In a major boost to Transnet, the Durban high court has backed its decision to name Philippine-based shipping company, International Containers Terminal Services Inc (ICTSI), as the preferred bidder for a 25-year concession to upgrade and manage Durban Container Terminal 2 (DCT 2).
Judge Mahendra Chetty ruled on Friday Transnet had acted without prejudice to APM Terminals — controlled by Danish shipping giant Maersk — which earlier had interdicted the awarding of the contract.
The court found that an argument by APM questioning ICTSI’s solvency ratio — a key determinant in awarding the tender — was without basis.
"To have disqualified ICTSI for its failure to achieve a solvency ratio [based on a specified formula], would have been to disqualify a meritorious tenderer, and open the way for a significantly lower bid to have prevailed. This would have been contrary to the purpose of the tender and financial objectives of Transnet," the judge said.
Transnet is seeking a partner to develop and manage DCT2, which is a gateway to trade as it handles 46% of South Africa’s port traffic, to tackle years of inefficiencies, including vessel congestion and freight backlogs that have resulted in the port losing its competitiveness, regionally and globally.
Chetty sided with Transnet, saying it had selected a partner with the credentials to raise funding for the upgrade of DCT2. "To advance an argument of its noncompliance with the solvency ratio as a basis for disqualification would be to unjustifiably elevate form over substance, even in relation to a mandatory requirement."
Transnet said on Friday its procurement process to select ICTSI had been above board, as a due diligence process had proved ICTSI’s financial soundness. Group CEO Michelle Phillips said the ruling confirmed the integrity and transparency of Transnet’s procurement processes and governance structures. "It removes a major hurdle to the implementation of the transaction," she said.
"We can now focus all our energy on executing our plan to modernise and expand DCT Pier 2. It paves the way for us to move expeditiously to finalise the implementation of this transaction without undue delay."
Transnet remained committed to transforming its ports into world-class hubs that unlock new trade opportunities through the deployment of state-of-the-art equipment, Phillips said.
"It is unfortunate that our endeavours to stimulate investments at DCT have been delayed. We hope that this unwanted delay is an isolated incident that will not set a precedent for future obstacles, particularly as we move forward with vital private sector participation transactions."
APM argued that ICTSI had fallen short of the tender requirements as part of the request for quotation (RFQ) specifying that the successful bidder present a solvency ratio of 0.4 or above, using a formula of total equity or assets.
It complained that ICTSI, which had a lower solvency ratio than APM, was the only bidder to use a market capitalisation calculation as basis for its tender application.
APM was ranked second to ICTSI, and its bid was R2bn lower than ICTSI’s R11.2 bn offer.
It said the winning bidder ought to have complied with solvency, liquidity and earnings before interest and taxes, all three components of the tender requirements.
The decision was rejected by Transnet’s internal bid committee, although it was supported by the rail and ports entity’s external consultant, GrowthStone Assurance, which found that ICTSI was in a "good position" to raise additional funding.
Transnet gave ICTSI the green light, citing that even though it did not meet the 0.4 solvency ratio requirement, this was insignificant when considering the terminal operator’s financial muscle.
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