Assisting me today are representatives from the City who have been actively involved in these initiatives. They include:

Since the amalgamation of the six former local councils to a single Unicity in 2000, we have been dealing with the restructuring of electricity services. This has posed numerous challenges in respect of tariff and policy convergence; integrating pre-paid metering systems and the allocation of resources and support services, to ensure the delivery of a sustainable, reliable efficient, equitable and affordable electricity service to all who live in Cape Town

The process to totally integrate the City administration to overcome the legacy of the previous fragmented system of local government is continuing through the City's organisational design, restructuring and transformation process, to achieve the ideal organisational structure. We expect this process to be completed shortly.

We have strived to ensure that this transformation process takes into account the need to favourably position electricity services and ensure it receives the necessary support as a core function of the municipality, to assist the municipality in fulfilling its legislative, developmental and service delivery objectives.

In so doing, we have been cognisant of the fact that the challenges of fragmentation, economic viability and capacity posed by the national state of the electricity distribution industry, needs to be taken into account.

In this regard, we have ensured that we participate fully in the national initiative to restructure the electricity distribution industry, to place the industry on a sustainable growth path that meets the economic development and service delivery needs of the nation through the electricity service.

Significant policy thinking has been undertaken by the City to inform the restructuring of the electricity service in accordance with the national policy and delivery agenda for the electricity industry. On 22 June this year the Minister of Minerals and Energy announced that these policy paradigms together with the financial state, network configuration7 customer performance, collection levels and integration with Eskom areas of supply, of electricity service in Cape Town? resulted in our city emerging tops in the national assessment of municipalities readiness to participate in REDs.

A high level review of the internal business unit project for Electricity, Water and Sanitation and Solid Waste service was undertaken by the City. The review was based on the work previously undertaken by Price Waterhouse Coopers to establish internal business units for these services.

On 24 June 2004, Council resolved to fully support the recommendations of the high level review, including ringfencing of electricity services as an internal service unit, subject to the provisions of the Municipal Systems and Municipal Finance Management Acts. Council also resolved to establish a Regional Electricity Distributor in Cape Town.

Subsequently a Section 78 investigation commenced in terms of the Municipal Systems Act, to determine the optimal service delivery mechanism for electricity services in Cape Town. The draft report for the first phase of the investigation has just been completed and circulated to organised labour for the comment.

At the same time, the City's Top Management Team has set up a Technical Corporate RED Team, to oversee engagement between the City and EDI Holdings on the establishment of REDs. The team comprises representatives from various departments impacted on by our participation in RED 1 - these include Electricity, Corporate Finance, Corporate Services and Systems, Development and Infrastructure, Human Resources and Legal Services. Mr. Marsden, who is present here today and the Chief Financial Officer jointly convene the team.

EDI Holdings have also deployed a project manager - Mr. David Waldron from Thusang Utility Service and Consultants, to work with City to ensure alignment with EDI processes and timeframes. Thus far, a high degree of strategic engagement has been maintained between the City, ED Holdings, the Department of Minerals and Energy and Eskom. On Wednesday past the Executive Mayor of Cape Town and I held a successful high level meeting with the Minister of Minerals and Energy and her department and the CEO of the EDI Holding Company.

In addition to the procedural initiatives as defined by EDI Holding's timeframes to arrive at Red Day One, we believe that such engagement and the type of engagement which we are undertaking with the Committee today, is essential for ensuring that we do not jeopardise the objectives of the EDI restructuring exercise and meeting the Presidential Timeframe of June 2005 for RED 1 to be operational, as announced by President Mbeki in his State of the Nation Address to Parliament on 22 May this year.

Once the current Section 78 investigation in terms of the Municipal Systems Act identifies the best mechanism to deliver the electricity service in Cape Town, electricity services in Cape Town will be ringfenced in accordance with the recommendations of the high level review to establish the service as an internal service unit and the EDI Holding's ringfencing toolkit

By engaging with the process to establish RED 1 we have raised concern about a number of key issues which affect Cape Town and the success of RED 1, but certainly also inform the processes to be undertaken by other municipalities in RED I and REDs 2 - 6 as well.

