CORPORATE PLAN 2003/04

April 2003

Royal Road - Curepipe - Mauritius • http: //www.ceb.intnet.mu

A Summary of CEB’s Strategic Direction

CENTRAL ELECTRICITY BOARD

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MESSAGE FROM THE MINISTER OFPUBLIC UTILITIES HON. AL AN G ANOO

I am pleased to be associated with the launching of the CEB Corporate Plan 2003/04.

The document marks a great stride in the Board’s determination to map out its strategies and

define its objectives within the perspective of the ongoing power sector reform. It shall be of

vital importance to those at the pinnacle, ready to lead the organisation to success within the

framework of policy objectives of Government.

The Corporate Plan would also serve as a useful guide for the employees of the CEB, and I am

sure it will help to foster greater partnership so that the process of change is implemented in

the best possible conditions with broad consensus.

Business success rests to a great extent on well-thought-out strategies and the adaptation of

one and all to dynamic conditions that come along with them. Such strategies should, however,

not be a straitjacket but should be the subject of review as and when necessary in the light of

changes in the business environment and in the country.

Last but not the least, the CEB’s endeavour to progressively achieve financial sustainability is

laudable, but this has to be done whilst reckoning with social and economic considerations, a

reality which the CEB will certainly take into acccount in its drive to move ahead.

I have great pleasure in commending the Corporate Plan to all stakeholders including the

consumers.

Alan Ganoo

Minister of Public Utilities

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M E S S A G E F R O M T H E C H A I R M A N

T here is a cliché which says, “If you don’t know where you are going, any road will

take you there.” Through this Corporate Plan, CEB is making public our strategic

direction and demonstrating that we not only know where we are going, but that we have

indeed charted a path for our future. We believe that, to fulfill our Mission and achieve our

Vision, we must share this information with Government, customers, employees, and other

stakeholders. By making this Corporate Plan public, we stimulate the participation of each

and every one of our employees in achieving our goals and allow our stakeholders to know and

hold us accountable for the direction we have set.

Implementing this Corporate Plan and achieving the goals outlined within it presents CEB

with a formidable challenge. As the Plan reveals, however, we have already taken many steps

along our proposed path, thus signifying our commitment to providing Mauritius with high

quality electricity services in the years to come.

Professor A. S. Kasenally

Chairman

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M E S S A G E F R O M T H E G E N E R A LM A N A G E R

On behalf of the management team of the Central Electricity Board, I have thehonour to present you the Corporate Plan 2003/04.

The Central Electricity Board aspires to become a modern utility operating on sound businessprinciples, delivering value and quality service to our customers and other stakeholders. It isin this context that the Central Electricity Board is releasing a Corporate Plan for theyears 2003 /04.

This Corporate Plan sets out the overall business strategy for the utility, establishes prioritiesand objectives, which will provide direction and unity of purpose throughout the organization.Further it will assist in setting key performance indicators and targets aimed at achieving thestrategic goals of the organization.

P. Van Niekerk

General Manager

H I G H L I G H T S

This is the first Corporate Plan the Central Electricity Board (CEB) has produced. It hasbeen prepared during a time of major change in the country’s electricity sector. The

Government of Mauritius has embarked on a series of sector reforms under which it will retain overallresponsibility for essential public services, such as the provision of electricity, but at the same timeimplement the necessary legal and administrative steps to move CEB from a parastatal body to acorporate entity. Having CEB operate as a corporate entity according to sound business principles -while remaining fully owned by Government - will allow the Government to free up precious financialsupport and resources for other public needs.

CEB is positioning itself to deliver value to its customers and its owner through a number of internalinitiatives. These initiatives are intended to move CEB to an effective and efficient integrated utility,and include:

INTERNAL REORGANISATION AND RESTRUCTURING

The organisational structure is being redesigned in order to focus on the core competencies of amodern electricity utility and improve organisational efficiency. A new information system plan is beingimplemented in order to revitalize the organisational communication channels with the objective tointegrate the activities of our various administrative, commercial, financial and engineering sectionsand to meet the information needs of our customer service, operations, and strategic managementprocesses.

FOCUS ON CUSTOMER SERVICE

Our service relationship with our customers lies at the heart of our business. In order to instill quickerresponsiveness to customers’ needs and a sense of accountability, three Customer Service Areas havebeen created. Each Area is responsible for the efficient supply of electricity to customers in one of thethree geographical areas into which we have divided the island. In addition, CEB is reviewing itsstandards of quality of supply and service, and, in the future, will establish a modern call centre and acentralised customer information system.

TECHNICAL EXCELLENCE

In line with the latest tech-nological advances, CEB hasinvested in a new systemcontrol centre and is pro-ceeding with the reorganisa-tion of its power systemoperations, protection andcommunications divisions forgreater monitoring and pre-vention of power outages.Additionally, a new automatedmeter reading system is understudy in conjunction with thedesign of a streamlined billing,collection and customer ser-vice operating strategy.

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RESOURCE DEVELOPMENT STRATEGY

To ensure a secure supply of electricity for Mauritius, CEB is preparing a long-term electricity planwhich will document the outlook for current and future electricity demand and lay out a series ofcapital investments in transmission and distribution operations infrastructure, an expansion plan fornew sources of generation, as well as programs to promote demand-side management.

CEB is undertaking these initiatives at the same time as it faces other challenges, including:

r An ageing work force with significant retirement eligibility, emphasising the need to attract andretain individuals with skills critical to the future of the business and, at the same time, enablingknowledge transfer from retiring employees.

r Debt obligations of Rs 4.3 billion, which have compounded due to almost a decade of operationswithout a tariff increase but with simultaneous heavy investment in new generation, transmission,and distribution assets to meet growing electricity demand. Though reduced somewhat in 2002through a combination of payments and restructuring, the current bank overdraft remains atRs 500 million.

r Required strategic capital and operating investment in information systems and technology toeffectively operate in an increasingly sophisticated information society, to better understand andserve our customers, and to promote productivity and innovation within the company.

