High court sets aside R8bn contract for 233 diesel locomotives

The Special Investigating Unit (SIU) and Transnet have welcomed the Pretoria high court judgment setting aside the 2014 contract between Transnet and Wabtec South Africa Technologies for the procurement of 233 diesel locomotives worth R8bn.

“This ruling, issued on April 14, marks the first of four locomotive contracts to be annulled by the courts, representing a pivotal advancement in our ongoing efforts to combat state capture and restore integrity in South Africa's state-owned enterprises,” the SIU and Transnet said in a statement on Wednesday.

The court declared that the 2014 locomotive supply agreement (LSA) and its associated subcontracts were invalid.

“In pursuit of a fair and equitable resolution, the court endorsed a settlement agreement facilitated by the SIU aimed at recovering lost funds between Transnet and Wabtec,” it said.

Transnet and the SIU will still pursue a fair resolution of the three remaining contracts

In 2012 Transnet embarked on a procurement initiative for 1,064 locomotives to enhance its general freight business. The contracts were awarded to four original equipment manufacturers (OEMs):

• Bombardier Transportation South Africa for 232 electric locomotives;
• CNR Rolling Stock South Africa (now CRRC SA Rolling Stock) for 240 diesel locomotives;
• CSR E-Loco Supply (now CRRC E-Loco Supply) for 359 electric locomotives; and
• GE South Africa Technologies (now Wabtec) for 233 diesel locomotives.

When Transnet and the SIU launched their court application to set aside the contracts in 2021, they argued that the procurement was based on a flawed market demand strategy and that the laws, government instructions and Transnet policy were deliberately ignored to make the tender awards, conclude the contracts and effect payment to some of the OEMs.

They said the transactions concluded by the previous Transnet management and board failed to meet the minimum standards prescribed.

In December 2018, Transnet invited the four OEMs to agree to enter into negotiations for a just and equitable remedy. Transnet was unable to reach a negotiated agreement with BT, CNR and CSR. It said the remedy agreed with Wabtec required supplementation to address Transnet's obligations and the public interest.

Accordingly, Transnet and the SIU asked the court to set aside the locomotive supply agreements and to impose a just and equitable remedy.

The key argument in the application was that the OEMs were not entitled to benefit from locomotive supply agreements that were awarded to them in an irregular and illegal manner.

“As part of the settlement agreement, Transnet will retain the 233 diesel locomotives delivered by Wabtec. Financially, Wabtec will retain all payments received under the contract, while Transnet will receive R70.35m.

“Furthermore, Wabtec will provide Transnet with a credit of R70.35m to fulfil outstanding supplier development obligations.”

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