Emfuleni Local Municipality shames itself into the legal record books

R492m default judgment unheard of.
Why did the municipality not defend the litigation? It seems there isn’t much it does respond to. Image: Shutterstock

Earlier this month Acting Judge Anthony Millar of the Johannesburg High Court granted what lawyers told Moneyweb must surely be the highest rand value default judgment granted in South African legal history: R492 145 879.49.

The court also awarded interest at 10% per annum, which amounts to an eye-watering R134 834.49 per day.

The Beijing Fuxing Xiao Cheng Electronic Technology Stock Co Limited JV Ole Power Systems (BFX-OLE), a supplier of smart electricity and water meters, had entered into a public-private partnership (PPP) with the ANC-led Emfuleni Local Municipality (ELM). BFX’s local partner is Gauteng company Ole Power Systems.

Emfuleni Local Municipality comprises Vereeniging and Vanderbijlpark and surrounding areas.

Read: How structural flaws contribute to the crisis in SA’s municipalities

The agreement

In December 2013 BFX-OLE and ELM entered into the PPP agreement in terms of which BFX-OLE would procure smart meters and create an infrastructure for the municipality.

The court papers explain that: “A smart meter is an advanced electrical or water meter that identifies consumption of electricity or water in more detail than a conventional meter and is able to communicate that information to the local municipality for monitoring and billing purposes.”

The PPP project started in February 2014 and was to endure for a period of 10 years. The agreement provided that should the municipality fail to pay any undisputed amount exceeding R2 million within 30 business days then it would be deemed to be in default.

The municipality’s desire was to increase payments from its electricity and water clients “through valid, accurate and complete metering, billing and revenue management information”. This would result in the correct customers being billed the correct amounts which would assist the municipality in achieving a better bulk purchasing price from its own suppliers of electricity and water.

Read: Landmark court ruling highlights crisis in SA’s cities and towns

The break-even point

From the inception of the project BFX-OLE would receive 80% of the profit on the sale of electricity and water and the municipality would receive 20%. Once BFX-OLE has been paid a total of R1.098 billion – the break-even point – then it would receive 20% of the profit and the municipality 80%.

For reasons not explained in the court papers, BFX-OLE was only able to commence installation of the electricity smart meters in September 2015. By August 2017 it had designed the infrastructure and supplied, installed and commissioned 7 525 electricity meters.

In the period December 2015 to December 2018 BFX-OLE had achieved the agreed “Optimised Financial Performance” (OFP) and the municipality was, in turn, required to make OFP payments to BFX-OLE.

Three claims by BFX-OLE

The first claim

BFX-OLE had rendered 23 consecutive monthly invoices to the municipality which were due and payable within 30 days of presentation. The municipality never placed any of the invoices in dispute, and failed to pay any of them.

Default judgment was granted in an amount of R30 990 772.49

The second claim

BFX-OLE has spent more than R270 million in implementing the PPP agreement. It therefore placed the municipality on terms. This elicited no response and so BFX-OLE terminated the agreement – as it was entitled to do – and appointed as its expert chartered accountant Anthony De Aguiar to calculate its contractual damages.

This amounted to R360 775 million. Default judgment was granted.

The third claim

The PPP agreement contemplated the installation of 66 000 electricity smart meters. The municipality had frustrated the implementation of the agreement and eventually ordered the suspension of the roll-out of the project. BFX-OLE therefore suffered damages and claimed that it was entitled to be recompensed for its loss.

De Aguiar calculated this to be R100 380 077.00. Default judgment was granted.

Read: Eskom gets Sheriff to attach Emfuleni assets

Why did Emfuleni not defend the litigation?

Moneyweb was unable to obtain comment from Executive Mayor Gift Moerane, as was the case with his personal assistant as well as the municipality spokesperson.

Phones went unanswered and emails bounced back.

This is consistent with the experience of BFX-OLE, whose attorneys sent the Sheriff of the Court on a number of occasions to the municipality to serve process in this litigation. The summons was served on March 24, which was before lockdown. BFX-OLE was not legally obliged to service a Notice of Set Down on the municipality to notify it of the date of the default judgment hearing of the matter, but nevertheless did so.

At the default judgment hearing, counsel for BFX-OLE presented Acting Judge Millar with comprehensive legal argument – and BFX-OLE walked away with the spoils of victory.