C O N T E N T SPage

1. INTRODUCTION 8

2. STRATEGIC CONTEXT 9

2.1 Electricity Sector Reform Overview 92.2 Organisational Overview 9

2.2.1 Background 92.2.2 Current Company Profile 10

2.3 Our Vision 122.4 Our Mission 132.5 Our Corporate Values 13

3. CORPORATE GOALS 14

3.1 Development of Corporate Goals 143.2 Increase Financial Soundness and Efficiency 143.3 Build an Integrated Planning Capability 153.4 Make CEB the Most Desirable Employer in Mauritius 153.5 Implement Enabling Information Systems 163.6 Meet International Standards for Supply of Electricity and Customer Service 16

4. ORGANISATIONAL OBJECTIVES 17

4.1 Corporatisation 174.1.1 Overview 174.1.2 Communications Plan 174.1.3 Legislation 174.1.4 Establishment of a Utility Regulatory Body 174.1.5 CEB Successor Company 17

4.2 CEB Business Transformation 184.3 Organisational Restructuring 18

4.3.1 Overview 184.3.2 Corporate Planning & Research Department 194.3.3 Information Technology & Management Information Systems Department 194.3.4 Transmission & Distribution Department 194.3.5 Finance Department 204.3.6 Production Department 204.3.7 Internal Audit Department 204.3.8 Corporate Administration Department 214.3.9 Human Resource Department 214.3.10 Rodrigues 21

5. FINANCIAL OUTLOOK 22

5.1 Financial Highlights, 2002 225.1.1 Sales and Revenues 225.1.2 Costs and Cost Drivers 22

5.2 Financial Plans, Years 2003 and 2004 235.3 Strategies to Manage Key Parameters 245.4 Electricity Tariffs 24

6. STRATEGIC PLANNING FRAMEWORK 26

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1 . I N T R O D U C T I O N

The purpose of a Corporate Plan is to embody the overall business strategy of a company bysetting priorities and objectives for the whole organisation against which achievements can

be assessed during the lifetime of the Plan. This is the first Corporate Plan prepared by CEB forpresentation to the Government of Mauritius and the public.

This Corporate Plan provides:

(i) an assessment of the key issues facing CEB in light of the power sector reform initiative;

(ii) the strategic direction envisioned for successful business restructuring on commercial principles;and

(iii) a look at the financial status of the organisation as well as strategies to improve financial resultsfor the years ahead.

The strategic direction and goals of this Corporate Plan will live for many years. CEB intends to publishBusiness Plans which will outline the specific objectives and targets the organisation has set for itself,how CEB expects to meet those targets, and progress in meeting the targets. By outlining thecompany’s strategies and objectives, this Corporate Plan will provide a baseline for judging thecompany’s future performance.

This Plan is divided into five main sections:

r Strategic Context provides an overview of the business environment in which we find ourselves andthe corporate Vision, Mission and Values that will motivate and sustain our organisation’sdevelopment.

r Corporate Goals identifies the core capabilities, strategies and objectives, which we must attain inorder to succeed in today’s business environment.

r Organisational Objectives describes the business restructuring activities taking place in order totransform our organisation into a viable utility capable of facing the challenges ahead and achievingour corporate goals.

r Financial Outlook reviews our current financial position, the revenue expectations and expenditureforecasts for years 2003 and 2004, along with key assumptions, risks and strategies to manage keyparameters.

r Strategic Planning Framework outlines the interrelationships between the various corporate andoperational planning activities in the organisation. The planning processes are in progress andshould run their first full cycle in 2004.

The information contained in this Plan is current up to the end of March 2003. However, reform of theelectricity sector is likely to have a significant impact on CEB and some of the strategies and objectivesoutlined herein may change.

2 . S T R AT E G I C C O N T E XT

2.1 ELECTRICITY SECTOR REFORM OVERVIEW

I n meeting the social obligations of electricity provider to a rapidly growing island nation, theCentral Electricity Board has not always been able to operate on commercial principles. This

has contributed to our weak financial position in recent years. Given that the country is nowcompletely electrified and the standard of living has risen for a majority of the population, CEB can nowbegin to balance social obligations with operations as a commercial entity.

This is in harmony with Government’s long termplan for the power sector, which aims to create afinancially sound and self-sustaining electricitysector; a transparent and fair regulatoryenvironment that appropriately balances theinterests of consumers, shareholders and suppliers;and a modern power sector responsive to customers’expectations of a high quality of service and supplyreliability. The regulatory framework for the presentelectricity sector is generally provided by theElectricity Act of 1981. In the near future,Government will establish a transparent regulatoryframework and will enact the appropriate enablinglegislation. The regulatory framework will provide abasis for the establishment of the power sectoreconomic, financial, environmental, and servicepolicies.

To realise its plans for the sector, the Government of Mauritius committed in October 2000 to improvethe financial condition of the sector through improvements in efficiency, reductions in systemexpansion costs, and injection of fresh capital through private participation by taking the followingdistinct steps:

t Corporatise the CEB as a vertically-integrated utility;

t Set up an independent, multi-sectoral regulator; and

t Invite a strategic partner to assist in the management of CEB.

2.2 ORGANISATIONAL OVERVIEW

2.2.1 BACKGROUND

The Central Electricity Board is a parastatal body wholly owned by the Government ofMauritius and reporting to the Ministry of Public Utilities. Established on 8th December

1952 and empowered by the Central Electricity Board Act of 25 January 1964, CEB’s business is to“prepare and carry out development schemes with the general object of promoting, coordinating andimproving the generation, transmission, distribution and sale of electricity” in Mauritius.

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In this chapter...

...We provide an overview ofthe business environment inwhich we operate and thecorporate Vision, Missionand Values that willmotivate and sustain ourorganisation’s development

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From a humble sales figure of98 million kWh and a maximumdemand of 31 MW at the time ofthe country’s independence in1968, we at the CentralElectricity Board have focusedour efforts on the supply ofelectricity to all sectors of oursociety, thereby contributing tothe social and economicdevelopment of the country overthe years. At the same time as wewere completing the nationalrural electrification programmein 1981, we were also extendingour networks to supply newindustries following the settingup of the export processingzones and the needs of a growingtourism sector and textileindustry.

