Presentation Outline. Legislative and Policy Update. RED Business Model. RED Future Model. Funding Support. Conclusion. Slide 2

Transcription

1 EDI RESTRUCTURING PRESENTATION To AMEU RESTRUCTURING COMMITTEE By NIGEL WATERS Regional General Manager: REDs THREE and FIVE 28 June 2007

2 Presentation Outline Legislative and Policy Update RED Business Model RED Future Model Funding Support Conclusion Slide 2

3 Legislative and Policy Update ( 1) EDIR Bill Now referred to as the Regional Electricity Distributor (RED) Establishment Bill. A bill predominantly containing principles relating to RED establishment Key issues of implementation, industry participation and transfer of electricity businesses into REDs will be contained in detail technical regulations promulgated in terms of RED Establishment Bill. Opportunity for Public comment is expected to be around August Local Government Laws Amendment Bill Cabinet meeting of 30 May 2007, the Bill was approved for public comment Bill seeks to refine and align policy provisions reflected in different laws, strengthen enforcement measures and improve technical & legal provisions Affected legislation will include: Demarcation Act(1998); Municipal Systems Act (2000); Municipal Finance Management Act (2003); and Municipal Property Rates Act (2004). Slide 3

4 Legislative and Policy Update ( 2) Electricity Regulation Amendment Bill To establish a national regulatory framework for the electricity supply industry; To make the NER a custodian and enforcer of the national electricity framework; To provide for licenses as the manner in which generation, transmission, distribution, trading, import and export of electricity are regulated; and To provide for related matters. The final Bill was tabled at the NCOP on 29 May 2007 Constitutional Review Submission In terms of section 45 (1) (c) of the Constitution, the Joint Constitutional Review Committee must review the Constitution annually. Annually before first day of May by notice in the public media, the committee must invite the public to submit written representation on any constitutional matter EDI Holdings responded to invite by making a submission: Submission argues that the Constitutional allocation of the functional area of reticulation to local government is inappropriate and this function should rather be allocated to national government Slide 4

5 MFMA Act, 2003 (Act No.56 of 2003): Exemption To facilitate the EDI restructuring National Treasury provided exemption from certain specific provisions of the MFMA (Government Gazette No , 05 April 2007) Municipalities and Municipal Entities are exempted from or in respect of the provisions of sections 14 and 90 of the MFMA subject to the following conditions: Exemption relates to the transfer of ownership or otherwise disposal of capital assets (moveable and immoveable), owned by municipalities and used for the provision of electricity reticulation and other electricity services, to REDs or public entities The exemption requires that: Municipalities must enter into a Service Delivery Agreement (SDA) with the relevant RED Municipalities must undertake a due diligence and ringfence their electricity business All capital assets, loans and liabilities associated with the assets to be transferred to the relevant RED must be identified All the assets to be transferred to the relevant RED must be recorded in an asset register Assets to be transferred must be evaluated through a transparent and auditable methodology Slide 5

6 MFMA Act, 2003 (Act No.56 of 2003): Exemption In terms of the exemption the asset register must: Detail and group the assets to be transferred to the relevant RED Provide details of sources of funding of assets and encumbrances on assets to be transferred or disposed of Be approved by a council resolution In terms of the exemption the relevant Municipality and the relevant RED must enter into a SDA. The SDA must inter alia: Provide for upgrading, maintenance and insurance of the assets Make provision for the transfer of the assets back to the relevant municipality upon termination of the agreement, or upon deregistration or liquidation of the RED or public entity Reflect the asset register Slide 6

7 Creating the Transaction All assets on the balance sheet will be transferred to the RED Compensation will be paid by means of: Equity / Shareholding Repayment of long term debt over debt period Compensation principles: Customers will not pay twice No windfall gain No compensation will be paid on: Assets created through Grants Public funding and contributions Slide 7

