Is Tshwane still paying PEU millions every day?

No comment on leaked statement.

Both the City of Tshwane and its prepaid smart metering contractor PEU Capital Partners failed to answer questions after a statement surfaced indicating that multimillion rand payments are still being made daily in terms of the contract between the two parties.

The City announced on May 12 that it has terminated the contract for the installation of 800 000 smart prepaid electricity meters with PEU “with immediate effect”. 

At the time it disclosed that it has paid PEU more than R830 million since the start of the rollout in October 2013, but that less than 13 000 meters have been installed.

“The termination decision was largely based on the negative financial and economic impact of the project on the City,” the City of Tshwane said in a statement.

It blamed a pending court application by business grouping AfriSake for delaying the rollout of the meters and said this resulted in the project being financially and economically unsustainable.

AfriSake, which is asking the High Court to review and set aside the contract on the grounds of a flawed procurement process, has denied being the cause of the project collapse. A date has not yet been set for the court hearing.

The City at the time denied allegations by DA spokesperson for finance Lex Middelberg that it has concluded a termination agreement that will cost taxpayers a further R1.2 billion. In terms of the agreement, Middelberg said, Tshwane would continue its daily payments to PEU until the end of July at the level of 19.5% of electricity revenue collected through the PEU meters, as it has done since the start of the rollout. Thereafter the fee would be adjusted to 12.5% for a further two years. PEU, who owns the meters, would continue to manage it for that period.

The City said it was still negotiating the termination terms with PEU and will report to Council in this regard.

Asked last week about the statement that shows daily payments varying between R2.6 million and R15 million continuing into June, Council spokesperson Selby Bokaba said: “The report on the prepaid smart metering termination terms is on the verge to serve at Council which makes it difficult for us to comment on a report that is yet to serve and be discussed at Council.”

Asked to confirm that it will serve this month, Bokaba said: “My information is that it’s on the cusp of serving . . . ”

PEU said it is bound by a non-disclosure agreement with the City and could therefore not respond.

The format of the leaked statements is consistent with similar statements leaked to Moneyweb earlier by a different source. The earlier statements showed the daily payments made to PEU since the October 2013 until January 2015. Moneyweb was able to independently verify those statements that showed the average daily payment to PEU amounted to R4.6 million in January.

The amount was set to increase as more meters would be installed, but the City said in May no further installations would be done.

According to the recent statements the City has paid more than R50 million to PEU in the first half of June in terms of a contract it publicly stated was cancelled on 12 May.

Middelberg pointed out that these payments were not provided for in the City’s budget and estimates that PEU might have received more than R1 billion so far for the installation and management of less than 13 000 meters. Installations at large power users were prioritised in the rollout.

He expressed his concern about the effect of the payments on the City’s financial stability and its ability to pay creditors.

Moneyweb has in the mean time obtained documents in which National Treasury flags the City of Tshwane as one of four non-delegated local authorities whose budgets for 2015/16 are unfunded.

National treasury monitors the financial affairs of seventeen so-called non-delegated municipalities, consisting of the metro’s and large towns. The other three with unfunded budgets are Nelson Mandela Bay, Rustenburg and Mafikeng.

National treasury did not respond the questions from Moneyweb about the extent to which the budgets are unfunded. On receipt of Moneyweb’s e-mailed enquiry a treasury official phoned Moneyweb to ask where we got the information. Moneyweb would not disclose its source.

Asked when treasury would repond, the official merely said she doesn’t know. A week later no reponse has been forthcoming.

The City of Tshwane also would not respond to questions in this regard.

In a media statement by national treasury about local government finances issued on 17 June treasury says: “A funded budget is essentially a budget that is funded by a combination of cash, derived from realisticially anticipated revenues to be collected in that year and cash backed surpluses of previous years.”

It says municipalities often overstate their anticipated revenues to reflect a surplus “or to show that excess expenditure requirements are adequately covered by revenues to be collected.”

It says if a budget is unfunded, the municipality has to adjust its expenditure downwards to ensure it has sufficient cash to meet its commitments.

Municipal expert adv. Werner Zybrands said in terms of the Municipal Finance Management Act (MFMA) municipal budgets have to be approved by councils by 31 May of each year. He said an unfunded budget would not comply with the legislative requirements. If a municipality fails to take steps to rectify the situation, there would be a strong case for national or provincial treasury to act in terms of its authority to intervene in the affairs of that municipality, he said.



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