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No local content obligations were required in Transnet contracts


The controversial R54.5bn locomotive acquisition is a massive lost opportunity for black economic empowerment, says the DTI’s Tebogo Makube

Three of the four contracts Transnet signed for the R54.5bn acquisition of 1,064 locomotives had no local content obligations whatsoever, constituting a massive lost opportunity for local industrialisation and black economic empowerment.

The R54.5bn price tag for the locomotives was much higher than the original estimates of R38.6bn, with allegations of Gupta-linked corruption. Picture: ANDRE KRITZINGER.

At the time the contracts were signed in March 2014, with South China Rail, North China Rail, General Electric and Bombardier Transportation, they represented the second-largest rail acquisition programme in the world.

Department of trade and industry chief director of industrial procurement Tebogo Makube briefed parliament’s trade and industry committee on localisation in the rail sector on Tuesday.

He said only the contract with China North Rail contained an obligation for local content, even though the request for proposals required local content commitments and declarations were made in this regard by the bidders.

The omission of local content requirements in the contracts were in contravention of the department’s policy on localisation in terms of which a fixed percentage of the purchase of designated products has to be made from local manufacturers.

The designations take place under the preferential procurement regulations of the Preferential Procurement Policy Framework Act, and are mandatory for all organs of state.

Locomotives were designated in terms of this policy with 55% of the contracts for diesel locomotives earmarked for local content and 60% for electric locomotives.

Makube said the fact that the contracts did not require local content meant that the original equipment manufacturers were not wrong when they imported parts.

“That creates a problem for us because we can’t say they are in the wrong because they are importing certain parts which are supposed to be manufactured in the country.”

The R54.5bn price tag for the locomotive acquisition was an escalation of the original estimated cost of R38.6bn, with allegations of Gupta-linked corruption having been made to explain the way the contracts were awarded.

Daily Maverick had reported that kickback agreements totaling R5.3bn were signed with China South Rail — roughly R10m on each locomotive delivered.

These allegations are being investigated by the new Transnet board under chair Popo Molefe.

Those responsible for the contracts were then Transnet CEO Brian Molefe, former CFO Anoj Singh, former chief procurement officer Thamsanqa Jiyane and then chair of the Transnet board acquisition and disposal committee Iqbal Sharma.



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