Conscious of the country’s heavydependence on an uninterruptedand stable electricity supply,CEB has invested massively inbuilding up generation capacity,mainly in heavy fuel oil-firedpower stations. All hydropotential had been exploited asof 1983 when the DiamamouveDam was completed, supplyingwater to the Champagnehydroelectric power station.

In 2002, electricity sales totalled 1,492 million kWh. CEB itself produced about 968 million kWh ofenergy – some 57 percent of the country’s requirements – from its four thermal power stations andeight hydroelectric plants, which have a combined capacity of 367 MW. The remaining 43 percent ofenergy requirements was purchased from independent power producers, which have a total firmcapacity of 111 MW and produce electricity mainly from coal and bagasse. With a workforce ofapproximately 1,800 employees, CEB safely and dependably delivers electricity to more than 330,000customers through 7,300 km of distribution network.

2.2.2 CURRENT COMPANY PROFILE

We have assessed the current profile of the organisation by considering:

t our strengths and internal core competencies;

t our structural weaknesses;

t opportunities for improving our business processes, customer service, and finances; and

t potential business threats and risks we face.

STRENGTHS

Over the years, CEB has developed a strong contingent of engineering expertise. We have achieved agood post-cyclone reinstatement record and developed the ability to respond effectively in emergencies.On the financial side, the business benefits from a customer base with a good payment record and lowdebtor days. We have recently been working on building a good relationship with Independent PowerProducers, our partners in electricity generation. Moreover, CEB has Government’s support for ourtransformation into a strong and profitable business.

WEAKNESSES

Though our engineering processes are up to date, our organisational activities and business processeshave not evolved with time. The main structural weaknesses stem from a lack of business orientationand customer service focus. Operating within a parastatal environment has not allowed profitability orefficiency to motivate and shape decision-making processes and policies, nor has it encouragedinnovative thinking. Cumbersome policies and procedures and lengthy, bureaucratic decision-makingprocesses have contributed to a poor public image. The absence of a modern information technologyand management information system means our employees are not equipped with the tools they needto analyse information flows and control work flow processes in a proactive, methodical way.

The absence of a long-term human resource development policy, coupled with an undeveloped cultureof customer service, means our employees may not feel empowered to deliver the level of service ourcustomers would prefer. The lack of an incentive-based performance policy has not encouraged ouremployees to adopt innovative ideas. In some critical specialties, a staff development plan is requiredto address the lack of key competencies. Communications can always improve, and we realise internaland external communications must improve in this period of change in order to reduce employees’unease about the reform process and their resistance to change.

OPPORTUNITIES

With change comes opportunity. Reform of the power sector will present CEB with a broad range ofopportunities to improve our levels of customer service and modernise our technical capability andinfrastructure. By making wider use of IT applications and tools, we will be able to integrateoperational systems, web-enable business processes, and provide better consumer information services.Promotion of energy efficiency equipment and load profile management strategies are other areas thatpresent opportunities for us to achieve cost savings while improving service to our customers.Alongside the power sector reform initiative, corporatisation and working on commercial principlespresents CEB with a major opportunity to turn around our financial situation.

THREATS

CEB is in a precarious financial situation, with a sizeable bank overdraft and high debt level. With morethan 50 percent of our power production based on heavy fuel oil (diesel) we are vulnerable to volatilityin fuel prices. Moreover, we retain the obligation to provide electricity services, yet our supplies ofelectricity depend, increasingly, on outsourced generation. Increasingly stringent environmentalcompliance requirements and a diminishing ability to obtain rights-of-way for our networks threaten toimpose further financial burdens, for example, as huge capital investments would be required to placeall our overhead power lines underground. Internally, employee demographics reveal the risk of braindrain caused not only by the retirement of an experienced but ageing workforce, but also bycompetition for key skills in the labour market. Traditional electrical and power systems engineeringis seen by many young people today as a dying profession when compared to computer or softwareengineering and other occupations in the high technology industries.

This honest self-assessment provides the baseline from which we will chart the course of our strategicdirection.

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2.3 OUR VISION

We have developed a vision which describes CEB’s picture of success, what we aspire to looklike as we carry out our business in the future. In our Vision we see ourselves as a world

class, commercial electricity utility enabling the social and economic development of the region.

By “World Class” we mean that CEB will:

t Be responsive to our customers’ needs;

t Develop and motivate our employees;

t Optimise the management of our assets withexcellent operational practices;

t Provide suitably priced products and services;and

t Be environmentally responsible.

By “Commercial” we mean thatCEB will:

t Be profitable;

t Provide financial returns to ourowner, the Government ofMauritius; and

t Take advantage of marketopportunities in line with ourcore business and assets.

We see ourselves as “Enabling” by:

t Playing a role in shaping theelectricity sector and marketstructure; and

t Assisting our customers with the energy requirements of their homes and businesses.

We recognise that electricity is a fundamental enabler of “Social and Economic Development”. Byproviding an assured, fairly priced supply of electricity, we will:

t Enable entrepreneurs to grow their businesses and provide competitive products and services;

t Help the nation to develop know-how that can be transferred to other parts of the region; andthereby

t Bring financial and social benefits to the local economy.

Our service territory and the focus of our service is Mauritius, but we enhance our presence in the“Region”, meaning:

t Indian Ocean Community;

t Southern African Development Community; and

t Common Market for Eastern and Southern Africa.

Our Vision:

A world class, commercialelectricity utility enablingthe social and economicdevelopment of the region.

2.4 OUR MISSION

W e understand that the future of our business depends on delivering value and qualityservice to our customers and stakeholders, and that our business is to provide our

customers, not with simply electricity, but with the benefits they want; in other words, comfort,security, entertainment, and the ability to carry on business and industry. Our Mission statement,therefore, describes the business we are in and how we go about carrying out that business.

