Energy White Paper of 1998, Blueprint report of 2001 and subsequent Cabinet decisions 2 November 2005 Slide 3

ORIGINAL TIME LINE Eskom Distribution 726 migration EDI Oversee and Support Municipal ring fencing and preparation EDI Implementation Refinement EDI Planning 1st RED EDI Holdings Establishment Q3 FY03 Q4 Q1 FY04 2 November 2005 2nd RED Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY05 FY06 Business Plan Period April 2004 to March 2007 Q3 Q4 Q1 Q2 Q3 Q4 FY07 Slide 4

PERIOD UNDER REVIEW Eskom Distribution 726 migration EDI Oversee and Support Municipal ring fencing and preparation EDI Implementation Refinement EDI Planning 1st RED EDI Holdings Establishment Q3 FY03 Q4 Q1 FY04 2 November 2005 2nd RED Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY05 FY06 Business Plan Period April 2004 to March 2007 Q3 Q4 Q1 Q2 Q3 Q4 FY07 Slide 5

GOVERNANCE 2 November 2005 Slide 6

GOVERNANCE Annual Report presented in terms of the Public Finance Management Act,1999 (Act No.1 of 1999) The Annual Report reflects: Financial statements of EDI Holdings (Pty) Ltd for the 2004/2005 Financial Year Prepared in terms of Generally Accepted Accounting Practice (GAAP) Audited by the Office of the Auditor-General Financial position at the end of the financial year Performance against predetermined objectives 2 November 2005 Slide 7

GOVERNANCE Board of Directors in place Board Committees established Audit & Risk Management Human Capital & Remuneration Programme Management Finance & Procurement Operations Regular meetings held 2 November 2005 Slide 8

GOVERNANCE Internal Audit Independent auditors Annual audit plan Risk management Fraud prevention Compliance Code of Ethics Stakeholder Communication 2 November 2005 Slide 9

PERFORMANCE 2 November 2005 Slide 10

PERFORMANCE Period under review focussed on Planning for EDI restructuring Preparation for establishment of the first RED Development of key positions for engagement Stakeholder management Communication Concluding level 3 and below recruitment Embedding governance and project management practices 2 November 2005 Slide 11

PERFORMANCE Performance highlights Preparation for establishment of the first RED Finalisation of Ringfencing framework and toolkit Finalisation of Section 78 framework and toolkit Request for relevant exemptions to the Public Finance Management Act / Municipal Finance Management Act to facilitate RED creation Draft profiles for REDs Board members Reservation of company name Preparation of initial financial and 3 year business case Establishment agreements: Sale of Business, Service Delivery Agreement, Shareholder Agreement & Operating Lease Agreement Articles and memorandum of association 2 November 2005 Slide 12

PERFORMANCE Performance highlights Development of key positions for engagement Valuation and compensation framework Wholesale Energy Purchasing and Pricing Approach Tariff Approach Framework Embedded Generation Strategy Asset Condition Assessment Model & Maintenance Management Framework Industry change management strategy Transfer, appointment, migration of employees & bargaining structures 2 November 2005 Slide 13

PERFORMANCE Performance highlights Stakeholder management Launch of Transitional Labour Relations Structure (October 2004) Stakeholder management and engagement strategy Stakeholder analysis Stakeholder engagements programme including: Parliamentary Committees, Ministries, Legislatures, Municipalities, Eskom, SALGA, NEDLAC, NER, etc. Communication Media Communities 2 November 2005 Slide 14

ANNUAL FINANCIAL STATEMENTS 2 November 2005 Slide 15

ANNUAL FINANCIAL STATEMENTS Balance Sheet 2005 R'000 2004 R'000 ASSETS Non-current assets Capitalised refurbishments, furniture & equipment 13 819 1 250 Current assets Trade and other receivables Cash and cash equivalents 31 220 1 762 29 458 62 579 1 720 60 859 TOTAL ASSETS 45 039 63 829 EQUITY AND LIABILITIES Capital and reserves Issued capital Current liabilities Current portion of deferred income Trade and other payables Provisions 45 039 13 471 16 410 15 158 63 829 59 191 4 503 135 TOTAL EQUITY AND LIABILITIES 45 039 63 829 2 November 2005 Slide 16

ANNUAL FINANCIAL STATEMENTS Income Statements 2005 R'000 2004 R'000 99 747 14 796 Interest received 3534 1 358 Operating costs 103281 16 154 (103 281) (16 154) Income Government grants Net income/(deficit) 2 November 2005 Slide 17

ANNUAL FINANCIAL STATEMENTS Cash Flow Statements Cash flows utilised in operating activities Cash receipts Cash paid to suppliers and employees Interest received Net cash outflow Cash flow from financing activities Share capital issued Capital refurbishments, furniture and equipment acquisitions Cash flows from investing activities Government grant capital amount Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Cash at bank Cash on call Petty cash 2 November 2005 2005 R'000 2004 R'000 42 (75 053) (75 011) 3 534 (71 477) (13 951) (13 951) (85 428) 54 027 54 027 (31 401) 60 859 29 458 50 (11 453) (11 403) 1 358 (10 045) (1 313) (1 313) (11 358) 72 217 72 217 60 859 60 859 2 679 26 773 6 29 458 60 859 60 859 Slide 18

