Tshwane losing R16m a day during botched PEU exit

The City of Tshwane’s finances have not yet benefited from the termination of the controversial smart electricity metering contract with PEU Capital Partners as expected.

In fact, in the first two months of the court-mandated four-month transition period in which the city has to replace the 13,000 meters, it lost almost a billion rand in electricity revenue.

That is an average of R16 million a day – compared to the stated R4 million per day paid out to PEU when the contract was still in full force.

This was disclosed in a report submitted to the mayoral committee, which Moneyweb has seen.

Two-month loss of R1.2bn

Together with the late implementation of the annual tariff increase due to an administrative mess within Tshwane, the deficit for the two months amounts to R1.2 billion, which means the city’s budgeted expenditure will have to be drastically cut.

The high court in Pretoria declared the city’s contract with PEU unconstitutional and invalid, and set it aside. The contract was originally concluded when the city was under ANC rule. Then ANC mayor Kgosientso Ramokgopa later admitted it was unaffordable and tried to cancel the contract, but on terms that were unfavourable to the city.

Business grouping Sakeliga challenged the contract and the cancellation agreement in court and the DA, which took over administration of the city after the municipal elections in 2016, later withdrew the city’s opposition to the Sakeliga application.

PEU, however, persisted in its opposition.

To prevent a disruption in the supply of electricity to end users, the court in October last year sanctioned a settlement between PEU, the city and Sakeliga for PEU to initially continue providing electricity. The city was given the opportunity to prepare for the replacement of the meters, half of which were installed at large power users, which represent the majority of the city’s electricity revenue.

In February, after awarding tenders to new service providers, the city gave PEU notice that it was ready to start the meter-replacement process, and the four-month transition period followed.

Flawed procurement process

Moneyweb reported in January last year that sources in the metering industry were concerned about the quality of the procurement process. They said the tender specifications were so poorly written that many prospective bidders decided against submitting tenders at all.

From the report to the mayoral committee it seems the city did indeed buy something that is not fit for purpose. No explanation as to why this happened is provided.

PEU had all 13,000 users on a prepaid system, but according to the report the large power users had to be migrated back to the conventional post-paid billing system via the city’s SAP software. This was due to the new system “not being able to take over all types of metering”.

Another hit for city’s cash flow

The result is that the payments the city previously received upfront will now only be collected 60 days later. This will be devastating for the city’s cash flow.

Despite the transition period ending at the end of June, the interface with SAP is, according to the report, still incomplete.

The mayoral committee heard that a “significant number” of large power users currently have their electricity consumption estimated. In some cases, no readings have yet been made.

In other cases, the PEU meters that have not been replaced are no longer functional. As a result the usage is simply not being recorded.

Others have new meters, but they have not been programmed correctly, while some meters have been swapped and linked to the wrong customers, according to the report.

The report does not indicate how many instances of each problem have been identified or what the underlying cause is.

It does not address accountability at all.

It states that some customers “have indicated that the new meters are ‘not so smart’ as they are unable to monitor and regulate their own usages similar to what they used to do in the past with smart prepaid meters”.

According to the action plan that has been presented, the administration hopes to resolve the problems by the end of September.

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