Registered users can save articles to their personal articles list. Login here or sign up here

Tshwane paid R830m for a failed prepaid project

Contract terminated, but at what cost?

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.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   14

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

Nice article, pity about the failed cheap shot. Collection of electricity and other service charges does not mean collection of electricity…, it means collection of service charges, electricity and other.

What are the links, if any, between PEU and Investec? Is this a rude question?

Barry – only you can get the details – please do so (if not already done) and expose the people.

The rate of installation is about 8620 per year. If PEU were given 8 years to install the 800 000 meters, it’s under-installing at more than 90 000 per year.
Clever move by PEU: minimal initial capital outlay at maximum return on investment.
All at the expense of Tshwane rate payers and local government.

As always, just follow the money to see who is benefiting from this ill conceived scheme. As I recollect Council was warned against entering into this contract. Question i Who approved this contract? ii Who are the shareholders of PEU and iii what relationship is there between PEU and the council. Ratepayers cannot continuously be left with an enormous bill for theft and paternalism!

Masana Technologies
The connections that disconnected Jo’burg

The seeds of the crisis in Jo’burg’s billing system were sown five years ago when a R208m tender was awarded to an inexperienced company.

Somebody or some group op well connected people made a lot of money at the cost of ratepayers without rendering a service. Who are they? How did they get the work? why was payment made in advance and when are the mayor and other finance officials resigning? Oh, pardon me. . . . this is South Africa and nothing will be done!!

Lots of info missing here.
1. Why give a contract for the installation of electricity meters to an investment holding company?
2. What is the basis of Afrisake’s court application?
3. What are the details of the contract? There must have been a lot more work done to justify R830m. I assume the actual meters is only a small part of the actual infrastructure required.

I hope somebody else will run this story in detail.

Why the investment company got the contract is one of the unanswered questions, since there was no open tender process. AfriSake is asking the court to review the award of the tender on the basis that the prescribed tender processes were not followed. PEU is basically providing metering and vending. Usually that is managed by the city and contractors are appointed to provide and install it. In this case the whole project was outsourced. It does include some other features, but critics maintain it is not nearly enough the justify the level of earnings they receive from it.

PEU Leadership
Mangalani Peter Malungani BCom (Unisa), MAP (Wits), LDP (Wharton)
Executive Chairman
Peter is the founder of Peu and is chairman of Super Group, Phumelela Gaming and Leisure Limited, and was deputy chairman of Capital Alliance and Capital Alliance Life Limited. Peter is also a director on the boards of Investec Bank, Investec Limited, Investec Asset Management and Investec Plc and holds directorships on a number of Peu subsidiaries. Previous appointments include chairman of the SA Rail Commuter Corporation Limited and chairman Gauteng Tender Board finance committee.
Busi Tshili B Compt (Hons) UNISA, CA (SA)
Finance Director
Busi is the finance director of Peu with reporting responsibility for the performance of Peu’s underlying investments. To ensure she maintains a sound understanding of each business and is able to make informed decisions on day-to-day operations, she serves on the boards and committees of Peu’s underlying investments including Super Group. Her strong finance background was gained from previous employment at Telkom, at National Sorghum Breweries as financial manager and other manufacturing concerns.
Potlako Mophiring Postgraduate Diploma in Accounting, CA(SA)
Investment Banking Executive
Potlako joined the Group four years ago. Potlako gained diverse banking skills, ranging from private equity investments, asset management, treasury and credit management during his tenure at Rand Merchant Bank.
Thuli Zuma B.Compt (Hons) (UNISA), CA (SA)
Investment Banking Executive
Thuli has more than twelve years experience in investment banking and private equities having held various positions in a number of local entities, including the position of CEO at Worldwide African Investment Holdings.
Leonard Bruhns B Com, B Acc, CA(SA), H Dip Tax
Investment Banking Executive
Leonard has 15 years experience in investment banking and private equity having worked for a number of local investment banks.
Ghandi Badela M.Sc (Electromechanical Engineering) (USSR), M. Sc (Engineering Management) (RAU) MAP (Wits), MBA (GIBS)
Director
One of the first executives to join Peu in 1999, Ghandi, a non-executive director of Peu, was for five years responsible for driving Masana Technologies as it first CEO. Aside from his strong technical background, Ghandi has extensive experience in engineering general management and project management from the years spent as an engineer and the packaging engineer for South African Breweries and at GEC Alsthom in the United Kingdom. Ghandi continues to work with the Group on some of the Group’s initiatives.
Bheki Shongwe BA (Econ) (UBS), MBA (Australia), ACIS (UK) FCIBM (SA), LDP (Wharton)
Director
Bheki is a non-executive director of Peu and was deputy managing director at FleetAfrica from 2002 to 2004. Bheki has over 20 years of corporate experience in positions ranging from trainee accountant to managing director in the financial services, aviation, fleet management, manufacturing, hospitality and leisure, petroleum, and media & entertainment industries. Bheki is the ex-founding managing director of Afric Oil (Pty) Limited and sits on a number of company boards including Super Group, Primedia Limited and Highveld Steel and Vanadium Corporation Limited.
Christopher Chadwick B Compt (Hons), CTA UNISA, CA (SA)
Finance Executive
Christopher brings his financial and operational expertise to Peu and its underlying investments from his previous role as finance director at Dell Computers SA as well as from working for a number of multinationals in the airline, FMCG and advertising industries. His background in technology and finance also served him well in his role as a director of Masana Technologies.

We know what happened at Masana….! No wonder this is happening.

Hardly surprising the mess here………just look at the number of CA(SA)s involved. Link that to AA/BBeeee and one has a ……….

Why copy and paste all the director details when everyone who can read MW can also Google PEU and get the same info? Only your last sentence is original.

Load All 14 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
Insider GOLD
ONLY R63pm

Moneyweb's premium subscription is a membership service which will give you access to a number of tools to take charge of your investments.
Choose a yearly subscription at R630pa - SAVE R126

Get instant access to all our tools and content. Monthly subscription can be cancelled at any time.

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: