The City of Tshwane will on July 8 brief interested parties about the future of its ‘Security of Revenue Programme’ – the name it uses to refer to its failed smart metering project that cost rate payers close to R1 billion since October 2013.
In recent months payments totalled about R100 million per month.
Mayor Kgosientso Ramokgopa a week ago announced the terms on which its contract with smart metering partner PEU Capital Partners would be cancelled at a press conference. He said a new service provider would be appointed through a tender process before the end of the year.
The successful bidder would have to take over the PEU infrastructure, including about 14 000 smart prepaid meters at an amount to be determined by an independent assessor.
He will have to complete the project to convert all the City’s electricity consumers to smart prepaid meters. It is expected to total about 800 000.
PEU gave a different version, saying the City is obliged to buy the infrastructure from PEU. It now seems as if the City is in a race to find a third party to off-load it onto.
Moneyweb learnt that the termination agreement, drafted by PEU, is only to be signed on Friday July 3 and will include an irrevocable instruction to Standard Bank in terms of which PEU will be paid 9.5% of the electricity revenue vended through its system from July 1 until December 31. This is a reduction from the earlier 19.5%.
The difference (10% of revenue) will be paid into an escrow account pending the City’s compliance with all the terms of the termination. Ramokgopa did not disclose this at his press conference.
On Thursday the City’s supply chain management division placed a notice for a public meeting on July 8. It calls the meeting an ‘Information sharing session for future Security of Revenue Programme’.
Banks, venture capitalists, meter manufacturers, retailers of meters, consortiums and joint ventures are encouraged to attend the meeting at the council chambers.
City Manager Jason Ngobeni said at the press briefing last week that the speed of the roll-out of the smart metering system is critical for the success of the project, in order to remove the existing billing and collection cost associated with the post-paid system. He said the new contractor will not be paid for every meter as they are installed, as was the case with PEU. The City will rather set targets and make payments after every 100 or so installations.
This will presumably change the situation where Tshwane was making multi-million rand payments to PEU on a daily basis. PEU was not paid after 30 days, as is usually the case with creditors.
Next week’s meeting may give an indication of the appetite in the market to get involved in the tainted project.
Business grouping AfriSake, part of the Solidarity movement, has challenged the contact between the City and PEU on the basis of a procurement process it alleges was flawed. The case is still pending and AfriSake has indicated that it will amend its papers to include a review of the cancellation agreement.
AfriSake attorney Willie Spies told Moneyweb the organisation has no objection against a new tender process, as long as it complies with the relevant legislation. He said AfriSake will keep a close eye on the process to ensure that the initial flawed process is not being legitimised without addressing the injustice that resulted from the unlawfulness.
He said AfriSake is concerned that the terms of cancellation already places hurdles in the path of other prospective bidders and may set the table for PEU to win the new tender.
Ramokgopa indicated at the press briefing that PEU is welcome to tender.
Spies said AfriSake’s research has shown that R4 500 per meter would have been a realistic cost for the whole system PEU delivered. The cost in terms of the agreement with PEU was however much, much higher, he said.
A managing director of a company that supplies metering and vending solutions to municipalities and has close knowledge of the PEU system told Moneyweb his company is still debating its participation in the new tender process. He asked not to be named.
The company is concerned that the bidding process may be a smokescreen to reward the contract to PEU once again.
He said the contract will be very lucrative if the service levy remains at 19.5% of vended revenue, but his company will not be prepared to operate on the PEU infrastructure, “because it doesn’t work.”
If other bidders share this view, any amount included in the bids for the purchase of the PEU infrastructure may in the end be wasted cost from the pockets of the Tshwane ratepayers.