State-owned freight, rail and logistics group Transnet has lodged a high court application to review and set aside four controversial contracts worth R54.5bn for the acquisition of 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, for the acquisition of the locomotives 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 soon shot up to R54.5bn amid claims of corruption in awarding the contracts. The controversial Gupta family, friends and business partners of former president Jacob Zuma and his son Duduzane, were alleged to have received millions of rand in kickbacks, according to testimonies presented to the ongoing commission of inquiry into state capture chaired by deputy chief justice Raymond Zondo.
Briefing parliament’s standing committee on public accounts on the matter on Tuesday, Transnet executives said the locomotives were irregularly procured for Transnet’s general freight business. The company said it was working closely with the Special Investigating Unit (SIU) to review and set aside the four contracts.
Sandra Coetzee, Transnet chief legal officer, told MPs that some of the locomotives were already delivered but 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 the company only managed to deliver 22. Bombardier was contracted for 240 locomotives and about 68 have 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 in their court papers point out that the procurement was based on a flawed market demand strategy and that the laws, government instructions and Transnet policies were deliberately ignored to effect payment to some of the manufacturers.
The court papers show that the transactions concluded by the previous Transnet management and board failed to meet the minimum standards prescribed by the Public Finance Management Act, including ensuring that procurement processes are fair, equitable and competitive.
Transnet group CEO Portia Derby said at present there are about 194 parked locomotives waiting for spare parts, but the Chinese manufacturers have not been forthcoming since Transnet indicated it would take the legal route.
Derby said Transnet had to also rely on old locomotives aged between 30 and 40 years that it had planned to retire from operations.
“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 a new leadership team, and 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 various reasons including irregular expenditure and lack of adherence to supply chain policies and procedures.
phakathib@businesslive.co.za
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