The City of Tshwane’s controversial prepaid metering contract with PEU Capital Partners is looming large in a Management Report by the Auditor-General (AGSA), in which a massive R2.38 billion in irregular expenditure during 2014/15 was identified.
Nevertheless PEU confirmed to Moneyweb that it is “providing on-going transition services under an Interim Transfer and Services Agreement, and other agreements.”
This in spite of an announcement by Mayor Kgosientso Ramokgopa in May last year that the agreement would be terminated with immediate effect and PEU would be out of the picture by the end of December, after a transitional period.
By that time the city had already paid PEU R830 million from October 2013, but less than 13 000 meters had been installed.
Hawks spokesperson brigadier Hangwani Mulaudzi confirmed to Moneyweb that its anti-corruption unit is investigating the deal that was concluded in 2013 in spite of clear warnings beforehand from then-finance minister Pravin Gordhan and the National and Gauteng Treasuries.
In its management report the AGSA identified the agreement, including the cancellation agreement, as a specific area of risk for the city and found it is not effective, efficient and economical and was not adequately monitored.
It is classified as irregular and the AGSA found that the municipality failed to capitalise the contract and disclose the arrangement in its annual financial statements.
The management report, dated November 30 is, according to the Auditor-General, “not a public document since it is a communication between the AGSA and its auditees during the audit process.”
The audit report itself has however not been signed off. In previous years it was signed off and presented to the city early in December. Neither the AGSA nor the city would give reasons for the delay. The AGSA said municipal audit reports are due to be tabled in councils by January 31 and only then become public.
What happens now?
It is still unclear what the city’s current arrangement with PEU means for the city’s finances.
In terms of the cancellation agreement the city was to buy the PEU infrastructure by December 31 at a price to be determined by an independent valuer.
Last year PEU said in a statement the city would continue to pay 19.5c for every rand of electricity revenue PEU collected. During the transition period 10c of that would be paid into an escrow account in favour of the city, pending the fulfilment of the terms of the cancellation agreement.
Tshwane did not provide for the cost in its budget and tried to find another supplier to replace PEU, who would have to buy the infrastructure. They would not, however be required to use the infrastructure.
Some prospective bidders were very sceptical of this practice and threatened court action.
The valuation for the PEU infrastructure was almost R1 billion.
Bids for the replacement contract closed early in December, but the contract has not been awarded.
The city would not respond to questions about the current situation, including what happens to the money in the escrow account.
Moneyweb has further learnt that the investigation ordered by Gordhan into the agreement has been abandoned. Gordhan, then-minister of Cooperative Governance and Traditional Affairs, in November last year instructed the Gauteng MEC responsible for local government to investigate Tshwane’s agreement with PEU.
This followed numerous futile efforts from Gordhan’s side to get answers from Tshwane. Gordhan wanted a first report within 30 days.
In a public statement issued on the same day, Public Protector Thuli Madonsela requested Gordhan not to duplicate investigations, since she had started investigating the deal in March 2013, even before it was concluded. She complained of a lack of co-operation from representatives of Tshwane and said she would subpoena them, conduct a confidential hearing and report back within 30 days.
No such report has been issued yet, but Madonsela’s office told Pretoria News (print edition) that Ramokgopa was subpoenaed and appeared before her towards the end of last year. The hearing will resume next week and Madonsela hopes to release the report in the first half of March.
In his management report the AGSA describes Ramokgopa as “not receptive” and unwilling to engage on key projects during a meeting with the AGSA on October 6 last year. The meeting was held to discuss media reports about the city, key areas of risk and the tracking of quarterly commitments.
The AGSA flagged its assessment of the interaction as “concerned”.