City Power (SOC) Ltd

Business Plan

2017 – 2018

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City Power Draft Business Plan 2017-21

Official sign-off It is hereby certified that this Strategic Plan: • Was developed by the management of City Power SOC Ltd under the guidance of the Managing Director. • Takes into account all the relevant policies, legislation and other mandates for which the City Power SOC Ltd is responsible. • Accurately reflects the strategic outcome oriented goals and objectives which City Power SOC Ltd will endeavor to achieve over the period 2017-2018.

Sign Off:

MD Name: ……………………… Signature: …………………… Date: ………………

Sector ED Name: ………..…………. Signature: …………………… Date: ……….………

Sector MMC Name: ………………… Signature: …………………… Date: ……………….

Company Details Company Name: City Power Johannesburg (SOC) Ltd Company Registration Number: Reg 2000/030051/30 Physical Address: 40 Heronmere Road, Reuven Postal Address: PO Box 38766, Booysens, 2016 Phone Number: (+27) 011 490 7000 Fax Number: (+27) 011 490 7590 E-mail: [email protected] Website: www.citypower.co.za Customer Contact Centre: (+27) 011 375 5555

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City Power Draft Business Plan 2017-21

Contents 1. EXECUTIVE SUMMARY ...... 6 1.1. CITY POWER STRATEGIC DIRECTION ...... 6 1.2. PROBLEM STATEMENT ...... 6 1.3. CORE MANDATE/PURPOSE/OBJECTIVE ...... 7 2. INTRODUCTION ...... 8 2.1. BACKGROUND ...... 8 2.2. OVERVIEW ...... 9 3. STRATEGIC ENVIRONMENTAL ANALYSES ...... 11 3.1. BACKGROUND ...... 11 3.2. HIGH LEVEL SWOT ANALYSIS ...... 11 3.3. HIGH LEVEL PESTLE ANALYSIS ...... 12 3.4. INDUSTRY CHANGE DRIVERS ...... 13 3.5. THE TOP 10 CHANGE OPPORTUNITIES: ...... 14 4. SHAREHOLDER ALIGNMENT TO GDS AND IDP ...... 15 4.1. BACKGROUND ...... 15 4.2. THE STRATEGIC THRUST FOR 2017/18 IDP REVIEW OF THE SHAREHOLDER ...... 15 4.2.1. COJ VISION ...... 15 4.2.2. COJ MISSION ...... 15 4.2.3. COJ OUTCOMES AND PRIORITIES ...... 15 4.2.4. CITY POWER ALIGNMENT ...... 16 5. BUSINESS PERFORMANCE OBJECTIVES ...... 17 5.1. FINANCIAL PERFORMANCE ...... 18 5.2. STAKEHOLDER/CUSTOMER PERFORMANCE ...... 19 5.3. INTERNAL PROCESSES ...... 20 5.4. HIGH PERFORMANCE TEAMS ...... 22 6. DAY TO DAY OPERATIONS ...... 24 6.1. COMMUNICATION AND STAKEHOLDER MANAGEMENT ...... 24 6.1.1. INTEGRATED COMMUNICATIONS STRATEGIC APPROACH ...... 24 6.1.2. STAKEHOLDER MANAGEMENT APPROACH ...... 27 6.2. REVENUE MANAGEMENT ...... 29 6.2.1. TECHNICAL LOSSES ...... 29 6.2.2. NON-TECHNICAL LOSSES ...... 29 6.2.3. IN LIGHT OF BUDGET LEKGOTLA: IMPLEMENTATION PLAN ...... 31 6.3. SERVICE DELIVERY MAINTENANCE PLAN ...... 32

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City Power Draft Business Plan 2017-21

