Two of the biggest unions representing workers at Transnet have welcomed a court ruling putting the brakes on its plans to outsource the management and operations of South Africa's biggest container terminal to Philippines-based International Container Terminal Services Inc. (ICTSI).
The Durban high court this week granted losing bidder AP Moller Terminals (APMT), a subsidiary of Danish shipping giant AP Moller Maersk, an urgent interdict preventing Transnet from naming ICTSI as the winning bidder for a 25-year concession to run Durban Container Terminal Pier 2 (DCT2) pending the outcome of a review application.
The ruling marks a significant hurdle for Transnet, which is trying to turn its operations around after performing below its nameplate capacity.
United National Transport Union (UNTU) said the ruling reaffirmed its belief that the process was flawed from the beginning.
It said the court ruling means that its fight against private sector participation at DCT2 was correct as the union had raised serious concerns about the tender process from the outset.
UNTU said in 2023 it warned the late Pravin Gordhan, who was minister of public enterprises before that department was scrapped, about the risks of pushing forward with the ICTSI deal amid potential legal challenges from other bidders.
The union is now demanding that transport minister Barbara Creecy conduct a forensic investigation into all private sector participation deals concluded by Transnet.
Transnet's process was 'potentially flawed and prima facie unfair' to the other bidders
— Durban high court judge Robin Mossop
“This court ruling confirms UNTU’s fears that these private-sector partnership deals are deeply entrenched in irregularities, fraud and corruption, designed to benefit a select few individuals and private businesses.”
The South African Transport and Allied Workers Union (SATAWU) said the DCT2 tender lacked transparency.
"There was no transparency at all as to how the entity came to the decision to go into partnership with this particular company that is not even a South African company. From there we knew there were loopholes and corruption. Until today we do not know the processes that were followed. This is an embarrassment for the government, and it shows that our concerns were and still are valid."
The partial privatisation of DCT2 - which handles 46% of all container traffic- is a key economic reform for President Cyril Ramaphosa's administration and marks the first step in the government’s vision to break Transnet's monopoly over ports and rail, where underperformance has been choking the economy.
APMT, which was ranked second in the bidding process, believes it would have come out on top or at least have been granted the right to negotiate with Transnet if the entity had followed its own tender requirements.
Durban high court judge Robin Mossop said that in identifying ICTSI as the preferred bidder Transnet's process was "potentially flawed and prima facie unfair" to the other bidders.
“Different allowances were made for the second respondent (ICTSI) that were not offered to other bidders,” said Mossop.
He said it appeared that Transnet did not evaluate ICTSI’s bid in accordance with the criteria set in its Request for Quotations (RFQ), and had not required the winning bidder to meet the minimum financial criteria set down in the document.
“In so doing, ICTSI was treated differently to the other bidders,” he ruled.
APMT had contended in its heads of argument that ICTI’s bid should have been disqualified because its solvency ratio of 0.24 fell short of Transnet’s solvency ratio requirement of 0.4. Solvency ratios help indicate whether a company will have adequate cash flow to meet its financial obligations over the contract term.
Responding to the ruling, Transnet said it respected judicial processes and was evaluating its options.
"Transnet is committed to concluding the transaction expeditiously in the interest of the economy," it said.
APMT’s legal contest is anchored on Transnet’s alleged failure to comply with its procurement processes. It argued that the winning bidder, ICTSI, should have been knocked out of the race in the early stages and was irregularly awarded the right to negotiate the contract.
This was because the company relied on market capitalisation and not solvency ratio, as required in the RFQ, to prove it had enough capital to oversee the R11bn tender over the 25-year period.
Mossop said Transnet required the solvency ratio calculation to be used to measure financial capacity.
“That being the case, the ratio calculated by the second respondent (ICTSI) was clearly non-responsive and can only be defended with considerable difficulty,” Mossop said.
Transnet’s internal and external experts confirmed that ICTSI failed to meet the solvency requirements set down in the tender documents and should have been disqualified, but it was still named the preferred bidder.
Transnet relied on letters written by representatives of Citibank NA Philippines branch, HSBC Bank Manila, and Standard Chartered Bank Philippines to determine ICTSI’s financial capacity.
APMT said the interdict - granted pending the outcome of a full review of Transnet’s decision to award the contract to ICTSI - was a welcome development.
"We will commence our preparations for the second part of the legal review process with confidence, and we remain committed to playing a role in developing South Africa's infrastructure and contributing towards its economic growth. We stand ready and are very well-placed to do so upon being given the opportunity.”
APMT, whose bid came R2bn short of ICTSI’s, previously said the legal challenge was not intended to delay Transnet’s reform agenda, but instead to ensure a fair and compliant process was followed.
