PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY

1 JULY 2014

Agenda

Page 2

CEF Group Strategic Challenges

Group Strategic Objectives

Group Financial Results and Budget

2

3

4

5

Group Strategic Roadmap for business sustainabily

CEF Overview1

Way Foward6

Objectives

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Give the PCE a holistic overview of CEF (SOC) Ltd as a strategic entity that plays

a vital role in the national security of energy supply as its mandate.

Unpack the CEF (SOC) Ltd Group of companies and how they support the

delivery of the CEF Mandate

Share high level Group strategic challenges and their impact group performance

Give a high level overview of the Group strategic objectives, key plans and the

emergence of the Group Vision 2025 as part of the group‟s bold ambition

Provide some of the Group Strategic Priorities for sustainability from a financial,

operational and strategic human capital management perspective.

Discuss the way forward and seek desired support from the Committee

CEF Overview

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Why we exist

MandateTo finance and promote the acquisition, exploration, manufacture and marketing of energy with a primary

purpose to contribute to the national security of energy supply

Strategic IntentTo provide energy resources for national energy security whilst minimising environmental impact and in pursuit of the

government policies

VisionTo be a leader in the financing,

development and implementation of sustainable

energy projects in Africa

MissionTo grow the energy sector and be the catalyst for economic growth and poverty alleviation through security of supply,

and access to acceptable (affordable) energy in Africa

ValuesSustainability

Integrity

Professionalism

Respect

Communication

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The CEF Mandate (with a dual Commercial & Developmental purpose) is derived

from the CEF Act and Ministerial Directives

Overview of the CEF ACT

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The purpose of CEF in terms of the CEF Act, is to give effect to the objectives of the

Central Energy Fund which, to quote the Act, are:

“(2) (a) Moneys paid under subsection (1) into the said Central Energy Fund shall be

utilized in accordance with directions of the Minister of Mineral and Energy Affairs for

the financing or promotion of-

- the acquisition of coal, the exploitation of coal deposits, the manufacture of liquid fuel,

oil and other products from coal, the marketing of the said products and any matter

connected with the said acquisition, exploitation, manufacture and marketing;

- the acquisition, generation, manufacture, marketing or distribution of any other forms

of energy and research connected therewith;

- any other object for which the Fund may be applied, and which has been designated

or approved by the said Minister with the concurrence of the Minister of Finance.”

- Over the years the role of CEF and its‟ mandate has evolved to meet the myriad

strategic challenges facing the country as illustrated in the following slide.

The Role of the CEF

CEF (SOC) Ltd (“CEF”) is a Schedule 2 public enterprise established under the

CEF Act.

CEF operates in the energy sector and is governed by the PMFA in terms of its

dealings and various undertakings

CEF is involved in the search for appropriate energy solutions to meet the future

energy needs of South Africa, the Southern African Development Community and

the sub-Saharan African region, including oil, gas, coal, solar energy, low-smoke

fuels, biomass, wind and renewable energy sources.

The CEF Group‟s primary role is to contribute to security of energy supply

The Group also plays a pivotal role in reducing the country‟s over-reliance on

petroleum multinationals and other oil majors

As a strategic partner to the Department of Energy, the CEF Group :

I. Aligns itself with government‟s broad strategic objectives (including

the NDP)

II. Acts as an agent for government policy implementation

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Historical evolution of CEF

• Political situation leads

the SA Government to

invest in securing crude

oil

• Investment in Sasol I

• Moref (1954) and Sapref

(1956) built in Durban

• Petroleum Products Act and

CEF Act

• Natref built with Iranian

resources in Sasolburg (1974)

• CEF used as vehicle to invest

in Sasol III following „74 and

„79 oil crises

• Gas found offshore

• Continue filling Ogies

• Construction of Saldanha

facility

• Mossgas commissioned

• Sasol loan repaid

• Start of selloff of Ogies oil

• Publication of White Paper on

Energy Policy (1998)

• Decision to create PASA and

PetroSA from Mossgas and

Soekor

• Sasol decides to build

Mozambique gas pipeline

• Decision to create iGas

(1999/2000)

• Change in renewable

energy operating

environment – write-off

of some projects

• Reduction in number of

subsidiaries

• CEF governance

structures strengthened

• Project Genesis to

design holding

company structures

• Levies on liquid fuels managed by SEF/SFF

• Investment in Island View and Milnerton

facilities

• Calref built in Milnerton (1966)

• Investment in turning Ogies coal mines into

crude oil containers plus filling over a long

period

• Soekor embarked on drilling programme

• Fill Saldanha

• Decision to build Mossgas

GTL

• Island View terminal sold

• Some tanks at Milnerton

(refinery side) sold to

Caltex

• iGas takes up 25%

share in Rompco

• 2003 High level

business strategy starts

move from oil and gas

to renewables through

EDC (now CED)

• Proliferation of small

subsidiaries (CEF

Carbon, CCE, ETA,

SASDA etc)

• Liquid fuels Master

Plan guides PetroSA

strategic thinking

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Group Activities

CEF (SOC) Ltd (“CEF”) is the holding company for a number of subsidiaries, which,

when taken together, constitute the CEF Group. These subsidiaries also operate in

the energy sector with commercial, strategic, regulatory and developmental roles.