2.5 OUR CORPORATE VALUES

Our corporate values say whatwe stand for; they describe our

organisational climate, attitudes,behaviours, and working relationships - notonly for those within our organisation, butalso for the suppliers and contractors whoact on our behalf. As we move forward withour Corporate Plan we will endeavour tohave our people exhibit these values in theirday-to-day work.

RESPECT, HONESTY, AND LOYALTY:

We deal with our colleagues, customers andstakeholders on the basis of trust, honestyand respect for differing views andinterests. `We shall remain loyal to theideals, ethics and values of the company.

PRIDE AND OWNERSHIP:

We shall act responsibly and participateactively in building pride and ownership ofour corporate values.

COURTEOUS, EXCELLENT SERVICE:

The nation is our client. We shall always endeavour to provide a courteous and excellent service insatisfying the electricity service needs of the Mauritian public.

SUPERIOR PERFORMANCE:

We perform our tasks in a professional manner and produce our outputs to the best of our ability, withoptimum utilisation of resources and with a focus on continuously improving the quality and reliabilityof the electricity supply.

TEAM CULTURE:

We involve our people in the success of our organization. We value initiative, cooperation, innovation,communication and flexibility in our work. We encourage, support, and involve staff in the mechanismsand processes through which we make decisions in our organization.

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OUR MISSION:

WE MEET THE EXPECTATIONS OF OUR

CUSTOMERS AND STAKEHOLDERS BY: • DELIVERING PROMPT AND EFFICIENT

CUSTOMER SERVICES

• DEVELOPING OUR EMPLOYEES AND

PROVIDING THEM WITH INCENTIVES

• PROVIDING AN AFFORDABLE, SAFE,AND RELIABLE ELECTRICITY SUPPLY

• UNDERTAKING OUR BUSINESS IN AN

ENVIRONMENTALLY RESPONSIBLE

MANNER

• BEING THE PREFERRED EMPLOYER IN

THE REGION

Our Mission:

We meet the expectations of ourcustomers and stakeholders by: • Delivering prompt and efficient

customer services• Developing our employees and

providing them with incentives• Providing an affordable, safe,

and reliable electricity supply• Undertaking our business in an

environmentally responsible manner• Being the preferred employer in

the region

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3 . C O R P O R AT E G O A L S3.1 DEVELOPMENT OF CORPORATE GOALS

To help us achieve ourstrategic vision we have

identified five, manageable goalswhich build on our strengths,overcome our weaknesses, takeadvantage of our opportunities, andattempt to circumvent any threats.

We have developed strategies,described below, aimed at achievingeach of these goals. In futureBusiness Plans, we will discuss andreport on key performance indi-cators and targets for these goals,reporting also our performanceagainst these targets. While somestrategies will be largely imple-mented in the next 12 to 18 months,we anticipate reporting significantprogress in achieving all these goalsby the end of 2005.

3.2 INCREASE FINANCIAL SOUNDNESS AND EFFICIENCY

To achieve our Vision as a world class electricity utility, we must dramatically improve ourfinancial situation. Our strategies to achieve the goal of financial soundness and efficiency

include making improvements to a number of existing internal processes as well as introducing newprocedures and staff functions. These strategies embody:

t Improving internal financial processes;

t Modernising billing and revenue collection processes;

t Ensuring capital authorisation requests are business-case driven.

t Actively managing financial risks; and

t Implementing a path to profitability by:

- Minimising capital borrowings;

- Reducing bank overdraft;

- Reducing production and other costs; and

- Sustaining and growing our revenue base.

In this chapter...

Our five corporate goals are to:• Increase financial soundness and

efficiency.• Build an integrated planning capability.• Make CEB the most desirable employer

in Mauritius.• Implement enabling information systems.• Meet international standards for supply of

electricity and customer service.

3.3 BUILD AN INTEGRATED PLANNING CAPABILITY

To ensure a secure and cost-effective supply of electricity for customers in Mauritius, CEBcreated a Corporate Planning & Research Department with responsibility for long-term

planning including demand forecasting, generation planning, transmission and distribution planning,and strategic projects. The strategies of this planning group embody:

t Implementing integrated planning processes to improve business preparedness, reduce overallsystem expansion costs, and mitigate risks;

t Identifying and developing initiatives to meet and manage current and future electricity demand;

t Reviewing power purchase agreements and identifying areas where future agreements can berefined; and

t Maximising the profitability of existing and new assets.

3.4 MAKE CEB THE MOST DESIRABLE EMPLOYER IN MAURITIUS

The path to becominga world class electri-

city utility depends on ourability to attract, retain, andmotivate people. With an ageingwork force and an externalenvironment of evolving social,lifestyle, and demographictrends, we recognise that wemust not only build up a morediverse base of in-house skills,we must also establish a moremodern employer-employee rela-tionship. Strategies to assist inthe achievement of this goalinclude:

t Completing an employeeprofile;

t Preparing a comprehensive Human Resources Plan to:

- Attract and retain individuals with critical skills;

- Foster knowledge transfer from retiring employees;

- Provide succession plans; and

- Introduce a performance appraisal and remuneration system which includes performance-basedcompensation and incentives for employees to achieve corporate and personal development goals.

t Implementing a change management program; and

t Designing and implementing staff training programmes on both technical and business subjects.

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3.5 IMPLEMENT ENABLING INFORMATION SYSTEMS

Advances in information and communications technology (ICT) have increased the power ofthe consumer and given companies the ability to redefine their relationships with their

customers and stakeholders. CEB must invest in ICT infrastructure, tools, training, and support notonly to provide our customers with a high level of service, but also to improve internal processes andefficiency. CEB has already made progress toward this goal by preparing a comprehensive InformationSystem Plan in late 2002. Other strategies related to achieving this goal include:

t Accelerating the execution of the Information System Plan;

t Acquiring replacement IT systems and systematically rolling out computers to personnel across theorganisation;

t Optimising communications infrastructure; and

t Reinforcing the IT/MIS Department staff.

