South Africa: Portia Derby, CEO of the Transnet national freight operator of South Africa, announced a new tender in July as part of the presentation of Transnet’s financial results for 2021. This became possible after a court decision to stop the contracts for the supply of 1,064 locomotives (599 electric locomotives and 465 diesel locomotives) concluded in 2014 with CNR and CSR (merged into CRRC in 2015), GE (locomotive building assets became part of Wabtec in 2019) and Bombardier Transportation (acquired by Alstom in 2021). The procurement procedure has been planned to be launched in August, but still there is no published information about it.
UPD: Transnet has postponed the tender announcement after signing principal agreements with CRRC and Alstom. Thus, in August, it reached an agreement with CRRC on the resumption of supplies of components for previously delivered locomotives. In turn, the principal agreement signed with Alstom in October provides for the resumption of the TRAXX locomotives delivery under the 2015 contract. As stated by Transnet, a new tender will not be announced until these deliveries are fully completed.
Rolling stock deliveries were stopped in 2019 after the start of an anti-corruption investigation into the activities of Jacob Zuma (President of South Africa in 2009-2018), his business partners and the previous management of Transnet. Zuma is accused of multiple cases of fraud and money laundering, and CRRC is accused of participating in a corruption scheme under contracts for the supply of locomotives. In March last year, the operator and the state Special Investigation Unit (SIU) filed a lawsuit with the country’s Supreme Court to terminate all four contracts. According to Transnet, CNR and CSR paid bribes, and GE and Bombardier Transportation must have been aware that the tender process and subsequent contracts awarded were illegal.
Derby said the national operator originally planned to start soliciting proposals in July, but the deadline has been pushed back to ensure various legal issues with Alstom and CRRC are resolved. At the same time, an agreement with Wabtec to compensate for damages was reached back in April.
The volume of the future tender is still unknown, but earlier Derby spoke about the need to purchase 400 locomotives. The perspective tender is seen as part of a strategy to increase the volume of freight transported by rail in South Africa. Derby stressed that every effort will be made to avoid corruption, as well as mistakes related to the last competition, including the lack of rolling stock unification among different manufacturers.
TRAXX electric locomotive by Bombardier delivered to South Africa under a 2014 contract. Source: railcolornews.com
Currently, Transnet’s fleet includes more than 1,800 locomotives and 64,300 freight cars. About a third of these locomotives were delivered to the operator under contracts in 2014. Only GE has fully met its obligations, delivering 233 of the 233 diesel locomotives. In turn, CRRC sent Transnet 260 electric locomotives and 22 diesel locomotives (359 electric locomotives and 232 diesel locomotives were ordered), and Bombardier Transportation – 68 electric locomotives of the TRAXX model out of 240. In September, Alstom announced the acquisition of the local assets for the manufacturing of TRAXX body shells from TMH Africa as the company filed for business rescue.
Derby said Transnet is currently unable to operate about 300 locomotives supplied by CRRC. This is due to the fact that after the first suspension of contracts in 2019, the producer refused to supply spare parts to the operator. Transnet filed an application with the Supreme Court where it is seeking a decision ordering CRRC to manufacture the parts and components needed to return 53 Class 20E and 67 Class 21E locomotives to service.
Earlier, the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud (The Zondo Commission) revealed a massive money laundering scheme from Transnet as part of contracts for the supply of 591 locomotives by CNR and CSR. The Commission determined that Transnet unreasonably increased the cost of the overall tender for 1,064 tender locomotives from 38.6 bln ZAR ($3.5 bln USD) to 54.4 bln ZAR ($5 bln) in order to receive money in the form of kickbacks from Chinese companies. As part of the case, the Shadow World Investigations from the UK presented evidence that CRRC transferred kickbacks to offshore companies associated with the Indian Gupta family close to Jacob Zuma, totaling 6 bln ZAR ($553.8 mln). The kickbacks were formalized as consulting fees. This week, the National Prosecuting Authority of South Africa has indicted McKinsey SA on charges of fraud, theft and corruption related to state capture at Transnet.
Aerial view of a locomotive depot in northern Pretoria, South Africa. Some of the locomotives in this depot are produced by CRRC. Source: Zhai Jianlan, Xinhua
In total, CRRC planned to send 21% of the value of its contracts (about 9 bln ZAR, $830 mln) to shell companies associated with Gupta. In return, Transnet committed a number of violations, including raising the cost of the tender without government approval, preferring a higher bid from CRRC, paying it excessively high upfront fees, and failing to monitor compliance with the requirement to pay a mandatory tender fee. It is also noted that even before the announcement of the winners of the tender, the CSR application should have been canceled due to inconsistency with the required score under the current program in South Africa to expand the economic opportunities for black people.
Commenting on the investigation, CRRC said the allegations of corruption were part of “a well-planned and illegal campaign by a group of government agencies to pressure the complainant to reach an agreement with Transnet”. In July, a court dismissed a lawsuit filed by CRRC against the South African Revenue Service (SARS), where the manufacturer asked to unfreeze 4.2 bln ZAR ($252.1 mln) in its accounts with several banks located in the country. SIU believes that these funds are the proceeds of illegal activities and should be confiscated in favor of the state. As to Reuters, in the end of August, Transnet and CRRC agreed to resolve legal disputes and are going to work on a “definitive settlement agreement”.
