presented by: p nzimande ceo - edi holdings 19 november 2003
DESCRIPTION
Towards a Restructured Electricity Distribution Industry. Presented by: P Nzimande CEO - EDI Holdings 19 November 2003. Notes. Presentation Outline. History of Restructuring Challenges Facing the Industry Vision of Restructuring Main Features of The Blueprint Maps of REDs - PowerPoint PPT PresentationTRANSCRIPT
11
Presented by: P Nzimande
CEO - EDI Holdings
19 November 2003
Notes
22
Presentation OutlinePresentation Outline
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
33
History of RestructuringHistory of Restructuring
Early 1990s 1997 1999 End 1999 April 2000 Aug 2000
Considerable Debate over EDI
RED s Approach EndorsedERIC Report
Cabinet ApprovedStart of Restructuring Process
EDIRC Established Appointment of
PWC
Blue Print Blue Print Approved by Cabinet: May 2001Approved by Cabinet: May 2001
Blueprint Submitted to EDIRC
44
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
55
EskomDistribution
EskomDistribution
40%
60% 60%
40%
Current SituationCurrent Situation
PERCENTAGE OF CONSUMERS
234 Municipalities
234 Municipalities
SALES VOLUME
EskomDistribution
EskomDistribution
234 Municipalities
234 Municipalities
66
Current industry structure is highly inefficient owing to fragmentation
Inadequate maintenance of networks
Inability to supply electricity to the indigent
Unequal treatment of consumers across the country
Significant disparities in tariffs
Current industry structure is highly inefficient owing to fragmentation
Absence of economies of scale in respect of investing in assets, sharing of facilities, services, regulation, people development etc.
Limited opportunity to introduce competition
Challenges Facing the IndustryChallenges Facing the Industry
77
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
88
To Consolidate the To Consolidate the South African South African
Electricity Distribution IndustryElectricity Distribution Industry
Into Into
Six Financially ViableSix Financially Viable
Regional Electricity DistributorsRegional Electricity Distributors
Vision of RestructuringVision of Restructuring
99
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
1010
Six REDS
Creation of EDI holdings
EDI holdings to have effective control over REDS
Human Resources Planning including Social Plan
RED ownership
Cost reflective tariffs
Prices to poor households to be capped
Local government levy on electricity prices
Main Features of Blue PrintMain Features of Blue Print
1111
Special deals for large industry to be honoured
Mitigate the required increase in tariffs
Electrification to continue
Competition for large customers
Regulation of EDI
Transitional support to the weakest distributors
Support from EDI Holdings for the restructuring
process
Main Features of Blue Print (Cont..)Main Features of Blue Print (Cont..)
1212
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
1313
Rationale For BoundariesRationale For Boundaries
Size
Ensuring economies of scale
To ensure benchmarking
Critical mass in the competitive wholesale electricity market
Balance
Urban / rural balance
Rural electrification
Customer numbers (700 000 – 1.4m rising to 1.1m – 2.4m)
Load mix (domestic consumption which is the key driver of customer service costs, is balanced)
Assets employed (line length and transformer capacity per customer)
Income per household
1414
Implementation costs
Minimization of network re-configuration requirements
Contain at least one existing distribution control centre
Contain at least one work management centre, one call centre and a reasonable distribution of local stores / depots
Do not violate significant geographical boundaries / features
Financial viability
Each RED must be able to fund their:
On-going operations
Required new capital
Service debt to a gearing level of up to 70%
Earn a reasonable return on equity on the business
Rationale For BoundariesRationale For Boundaries
1515
Preferred option - Six REDs
4
2
56
DURBAN
PORT ELIZABETHCAPETOWN
BLOEMFNTN
PRETORIAJOHANNESBURG
3
1
5
4
6
2
PIETERMARITZBURG
EASTLONDON
PREFERED OPTION - SIX REDSPREFERED OPTION - SIX REDS
1
6
4
2
3
5
1616
East RandEast Rand
