On Thursday, South African political party the Democratic Alliance has discovered additional evidence, which indicates that the City of Tshwane municipality concluded a contract to install over 800,000 smart metres with project financier PEU Capital Partners, despite warnings from the National Treasury.
In March 2013, the City of Tshwane launched a 900,000 smart meter rollout in a bid to improve revenue collection and reduce non-technical losses. The project was to be financed by PEU Capital and fulfilled by PEU subsidiary, Total Utility Management Services.
The programme, named the ‘Security of Revenue’ project by the municipality, planned to install prepaid smart electricity meters to large and small power users.
Democratic Alliance spokesman Lex Middleburg said that the Tshwane mayor, Kgosientso Ramokgopa, and the municipal manager of Tshwane, Jason Ngobeni, disregarded the advice of former Minister of Finance and head of National Treasury Pravin Gordhan, who advised that the city does not proceed with the contract for the rollout of prepaid smart meters by PEU Capital Meters, the African News Agency reported.
Middleburg said: “They also failed to disclose this information to the council of Tshwane. In a letter by the minister to the mayor, dated September 13, 2013, the minister raised concerns that the contract between Tshwane and PEU was entered into without complying with applicable legislation’.”
National treasury’s assessment
Middelburg said that according to Gordhan, the PEU contract was not financially beneficial for the city adding that Treasury’s assessments showed that the agreement involved high charges of 19.5 cents for every rand of electricity purchased.
Gordhan said that Treasury alerted the City of Twshane in May 2013 that it had not concluded its obligations stipulated in the Municipal Finance Management Act, the African News Agency reported.
Middleburg said: “The National Treasury completed its assessment of the contract on June 7, 2013 – a week after the council resolution to enter into the contract was taken.
“The chief procurement officer (National Treasury) Mr Kenneth Brown wrote to the municipal manager…the letter ends with the instruction that ‘the City of Tshwane is advised to put this project on hold and seek the necessary guidance on how to proceed with it from the National Treasury’.”
According to Middleburg, another letter from Treasury was sent on 29 August 2013 advising Tshwane to terminate the PEU contract and carry out a viable feasibility study, the African News Agency reported.
Middleburg explained: “This advice was simply ignored by the municipal manager and the mayor. Thereafter, given the city’s complete lack of cooperation with National Treasury, minister Gordhan intervened and personally addressed a letter to the mayor.
“A meeting was subsequently held between minister Gordhan and the mayor but needless to say his personal intervention fell on deaf ears and failed to bring an end to the PEU contract.”
Finances ring alarm bells
When looking at the entirety of the situation, Democratic Alliance MP Gordon Mackay highlighted concerns around Gordhan’s competency as minister of local government and traditional affairs.
Mackay said: “The magnitude of the problem is R1.4-billion. This is multiple Nkandlas. We have seen the kind of issues raised in Parliament around Nkandla. I think this is an issue we will have to drive through Parliament.
“We have deep concerns on the fact that the minister of finance refused to act when he had the knowledge against the city of Tshwane and specifically against the mayor. This raises serious questions of his competency in his ongoing capacity to serve within cabinet.
“We have deep concerns that he is currently the minister of local government, recognising the scale of corruption in local governance.”
Terminating the contract
In June, the City of Tshwane and PEU subsidiary, Total Utilities Management Services (TUMS), announced a decision to terminate the smart meter roll out programme as of 30 June 2015.
This decision was driven by a lawsuit actioned by Afrisake and Afriforum against the City of Tshwane. The ensuing legal action highlighted issues around the procurement process under the Security of Revenue Project.
The City of Tshwane has decided to acquire the installed smart meter system together with all installed meters in order for it to continue benefiting from the prepaid smart metering project, TUMS said in a statement.
This includes all smart meter hardware and software including the vending and collections systems.
The City of Tshwane will obtain a valuation from an independent source to supply a valuation of the system in order to reach a fair market price for the systems and assist in the termination of the contract with TUMS.
Due to the technicalities of the smart meter project, the City of Tshwane has asked TUMS to continue providing support in city employee training for a transitional period of six months running from 1 July 2015 to 31 December 2015.
Once this period is over, the City of Tshwane will acquire the smart meter system.
During this time, TUMS has also agreed that it will reduce its management fee from ZAR0.19 cents to ZAR0.9 cents for every ZARR1 vended through the system in view of the City of Tshwane’s intention to purchase the system.
TUMS added in a company statement: “The difference between the original service fee and it is envisaged that the reduced service fee will be held in some escrow account for the benefit of the City of Tshwane and subject to fulfilment of the terms and conditions of the termination agreement.”