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EDI RESTRUCTURING UPDATE Presentation to the 60 th AMEU Convention by PHINDILE NZIMANDE CEO: EDI Holdings 15 October 2007. Presentation Outline. EDI Restructuring Context Cabinet Decision: 25 October 2006 RED Establishment Roadmap The Deal What support can be expected? - PowerPoint PPT Presentation
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EDI RESTRUCTURING UPDATE
Presentation to the 60th AMEU Convention
by
PHINDILE NZIMANDE
CEO: EDI Holdings
15 October 2007
Slide 2
Presentation Outline
EDI Restructuring Context
Cabinet Decision: 25 October 2006
RED Establishment Roadmap
The Deal
What support can be expected?
Conclusion
Slide 3Slide 3
EDI RESTRUCTURING CONTEXT
Slide 4
Industry
Business
Residential
Scheduling
Physical Energy Flow
Financial Flow
Mu
nicip
alities
Metering & Billing
Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path
ES
KO
M
Current Electricity Supply Industry Structure
180
Slide 5
Current industry structure is highly inefficient owing to fragmentation
Absence of economies of scale in respect of investing in assets, sharing of facilities, services, people development
Inadequate maintenance of networks
Estimated maintenance backlog: R5 bn accumulated over the past 10 years
Supply interruptions cost to the Economy: R2.9 bn to R 8.6 bn p.a.**
Inequitable treatment of consumers across the country
Significant variance in average tariffs by Distributors:
Range#: 19c/kWh – 71c/kWh (medium sized business)
16c/kWh – 60c/kWh (domestic customers)
Inconsistent Electrification Performance Access to electricity: ~73 % (National)
Slow and Inconsistent Roll-Out of FBE
Reliability of supply and the ability of the distributors to offer a basic and secure supply to low income households differs markedly across the country
Current rollout is less than 40% of targeted community
Key Challenges Facing the EDI
** Source: 2003/4 National Integrated Resource Plan (NIRP) ; # Source: NUS Consulting Study - 2005
Slide 6
EDI Restructuring Objectives
Energy White Paper Objectives (1998) EDI Restructuring Blueprint Objectives (2001)
Ensure electrification targets are met Achievement of government’s electrification programme
Universal access to electricity for all South Africans
Provide low-cost electricity Sustainable electricity supply to low-income consumers, regardless of location, at affordable prices
Facilitate better price equality
Improve the financial health of the industry
Future REDs to operate on a sustained, financially viable basis as independent businesses
Improve quality of service and supply Acceptable and sustainable levels of supply security and quality Foster proper co-ordination of
operations and investment capital
Attract and retain competent employees Future REDs to provide secure employment to their employees, provide skills development and training consistent with a high technology, modern distribution business
Transition to be done within the context of a comprehensive human resources strategy and an agreed social plan
Planned and managed transition
Slide 7
RED ONE Experience
RED ONE commenced operations on 1 July 2005, in line with Presidential deadline
Area of supply consisted of the area of jurisdiction of the City of Cape Town
SDA signed between the RED & CCT
Operating agreements were in place between the RED, City of Cape Town and Eskom whilst finalising transfer of business arrangements
Issued with a license by the NERSA
Had 6 Independent Board Members
CEO, CFO & COO were appointed
No electricity distribution assets were transferred to RED ONE
The company has since been dissolved
Slide 8
Implementation Challenges
Experience
First RED created as a Municipal Entity
Delays and tardiness in executing requisite activities to create viable operation
entities
Ambivalent support by some stakeholders towards the achievement of the
national objectives
Lessons
Absence of an enabling legislative framework
Incompleteness and misalignment of existing legislative regime
The negotiated nature of restructuring makes it impossible to assure the
anticipated objectives and results within the stipulated timeframes
Slide 9Slide 9
25 OCTOBER 2006 CABINET DECISION
Slide 10
Having considered technical submissions on:
The financial viability of the different RED models;
The institutional and governance arrangements for the REDs; and
How the various models respond to the restructuring policy objectives.
The Cabinet approved the following:
That 6 wall to wall REDs be implemented;
That the REDs be established as public entities and be regulated according to the PFMA and the
Electricity Regulation Act;
That Eskom becomes a shareholder in the respective REDs for a transitional period and that
they reduce their shareholding over time;
That DME, through EDI Holdings, will oversee and control the establishment of REDs;
That a roadmap will be put in place to move from the current scenario into the future industry
structure
That a strategy needs to be developed to deal with capital investment requirements for the REDs
That EDI Restructuring legislation will be introduced; and
That a National electricity pricing system will be developed.