3 . 6 MEET INTERNATIONAL STANDARDS FOR SUPPLY OF ELECTRICITY ANDCUSTOMER SERVICE

I mproving thequality of our

service delivery willimprove our customerrelationships at the sametime as it contributes toother objectives such asrevenue growth and costreduction. A decade ofoperating with a missionto “keep the lights on” ina period of sustained,rapid growth in theeconomy of Mauritius hasnot produced a culturewith a strong customerservice mindset. Both theelectricity deliverybackbone and our staffmust be developed andstrengthened. Strategies to address both these areas include:

t Restructuring the Distribution Department and creating three Customer Service Areas - AreaNorth, Area Centre, and Area West - with responsibility for providing “one-stop” customer serviceneeds in each Area;

t Developing and implementing a comprehensive, integrated protection plan to minimise thefrequency and severity of power outages; and

t Introducing a customer service orientation among field staff and highlighting areas whereperformance improvement is necessary.

4. ORGANISATIONAL OBJECTIVES4.1 CORPORATISATION

4.1.1 OVERVIEW

One of the mechanisms Government intends to use to achieve the objectives of power sectorreform is to corporatise the Central Electricity Board into a new company. A series of legal

framework, corporate governance, financial,technical, market, tariff and human resourceissues require immediate attention as part of theprocess of corporatisation and CEB - along withGovernment - has begun to systematicallyaddress these issues through a series of steps andplans as described in the following sections.

4.1.2 COMMUNICATIONS PLAN

In order to be as open as possible and therebygain the cooperation of all stakeholders,communication plans are being developed toaddress the information needs of the public,employee unions, and donor/lender institutions.

4.1.3 LEGISLATION

As a new, corporatised entity, CEB would bevested with the powers and responsibilities of anelectricity undertaking and entrusted with assets and staff to operate in a regulated market as avertically integrated electricity company. Accordingly, the following legal steps are being undertaken:

r Amendment of the Electricity Act of 1939.

r Establishment of the CEB Transfer Act to transfer assets, rights, and obligations of the existingcompany to the new company.

r Enactment of the Utility Regulatory Bill for the establishment of an independent regulatory body.

4.1.4 ESTABLISHMENT OF A UTILITY REGULATORY BODY

An independent regulator will have a pivotal role in the restructured electricity sector. Not only will itprovide a forum for the regulation of utility undertakings and the regulation of the utilities’ operatingenvironment, it will ensure that utilities under its jurisdiction operate in a manner consistent withconsumers’ interests. Government, in conjunction with its legal advisers, is currently drafting theconditions under which the regulatory body will be set up and operate.

4.1.5 CEB SUCCESSOR COMPANY

The steps and terms under which the successor company to CEB will be established are proceeding withthe following activities:

r Drawing up Memorandum and Articles of Association.

r Registering the new company.

r Issuing of a licence to take over and carry on CEB’s business.

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In this chapter...

...we describe the businessrestructuring strategies takingplace in order to transformthe organisation into a viableutility capable of facing thechallenges ahead and achievingits corporate goals.

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r Confirming the financial conditions of the successor company on Day One; i.e., after transfer fromCEB.

r Confirming the conditions under which existing CEB staff and pensioners will be transferred to thenew company.

4.2 CEB BUSINESS TRANSFORMATION

Our business - today and tomorrow - is all about service delivery to our customers. Thefollowing diagram illustrates the concept using the analogy of a railway. Service is what

we are delivering by means of the two railway tracks; i.e., through excellent Operations and CustomerService. These tracks are supported by corporate functions and shared business services, namely,Planning, Finance, and other Corporate Services. The tracks and their support illustrate theinteractions of the various organisational units as we go about our business of electricity servicedelivery.

CEB is not, however, currently well structured to fit this picture nor to operate on commercialprinciples. For the successful restructuring of its business, CEB embraced the new strategic directionoutlined in this Corporate Plan in 2002 and has already begun to implement several businessenhancement measures to transform operational and business processes in different departments, asdiscussed next.

4.3 ORGANISATIONAL RESTRUCTURING

4.3.1 OVERVIEW

The organisation is being restructured to reflect the necessity of improving CEB’spreparedness to cope with the process of modernisation in an environment where customers

are demanding more choice and better service, the electricity sector is undergoing reform, theelectricity service market is becoming more open to competitors, competition is increasing for keyskills in the labour pool, and CEB is short of funds to finance the expansion of generation, transmissionand distribution assets. In the process of reviewing our business and customer activities to find areaswhere we could become more efficient and customer focused, each of our Departments is undertakingvarious initiatives.

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4.3.2 CORPORATE PLANNING & RESEARCH DEPARTMENT

Most electric utilities have an in-house, long-term planning unit and CEB created its own CorporatePlanning & Research Department in 2002. The availability of long-term, integrated electricity plans willenable CEB to ensure a rational and fair budgeting process whereby scarce resources are appropriatelyallocated while providing reliably for the nation’s electricity needs on a cost-effective basis. Activitiesof the Department will contribute significantly to the Corporate Goals of Increasing Financial Soundnessand Efficiency and Building an Integrated Planning Capability.

The Department is developing a comprehensive forecasting process, not only to secure adequatesupplies of electricity but also to provide an outlook for CEB’s revenues. Volatility in the energy sectorglobally - whether from oil prices or other economic trends - and in the Mauritius economy affect bothdemand for electricity services and the price volatility CEB must manage. Preparing and trackingdemand and sales forecasts will give CEB the ability to recognise risks and take mitigative action.

In December 2002, the Department issued a Request for Proposals for 30 MW to 40 MW of new powersupply to come into service in mid-2005. This was the first time CEB has initiated a competitivebidding process for new sources of power generation. In this process, a select group of bidders, whohad over the past several years already presented CEB and Government with various proposals andfeasibility studies for new generation projects, were invited to submit proposals in accordance with theRFP. In future, CEB expects to open up such processes to independent power producers globally, thusensuring that electricity consumers in Mauritius benefit from the most competitively priced,technically sound, and environmentally safe sources of generation.

