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‘We are bound to the PEU contract’ – for now

DA-led Tshwane council grudgingly hands over hundreds of millions.

Since August, the month the Democratic Alliance (DA) came into power, the City of Tshwane has paid more than R143 million to its smart metering service provider PEU, through PEU’s operating company Total Utility Management Services (TUMS).

A further R174.6 million was paid into a so-called escrow account over the same period, as part of the interim agreement with PEU that the previous ANC-led administration concluded when it realised the city could not afford the original contract and cancelled it.

The balance in the escrow account is currently R924.4 million, Tshwane mayoral spokesperson Matthew Gerstner told Moneyweb on Friday.

This means that since August, the month during which the DA came into power, the city has made payments totalling more than R317 million in terms of the controversial contract. This is money that might otherwise have been available for service delivery.

Court documents earlier revealed that Tshwane acting CFO Umar Banda told the ANC leadership that the city could have taken over from PEU and provided the service itself for a capital outlay of R15 million and annual cost thereafter of R11 million – less than R1 million per month.

PEU has installed only about 13 000 electricity meters since the agreement was first implemented in October 2013, mostly to Tshwane’s biggest commercial and industrial clients. It is being paid for by vending electricity sales to these customers through the PEU system.

The money in the escrow account was meant to help the city to pay PEU for the infrastructure, should PEU’s successor not be prepared to buy it. A payment of R950 million from the city to PEU for the infrastructure was stopped by an interdict granted by the North Gauteng High Court shortly before the local government elections that put the DA in control.

While still in power, the ANC-led council appointed Accenture to succeed PEU, but the handover has also been suspended following the earlier interdict.

The court order was given as part of more extensive litigation in which civil rights grouping AfriSake asked the court to have the original agreement, referred to as the master service agreement (MSA), and the interim service and transfer agreement (ISTA) reviewed and set aside due to unlawfulness. (They first brought the application in 2013).

The then ANC-led city and PEU opposed the application.

Finance minister Pravin Gordhan vehemently opposed the transaction and the Auditor General ruled the R880 million the city paid to PEU in 2014/15 in terms of the agreement irregular, which means it was made in contravention of legislation.

The court still has to hear AfriSake’s main application. During the interdict hearing, Judge Bert Bam indicated that the matter should be heard as soon as possible.

AfriSake attorney Willie Spies earlier told Moneyweb that a meeting with the Deputy Judge President to ask for an expedited court date was postponed on request of the DA. The party asked for four weeks to review the city’s position in light of the change in political leadership after the election.

Gerstner confirmed to Moneyweb that the city will no longer oppose the AfriSake application. ‘Under new political leadership, the city will be taking a different position in court than was taken by the previous ANC government, which stubbornly opposed the review application to the MSA with PEU, and the interdict application against the ISTA with TUMS,” Gerstner said.

According to Spies, a new date has been set to meet the Deputy Judge President on November 8.

In the meantime, Deputy Public Protector Kevin Malunga told Moneyweb the investigation he is leading into the contract is already at report-writing stage and the report should be released by mid-November.

The cancellation of the PEU contract was one of the DA’s main campaign promises. Current mayor Solly Msimanga personally laid criminal charges of fraud, perjury, contravention of the Municipal Finance Management Act and misleading the City of Tshwane municipal council against then-(ANC) mayor Kgosientso Ramokgopa, then-municipal manager Jason Ngobeni – who resigned after the election – and the directors of PEU Capital Partners and TUMS, as well as any other parties who may have been involved in, or unduly benefitted from, the contract.

Gerstner told Moneyweb: “We want to get this matter through court as quickly as possible, and as quickly as legal timelines allow. In the interim, and until the case is finalised, the city is still bound by the legal obligations that the ANC administration forced onto the city – and that means payment to TUMS in terms of the ISTA must legally continue, although some of the payment lands in an escrow account.”

He said the argument by electricity expert Eric Bott that the electricity tariffs charged to customers on the PEU system were unlawful, is under review and, further, that any inaccuracies “are all under careful review and may form part of the forthcoming court papers.

“Depending on the final judgement of the court, if the city has suffered any damages, it will in principle be obliged to recover such damages from the liable parties through civil action.”

What Tshwane has paid since August, the month the DA came into power:

  • August 2016: R66,904 million (Full month)
  • September 2016: R47,674 million
  • October 2016 to date: R29,197 million


Paid into the so-called escrow account over the same period:

  • August 2016: R82,072 million (Full month)
  • September 2016: R57,304 million
  • October 2016 to date: R35,365 million
  • The balance in this account is currently R924,489 million

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Wonder if the electricity tariffs referred to by Eric Bolt are “unlawful” because the metering company deviated from a legally prescribed FORMULA in terms of which usage of industrial customers must be calculated and charged.

That was the case about 13 years ago in Rosslyn, Pretoria, when PE Metering overcharged industrial and manufacturing clients for 3-phase electricity.

End of comments.





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