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Tshwane daily payments to PEU hit R4.6m – per day

City wants out of controversial electricity contract.

Moneyweb has obtained documentation suggesting that the City of Tshwane paid the provider of its pre-paid electricity metering service an average daily amount of R4.6 million during February.

This amount is set to increase dramatically as PEU Capital, through its division Tshwane Utility Management (TUMS), rolls out more meters.

The city has confirmed that it is now trying to get out of the contract “since the metro is not earning money but in fact losing money”.

The contract provides for PEU to transfer all electricity users in Tshwane to pre-paid meters. A total of 800 000 installations were envisaged over the eight-year term of the contract, 429 474 to be installed within the first two years.

PEU told Moneyweb that 12 500 meters will be installed by the end of March “which is ahead of the agreed roll-out plan with the city and encompasses the most technically complex installations.”

PEU would supply the meters at its own cost, retain ownership of the meters and also supply the supporting infrastructure and software, including vending and communication platforms.

Its function would be revenue collection, while electricity reticulation would remain the responsibility of the City of Tshwane.

PEU would be paid 19.5c out of every R1 of electricity revenue collected through its platform. This could in terms of the contract increase to 25c if electricity sales reduced under certain conditions. 

The project was widely criticised by opposition parties and other government institutions, as well as members of the public consulted before the contract was concluded. The contract was approved by Council in May 2013 and then signed.

According to a May 2013 report to council about the PEU contract, the Gauteng Provincial Treasury, National Treasury and the national Department of Cooperative Governance and Traditional Affairs questioned Tshwane’s assertion that the city “will not incur additional costs for this service”, saying “nothing comes for free”. 

Tshwane had a reponse to each of the objections. In response to an objection by one Hannu Erasmus that the 19.5% service fee is excessive, the council said the project “is self-funding as the losses and costs associated with a post-payment system will be used to pay the service fee”.

There is no indication that such savings were ever quantified, but the city maintained that it would bear no cost and that PEU would carry the risk and costs. 

A court challenge by AfriSake on the grounds that a just and equitable procurement process as required by the Constitution was not followed. The urgent application was dismissed when the court ruled it was not urgent, but will continue in the normal course of things. According to AfriSake attorney Willie Spies no court date has been set yet.

In the same 2013 report to council, the strategic objective of the project was stated as: ‘to ensure financial stability’.

According to Tshwane’s mid-term financial report the contract however cost the city R355 million (excluding VAT) for the six months from July 1 2014 to the end of December. This exceeded the total amount budgeted for the whole financial year of R250 million.

Payments made by City of Tshwane to PEU Capital 

Month

Total payment (VAT incl)

Average daily payment*

December 2013

R22 658 758.14

 

January 2014

R21 963 264.97

R1 045 869.76

February 2014

R25 071 847.18

R1 392 881.90

March 2014

R36 026 025.70

R1 715525.04

April 2014

R26 733 952.12

R1 336 697.61

May 2014

R22 714 203.68

R1 081 628.75

June 2014

R41 390 973.39

R2 069 548.72

July 2014

R59 314 140.94

R2 824 482.90

August 2014

R61 337 947.92

R2 920 854.66

September 2014

R47 140 548.27

R2 357 027.41

October 2014

R66 098 213.11

R3 147 533.96

November 2014

R73 262 335.66

R3 663 116.78

December 2014

R91 387 003.39

R4 351 762.07

January 2015

R56 465 273.18

R2 688 822.53

February 2015

R75 048 903.78

R4 690 556.49 

*Total paid divided by the number of payments. Payments are made on most week days. The number of payments made per month differ.

The over-expenditure was the largest contributor to a 3% over-expenditure on Tshwane’s total budget for the six months. With revenue also disappointing at 4.5% below budget, the city is faced with a variance of almost R1 billion for the six months. 

Finding a way out

Tshwane did not respond to several questions from Moneyweb about the matter. Its communications office however forwarded comments by member of the mayoral committee for economic development Subesh Pillay, which blamed the pending AfriSake court action for the slower-than-expected roll-out of the prepaid meters. He said “as a result of that we are not collecting revenue at the pace in which we thought and planned for.” 

According to Pillay, Mayor Kgosientso Ramokgopa asked city manager Jason Ngobeni to “see how we can get out of the contract, because so long as what this is caught up in court action, which can last anything from two to three years, we will not be able to move and we are going to continue to lose revenue.”

Pillay said: “The idea however is to find some sort of settlement with the company and find a way where we cannot lose money. The two-year period of the contract (for the initial installations) ends within seven months.”

Spies says the pending court action has no bearing on the roll-out of prepaid meters.

Democratic Alliance councillor Lex Middelberg, who has been a vocal critic of the contract, said the party is very concerned about the possible settlement with PEU. He said the contract is extremely slanted to favour PEU and if the city is within breach PEU can claim the total earnings for the eight-year term of the contract, estimated at about R27 billion. 

The City of Tshwane and PEU are expected to issue a joint statement about the future of the contract.

What is PEU Capital?

PEU describes itself on its website as a “black-owned and black-managed investment holding company, established in 1996.”

Its founder and executive chairman is Mangalani Peter Malungani, who is a current and former director of various listed and unlisted companies.

Finance Director Busi Tshili is directly in charge of the Tshwane project.

Other board members include Ghandi Badela and Bheki Shongwe.

Potlako Mophiring, Thuli Zuma (according to PEU no relation to President Jacob Zuma) and Leonard Bruhns are listed on the PEU website as investment banking executives with Christopher Chadwick as finance executive and Thembeka Nodada as finance manager.

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