1. 1 UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo Energy Programmes and Projects 01 November 2013

2. Introduction 1.Electricity Distribution Industry overview 2.Electricity Distribution Industry challenges 3.Current state of EDI 4.Approach To Addressing the Challenges 5.Conditionality framework 6.ADAM Programme Implementation Model 7.Progress to date 8.Way forward 9.Allocations 10.Mini - ADAM Projects 2 PRESENT EDI TO PCE 2013-NOV

3. Electricity Distribution Industry (EDI) restructuring overview Over the last 20 years different attempts have been initiated to improve/restructure the EDI in order to address the various short comings. In May 2001 the Cabinet approved the restructuring of the industry and established Electricity Distribution Industry Holdings (EDIH) to manage the process. After years of attempting to find a workable model within the existing legislative environment, consultations with the various stakeholders, taking into account the energy security, legal implications, impact on local government and Eskom and existing regulations, it became evident that the restructuring process had to be reviewed. 3 PRESENT EDI TO PCE 2013-NOV

4. Electricity Distribution Industry (EDI) restructuring overview (cont.) The decision made by Cabinet (8 th December 2010) was that EDIH would be wound up by the end of March 2011 and not to implement the REDs model. In November 2012 Cabinet approved the ADAM Programme and the start of the first phase This presentation is only focusing on the mini-ADAM pilot phase. There is also a more long term policy process undertaken by DOE for the full implementation of the ADAM programme (EDI policy development in Policy and Planning Branch). 4 PRESENT EDI TO PCE 2013-NOV

5. Current State of EDI Unacceptable wide range of tariff differences Significantly different service standards and practices Lack of appropriate investment in the electricity distribution network assets Challenges pertaining to technical/non technical losses and revenue management Decrease in quality and reliability of electricity distribution to the end customer Inadequate skills development for the industry 5PRESENT EDI TO PCE 2013-NOV

6. Current State of EDI: Phase 1 Initial Assessment 6PRESENT EDI TO PCE 2013-NOV Having done field visits to all 12 priority cities, the following observations were made: Asset management strategies/plans and appropriate systems do not exist across the industry, Municipalities and Eskom are not providing for sufficient investment in existing and planned distribution networks leading to a backlog in infrastructure upkeep. The average age of the networks is in excess of 40 years. Demand growth exceeds the loading capacity of the networks, which will amongst others pose a significant risk to the effective introduction of Energy Efficiency Strategies.

7. Current State of EDI: Phase 1 Initial Assessment (cont.) 7PRESENT EDI TO PCE 2013-NOV While the industry suffers from a lack of reliable data and appropriate measurement, all indications are that network reliability is decreasing, which is evident in the increase in the number of outages due to poor performing networks and incidents related to electric cable and associated equipment theft. The regulatory environment is not conducive to enforcing license conditions of distributors.

8. Approach To Addressing the Challenges It is important to address the challenges in a holistic and integrated manner The Approach to Distribution Asset Management (ADAM) Turnaround Programme is a comprehensive, multi-year initiative targeted at addressing maintenance, refurbishment and strengthening shortcomings in key electricity distribution infrastructure. Current practices in the EDI do not guarantee business sustainability and socioeconomic growth, while the associated increased operation of under- maintained plant is posing a significant risk to the industry. The maintenance backlog has been attributed to inadequate investment in infrastructure that puts the country at risk of deepening the electricity crisis. 8PRESENT EDI TO PCE 2013-NOV

9. Approach To Asset Management 9PRESENT EDI TO PCE 2013-NOV The NERSA Reports on the state of EDI infrastructure show that even though there are pockets of good performance as far as maintenance, reliability, control and networks go, a significant number of assets needs improvement.

10. Approach To Asset Management Through a study conducted by EDIH during 2008 it was revealed that the estimated maintenance, refurbishment and strengthening backlog in the distribution network amounted to R27,4bn (2008 values). A holistic approach to asset management in the EDI is required to run parallel to the current work been done in the EDI. 10PRESENT EDI TO PCE 2013-NOV

11. A business plan for addressing the backlog is already developed. The current capital expenditure in the EDI is approximately R5 billion per annum and there are resource constraints which would make it difficult, if not impossible, to implement the business plan in a short period of time. The backlog figure is not static and the longer it takes to address it, the larger the backlog will become and more importantly the need for funding and competent human resources to address this issue will increase. DOE is in the process of appointing consultants to carry out an update on the EDI backlog analysis. 11PRESENT EDI TO PCE 2013-NOV Approach To Asset Management

12. 12PRESENT EDI TO PCE 2013-NOV Approach To Asset Management

13. Resourcing: Funding Requirements Summary 13PRESENT EDI TO PCE 2013-NOV It is essential that funding be sourced to move the ADAM programme beyond the first completed phase. A phased funding required as indicated above, is required to initiate the ADAM programme. Phase 2R320 mil. Phase 3 ± R23-33 Bil.

