EDI HOLDINGS ANNUAL REPORT (2006/7)

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EDI HOLDINGS ANNUAL REPORT (2006/7)
PRESENTATION TO THE PARLIAMENTARY PORTFOLIO
COMMITTEE ON MINERALS AND ENERGY- CAPE
TOWN PHINDILE NZIMANDE CEO EDI Holdings 31
October 2007
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Table of Contents

• Corporate Governance
• Performance Against Business Strategy
• Lessons from RED ONE
• Transformation Equity Performance
• Annual Financial Statements
• Plans for the Future
• Acknowledgements

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• CORPORATE GOVERNANCE

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CEOs Report Introduction

• The Annual Report is presented in compliance with
  the Public Finance Management Act (Act No. 1 of
  1999)
• Fairly presents the state of affairs of the
  company,
• Its business,
• Its performance against predetermined objectives,
  and
• Its financial position at the end of the year in
  terms of Generally Accepted Accounting Practice
  (GAAP)
• The annual financial statements are the
  responsibility of the Accounting Authority, i.e.
  the Board of Directors of EDI Holdings
• The office of the Auditor-General has audited EDI
  Holdings financial statements and issued an
  unqualified audit report

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CEOs Report Mandate of EDI Holdings

• Our mandate is premised on the White Paper on
  Energy for South Africa (1998), the Blue Print on
  EDI Reform (2001) and subsequent Cabinet
  decisions .
• The mandate of EDI Holdings is to restructure the
  electricity distribution industry and invest in
  financially viable independent REDs in South
  Africa in accordance with national Govt policy in
  order to ensure a more effective and efficient
  electricity distribution industry capable of
  providing affordable and accessible electricity
  to consumers. Memorandum Articles of
  Association of EDI Holdings (Pty) Ltd, 2003

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CEOs Report Corporate Governance (1)

• The Board of Directors is established as the
  Accounting Authority
• Annual Financial Statements presented in terms of
  Generally Accepted Accounting Practice (GAAP)
• EDI Holdings Board direct and guide the business
  in compliance with applicable legislation and has
  instituted the necessary policies and monitoring
  procedures to give effect thereto, through the
  following Board Committees
• Audit and Risk Management Committee
• Human Capital and Remuneration Committee
• Finance and Procurement Committee
• Programme Management Board Committee
• Communication and Advocacy Committee
• Ad Hoc Committee on Policy and Strategy

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CEOs Report Corporate Governance (2)

• EDI Holdings maintains world class systems of
  corporate governance by
• subscribing to the principles of good governance
• adhering to and encouraging good governance
  practices and the highest ethical behaviour
• continuing to comply with the broad principles
  set out in the King II Report and
• assessing its systems of governance for
  improvement on an ongoing basis.
• EDI Holdings endeavours to observe all principles
  of sound corporate governance in all dealings
  with its stakeholders
• Regular compliance submissions are made to
  relevant authorities
• EDI Holdings complied with corporate governance,
  shareholder, statutory and treasury requirements
  in all its dealings

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• RESTRUCTURING POLICY ENVIRONMENT

31 October 2007
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CEOs Report Policy Environment

• DECISION ON INDUSTRY STRUCTURE
• 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 (on 25 October 2006) 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 the 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.

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CEOs Report 6 Wall-to-Wall RED Boundary Map
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CEOs Report 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 draft RED Establishment Bill is targeted to be distributed 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
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• PERFORMANCE AGAINST BUSINESS STRATEGY

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EDI Holdings Strategic Pillars
Mandate
INDUSTRY LEADERSHIP
CREATION
OVERSIGHT
ADVOCACY
EDI Holdings is the Catalyst the Champion of
the EDI Restructuring process Proactive and
Continuous Advocacy
Provide Industry Thought Leadership, Guiding
Influencing the Restructuring Process
Establishment of Viable REDs
EDI Holdings plays an Oversight Role in the
Success of the REDs Through
Efficiency Improvements
Vision, Mission and Values
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CEOs Report Performance Highlights

• The key performance achievements for the period
  under review include
• The finalisation of the industry modelling
  exercise
• Advancement of Metro RED preparations
• Certainty created by the 25 October 2006 Cabinet
  Decision
• Partnering with key stakeholders to ensure that
  EDI restructuring remains priority on their
  agendas

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Performance Scorecard (1)
31 October 2007
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Performance Scorecard (2)
31 October 2007
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Performance Scorecard (3)
31 October 2007
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Performance Scorecard (4)
31 October 2007
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CEOs Report Performance Against Business
Strategy (CONTD)

• The 25 October 2006 Cabinet decision brought
  about a change in focus from creating 6 municipal
  entity Metro REDs to 6 wall to wall public entity
  REDs
• To implement this decision
• Developed a comprehensive communication and
  stakeholder engagement strategy
• Started the process of developing an
  implementation strategy and roadmap
• Realigned the regional project governance
  structures to ensure broader participation by
  municipalities
• Developed a new Day One Definition premised on
  critical mass and representative footprint
• We recognize that buy-in from current asset
  owners and key stakeholders is critical in
  ensuring that the restructuring process is a
  success.
• To this effect, we believe that a deal that will
  underpin EDI restructuring will have to be
  designed and negotiated amongst stakeholders.

