Locomotives dispute heading for high court
State freight, rail and logistics group Transnet has lodged a court application to review and set aside four controversial contracts totalling R54.5bn to buy more than 1,000 locomotives.
The application was filed on Tuesday at the high court in Johannesburg.
Transnet signed the multibillion rand contracts, one of the largest procurement initiatives by a state-owned entity, in March 2014. The deal was signed with South China Rail, North China Rail, General Electric (GE) and Bombardier Transportation as part of a strategy to renew Transnet’s rolling stock.
The initial estimated price of the locomotives tender was R38.6bn but it shot up to R54.5bn amid claims of corruption in awarding the contracts. The Gupta family, friends and business partners of former president Jacob Zuma and his son Duduzane, allegedly got millions of rand in kickbacks, according to testimony to the state-capture inquiry chaired by deputy chief justice Raymond Zondo.
Briefing members of parliament’s standing committee on public accounts on Tuesday, Transnet executives said the locomotives were procured irregularly for Transnet’s general freight business. The group said it was working with the Special Investigating Unit (SIU) to review and set aside the four contracts.
Sandra Coetzee, Transnet chief legal officer, told MPs that some were delivered. Others were found to be defective.
GE was contracted for 233 locomotives and managed to deliver all. South China Rail was contracted for 359 locomotives, with 260 delivered to date. The agreement with North China Rail was for 332 locomotives, but it deliver only 22. Bombardier was contracted for 240 locomotives and 68 had been delivered to date. “The remedy Transnet is seeking is that it retains what it has acquired minus the profit, so we retain on a reasonable price basis and that which is defective we do not retain,” Coetzee said.
Transnet and the SIU said in their court papers that the procurement was based on a flawed market demand strategy. Laws, government instructions and Transnet policies were ignored to effect payment to some of the manufacturers. The transactions concluded by the previous Transnet management and board failed to meet minimum standards prescribed by the Public Finance Management Act, including ensuring procurement processes are fair, equitable and competitive.
Transnet group CEO Portia Derby said there were about 194 parked locomotives waiting for spare parts, but the Chinese makers have not been forthcoming since Transnet indicated it would take the legal route.
Derby said Transnet had to rely on locomotives aged 30 to 40 years that it had planned to retire. “We are now facing a much higher failure rate and also unscheduled maintenance, so this [the locomotives issue] does have a material impact on the organisation,” Derby said.
Transnet and the SIU are collaborating in identifying further evidence of maladministration, irregularities and significant losses to the company, as well as future losses on interest rate transactions and the role of Nedbank in financing the locomotives deal, MPs heard.
Public enterprises minister Pravin Gordhan said Transnet is on track to recover under new leadership. More contracts were being reviewed to ensure compliance with procurement rules.
Transnet was issued with a qualified audit opinion for the past three years (2017/2018, 2018/2019 and 2019/2020) for reasons such as irregular expenditure and lack of adherence to supply chain policies and procedures.