CURRENT STATUS UPDATE 2 November 2005 Slide 19

CURRENT STATUS – NOVEMBER 2005 In Progress Eskom Distribution 726 migration EDI Oversee and Support Municipal ring fencing and preparation In Progress EDI Implementation Refinement EDI Planning 1st RED EDI Holdings Establishment Q3 FY03 Q4 Q1 FY04 2 November 2005 2nd RED Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY05 FY06 Business Plan Period April 2004 to March 2007 Q3 Q4 Q1 Q2 Q3 Q4 FY07 Slide 20

RED ONE First RED: RED ONE Commenced operations on 1 July 2005, in line with Presidential deadline Initial area of supply consists of the area of jurisdiction of the City of Cape Town SDA signed between the RED & CCT Operating agreements in place between the RED, City of Cape Town and Eskom whilst finalising transfer of business arrangements Issued with a license by the NER 6 Independent Board Members, CEO & COO appointed 2 November 2005 Slide 21

RED ONE Progress update: Induction of the Board of Directors Operational strategy development Population of macro structure Preparation for transfer of business of City of Cape Town and Eskom Distribution in the area of jurisdiction of the City of Cape Town Stakeholder engagements 2 November 2005 Slide 22

CURRENT STATUS – NOVEMBER 2005 In Progress Eskom Distribution 726 migration EDI Oversee and Support Municipal ring fencing and preparation In Progress EDI Implementation Refinement EDI Planning Revised 1st RED EDI Holdings Establishment Q3 FY03 Q4 Q1 FY04 2 November 2005 2nd RED Restructuring Approach Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY05 FY06 Business Plan Period April 2004 to March 2007 Q3 Q4 Q1 Q2 Q3 Q4 FY07 Slide 23

REVISED RESTRUCTURING APPROACH Key concerns raised over original boundaries/approach: Fiscal and financial risks of transferring Eskom and Municipalities electricity businesses to the REDs Financial impact on municipalities and Eskom Credit rating impact Credit control implications Cost and liabilities implications of transferring Eskom and Municipalities staff to the REDs Impact on personnel benefits – Pensions, medical aid, etc. Salary harmonisation Definition of reticulation to eliminate possibility of constitutional challenge 2 November 2005 Slide 24

REVISED RESTRUCTURING APPROACH Restructuring approach Create 6 Metro REDs after Local Government Elections Conduct modelling, within 6 months, to determine feasibility of creating a National RED, its viability and sustainability, organisational structure and governance arrangements Based on modelling results, make recommendations on the best model to achieve the objectives of restructuring and to optimise service delivery Introduction of restructuring legislation to provide the legislative framework for RED formation and to remove the risk of the currently open-ended process 2 November 2005 Slide 25

REVISED RESTRUCTURING APPROACH Structure of National RED(s) subject to modelling exercise National RED(s) 2 November 2005 Slide 26

REVISED RESTRUCTURING APPROACH Implementation principles Restructuring must be in accordance with the Constitution, taking into account that the responsibility of electricity reticulation is a municipal function Financial state of municipalities currently performing the electricity function must not be adversely affected Aggregate personnel costs must not increase in a way that undermines the objective of a single public service No additional funds or taxes (fiscus and/or local government) without the approval of Cabinet 2 November 2005 Slide 27

REVISED RESTRUCTURING APPROACH Key Policy Assumptions National cross subsidy framework Constitutional powers of municipalities regarding “reticulation” Regulation of municipal surcharges Impact on Eskom Role of Eskom in National RED Contestable customers Transfer of assets Competition 2 November 2005 Slide 28

REVISED RESTRUCTURING APPROACH Progress thus far: Ministerial Committee in place Minerals & Energy, Provincial & Local Government, Public Enterprises and Finance Inter-governmental Forum established DDG’s: Minerals & Energy, Provincial & Local Government, Public Enterprises and Finance Modelling technical team established Commencement meetings held Agreed on approach, process and timeline to modelling Participation of all stakeholders critical 2 November 2005 Slide 29

CONCLUSION 2 November 2005 Slide 30

CONCLUSION Way Forward Consolidate the gains made Complete modelling and agree final REDs boundaries Ensure the creation of an enabling legislative environment for the establishment of the REDs Establish financially viable and sustainable REDs within the set timelines 2 November 2005 Slide 31

CONCLUSION Acknowledgements Ms Phumzile Mlambo Ngcuka, Minister of Minerals and Energy for period under review Ms Lulu Xingwana, Deputy Minister of Minerals and Energy Advocate Sandile Nogxina, Director General – DME, Chairman of the Board for period under review Board of Directors of EDI Holdings Stakeholders: Parliamentary Committees, Ministries, Legislatures, Municipalities, Eskom, SALGA, NEDLAC, NER Management & Staff of EDI Holdings (Pty) Ltd Welcome Mrs Lindiwe Hendricks, Minister of Minerals and Energy 2 November 2005 Slide 32

THANK YOU 2 November 2005 Slide 33