PEU Capital Partners stands to gain almost another R1 billion from its controversial smart metering contract with the City of Tshwane, as bidders for the replacement contract were told last week they needed to pay R950 million to take over PEU’s infrastructure.
By Monday night the City of Tshwane had not responded to questions from Moneyweb on the issue.
Moneyweb has however seen correspondence between the City and prospective bidders, from which it is clear that the successful bidder will have to pay the City R950 million by December 31 for the PEU infrastructure, which includes less than 13 000 electricity meters.
This follows after the contract between PEU and the City was cancelled in July, with the City saying it was unaffordable. In terms of the cancellation agreement, the City has to take over the PEU infrastructure, including the meters, at an amount to be determined by an independent valuer.
The cancellation agreement provided for a six month transitional period during which the City would continue to pay PEU for its services at the agreed upon rate of 19.5c of every rand of electricity revenue it generated. 10c of each 19.5c would however be paid into an escrow account for the benefit of the City, pending compliance with the terms of the cancellation.
According to its own financial statements, the City paid PEU R210 million during the three months ended September 30. Assuming similar payments in the following three months, about R214 million in the escrow account would therefore be at risk, should Tshwane not be in a position to to purchase the infrastructure by December 31.
No provision has been made in the City budget to pay for the infrastructure and it is clear that the plan is to off-load it onto the successful bidder for the tender to replace PEU.
The closing date for the tender has just been extended to December 14, which leaves the City with only two weeks, to evaluate the tenders and make an award.
Apart from this extremely tight timeline, the City also has to comply with Section 33 of the Municipal Finance Management Act (MFMA). The City explained this to Moneyweb as follows: “Section 33 creates a public participation process where a contract longer than three years (as in this case) is sought to be concluded. It requires the draft contract (longer than 3 years) to be subjected to public participation. It does not require National Treasury to be part of the procurement process that identifies the service provider as this is done using the normal procurement processes of the municipality. Once the service provider has been identified and appointed, a contract is negotiated. After negotiations, the draft agreement is published for public participation under section 33 of the MFMA. It is at that point that National Treasury is involved in the process, other government departments and ordinary interested community members.”
It is doubtful that prospective bidders would be prepared to pay R1 billion, knowing that the City is going to pay it over to PEU immediately, before conclusion of the Section 33 process.
R214m, cancellation agreement at risk
Should the City not be able to make the R950 million payment by December 31, it would not only stand to lose the R214 million in the escrow account, but it would also put the whole cancellation agreement in jeopardy. It may find itself back where it was in June, bound to a contract that it cannot afford which delivers little value.
In the meantime bidders are concerned about the fairness of the current procurement process.
In a letter one of the bidders sent to the City last week and copied to all the other bidders, it states: “It remains our view that this RFP (request for proposal) remains inherently illegal, inequitable, unfair and unconstitutional.”
From the letter it is clear that the bidder is considering legal action.
Who is the valuer?
The bidder raises concern about the lack of detailed information about the PEU infrastructure it has to pay R950 million for and says: “If it is only the 12 978 meters then the average price per meter is R73 200! Can this be true? – as the SIEMENS meters cost on average R3 000.00 i.e. the valuation is 9400% more than the market-selling price for the specified meters. This figure seriously brings into questions the qualifications, bona-fides and integrity of the un-named evaluator.” (PEU, through its operating vehicle TUMS, used Siemens meters in its installations.)
Questions about the identity and qualifications of the valuer were among those put by Moneyweb, which Tshwane failed to answer.
One prospective bidder with expert knowledge in the field told Moneyweb from the limited information, they estimate the value of the PEU infrastructure at R80 million tops.
Legality, fairness, equitability, constitutionality questioned
The bidder further says: “You have still not answered my question which is pivotal regarding the legality, fairness, equitability and constitutionality of the tender as a whole: TUMS is participating in the tender. TUMS has a R 50 000 000.00 (ex VAT) advantage over every other bidder. Every other bidder has to bid for funding the project + R950 000 000.00. TUMS does not need to budget for R950 000 000 as, at most, this is an in and out transaction for TUMS, a fiction to cleanse an inherently unfair and inequitable situation.”
Some of the prospective bidders told Moneyweb that they suspect PEU would be the only company with appetite for what they consider to be a very questionable tender.
AfriSake legal representative Willie Spies, has before expressed his concern that the new tender may be little more than a smoke screen to sanitise the “illegal” PEU tender that AfriSake alleges was awarded without following a proper tender process.
AfriSake’s court application to have the PEU contract reviewed and set aside due to illegality is still pending.
Questions sent to the offices of Public Protector Thuli Madonsela and Cooperative Governance Jacob Mamabolo about progress with their respective investigation into the PEU contract also went unanswered.
The Gauteng MEC for Human Settlements sent communication to Moneyweb on Monday saying the investigation is work in progress and that he cannot say anything more at this stage.
Cooperative Governance and traditional affairs minister Pravin Gordhan requested Mamabolo early in December to investigate the matter and supply him with an update within 30 days. Madonsela has reportedly been busy with her investigation since March 2013, even before the original contract was signed. Since then, the City has paid out more than R1 billion to PEU.