Transnet tender doubts

2014-03-23 10:00

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Local partners surprised to learn they have unwittingly become part of a Transnet procurement deal for locomotives

Among the local partners in Transnet’s massive new R50?billion tender for locomotives are the stationer, the cleaning contractor and the shuttle service provider used by one of the train manufacturers.

Another manufacturer has included a 23-year-old motivational speaker in its otherwise secretive consortium.

A partner of another tender winner is run by two former Transnet managers.

No one can accuse Transnet of empowering only the “usual suspects” with the massive four-way contract for 1?064 new locomotives that was announced on Monday.

The tender has been split between four major international original equipment manufacturers (OEMs), each of which has local partners with stakes of 25%- 30% in the contracts.

The four-way tender forms part of Transnet’s R300?billion market demand strategy, a massive series of infrastructure projects aimed at expanding and modernising South Africa’s rail system.

The locomotive contracts constitute one of the largest public procurements in South African history, dwarfed only by Eskom’s expenditure on new power stations.

The DA on Friday indicated that it would ask Transnet to explain the tender process, while the Public Protector is already investigating one of the four successful bidders.

At least one of the shareholders was amazed to discover, through the media, that he had a share in the R50?billion tender.

Jabatha Paper and Stationery?–?a shareholder in multinational train maker Bombardier’s local subsidiary?–?was unaware of its apparent role in the contract, of which Bombardier Transport SA gets a R10.4?billion share for 240 electric locomotives.

“I was somewhat baffled, nothing of this nature was discussed with me,” said Jabatha owner James Sibeko.

“I am meeting Bombardier on Tuesday to discuss Jabatha’s role in the contract,” he told City Press.

Sibeko said his company had been supplying stationery to Bombardier, a lead contractor in the Bombela Consortium that built the Gautrain.

Sadiphiri Transport Services and Masana Hygiene Services?–?another two Bombardier partners along with an employee trust?–?and Jabatha, own 26% of Bombardier Transport South Africa (BTSA).

Director and co-owner of Sadiphiri, Albert Sethoga, said: “I provide a commuting service for Bombardier. We mostly drive around their foreign employees when they are in the country.”

Masana Hygiene Services is a close corporation with one listed member, Cynthia Mkhombo.

“We cannot comment at this point,” she said.

Bombardier’s spokesperson for western Europe, Africa and the Middle East, Sandy Roth, rejected any suggestions that its BEE partnership might raise concerns of fronting.

“This ownership model ensures that BTSA’s employees, as well as various black-owned and controlled suppliers, will participate in BTSA’s future success and profitability,” she said.

New partners might be introduced who were more closely involved with actual train making, she added.

“Bombardier has selected a number of key subcontractors with experience in the rail industry and engineering who will support the transfer of technology and know-how to the South African rail industry for this project.

“Eventually, some of these key subcontractors may choose to become new members of the business trust to encourage their support of BTSA’s long-term success.

“We understand the practice of ‘fronting’ and have in no way put forward wrongful information in regard to this project,” said Roth.

Azon Rail, one of the local partners of another successful bidder, China North Rail (CNR), has two directors who were both, until recently, managers at Transnet.

It is unclear when Babalwa Dludlu and Zahra Pilane left Transnet, but company records show that Azon was registered in April last year. This was well after the bids for the locomotive tender were submitted to Transnet late in 2012.

According to her LinkedIn profile, Pilane was a senior manager at Transnet Freight Rail until the end of 2012. CNR will deliver 232 diesel locomotives worth R7.8?billion.

Another CNR partner, Linontando Investments, was registered in February 2013, which is after the initial bid closing date in October 2012 but in time for the revised bid closing date in April 2013.

Company records show that Lindiwe Ngcobo, the former business partner of Edward and Mxolisi Zuma, sons of President Jacob Zuma, is the sole director.

“Please ask someone from Transnet about the contract, I cannot comment,” she said this week.

The consortium for the largest winner in the tender process, CSR Zhuzhou Electric Locomotive, is being investigated by the Public Protector.

The investigation stems from CSR’s previous Transnet contract for 95 locomotives in 2012, which are being delivered now.

Public Protector spokesperson Kgalalelo Masibi said: “We have recently spoken to Transnet. They will provide additional information and are giving us their cooperation.”

CSR’s partner in the new contract is a slightly reconstituted Matsetse Basadi Consortium that participated in its earlier Transnet contract.

It includes a small sole proprietorship called Adoword Motivational and Life Coaching, owned by 23-year-old disabled motivational speaker Nonhlanhla “Adoword” Nthuli, which has a 5% share and provides training to disabled people.

Transnet said in reply to emailed questions: “Transnet did not influence the composition of the consortia. We followed an open tender process where anyone was entitled to tender.”

What we are buying

Siyabonga Gama, Transnet Freight Rail’s (TFR) CEO, called the contract “rapid industrialisation”.

The more ambitious plan is for Transnet to end up as a so-called OEM in its own right, manufacturing a “Transnet locomotive” that is entirely local in contrast to the current order which still sees up to 45% of the value being imported for local assembly.

Transnet is spending R1?billion on research with the CSIR to help design the new locomotive. The 1?064 new locomotives will join the 95 that were already ordered from CSR in 2012 and are now being received.

Transnet will be scrapping about 800 old ones between now and 2025.

The current fleet of locomotives is 2?280-strong, meaning that the company will end up with 2?639 locomotives 10 years from now.

Some of the locomotives being used now are 48 years old, said Gama.

Ultimately, the average age of Transnet locomotives will fall from 33 years to 22 years. The locomotive procurement was touted as creating 30?000 jobs and having “localisation benefits” of R90?billion?–?far outstripping the actual money spent.

This sum uses the Industrial Action Plan’s set of “sector multipliers”.

–?Additional reporting by Dewald van Rensburg

» City Press incorrectly reported that Azon Rail was registered after the Transnet tender process had closed. In fact, the tender process was extended from October 2012 to April 2013. Azon Rail registered in March 2013, a month before bidders had to submit their bids.

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