The high court in Pretoria on Friday declared all the City of Tshwane’s agreements with PEU Capital Partners and its implementing agent TUMS constitutionally invalid.
The court further ordered that R950m in a special trust account set up for the purchase of PEU’s infrastructure be released to the city immediately.
A further R700m that the city has set aside in a prudent approach to the deal will also now be released, Tshwane mayoral committee member for corporate affairs Cilliers Brink told Moneyweb.
The court order paves the way for the city to be released from the onerous and crooked contract concluded by the previous ANC-led council.
The city is currently paying an average of R5m/day in terms of the contract and has since the implementation started in October 2013 paid PEU more than R2.4bn.
Together with the money that will now be released, the project has resulted in a R4bn hole in the city’s pocket.
The court ordered the city to indicate within 14 days whether it plans to take over PEU’s infrastructure. Parties will then have until 15 November to make submissions about what would constitute a just and equitable remedy.
These submissions will probably address the cost of the PEU infrastructure, should Tshwane wish to take it over. The city and the applicant AfriSake disputed an earlier valuation of R950m done on a discounted cash flow basis.
The city has however earlier indicated that the PEU meters in its opinion do not comply with SABS standards and might decide to have the meters replaced.
The previous ANC administration has appointed Accenture as preferred bidder to replace PEU, but the current city government indicated in court that it might not proceed with appointing Accenture.
PEU has clearly stated in the court that it will continue to service the Tshwane electricity customers where its system has been installed. The court will have to decide at what rate they would be paid during this transition period.
The city has made the argument in court that it should be done at cost price, following the principle that nobody should profit from an invalid contract. PEU however objected strongly to that.
It is currently being paid a commission of 9.5% of the electricity revenue vended through its system. This has been reduced from the initial 19.5%. The court earlier heard that the auditor-general considered a reasonable rate to be between 5% and 7%.
Tshwane’s Democratic Alliance mayor, Solly Msimanga, welcomed the court ruling.
The DA took over the city government in August last year and withdrew the previous ANC-led council’s opposition to the case.
Msimanga said he has instructed the city’s legal team to investigate the possibility of claims to recover money paid out in terms of the invalid contracts.
He further said the city will determine who signed the relevant documents and who lied to council and will consider laying criminal charges against them. He confirmed that the previous municipal manager Jason Ngobeni might be the first in line.
- This article was originally published on Moneyweb and is used here with permission