Another key area of activity for the Department is the development of a revised tariff structure and five-year tariff strategy. Working with demand forecasts, system expansion needs, and financial projections,the Department is using a newly developed model to assist in the setting of tariffs that provide CEBwith reasonable revenues to cover its costs of supplying electricity services and, at the same time, arefair to all classes of electricity consumers both in terms of pricing and equity among the variouscustomer categories.

4.3.3 INFORMATION TECHNOLOGY & MANAGEMENT INFORMATION SYSTEMS DEPARTMENT

CEB set up an Information Technology and Management Information System (IT/MIS) Department in2002 with the objective to integrate the activities of our various administrative, commercial, financialand engineering sections and to meet the information needs of our customer service, operations, andstrategic management processes. The Department prepared an Information Systems Plan whereby wewould obtain an adequate level of information technology and systems in a phased approach over thenext three to five years.

A request for proposals for implementation of Phase I of the Information System Plan is currently beingcompleted. This first phase will provide us with a flexible, powerful toolkit with which to efficientlymanage the administrative, financial, and operational activities that relate directly to customer serviceand relationships. The information technology system will also manage and update the databases of ourassets, networks, customers, employees and other resources, thus providing critical information foreffective decision-making throughout the organisation. An internal IT support service and trainingprogramme will also be designed and implemented.

4.3.4 TRANSMISSION & DISTRIBUTION DEPARTMENT

The former Commercial Department was integrated with the Transmission and DistributionDepartment and the whole restructured around three, decentralised Customer Service Areas with theobjective of improving operational efficiency and at the same time instilling better responsiveness tocustomer needs. The Areas are set up on a geographic basis covering the island of Mauritius in termsof Area North, Area Centre, and Area West, with an Area Manager heading up each Area. The Areas are

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responsible for providing “one-stop” customer service; that is,responsibility for both the operational and financial performance ofeach Area is entrusted to each Area Manager.

In order to improve our responsiveness to customers’ complaints andbetter meet customers’ expectations, we are reviewing the customerservices function on an on-going basis. In this context, the newinformation system will make available critical information on ourcustomer base and transactions, including tracking of customerenquiries, new supply requests, application processing, meter readingand bill processing, payment collection and back-office processes in realtime.

To improve system reliability while meeting increasing demand, we arelaunching several technical and techno-commercial projects, such as automated meter reading, controlof system losses, and augmentation of the transmission and distribution network.

4.3.5 FINANCE DEPARTMENT

In late 2002 CEB carried out a business process review of the Finance Department, encompassing allareas of activity within the current Department as well as the organisation and structure of theDepartment. The review included procurement procedures, billing and collection processes, andbusiness case formulation for capital authorization requests. At the same time, a financial forecastmodel - a critical strategic tool for decision making which will also assist in long-term financialplanning and budgeting - was developed. Also included in the review was an assessment of the need fordedicated staff to handle foreign exchange and risk management.

As a result of the review, we will be making a number of structural and procedural changes in theDepartment. Some external recruiting is now taking place, in accordance with identified needs; a newformat for budget reporting to monthly Board meetings is being introduced; an accounting exercise isbeing carried out to update our asset register and restate the value of our assets; and a new charter forthe Finance Committee of the Board is being developed.

4.3.6 PRODUCTION DEPARTMENT

Several enhancements in spare parts holdings and the inventory management system are beinginvestigated, in light of improved global communication and transportation facilities as well as supplier-buyer networks. A strategic generation availability plan is currently being developed, as is a least costgeneration dispatch model, in collaboration with the Corporate Planning & Research Department.

Fuel costs are one of the key contributors to CEB’s financial position. A strategic fuel holding plan isunder study to optimise fuel ordering and holding and to safeguard against any force majeure such asshortage of fuel supply-line availability. Reward incentives at the level of each of our power stationsare under review in an effort to increase operational effectiveness.

The operating conditions and constraints at our older power stations are under review, as is the impactof recent water resource developments on our existing hydroelectric resources. These constraints maylead to a downrating of the capacity and energy potential from existing generation sources. The long-term outlook for replacement of aging plant by new and additional generation plant is under study bythe Corporate Planning & Research Department.

4.3.7 INTERNAL AUDIT DEPARTMENT

The business process review of the Finance Department also included the audit function. As a resultof this review, we are drawing up an audit charter for the Board’s Audit Committee, prioritising auditobjectives for the coming years, and preparing a company risk profile.

4.3.8 CORPORATE ADMINISTRATION DEPARTMENT

The Corporate Administration Department was formed in 2002, taking in functions of the previousAdministration Department as well as functions of the Company Secretary.

This Department is managing the legal, communications, and administrative aspects involved in sectorreforms, such as setting up of a CEB successor company, the legal framework for the corporatisationprocess, and registration of the new company under the Companies Act, and transfer to the newcompany of all existing assets as well as contracts binding CEB to third parties.

4.3.9 HUMAN RESOURCES DEPARTMENT

CEB, like any organization, is made up of individual people whose roles interact, and is best regardedas a system, which needs to be geared to respond to the changing environment. The structure, culture,processes and systems of CEB are interdependent, with the common factor being our human resources.The Human Resource Department will have a crucial role to play in the future plans of making CEB themost desirable employer in Mauritius.

CEB—through its people—must remain competitive, responsive, flexible and adaptive to change. TheHuman Resource Department is challenged with providing the strategic fit; that is, making sure wehave the required skills to support our business strategies and realise our goals and objectives. A humanresource audit will be carried out to identify skills and staff capability, and a staff planning system willbe devised to ensure we will have the right skills in the right place. The performance and rewardmanagement system will be reviewed so as to encourage innovation and to recognize success inachieving change. A systematic training and development programme will also be set up in order toprovide our people with the opportunity to widen and enhance their skills and abilities. The HRdepartment is currently working on several levers of change, which encompass the following:

r Job evaluation and training;

r Conditions of service and industrial relations;

r Change management programme;

r Communication programme to welcome change and overcome resistance to change;

r Staff planning, training, and development;

r Managing culture and commitment; and

r Reward and performance management.

