Transnet mulls lifting Chinese engine contract suspension

Transnet may be forced to lift a suspension on China’s CRRC Corp so that the firm can repair its locomotives, according to a document from state-owned Transnet, despite pending legal action against the Chinese giant.

The world’s biggest train maker CRRC – formed by the merger of China South Rail (CSR) and China North Rail (CNR) – is partly on the hook for a $3.2 billion tender jointly awarded to four firms in 2014 to supply 1,064 diesel and electric locomotives to logistics firm Transnet.

South Africa’s National Treasury found that the tender was marred by irregularities and cost overruns running into billions of rand, and sought redressal of state losses through penalty enforcement while bringing criminal charges against former executives.

“There may be a need to uplift the suspension on CSR as the bulk of the Transnet freight rail fleet comprises CSR locomotives which require maintenance,” said Transnet in a September 2 presentation to lawmakers, and seen by Reuters.

Maintenance of hundreds of Chinese locomotives is crucial for Transnet as it cranks up general freight and commodity exports from recession-hit South Africa.

“There is a need to balance the commercial requirements of Transnet with the public law considerations,” Transnet said in the document.

A Transnet spokeswoman on Wednesday did not respond to specific questions, but said the 1,064 locomotives were “receiving priority attention.”

Transnet did not specify the duration of the Chinese contract suspension nor the total value of losses it was trying to recoup for work not done, although the Treasury estimated previously that penalties just on late train deliveries from all manufacturers stood at around R195 million ($11.71 million).

CNR had won part of the tender with a division of the US industrial giant General Electric Co. while CSR and Montreal-based Bombardier Inc were the other winners of the contracts which stipulated local manufacturing capacity.

CRRC did not respond to requests for comment, although it has said delays were caused by Transnet’s local engineering division.

GE has previously paid Transnet R80 million in penalties. It’s transportation division is now part of Wabtech, which did not respond to questions in time.

Bombardier said an internal review cleared the company of any illegality with respect to the tender, and it has provided information to a commission of inquiry tackling state corruption as well government’s Special Investigating Unit.

“Bombardier remains available to resolve any pending matter directly with its client,” a spokesman said, adding a dispute resolution process will not affect the contract in any way.