Bloemfontein Pietermaritzburg
Witbank
Durban Durban
Port ElizabethPort ElizabethCape TownCape TownCape TownCape Town
JohannesburgJohannesburg
PretoriaPretoria
Calvinia
Upington
Vryburg
Prieska
Rustenburg
Kroonstad
Lichtenberg
Pietersburg
Kimberley
Nelspruit
Lydenburg
Harrismith
De Aar
Newcastle
Bergville Richards
Bay
Ulundi
Umtata
East London
Graaf Reinet
Victoria West
PretoriaPretoria
JohannesburgJohannesburg
4
5
2
52
1
3
6
6
4
Household income less than R15,000 per yearDistrict Management Areas (few customers)
Large Industrial Customers
Customers (000’s) 1008Load (TWh) 28Electrified (%) 60
Customers (000’s) 1008Load (TWh) 28Electrified (%) 60
RED 6RED 6
Customers (000’s) 683Load (TWh) 37Electrified (%) 60
Customers (000’s) 683Load (TWh) 37Electrified (%) 60
RED 5RED 5
Customers (000’s) 1400Load (TWh) 29Electrified (%) 56
Customers (000’s) 1400Load (TWh) 29Electrified (%) 56
RED 3RED 3
Customers (000’s) 720Load (TWh) 31Electrified (%) 70
Customers (000’s) 720Load (TWh) 31Electrified (%) 70
RED 4RED 4
Customers (000’s) 1006Load (TWh) 29Electrified (%) 73
Customers (000’s) 1006Load (TWh) 29Electrified (%) 73
RED 2RED 2
Customers (000’s) 857Load (TWh) 14Electrified (%) 81
Customers (000’s) 857Load (TWh) 14Electrified (%) 81
RED 1RED 1
Gauteng area enlarged
East RandEast Rand
2
2020
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
2121
May 01 June 03 18 Months 24 Months 24 Months +-6 Months
Restructuring ProcessRestructuring Process
BluePrint
Establish Holding
Company
Planning andRing fencingOf EDBs
Establish REDs
SupportAndOversee REDs
Phasing OutOf
HoldingCo
Stakeholder Management
EDIR Project Office EDI Holdings
EDIRC EDI Holdings Board
2222
restructuring process will take place in a controlled manner
with minimal risk to ongoing operations
.... whilst maintaining sufficient momentum to ensure
completion
Restructuring Process (Cont..)Restructuring Process (Cont..)
2323
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
2424
REDs will be owned by asset contributors transferred to the RED through a share scheme and are subsidiaries of the Holdings Company
Eskom assets contributed to the REDs would be held by National Government provided this has no effect on Eskom’s credit rating
For the businesses transferred into a RED, the RED will
be service providers of electricity and Municipalities are service Authorities
have its own Board appointed by shareholders
be registered under the Companies Act
hold distribution licenses
comprise employees working for Municipal distributors and Eskom distribution transferred to the REDs
On day one REDs will be similar but will subsequently diversify
Municipalities not yet transferred will
be customers of the REDs
hold distribution licenses
Business as usual
REDS Characteristics [transition]REDS Characteristics [transition]
2525
REDs will be owned by asset contributors through a share scheme
Eskom assets contributed to the REDs would be held by National Government provided this has no effect on Eskom’s credit rating
REDS will :
be service providers of electricity and Municipalities are service Authorities
have its own Board appointed by shareholders
be registered under the Companies Act
hold distribution licenses
comprise all employees working for Municipal distributors and Eskom distribution
REDs Characteristics [post transition]REDs Characteristics [post transition]
2626
REDs Characteristics [shareholding]REDs Characteristics [shareholding]
National Government
Golden Share
Reducing
EDI Holdings
Municipalities
Voting Share
Dividend Shares
Reducing
Increasing
5 Year-period
2727
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
2828
MUNICIPALITIES
current surplus earned from the provision of electricity to be assured through the levy and dividends
required to ring-fence electricity business
assets contributed will represent value of shareholding in the REDS
govern the provision of electricity through the service delivery agreement
SALGA will have representation on EDI Holdings Board
ESKOM
separate and ring-fence distribution business into six regions
assets contributed to REDS will be compensated
may choose to be a contestable market retailer