Auditor-General Kimi Makwetu recently reported that the Emfuleni Local Municipality’s irregular expenditure had climbed from R870 million to R1 billion. The municipality presently has a qualified audit.

Read the court papers here.

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The greatest “wow” factor in all of this. Is…put it simply. “Wow, why am I not surprised?”

Then I remembered, wherever the ANC and other such ‘commie-revolutionary’ parties roam, nothing besides a trail of destruction lies in their wake! From Chernobyl and throughout Africa a toxic wasteland & mental state are all that remain!

Viva de-colonolisation, viva!

Why am I not surprised. I think I am going to roll over and die from “not surprise”. The reason government at all levels is a disaster is simply there are no market forces and no accountability. The local government is voted in largely by those who do not pay for services or pay rates and the election of these cadres is contingent on maintenance of the status quo. Those who do pay rates are expected to carry the can. Tax is SA, at all levels, is an extortion racket and wealth redistribution exercise. Government employees are largely incompetent and appointed on the basis of who they are not what they can bring to the table. Over staffing, theft, graft and corruption are commonplace. There are no consequences for these actions apart from cash cow ratepayers moving to greener pastures and property values collapsing along with all semblance of modern western civilisation. Having implemented tried and trusted socialist policies with highly predictable outcomes, there is indeed a special place in hell for the ANC.

The entity to blame is the ANC and their incompetence (if not corruption).

Cascades up to the sovereign and can’t be good for the fiscus or taxpayers.

I don’t know where the full R492m is but have some suggestions: the mayor’s new car, his wife’s new car, the new cars of various councilors and their families, various items of bling purchased from several local stores, recent very expensive funerals in the area???

This isn’t the only municipality that has done exactly the same re smart meters. Sign a contract and then frustrate the implementation and then renege on the payment terms. They do appear for these types of contracts to be quote onerous as smart meters are expensive to install at scale.

They could be a great solution as consumers can be placed on prepaid and the rates and water also billed to the customer.

Not fair; mayor Gift Moerane and staff are busy people! Where must they find time to pay invoices?!

This is failure to govern. It’s beyond incompetence. It’s recklessness, delinquency and utter or purposeful ignorance to the task of governing. The solution is….. You guessed it. BAILOUT.

A bailout is the amount of bail paid for criminals of governance so that they escape the consequences and go loot again.

Please forgive my ignorance of ANC grand schemes and name changes, but where is Emfuleni..?

Emfuleni is the old Vereeniging and surrounds. It used to be the heartland of heavy industry in SA. Now, it is a proud monument to one of the biggest achievements of the ANC – the total de-industrialisation of South Africa.

FW bought you 25 years to get your money out, to immigrate or get a new passport. He never promised you anything more. He learned from the Boer war and he didn’t want to repeat the same mistake again. It was a useless war which the Boers could never win because 50,000 farmers could never beat half a million British soldiers. The British weren’t interested in the farms just the mines. Therefore the whole scorched earth policy could have been avoided. Likewise, FW thought we could either have a civil war and then negotiate from a much weaker point or we could negotiate in 1992. Those were the choices for a minority. One of the biggest mistakes the NP made was not to encourage large scale immigration from Europe after the second world war.

Jnrb, excellent comment. England was the international powerhouse at the time, as the USA is today. Gold was the currency at the time, like oil backs the dollar now. England had no option but to take control of the newly-discovered gold mines in the Transvaal, like the USA has a military presence in the Middle-East to protect their interests in the petro-dollar system.

Britain could not allow the Boers to control the “Central Bank”, the origin of the global currency, and to be in control of the British economy in that way.

The Boers should have made a deal, like the Saudis made a deal with the USA, but that option was not on the table. My ancestors suffered under Brittish hegemony during the Anglo-Boer war, but today I benefit from the financial system, infrastructure, legal system and economy that they left behind.

The moral of the story? War is never a solution.

First rule of the ANC, if you don’t like or understand it, ignore it.

Why make these huge awards which further screw over the taxpayer. Send in the auditors, find evidence and declare the contract null and void.

Put competent people in place and run a sustainable project.

Way to go ANC. This proves you are utterly incapable of running a modern state. What was FW thinking?

Not only FW the world pressured us into this hand over as they did with Zim.

As Gareth Cliff now says, “What now?”

