Filipino giant rebukes Transnet
• ICTSI CEO says state port operator has dragged its feet at highest levels
Kabelo Khumalo
Philippines-based International Container Terminal Services Incorporated (ICTSI), the preferred bidder for the Durban pier 2 terminal (DCT2), has questioned the commitment of Transnet’s executives to follow through on government policy to introduce private sector players in the management of the country’s troubled ports.
Enrique Razon, chair and CEO of ICTSI, issued a strong statement condemning losing bidder APM Terminals, a subsidiary of Danish logistics major AP Moller-Maersk, for wanting to keep its dominance of SA’s port system. He also directed his criticism towards the leadership of Transnet.
“We are more and more concerned that as these delays continue there is a diminishing commitment within Transnet towards this private partnership. Transnet has not acted expeditiously and has dragged its feet at the highest levels,” Razon said.
“We believe that there are possibly elements in the organisation that do not want the process to succeed, despite it not being a secret SA businesses are suffering more than ever from inefficiencies in the ports. Volumes are down dramatically and container port profitability is down significantly. To be blunt, it will take even more work to resurrect the value of a business that has substantially declined since the tender was launched.”
The multiyear agreement between Transnet and ICTSI has been temporarily halted after a legal challenge by APM Terminals, which has argued that ICTSI was unduly favoured by the state-owned freight and rail group. At the heart of the legal challenge is that Transnet erred in allowing ICTSI to calculate its solvency ratio using its market capitalisation to secure the 25year contract to develop and manage the Durban container port. This decision, which inflated ICTSI’s solvency from 0.24 to the required 0.4, was made despite internal and expert advice warning against it.
Durban high court judge Robin Mossop last month issued an interdict that highlights serious flaws in the procurement process, casting a shadow over the state-owned freight and rail operator’s decision-making that led to the selection of ICTSI.
ICTSI, listed on the Philippines Stock Exchange, was the only bidder to use its market capitalisation to prove it met Transnet solvency requirements to qualify for the tender, which saw it comfortably pass the solvency requirement.
The DCT2 project is the cornerstone of SA’s infrastructure, pivotal for economic stability and growth. DCT2 is Transnet’s biggest container terminal, handling 72% of the Port of Durban’s throughput and 46% of SA’s port traffic.
For President Cyril Ramaphosa, who has been championing the involvement of the private sector in reviving stateowned enterprises and the economy, the ruling comes as a setback that highlights the need for adherence to governance standards to attract and retain
private sector investment.
Razon said Maersk was acting in bad faith by challenging the awarding of the flagship private sector participation deal, and accused the Danish major of being “desperate” to block the entry of an “independent common user terminal operator”.
“In short, after failing to produce a strong bid, they are instead trying to delay and stop the process by using the courts.”
One of Transnet’s arguments was that ICTSI’s financial offer was almost R2bn more than the next best offer made by APM.
ICTSI’s offer came in at $618m, which would be paid to Transnet for a 50% share in DCT2, while APM put $515m on the table.
ICTSI’s business case indicates an intention to spend R1.5bn in capital expenditure and on infrastructure maintenance, equipment, overhaul and refurbishment and new equipment. The total spent by ICTSI over 25 years is R9.4bn.
Razon expressed frustration at the delay occasioned by the APM legal challenge, indicating the delay was eroding the business case of the project.
“It is, therefore, extremely disappointing that further delays are forthcoming. While we have great respect for the judiciary and the strength of the SA legal system, we believe that serious bias has occurred, and that Transnet’s reputation has been used to derail the process.
“These delays will curtail the operational recovery and make it more and more difficult for any private partner to succeed. This all suits Maersk who have just as much interest in the process failing as they do in having their far inferior bid being accepted. Either outcome would be a dramatic step backwards for the government’s economic agenda but a success for Maersk’s desire for end-to-end control of SA’s logistics system.”
Transnet said the delays which had come about as a result of the legal challenge were regrettable. It said it remained committed to private sector participation and therefore looked forward to the swift conclusion of the legal challenge.
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2024-11-12T08:00:00.0000000Z
2024-11-12T08:00:00.0000000Z
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