ESKOM will have representation on EDI Holdings Board
Effects on StakeholdersEffects on Stakeholders
2929
EMPLOYEES
employees involved in electricity distribution businesses of municipalities and ESKOM will be transferred to REDS in terms of section 197 of the Labour Relations Act
no change to their conditions of service unless collectively negotiated
Conditions for redeployment will be collectively negotiated
a national bargaining council will be established
focus on skills development and utilisation
a social plan will minimise negative effects to employees as a result of the restructuring
CUSTOMERS
standardised tariff structures will apply
rationalised tariffs
initially those consuming more than 100 GWh per annum will be entitled to select retailer of choice
improved reliability of supply
continued roll-out of electrification schemes
Poor residential customers will be subsidized
Effects on Stakeholders (Cont…)Effects on Stakeholders (Cont…)
3030
Restructuring of the Financial Operations
In the process of RED establishment, the objective is to maintain smooth financial operations. This will be done through:
Maintaining internal financial controls
Maintaining financial reporting capabilities
Planned and structured transfer of financial accountabilities and responsibilities
Maintaining compliance with corporate governance principles
Avoidance of the loss of essential financial skills and experience
3131
Role of EDI Holdings Financial Operations
In the process of RED establishment the role of EDI Holdings Financial Operations will be:
To develop asset evaluation methodologies and principles
To develop financial ringfencing tools and project manage this process
To model the financial viability of REDS
To prepare RED financial plans and business plans
To develop RED financial reporting systems
3232
Role of EDI Holdings Financial Operations cont…
In the process of RED establishment the role of EDI Holdings Financial Operations will be to cont…:
To develop RED financial policies and procedures
To develop RED commercial polices and procedures
To develop EDI funding strategies and to obtain funding
To plan the structured transfer of financial operations to REDS
To manage EDI Holdings financial operations
3333
Impact on Municipal Financial Operations
In the process of RED establishment the role of Municipal Financial Operations will be:
To provide financial services until the REDS have taken over financial operational accountabilities and responsibilities
To ringfence the electricity distribution business
To undertake data clean-up of the electricity distribution business’s customer base, financials and asset register
To provide shared services to the RED as agreed upon in a negotiated SLA
To revise commercial processes
To revise commercial contracts
To transfer customer base, financials and asset register data to the RED
3434
Impact on Municipal Finances
Loss of Revenue
Surplus will be ensured through dividend and levy
Levy currently inherent in municipal tariffs, to be made transparent
Discussions with National Treasury underway on how to deal with this matter
Challenge
Impact on cashflow
3535
Impact on Municipal Finances
The loss of surpluses generated from electricity distributing activities
The loss of cash flow
Reduced effectiveness of credit control
Effect on municipal borrowing; and
The costs of restructuring
3636
Impact on Municipal Finances
The effects of corporate taxation
The differentiation between fair return on capital and monopoly rent
Entitlement to surpluses
The impact on municipal cashflows of in the short to medium term; and
Municipalities ability to borrow
3737
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
3838
100% owned by national government through the Department of
Minerals and Energy Ministry
Board representation - SALGA , ESKOM & GOVERNMENT- 3 non-
executive directors each and 3 independent non-executive
directors
CEO, COO and CFO
Led by a competency based board
Essentially operating as a project management company to be
phased-out in five years
EDI Holdings CompanyEDI Holdings Company
3939
Plan, control and manage the process of the establishment and
