The City of Tshwane issued a statement on Tuesday saying it had “resolved today” to terminate its controversial contract with PEU Capital for the roll-out of a smart prepaid electricity metering system for the whole city with immediate effect.
It also disclosed that it had paid PEU R830 million since October 2013 for the project and that only 12 930 meters have been installed so far.
That means the average cost per meter rolled out amounts to more than R64 000, excluding any cancellation cost.
In terms of the contract PEU would have installed 800 000 meters and managed the project for eight years. The roll-out of the smart meters began in October 2013 with large power users and late last year for the smaller ones, including households in the Eastern parts of Pretoria. To date 6 572 meters have been installed at large users and 6 348 at small users.
The city would not have paid for the system, but PEU got an ongoing 19.5% of electricity revenue generated through these meters. Critics considered this percentage unaffordable.
The city has not disclosed the terms of the termination, but says it “will endeavor to ensure that there is no interruption to the service as a result of the termination of the smart prepaid metering contract”. No further meters will be installed in terms of the contract.
The contract is described in the statement as “a bold gesture to speedily install smart prepaid meters to all citizens within Tshwane, both commercial and residential.”
It was meant to improve revenue collection by delivering cash up front, improve the efficiency of collection of electricity (how does one collect electricity?) and other service charges and reduce energy theft through meter by-passing, the city says.
This clearly did not materialise, since the decision to terminate the contract was, according to the statement, based on “the negative financial and economic impact on the city”.
The city blames AfriSake, a member of the Solidarity movement, which launched a court application to review and set aside the award of the contract to PEU for the slower-than-anticipated rollout of the meters. This, it said, resulted in “the anticipated benefits to the city not being fully realised, and the project becoming financially and economically unsustainable for the city”.
AfriSake based its application on its belief that proper procurement processes were not followed. An interdict to stop the further roll-out was not granted, but the review application is still pending.
The city said it has engaged with AfriSake and PEU in an attempt to find an amicable solution, but to date the talks have not been successful. This left the city “with little choice but to issue a formal notice to terminate.”
DA Councilor in Tshwane Lex Middelberg, told Moneyweb that the 12 930 PEU meters represent about half of the electricity revenue, as it includes a big proportion of large users. He said it is crucial to know what the terms of the termination are, because half of the City’s income is in the hands of PEU. The meters belong to PEU and it has the access and ability to continue reading the meters.
Middelberg says PEU was in breach of the contract. It was supposed to install 435 000 meters in the first two years, ending in October 2015, a target it seemed unlikely to achieve.
He said the AfriSake case is strong, because the procurement processes are aimed at protecting the city; clearly the city was not adequately protected.
If the AfriSake application succeeds, it would mean that the agreement was unlawful and invalid from the start and the city would have to be refunded the R830 million paid to the contractor, he said.
According to Middelberg the contract may only be terminated by a Council resolution, but the issue has not been brought to Council. “The mayor and city manager don’t have the authority to cancel the contract.”
Attorney Willie Spies, who represents AfriSake, says the termination is in his client’s view just as corrupt as the agreement. “We will supplement our filings to include the termination in the review application.”
PEU Capital was approached for comment. If Moneyweb receives a response, it will be published.