4.3.10 RODRIGUES

We are in the process of constructing a new thermal power station at Pointe Monnier to augment thepower currently produced at our Port Mathurin power station. Two 1.9 MW heavy fuel oil-firedgenerators will be commissioned in 2004 to cope with future demand growth which is expected tocontinue at the rapid pace we have witnessed over the past few years. The new site at Pointe Monnieralso provides space for future development and expansion.

We have completed the feasibility study and Environmental Impact Assessment Report for a new windpower generation site at Trefles. Three 60 kW wind turbines will be installed at this site, marking thebeginning of a renewable energy strategy for the island.

The village of Roche Bon Dieu, in eastern Rodrigues, is participating in a pilot project to assess thepotential benefits of switching to energy-saving household lighting. This project of the RodriguesCouncil of Social Services is being funded by the United Nations Development Programme GlobalEnvironmental Facility through a small projects grant. Should the pilot project prove successful, nextsteps will include expanding the project island wide.

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5 . F I N A N C I A L O U T L O O K5.1 FINANCIAL HIGHLIGHTS, 2002

5.1.1 SALES AND REVENUES

After many years of double-digit growth, energy sales increased in 2002 over 2001 by onlyabout 3 percent. Sales reached 1,492 GWh in 2002 compared to 1,450 GWh in 2001.

Lower sales could be attributed to a slightly lower GDP growth rate caused by a slowdown in theeconomy, deferment of certain major projects coupled with the closure for renovation of several majorhotels. Sales decreased slightly with the passage of Cyclone Dina in early 2002; however, this effect wastemporary and short-lived.

Total revenue from sales of electricity in 2002increased to Rs 4,538 million, representing anincrease of Rs 607 million, or 15% percent, over theprevious year. This increase arose mainly as aconsequence of the 10 percent increase in electricitytariffs and the revision of meter rents from Rs 2 toRs 5, measures which took effect in January 2002.

The rise in electricity tariffs did not offset the lowersales; therefore, our financial situation remainsprecarious.

5.1.2 COSTS AND COST DRIVERS

The major sources of costs for CEB are shown in thefigure below for Fiscal Years 2001 and 2002, andcomprise the following four elements:

r Purchase of electricity from Independent Power Producers and Continuous Power Producers,accounting for about 30 percent of annual turnover in 2002;

r Interest charges and servicing of loans and overdraft, accounting for about 24 percent of annualturnover in 2002;

r Purchase of fuel and lube oil, accounting for about 23 percent of annual turnover in 2002; and

r Operations, maintenance, and salaries and general administrative expenses for the organization asa whole, accounting for about 18 percent of annual turnover in 2002.

MAJOR COST COMPONENTS AS A PERCENTAGE OF ANNUAL TURNOVER

In this chapter...

...we review our currentfinancial position, revenueexpectations and expen-diture forecasts for years2003 and 2004, along withkey assumptions, risksand strategies to managekey parameters

Balance left forother expenses

OperatingExpenses

for the wholeorganisation

18%

Operating Expensesfor the wholeorganisation

Purchase ofFuel Oil & Lube

Purchase ofFuel Oil & Lube

Servicing of LoansPurchase of Electricity Servicing of Loans Purchase of Electricity

18% 22%

31%29%

5% 23%

30%24%

18%

2001 2002

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Two of these four items—electricity purchases and purchase of fuel and lubricating oils—constituteinescapable annual disbursements over which we have little or no control and which we must make toprovide the energy our customers demand. Servicing of our loan commitments represented about24 percent of our annual turnover last year. We are taking all steps practical to consolidate or restruc-ture our debt and reduce the bank overdraft in an effort to reduce our debt servicing obligations.

The final cost driver is our operating expenses, which logically we can control. At 18 percent of annualturnover, however, this item does not present a large base from which to work.

In 2002, this quartet of cost drivers absorbed 95 percent of our revenues. Only the remaining 5 percentcould be used to meet other costs and/or make allowance for minor but essential capital expenditures.

5.2 FINANCIAL PLANS, YEARS 2003 AND 2004

CEB’s fiscal year runs from January 1 to December 31 each year. The current financial planand 2003 Budget were developed in late 2002 based on current levels of business activity

and a business-as-usual approach. The budgeting process will be revamped in 2003, in line with thegoals and objectives of this Corporate Plan. A longer-term outlook with key performance indicators andtargets identified will be presented as part of CEB’s financial outlook in future Business Plans.

The outlook for Fiscal Years 2003 and 2004 was based on the key assumptions outlined below:

ASSUMPTIONS YEAR 2003 YEAR 2004

Demand Growth 7.6 % 11.3 %

Customer growth 3.0 % 3.0 %

Price for Electricity Purchases 2002 prices 3.0 % increase

Heavy Fuel Oil Price 8 % increase 8 % increase

Hydro Availability Normal Rainfall Normal Rainfall

Foreign Exchange Rates 5% decline in MUR 5% decline in MUR

Inflation Rates on local costs 3 % increase 3 % increase

Electricity Tariffs Same as at 01.01.2002 Same as at 01.01.2002

PROJECTED EXPENDITURES AS A PERCENTAGE OF ANNUAL TURNOVER

OperatingExpenses

Purchase ofFuel Oil & Lube

Loan Capital paymentPurchase of Electricity

18% 26%

28%15%

2003 2004

Balance left forother expenses

5%

8%InterestCharges

OperatingExpenses

Purchase ofFuel Oil & Lube

Loan Capital payment Purchase of Electricity

17% 30%

28%16%

Balance left forother expenses

2%

7%

InterestCharges

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Based on a forecast of electricity sales of 1,606 GWh in 2003, and 1,784 GWh in 2004, and assumingno upward revision in tariffs, we forecast the corresponding turnover to be Rs 4,855 million andRs 5,394 million, respectively. Major expenditures as a fraction of those revenues are shown in thediagrams above.

