Tshwane to buy back what it gave away

The City of Tshwane’s imminent payment of almost R1 billion for PEU Capital Partners’ smart metering infrastructure is in fact a payment for a running concern, says AfriBusiness attorney Willie Spies.

This, he says, was revealed after the city and PEU were ordered by the court to disclose the cancellation agreement between the parties, as well as the valuation upon which the amount is based.

AfriBusiness obtained an interim court order last week to stay the payment that was due to be made on July 1. The parties will be back in court on July 5 to further argue whether the suspension should be extended until AfriBusiness’s application to have the master service agreement between PEU and Tshwane reviewed and set aside. AfriBusiness maintains that the contract is unlawful.

The electricity smart metering project started in October 2013 against strong advice from the National Treasury, the Gauteng Provincial Treasury and then finance minister Pravin Gordhan personally. The Auditor-General has since ruled the R808 million paid to PEU in 2014/15 as irregular expenditure, which means it was incurred in contravention of supply chain legislation.

Outgoing Tshwane mayor Kgosientso Ramokgopa in May last year announced the cancellation of the contract due to unaffordability, but the parties have consistently refused to make the termination agreement public.

It emerged during a council meeting in March that the city was on the verge of paying R950 million to PEU for its infrastructure, but Ramokgopa refused to respond to questions in this regard. During court proceedings last week it was revealed that the replacement contractor, Accenture, would start on July 1, but this was dependent on the “infrastructure” payment, Tshwane’s legal team said.

AfriBusiness on Friday got copies of the termination agreement as well as the valuation, and it was only then that the true nature of the payment became clear, Spies told Moneyweb.

He said PEU and Tshwane consistently maintained that the payment would be for infrastructure, priced at an objectively determined value. It, however, became clear from the documents that the valuation was based on inappropriate criteria.

“According to the valuation, the infrastructure was valued as a going concern by discounting the future income stream (contract term eight years) at current value.

“The City of Tshwane in other words first gave 19.5% of its electricity revenue stream to a contractor for free and now plans on buying it back at the value of the income stream. It is completely irrational,” he says.

AfriBusiness will be filing supplementary papers in the North Gauteng High Court on Monday, whereafter the documents will become a matter of public record.

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