R27bn Tshwane power tender challenged

Picture courtesy of tangorade.wordpress.com

Business rights watchdog organisation AfriSake has started court proceedings to prevent a R27bn contract outsourcing Tshwane’s electricity metering and bill collections from proceeding.

The contract between the City of Tshwane and private service provider PEU Capital Partners (PEU) started in May when the City of Tshwane approved a ten-year arrangement with PEU.

AfriSake says “PEU has no experience in the installation or management of electricity infrastructure in towns or cities”, and that the outsourcing contract “is probably an example of one of the most blatantly corrupt municipal transactions to date”.

Tshwane and PEU officials deny the allegations.

In terms of the contract, PEU will receive a service fee of between 19.5% and 25% for all revenue collected. There is also an option to extend the contract for a further three years.

PEU will roll out new prepayment metering infrastructure to all of Tshwane’s domestic, commercial and industrial electricity customers, including those customers presently on prepaid and credit meters.

The infrastructure include: prepaid smart meters, meter boxes, consumer interface units and appliance control units; prepaid electricity vending infrastructure and points-of-sale; a meter data communication platform and back-end system; and a contact centre.

The primary intention of the contract is to reduce debtor days, improve revenue collection and reduce non-technical losses like electricity theft and non-payment. However, the initial conditions of these performance metrics are undefined and unstated in the contract, and there is no direct linkage of PEU’s service fee to any such performance improvements.

In public statements to justify the outsourcing contract and PEU’s high service fee, the Metro claimed previous fees were 27% to 35% of electricity sales revenue.

But an October report, prepared by Tshwane’s group financial services department, says the fee over the last three years was 12% of electricity sales revenue.

This report was subsequently withdrawn.

Also, reports by the National Energy Regulator of South Africa (Nersa), by the city manager, chief financial officer and senior statistician for the last financial year, say Tshwane electricity sales revenue was R8.57bn, the cost of electricity purchased from Eskom was R5.55bn (ie. 65% of sales), and the total balance of costs of running Tshwane Electricity (including metering and revenue collection) was R1.53bn (ie. 18% of sales), giving a surplus (profit) on the sale of electricity of R1.48bn (ie. 17% of sales) for the year.

The cost of metering and revenue collection must only be a fraction of the “total balance of costs” of running Tshwane Electricity. This “total balance of costs” represents 18% of total sales.

It is clearly impossible, indeed absurd, that the cost of revenue collection and metering could be 27% to 35% of sales revenue, or 1.5 to 2 times the total balance of costs of running Tshwane Electricity (excluding only the cost of electricity purchases from Eskom), as is claimed by the Tshwane city manager and mayor.

The only way to accommodate the increase would be to increase electricity prices.

Tshwane’s executive director: strategic communication, Selby Bokaba, refused to comment.

v Chris Yelland Ceng is an investigative editor at EE Publishers

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