Overview on Electricity Distribution Industry and Infrastructure Rehabilitation

Overview on Electricity Distribution Industry and Infrastructure Rehabilitation Program. 25 th July 2012 Joint PPC- Meeting, Cape Town 2021 -06 -1812/07/27 11

Contents of Presentation q Introduction. q Overview of Electricity Distribution Industry. q Legislative Environment. q Technical Mandate and Assets. q Report Status of Infrastructure. q Proposed Infrastructure Rehabilitation Plan. q Funding Options. q Closing Remarks. 2021 -06 -1812/07/27 22

Electricity Value Chain - ESI GENERATION PRIMARY ENERGY Eskom: 97% TRANSMISSION (765/400/275 k. V) Coal 89%, Nuclear 4% Gas 2% Hydro 1. 5% Pump storage 3. 5% TRANSMISSION Eskom: 100% Eskom Customers 46%, Sales 58% DISTRIBUTION (132/88/66/33/22 k. V) DISTRIBUTION & RETICULATION Municipalities (182) Customers 54%, Sales 42% RETAIL & COMMERCIAL INDUSTRIAL RESIDENTIAL 33

Introduction: Electricity Distribution Industry • Electricity Distribution is the final stage in the delivery of electricity to end users. • • Undertaken by Eskom and 182 licensed Municipalities. Under Distribution License issued by NERSA. Municipalities account for approximately 42% of sales revenue (Eskom 58%) and approximately 54% of customer base (Eskom 46%). Tariff applications approved by NERSA for both Municipality and Eskom’s jurisdiction. 2021 -06 -1812/07/27 44

Introduction: Electricity Distribution Industry • Quick facts; • • R 260 billion (2008) Asset replacement value 375 957 km overhead line 216 927 km cable 9, 2 million Customers Approximately 31 000 Employees Tariff disparity between Eskom/Municipality service areas EDI is an asset intensive business with average asset age of more than 40 years. 2021 -06 -1812/07/27 55

Introduction: Electricity Distribution Industry • Quick facts; (Est of Regional Electricity Distributers) • • • Cabinet’s Approval of transition process to REDs (1999) Cabinets Approval of EDI Blueprint (2001) EDI Holdings Est. [Sch. 3 a, Public Entity] (six years lifespan) (2003) REDs 1 Est. (wound up after 18 months) (2005) Cabinet’s Approval to wind up EDI-H (2010) 2021 -06 -1812/07/27 66

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Introduction: Cabinet’s Approval – EDI Blueprint (back) 2021 -06 -1812/07/27 88

Overview: • Legislative Environment: • Constitutional Mandate: (CH 7) • Powers and functions of municipalities -$ 156 (1) (a) of the Constitutions. $ 156(1)(a) “ A municipality has executive authority in respect of, and has the right to administer -…local government matters listed in Part B of Schedule 4…. . ” • Part B of Schedule 4: . . , Legislative Competence “…The following local government matters to the extent set out in section …. electricity and gas reticulation…. ” • 2021 -06 -1812/07/27 99

Overview: • Legislative Environment: • Electricity Regulation Act 4 of 2006: (CH 2) & (CH 3) • Powers and functions of Regulators; $ 4 (a) & (b) of ERA. • • $ 4 (a) & (b) “ …The Regulator must – • “consider applications for licenses and may issue licenses for operation of generation, transmission or distribution facilities; . . ” • “…regulate prices and tariffs; …” Activities requiring licensing; $ 7 (1) (a) of ERA • $ 7 (1) (a) “ …No person may, without a license issued by the Regulator in accordance with this Act operate any generation, transmission or distribution facility…” 2021 -06 -1812/07/27 1010

Overview: • Technical Mandate: • Reticulation of electricity at voltage at or less than 132 k. V down to 220 V. (ERA Definition) • Electricity Network Code (part of SAGC) • • Defines acceptable level of infrastructure performance. Provides for co-operation and agreement of parties in accordance with NERSA power quality directives. 2021 -06 -1812/07/27 1111

Overview: Current Asset Status • • Based on 2007 NERSA report on the state of distribution infrastructure. Study conducted by EDI-H in 2008 revealed that distribution’s maintenance, rehabilitation and strengthening backlog was at R 27. 4 bn. Assets needed an urgent and immediate rehabilitation and investment to reverse the downward spiral. A Business Plan developed by EDI-H introducing a holistic Approach to Distribution Asset Management (ADAM) 2021 -06 -1812/07/27 1212

Investment Requirements per Region Total Backlog Total R 27, 369, 146, 995 Maintenance R 2, 736, 914, 699 12/07/27 Short term Strengthening Refurbishment R 8, 210, 744, 098 R 16, 421, 488, 197 13 Slide 13

Investment Requirements per RED (2008*) Entity Total Backlog Maintenance Refurbishment Short term Strengthening RED ONE (City of Cape Town) R 3, 851, 578, 245 R 385, 157, 825 R 1, 155, 473, 474 R 2, 310, 946, 947 RED TWO (Ekurhuleni) R 5, 132, 373, 764 R 513, 237, 376 R 1, 539, 712, 129 R 3, 079, 424, 259 RED THREE (Nelson Mandela Bay) R 2, 186, 296, 025 R 218, 629, 602 R 655, 888, 807 R 1, 311, 777, 615 RED FOUR (City of Johannesburg) R 6, 413, 148, 398 R 641, 314, 840 R 1, 923, 944, 519 R 3, 847, 889, 039 RED FIVE (e. Thekwini) R 4, 158, 350, 649 R 415, 835, 065 R 1, 247, 505, 195 R 2, 495, 010, 389 RED SIX (Tshwane) R 5, 627, 399, 914 R 562, 739, 991 R 1, 688, 219, 974 R 3, 376, 439, 948 R 27, 369, 146, 995 R 2, 736, 914, 699 R 8, 210, 744, 098 R 16, 421, 488, 197 Total 2021 -06 -1812/07/27 14 Slide 14

Funding Options: • Inter-departmental Task Team: • • National Treasury, NERSA, COGTA, DPE & Do. E, Do. J and EDD Funding options considered; 1. Fiscal allocation. 2. Municipal Infrastructure Grant. 3. Increased Multi Year Price Determination allocation. 4. Loans to Municipalities (i. e. from Development Finance Institutes, Gov Bonds, etc). 5. Grant/Donor funding. 6. A mix of above options. 2021 -06 -1812/07/27 1515

Proposed Infrastructure Rehabilitation Plan: Output 1 Pilot at certain Municipalities to test delivery model. Phase 1 Output 2 Pilot Funding model based on DFI Project Finance. Phase 2 Output 3 Phase 3 2021 -06 -1812/07/27 1616 Consolidation of delivery model, including Funding. Full Implementation

Closing Remarks: • Cabinet decision of Dec 2010 1. 2. • Approved focus directed towards addressing regulatory challenges affecting municipalities (including network rehabilitation). Approved that EDI Holdings be wound-up immediately and an administrator be appointed to attend to final winding up. Distribution Network Rehabilitation • Cabinet Memo is being prepared to request; Approval of the proposed Distribution Asset Management Programme. 2. Approval of the initial pilot phase using the MYPD allocation remaining from restructuring process. 3. Mandate further 12/07/27 detailed investigations on status of the 2021 -06 -1812/07/27 1717 network (NT, DPE, EDD, Do. E, NERSA, Eskom and Munics) 1.

Thank You 2021 -06 -1812/07/27 1818