Pretoria City Council
Tshwane prepaid meters: R27-billion price tag
The prepaid electricity smart meter system, supposedly aimed at alleviating the Tshwane metro’s cost burden of electricity revenue collection, comes with a massive R27-billion (R 27.000.000.000) price tag.
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23 April 2013 | Du P Martins
The prepaid electricity smart meter system, supposedly aimed at alleviating the Tshwane metro’s cost burden of electricity revenue collection, comes with a massive R27-billion price tag.
This massive amount will have to be forked out by the municipality over a period of 11 years according to a binding contract, a copy of which is in possession of Rekord.
Yet, after paying out this huge amount, the pre-paid meter infrastructure will not be either council or consumer property.
From the contract it has emerged that as far back as 2 October 2012 the city manager, Jason Ngobeni, had already committed the municipality contractually with the firm, Peu Capital Partners (Pty) Ltd, to take over all the responsibility and the total infrastructure of the metro in the supplying and installing of smart prepaid meters as well as taking care of the collection of revenue for electricity delivered.
Preliminary estimates by the Democratic Alliance (DA) indicate that Peu will stand to receive R27-billion over the duration of the contract term at 19,5% commission on all electricity sold. Council’s revenue from electricity sales is currently in the region of R7,7-billion per annum.
The contract was allegedly concluded in an apparent breach of various provisions of municipal supply chain management regulations, several sections of the Municipal Finance Management Act (MFMA) and also in breach of the Municipal Systems Act (MSA).
Lex Middelberg of the DA pointed out that the contract with Peu was a financial bomb, which could ruin the city’s cash flow.
“The metro is not the first municipality to roll out pre-aid smart metering, but it will be the first where the implementation has a negative revenue effect,” he said. “This contract was concluded without any council resolution. In addition, the public must be consulted and given the opportunity to comment on contracts of this nature in terms of Section 21 of the Municipal Systems Act.”
Middelberg added that the effect of this contract is that Peu will become an unlicensed electricity reseller. “This is in breach of the Electricity Act and would probably require Nersa approval, however, the most worrisome aspect is that all the infrastructure created by Peu for the city and all smart meters installed by them remain the property of Peu. At the end of the contract term the city, although we would have paid dearly for the infrastructure, would either be locked in to renew the contract or we have to find the resources to buy the infrastructure from Peu. Or we would have to replace it with an entirely new infrastructure.”
Middelberg said that the DA is considering all options and is giving the matter urgent attention. “We will raise the issue with the mayor of course, but also with National Treasury, Nersa and the Auditor General.”
The service agreement is to be signed at the end of this month and the public only has up until 28 April to lodge comments and objections. The details of this service agreement to be signed sets out that once Peu has taken over all assets of electricity supply they will earn 19% on each rand paid for power.
To enable them to take over the rest of the system the municipality has to pay Peu a further 5,5 cent in each rand which brings the total up to 25%. Once this contract has run its full course and the metro decides to no longer use the service of Peu, the metro will have to buy the infrastructure from Peu in one lump sum transaction at its ‘market value’.
“In other words, we will find ourselves in the situation to have paid for the infrastructure many times over in 11 years of the contract and then still have to pay the full capital value of the infrastructure again in a single tranche. Where will we find the money to buy the system in 11 years?” he asked. “We are investigating all avenues to have this contract and its unsigned service agreement nullified.”
An investigation has revealed that Peu has no track record for installing prepaid electricity meters. Their financial status is listed as 1 000 authorised shares and an issued capital of a mere R100. The directors are DM de Quintal (2003), MP Malungani (2003), CB Tshili (2003) and TH Zuma, the latter being appointed on 5 February 2013.
“This is clearly not a company with the size and experience to handle a project of this magnitude,” said Adriana Randall, the DA’s finance spokesperson. With R27-billion at stake we expect that National Treasury would make sure that all legal requirements relating to municipal financial management is adhered to.”
Read the Tshwane metro's comment here later.