14. Funding options 14PRESENT EDI TO PCE 2013-NOV For Mini ADAM programme – Assist municipalities with technical identification of most critical challenges Development of Business plans Engaging with consultants/contactors on work to be done Monitoring of progress on a continuous basis. R320 million available from MYPD2: (Transferred to DOE) Implement as a pilot Mini ADAM programme wrt critical municipalities to test the broader ADAM principles. Going forward tariff based Part of allowance approved by NERSA Ring fencing of tariff allocation for the purpose it is been allocated Co-funding by municipality through soft loans

15. Conditionality framework for mini-ADAM 15PRESENT EDI TO PCE 2013-NOV Each municipality participating would be expected to agree to: 1.Contract signed between DOE and each qualifying municipality 2. Ring-fencing account of approved funding, 3. Submit rehabilitation plan for approval, 4. Report progress as prescribed

16. ADAM Programme Implementation Model 16 Metro/Municipality N.T.Mini ADAM Allocation R320m (ex EDIH surplus ) Programme Steering Committee(MASC): Munics, NERSA, DoE, MISA, N.T, DBSA, Eskom Project 2 Project 1 Project Manager Cabinet approval M.O.A (DOE-MUNIC) Cash flow transfer Report- Annexure ‘D’ Claim Payment Present Projects Funding Level Project Level Execution Progress Reporting Monitoring DoE Team Payment Do E Technical Monitoring Recommend Approval to DoE Operations and Maintenance - Metro/Munic Project n Ring-fenced accounts Each Metro/Munic PRESENT EDI TO PCE 2013-NOV

17. National Treasury re-allocated R320 million of the funds not been utilized by EDI Holdings to DoE to initiate the “Mini ADAM’ project. In order to kick start the process of implementing the ADAM Programme a “Mini” ADAM programme has been planned. The 2013/14 allocations for the “Mini ADAM” of R320 million was allocated to 7 municipalities and 2 Metros as critical emergency interventions is part of implementation of the overall ADAM strategy. Note: Due to the limited funding, only municipalities who required critical emergency interventions and responded in time (to fit in with National Treasury’s timelines) with enough information as required by DOE were considered. No further funding has been allocated in the next financial years for the Mini ADAM programme. In order to ensure that the “Mini ADAM” projects are conducted in a holistic manner, a broad base Steering committee was established. 17PRESENT EDI TO PCE 2013-NOV Mini–ADAM Progress to date

18. The Key Role of the Mini ADAM Steering Committee (MASC) is to oversee the progress of the programme and ensure it is carried out satisfactorily. The MASC is comprised of: Representatives (senior managers) of NERSA, MISA, DOE, DBSA,N.T., ESKOM) Any specialists, consultants or advisors may be called upon at any time if required. 1. Considers and recommends approval of the business plans and achievement of outcomes. 2. Ensures the project's scope aligns with the requirements of the stakeholder groups. 3. Provides those directly involved in the project with guidance on project business issues. 4. Ensures effort and expenditure are appropriate to stakeholder expectations. 5. Addresses any issue that have major implications for the projects. 6. Keeps the project scope under control as emergent issues force changes to be considered. 7. Reports on project progress to those responsible at a high level. 18PRESENT EDI TO PCE 2013-NOV Steering Committee

19. 19PRESENT EDI TO PCE 2013-NOV Mini ADAM Allocations CATEGORYMUNICIPALITY/CITY COUNCIL*Total R ('000) 320.000 Eastern Cape B-EC157KING SABATA DALINDYEBO(UMTATA)60.000 A-NMA NELSON MANDELA METRO (PE) 35.000 Free State B-FS203NGWATHE (KOPPIES)20.000 B-FS201MOQHAKA (KROONSTAD)20.000 B-FS185NALA (BOTHAVILLE)20.000 A-MANMANGAUNG METRO (BLOEM)25.000 KwaZulu-Natal B-KZN225MSUNDUZI (PETRMARITZ)100.000 Northern Cape B-NC091SOL PLAATJE(KIMBERLY)20.000 North West B-NW402TLOKWE* CITY COUNCIL (POTCH)20.000

