BEE snarl-up delays Transnet’s locomotives project

BEE snarl-up delays Transnet’s locomotives project : A PROGRAMME by Transnet Freight Rail (TFR) to buy 1,064 new locomotives as part of an ambitious seven-year strategy to ramp up capacity is running four months late as Transnet, the Department of Public Enterprises and the Treasury fight over evaluation criteria for the multibillion-rand bids.

Transnet and its shareholder, the Department of Public Enterprises, are pushing the Treasury for a relaxation of the 90:10 evaluation formula — as stipulated in the Preferential Procurement Policy Framework Act (PPPFA) — to 70:30, in order to reach more industrial and social development goals.

The Treasury is concerned Transnet will pay a higher premium than is allowed under state programmes to leverage procurement into industrial outcomes.

Under the PPPFA, in evaluating bids on tenders worth more than R1m, price enjoys a 90% weighting while broad-based black economic empowerment code outcomes — which include enterprise development, job creation and skills transfer — are given a 10% weighting.

Transnet group chief operating officer Anoj Singh said the R35bn tender process had “slipped” and was behind schedule. The board of directors would have to make a decision “quite soon” on whether to continue to pursue a relaxation of regulations or abandon it, as further delays could affect the delivery of locomotives for Transnet’s market demand strategy.

Mr Singh said Transnet was in a strong position to argue for an exemption from the rules as it was not receiving money from the Treasury for its capital expenditure (capex) programme. In addition, no extra demands would be placed on the stretched fiscus if the exemption is managed within Transnet’s vast R300bn capex programme.

The closure of the tender for the contracts to supply 599 dual-voltage electric locomotives and 465 diesel ones has been delayed for a third time, until next month, because of the disagreement between the Treasury and public enterprises.

The Treasury is tightlipped about the tense discussions. Treasury spokeswoman Phumza Macanda said on Monday: “We will not be commenting on this matter.”

The Department of Trade and Industry has set minimum local content thresholds for the locomotives. These have been set at 65% for electric and 55% for diesel ones.

Commitment to local content was a large part of the New Growth Path, which the departments of economic development and trade and industry championed. Further, government policy as encapsulated in the National Development Plan aims to make good on promises to deliver economic growth and job opportunities through infrastructure development.

Transnet has previously enjoyed exemptions from the limits of the PPPFA and it was then that it expanded the use of its competitive supplier development programme (CSDP). It has plans to expand the supplier requirements this year to include procurement from women-owned businesses and programmes that benefit black youth.

Through the disconnect between the PPPFA and the Department of Public Enterprises’ CSDP, the government may constrain its ability to achieve its own industrial and employment objectives through fiscal conservatism.

Mr Singh said the Treasury had calculated that the 90:10 formula implied a 10% premium on the cost of the acquisition of goods. B y inference, should a 30% weighting be given to social and developmental objectives this could extract an almost equal premium.

The Treasury is concerned about setting a precedent for other state bodies to seek exemptions.

The Passenger Rail Agency of South Africa, which operates Metrorail and is embarking on a R123bn fleet renewal, fought the Treasury for an exemption seeking a 65:35 split. It was granted a 85:15 exemption.

Mr Singh said allowing greater scope for the adjudication of local content and economic development would allow for more “dynamic tension” between rival bidders and deliver greater quality.

Under the schedule for the introduction of additional locomotives announced last year, TFR plans to take delivery of at least 100 diesel locomotives starting in 2014.

Public enterprises spokesman Mayihlome Tshwete said the departments were working together to make sure South Africa “reaps the maximum benefits from our infrastructure development programme”.

Transnet locomotives

Source: BD live

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