Business Report - Transnet corruption damages rail deal.

[Gabor Kovacs]

From Business Report website;

Transnet corruption damages rail deal

By Slindile Khanyile and Wiseman Khuzwayo

Transnet cancelled a tender to buy 212 locomotives for R6.5 billion because it believed there was a corrupt relationship between one of its officials and one of the directors of Electro-Motive Sibanye, the preferred bidder, according to papers filed in the Johannesburg High Court.

Electro-Motive Sibanye is a joint venture between Sibanye Trade & Services (STS) and Electro-Motive Diesel and Locomotive Company (EMD), which is based in the US.

Transnet said it made a mistake when rating the black economic empowerment (BEE) status of the joint venture. Bowman Gilfillan, the lawyers for Transnet, told the lawyers for the joint venture by letter in January 2009 that an investigation had revealed that an evaluation of the joint venture's broad-based BEE status had focused exclusively on STS and not on the joint venture. The result was that the bidder achieved a 100 percent score in respect of the broad-based BEE criteria.

"In this regard it needs to be borne in mind that STS only has a 30 percent interest in your client and if the score was adjusted accordingly, then your client would have scored less than it did in respect of the broad-based BEE criteria," the letter said.

In an affidavit before the court, Chris Wells, Transnet's chief financial officer and acting chief executive, said that after the joint venture's nomination for the tender, it came to Transnet's attention that there was a personal and business relationship between Transnet Freight Rail's general manager for capital programmes, Percival Mosweu, and Gustav Adams, a director of STS. Mosweu chaired the tender adjudication steering committee.

Wells said: "Mosweu, Adams and their respective wives were shareholders and/or directors in a number of interrelated commercial entities.

"Transnet received legal advice to the effect that the relationship was of such a nature as to give rise to a reasonable perception of bias, which tainted the tender process."

Wells added that it had transpired that the joint venture, or at least STS, somehow came to be in possession of the first tender invitation documents two weeks before they were issued.

Electro-Motive Sibanye has applied for an interdict to stop Transnet from issuing another tender to buy 100 locomotives because it believes this tender is replacing the one that the state-owned enterprise awarded to it 19 months ago.

Transnet said the tender for 100 locomotives was separate and distinct from the one to buy 212 locomotives.

Adams said he had signed the contract on behalf of the joint venture although the parastatal had not. The contract had an option to extend the procurement to 400 locomotives.

Announcing the selection in August 2007, before the joint venture's finalisation, Transnet said: "The preferred bidder, EMD, was selected following a rigorous process that drew interest from some of the leading international locomotive manufacturers.

"Transnet and EMD are in advanced talks to finalise the contract. Once these are concluded Transnet will make a more detailed announcement including the value of the contract and other participants."

Business Report asked Transnet on Friday how the irregularities happened when it had followed a "rigorous process", whether the responsible person had been disciplined and what was done to ensure this was not repeated. These queries were not answered.

Judgment is expected later this week.