These include:

1. Ensuring that there is a sound and sustainable business plan for the RED that impacts positively on local government service and developmental objectives.

2. Determining the value of electricity assets to arrive at the shareholding equity in the RED. Cape Town currently services 3/4 of the Cape Metropolitan Area in term of our distribution licence. Eskom services the remaining 1/4 of the metro. The City has therefore recommended and the Minister has agreed that Eskom assets and liabilities should be valued, and the assets transferred to the City, thus strengthening the business case for the RED, by strengthening the shareholding of local government in the RED. Eskom would then be compensated for the transfer of assets, based on calculated formula agreed to by the Departments of Public Enterprises and National Treasury.

Strengthening the participation and shareholding of local government in the RED, would ensure that the EDI restructuring exercise achieves its objective of improving the financial state of municipalities, particularly ailing municipalities.

3. Clarifying the management of customer relations and who owns the customer the RED or the municipality.

4. clarifying the management and implementation of billing systems. What mechanisms could be put in place in term of Service Level Agreements where municipalities would provide the billing service to residents within its jurisdiction on behalf of the RED? Or, is there merit, viability and sustainability in looking at integrated billing systems for the RED?

5. How will it be ensured that the RED fulfils a developmental and service delivery efficiency role in respect of:

• Municipalities Integrated Development Plans
• Indigent support
• Pro-poor, cost reflective and affordable tariffs
• Tariff modelling and development processes, including engagement of the NER to comply with regulated guidelines for tariff setting

6. The legal challenges that Parliament may face in ensuring that legislative requirements are met and that the necessary legislative amendments are undertaken, to achieve the completion of the EDI restructuring and strengthening the state of local government through a viable economic and working model for the industry.

A legal challenge that requires urgent resolution and that is already imminent is Section 90 of the Municipal Finance Management Act, which states that municipalities may not dispose of capital assets to a state entity. Parliament is therefore faced with the challenge of ensuring that the proposed ED! Bill is capable of overcoming this and other legislative obstacles that may arise during the process

7. How best communication around the electricity service should be dealt with in the RED? Should is be the role of the authority owning the customer? Should it be municipalities for the customers within its jurisdiction? Or should it be the RED?

8 Resolving whether the public lighting function (which in most cases includes street lighting1 area lighting, high mast lighting, festive season lighting, security lighting and lighting for sub-economic areas) remains with municipalities or is incorporated into the RED.

I am of the view that in the case of Cape Town, area lighting should remain a core function of the municipality, not only as an electricity function but also as a community service. In Cape Town, the public lighting function has had a strong focus on providing safety, security lighting and comfort to underdeveloped and impoverished community, particularly informal settlements and urban slums.

It has also been associated with high profile events such as the festive season lighting initiative and has also fulfilled an economic support function in terms of business area lighting. In Cape Town, it would therefore be appropriate for the municipality to retain ownership of the public lighting infrastructure and the capacity for its maintenance.

However, should EDl present a more viable and effective proposal that does not comprise the provision of the public lighting function, we would gladly afford it the consideration it deserves

Given the strategic objective of the EDI restructuring to improve and strengthen the financial position of local government, while strengthening the state of the national electricity distribution industry, we believe that clarifying the financial impact of participating in the REDs, is the single most important challenge confronting participating municipalities - it impacts on all other matters including the ability to meet development and service objectives and sustaining municipal operations in respect of the electricity service.

In conclusion,

I believe that we have a sound process underway in Cape Town, in partnership with the key stakeholders and role players to meet the Presidential Timeframe of June 2005, to operationalise RED 1. Through these partnerships we are engaging with the key issues impacting on the establishment of RED 1 in a manner that strives to establish practices, benchmarks and lessons valuable to the national process for the establishment of the five remaining REDs.

I now wish to hand over to my colleagues from the City, to provide the Committee with a technical overview of all of these processes in the City of Cape Town-

I thank you all very much.