The business focus and activities of each subsidiary is as follows:

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Nos Subsidiary Business Focus

1 CEF Holding Company

2 Clean Energy Division (CED) Clean and Renewable Energy

3 Petro SA Oil and Gas, NOC

4 SFF Strategic stock and pollution control

5 PASA Promotion, Licensing and Regulation

6 AEMFC Mining, Coal

7 iGas Gas infrastructure

Current Group Structure

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Minister of Energy

CEF

Clean Energy Division (CED)

Renewable Subsidiaries

ETA Energy (SWH)

CCE

CEF Carbon (Dormant)

Other Subsidiaries

Petro SA SFF

iGas AE (to DMR)

PASA (to DMR) OPC (Into SFF)

Equalisation FundAssociate

Companies

Methcap (19%)

EnerG Joburg (29%)

TFST (45%)

Although Petro SA is a subsidiary of CEF, they will be presenting separately

CEF Group Challenges

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Strategic challenges to deliver performance

Constrained feedstock at PetroSA. This will continue as an operating

challenge for the remaining life of the GTL refinery.

The provision of feedstock to the Mossel Bay complex after 2019, when

Ikhwezi gas will be depleted, remains a challenge.

Challenges with the financial closure of the purchase of the Downstream

assets.

Refurbishment of the Milnerton tank farm will require a solid business case

Implications of the MPRDA, once enacted, are that PASA will be dissolved

with its functions to be split between Regional Managers and the Council for

Geoscience.

Funding of large projects in light of depleting cash reserves - (Reserves have

halved over the past two years)

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Group Strategic Roadmap for business

sustainability

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Group Strategic Road Map for sustainability

The CEF Group has a mandate to operate within the energy sector and is required to

be a profitable entity

CEF must take a lead in the development of the energy sector and in the unlocking of

natural resources that will foster job creation and economic development thus

supporting government initiatives

CEF has formulated a Vision 2025 Strategy that will create a financially strong state

owned enterprise with the capability to support the Department of Energy to implement

some of its new programmes

To support the overall 2025 Group Vision, an overarching strategic roadmap has been

adopted. This roadmap will guide the strategy delivery under three distinct phases

namely:

1. STABILISE :(2013.14 – 2014.15) – immediate and short-term strategic objectives that

include cost containment across the Group

2. GROW: (2015.16 – 2019.20) – medium term strategic objectives that include growing and

diversifying the Group investments to ensure financial sustainability of CEF.

3. DOMINATE: (2020.21 – 2024.25) – the long term objective is for CEF to be a market leader

and provide (thought) leadership on security of energy supply on behalf of and to the DOEPage 14

Overview of Group Strategic Projects

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Stabilise (2013.15)

Project Ikhwezi

RE investments

Asset Development Plan

Group Gas Strategy

Grow (2015.20)

Project Downstream

ADP implementation

RE investments

Gas Infrastructure

Vlakfontein coal mine extension

Dominate (2020.25)

Project Mthombo

Torbanite Coal Mine

Klippoortjie Coal Mine

Shale Gas Project

Oil storage

Group Strategic Objectives

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CEF’s Strategic Objectives & 2014/2015 KPIs

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Broad CEF Mandate

Thought Leadership

High Perfromance Organisation

HSE Compliance

Group Alignment

Security of Supply

Ensuring security of supply

Financial Stability

Stragegic Objectives

• 2 Clean Energy Projects

• Strategic crude oil stock

• Increase coal sales

• Downstream acquisition

• GTL production facility

• Capital project funding plan

• Diversified project pipeline

• Contain Operating costs

• 80% of senior posions filled

• Standardise Group policies

• Standadise PM Systems

• Develop Group Gas strategy

• Safe working environment

• Health working environment

• No incidents

• Group alignment on

coordinated planning and

reporting

CE

F’s

20

14

-20

15

Str

ate

gic

KP

Is

Contribute to security of supply

Develop Funding Plan

Develop a HPO

Develop a Gas Strategy

Improve SHE Compliance

Group alignment coordinated planning

Delivery on the Strategic Objectives will be

executed by the subsidiaries and various

orgnisational levels but driven by the holding

structure

Strategic Objectives – 2014-15

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Objective

Indicator Target

Contribute to Security of Energy Supply

Number of investments in the clean energy sector

Two significant investments made by CED in the Clean Energy Sector by 31 March 2015 ("significant" is where CEFs investment exceeds R50m).

Strategic crude oil stock volumes, grade and quality.

