Name of the Project
Transnet Freight Rail (TFR) 10-64 locomotives acquisition programme.

Location
South Africa.

Project Owner/s
TFR.

Project Description
The project involves the acquisition of 1 064 locomotives – 599 electric and 465 diesel – for TFR's General Freight Business (GFB).

Contracts for the project have been awarded to consortiums led by four major international locomotive manufacturers – General Electric (GE), China North Rail (CNR), China South Rail (CSR) Zhuzhou Electric Locomotive and Bombardier Transportation (BT).

GE South Africa Technologies will supply 233 Class 44 diesel locomotives, CNR Rolling Stock South Africa (CNR RSSA) 232 Class 45 diesel locomotives, CSR Zhuzhou Electric Locomotive 359 Class 22E electric locomotives and BT South Africa (BTSA) 240 Class 23 E electric locomotives.

The contracts have stringent local-content, skills development and training commitments as dictated by the supplier development programme.

All but 70 locomotives will be built at Transnet Engineering (TE) plants in Pretoria and Durban. The suppliers have, to date, complied with and exceeded the minimum local-content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives.

Potential Job Creation
Since the award of the contract, Bombardier, in partnership with its local supply chain, has created about 500 jobs, with more than 300 people working directly for Bombardier South Africa. Of these, 140 are directly involved in production of the locomotives. This will ramp up to 167 during peak production.

Bombardier is working with 220 local suppliers, of which 23 are black-owned small, medium-sized and microenterprises, and 12 are small development enterprises.

Capital Expenditure
As at March 31, 2018, the cumulative expenditure incurred on the 10-64 locomotive contract amounted to R30.1-billion, with R7.3-billion spent in the financial year to March.

Planned Start/End Date
Not stated.

Latest Developments
Transnet has confirmed that it is initiating a legal review of the a R49-billion locomotive procurement contract, having already declared the contracts irregular and unlawful.

Speaking at the release of the group’s interim results on November 11, acting CEO Mohammed Mahomedy said the board had sanctioned the legal strategy, which had also been outlined to the four original-equipment manufacturers (OEMs) of the diesel and electric locomotives being supplied to TFR.

Under the programme, which was concluded in 2015, General Electric and China North Rail (CNR) were awarded contracts to supply 233 and 232 diesel locomotives respectively, while China South Rail (CSR) and Bombardier Transportation had been contracted to supply 259 and 240 electric locomotives respectively.

By the end  of September, General Electric had completed the delivery of its locomotives, while CSR had delivered 249 units, Bombardier Transportation 51 and CNR 21.

“Right up front, we made this very clear to the OEMs, as well as to the public, that these contracts were deemed irregular and unlawful, as they had not fulfilled certain procurement processes . . . the legality [of the contracts] is up to the counts.

“That means that Transnet will have to go to court for a review application of these contracts. The next part of it remains in the hands of the OEMs and Transnet to come up with an amicable, just and equitable settlement suggestion to the courts. We have confirmed [our stance] with the OEMs and . . . will be seeking recourse through the legal processes,” Mahomedy said.

Describing the process as being at a “very sensitive stage”, Mahomedy could not be drawn on what the settlement might mean for the outstanding locomotives, which are being built at factories in Pretoria and Durban.

He has confirmed, however, that the steep fall in group capital expenditure (capex), from R12.8-billion to R7.9-billion period-on-period, could be partly attributed to fewer locomotives delivered during the six-months to September 30 than had been anticipated in its budget.

Capex would recover in time, with the group having pledged to invest R22.6-billion at the recent South Africa Investment Conference, where cumulative investment commitments of R363-billion were confirmed.

Transnet was also not concerned about securing funding for these investments, despite a recent decision by Moody’s to change its investment-grade outlook from stable to negative.

The recategorisation arose as a result of liquidity concerns, which has arisen after Transnet’s 2018/19 results were qualified by its auditors. The qualification triggered a “default event” involving debt worth R14-billion, but acting CFO Mark Gregg-Macdonald reported that all affected lenders had agreed to issue waivers.

On October 16, Transnet reopened its domestic bond programme and has since issued bonds valued at R900-million. Gregg-Macdonald has reported, however, that the demand for Transnet bonds has exceeded R3-billion since the re-opening.

Key Contracts and Suppliers
GE South Africa Technologies (233 diesel locomotives); CNR RSSA (232 diesel locomotives); CSR Zhuzhou Electric Locomotive (359 electric locomotives); BTSA (240 electric locomotives); Booyco (air conditioning for locomotive main cab); Duys (manufacture of the fuel tanks); Wabtec (radiators) and TE (manufacturing and assembling the locomotives’ platform, traction motors, bogies and alternators).

On Budget and on Time?
Not stated.

Contact Details for Project Information
TFR media relations manager Thembekile Klass, tel +27 11 544 9678 or email TFRmedia@transnet.net.