PEU and City of Tshwane reach post-termination

Wed, Jun 24, 2015

1. Introduction

In line with previous pronouncements made in relation to the smart prepaid meter project, the Mayoral Committee today approved a report outlining a new dispensation, transitional arrangements and termination terms of the smart metering contract with PEU Capital (Pty) Ltd.

The City announced the termination of its contract with PEU last month, which effectively halted further roll-out of the smart meters. Both parties undertook to ensure that there was continuity of service to our customers, while engaging in negotiations on agreed termination terms.

A court challenge by AfriSake since 2013 became an impediment  to the speedy roll- out of the smart prepaid meters, with the anticipated benefits to the City not being fully realised, and the project becoming financially and economically unsustainable .

2 The Security of Revenue Project in brief

The original intent of the Security of Revenue Project, colloquially known as the SORP, was a bold gesture to speedily install smart prepaid meters solution to enable automated meter reading, data management, data processing and analysis, amongst others

This was a step towards the City's smart grid future which will see a SAP-aligned advanced metering infrastructure deployed for both large power users (LPU) and small power users (SPU), in both commercial and residential.

The objectives of the project were inter alia to:

Improve revenue collection by a cash upfront basis;

Improve the collection efficiency of electricity charges as well as other services , and

Reduce energy theft through meter by-passing as the smart prepaid meters had tamper alarms

The rollout of the smart meters commenced in October 2013 with the Large Power Users (LPUs) while the roll-out to the Small Power Users (SPUs) began late in 2014. 

Since then, the City has engaged with PEU in an attempt to find an amicable solution and ultimately reached a mutual agreement with PEU on the terms and conditions of the mutual termination

3. Towards a New Dispensation

The Executive remains of the principled view that we need to collect value for every rand worth of ratepayers' money we spend on any project, and to that end, has reached an agreement with PEU with the aim protecting the financial and legal interests of the City.  

Whilst a formal termination notice was issued last month, the City has now concluded intensive negotiations with PEU Capital PTY Ltd on termination terms with the aim of ensuring that there is no interruption to the service as a result of the termination. The agreed termination terms include the following:

The City will pay no termination penalties. As opposed to an acrimonious contractual termination envisaged through the Master Services Agreement , the mutual agreement has obviated a possible multi-billion rand in termination fees and levies and eradicated possible service disruption for users already on the system,

the MSA will mutually terminate, on a no fault basis on 30 June 2015;

No further roll out of smart prepaid meters will take place. However, customer interface units for smart prepaid meters customers will be installed between July and December 2015;

The City will start a new procurement process to procure a new service provider who will pay for and system to be taken over. This process is anticipated to take six months to conclude.

Until a replacement service provider is procured, PEU will continue to maintain, manage and run the system at a cost of 9,5 cents in the Rand, down from 19.5 cents.

PEU will also participate in a hand-over process of established platforms, intellectual property, as well as technology transfer and capacity building to ensure a smooth and disruption free service going forward.

For the six-month transitional period such service will ensure that we continue to collect in excess of R1, 8 billion rand in direct electricity user charges, and indeed additional collection of outstanding municipal accounts triggered by blocked electricity vending.

4 Acquisition of New Partner Provider

The City has constituted a competent multi-disciplinary team to draft and finalise a detailed tender specification for a new procurement process to obtain a replacement service provider. This process will commence on 1 July 2015 and concluded by 31 December 2015. Any new partner is expected to take over from PEU in early January 2016.

The City will manage the new procurement process to include:

A Probity process to cover due diligence, compliance and governance issues

Financial modeling on commission from Collections including threshold determination of  milestone payments 

A valuation of current infrastructure and system with its associated Intellectual Property (IP) for transfer purposes of,  inter alia - funding costs, development costs, rollout costs, costs related to ownership and operating costs

For the duration of the procurement process, the City will ensure that all interested parties are informed and empowered to create a conducive environment for transparency, investor solicitation and broad-based participation.

CONCLUSION

While we acknowledge that there were minor glitches which contributed to the slow take- off of the project, the critical disruption of the roll-out has been as a result of the protracted legal challenges by Afriforum with the support of opposition political parties, hell-bent on stalling any major ground-breaking project initiated by this administration, including the Smart Meter project.

These detractors of our transformation agenda have gone to the extent of manufacturing lies, lies and lies over this innovative smart metering project, and today we once again expose such right-wing opportunism and immature political disorder.

We believe this project will assist the City to overcome problems of inaccurate billing and loss of revenue to the City, and secure the financial position of the City and remains  probably the largest deployment of smart meters in Africa , and a  game-changing project most likely  to redefine local government's financial management.

We once again assure our ratepayers and consumers that the transitional mechanisms will ensure minimum service disruption and ensure that they continue to reap the benefits of the smart meters system.

Statement issued by the City of Tshwane, June 24 2015