The City of Tshwane’s smart metering contractor PEU Capital Partners issued a statement on Thursday disclosing that the City took on huge financial obligations as part of the terms for the cancellations of the agreement.
Mayor Kgosientso Ramokgopa did not mention these details at a media briefing on Wednesday and if PEU’s version is correct, it could cost the Tshwane rate payers millions of rands more.
In May the City announced the termination “with immediate effect” of the contract in terms of which PEU would have installed a smart metering solution, including 800 000 pre-paid smart electricity meters. The roll-out started in October 2013 and progress was much slower than anticipated.
At this stage only about 14 000 meters have been installed.
The company was to fund the roll-out and retain ownership of the system. It would be paid 19.5% of all revenue vended through its system for the eight-year duration of the contract.
The City at the time admitted that it had paid PEU R830 million up to May 12 2015.
Moneyweb revealed last week that multimillion rand daily payments continued in spite of the ‘termination’ in May. More than R50 million was paid to PEU in the first half of June alone.
At the briefing on Wednesday Ramokgopa said payments will be stopped at the end of June.
Moneyweb has calculated that the total amount earned by PEU since October 2013 will by then be just shy of R1 billion.
Ramokgopa said Tshwane will continue to pay PEU a reduced commission of 9.5% for a transitional period of six months. During this period the City is to advertise a tender for a service provider to replace PEU. This service provider will have to take over PEU’s meters, infrastructure and intellectual property and will also be paid a commission on the vended revenue.
The mayor said PEU will be allowed to bid for the contract.
What he did not say, which was revealed by PEU, is that in terms of the cancellation agreement the full 19.5% commission will still be deducted from the vended revenue. PEU will be paid the reduced 9.5%, but the balance will be paid into an escrow account “for the benefit of the City of Tshwane and subject to fulfilment of the terms and conditions of the termination agreement.”
It therefore seems as if the City has taken upon itself the obligation to buy the PEU infrastructure at an unknown amount that has not been provided for in the budget. The City will try to off-load onto a new service provider, but failing that, it will have to cough up.
PEU initially said this is a R7 billion project. It is not clear what portion of that relates to the infrastructure that Tshwane has to take over.
If Tshwane does not comply with this or any other, unknown condition, it may forfeit the balance of the commission held in escrow, estimated at R180 million. If the money goes to PEU, it will earn a cool R351 million in the next six months, over and above the R1 billion-odd it has already pocketed.
These estimates are based on the R1.8 billion Tshwane said it will earn from electricity sales in the next six months. Moneyweb’s information is however that payments to PEU are currently closer to R100 m per month.
The Tshwane City Council on Thursday hastily approved a report on the termination of the PEU contract. According to DA Tshwane Shadow MMC for Finance, Councillor Lex Middelberg, the report was the very last item on the agenda and was expected to serve around 19:00.
PEU issued its statement around noon.
Around 13:00, Speaker of Council Morakane Mosupyoe-Letsholo announced the item would be brought forward and it was subsequently tabled after lunch at 14:00. The DA, VF+ and ACDP voted against it, but the ANC used its majority to approve it, Middelberg said.
The termination agreement was not attached to the report and the content was in line with Ramokgopa’s statement at his press briefing, Middelberg said. It did not state that the City is liable to buy the PEU infrastructure. On the contrary, it stated that the City doesn’t have the money to do it, Middelberg said. Equally it did not mention the escrow account at all.
After learning of the PEU press release, Middelberg asked for the earlier approval of the report to be reviewed, but the Speaker denied the request on technical grounds, Middelberg said.
Business grouping AfriSake, which earlier brought a High Court application to review the award of the contract to PEU and have it set aside on the grounds of an allegedly flawed procurement process, on Thursday served its second lawyer’s letter in one week on the City. (The application is still pending.)
AfriSake demanded a copy of the termination agreement and warned the City that the termination without public participation is unlawful.
The group also alleges that the termination is an effort to “circumvent the court process and manipulate the outcome”.
AfriSake demanded that the City immediately stop payments to PEU, not proceed with the cancellation and allow the court process to run its course.
Middelberg earlier said if the court application succeeds, the parties will have to revert to their positions as if it never existed, which means payments to PEU may be recovered. The City is however opposing the application.