8 Future REDs ( 1) New companies into which both municipalities and Eskom will transfer their electricity distribution businesses Shareholding to be split between Eskom, National and Local Government Service providers of choice to the service authorities: Municipality remains service authority and RED becomes Service provider REDs will collect surcharges in accordance with the Municipal Fiscal Powers & Functions Bill on behalf of the municipalities and pay it over to them REDs will pay dividends to shareholders subject to financial performance Relationship between RED and municipalities to be governed through the Service Delivery Agreement as contemplated in Section 81 of Municipal Systems Act Streamlined relationship reducing duplication and creating clear accountability Better regulation with role clarity between service authorities, service providers and the National Energy Regulator of South Africa Slide 8

9 Future REDs ( 2) Decentralised geographical service delivery Enable Government s social policy, e.g. electrification and free basic electricity Single institution Focus on service Consistency in operating policies and application across RED geographical area Development and application of best practices Support Government s objective of universal access to electricity by 2012 Become more efficient and able to service customers equally well, at realistic tariff levels through: Lower Interest charges due to improved access to capital markets Efficiencies in non-payroll related areas, i.e., general costs Accounts Receivable. Using best practices in a reasonable, good faith effort approach to reduce bad debt accounts Slide 9

10 RED Future Business Model (.1) Bundled but clearly demarcated wires and retail businesses Wires business key characteristics: Asset intensive Capital intensive Geared for serving an one to many relationship Monopoly business with strong regulation Retail business key characteristics: Customer driven Trading in energy Products and services aligned according to market segmentation Business geared towards competition and less regulation Shared corporate and support services to wires and retail Focus on buy in of services to avoid stranded costs and duplication Business model to be customised to complement the geographical composition of the RED area of jurisdiction Slide 10

11 RED Future Business Model RED Corporate Office Policy and Direction Governance and Compliance RED Planning and Resource Allocation: Resources (Finance; HC; Systems; Shared Services Management etc.) Engineering (Wires) Retail (Customer Service, Tariffs, Energy Trading etc) Integrated National Electrification Planning (INEP) Free Basic Electricity and Electrification Policy Industry association and service provision agreements Area Offices Policy implementation Establish local needs and requirements Integrated development planning (IDP) Align and oversee execution of Electrification and FBE Geographical integration and implementation of service delivery Depots/ Technical Service Centres Execution of technical service related activities as defined per Depot to ensure effective customer service Slide 11

12 Indicative RED Topography AREA OFFICE AREA OFFICE AREA OFFICE HEAD OFFICE Slide 12

13 EDI Holdings Funding Support NERSA approved, through the Eskom Multi Year Price Determination (MYPD) the allocation of R1.2bn over a 3 year period Restructuring Funding Support Only projects approved by EDI Holdings and directly linked to preparation for RED establishment will be considered for funding support Funding support will be done on a pro-rata basis Only completed projects initiated and paid for after 1 April 2006 will be considered for pro-rata funding. No progress payments will be considered. Slide 13

14 To Apply For Funding Support Projects: 01 April 2006 to 31 May 2007 Projects which might be considered for pro rata funding MSA Sect 78 Electricity Business Ringfencing Electricity Business due diligence Submit application for support to relevant EDI Holdings RGM Proof of deliverable Certified copy of Service Provider invoice Certified claim for any cost claimed for associated with project Projects: 01 June 2007 onwards Submit project proposal to relevant EDI Holdings RGM EDI Holdings RGM submit the proposed project to the EDI Holdings Committee EDI Holdings RGM provide feedback to relevant applicant Conditions pertaining to pro rata funding support Funding made available Claims process and requirements Slide 14

15 Conclusion EDI Holdings welcomes the certainty created by the Cabinet decision to create 6 wall to wall REDs as Public Entities, regulated underthe PFMA EDI Holdings would like to urge all municipalities to support the implementation of the Cabinet Decision by: Signing Accession Agreement; and Commencing the preparatory work: MSA Section 78 Ringfencing Due Diligence Join the Engagement Forum EDI Holdings will continue to work with all stakeholders to ensure fast-tracking of the restructuring process in order to ensure the realization of the restructuring objectives Slide 15

16 THANK YOU Slide 16