implementation of 6 independent and financially viable regional
electricity distribution (REDS) companies
Will retain effective control over the REDs through special
voting shares
Manage the provision of short-term support by strong and
capable electricity providers
Prepare and implement an electricity distribution industry-wide
social plan
Role of EDI Holdings CompanyRole of EDI Holdings Company
4040
Advocate Sandile Nogxina-DG, DME (Chairperson)
Ms Nelisiwe Magubane-DDG (Electricity & Nuclear), DME
Ms Thoko Mashiane-Municipal Manager Ehlanzeni District
Council (SALGA)
Mr Thabo Mokoena-CEO, SALGA
Dr Stephen Lennon-ESKOM
Mr Jacob Maroga-ESKOM
Ms Dolly Mokgatle-ESKOM
EDI Holdings Board MembersEDI Holdings Board Members
4141
Dr Zavareh Rustomjee-IUG
Mr Clive Dunstan-IMATU/FEDUSA
Mr Oupa Komane-COSATU
Ms Judy Parfitt-Resolve Group (Independent)
Mr Ashley Ally-LAETOLI (Independent)
Ms Annalise Jacobs-ABSA (Independent)
Ms Phindile Nzimande-CEO
EDI Holdings Board Members (cont..)EDI Holdings Board Members (cont..)
4242
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
4343
To legislation the parties have agreed that they
shall enter into a co-operative agreement that will
enable the Holdings company to achieve its
mandate of restructuring the electricity
distribution industry facilitate the restructuring in
the absence of enabling
Rationale Rationale
4444
To bind the signatories to the process of restructuring
To enable the Holdings company to interact with the
signatories as autonomous entities in the industry
To facilitate the material assistance to EDI Holdings by
industry
PurposePurpose
4545
Consent of the parties to the restructuring process
Definition of how Eskom and Municipalities must ring-
fence their distribution activities to advance the
restructuring of the industry
Framework for provision of resources to Holdings
company
Contents Contents
4646
the co-operative agreement has been entered into and
signed by the following parties: DME, SALGA, Eskom, NER,
EDI Holdings
individual municipalities are required to accede to the
agreement once their councils have agreed to signing the
co-operative agreement
StatusStatus
4747
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
4848
Blueprint approved by Cabinet [April 2001]
Co-operative Agreement Signed [May 2002]
Registration of EDI Holdings Company [March 2003]
EDI Holdings operational [July 2003]
Business plan and budget to be approved [October
2003]
Key MilestonesKey Milestones
4949
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
5050
A consolidated industry capitalising on economies of
scales
Financially viable distributors
Competitive electricity distribution utilities
Rationalised and competitive tariffs
Efficient provision of service
Improved reliability of supply
Continued roll-out of new electrification schemes.
Cross pollination of best practices between utilities
Benefits of RestructuringBenefits of Restructuring
5151
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
5252
Boundaries
Valuation method
Compensation methodology
Ring-fencing toolkit for Municipalities
Restructuring Bill
Short-term ObjectivesShort-term Objectives
5353
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
5454
Timeline
Outstanding Issues
Complexity
Thought processes, biases, skills and passion
Handover
RisksRisks
5555
History of Restructuring
Challenges Facing the Industry
Vision of Restructuring
Main Features of The Blueprint
Maps of REDs
Restructuring Process
REDs Characteristics
Effects On Stakeholders
EDI Holdings Company and Role
Co-operative Agreements
Key Milestones
Benefits of Restructuring
Short-term Objectives
Risks
Conclusion
Presentation OutlinePresentation Outline
5656
WE need the SUPPORT of all KEY STAKEHOLDERS to
make this electricity distribution industry restructuring
exercise an unqualified success, especially the political
leaders at local government level- we need buy in from
Mayors
We will approach your individual councils to formulate
council resolutions to accede to the Co-operative
Agreement
Contact Phindile Nzimande
011 800 2259
082 464 9617
ConclusionConclusion
5757
THANK YOUTHANK YOU