A particular characteristic of the electricity industry is its capital-intensiveness. In 2003, the business-as-usual budget requirement for investing in capital projects is estimated at Rs 1,168 million, or about24 percent of expected turnover. From the preceding diagrams we see that only about 5 percent ofexpected turnover would be available for other expenses, including capital expenditure. In other words,in order for CEB to finance the refurbishment and renewal of our capital assets, either expected loanrepayments must be rescheduled or more funds borrowed from external sources.

In 2004, notwithstanding the forecast 11 percent increase in turnover, which in itself is subject touncertainty, the balance available for other expenses is projected to drop to 2 percent of turnover.However, we project an amount of about Rs 455 million, i.e., over 8 percent of forecast turnover, willbe required for financing capital projects. Clearly CEB will be looking for the participation of privatecapital in key infrastructure investments in the coming years at the same time as we seek to balanceour own financial outlook.

5.3 STRATEGIES TO MANAGE KEY PARAMETERS

F luctuations in the global price of fossil fuels and currency exchange rates are dominantdeterminants of both the purchase price of fuel oil and of electricity purchased from

independent power producers in Mauritius. For instance, the price of fuel oil used for the Fort Georgegenerating station—which produces about 40 percent of the energy generated in Mauritius—has variedfrom USD 129 to USD 178 per metric tonne during the course of 2002 alone. The IPP purchase priceis indexed on the exchange rates of both the Euro and U.S. Dollar. Over the last three years, theMauritian Rupee has lost approximately 20 percent and 15 percent of its value against each of thesecurrencies, respectively. In addition, most of our loans and procurement expenses are denominated inforeign currencies yet all our revenues are in Mauritian Rupees. This leaves CEB with the managementof foreign exchange risk.

The business process re-engineering planned for our Finance Department aims to address thischallenge using a two-pronged approach. First, the financial forecast model will enable us to forecastour costs and thus our revenue requirements. Second, risk management policies to be adopted in thenear future will permit us to assess the impacts of these key parameters on our financial position. Inthe light of these evaluations, decisions can be taken on whether to actively manage the risks—whichhas its own costs—take other actions to attenuate any adverse impacts, or simply bear the risks.

5.4 ELECTRICITY TARIFFS

One of the root causes of CEB’s unfavourable financial situation can be traced back to aneight-year period between 1992 and 2000 where electricity rates were held constant during

a period of massive capital investment to meet rapidly growing electricity demands in Mauritius andwhen the average annual inflation rate was 6.6 percent. As a joint UNDP/World Bank energy sectorreview in 1994 concluded, CEB’s tariff structure and price levels were not appropriately set in such away that electricity consumers would be charged the real costs they impose upon the electricity system.While this policy of subsidising electricity prices has been beneficial to the annual growth rate of ournational gross domestic product and to socially vulnerable groups in the population, it has dramatically

worsened the financial situation of the organisation. In real terms, that is net of inflation, the averageselling price of one unit of electricity has decreased steadily from just over Rs 2 per kWh in 1992 toapproximately Rs 1.30 per kWh in 1999, as depicted in the graph above.

In 2001, about 633 million kWh representing 43 percent of the total electricity sales in Mauritius weresold below the actual cost. Figures are comparable for 2002. Clearly, if we are to meet our financialobligations today and in the future, our electricity rates must be aligned with our true costs ofproduction, transmission, distribution and operation. A five-year tariff strategy is under preparation.Changes will be phased in over a period of several years in order to avoid imposing rate shocks on ourcustomers. The 5-year tariff strategy will also enable us to more systematically forecast our revenuesand thereby plan a resource allocation programme for our various business units in a more rationalmanner.

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2.20

2.00

1.80

1.60

1.40

1.20

1.00

1992

1993

1994

1995

1996

1997

1998

1999

2000

Rs/kWh

Year

REAL AVERAGE SELLING PRICE OF ONE UNIT OF ELECTRICITY

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6. STRATEGIC PLANNING FRAMEWORK

CEB is developing a strategic planning framework for the organisation as a whole based onan on-going process of analysing all inputs and trends affecting the national electricity

market and proposing business solutions dictated by the following four requirements:

t Satisfy the national electricity needs;

t Achieves optimal value at least cost for the customer;

t Be financially viable for the utility; and

t Be compatible with the strategic direction of the utility.

The strategic planning framework can be represented diagrammatically as follows:

Plan

Elements of the planning framework can be described as follows are:

Corporate Plan embodies our Vision, Mission, and Values and, by identifying corporate goals aspriorities, sets the strategic path along which we must direct our energies and resources in the short,medium, and long term.

Business Plan reports progress on and variations from the strategic impetus and direction set by theCorporate Plan. It examines our position within the current operating environment and in light ofmarket and industry trends and then details the organisational and business strategies to be appliedwithin each of our core business units to ensure business success. The Business Plan sets theobjectives, projects, and key performance targets to be achieved by each core unit in the short andmedium term.

Financial Plan verifies the business viability of our organisation. Based upon forecasts of our revenues,it analyses the funding structure for our expansion programme and ensures an optimal allocation ofour financial resources across the core units. It is the master plan which guides our cash flowpositioning, debt servicing projection requirements, capital budgeting and asset management policies,and against which our financial performance is evaluated.

Operational Plans are action plans listing the activities to be performed by various sections of theorganisation at the functional level. For example, an annual preventive maintenance programme is anoperational plan which will impact directly on key performance indicators such as outages and qualityof service.

The Integrated Electricity Plan constitutes the blue print for the rational and successful developmentof the utility’s core business, i.e., generation, transmission and distribution of electricity. It proposesa least cost expansion programme based on

t The energy and capacity demand-supply balance;

t Generation capacity expansion outlook;

t Transmission and distribution expansion and network strengthening plan;

t Long-term capital investment plan; and

t Short-term action plan.

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CENTRAL ELECTRICITY BOARD

P.O. Box 40 - Royal Road - Curepipe - Mauritius - http: //www.ceb.intnet.mu