Cabinet Decision: 25 October 2006
Slide 11
6 Wall-to-Wall RED Boundary Map
RED 1
RED 4
RED 2
RED 3
RED 6
RED 5
Provincial Boundaries
Cape Town UniCityEkurhuleni MetroNelson Mandela MetroJohannesburg MetroeThekwini Metro
Tshwane Metro
Slide 12
Key Considerations and Implementation Enablers
Key Implementation Enabler Status Update
Governance of the REDs Dealt with within the EDI Restructuring Legislation/RED Establishment Bill
Electricity Restructuring Legislation This Process is driven by DME.. The Bill does make provision for critical outstanding Policy Issues that will be addressed later in Regulations promulgated by the Minister. The RED Establishment Bill is targeted to be promulgated at the end of 2007.
Promulgation of Asset Transfer Framework to enable effective and orderly transfer of assets from local government and Eskom to the REDs
Municipalities and Municipal Entities were, on 5 April 2007, exempted from or in respect of the provisions of sections14 and 90 of the MFMA. The exemption relates to the transfer of ownership or otherwise disposal of capital assets (moveable and immovable), owned by municipalities and used for the provision of electricity reticulation and other electricity services, to REDs or public entities
National Pricing System EDI Holdings has provided input to DME on Wholesale and Retail tariffs as well as a National Tariff Harmonisation Framework to ensure rationalisation of tariffs nationally
Salary Harmonisation Framework At the moment we are focusing on securing signed collective agreements on Transfer and Placement and Migration of Legacy employees into the REDs. A Harmonisation Framework has been developed for discussions with the unions
Capital Investment Strategy for Infrastructure Framework developed to inform the strategy work.
Surcharge Principles Framework Cabinet approved the MFPF Bill on 8 March 2007, and it served before the Parliament Portfolio Committee of Finance on 9 May 2007.On 07 September 2007 the MFPF Act was promulgated
Slide 13Slide 13
RED ESTABLISHMENT ROADMAP
Slide 1418 September 2007 Slide 14
Slide 15Slide 15
DEAL FORMULATION
Slide 16
The significant policy issues that have yet to be resolved include the following:
the compensation of Eskom and each municipality for assets contributed;
the valuation methodology to be used for the valuation of assets;
the formulae to be used for the allocation of shares to National Government; Eskom and Local Government;
the capital structure for the REDs;
financial incentives for municipalities to join the REDs;
the transitional nature of Eskom’s shareholding in the REDs;
the impact on the credit rating of Eskom and municipalities;
Ownership of Key Industrial Customers (KICs).
details on conditions of transfer of staff from Eskom and municipalities to the REDs. The RED Establishment Bill provides that staff transfers will take place in accordance with section 197 of the Labour Relations Act, 1995 (Act No. 66 of 1995).
Outstanding Policy Issues: The Deal (… 1)
Slide 17
The RED Establishment Bill makes provision for these critical outstanding
issues of policy to be addressed later in regulations promulgated by the
Minister.
The Intergovernmental Forum (DME, NT, DPE & DPLG) have commenced
working on these outstanding issues.
EDI Holdings has been mandated to procure the services of Transaction
Advisors to conduct the necessary modelling to quantify the various policy
options
Outstanding Policy Issues: The Deal (…2)
Slide 18
WHAT SUPPORT CAN BE EXPECTED?
Slide 19
EDI Holdings Support
Toolkits available for:
Ringfencing
MSA S78
Modeling Information
Financial
Statistical
Funding
NERSA approved, through Eskom Multi Year Price Determination, the allocation of R1,2bn
over a 3 year period
A process has been developed to consider pro-rata funding for projects initiated after 1 April
2006
Establishment of a Central Panel of Service Providers for Ringfencing and MSA S78 to be
finalised by November 2007
Restructuring funding criteria and process has been finalised and will be communicated in
due course
Slide 20Slide 20
CONCLUSION
Slide 21
Conclusion
EDI Restructuring focus is on implementing the October 2006 Cabinet DecisionResolution of ALL outstanding implementation enablersCreation of a conducive and harmonised policy environment
Development of the ‘Deal’Heads of Agreements by all stakeholdersNegotiate and conclude the ‘Deal’
Strong Stakeholder management focus
We remain committed to continue working with all stakeholders to ensure fast-tracking of the
restructuring process in order to ensure the realization of the restructuring objectivesAll municipalities should be encouraged to support the implementation of the Cabinet Decision by:
Signing Accession to Co-operative Agreement,Commencing the preparatory work:
MSA Section 78Ringfencing Due Diligence; and
Participate in the Regional Engagement Forum and Project Governance StructuresFurther delays to the EDI Restructuring would have catastrophic results for the Country
The AMEU to monitor and evaluate progress and provide support to the EDI restructuring process
through assisting municipalities to take preparatory steps
Slide 22
THANK YOUTHANK YOU
www.ediholdings.co.za