R4 billion deal unravels

2012-05-10 00:00

WHILE the government and its advisers, including the highly regarded economist Joseph Stiglitz, promote the benefits of government’s ambitious infrastructure programme as a means to grow the economy and jobs, Transnet, one of the key delivery agents in the strategy, has cancelled a R4 billion tender to build a dry dock in Richards Bay.

The project to build the dry dock, also known as the “ship repair project”, has been on the cards for so long that people have stopped talking about it. However during the course of 2010, Trans­net National Ports Authority (TNPA) drew up a draft lease agreement relating to the tender which was awarded in 2005 and renegotiated in 2009. This was signed by the winning consortium in August 2010 and was sent to Transnet head office for approval.

At this point the project hit the skids. But it took over a year for Transnet to let the consortium members know, and when Trans­net CEO Brian Molefe did so, it was at a public breakfast last December. The formal written notification of the cancellation of the tender was received by the consortium members on March 9.

The winning consortium consists of project developer Imbani Projects, construction company Group Five and China Harbour Engineering Construction, which built and owns the biggest dry dock in the world. Finance was to be provided by the Industrial Development Corporation, the Public Investment Corporation and the EXIM bank of China. Imbani and Group Five were to provide part of the funding.

“We were not given specific reasons for the cancellation,” says Imbani director Ebenezer Moahloli. “The letter simply stated that new planning for the port means that the current site is no longer available for the dry dock. It did not say whether a new tender was forthcoming. There is no recourse. We just have to lick our wounds.”

According to Transnet Ports Authority CEO Tau Morwe, approval for the tender was not granted for a number of reasons. “These include the fact that the intended site conflicted with an area that had been earmarked by the Transnet planning team for the Transnet Strategic Port-Rail project.” He adds that consensus was not reached among all the parties on the terms and conditions embodied in the lease; and that the tender process had taken too long to complete. The promulgation of the National Ports Act in 2006 changes the rights and obligations of the TNPA. Thus it “is in the public interest to give effect to all such new priorities and developments”.

Who can argue with the inner machinations of Transnet? But from an outsider’s perspective, it would appear that a project like this ticks SA’s infrastructure boxes and should be accelerated. According to an article in the Zululand Observer, which has covered this subject for the better part of 10 years, the developers estimate that the ship-repair facility would create up to 6 000 jobs during the construction period and up to 4 000 when the facility would be in operation.

In 2010, a delegation of Chinese shipbuilders, who are part of the consortium, visited Richards Bay port and were hosted by port manager Thami Ntshingila. “China repaired 3 260 vessels in the past year, an increase of 32,6 %. Based on conservative estimates, the annual output of all the shipyards under our group is over R20 billion,” said the chairperson of Ninbo Fuming Shipyard Xu Huide, according to the Observer.

The Chinese, and the Koreans too, see South Africa as a location that could complement their operations, in particular during the bitter northern hemisphere winter.

Richards Bay is the deepest port in South Africa and could accommodate the huge container ships traversing the world’s oceans. It has plenty of land available and it is the South African port that is closest to the East.

Fortunately for Imbani, it has not relied on this project for its supper. “If we had, we would be long gone by now,” says Moahloli. “We have been involved in large capital projects in a number of areas — from mining to roads to property. It is not as if we are not authentic.”

Group Five hasn’t relied on the project for its supper either. But it has felt the pain of stalled government projects. Along with a number of other consortia, it has invested millions of rands in preparing bids and in responding to government’s call for the private sector to embrace public-private partnerships (PPP). The company was particularly aggrieved last year when Correctional Services Minister Nosiviwe Mapisa-Nqakula cancelled the PPP relating to the construction of a number of prisons. That project had been under way since 2003.

However, Morwe points out that Transnet had reserved the right to withdraw the tender and was not obliged to proceed with the closure of the tender.

The TNPA intends to proceed “from scratch”, with the ship-repair project in a different location in the port of Richards Bay. The consortium can bid again “if they wish”, he says.

Having invested over R20 million in feasibility studies, engineering preparation and financial models over a 10 -year period, one imagines that Imbani has a vested interest in bidding again. But for other companies well used to government tenders that never come, it is understandable that many are turning their attention to the infrastructure opportunities opening up across the rest of Africa.

The stereotype is that Africa is a difficult place in which to do business. But projects there might turn out to be less risky and revenues more predictable.

— Moneyweb.co.za

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