EDI RESTRUCTURING UPDATE Presentation to the 60 th AMEU Convention by PHINDILE NZIMANDE

1. EDI RESTRUCTURING UPDATE Presentation to the 60th AMEU Convention by PHINDILE NZIMANDE CEO: EDI Holdings 15 October 2007

2. Presentation Outline • EDI Restructuring Context • Cabinet Decision: 25 October 2006 • RED Establishment Roadmap • The Deal • What support can be expected? • Conclusion

3. EDI RESTRUCTURING CONTEXT Slide 3

4. Generation Transmission Distribution Current Electricity Supply Industry Structure Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path Scheduling ESKOM Industry 180 Residential Municipalities Physical Energy Flow Metering & Billing Business Financial Flow

5. Key Challenges Facing the EDI • 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 ** Source: 2003/4 National Integrated Resource Plan (NIRP) ; # Source: NUS Consulting Study - 2005

6. EDI Restructuring Objectives

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

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

9. 25 OCTOBER 2006 CABINET DECISION Slide 9

10. Cabinet Decision: 25 October 2006 • 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.

11. Cape Town UniCity Ekurhuleni Metro Nelson Mandela Metro Johannesburg Metro eThekwini Metro Tshwane Metro RED 6 Provincial Boundaries RED 4 RED 2 RED 5 RED 1 RED 3 6 Wall-to-Wall RED Boundary Map

12. Key Considerations and Implementation Enablers

13. RED ESTABLISHMENT ROADMAP Slide 13

14. 18 September 2007 Slide 14

15. DEAL FORMULATION Slide 15

16. Outstanding Policy Issues: The Deal (… 1) • 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).

17. Outstanding Policy Issues: The Deal (…2) • 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

18. WHAT SUPPORT CAN BE EXPECTED?

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

20. CONCLUSION Slide 20

21. Conclusion • EDI Restructuring focus is on implementing the October 2006 Cabinet Decision • Resolution of ALL outstanding implementation enablers • Creation of a conducive and harmonised policy environment • Development of the ‘Deal’ • Heads of Agreements by all stakeholders • Negotiate 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 objectives • All 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 78 • Ringfencing • Due Diligence; and • Participate in the Regional Engagement Forum and Project Governance Structures • Further 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

22. THANK YOU www.ediholdings.co.za