1. 1 Presentation By: Mr.O. Aphane Acting Deputy Director General: Electricity, Nuclear and Clean Energy (on behalf of the Director General, Ms N Magubane)

2. Introduction 1.Electricity Distribution Industry overview. 2.Electricity Distribution Industry problems. 3.Current state of EDI. 3.1 Identified Red Flags. 4.Proposed Immediate Interventions. 4.1 Addressing Maintenance Backlog. 5.Way forward. 2

3. Introduction 3 Transmission Lines GENERATION TRANSMISSION SUBSTATION DISTRIBUTION (132/88/66/44/33 kV) MV Lines 22 and 11kV Reticulation Lines & Cables DISTRIBUTION SUBSTATION Distribution Lines (HV Lines &Cables) LV Lines 380/220V ELECTRICITY DISTRIBUTION INDUSTRY (EDI) FOCUS

4. Industry Overview (Key Statistics.) 4 1.Revenue:R40 bn 2.Customers:~9.2 m 3.Staff :~31 000 4.Replacement Asset Value (2008):~R260 bn 5.Energy Purchases (ESI-2008):~224 TWh 6.Distribution Lines:>400 000 km 7.Distribution Cables:>210 000 km 8.Average age of asset base: ~ 45 yrs

5. 1. Electricity Distribution Industry Overview EDI in its current format would not be able to support the projected economic growth or provide customers with a reliable electricity supply. (still applies today) Cabinet decided to restructure the industry and established Electricity Distribution Industry Holdings (EDI-H) to manage the process. (EDI-H est. in 2003) After years of attempting to find a workable model within the existing environment, consultations with the various stakeholders and taking into account the energy security, legal implications, impact on local government and Eskom and existing regulations, it became evident that the restructuring process could not continue as contemplated in EDI Blueprint. 5

6. The latest decision by Cabinet (8 th December 2010) was: EDI-H would be wound up by the end of March 2011. Programs within EDI-H (such as asset rehabilitation) needs to be prioritized by the Department. The problems facing the EDI have not disappeared and they will not disappear without a well coordinated and structured national intervention. Without a substantial financial investment, over a defined period, there is a risk that power failures due to distribution related incidents would match the 2008 generation related load shedding challenges. 6 1. Electricity Distribution Industry Overview

7. 2. Electricity Distribution Industry Problems. Unacceptable wide range of tariff differences. Significantly different service standards and practices. Lack of appropriate investment in the electricity network assets. Decrease in quality and reliability of electricity distribution to the end customer. Inadequate skills development for the industry. 7

8. 2. Electricity Distribution Industry Problems. (Free Basic Electricity) 8 More than 70% of the indigent households are receiving free basic electricity while less than 5% receives free basic alternative energy as bio fuel, paraffin, gas and other alternative sources. There are still challenges relating to implementation of FBE mainly as limited funds for Municipalities to fully implement FBE. Lack of indigent registers,

9. 2. Electricity Distribution Industry Problems. (Free Basic Electricity) 9 Lack of capital costs for free basic alternative energy appliances and non collection of tokens by beneficiaries. FBE allocations to Municipalities is unconditional grant and Municipalities turn to use this allocations for other services instead of using it for FBE. Municipalities to use FBE allocations to fund the FBE as allocated and top it up where possible so as more indigent households can get FBE.

10. 3. Current State of EDI: Phase 1 Initial Assessment 10 Having done field visits to 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.

11. 3. Current State of EDI: Phase 1 Initial Assessment 11 Observations made: The average age of the electrical networks is in excess of 40 years. Demand growth exceeds the loading capacity of the networks.

12. 3. Current State of EDI: Phase 1 Initial Assessment 12 Observations made: Indications are that network reliability is decreasing. Evident in the increase in the number of outages due to poor performing networks. Incidents related to electric cable and associated equipment theft. The regulatory environment is not conducive to enforcing license conditions of distributors.

13. 4. Proposed Immediate Intervention. Distribution assets need to be rehabilitated to avoid rolling blackouts. Post Cabinet decision in December 2010 to abandon restructuring, DoE is putting in place measures to address the identified state of distribution assets. Project ADAM (Approach to Distribution Asset Management) proposed to address: 1. Maintenance backlog, 2. Refurbishment and 3. Strengthening 13

14. 4. Proposed Immediate Intervention. 14 Total BacklogMaintenanceRefurbishment Short term Strengthening Total R 27,369,146,995R 2,736,914,699R 8,210,744,098R 16,421,488,197 EDI-H 2008 Study. Estimated to grow at 2% p.a.

15. 4.1 Approach To Asset Management. 15 The 2007 NERSA Report on the state of EDI infrastructure shows 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.

16. 4.2 Approach To Asset Management. The maintenance backlog has been attributed to inadequate investment in infrastructure that puts the country at risk of deepening the electricity crisis. A holistic approach to asset management in the EDI is required to run parallel to the current work been done in the EDI. A business plan for addressing the backlog was developed by EDI-H. 16

17. 4.3 Approach To Asset Management Project Plan. 17

18. 4.4 Phase 2 Deliverable Details 18 Funds Required: R2.0 Billion Critical short term projects were identified through visits to distribution entities to determine their immediate needs and can be implemented within 18 months The phase 2 execution will begin in tandem with phase 3, specifically around the projects initiation, and the long lead time materials ordering Entity Name Estimated Phase 2 ADAM Contribution BloemfonteinR 110 460 308 City of Johannesburg R 325 723 733 RustenburgR 72 244 186 PolokwaneR 131 947 921 EkurhuleniR 544 964 773 EmfuleniR 232 093 591 Nelson Mandela Bay R 235 451 376 MsundusiR 212 947 993 MbombelaR 79 242 482 Phase 2 Project Category Cost Estimate MaintenanceR 69 921 399 RefurbishmentR 804 030 509 StrengtheningR 1 071 124 455 Total:R 1 945 076 363 54.4%41.5% 4.1%

19. 4.5 Funding Requirements Summary 19 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.

20. 1. Funding for 2011/12 financial year through various options and annually until the completion of the program. 2. Focus to be directed towards the regulatory challenges affecting municipalities, including network rehabilitation, setting norms and standards for maintenance, monitoring compliance and enforcement. 3. Cooperation from all stakeholders. Key stakeholders: Local Government who are responsible for service delivery must be forthcoming so that the program is successful. 4. Project plan already in place. 20PRESENT EDI TO SALGA 2011-FEB- 5. Way forward

21. Thank You. 21PRESENT EDI TO SALGA 2011-FEB-