20. 20PRESENT EDI TO PCE 2013-NOV Mini ADAM Projects CATEGORYMUNICIPALITY/CITY COUNCIL*Total R('000) 320.000 Eastern Cape B-EC157KING SABATA DALINDYEBO(UMTATA)60.000 1)CBD CENTRAL(SIDWADWA) UPGRADE 2X-TRANSFORMERS 20MVA, EXTENSIONS, CONTROL ROOM 66kV+1kV, SWITCHBOARD 11kV & OTHER 2)PRIMARY O.H LINES UPGRADE SIDWADWA-HILLCREST, ZIMBANE-UNITRA, ZIMBANE-SIDWADWA, UNITRA-THORNHILL A-NMA NELSON MANDELA METRO (PE) 35.000 1)PRIMARY MV SWITCHGEAR REPLACEMENT SWITCHBOARDS-MABANDLA-11kV, KRAGGA KAMMA-22kV, MABANDLA-22kV, KRAGGA KAMMA-6,6kV, FORD STRUANDALE-22kV, CLEVEDON RD-6,6kV, GRAHAMSTOWN RD-22kV 2)PRIMARY MV SWITCHGEAR RETROFIT SWITCHBOARDS-STRUANDALE-6,6kV, GREENACRES-11kV, CADLES- 6,6kV, EDGAR STREET-6,6kV,EVEREADY-6,6kV,RUSSELL ROAD-6,6kV

21. 21PRESENT EDI TO PCE 2013-NOV Mini ADAM Projects CATEGORYMUNICIPALITY/CITY COUNCIL*Total R('000) 320.000 Free State B-FS203 NGWATHE (KOPPIES)20.000 1)KOPIES BULK SUPPLY SUPPLY TRANSFORMERS & PROTECTION 10MVA-88/6,6kV, O.H. LINES 6,6kV, SWITCHGEAR & OTHER 2)PHIRITONA SUBSTATION SUPPLY TRANSFORMER & PROTECTION 10MVA 66/6,6kV, O.H. LINES 22kV, CABLE WORK & FEEDER LINES 6,6kV & OTHER B-FS201 MOQHAKA (KROONSTAD)20.000 1) MAIN SUB TO MAOKENG O.H. LINE CONSTRUCTION 66kV -4,1km 2) MAOKENG SUBSTATION TRANSFORMER BAY CONSTRUCTION 20MVA-66/6,6kV 3) FEEDER BAYS EQUIPMENT SUPPLY & INSTALL, CABLE WORK, COMMISSIONING B-FS185 NALA (BOTHAVILLE)20.000 1) BOTHAVILLE UPGRADE SUBSTATION SWITCHGEAR EQUIPMENT & OTHER 2) KGOTSONG FEEDER 1 UPGRADE OF INFRASTRUCTURE, EXCAVATIONS, EARTHING & OTHER 3) KGOTSONG FEEDER 2 UPGRADE OF INFRASTRUCTURE, MV WORK & OTHER 4) WESSELSBRON-MONYAKENG UPGRADE SUBSTATION EQUIPMENT & OTHER

22. 22PRESENT EDI TO PCE 2013-NOV Mini ADAM Projects CATEGORYMUNICIPALITY/CITY COUNCIL*Total R('000) 320.000 A-MANMANGAUNG METRO (BLOEM)25.000 1) BOTSHABELO BLOCK F DC SUBSTATION ELECTRICAL WORK & COMMISSIONING-132kV/11kV 1) BOTSHABELO FEEDER LINES ELECTRICAL WORK & COMMISSIONING-132kV-19,5kM B-KZN225MSUNDUZI (PETRMARITZ)100.000 1) PRINCE ALFRET-RETIEF STREET UPGRADE OF SUBSTATION, CABLE GRID & FEEDER BAY 2) NORTHDALE SUBSTATION UPGRADE SWITCHGEAR 11kV, CIVILS & YARD Northern Cape B-NC091SOL PLAATJE(KIMBERLY)20.000 1) APRIL & WIDAM SUBSTATIONS UPGRADE CABLES-11kV, SWITCH PANELS-MV, EXCAVATION & OTHER 2) CIRCUIT BREAKERS REPLACEMENT 19XCIRCUIT BREAKERS OSM TO SF6 (66kV) & OTHER 3) MIDLANDS SUBSTATION UPGRADE YARD, FEEDER BAYS-66kV, BREAKERS, CONSTRUCTION & OTHER North West B-NW402TLOKWE* CITY COUNCIL (POTCH)20.000 1) ALPHA & GAMMA SUBSTATIONS UPGRADE, SUPPLY & INSTALL SWITCHGEAR, CONTROL PANELS & OTHER

23. 1. It is imperative that the reform momentum created through the mini- ADAM Program be maintained. 2. Focus to be directed towards the regulatory challenges afflicting municipalities, including network rehabilitation, setting norms and standards for maintenance, monitoring compliance and enforcement. 3. Ring fencing of tariff allocation and the monitoring of these allocations to ensure it is applied in for the purpose it was attended for. 4. Cooperation from all stakeholders and specially from Local Government who are responsible for service delivery must be forthcoming so that the program is successful. 5. Have to finalize long term solution of EDI challenges. 23PRESENT EDI TO PCE 2013-NOV Way Forward

24. THANK YOU 24PRESENT EDI TO PCE 2013-NOV