Pretoria - Had the City of Tshwane renegotiated the terms of its electricity smart meters contract with Peu Capital Partners when it became necessary, the project could possibly have been saved.
This is said in papers filed in the high court in Pretoria, which could shed light on why the project spectacularly collapsed in May last year.
The metro is defending an application by AfriBusiness to interdict it from making a further payment of R980 million to Peu. The city argues that the money was for the acquisition of the system by its new service provider and not a settlement.
In the court papers, Tshwane conceded that its finances shrunk shortly after the October 2013 implementation of the agreement to install and manage the smart meters.
Acting chief financial officer Umar Banda originally wrote the report for the mayoral committee as an update on the status of the deal.
A noticeable contraction in the city’s cash position was observed following the implementation of the prepaid meters, he said.
The contract was terminated in May last year after the city deemed it not to be financially viable.
Afterwards, part of the terms was that Peu cut its management fee from 19.5c to 9.5c for every R1 vended.
Initially, the city shared 19.5% of its gross electricity revenue with Peu in payment for the pre-vending on the smart meters platform before any direct costs of electricity supply were taken into account.
The roll-out had commenced with large power users, and shifted to small users towards the end of 2014.
At the time of cancellation, 6 572 meters were installed at the larger users and 6 348 meters at smaller users. The city had paid the service provider R830m in terms of the master services agreement.
The court application by AfriBusiness to interdict the project impeded the speedy roll-out of the meters, the city said, with the anticipated benefits not being fully realised as a result. The project then became financially and economically unsustainable for the metro.
Banda said in the report that under the conventional method, there had never been upfront payments to any service provider for the supply of electricity or related services. “It is argued that the anticipated financial benefits can only be realised on the rolling out of the original figures since this would include small users, because these are the category of consumers who typically were the subject of credit control and debt collection.”
Banda admitted in the report that without the roll-out to smaller users within the period envisaged, the 19.5c fee ceased to make financial sense for the city.
The city failed to renegotiate the terms of the contract, he said, and thus could not benefit from the proposed full roll-out as envisaged.
The revised rolled-out plan which represented 2.86% should have been followed by a similar reduction in the envisaged service fee of 19.5% to 5.6% of the total revenue generated.
Had the city renegotiated the terms of the contract, it could have saved 71.3% of the amount it had paid to Peu, Banda said.
The city paid R1.2 billion, he said, and suggested that Peu owed the city at least R855m at that time.
Banda said the city was purchasing electricity from Eskom and then handed it to Peu to sell on its behalf.
The city entered into the deal with Peu despite a warning from Finance Minister Pravin Gordan not to ahead with it.
AfriBusiness then went to court arguing that the contract was in contravention of the law.
After the deal was cancelled, the national Co-operative Governance Ministry instructed its Gauteng counterpart to investigate the manner in which the contract was awarded.
Despite the cancellation, the city continued to pay the contractor, although at a reduced rate, for the 12 900 meters already installed.
In terms of the contract the supporting infrastructure and equipment, including the meters, remain the properties of Peu.
The matter was referred to the public protector for investigation after several parties filed complaints. The report is still pending.
Subsequently, it was stated the city should not procure another service provider until the investigations had been concluded.
However, it emerged in court that the city had on May 2 procured another service provider, Accenture.
The city said it was drafting and negotiating a contract that would be subject to a public participation process for approval by the council.
Mayoral spokesman Blessing Manale said the recommendation was impossible to implement as the city had an obligation to consumers already on smart meters.
The city undertook in court to provide AfriBusiness with a copy of the interim services agreement and the termination agreement as well as the valuation report and the budget approved by the council. The matter is back in court on July 5.
Pretoria News