W bought you 25 years to get your money out, to immigrate or get a new passport. He never promised you anything more. He learned from the Boer war and he didn’t want to repeat the same mistake again. It was a useless war which the Boers could never win because 50,000 farmers could never beat half a million British soldiers. The British weren’t interested in the farms just the mines. Therefore the whole scorched earth policy could have been avoided. Likewise, FW thought we could either have a civil war and then negotiate from a much weaker point or we could negotiate in 1992. Those were the choices for a minority. One of the biggest mistakes the NP made was not to encourage large scale immigration from Europe after the second world war.

It would help if the previous name is provided in brackets by MWB.
When tourists ask me where such and such a place is, I say I haven’t a clue.

Psycho government is the only way to describe this. Why the hell do you need “smart meters” from China. This is yet another example of an African country selling their country’s “soul” to the devil (China). The cost involved does not equate to the benefit. They should have just employed more people (jobs) to manually do meter readings. That municipality is clearly run by the insane. BTW where on earth is this Municipality. Can’t the journalist provide the previous name so we could know where it is?

Joe this is a quote from the article above: Emfuleni Local Municipality comprises Vereeniging and Vanderbijlpark and surrounding areas.

Asinine comment – lacks perspicacity.

This might put a damper in the planned Christmas party at Emfuleni…

I somehow doubt it. There must be a petty cash box hidden away somewhere. At the back of the liquor cabinet?

The communalist mindset in charge of a modern democratic organisation is like a monkey behind the wheel of a Maserati. The municipal management represents the voters, and they are a tool in the hands of the voters. It is clear, therefore, that the voters use the power of their vote to turn their environment into a manifestation of their mindset. This is a bankrupt municipality with potholes, sewage in the streets and cholera in the drinking water.

Socialists and little brat children have so much more in common than what the socialists realise. Accepting responsibility is anathema to their thinking. To get what you want you throw a tantrum till your parent relents. Once they’ve got it they usually discover that an object of desire is only that until you you own it. They never stop to consider what sacrifices the parent had to make to give them what they desired and so go forth looking for someting new to demand from the parent.

The sooner the parent learns to be firm the better the child becomes.

R1.1b for 7500 meters. That is R140,000 per meter. That is so insane that it must be corrupt.

This is Fuxing scandalous – excuse the pun. And the mob in the Department of Cooperative Governance will not manage all the corrupt ANC led municipalities but will insist on deploying their ANC cadres to metros like Tshwane where we now have raw sewerage running down Sefako Makgatho Drive and the garden refuse dump in Magalieskruin from months of incompetent administration by the deployed “administrator??” who couldn’t even run a spaza shop let alone a metro.
Rate payers still have to see results of Tshwane’s crooked smart metering project which blew up in the ANC crook’s faces together with all the crooked incidents of ANC thugs even before the useless DA got lucky and failed mainly because they were being white-anted by the cadres.

Hi Johan just checked and it was 7525 meters. So not as bad. Just kidding. Its INSANE..!

Excellent point JB. A simple division sum and the stench of corruption is self evident. One wonders what the judge was thinking. South Africa actually has a robust legislative framework to tackle corruption. Additionally, South Africa is party to several international conventions against corruption. The common law of contract regards the bribe (corruption) agreement as void. The main agreement procured by corruption is therefore voidable owing to an improperly obtained consensus.

And not one prosecution, no investigation, no statement by the ANC, no outrages on twitter or facebook, no protests, nobody fired….NOTHING!

An implied condolement of wholesale ANC mismanagement, corruption and theft! What will happen when the basic income grants go the same way as Denel, SAA etc? A true failed state in every way!

Maybe South Africans deserve the government they elected!

Judgement is one thing, and payment of the amount is another. The people who squandered the funds are still in their positions, and may even be promoted from Local to Provincial level.

The National Pyramid corruption scheme needs to be dismantled from the Top. Problem is that there are multiple pyramids woven into one big corruption pyramid – impossible to eradicate.

a Drowning person cannot pull him/herself by the hair out of the water.

To kill something, one does not chop the feet off.

sounds very similar to the electricity meter fiasco of Tswane (pretoria) where the meter manufacturer/ installer / wanted to share in the income generated by the electricity sold to the ratepayer – whilst the municipality is suppose to be just the middleman of eskom provided electricity + cost for distribution – if the wonderful chinese meters can not be bought outright it should not even be considered as an already unnecessary option – won’t be surprised if kickbacks are /were involved. Are the meter-readers in the first place not capable of reading meters or just too lazy to do their job??, previously there were no such problems. another question – were these meters installed, what happens to the meter readers’jobs??? or will it be again a case of doing nothing but still earn a salary??

