Legal challenge to key port contract could delay reforms for up to 10 months, Transnet warns

Rail, ports and pipeline operator Transnet has warned that introducing a private player to operate and manage Durban Container Terminal Pier 2 (DCT2) for 25 years — a key economic reform — could be delayed by six to 10 months due to legal action. 

APM Terminals (APMT), a subsidiary of Danish shipping giant Maersk, has gone to the Durban high court to challenge a decision to award Philippines-based International Container Terminals Incorporated (ICTSI) an R11bn contract to operate pier 2, which handles 72% of all Durban throughput and 46% of all South African traffic. 

In part A of the application, APMT wants the court to interdict the decision to award the contract to ICTSI. Part B seeks to review and set aside the decision as unlawful and invalid in terms of the Promotion of Administrative Justice Act.

However, senior counsel Max du Plessis, on behalf of Transnet, told the court that if the interdict is awarded, it will apply a “handbrake” to the government's structural reforms that include concessioning some of the country's key port terminals to unblock logistical constraints that are slowing down economic growth. 

“It is a proper handbrake ... that comes on the back of years of problems in the ports,” said Du Plessis.

He told judge Robin Mossop that the tender enabling a public-private partnership for the upgrades at DCT2 was not run-of-the-mill. “It is one which relates to the heart of Transnet's ability to implement government policy as a crisis measure.”

He said Transnet and the government would suffer harm if the interdict is granted, given President Cyril Ramaphosa had highlighted structural reforms as critical for the improvement of the economy. “That is the heart of the matter,” he said.

APMT has cited procedural unfairness, arguing that Transnet ignored two opinions that it erred in allowing ICTSI to calculate its solvency ratio using its market capitalisation.

This was not an auction. Auctions are used — [for example] Icasa [the Independent Communications Authority of South Africa] uses auctions when it sells spectrum — the best bidder wins because all you care about is to raise revenue

—  Ngwako Maenetje, lawyer for APMT

Transnet sought the opinions after APMT challenged the parastatal to show cause why it allowed ICTSI to pass the first hurdle of the tender requirement, the request for qualifications which demanded a solvency ratio of 0.4, when ICTSI’s solvency came in at 0.24 according to its annual financial statements for the 2021 financial year.

Ngwako Maenetje SC, appearing for APMT, said Transnet as an organ of state, was required to state explicitly its terms of a tender for objectivity, fairness, transparency and equality. The provisions in the tender must speak for themselves, be exhaustive and conclusive, and the parties must know what it is that Transnet wants, he said.

“They could have said, just give us any information that will satisfy Transnet,” he said.

Maenetje said ICTSI should have been disqualified because they won based on a criterion not published under Transnet's tender requirements.

In its court papers, Transnet argued that ICTSI's offer was R2bn better than the next best bidder. However, Maenetje said the tender was not an auction where the best bidder wins.

“This was not an auction. Auctions are used — [for example] Icasa [the Independent Communications Authority of South Africa] uses auctions when it sells spectrum — the best bidder wins because all you care about is to raise revenue,” he said.

“For 25 years you want somebody who has demonstrated financial strength in terms of the request for proposals. You assess using the rules you made.”