Transnet wants court to clear R54bn 'unlawful' contract for 1064 locomotives

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State-owned freight rail and port group Transnet says it plans to approach the courts to have a number of controversial contracts for the procurement of 1 064 locomotives - that together amount to R54bn - declared unlawful and set aside.

The contracts for the new engines, which were meant to upgrade Transnet's ageing fleet, have been plagued by allegations of fraud, irregularities and kickbacks. The estimated total cost for the locomotives has ballooned from R38.6bn in 2013 to R54.5bn.

How and why costs increased by 41% has been a key focus in the ongoing judicial commission of inquiry into state capture. 

Transnet on Tuesday, in a statement, said the transactions had been found to be "irregular and unlawful" and contributed to R41.5bn in irregular expenditure in its 2018/19 financial statements.

From 2013 onward, Transnet entered into a number of contracts to procure locomotives from four Original Equipment Manufacturers: General Electric, Bombardier Transportation, China North Rail (CNR) and China South Rail (CSR).

China North Rail and China South Rail later merged to become CRRC. 

"The decision to declare unlawful and set-aside these contracts comes after a number of negotiations with the OEMs. Transnet will now approach the courts in order to recover monies paid to these companies for work not done," said Richard Vallihu, Transnet's Acting Group Chief Operating Officer.

"In January 2018, Transnet entered into negotiations with the 1 064 locomotive suppliers, seeking to remedy these contraventions in a just and equitable manner.

"To date Transnet has reached an agreement with GE and negotiations are continuing with Bombardier Transportation," the statement read.

Transnet said it issued a letter of demand for R1.5bn to CNR, payable within 10 days of receiving the letter. The date of the letter was not provided.

The freight rail group said it has also asked CNR to reimburse over R300m for "relocation costs" and to stop manufacturing locomotives at Durban Bayhead and to remove staff by the end of November 2019.

"Of the 232 locomotives ordered with CNR, only 22 locomotives have been delivered to date," the statement read.

It said it wants to retain locomotives delivered by CSR, and for the manufacturer to pay back the difference between what Transnet paid and the value of the locomotives that were delivered.

"Transnet also demands that CSR should cease to associate the company with an entity referred to as CRRC Transnet Transit Rail Equipment Ltd. The establishment of this entity was found to be illegal," the statement read.

Business Day first reported earlier on Tuesday that Transnet has ordered Chinese locomotive company CRRC-E Loco to "cease activities" at its Pretoria Koedoespoort plant. Lawyers for the company told the newspaper that they were rejected the "advice" as their agreement with the state-owned rail and port company "doesn't make a provision for that".

CRRC E-Loco is the South African subsidiary of CRRC. It was formed in 2016 after the merger of CNR and CSR.

Transnet did not immediately say when it intended to approach the courts, or how much it expects to be able to claim back from the various suppliers. 

- Additional reporting by Jan Cronje

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