6.3.1. BACKGROUND ...... 32 6.3.2. CRITICAL CHALLENGES ...... 32 6.3.3. RESPONSE TO THE SERVICE DELIVERY CRITICAL CHALLENGES ...... 34 6.3.4. FUNDING REQUIREMENTS AND ALLOCATION ...... 34 6.3.5. SERVICE DELIVERY KEY PERFORMANCE INDICATORS ...... 35 6.4. SECURITY OF SUPPLY ...... 36 6.4.1. LOAD SHEDDING ...... 36 6.4.2. ENERGY MANAGEMENT (INCLUDING DSM AND SSM) ...... 36 6.4.3. ASSET MANAGEMENT ...... 37 6.4.4. ELECTRIFICATION OF INFORMAL SETTLEMENTS ...... 37 6.5. ANTI-FRAUD AND CORRUPTION PLAN – 2017/2018 ...... 40 6.5.1. OBJECTIVES ...... 40 6.5.2. APPROACH ...... 40 6.5.3. TARGET AUDIENCE ...... 41 6.5.4. DEFINING SUCCESS ...... 41 6.5.5. POTENTIAL RISKS ...... 41 6.5.6. ANTI-FRAUD AND CORRUPTION CAMPAIGNS ROLL OUT ...... 41 7. COMMUNITY BASED PROGRAMME ...... 44 7.1. REGION A ...... 44 7.2. REGION B ...... 45 7.3. REGION C ...... 46 7.4. REGION D ...... 46 7.5. REGION E ...... 47 7.6. REGION F ...... 48 7.7. REGION G ...... 50 8. FINANCIAL PLAN AND IMPACT ...... 51 8.1. TARIFF PLAN ...... 51 8.1.1. BACKGROUND ...... 51 8.1.2. BULK PURCHASES ...... 52 8.1.3. DESIGN PRINCIPLES FOR 2017/18 AND BEYOND ...... 58 8.1.4. KEY ASSUMPTIONS AND PROPOSED INCREASE ...... 58 8.2. OPERATIONAL BUDGET ...... 61 8.2.1. INCOME STATEMENT AND EXPLANATION OF VARIANCES ...... 61 8.2.2. RATIOS ...... 65 8.3. CAPITAL PLAN ...... 66

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City Power Draft Business Plan 2017-21

8.3.1. LONG TERM CAPITAL BUDGET INDICATIVES ...... 66 8.3.2. CAPEX REQUIREMENTS ...... 66 8.3.3. CAPEX FUND ALLOCATION AND IMPACT ...... 68 9. MANAGEMENT AND ORGANISATIONAL STRUCTURES ...... 74 9.1. ORGANISATION STRUCTURE ...... 74 9.2. MANAGEMENT TEAM ...... 74 9.2.1. BOARD OF DIRECTORS ...... 75 9.2.2. EXECUTIVE COMMITTEE MEMBER ...... 75 9.2.3. BOARD COMMITTEES ...... 76 9.2.4. COMPANY SECRETARIAL FUNCTION ...... 78 9.3. HUMAN RESOURCES (HR) PLAN ...... 79 9.3.1. WHY IS HR CRITICAL TO BUSINESS PERFORMANCE AT CITY POWER? ...... 79 9.3.2. HR STRATEGIC FRAMEWORK ...... 79 9.3.3. PRIORITIZING PEOPLE TO ENABLE STRATEGY EXECUTION ...... 82 10. RISK MANAGEMENT ...... 92 10.1. RISK MANAGEMENT PROCESS ...... 92 10.2. RISK IDENTIFICATION ...... 93 10.3. MONITORING AND REPORTING...... 94 10.4. AUDITING ...... 94 10.5. COMPLIANCE RISK MANAGEMENT ...... 94 10.6. TOP STRATEGIC RISKS...... 94 11. REPORT CONCLUSION ...... 97 12. BUSINESS ACRONYMS AND APPENDICES ...... 98

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City Power Draft Business Plan 2017-21

1. Executive Summary

1.1. City Power Strategic Direction

1.2. Problem Statement

The aim of City Power is to assist the City of Johannesburg to address the South African challenge of security and quality of electricity supply i.e. enabling consumers who reside in the City of Johannesburg jurisdiction to obtain electricity at a defined quality and reliability at affordable rates and transparent prices. In parallel to this objective City Power will also be required to ensure the sustainability of the business through the achievement of certain agreed to financial, social and environmental goals. Human capital is a dynamic, shifting asset because the organisation, its managers and individuals make choices daily that help create or potentially destroy value. The sum of knowledge, skills, experience and other relevant work attributes that reside in our workforce drives productivity, performance, culture and achievement of other goals.