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• LESSONS FROM RED ONE

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CEOs Report Lessons from RED 1

• On 7 December 2006 the City of Cape Town, being
  the sole shareholder, took a Council Resolution
  to dissolve RED ONE liquidation process
  currently in progress
• All agreements were allowed to lapse at the end
  of December 2006
• The RED ONE eventuality highlighted the
  challenges of consolidating the industry in a
  voluntary environment characterised by ambivalent
  stakeholder support and outstanding policy issues
• Lessons
• An enabling legislative framework is critical to
  the process
• 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
• Lessons from RED ONE experience will be taken
  into account in fine tuning our approach, chief
  of which will be to ensure that DAY ONE is only
  declared once full business transfer has been
  effected to the REDs by the current operators

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• TRANSFORMATION EQUITY PERFORMANCE

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Staff Establishment

• TABLE OF TOTAL EMPLOYEES BY RACIAL COMPOSITION

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Staff Trends 2005 to 2007
2005 Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics
Total No. of Employees BLACK BLACK ASIAN ASIAN COLOURED COLOURED WHITE WHITE
Total No. of Employees Male Female Male Female Male Female Male Female
59 10 24 1 3 0 1 9 11
2006 Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics
Total No. of Employees BLACK BLACK ASIAN ASIAN COLOURED COLOURED WHITE WHITE
Total No. of Employees Male Female Male Female Male Female Male Female
53 10 25 1 1 0 1 7 8
2007 Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics Equity Statistics
Total No. of Employees BLACK BLACK ASIAN ASIAN COLOURED COLOURED WHITE WHITE
Total No. of Employees Male Female Male Female Male Female Male Female
72 21 35 1 2 0 2 6 5
Confidential
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Staff Establishment (7)

• EMPLOYMENT EQUITY
• EDI Holdings fell slightly short of its
  employment equity targets as follows
• Black employees (i.e. African, Asian and
  Coloured)
• Target 85 Actual 81
• Female employees
• Target 70 Actual 67
• Disabled employees)
• Target 10 Actual 2
• BASIS OF REMUNERATION
• All EDI Holdings posts have been evaluated
  according to the T.A.S.K. grading systems. This
  system has been utilised to grade role profiles
  and benchmark salary structures.

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BEE Performance Procurement
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Corporate Social Investment

• In celebration of the Heritage Month
  Celebrations, EDI Holdings spent a day with the
  less privileged children of the Leamogetswe
  Childrens Home in Tshwane
• Leamogetswe is home to more than 150 children in
  Atteridgeville.
• The programme for the day included
• Entertainment (Drums and Rhythm, DJ and Dancers)
• Donation of Caps and T-Shirts
• Toys
• 2 Sets of Dinette (Tables and chairs)
• Mattresses (x10)
• Two birthday cakes and gifts, (two of the kids
  were celebrating their birthdays)
• This event, in a limited and unique way,
  symbolised our commitment to the struggle against
  poverty eradication

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ANNUAL FINANCIAL STATEMENTS(ABRIDGED)

• FOR THE YEAR ENDED 31 MARCH 2007

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ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT
OF FINANCIAL POSITION AT 31 MARCH 2007

• We present unqualified audited financial
  statements, which have been found by the office
  of the Auditor General, to present fairly, in all
  material respects, the financial position of the
  company as at 31 March 2007 and its financial
  performance and cash flows for the year then
  ended, in accordance with and in the manner
  required by the PFMA and the Companies Act of
  South Africa.
• EDI Holdings continues to strive for excellence
  in financial management.
• The companys total operational budget allocation
  of R67.8m was fully expended for the financial
  year under review, underpinned by effective
  internal control systems and procedures.
• The governance processes associated with the draw
  down and allocation of the R1.2bn Multi Year
  Pricing Determination (MYPD) restructuring fund
  has been completed and we received R78.5m from
  Eskom in the year under review.

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ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT
OF FINANCIAL POSITION AT 31 MARCH 2007
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ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT
OF FINANCIAL POSITION AT 31 MARCH 2007

• Non-Current Assets
• No major assets acquired during financial year
• 32 reduction in non-current assets due to
  depreciation
• Current Assets
• Increase of R72m in Investments largely due MYPD
  funding for restructuring received from Eskom and
  invested with Corporation for Public Deposits
  (CPD)
• Current Liabilities
• Government grant in respect of Eskom MYPD EDI
  Restructuring Funding of R78.5m received from
  Eskom

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ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT
OF FINANCIAL POSITION AT 31 MARCH 2007
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ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT
OF FINANCIAL POSITION AT 31 MARCH 2007

• Change in Accounting Policy
• During 2006/07 financial year, the company
  changed its accounting policy in respect of the
  treatment of government grants from DME. Grants
  were treated as deferred income in previous
  financial years and matched with related costs.
  The company has now adopted the accrual basis in
  terms of IPSAS 23.44 and grants are now accounted
  for on an accrual basis as transfers and
  subsidies
• Transfers and Subsidies from DME
• 5 increase in transfers and subsidies due to
  annual baseline budget increase from DME
• Expenditure
• 7.8 increase in expenditure mainly due to other
  operating expenses i.r.o. consultants costs and
  travel expenses as a result of acceleration of
  restructuring programme activities

