Years after the first warnings about the City of Tshwane’s controversial smart metering contract and hundreds of millions of rands later, Minister of Cooperative Governance and Traditional Affairs (Cogta) Pravin Gordhan on Wednesday called for an investigation into the so-called PEU contract.
Moneyweb earlier reported that Tshwane ignored warnings about the unlawfulness of the contract, not only from the opposition Democratic Alliance and civil rights group AfriSake, but also from national and provincial treasury and Gordhan himself, in his former capacity as minister of finance.
In terms of the contract with PEU Capital Partners, the company was appointed to roll out more than 800 000 smart electricity meters, a vending platform and related systems over two years and then manage the system for eight years, starting October 2013. PEU retained ownership of the system and would be paid 19.5% commission on electricity sales through the system.
According to leaked documents Gordhan warned the City that the contract did not offer value, but his advice was ignored.
The City maintained that the contact would not cost it anything, since the cost would be covered by savings on collection cost and by eliminating bad debts, but many experts considered the 19.5% commission unaffordable.
In May this year Mayor Kgosientso Ramokgopa admitted that the City had by then paid PEU R830 million.
AfriSake, a sister organisation of AfriForum, challenged the contract on the basis of the alleged failure to comply with supply chain regulations. The organisation failed in its bid to get an urgent court order to stop the implementation, but AfriSake is nevertheless persisting with the application through the normal court process.
By May this year PEU had only managed to install about 13 000 metres and the two parties agreed to cancel the contract. They blamed the AfriSake court proceedings for the delayed roll-out, which they said affected the feasibility of the project. The City also said it could no longer afford the contract.
The cancellation agreement provided for a six-month transition period, ending December 31 2015. During this period the City would still pay 19.5% commission, but almost half of it would go into an escrow account to be released to the City if it complied with the terms of the cancellation agreement.
This saw the City pay PEU another R210 million in the three months ended September 30 and payments are still continuing. The City budget does not provide for any commission payments to PEU in the current financial year.
In terms of the cancellation agreement the City would by December 31 buy PEU’s equipment for an amount to be determined by an independent valuer. The City last week called for bids from service providers to render a similar service to that PEU was contracted to do. The tender specifications include a requirement for the successful bidder to acquire the PEU infrastructure – an indication that the City wants to off-load its obligation that has not been provided for in the budget, onto a third party.
The DA has estimated the total cost of the contract so far at R1.8 billion.
The DA’s mayoral candidate Solly Msimanga earlier called on Gordhan and Finance Minister Nhlanhla Nene to do a forensic investigation into the PEU contract. On Monday he proceeded to lay criminal charges of fraud, perjury, transgression of the Municipal Finance Management Act (MFMA), and misleading the Tshwane Council against Ramokgopa, City Manager Jason Ngobeni and the directors of PEU and its special purpose vehicle Total Utility Management Services (TUMS).
Msimanga said the party decided on this course of action in light of Nene and Gordhan’s failure to act. DA shadow minister of cooperative governance and traditional affairs Kevin Mileham repeated this in Parliament on Tuesday.
In his statement about the investigation, Gordhan reacted angrily to these accusations, describing repeated efforts to get answers from the City of Tshwane, since the receipt of parliamentary questions about the issue from the DA in August. These questions sought information about the cost of collection, cost-benefit and cost of cancellation of the PEU contract.
“However, CoGTA’s follow up requests to the City of Tshwane did not yield additional information to assist the minister to reply to the parliamentary questions. On considering the information provided by the City of Tshwane relating to the parliamentary questions, it became clear that a detailed investigation will be necessary to enable him to properly respond to the questions asked and any possible follow up questions,” the statement reads.
“Upon his return from his official trip abroad, he signed a letter to the MEC responsible for local government in Gauteng, Jacob Mamabolo, requesting him to conduct an investigation into the procurement of the smart electricity meter system in the City of Tshwane.”
The minister may only institute an investigation into corruption or maladministration himself if the MEC fails to do so for a period of 90 days after being requested to do so.