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1.3. Core Mandate/Purpose/Objective

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2. Introduction

2.1. Background Following the first democratic elections that took place in 1994, and the local government election that followed in 1995, eleven local authorities were amalgamated to form the Greater Johannesburg Metropolitan Council. By mid-1997 it became apparent that the new structures were not optimally effective and the Councils of Greater Johannesburg were facing a severe financial crisis. It was then agreed that a unified, metropolitan-wide initiative was necessary to focus specifically on the critical problems facing the City. This led to the inception of the i-Goli 2002 plan. i-Goli 2002 was essentially a three-year strategic plan. It involved the structural transformation of Metro functions with the view to ensuring enhanced and more cost effective service delivery. It achieved this by reducing fragmentation, eliminating duplication, improving accountability, focusing on human resource development and improving performance incentives. From an organisational perspective, the i-Goli 2002 Plan put in place “sensible” structures that delivered at greater levels of efficiency.

The i-Goli 2002 Plan envisaged that the City would work through a combination of new political governance structures, agencies and corporatised entities. A key element of the i-Goli 2002 strategy for service delivery was the establishment of utilities, agencies and corporatised entities now called the municipal owned entities (MOEs). One of the entities established was City Power Johannesburg (SOC) Ltd, 100% owned by the City of Johannesburg, and established in terms of the Companies Act, on 30 November 2000.

The National Energy Regulator of (NERSA) granted City Power a license to trade on 19 December 2001. City Power is not the sole provider of electricity services for the City.

City Power is accountable for public lights in all of Johannesburg but the rest of the electricity services are split with . This Map of Johannesburg show  in yellow areas that are provided electricity by Eskom and  in blue the areas that are provided electricity by City Power.

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City Power Draft Business Plan 2017-21

In line with the establishment of City Power Johannesburg (SOC) Ltd, the Council utilises an Environment and Infrastructure Services Department (EISD) to oversee the performance and Group Governance to oversee the governance of the company, as well as to regulate it. In this regard various agreements in principle were concluded during the establishment of the companies. These included the Sale of Business Agreement (SBA) and the Service Delivery Agreement (SDA).

The relationship maintained with the Greater Johannesburg Metropolitan Council is one of Service Authority and Service Provider. City Power Johannesburg (SOC) Ltd is the preferred Service Provider for the Service Authority, the Council. City Power Johannesburg (SOC) Ltd is the Energy Distribution Service Provider to the Service Authority, Johannesburg Council. The core competency of the business is to purchase, distribute and sell electricity within its geographical footprint of business. The City of Johannesburg is the sole Shareowner. The Council, by means of a Service Delivery Agreement, regulates the service in respect of the following: financial issues (such as tariffs and capital expenditure), human resource issues (such as skills development), delivery targets (maintenance of assets and addressing assets), and standards of customer care.

2.2. Overview

City Power strategy has evolved over the year in alignment with its sole shareholder, the City of Johannesburg. The table below shows the journey of the company since its inception:

2002-2006 2006-2011 2011- 2016 Egoli 2002 GDS 2030 GDS 2040 Bringing the different Improving network Improving condition monitoring municipalities together performance maintenance Moving from fire -fighting to Perfecting time based Making sure we get paid for our planned maintenance maintenance services & improve revenue management Developing and initiating Introducing condition Introduction of a zero tolerance to Capex program to reduce monitoring maintenance fraud and corruption programme backlog Introduction of customer Implementation and improving Improve stakeholder communication, segmentation Capex program to reduce engagement and management backlog including R&CRM Introduction of prepaid Consolidation and Review Company business model to meters centralisation of customers move to an energy company services Improving prepaid & smart Shift to low carbon infrastructure and meter technologies introduction of SSM & DSM Piloting of DSM projects Introduction on TOU and green tariffs

