Transnet CEO Michelle Phillips has called out the losing bidder for the Durban Container Terminal Pier 2 (DCT2) operating licence for trying to use the courts to cajole it to accept a lower bid for a prized asset that accounts for nearly half of SA’s port traffic.
Transnet is opposing a legal challenge launched by APM Terminals, the port operating company of Danish logistics major AP Moller-Maersk, to set aside the multiyear contract that was awarded to Filipino ports giant International Container Terminal Services Inc (ICTSI).
APM’s main objection is that Transnet should have disqualified ICTSI at the preliminary stages of the bid — arguing that the state-owned enterprise (SOE) erred in allowing ICTSI to use its market capitalisation to calculate its solvency ratio to secure the 25-year contract to develop and manage DCT2.
The decision to allow Philippines stock exchange-listed ICTSI to use its market value to calculate its solvency in effect “inflated” ICTSI’s solvency from 0.24 to the required 0.4.
ICTSI was the only bidder to use its market capitalisation to prove it met Transnet’s solvency requirements to qualify for the tender.
Opportunistic
Its bid eventually came in R2bn higher than that of APM, a fact Phillips is imploring the high court in Durban not to ignore. She said in her affidavit that the legal challenge by APM, which ranked second in the bid, was opportunistic, arguing that it was common cause that ICTSI had the financial muscle to attract the required investment in DCT2.
“It was on the basis of this common cause fact that Transnet concluded that even if ICTSI had not complied with the RFQs [request for qualifications] solvency ratio, its noncompliance was not material because the purpose of the requirement was to ensure that the successful bidder had the necessary financial capacity, and ICTSI plainly had, and continues to have the necessary financial capacity,” she said.
“It is notable that APM has not offered to meet the bid price submitted by ICTSI. It wants to snatch at a R2bn bargain, to Transnet and SA’s detriment ... by doing so APM would have enlisted this court’s assistance to foist upon Transnet a second-placed bidder despite its offering being R2bn inferior to that of its closest competitor.”
The legal challenge was heard over two days last week, with judgment being reserved.
The DCT2 project is considered a cornerstone of SA’s infrastructure and pivotal for economic stability and growth. It is Transnet’s biggest container terminal, handling 72% of the Port of Durban’s throughput and 46% of SA’s port traffic.
In October the high court in Durban temporarily interdicted the deal between Transnet and ICTSI from being implemented in a finding that highlighted serious flaws in the procurement process. APM hopes the main case will also go its way.
Setback
For President Cyril Ramaphosa, who has been championing the involvement of the private sector in reviving SOEs and the economy, the interdict came as a setback that highlighted the need for adherence to governance standards to attract and retain investment.
The Competition Commission has already recommended that the Competition Tribunal, which has final regulatory say over mergers in SA, approve the deal with conditions. One of these is that the parties must not retrench workers for three years.
ICTSI’s business case indicates an intention to invest R1.5bn in capital expenditure and on infrastructure maintenance, equipment overhaul and refurbishment, and new equipment. The total proposed spend by ICTSI over 25 years would be R9.4bn.
The infrastructure and design of DCT2 has remained the same since 1963. Over the past 20 years congestion at the terminal, due to rising shipping traffic and limited operational capacity, have led to severe backlogs at the Port of Durban.
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