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EDI HOLDINGS ANNUAL REPORT (2006/7)

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. Table of Contents. Corporate Governance Performance Against Business Strategy Lessons from RED ONE

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EDI HOLDINGS ANNUAL REPORT (2006/7)

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  1. 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

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

  3. CORPORATE GOVERNANCE Slide 3

  4. CEO’s 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

  5. CEO’s 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]

  6. CEO’s 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

  7. CEO’s 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

  8. RESTRUCTURING POLICY ENVIRONMENT 31 October 2007 Slide 8 Slide 8

  9. CEO’s 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.

  10. 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 CEO’s Report: 6 Wall-to-Wall RED Boundary Map

  11. CEO’s Report: Key Considerations And Implementation Enablers

  12. PERFORMANCE AGAINST BUSINESS STRATEGY Slide 12

  13. 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

  14. CEO’s 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

  15. Performance Scorecard (…1) 31 October 2007 Slide 15

  16. Performance Scorecard (…2) 31 October 2007 Slide 16

  17. Performance Scorecard (…3) 31 October 2007 Slide 17

  18. Performance Scorecard (…4) 31 October 2007 Slide 18

  19. CEO’s Report: Performance Against Business Strategy (…CONT’D) • 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.

  20. LESSONS FROM RED ONE Slide 20

  21. CEO’s 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

  22. TRANSFORMATION EQUITY PERFORMANCE Slide 22

  23. Staff Establishment TABLE OF TOTAL EMPLOYEES BY RACIAL COMPOSITION

  24. Staff Trends 2005 to 2007 Confidential 24

  25. 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.

  26. BEE Performance: Procurement

  27. Corporate Social Investment • In celebration of the Heritage Month Celebrations, EDI Holdings spent a day with the less privileged children of the Leamogetswe Children’s 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

  28. ANNUAL FINANCIAL STATEMENTS(ABRIDGED) FOR THE YEAR ENDED 31 MARCH 2007

  29. 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 company’s 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.

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

  31. 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

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

  33. 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

  34. ANNUAL FINANCIAL STATEMENTS (abridged) CASHFLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007

  35. PLANS FOR THE FUTURE Slide 35

  36. CEO’s 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.

  37. RED Establishment Progress (…1)

  38. RED Establishment Progress (…2)

  39. 18 September 2007 Slide 39

  40. ACKNOWLEDGEMENTS 31 October 2007 Slide 40 Slide 40

  41. 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.

  42. THANK YOU www.ediholdings.co.za

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