Strategic crude held by SFF to meet predetermined quality, quantity and grade targets

Coal sales by AE 1.2 million tonnes of coal are sold during the year ending on 31 March 2015

Mossel Bay refinery volumes The Mossel Bay refinery production target is 7.2047Mbbls for the year ending 31 March 2015

Implementation of the Share Purchase Agreement by PetroSA

The downstream acquisition share purchase agreement is implemented by PetroSA by 31 March 2015

Develop a Comprehensive Funding Plan

Funding plan A comprehensive funding plan for capital projects is developed and documented by 31 March 2015

A diversified, prioritised project pipeline

A project pipeline is developed before 31 March 2015 and is tabled at PAMC. Clear criteria for qualification are developed and documented as part of the activity.

Operating costs Operating cost increases over 2013/14 (excluding provisions and once-off items) are contained to CPI.

Strategic Objectives – 2014-15

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Objective

Indicator Target

Develop a High Performance Organisation

Filled Senior Management positions At least 80% of senior management positions are filled across the Group by 31 March 2015

Harmonised HR Policies All HR Policies across the Group are harmonised by 31 March 2015

Standardised Individual Performance management system

The Individual Performance Management System is standardised across the Group by 31 March 2015

Development of a gas strategy for the Group

Gas strategy A Gas strategy document with an action plan is produced and reviewed by Board before 31 March 2015

Improve Safety, Health and Environmental Compliance

Number of fatalities due to operations in the CEF Group

Zero

Disabling Injury Frequency Rate Less than 0.4 per 200000 hours worked

Number of reportable environmental incidents

Less than 17 across the Group during the year ending on 31 March 2015

Group Financial Results & Budget

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DRAFT Group Financial Results and 4 year budget

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2018 2017 2016 2015 2014 % 2013 %

Rm Rm Rm Rm Rm change Rm change

Revenue 30,671,271 29,442,920 26,519,843 23,511,461 22,466,764 11.2% 20,196,850 34.8%

Gross profit 696,674 2,881,493 3,679,834 3,480,357 3,109,976 40.2% 2,217,975 -26.6%

Gross profit margin % 2.3% 9.8% 13.9% 14.8% 13.8% 26.1% 11.0% -45.5%

Operating expenses 3,963,602 3,504,283 4,395,541 3,273,196 3,705,192 -59.2% 2,327,938 -7.1%

Operating profit -3,341,759 -724,870 -910,559 133,491 545,054 -22.6% 704,647 -27.7%

Operating profit margin % -10.9% -2.5% -3.4% 0.6% 2.4% -30.5% 3.5% -46.3%

Net profit after tax -3,645,264 -734,530 -852,566 649,970 352,621 -66.6% 1,056,430 -41.9%

Net profit margin % -11.9% -2.5% -3.2% 2.8% 1.6% -70.0% 5.2% -56.8%

Net interest received/(Paid) -74,830 -102,080 -194,852 -73,669 -97,843 -161.8% 158,381 -78.3%

Return on equity % -14.1% -2.5% -2.9% 2.1% 1.3% -66.1% 3.8% -44.3%

Liquidity Ratio 4.62 3.09 2.68 2.15 3.31 -12.5% 3.78 -54.9%

Cash received from operations 2,457,315 3,476,722 2,990,785 3,934,409 2,865,022 -51.7% 5,936,787 145.2%

Capital Expenditure 628,569 1,675,949 1,711,868 6,206,833 5,298,075 42.6% 9,222,364 -1270.9%

Free Cash Flow 1,358,869 -441,697 -1,138,512 -4,507,493 -1,692,444 79.1% -8,092,131 -522.8%

Cash balances 3,864,992 3,975,433 4,830,836 5,000,273 10,953,275 -16.3% 13,090,955 -31.6%

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Way Forward

Group Strategic Priorities for Sustainability

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Group Priority Framework

Group Financial Priorities for

Sustainability

Group Operational Priorities

for Sustainability

Group Human Capital Priorities

for Sustainability

1. Cost optimisation

2. Improved oversight

3. Investment selection and

monitoring

4. Shareholder compacts with

subsidiaries

5. Review of the incentive schemes

6. Culture change across the

Group

1. Enable strategy execution through

appropriate and effective

structures

2. Create fair remuneration structures

3. Improve controls and business

processes

4. Address the disproportionate

structure (less transactional

support)

5. Improve the group core skills that

will drive a changing CEF.

6. Balance commercial and

developmental focus

1. Develop a Group strategic human

capital management plan

2. Leader-led Development

3. Talent Engagement and Retention

4. Develop an Employee Value

Proposition

5. Develop an HR efficiency

Improvement framework

6. Develop an Executive Coaching

Strategy

7. Clarify both individual roles and the

role of the holding company

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The CEF Group of Companies would like to extend an

invitation to the Portfolio Committee on Energy to visit

some of our key strategic sites and installations so as to

help members understand the company and its activities

better, and to thereby strengthen effective oversight

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Do You Have

Any Questions?