Jo’burg’s R1bn ‘present’ to Zuma benefactor

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A hotly contested R1.25-billion contract to supply “smart” electricity meters to the City of Johannesburg was manipulated to favour Vivian Reddy, one of President Jacob Zuma’s key benefactors, information obtained by the Mail & Guardian suggests.

Reddy reportedly paid R450 000 for a table at the ANC’s anniversary gala dinner in Durban last week, when Zuma made the controversial remark that “wise” businessmen who supported the ANC could expect that “everything you touch will multiply”.

The city and its utility City Power, which procured the meters, have denied any irregularities in awarding the tender. But key discrepancies uncovered by the M&G suggest otherwise. They include:
  • Detailed allegations that an initial technical evaluation scoresheet was amended to improve the result for Reddy’s company, Edison Power;

  • The revised scoring pushed another bidder, Hefcom, below the cut-off 70% technical score. When price was factored in, Hefcom — whose bid was half the cost of Edison’s — would have scored better than Edison;

  • A letter informing Edison it had won the bid is dated before City Power supply chain management even received the bid recommendation or the chair of the adjudication committee had signed off on the decision;

  • Edison’s share of the contract was pushed up from an initial recommendation of a R600-million share of an R800-million contract to an exclusive contract for R1.25-billion; and

  • A man central to the award, City Power chief executive Sicelo Xulu, is alleged to be “friends with Zuma” though he denies this (see “The connected Mr Xulu” below).

There is no evidence suggesting foul play on the part of Reddy or Edison.

The three-year contract to deliver hundreds of thousands of so-called smart meters was awarded in August 2012. The meters will allow the municipality to track and control electricity usage remotely at each metering point in real time. The project is also intended to cut down on fraud and tampering (see “How smart is smart?” below).

There are about 1.5-million metering points in the greater Johannesburg area, the majority of which have to be read manually.

Edison has no prior experience in smart metering, several industry sources said, but the company teamed up with established United States metering company Itron, which separately won the much smaller R50-million contract for the centralised data management “back end” of the system.

Edison was one of the businesses that paid to be at the ANC’s Mangaung conference in December and Reddy has long been a vocal supporter of Zuma.

Reddy stepped in to fund part of Zuma’s Nkandla homestead in 2003, when the president’s former associate Schabir Shaik ran into difficulties.

He featured prominently in the report by auditors KPMG on Zuma’s benefactors that was prepared for Zuma’s abandoned corruption trial.

Edison executive director Bazil Govender, responding on behalf of Edison and Reddy, hit out at suggestions that the firm had been favoured.

“We are fully aware of the company [that has] complained to the M&G, because they tried to pressurise us into partnering with them after the award of the contract,” he said.

“They threatened to go to the press, to make an issue of this award. We rejected this approach because we believe it was highly unethical. We are lodging a formal complaint to City Power to fully investigate this serious breach of ethics.”

He shrugged off Edison’s relative inexperience with smart metering, saying that the company was working with an experienced partner in Itron: “We believe we offered the best solution to City Power.”

But the M&G has seen tender documents and spoken to several sources familiar with the bid process that together raise serious questions about how Edison was singled out.

Score ‘tampering’?
Of central concern are claims that the bid evaluation committee improperly adjusted the bid scores.

According to sources close to the process, the evaluation committee convened on at least two occasions to “re-score” the tender, a process that was overseen by Nkanyiso Msomi, a senior City Power official who also chaired the live technical demon­stration sessions.

The M&G has seen evidence that suggests that initially three bidders were scored above the 70% technical threshold: Edison, followed by Hefcom and, in third place, Mandla Technologies.

City Power claims that only Edison and Mandla broke the 70% bar. It says initial scores based only on the bid documents were adjusted following the live presentations. The utility suggests this would explain any score changes.

However, a source sympathetic to Hefcom said the company was given feedback that they were in the running right until the very end.

And information obtained by the M&G suggests the areas in which Hefcom scores were revised down were unlikely to have been influenced by the presentation.
They include the categories:
  • Training and system handover, which was not dealt with in the live presentation at all;

  • Ability to synchronise data with other systems. Elsewhere in the final bid evaluation report this is actually listed as one of Hefcom’s strengths — unsurprisingly, because the company designed its meters based on its work with City Power systems over the past four years; and

  • Energy balancing, a technical function that Hefcom meters have performed in City Power systems for several years.

City Power spokesperson Solomon Masolo ruled out any foul play. He said: “All the tenders were afforded an equal opportunity to present and give a live demonstration and any moderation of the initial score is fully supported by what was presented in the live technical demonstration and presentations.”

Pricing anomalies

Hefcom was the cheapest of the three, with a cost per meter of between R4 500 and R5 400. Edison’s price per meter works out at R9 716.

Hefcom uses South African technology and all components are manufactured locally, unlike Itron, the US company that will supply the Edison meters. The US company is not related to a South African company with the same name.

There is also some confusion about Edison’s price offering. It consisted of two options — the pricier of which worked out at more than R20 000 a meter.

City Power says the main difference in the offers “relates to other add-on benefits, including maintenance and spare parts”, adding: “The tender was evaluated only on the main [lower] offer.”

However, another source close to the process claims Edison’s cheaper offer was tied to Itron winning the parallel but separate “back end” data management tender — something evaluators would usually not be allowed to assume for the purpose of price comparison.

Not splitting the risk
After Edison-Itron and Mandla advanced to the second stage — at which companies were evaluated on price and their broad-based black economic empowerment credentials. Mandla outscored Edison because of Edison’s higher bid price.

