12.1 Overview

No scenarios were prepared in this planning. It is intended that for the next planning cycle a full scenario development exercise will be undertaken

12.2 SWOT analysis

The Company's strengths, Weaknesses, Opportunities and Threats (SWOT) are detailed below.

12.2.1 Strengths

• Large income from a small set of manageable customers (top 16,000 to 20,000 - 70% of the revenue);
• Large captive customer base in Greater Johannesburg;
• Strong contingency of engineering expertise;
• Desire to become a strong profitable business; and
• Strong willingness amongst managers to take new accountability for making City Power an effective and competitive service provider
• Shareholder support

12.2.2 Weaknesses

• Current information systems;
• State of network infrastructure
• Lack revenue management capabilities
• Existing workplace culture's not business oriented;
• Lack of customer service culture
• Lack of key competencies
• Incorrect staffing mix as indicated by Best Practices benchmarks
• Lack policies and procedures
• Structure does not reflect demographics
• Lack corporate identity
• Not compliant with NRS047/048
• Resistance to change

12.2.3 Opportunities

• The creation of the RED
• Electronic commerce (B2B, B2C));
• Growing the customer base
• Growing sales
• Expansion and strengthening of network
• Maximising the use of under utilised assets (inner city)
• Promotion of electricity as an alternative to other energy sources;
• Automatic meter reading system;
• Implementing a finance and billing system
• Increase revenue by limiting non-technical losses
• Improved cash collection
• Integrating operational systems
• Improved service levels will create a positive public image;
• Right-skilling the company
• Right-size City Power and gain significant cost savings
• Leveraging the PPA

12.2.4 Threats

• ESKOM is a competitor
• Loss of contestable customers
• Flight of business from CBD
• Non-technical losses
• Theft and vandalism
• Stakeholder interference
• Non-payment culture
• Formation of REDs
• Organised Labour demands
• Contract management
• Kelvin PPA and sale deal

12.3 Limiting Factors
The following limiting factors impedes the Company's performance:

• Restriction on capital expenditure
• Moratorium on staff retrenchments
• Capping of tariffs
• Lack of commercial competencies

• To improve network performance
• To improve the management of operational and capital expenditure
• To cultivate a high performance culture
• To improve sales and revenue management

12.5 Specific Risks and Solutions

Free electricity - scenario 1
50 kWh free issue to all domestic consumers. The financial impact will grow from the initial amount as blocks of flats and other bulk consumers convert to individual metered consumers. in addition if the growth figures predicted in the iGoli 2010 scenario are realised the financial burden will treble.It is not possible to predict whether consumption will rise as a result of the free issue or not, in some cases this could have an effect on overloading of infrastructure.
RESPONSE:
City Power can and will implement whatever policy is adopted by the City, with the following constraints;

• conventionally metered customers can receive free energy immediately.
• Prepaid meter customers would only receive the benefit at a later stage due to technical problems with vending systems.
• The target group of poorer people usually fall within the prepaid meter customers
• Capital expenditure will be required, for upgrading the vending systems.
• Capital expenditure will be required for future additional metering of flats etc.
• There will be an Opex cost associated with free issue
• Opex can be recovered from tariff with consequent ramifications on customers. some of the capital expenditure may be able to be recovered from fiscus (upgrade of infrastructure).
• Eskom customers within our area should receive at the same time, and Eskom is not ready to implement at this stage, the impact on their Opex is similar to city powers'

Free electricity - scenario 2
Limited free issueIf free energy is only provided to a target group consisting of the poor consumers, the impact will be considerably reduced.Initially only those consumers on prepayment systems, or defined by means of effectively "redlining" certain areas or suburbs would provide a means of reaching the targeted groups with a "best fit" approach i.e. try to reach say 90%.Coupled with this would be a drive to promote efficient use of energy and provision of education to customers.
RESPONSE:

• City power would be able to implement this type of policy, after upgrading the vending systems, and with some work on the conventional billing system, or once the new billing system has been implemented.
• Capex on vending systems still required
• Opex will be reduced considerably
• Implementation may take longer initially
• Does not help as much with Eskom Opex for their areas as most of their customers are amongst the poor.
• Capex due to metering requirements will probably still be required but considerably reduced

Sales growth
The sales growth is significantly dependant on the management of non-technical losses. If the 3% target in reducing non-technical losses is not achieved the revenue targets will not be attained
RESPONSE:

• Deploy Account operations structure as a high priority
• Set-up processes with Council to improve account operations

NRS 047 and NRS 048
The resource impact of implementing standards has not been calculated. The risk is that to achieve the targets good result in significant increase in capital and operating expenditures
RESPONSE:

• Implement value chains
• Identify activity costs
• Link activities to targets and assess impact

SAP Implementation
Additional consulting costs will have to be incurred if the SAP implementation target dates are not met
RESPONSE:

• Deploy Programme Office
• Project manage at the VP - Level

Revenue Management
City Power will not have full control over its customer base for account operations purposes for the next two years. The result is that revenue is not collected and this will impact the probability of City Power
RESPONSE:

• Establish relationships and processes to give City Power better control over account operations
• Enter into a service level agreement with Council

The creation of REDS
The impact of REDS on the business viability has not yet been assessed. The impact will be assessed in the next planning cycle

Higher electricity purchase price
Eskom's tariff increases more than the assumed 5.5%. Indications are that Eskom was granted a 6.6% general tariff increase
RESPONSE:
Absorb in Opex

Interest on R 800 m internal bank overdraft
A significant risk may arise if the shareholders loan of R 800 m (included in the balance sheet under Treasury Loans) becomes an interest bearing liability. The conditions and terms of repayment of this liability are yet to be finalised.

RESPONSE:
Significant tax structuring possibilities may however arise depending on the finalisation of the Sale of Business Agreement.