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

31 October 2007 Slide 2

Corporate Governance

Performance Against Business Strategy

Lessons from RED ONE

Transformation Equity Performance

Annual Financial Statements

Plans for the Future

Acknowledgements

Table of Contents

31 October 2007 Slide 3Slide 3

CORPORATE GOVERNANCE


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


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]

CEO’s Report: Mandate of EDI Holdings

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


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



RESTRUCTURING 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.

CEO’s Report: Policy Environment


CEO’s Report: 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


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

CEO’s Report: Key Considerations And Implementation Enablers


PERFORMANCE AGAINST BUSINESS STRATEGY

EDI Holdings Strategic Pillars

Mandate

Provide Industry Thought

Leadership, Guiding &

Influencing the Restructuring

Process

INDUSTRY LEADERSHIP

Establishment of Viable REDs

CREATION

EDI Holdings plays an Oversight Role in the Success

of the REDs; Through Efficiency

Improvements

OVERSIGHT

EDI Holdings is the Catalyst & the

Champion of theEDI Restructuring

process; Proactive and

Continuous Advocacy

ADVOCACY

Vision, Mission and Values


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


Performance Scorecard (…1)


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.

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


LESSONS FROM RED ONE


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


TRANSFORMATION EQUITY PERFORMANCE


TABLE OF TOTAL EMPLOYEES BY RACIAL COMPOSITION

Staff Establishment

31 October 2007 Slide 24Confidential 24

Staff Trends 2005 to 2007

2005 Equity Statistics

Total No. of Employees

BLACK ASIAN COLOURED WHITE

Male Female Male Female Male Female Male Female

59 10 24 1 3 0 1 9 11





53 10 25 1 1 0 1 7 8





72 21 35 1 2 0 2 6 5


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


Disabled employees):


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.

Staff Establishment (…7)


BEE Performance: Procurement

SUMMARY BY BBBEE CATEGORY RAND %

BBBEE : 100% OWNERSHIP 5,789,856 18.08%BBBEE: OWNERSHIP > 50% 12,379,520 38.65%BBBEE: OWNERSHIP < 50% 7,639,438 23.85%SUB-TOTAL BBBEE 25,808,814 80.58%

OTHER 5,371,800 16.77%SMME 847,788 2.65%

Total 32,028,402 100.00%


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


ANNUAL FINANCIAL STATEMENTS

(ABRIDGED)

FOR THE YEAR ENDED 31 MARCH 2007


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.


2007 2006R'000 R'000

ASSETS

Non-current assets 7 069 10 398

Property, plant and equipment 6 605 9 283Intangible assets 464 1 115

Current assets 91 850 15 460

Investments 86 511 14 191Staff loans 0 3Trade and other receivables 799 809Cash and cash equivalents 4 540 457

Total assets 98 919 25 858

NET ASSETS AND LIABILITIES

NET ASSETS 11 454 13 400

Issued capital 0 0

Accumulated Surplus 11 454 13 400

Current liabilities 87 465 12 458

Government grants 78 512 0Trade and other payables 5 201 6 452Provisions 3 752 6 006

Total net assets and liabilities 98 919 25 858



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



2 007 2 006

R '000 R '000

Other income

Transfers and subsidies 67 794 64 776

Other operating income 1 385 1 157

Total Income 69 179 65 933

Expenditure

Audit fees ( 148) ( 152)

Loss on disposal / Write-off of assets ( 42) ( 153)

Staff costs (33 871) (32 908)

Other operating expenses (36 016) (30 874)

Administrative expenses (1 048) (1 917)

Total expenditure (71 125) (66 004)

Deficit for the year (1 946) ( 71)



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



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

2007 2006R'000 R'000

CASHFLOW FROM OPERATING ACTIVITIES

ReceiptsTransfers and subsidies 67 794 64 776Interest Received 1 277 1 111Other Receipts 121 992

PaymentsEmployee Costs (33 871) (32 905)Suppliers (37 240) (48 476)Other payments

Net cash flows from operating activies (1 919) (14 502)

CASH FLOW FROM INVESTING ACTIVITIES ( 190) ( 307)

Purchase Plant & Equipment ( 190) ( 307)

(2 109) (14 810)

CASH FLOW FROM FINANCING ACTIVITIES 78 512 0

Restructuring Project Funding 78 512 0

Increase/(decrease) in cash and cash equivalents 76 403 (14 810)

Cash and cash equivalents at beginning of the year 14 648 29 458

Cash and cash equivalents at end of the year 91 051 14 648

Cash at bank 4 534 452Petty cash 6 5Short-term investments 86 511 14 191

91 051 14 648


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.

CEO’s Report: Plans for the Future


RED Establishment Progress (…1)

DESCRIPTION TARGET(to be reviewed)

ACTUAL YEAR TO

DATE

COMMENTS

2007/8 2008/9

Governance Structure Establish Regional Engagement ForumEstablish Sponsors CommitteeEstablish Technical Steering CommitteeEstablish RTLRS

666

6

000

0

655

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 progressMetros 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

Other Municipalities 2 14 0


DESCRIPTION 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

Secondary Municipalities 12 3 3

Other Municipalities 2 18 1

Systems AnalysisDevelopment of System Solution

November 2007 0

RED Establishment Progress (…2)

31 October 2007 Slide 3918 September 2007 Slide 39


ACKNOWLEDGEMENTS


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.

THANK YOUTHANK YOU

www.ediholdings.co.za

edi holdings annual report (2006/7)

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