City of Tshwane

The City of Tshwane has finally paid off its R4 billion debt to the South African Revenue Service (SARS), a financial burden stemming from the irregular PEU smart meter project that began over a decade ago. The announcement, made during a media briefing on Wednesday, marks the end of a challenging chapter for the city, which has struggled with the fallout of a controversial contract signed in 2013 with PEU Capital Partners. The deal, later declared unlawful by the courts, left Tshwane with a hefty bill of value-added tax (VAT) and penalties, impacting its finances for years.

A Costly Legacy: The PEU Smart Meter ProjectCity of TshwaneA Costly Legacy: The PEU Smart Meter Project

The saga began in 2013 when the City of Tshwane, under an African National Congress (ANC)-led administration, entered into a multibillion-rand agreement with PEU Capital Partners. The contract aimed to install smart prepaid electricity meters across the city, with the goal of improving revenue collection and reducing electricity theft. PEU, through its subsidiary Total Utilities Management Services (TUMS), was tasked with replacing around 800,000 meters and managing the back-office and vending systems. At the time, the city hoped the project would modernise its electricity infrastructure and address non-payment issues.

However, the deal quickly unravelled. By 2015, only 12,900 meters had been installed at a staggering cost of over R830 million, far below the intended rollout. The contract was plagued by allegations of irregularities, including claims of overcharging and lack of transparency. Critics, including business rights groups like AfriSake (later renamed Sakeliga), labelled the deal as “blatantly corrupt,” arguing that PEU’s service fees—estimated at 19.5% to 25% of electricity revenue—were exorbitant and drained municipal coffers without delivering promised benefits.

In 2016, the North Gauteng High Court declared the contract unlawful, and by 2017, it was officially set aside. The city was ordered to stop payments to PEU and remove the installed meters, a process that allowed Tshwane to halt the financial haemorrhage of nearly R5 million per day. Despite the cancellation, the city had already paid PEU over R3.1 billion, with court documents later revealing that PEU operated at a 63% profit margin, raising questions about the fairness of the deal.

The SARS Debt: A Financial Burden

The fallout from the PEU contract extended beyond the direct payments to the company. The city was slapped with a R4.7 billion VAT and penalty bill by SARS, linked to payments made to PEU between 2012 and 2015. This liability, which included interest and penalties, was only discovered in 2022, years after the contract was cancelled. Former mayor Cilliers Brink, who took office in 2023, revealed that the debt had not been disclosed to the council or mayoral committee, describing the situation as “grave financial misconduct and misrepresentation.”

The city began repaying SARS at a rate of R91 million per month, a significant strain on its already stretched finances. By mid-2023, Tshwane had paid R2.2 billion, but SARS remained dissatisfied with the pace of repayment. The debt contributed to the city’s adverse audit findings, with Auditor-General Tsakani Maluleke issuing an adverse opinion for the 2021/22 financial year, highlighting fruitless and wasteful expenditure tied to the PEU project. This financial mismanagement led to the resignation of Brink’s predecessor, Randall Williams, in February 2023.

Final Payment and Relief for Tshwane

On 28 March 2025, the City of Tshwane made its final payment of R128.3 million, clearing the R4.7 billion debt in full. The multiparty coalition government, which has been in power since the ousting of Brink in September 2024, announced the milestone during a media briefing on 02 April 2025. The coalition, led by current mayor Nasiphi Moya, emphasized that the settlement with SARS, formally acknowledged by the revenue service, brings closure to a debt that has outlasted multiple administrations.

Mayor Moya expressed relief at the development, noting its positive impact on the city’s finances. “Remember, this R4 billion was not budgeted for when the city realised we were owing SARS. So the fact that this cash can be redirected to other commitments is a good thing for the cash flow of the city,” she said. The funds, previously tied up in monthly repayments, can now be allocated to critical areas such as service delivery, infrastructure maintenance, and debt repayment to other entities like Eskom, which Tshwane still owes R6.6 billion as of late 2024.

A Deeper Look: Mismanagement and Accountability

The PEU project exposed significant governance failures within the City of Tshwane. One of the most alarming revelations was that PEU had been given direct access to the city’s bank account, allowing the company to “sweep” funds for payments to itself. This blurred the lines between the municipality and its service provider, raising serious questions about oversight and financial controls. Brink, during his tenure, described the arrangement as a complete breakdown of accountability, a sentiment echoed by subsequent investigations.

The city’s internal processes for VAT accounting were also found to be inadequate, contributing to the massive liability. A forensic investigation, initiated by Brink in 2023, aimed to uncover the extent of mismanagement and hold officials accountable. Mayor Moya reiterated this commitment, stating, “This was not the end of the story as the municipality still needs to hold the officials accountable.” The investigation seeks to identify those responsible for the irregular contract and the subsequent financial fallout, with the possibility of recouping damages from former employees, though Moya acknowledged the difficulty of fully recovering the losses.

Broader Financial Context: Tshwane’s Ongoing Struggles

The PEU debt was just one of many financial challenges facing Tshwane. The city has been grappling with a deepening debt crisis, with its obligations to Eskom ballooning to R6.6 billion by August 2024. In December 2024, Tshwane signed a payment arrangement with Eskom, committing to an initial payment of R400 million and a schedule to clear the debt by March 2029. However, the city’s history of irregular payments to Eskom, dating back to 2022, has strained relations with the power utility, leading to litigation and threats of court action.

Tshwane’s revenue collection has also been a persistent issue, with rates dropping from 95% in previous years to 88% by early 2024. The city’s aggressive Tshwane Ya Tima campaign, relaunched in 2024, has targeted non-paying customers, including high-profile entities like SARS itself, which had its power cut over an R838,000 bill in April 2024 before settling the debt. The campaign has shown some success, collecting nearly R500 million in 2022 alone, but the city still faces resistance from residents in areas like Hammanskraal, where service delivery issues fuel non-payment.

The city’s financial woes have been compounded by political instability. The ousting of Brink in September 2024, following multiple motions of no confidence, was partly attributed to the metro’s mounting debts and delayed financial reporting. The multiparty coalition, now led by Moya, has prioritised financial recovery, with the SARS debt settlement marking a significant step forward.

The Bigger Picture: Lessons for Municipal Governance

The PEU smart meter debacle offers critical lessons for South African municipalities. The contract’s high service fees, lack of performance metrics, and irregular procurement processes highlight the dangers of poorly managed public-private partnerships. The fact that PEU was paid 19.5% of electricity revenue—far above the National Energy Regulator’s (NERSA) benchmark of 7% for such services—meant Tshwane was effectively selling electricity at a loss, undermining its ability to fund other services.

The case also underscores the need for transparency and accountability in municipal governance. The failure to disclose the R4.7 billion VAT liability for years points to systemic issues in financial oversight, a problem that has plagued Tshwane across administrations. The forensic investigation, if pursued rigorously, could set a precedent for holding officials accountable, potentially deterring future mismanagement.

Moreover, the PEU project reflects broader challenges in South Africa’s municipal landscape, where many cities struggle with debt, corruption, and service delivery failures. Tshwane’s experience mirrors that of other metros, such as Ekurhuleni, which collectively owed Eskom R4.7 billion in 2023. National interventions, like the debt relief package introduced by Deputy President Paul Mashatile in 2023, aim to alleviate these burdens, but strict conditions and ongoing financial mismanagement often limit their effectiveness.

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