“ANC-led” Explains everything.

“Once BFX-OLE has been paid a total of R1 098 billion – the break-even point” R1098 billion ???? I suggest you put a comma next to the “1”.

Amended – thanks!

The cadres were not interested in the envelope that contained the legal agreement, but only the brown envelope that accompanied it.

Thereafter amnesia strikes and cooperation in implementing anything disappears.

What stops this from happening in jhb?

This saga is a special warning to business and taxpayers not to fall for the myth that privatisation of state functions, either directly or via PPPs, is a good thing. (For the avoidance of doubt, an airline is not a state function in any normal democracy).

The argument for privatisation or PPPs is the same argument for SOEs: that the taxpayer has no money, so let’s get the money from those same taxpayers via a different route, and then we can present the offering as a new “service” to the “customers” who must pay a “service charge”. E-tolls is a case in point.

The problem is that you’re still eventually dealing with government, and when government doesn’t pay or users rebel, those same taxpayers who “couldn’t afford” things end up footing the bill, plus penalties, interest and legal fees, and the inflated costs of outsourcing a function which the state used to provide itself, usually far more economically. Again, e-tolls is a case in point: before tolling became the default way to milk the road user, National roads were built to international standards at reasonable rates, and zero collection cost to the road user. And after? Well, GFIP was budgeted at R6.9bn and eventually came in at R22bn, excluding the R33bn collection costs scandal of the e-tolling infrastructure and Violations Processing Centre.

We need to stop now with the fiction that the fiscus is poor. It isn’t, and we don’t need PPPs or SOEs to generate revenue in place of SARS, because nobody in government has the integrity to run them properly. If less theft and corruption went on, and if the PFMA and MFMA were adhered to, we might be able to go back to balancing the books, as occasionally happened between 1994 and 2008.

The SA conundrum here is that the voters are then expected to punish this gross mistake they made at the next election (or this is how democracy is sold) but they fail to understand that they made a mistake even from this evidence so they go ahead and vote the same again. Cleisthenes is scratching the surface off his scalp on this one.

”……mag daar altyd mense wees
Wat mekaar sonder skaamte in die oë kan kyk – wantdie lewe is n asem lank , en die sterre op die Anderplek donker -” – Breyten Breytenbach.

I have noticed several comments that alluded to the ”Boer Wars” and Britain – which could have been avoided – the fact is, they weren’t! Maybe we should never forget that not all history appears in action or in public records.

My suggestion is that we all read a brilliant book – during times like this – ”Apartheid” – Brittain’s Bastard Child – Hėléne Opperman Lewis.

I did speed-read through parts of it and once again became aware of the devastating consequences of humiliation and trauma on ”all nations” and groups historically. I believe that most historical accounts are biased – they are filtered through the perceptions and beliefs of ”psychohistorians”. I think it’s time in sunny SA that we reject the pseudo- objectivity of mainstream historians and politicians!

I discovered more about ”my tribe’s” struggle for survival – most things that I did not experience or even imagined. I for the first time through this book learned with what raw determination Lord Alfred Milner had created a war through a scandalous and systematic tidal wave of scandalous propaganda, bringing about the apocalypse of the scorched earth, the many child deaths, the gross injustice, and ruthless robbery, and, piled on top of it, the never-ending insult and humiliation that followed for decades.

I think the ANC Government of today is busy taking us through a similar ”journey” today – the invention of the so-called race card – it’s time to ”pack for Perth”

This is all a game to rape the tax payer. Believe you me if this is problem further someone or many in the municipality have made a lot of money in this deal.
And why wouldn’t we be surprised because every deal is ridden with corruption .

“Emfuleni Local Municipality comprises Vereeniging and Vanderbijlpark and surrounding areas.”

This is the most important sentence for me. With all these dumb ANC renamings, I have no idea where these places are.

Our drinking water comes from this place. Be afraid, very afraid because if the municipal sewerage treatment plants don’t work; the untreated effluent is going into the Vaal dam.

The entire municipality is just a crime scene. Instead of the judgement being given against taxpayers the liability must be transferred to the individuals who cooked this mess and their party.

Congratulations to Emfuleni Municipality for
a) showing the finger to Chinese colonialists
b) showing the finger to tenderpreneurs.

End of comments.

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