The North Gauteng High Court on Friday declared all the City of Tshwane’s agreements with PEU Capital Partners and its implementing agent TUMS constitutionally invalid and set it aside.
The court further ordered that R950 million in a special trust account set up for the purchase of PEU’s infrastructure be released to the city immediately.
A further R700 million that the city has set aside in a prudent approach to the deal will also now be released, Tshwane mayoral committee member for corporate affairs Cilliers Brink told Moneyweb.
The court order paves the way for the city to be released from the onerous and crooked contract concluded by the previous ANC-led council.
The order of invalidity was suspended until a just and equitable remedy could be devised to untangle the contract.
The city is currently paying an average of R5 million per day in terms of the contract and has since the implementation started in October 2013 paid PEU more than R2.4 billion.
Together with the money that will now be released, the project has resulted in a R4 billion hole in the city’s pocket.
The court ordered the city to indicate within 14 days whether it plans to take over PEU’s infrastructure. Parties will then have until November 15 to make submissions about what would constitute a just and equitable remedy.
These submissions will probably address the cost of the PEU infrastructure, should Tshwane wish to take it over. The city and the applicant AfriSake disputed an earlier valuation of R950 million done on a discounted cash flow basis.
The city has however earlier indicated that the PEU meters in its opinion do not comply with SABS standards and might decide to have the meters replaced.
The previous ANC administration has appointed Accenture as preferred bidder to replace PEU, but the current city government indicated in court that it might not proceed with appointing Accenture.
PEU has clearly stated in the court that it will continue to service the Tshwane electricity customers where its system has been installed. The court will have to decide at what rate they would be paid during this transition period.
The city has made the argument in court that it should be done at cost price, following the principle that nobody should profit from an invalid contract. PEU however objected strongly to that.
It is currently being paid a commission of 9.5% of the electricity revenue vended through its system. This has been reduced from the initial 19.5%. The court earlier heard that the Auditor General considered a reasonable rate to be between 5% and 7%.
Tshwane’s DA mayor welcomed the court ruling.
The DA took over the city government in August last year and withdrew the previous ANC-led council’s opposition to the case.
Msimanga said he has instructed the city’s legal team to investigate the possibility of claims to recover money paid out in terms of the invalid contracts.
He further said the city will determine who signed the relevant documents and who lied to council and will consider laying criminal charges against them. He confirmed that the previous municipal manager Jason Ngobeni might be the first in line.
Attorney Willie Spies, who represented business grouping AfriSake as applicant, said this is the culmination of four years of epic litigation that often seemed to go the wrong way.
He said AfriSake had to intervene and brought the application when the city “was under a corrupt government”. It later got the support of the city government after the DA took over. He says this clearly shows the importance of a vibrant civil society.