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. Table of Contents. Corporate Governance Performance Against Business Strategy Lessons from RED ONE - PowerPoint PPT PresentationTRANSCRIPT
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 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
31 October 2007 Slide 5
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
31 October 2007 Slide 6
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
31 October 2007 Slide 7
31 October 2007 Slide 9
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
31 October 2007 Slide 10
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
31 October 2007 Slide 11
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
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
31 October 2007 Slide 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
31 October 2007 Slide 19
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)
31 October 2007 Slide 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
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
2006 Equity Statistics
Total No. of Employees
BLACK ASIAN COLOURED WHITE
Male Female Male Female Male Female Male Female
53 10 25 1 1 0 1 7 8
2007 Equity Statistics
Total No. of Employees
BLACK ASIAN COLOURED WHITE
Male Female Male Female Male Female Male Female
72 21 35 1 2 0 2 6 5
31 October 2007 Slide 25
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.
Staff Establishment (…7)
31 October 2007 Slide 26
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%
31 October 2007 Slide 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
31 October 2007 Slide 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.
31 October 2007 Slide 30
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
ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2007
31 October 2007 Slide 31
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
ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2007
31 October 2007 Slide 32
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)
ANNUAL FINANCIAL STATEMENTS (abridged) STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2007
31 October 2007 Slide 33
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) STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2007
31 October 2007 Slide 34
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
31 October 2007 Slide 36
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
31 October 2007 Slide 37
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
31 October 2007 Slide 38
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 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.