Transnet has ordered a Chinese company to stop building locomotives with 'immediate effect'.
Transnet has ordered a Chinese company to stop building locomotives with 'immediate effect'.
Image: Gallo Images

State-owned logistics company Transnet has ordered Chinese locomotives company CRRC-E Loco to “cease activities” at its Pretoria Koedoespoort plant, where locomotive manufacturers, contracted as part of a group of companies to assemble locomotives, are based.

Mncedisi Ndlovu & Sedumedi (MNS) Attorneys, representing Transnet, last week sent letters to lawyers representing the Chinese electric locomotives manufacturers, instructing them to stop manufacturing the locomotives “with immediate effect”.

The company has been told to stop building pending the outcome of a review application of the notorious R54.5bn procurement contract for 1,064 locomotives. The contracts have been declared irregular and unlawful.

CRRC-E Loco is the merger of China South Rail and China North Rail, which won three tenders worth more than R25bn to supply Transnet with locomotives. The first was for 95 locomotives, worth R2.7bn, the second for 100 locomotives, worth R4.4bn, and the third was to supply 359 locomotives, worth R18.1bn.

However, lawyers representing the Chinese company are not convinced that they have to stop building. A representative of the company’s law firm said the company had not been instructed to cease manufacturing at Koedoespoort.

“We only received a letter that advises us to do so and we rejected the advice as the agreement that we signed with Transnet doesn’t make a provision for that. In essence, the manufacturing at Koedoespoort is done by the engineering division of Transnet, Transnet Engineering,” he said.

He added that CRRC E-Loco had manufactured more than 85% of its allocated locomotives.

“To date, CRRC E-Loco has delivered more than 460 locomotives to Transnet. These locomotives are now in service and generating a significant percentage of Transnet’s profitable traffic, which include coal, manganese and containers to and from Durban,” he said.

MNS was appointed by Transnet’s previous board and was tasked with evaluating the locomotive tender. MNS found that the Chinese company “seems to have enjoyed some special relationship with Transnet and that has happened both prior to the issue of the request for proposal itself and through the procurement process for the locomotives”.

In a letter to CRRC-E Loco’s legal representatives, MNS said: “The locomotive supply agreements should be suspended with immediate effect pending the court proceedings to declare the process which culminated in the award of the tender irregular.”

In the letter, Transnet accused the companies that merged to form CRRC-E Loco of “persisting with the conduct of avoiding the substance of forensic reports that inform Transnet’s position and legal obligations”.

However, CRRC-E Loco’s lawyers said their client would prefer the matter to be dealt with in court.

The 1,064 locomotives tender was one of the biggest scandals of the state-capture era, and saw companies linked to the Guptas and their associate Salim Essa receiving about R5bn in kickbacks. The tender’s estimated total cost ballooned from R36bn to R54.5bn.

Former Transnet CEO Brian Molefe was found by various forensics reports to have lied to the board about the tender’s cost. Also, Molefe and former Transnet CFO Anoj Singh signed off the tender and accelerated the production of the vast number of locomotives that the country's rail network did not have the capacity to accommodate.

Transnet’s acting CEO Mohammed Mahomedy told the Zondo commission of inquiry that Transnet flouted the Public Finance Management Act when awarding the initial R2.7bn contract to China South Rail.

China South Rail failed the first stage of the tender process as it required companies to have a BEE certificate. The company scored 57%, which was 3% less than the minimum requirement to advance to the next stage in the bidding process.

matiwanez@businesslive.co.za