Transnet is standing by its decision to name International Container Terminal Service (ICTSI) from the Philippines as the preferred bidder in the private sector participation tender for the development of Durban Container Terminal (DCT2).
One of the losing bidders for the private sector participation tender, AP Moller Terminals (APMT), an AP Moller-Maersk subsidiary will tomorrow argue for the decision to be overturned in its two-part legal bid to be heard in the KwaZulu-Natal High Court, Durban.At the crux of the dispute are the criteria used in the appointment. APMT contends that ICTSI was shortlisted and awarded the tender based on its market capitalisation and not the solvency criteria as stipulated in Transnet’s tender documents.
In part A of its legal bid, APMT will seek an interim order interdicting Transnet from implementing the “impugned decision” to award ICTSI and any other third party the tender. In part B it wants the court to review, set aside and declare the “impugned decision” as unlawful in terms of the Promotion of Administrative Justice Act.
Maersk South Africa’s legal adviser Stefano Bergonzoli, in his affidavit argues that Transnet’s tender process was neither transparent, competitive nor cost-effective.“It was not competitive, fair, transparent and or cost-effective as other potential bidders who also did not have a solvency ratio of at least 0.4 reflected in their latest financial statements may have simply decided not to tender,” Bergonzoli says in the company’s affidavit.
The tender process was not transparent, as the more than six months ‘engagement’ between Transnet and ICTSI was not public.
— Steffano Bergonzoli, legal adviser
The affidavit alleges that ICTSI was allowed to depart from the requirements of the tender, and to be “engaged” on its departure, among other things, for more than six months. This was plainly unfair to the other bidders.
“It was not transparent, as the more than six months ‘engagement’ between Transnet and ICTSI was not public,” Bergonzoli says.
Transnet contends that ICTSI, which was named the preferred bidder in July 2023, tabled an offer that was nearly R2bn higher than the next bidder.
ICTSI received a 100% ranking for its R11.1bn financial bid in terms of the request for proposals, which was R1.9bn higher than second-ranked APMT’s R9.2bn bid.
ICTSI was subsequently named the preferred bidder for the management and upgrade at DCT2 in July 2023, signalling a reform for South Africa’s ports, which have lagged behind global peers. In November and December last year 70,000 containers, or nine days of cargo, were stuck at the port of Durban due to congestion.
In an affidavit on behalf of Transnet, Kapei Phahlamohlaka, head of the entity’s property portfolio, says ICTSI plans to spend R9.4bn over 25 years, which is a plus for Transnet’s revenue and will be either used to settle its debt or to invest in projects that will yield returns equal to or exceeding the returns for DCT2.
“This revenue includes the amount of R11.12bn Transnet will receive as a result of the transaction as well as its 50% share of NewCo’s profits going forward,” the affidavit says.
The financial impact on Transnet’s balance sheet will be significantly positive, says Phahlamohlaka.
“In other words, the tender decision that the applicant seeks to implement is one which is urgently required in order to bring about much-needed investment and upgrades to DCT2 infrastructure. It is urgent that these benefits be realised as soon as possible, so that the port can begin to compete once again, and so that the arteries of the South African economy can open up and begin to flow freely.”
DCT2 is Transnet’s biggest container terminal. It handles 72% of the port of Durban’s volumes and 46% of the country’s port traffic. Durban was ranked as one of the world’s least competitive ports in the World Bank’s latest port survey, which ranked it 341 out of 348 ports in 2023.
The ICTSI partnership is expected to improve DCT2’s capacity from 2.1-million to 2.8-million 20-foot equivalent units within four years of the ICTSI private sector partnership.As the winning bidder, ICTSI is obliged to improve vessel productivity within two years of the commencement of operations and maintain it throughout the transaction period.
Transnet says the partnership is mutually beneficial as both Transnet and ICTSI will be given increased volumes and tariffs, and revenue per employee is expected to improve.
Among the terms of the joint venture is establishing a new company (NewCo) to manage the operations at DCT 2, in which Transnet will have majority ownership of 50% plus one share, while the DCT 2 employees will be seconded to the new entity.
Phahlamohlaka says in the Transnet affidavit that the introduction of private sector partners at the port of Durban is a long-standing priority of the national government and should be implemented with speed.
“This delay cannot be afforded either by Transnet, the port or the South African economy. It will cause such serious harm to the public interest that it is plainly not tenable.”
If granted, the interdict will undo the procurement process which has been years in the making, Phahlamohlaka says.
“If an interim interdict is granted, the entire procurement process will fail, with no alternative remedy to Transnet but to rerun a new process that is likely to take several years as this procurement process has, with less legitimacy in the global market to attract a credible, well-recognised terminal operator to partner with Transnet.”
The affidavit says awarding the tender to ICTSl was fair and ICTSI’s noncompliance with the solvency criterion was therefore not material in the sense necessary to justify its disqualification from the tender.
“If ICTSI had been disqualified, the most meritorious tenderer would have been excluded from consideration on the basis of an immaterial noncompliance with a tender requirement.This would have been contrary to our administrative law and w ould have prejudiced Transnet and the South African public.”
Phahlamohlaka says that with President Cyril Ramaphosa outlining the need to reform the ports, resolving the challenges at DCT2 is necessary, urgent and can no longer be delayed. The financial and operational failures at the port are “umbilically linked to the wellbeing of the economy”.
He says the legal action was “an unjustified interference with the national government’s economic recovery plans to secure private investment and participation in revitalising the operations at DCT2”.
“AP Moller Terminals’ commercial interest to be first in line for negotiation does not outweigh the urgent national interest to implement this transaction; and given Transnet’s financial and operational interests in resolving the underperformance at DCT2, it would be untenable to compel Transnet to accept a significantly lower price to that of ICTSI without a substantial justification to show that the selection of ICTSI materially defeats the objects of the procurement process.”
In its annual results released last week, Transnet posted an 11.6% increase in revenue to R76.7bn from R68.7bn in 2023.
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