Tshwane budgets R660m for smart metering contract

The City of Tshwane has provided R660 million in its adjustment budget to pay service providers for its controversial prepaid smart-metering project in the current financial year.

This comes as another deadline has passed without the services of the existing smart metering contractor PEU Capital Partners being terminated, or a replacement contractor being appointed.

According to the city’s annual financial statements, a total of R880 million was paid to PEU in 2014/15 for a system that services only about 13 000 meters and has been deemed by the Auditor-General of South Africa (AGSA) to offer little value.

The project envisaged more than 800 000 meters being installed and was aimed at reducing the city’s debtors. The city expected that it would be funded by the reduction in collection cost, but never publicly quantified the envisaged savings.

The city initially strongly defended the contract that commenced in October 2013 on the basis that it would be “self-funded” and came at “no cost” to the city, but early last year acknowledged publicly that it is costly and unaffordable. Early critics included then-finance minister Pravin Gordhan.

The R880 million spent on the services in 2014/15 has been identified by the AGSA as irregular expenses, meaning it was incurred in contravention of applicable laws and regulations.

Tshwane mayor Kgosientso Ramokgopa in May last year announced that the city resolved to terminate the contract “with immediate effect”.  In June he announced that the city and PEU agreed to terminate the agreement at June 30 2015 on a no-fault basis.

He also stated that the city would appoint a new contractor to take over the PEU infrastructure and provide the prepaid smart-metering services. This, he said, would take six months, ending December 31 2015..

Ramokgopa said during the handover period PEU would reduce its management fee from 19.5% of all electricity revenue vended through its system to 9.5%.

In a subsequent statement, PEU made it clear that the obligation to take over its infrastructure at a value to be determined by an independent assessor was in fact on the City of Tshwane. It also disclosed that the discounted portion of its 19.5% service fee would be paid in an escrow account “for the benefit of the city and subject to fulfilment of the terms and conditions of the termination agreement”.

The detail of these terms and conditionals are not clear.

Late last year Tshwane advertised a tender for a contractor to take over the prepaid smart-metering service. The successful bidder was required to take over the PEU infrastructure.

Moneyweb earlier learnt that bidders were told that the value of the PEU infrastructure that the successful bidder would have to pay, was R950 000.

The contract was not awarded before the end of last year. As a result PEU’s services were not terminated by December 31.

The city did not provide in its 2015/16 budget for any payment to PEU. In the city’s January report to council on the adjustment budget, it however provided R660 million of smart metering services, stating a replacement contractor would have been appointed by the end of February.

Moneyweb sent the City of Tshwane a list of questions, including what the basis was for the amount of R660 million provided for in the adjustment budget, whether a replacement service provider has been appointed, how the amount would be split between PEU and the new service provider, how much money was in the escrow account and whether it would be released to the city.

Tshwane spokesperson Selby Bokaba told Moneyweb the city was “working on its response”, but after a week Moneyweb has still not received any response.

PEU however confirmed that it is still providing the service to the city. It said: “It is our understanding that the city of Tshwane has commenced a procurement process to appoint a replacement service provider. We are informed that the closing date for tender submissions was 7 December 2015. We are not aware of any appointments made.”

It continued: “We are providing on-going transition services under the Interim Services and Transfer Agreement and other agreements, which contain normal confidential clauses consistent with such agreements. The escrow account is included in this confidentiality.”

Moneyweb earlier reported that both the Public Protector and the Hawks are investigating the matter.