However, the bid evaluation committee recommended that the R800-million contract be split between Edison and Mandla (R600-million and R200-million respectively) and submitted its report to Xulu, the chair of the tender adjudication committee that makes the final decision.

Industry sources say splitting such strategic contracts is common policy in order to “spread the risk” of relying on just one supplier.

Contrary to this wisdom, the committee opted instead to award the entire contract to Edison and Xulu allegedly asked the bid evaluation committee to “correct” the report.

Masolo said the adjudication committee chose a single bidder to “properly manage a single system instead of a variety of proprietary systems that did not talk to each other”.

But a number of bidders dismissed this argument, saying all meters under consideration had to comply with an industry standard so they could talk to a common data management system, regardless of their manufacturer.

More ‘tweaking’
According to an insider, Xulu’s instruction to correct the evaluation committee report was interpreted by some committee members as an order to flip the scores between Edison and Mandla, based on Edison’s lower price option, to justify the awarding of the contract to Edison alone. The earlier report was allegedly redrafted to reflect Xulu’s instruction.

Meanwhile, Xulu is alleged to have taken the R800-million contract award to the City of Johannesburg for approval and returned with an instruction to increase the contract to R1.25-billion.

City Power said the “indicative budget” was adjusted up to R1.25-billion “based on up to 250 000 smart meters that will have to be supplied”.

A municipal insider alleged that Xulu met executive mayor Parks Tau to discuss the contract.
Fred Mokoko, a spokesperson for Tau, declined to confirm or deny whether Tau had discussed the matter with Xulu as alleged.

Mokoko said the mayor was legally prohibited from participating in the awarding of tenders: “The mayor has noted the allegations, which he has referred to city manager Trevor Fowler for investigation [and] which will shed more light on what happened.”

City Power said: “Xulu did not consult anybody on the adjudication of the award.”

Jumping the gun?
The M&G has seen a letter of award to Edison, dated August 20 and signed by Xulu, indicating a contract amount of R1.25-billion.
But the adjudication committee’s report reflects that it only received the final evaluation committee report on August 21.

City Power says the date of the award letter was an “administrative error”, but within the body of the letter the August 20 contract start date is repeated — presumably another error.

The utility says that on August 1 the adjudication committee met to consider the matter. The committee resolved to award the contract, subject to the committee being provided with further clarification of information provided.

It is not clear on what report the committee based this decision because records show the official evaluation report was received on August 21.

City Power says the August 20 draft letter of award was prepared as part of the presentation to the adjudication committee, which met and formally awarded the contract on September 5.

Xulu only signed the committee report, which included an instruction that the evaluation committee’s report was “to be corrected”, on September 10.

That instruction appears to ­support the claim that some retrospective tinkering was done to the ­evaluation committee’s work.

City Power said Xulu’s instruction was a “request for clarification of information [and] did not relate to the scoring presented in the report”.

It is understood that the M&G’s preliminary enquiries about the tender led Xulu to appoint auditing firm Ernst & Young to review the tender award process.



The connected Mr Xulu


Sicelo Xulu played a central role in the process of awarding a new tender for smart meters. He approved the bid specifications, chaired the adjudication committee and issued the letter of award to Vivian Reddy’s Edison Power Consortium.

Given Xulu’s role, rumours about his closeness to President Jacob Zuma and the ANC raise concerns about perceptions of bias in favour of one of the president and the party’s most visible benefactors.

Xulu, who studied at Mangosuthu Technikon, is from the Nkanini area near Eshowe in northern KwaZulu-Natal and owns a home at the Eshowe Hills Golf Estate valued at R2.5-million.

Local ward councillor MM Cebekhulu from the Inkatha Freedom Party told the Mail & Guardian that Xulu was friends with Zuma and had invited him for lunch. He said the last known lunch at which Zuma was present was held before the 2011 local government elections.

Xulu responded: “It would be incorrect and presumptuous for me to claim that I am a personal friend of the president. I personally have not had the honour of hosting him.”

Cebekhulu said that during the 2011 elections Xulu bought ANC campaign T-shirts and had them distributed in the ward. He called Xulu an “activist”.
Xulu said that he had donated shirts to the ANC ward candidate, but had not distributed them, nor campaigned actively.

“I have never and will never allow my personal political views to cloud or compromise my professional career and/or my legal accountability as the accounting officer of City Power,” said Xulu.

A source who attended Edison’s year-end function — the James Bond movie premiere at Eastgate Mall in Johannesburg on the evening of November 21 — overheard Xulu’s predecessor, Silas Zimu, boasting that he and Xulu had received “personal invitations” from Zuma to visit him at his Nkandla homestead. But both dismissed the claim.

The presidency had not responded to questions by the requested deadline. — Jonathan Erasmus, Sam Sole & Lionel Faull



How smart is smart?


In a Johannesburg of the not-too-distant future, most middle- to high-income households will know exactly how much electricity they use each month and be billed accordingly.

Unlike the current pre- and post-paid meters, smart meters provide a real-time reading to consumers.

They also “talk to” a computerised data management centre, or “back end”, which is monitored by City Power and which, in turn, is linked to the city’s integrated billing system.
Smart meters can be switched between a prepaid or a postpaid option, depending on consumer payment preferences.

The “back end” can also interrogate consumption data, in order to make informed adjustments about electricity supply needs.

Smart meters cannot be bypassed or tampered with — a perennial problem in Johannesburg — because the built-in alarm system will alert City Power’s data management centre immediately. — Lionel Faull

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The M&G Centre for Investigative Journalism, a non-profit initiative to develop investigative journalism in the public interest, produced this story. All views are ours. See www.amabhungane.co.za for all our stories, activities and sources of funding.