How Tshwane, Ekurhuleni want to claw back billions in ‘lost’ electricity

Two Gauteng metros, the City of Tshwane and the City of Ekurhuleni, have signed agreements with a unit of JSE-listed Blu Label Unlimited in an effort to recover billions in electricity supplied, but never billed.

Blu Label Co-CEO Mark Levy says the so-called “revenue assurance” programme was designed by its Cigicell unit and provides a zero-risk solution for municipalities.

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Cigicell is currently the largest vendor of municipal and Eskom tokens in the country, with the disbursement of R24 billion in prepaid top-ups in the 12 months to 30 November.

This has been a declining business – at least in terms of margin – for years as its commission margin has been compressed to just 0.6% (down 10% in the last year). Levy says Cigicell is perfectly positioned because of its place in the market.

He says municipalities are not collecting “roughly” 30% of what they are supplying to customers. Over time, this equates to billions of rands in lost revenue.

Blu Label’s model sees its unit negotiate for, effectively, a percentage it will keep from ‘unbilled’ electricity that it recovers.

The parties agree on a baseline of billing and any upside goes to the municipality, with a share to Blu.

At this stage, the target is large industrial/commercial power users who, according to Levy, can easily account for 65% of consumption in a metro.

How it will work

The model sees the unit “typically replace the meter” at the customer, ensure it is matched to the correct customer, and linked to the correct tariff. Thereafter, it reconstructs the account of that customer.

Legally, the municipality (Blu is not involved) can collect arrears for up to 36 months.

In a scenario summary shared by Blu, over 10 years, with a 40% achievement on the ‘lost’ revenue, this equates to R19.2 billion in additional revenue for a model municipality.

Even on the lowest assumption – 5% – this is R7.8 billion over a decade, which is close-ish to R1 billion a year.

At a 50% achievement of ‘missing’ revenue (admittedly, a stretch), this becomes R22.5 billion over 10 years. It did not provide any projections above this level.

‘Missing’ revenue potential
Revenue assurance	Accumulative additional revenue
5%	R7.8 billion
10%	R10.4 billion
15%	R12.5 billion
20%	R14.2 billion
25%	R15.9 billion
30%	R17.5 billion
35%	R18.5 billion
40%	R19.2 billion
45%	R20.9 billion
50%	R22.5 billion

Source: Blu Label

It is moving forward with this programme.

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Along with this, it is also able to assist with cash flow within a municipality: it can both bulk buy power upfront and early-settle outstanding bills, which helps the institution.

Renewable energy plan

In February, its BluEnergy unit (part of Cigicell) announced that it had received an energy trading licence.

Read: Nersa approves BluEnergy’s entry into SA’s power trading industry

This is part of its vision to provide renewable electricity at a sub-station level.

This will see a back-to-back purchase agreement of power between the two parties, with the municipality being the vendor (either directly or via Blu Label).

Typically, says Levy, a 200MW renewable plant will take four to five years to construct and cost R4 billion to R5 billion.

Its model sees this 200MW come to market as either 10 by 20MWp (at peak) plants or 20 by 10MWp ones within municipalities across the country. This – importantly, says Levy – means no concentration risk.

Also, these are far quicker to build – the entire stack can be built in less than half the time.

These will be connected to the grid along with its revenue assurance model, which provides something specific to municipal entities.

It sees these smaller builds as occupying approximately 1.3 hectares for every 1MWp in photovoltaic output, which is not an enormous parcel of land.

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An option being considered by Blu Label is one where it builds a 20MWp plant to supply 10MW, with batteries being charged during the day by half the array, while the rest supplies its customer. At night, it is then able to discharge the remaining power.

Bullish on funding

Levy is bullish on the funding for the underlying infrastructure.

He says a number of banks and global funders have approached Blu Label, because of the “cash flow security” inherent in this model.

Its licence, which allows it to trade energy, is the final piece of the puzzle.

This, argues Levy, makes it unique in that it can produce, buy, sell and trade energy, with substantial relationships and contracts with municipalities that sometimes (often) stretch back decades.

Listen to Jimmy Moyaha’s interview with BluEnergy CEO Aaron Suckerman in this SAfm Market Update with Moneyweb podcast:

You can also listen to this podcast on iono.fm here.

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