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City Power Draft Business Plan 2017-21

The table below provides some high level statistics about City Power as at June 2016:

•Over 390,000 Customers •Large Power Users (LPU) are 1%, Prepaid are 62% and Conventional Business/Domestic are 37%

•Over R14billion Revenue •64% is from business and 36% from domestic &prepaid

•Over R11,8billion invested in infrastrucutre in the past Capital Investment 10years

•Over 17 500km of cable, over 18 000 substations, and Infrastructure over 270 000 public lights,

Asset Value •Estimated asset value of R52billion

Employees •Over 1700 employees

•Over 2800MW peak demand which is 8-10% of South Peak Demand African National Load

•Only utility in Africa with four ISO accreditations (9001, ISO 14001, 18001 & 31000) and ISO 26000 compliant and currently implementing 16000

National Key Point •Head office is National Key Point

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City Power Draft Business Plan 2017-21

3. Strategic Environmental Analyses 3.1. Background The City of Johannesburg has embarked upon journey to become a sustainable and smart City of the future in line with the principals of the Growth and Development Strategy 2040 and in line with the Vision, Mission, Pillars and priorities of the shareholder. Energy will be a critical component in realising these aspirations. Whilst energy is key to unlocking the economic and socio-economic development objectives, unchecked consumption of coal-based power will increase carbon and energy intensity, threaten economic and environmental sustainability and the quality of living within the City. An environmental scan is a process which results in the identification and monitoring of factors from both inside and outside the organization that may impact the long-term viability of the organisation. For City Power, the Environmental Scan provides the Board and Management Team with information that assists them in decision making. This section of the business plan will provide a high level SWOT and PESTEL analysis, to identify City Power’s Strengths, Weaknesses, Opportunities and Threats; and analyse the Political, Economic, Social, Technological, Environmental and Legal environment in which it operates. These are then addressed in the strategy that is contained in the rest of this document.

3.2. High Level SWOT Analysis The following Strengths, Weaknesses, Opportunities and Threats have been identified by City Power: STRENGTHS WEAKNESSES

 ISO accreditation (4 accreditations)  Communication (Internal and External)  Unqualified Audit  Revenue protection  Good knowledge and  Contracts management understanding of the current  Perceived low employee morale, business  Ineffective performance management and High vacancy rates  Documented value chains  Inability to execute projects and follow through on benefit realisation  Supportive stakeholder and Board  Reducing the average age of our transmission and distribution network  Strategic Risks identified, where it is in excess of 40 years through refurbishment and documented and monitored replacement  Updated risk management process  Addressing and improving safety on the network i.e. replacement of in place high risk equipment  Pockets of strong subject matter  A network that, due to densification, has in many areas exceeded its expertise firm capacity and in some instances reached its installed capacity  Outages and slow restoration times to restore power following outages

OPPORTUNITIES THREATS  Expansion and Security of supply  Security of supply  Alternative energy sources, Off grid  Theft/vandalism, illegal connections leading to loss of revenue and solutions and disruptive forces damage to infrastructure  Community involvement/  High debt levels in South Africa leading to inability to pay or reduced engagement consumption  Smart Grid realisation  Dramatic increase in the cost of key resources i.e. labour and materials  Company image/reputation  Comply with the Cluster programs while trying to refurbish and extend  Public-private partnerships our network  Investment in energy management  Service delivery protests systems  High levels of coal usage leading to increased GHG despite pressures  Recovery of non-technical losses to reduce  People setting up their own off grid solutions and becoming independent of the power grid

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City Power Draft Business Plan 2017-21

3.3. High Level PESTLE Analysis City Power continuously monitors the operation environment to assess impact on the programmes and projects EXTERNAL FACTORS EFFECT Political Change in Political leadership High Level strategic focus/alignment GDS 2040. Changing priorities/funding COJ IDP Changing targets: knock on effect SOCA/SONA Promises made: refocus mandate Refocus of mandate; implications for service delivery and business model Economic Funding challenges Limited funding