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ANNUAL FINANCIAL STATEMENTS (abridged) CASHFLOW
STATEMENT FOR THE YEAR ENDED 31 MARCH 2007
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• PLANS FOR THE FUTURE

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CEOs Report Plans for the Future

• Never before has the environment for the
  establishment of the REDs looked so substantially
  promising
• The constraints that were protracting the process
  are well on their way to being resolved
• All Regional Engagement Forums, Steering
  Committees and Sponsors Committees have been set
  up across the country. These structures will be
  leveraged to enhance municipal and Eskom
  readiness
• As at 30 September 2007, 80 municipalities had
  signed accession agreements compared to 15 in May
  2007.

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• RED Establishment Progress (1)

DESCRIPTION TARGET (to be reviewed) TARGET (to be reviewed) ACTUAL YEAR TO DATE COMMENTS
2007/8 2008/9    
Governance Structure Establish Regional Engagement Forum Establish Sponsors Committee Establish Technical Steering Committee Establish RTLRS 6 6 6 6 0 0 0 0 6 5 5 0 RED ONE Sponsors Committee and Technical Steering Committee is currently being planned for re-launch. RTLRS to be established during November 2007.
Accession Agreement 116 71 80 Accession Agreements of critical mass participants have been completed. Remaining municipalities targeted to take place 2007/2008.
MSA Section 78 progress Metros 6 0 3 Nelson Mandela Bay Municipality MSA Section 78 is currently outstanding and underway. A number of secondary municipalities are in the process of completing the MSA section 78. Ekurhuleni to re-do S78(3) in alignment with PE CoJ is awaiting appointment of Panel of Service Providers from EDI Holdings
Secondary Municipalities 18 1 4 Nelson Mandela Bay Municipality MSA Section 78 is currently outstanding and underway. A number of secondary municipalities are in the process of completing the MSA section 78. Ekurhuleni to re-do S78(3) in alignment with PE CoJ is awaiting appointment of Panel of Service Providers from EDI Holdings
Other Municipalities 2 14 0 Nelson Mandela Bay Municipality MSA Section 78 is currently outstanding and underway. A number of secondary municipalities are in the process of completing the MSA section 78. Ekurhuleni to re-do S78(3) in alignment with PE CoJ is awaiting appointment of Panel of Service Providers from EDI Holdings
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RED Establishment Progress (2)
DESCRIPTION TARGET TARGET ACTUAL YEAR TO DATE COMMENTS
2007/8 2008/9
Ringfencing Eskom 6 0 6 Eskom ringfencing 95 completed subject to validation. Metros - Tshwane and Nelson Mandela Bay Municipality are at currently conducting Ringfencing. A number of secondary municipalities are in the process of completing ringfencing. A National Systems Strategy is currently being developed.
Metros 6 0 3 Eskom ringfencing 95 completed subject to validation. Metros - Tshwane and Nelson Mandela Bay Municipality are at currently conducting Ringfencing. A number of secondary municipalities are in the process of completing ringfencing. A National Systems Strategy is currently being developed.
Secondary Municipalities 12 3 3 Eskom ringfencing 95 completed subject to validation. Metros - Tshwane and Nelson Mandela Bay Municipality are at currently conducting Ringfencing. A number of secondary municipalities are in the process of completing ringfencing. A National Systems Strategy is currently being developed.
Other Municipalities 2 18 1 Eskom ringfencing 95 completed subject to validation. Metros - Tshwane and Nelson Mandela Bay Municipality are at currently conducting Ringfencing. A number of secondary municipalities are in the process of completing ringfencing. A National Systems Strategy is currently being developed.
Systems Analysis Development of System Solution November 2007 November 2007 0 Eskom ringfencing 95 completed subject to validation. Metros - Tshwane and Nelson Mandela Bay Municipality are at currently conducting Ringfencing. A number of secondary municipalities are in the process of completing ringfencing. A National Systems Strategy is currently being developed.
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18 September 2007
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• ACKNOWLEDGEMENTS

31 October 2007
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Acknowledgements

• We sincerely appreciate
• The leadership and guidance of the Minister of
  Minerals and Energy, Ms Buyelwa Sonjica
• The Inter-Ministerial Committee which consists of
  the Ministers of Minerals and Energy Finance (Mr
  Trevor Manuel) Public Enterprises (Mr Alec
  Erwin) and Provincial and Local Government (Mr
  Sydney Mufamadi)
• Parliamentary Portfolio Committee for Minerals
  and Energy for providing support and direction
• The leadership and support of the Director
  General of the DME, Advocate Sandile Nogxina
• Stakeholders, including all spheres of
  Government, Eskom, SALGA, Labour, Business, the
  Parliamentary Portfolio Committee and all
  Political formations
• The Chairman and Board of Directors of EDI
  Holdings
• The Management and staff of EDI Holdings.

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THANK YOU
www.ediholdings.co.za