2. 1 1 Presented by: P Nzimande CEO - EDI Holdings 19 November 2003 Notes

3. 2 2 Presentation 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

4. 3 3 History of Restructuring Early 1990s19971999End 1999April 2000Aug 2000 Considerable Debate over EDI RED s Approach Endorsed ERIC Report Cabinet Approved Start of Restructuring Process EDIRC Established Appointment of PWC Blue Print Blue Print Approved by Cabinet: May 2001 Approved by Cabinet: May 2001 Blueprint Submitted to EDIRC

5. 4 4 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 Outline

6. 5 5 Eskom Distribution Eskom Distribution Current Situation PERCENTAGE OF CONSUMERS 234 Municipalities 234 Municipalities SALES VOLUME Eskom Distribution Eskom Distribution 234 Municipalities 234 Municipalities

7. 6 6 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 Industry

8. 7 7 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 Outline

9. 8 8 To Consolidate the South African Electricity Distribution Industry Into Six Financially Viable Regional Electricity Distributors Vision of Restructuring

10. 9 9 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 Outline

11. 10 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 Print

12. 11 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..)

13. 12 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 Outline

14. 13 Rationale 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

15. 14 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 Boundaries

16. 15 PREFERED OPTION - SIX REDS 1 6 4 2 3 5

17. 16 East Rand Bloemfontein Pietermaritzburg Witbank Durban Port Elizabeth Cape Town Johannesburg Pretoria 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 Pretoria Johannesburg 4 5 2 5 2 1 3 6 6 4 Household income less than R15,000 per year District Management Areas (few customers) Large Industrial Customers Customers (000’s)1008 Load (TWh)28 Electrified (%)60 RED 6 Customers (000’s)683 Load (TWh)37 Electrified (%)60 RED 5 Customers (000’s)1400 Load (TWh)29 Electrified (%)56 RED 3 Customers (000’s)720 Load (TWh)31 Electrified (%)70 RED 4 Customers (000’s)1006 Load (TWh)29 Electrified (%)73 RED 2 Customers (000’s)857 Load (TWh)14 Electrified (%)81 RED 1 Gauteng area enlarged East Rand 2

18. 17 RED 5 Msukaligwa Lekwa Dipaleseng Highveld East Emalahleni Middelburg Albert Luthuli Umjindi Mbombela Local Nkomazi MP302 MP305 MP306 MP307 MP312 MP313 MP301 MP323 MP322 MP324 11 9 8 7 6 5 4 3 2 1 Newcastle Dannhauser Endumeni Nquthu Abaqulusi eDumbe Utrecht Mkhondo Seme KZ252 KZ254 KZ241 KZ242 KZ263 KZ261 KZ253 MP303 MP304 20 19 18 17 16 15 14 13 12 Municipality Ladysmith 49 47 48 45 16 44 17 36 37 38 39 40 41 43 42 46 35 34 33 32 31 30 29 28 25 26 21 27 18 22 23 24 20 19 14 15 13 12 11 9 8 7 5 6 4 3 1 2 Witbank Pieteramaritzburg Nongoma 5

19. 18 Inaka Emnambithi KZ233 KZ232 22 21 Mkhambathini Richmond Pietermaritzburg Umgeni Impendle Mposana Imbabazani Ukhahlamba Umtshezi Msinga Umzinyathi KZ226 KZ227 KZ225 KZ222 KZ224 KZ223 KZ236 KZ235 KZ234 KZ2454 KZ243 33 32 31 30 29 28 27 26 25 24 23 uMhlathuze Ntambanana Mthonjaneni Umlalazi Nkandla Umvoti Mngeni KZ282 KZ283 KZ285 KZ284 KZ286 KZ245 KZ221 40 39 38 37 36 35 34 Municipality Ladysmith 49 47 48 45 16 44 17 36 37 38 39 40 41 43 42 46 35 34 33 32 31 30 29 28 25 26 21 27 18 22 23 24 20 19 14 15 13 12 11 9 8 7 5 6 4 3 1 2 Witbank Pieteramaritzburg Nongoma 5 RED 5

20. 19 Mtubatuba uPhongolo Jozini Big 5 False Bay Nongoma Ulundi KZ271 KZ262 KZ272 KZ273 KZ265 KZ266 49 48 47 46 45 44 Mtubatuba Mbonambi KZ275 KZ281 42 41 HlabisaKZ27443 Municipality Ladysmith 49 47 48 45 16 44 17 36 37 38 39 40 41 43 42 46 35 34 33 32 31 30 29 28 25 26 21 27 18 22 23 24 20 19 14 15 13 12 11 9 8 7 5 6 4 3 1 2 Witbank Pieteramaritzburg Nongoma 5 RED 5

21. 20 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 Outline

22. 21 May 01June 0318 Months24 Months +-6 Months Restructuring Process Blue Print Establish Holding Company Planning and Ring fencing Of EDBs Establish REDs Support And Oversee REDs Phasing Out Of Holding Co Stakeholder Management EDIR Project Office EDI Holdings EDIRCEDI Holdings Board

23. 22 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..)

24. 23 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 Outline

25. 24 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]

26. 25 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]

27. 26 REDs Characteristics [shareholding] National Government Golden Share Reducing EDI Holdings Municipalities Voting Share Dividend Shares Reducing Increasing 5 Year-period

28. 27 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 Outline

29. 28 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 Stakeholders

30. 29 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…)

31. 30 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

32. 31 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

33. 32 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

34. 33 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

35. 34 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

36. 35 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

37. 36 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

38. 37 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 Outline

39. 38 100% 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 Company

40. 39 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 Company

41. 40 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 Members

42. 41 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..)

43. 42 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 Outline

44. 43 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

45. 44 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 Purpose

46. 45 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

47. 46 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 Status

48. 47 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 Outline

49. 48 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 Milestones

50. 49 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 Outline

51. 50 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 Restructuring

52. 51 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 Outline

53. 52 Boundaries Valuation method Compensation methodology Ring-fencing toolkit for Municipalities Restructuring Bill Short-term Objectives

54. 53 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 Outline

55. 54 Timeline Outstanding Issues Complexity Thought processes, biases, skills and passion Handover Risks

56. 55 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 Outline

57. 56 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 Conclusion

58. 57 THANK YOU