c) EPCs and the MFMA

Energy Performance Contracts (EPCs) like any municipal contract are governed by the the Municipal Finance Management (MFMA) Act 56 of 2003. In general EPCs can be contracted in the same way that a normal energy efficiency contract would be contracted. However, since EPCs can often take place over more than three years, Section 33 of the MFMA which governs contracting beyond a three year period is of particular relevance. Section 33 of the MFMA stipulates a municipality can only engage in a contract that imposes financial obligations on the municipality beyond a three year period if:
  • A draft of the contract is publicly advertised for comment 60 days prior to the municipal council meeting where the contract will be considered for approval. 
  • The municipal council has considered the financial implications of the contract and any comments received on the proposed contract. 
  • The municipal council has adopted a resolution on the financial benefits of the contract and authorising the municipal manager to sign the contract on behalf of the municipality.
Shared savings EPCs often have a contract length of more than three years. Since the ESCO is paid from the savings accrued from the interventions implemented in a shared savings scheme the contract period of a shared savings scheme must exceed the length of the payback period of the interventions implemented. While in some cases the payback period for interventions is less than three years, in a large number of cases the payback period is more than three years. As a result for those shared savings schemes with a contract period of more than three years Section 33 of the MFMA applies.

Guaranteed savings EPCs entail the municipality paying the ESCO for the energy efficiency interventions upfront. As a result the financial obligations on the municipality are generally confined to a three year period. The service provider, on the other hand, is often required to provide a guarantee to the municipality beyond a three year period if the payback period of the intervention exceeds three years. However, since the guarantee is a financial obligation imposed on the service provider and not the municipality, Section 33 does not apply.

The Draft Report "Procurement of Energy Efficiency Measures in Municipal Buildings by Shared Savings EPC" (DFIC 2016) provides a comprehensive analysis of the steps required by municipalities to adhere to the MFMA. These steps are summarised in the table below

MFMA Steps and Requirements ( Procurement of Energy Efficiency Measures in Municipal Buildings by Shared Savings EPC; DFIC 2016)

MFMA Requirements

Measure

Time Frame

Consultation and participation process with stakeholder and solicitation of their views and recommendations.  

Contact and invite for comments on the drafts for procurement process and EPC model contract, the National Treasury and the relevant provincial treasury and the national department responsible for local government.

Prior to public consultation and participation process with community and other interested persons, e.g. 90 days before council meeting to approve EPC.

Public consultation and participation process with community and other interested persons to inform about the contract and all projected financial obligations over the full term of the contract and its impact on future tariffs and revenue.  

The Municipal Manager has to: Inform the local community about EPC in the local newspaper and invite to comment on this; Publish EPC contract and; Publish an information statement that informs about the projected financial obligation over the full term of the contract and its impact on future tariffs and revenue.

At least 60 days before council meeting to approve EPC.

Documentation of the process to enable municipal council for approval of EPC.

Compile all comments and recommendations in a section 33 report, including: EPC shared savings contract; information statement; the municipality’s obligations in terms of the proposed contract; Certification of Compliance with Section 21 MSA; Register of public comments.

Prior to distribution of section 33 report to the council e.g. 10 days after receipt of all public comments.

The municipal council has taken into account: Financial obligations of the contract; comments, views, recommendations from treasury, community and other stakeholders.

Submission of section 33 report to municipal departments and Council: Distribution of the section 33 report to all relevant municipal departments; And to all council members with department comments.

Report to municipal departments: 20 days prior to council meeting; Report including department comments to council members: 10 days prior to council meeting.

The municipal council has adopted a resolution of approval.

Approve EPC and adopt a resolution which: determines that the municipality will secure a significant capital investment or will derive a significant financial economic or financial benefit from the contract; approve the entire contract exactly as it is to be executed; and authorises the municipal manager to sign the contract on behalf of the municipality.

Municipal meeting at earliest 60 days after public notification and consultation process.    



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