A settlement agreement between the City of Tshwane and its controversial smart metering supplier PEU Capital Partners was made an order of the High Court on Tuesday.
In terms of the order the city may now remove the meters supplied by PEU and install new meters for the almost 13 000 Tshwane customers, mostly large power users, who have been supplied with electricity through the PEU system.
It further means that the city can now put a stop to the haemorrhaging of money that started late in 2013 when the smart metering contract was first implemented.
Tshwane member of the mayoral committee for corporate services Cilliers Brink confirmed to Moneyweb on Tuesday that these payments amounted to almost R5 million per day. In total the city has paid R3.1 billion to PEU so far.
It was alleged in court papers that PEU operated at a 63% profit margin.
PEU, through its special purpose vehicle Total Utilities Management Services (Tums), was supposed to replace all electricity meters in the city – about 800 000 at that stage – with smart prepaid meters and run the back-office and vending system.
The previous ANC administration agreed to pay PEU 19.5c of every rand vended through the system, seemingly under the impression that the scheme would result in substantial savings that would fund the commission.
That didn’t happen, and the commission proved to be wholly unaffordable. The ANC administration then entered into an interim services and termination agreement that would put a stop to the further smart meter rollout. It also provided for the city to pay PEU R950 million to take over infrastructure, and reduced PEU’s commission to 9.5c per rand vended.
The Democratic Alliance (DA) was in the opposition benches at the time and strongly criticised the ANC for entering into the original contract as well as the subsequent termination agreement, which the DA said was concluded on unacceptable terms.
AfriSake, the business arm of the Solidarity movement that has since been renamed Sakeliga, challenged the original deal as well as the termination agreement in court. Initially both the city and PEU opposed the challenge, but the city changed sides after the DA assumed office following the municipal elections in 2016.
A year ago, the court found the deal to be unconstitutional and set it as well as the termination agreement aside. The order was however suspended until a just and equitable remedy could be formulated that would ensure continued electricity supply to the city while the web is untangled.
It took a whole year for the matter to be brought before the court again. During that time the status quo was maintained, meaning that the city was bound to the onerous agreement that has been bleeding it dry financially.
The parties returned to court on Tuesday with a settlement proposal for the just and equitable remedy and it was made an order of the court.
In terms of the order the city must give PEU’s Tums written notice of the date when it is ready start the transfer of the system. The parties have been ordered to work together to replace the meters and associated system within four months after that date.
PEU has been ordered to provide certain information regarding the system to the city within set timeframes – and must continue rendering services “until the last PEU/Tums smart meter has been replaced and switch over has taken place”, according to the order.
Brink told Moneyweb that the city wants to take over the metering as soon as possible and believes it can render the services through newly appointed service providers at the normal industry rate of 6 to 7c per rand vended.
City administration has confirmed to Moneyweb that both parties agreed not to pursue civil claims against each other in connection with the matter.
This ‘clean break’ seems to be the lesser of two evils for the city; it agreed to the settlement rather than face the risk of protracted appeals that would result in the continued obligation to use PEU’s services at the inflated rate.
Asked if the city has appointed new service providers and whether it is ready to take over the services currently provided by PEU, Brink told Moneyweb that DA leadership received assurance from the administration that it is. However, he cautioned that they “are acutely aware that Tshwane’s supply chain management system is broken”.
“It is the most persistent legacy of the ANC in Tshwane. There are still far too many defects, by intent or neglect, in the specification, evaluation, and adjudication of tenders. In other instances, award letters take far too long to be awarded. This inhibits our ability to deliver services and roll out capital projects. In the last report of the city’s audit and performance committee they recommended a complete overhaul of Tshwane’s procurement system.
“Because the mayoral committee, just like all other councillors, is forbidden from even being observers on tender committees in terms of the MFMA [Municipal Finance Management Act], the city’s broken procurement system cannot be overhauled by our direct intervention. Our oversight role is performed after the fact.
“But we are determined to close the gaps in procurement policy and practice that allow for irregularities. MayCo [mayoral committee] has asked for a review of the business processes by which tenders are prepared and processed, as well as an assessment of the qualifications and employment of officials working in the supply chain management division. Once we discover possible irregularity, as was the case with [engineering firm] Glad Africa, we also bring it to light.”
Sakeliga spokesperson Armand Greyling says the organisation is satisfied with the settlement agreement. It concludes five years of litigation which has saved ratepayers at least R1 billion. He says the setting aside of the agreements should be a warning to other organs of state against entering into irregular procurement processes.