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Bombardier denies overcharging Transnet in major locomotive deal

Oct 04 2019 15:41
Jan Cronje

Canadian rail equipment manufacturer Bombardier Transportation, accused by witnesses at the ongoing state capture inquiry of inflating costs in a major tender to build a fleet of new locomotives for Transnet, has denied it was overpaid or inflated costs. 

"During this year, there have been several submissions to the Zondo Commission related to our company which are misleading and incorrect. Unfortunate associations of Bombardier with any potential wrongdoings by other companies are simply wrong," it said in response to questions from Fin24. 

While Bombardier has not presented evidence before the commission, it said it has shared its submissions with both Transnet and the inquiry. It expects to still testify to "lay to rest several speculative issues in the public domain," including questions about the bidding process for the locomotive contract, the relocation of a locomotive manufacturing hub from Pretoria to Durban, and the rate at which it has built the new engines.   

"Although [a] detailed review of the allegations is still ongoing, it has so far revealed no evidence of any illegal or criminal conduct, nor any questionable payment made or offered, neither received inflated payments from any entity or a public official," it said.  

Headquartered in Montreal, BT is one of two international locomotive manufacturers accused by witnesses at the commission of inflating costs for the relocation of a locomotive production facility from Koedoespoort, outside Pretoria, to Durban. The other company, China North Rail, did not respond to repeated requests for comment.

Bombardier and CNR, in turn, are part of four international manufacturers that won tenders to upgrade Transnet's ageing fleet of engines by building 1 259 new locomotives, a process that commenced in late 2012 before ramping up around 2015. The other two manufacturers are China South Rail and General Electric. New locomotives are still being built. 

Costs for the 1 259 locomotive deal have, however, ballooned from R38.6bn to an estimated R54.5bn. Transnet's acting CEO, Mohammed Mahomedy, told the commission in May that the increases were "unjustifiable," and should have been red flags to the state-owned company's previous leadership. 

The inquiry, which has been investigating allegations of state capture, corruption and fraud at state entities since August 2018, turned its attention to Transnet in May.

It heard testimony from a number of senior officials, including Mahomedy and board chair Popo Molefe, as well as MNS Attorneys, who were hired in 2018 to conduct an internal probe in allegations of fraud, price inflation and other irregularities. This included looking at the relocation costs of the production facility, as well as millions in advisory fees to Gupta-linked company Regiments Capital, and other matters.   

While neither Bombardier nor CNR have yet testified before the commission, lawyers acting on their behalf have attended hearings.

'No relocation' 

Over two days in late May Thobani Mnyandu of MNS Attorneys walked the commission through the findings of its probe into the relocation costs, which he said was based on internal Transnet emails and documents, as well as interviews with staff.

He told the inquiry the relocation costs for moving the locomotive production facility from Koedoespoort - as stipulated in the original contract - to Durban were largely a sham. Bombardier quoted an extra R618m for relocating, and China North Rail R647m. These figures were accepted by Transnet's then-CEO Siyabonga Gama. Gama was fired in late 2018.

Quoting from a report by Liliwe Rail Solutions, a consultant which the attorneys contracted as an independent expert, Mnyandu told the commission that "no relocation" had taken place, as neither Bombardier nor CNR had yet set up shop in Koedoespoort when the decision to move to Durban was made. The multi-million rand relocation costs charged to Transnet were unjustifiable, he said, adding that according to some initial email correspondence, the move to Durban was expected to actually produce savings on certain items.   

'Fully justified' 

But Bombardier, in its response to Fin24, denied there was "no relocation", that costs were inflated and it was overpaid. The variation to the original tender to move the facility was justified, it said.  

"Two months after the contract signing on March 17, 2014, Transnet officially notified Bombardier on 21 May 2014 of its decision that the assembly line of the locomotives was to be moved from Koedoespoort, Pretoria to Durban," it said. "Prior to the tender being awarded, all bids submitted by us, were based on manufacturing the locomotives in Koedoespoort. The fully justified costs incurred by Bombardier pursuant to this instruction have always been shared with Transnet in a detailed and very transparent way."

"It is very important to note that it was not a question of equipment being moved from Koedoespoort to Durban, but a transfer of the works required to be performed by way of a variation to the contract.  It was this variation to the contract works which has resulted in additional delays and expenses."

'Significant upgrades' 

Bombardier said the Durban facility required "significant upgrades" as it was a heavy maintenance and testing site that was unequipped to produce and assemble new locomotives at the time that the contract was awarded. The move from Koedoespoort to Durban also had a knock-on effect on the group's delivery schedule which raised costs. 

In its testimony, MNS argued the move to Durban may have deceased certain costs as the new facility was closer to the city's major port. But Bombardier told Fin24 the move had the opposite effect, as the Durban production hub was further away from the suppliers in the value chain who were "all based in Gauteng close to Koedoespoort."

"The Koedoespoort facility is approximately 60km away from Bombardier’s factory in Isando, while the Durban facility is more than 600km from our factory".

Bombardier said it would provide further information when it testified before the commission. 

"... [I]n view of the ongoing negotiations between ourselves and Transnet and the pending Zondo Commission appearance, we are not currently in a position share more than what we have covered in this response."

Transnet, meanwhile, eventually halted the payments for the relocation, the commission heard, after Bombardier had been paid R248m and China South Rail had been paid R368m. 

Asked about any business dealings with the Gupta family, the Canadian company said that "as has been reported widely in the media", it concluded the sale of one Global 6000 business aircraft to Westdawn Investments, a Gupta family-owned company, in 2014. This plane was grounded in 2018 after the Gupta's defaulted on their $41m lease and is currently for sale

Bombardier said it had no records of "any business dealing or relationship" with Gupta associate Salim Essa. 

transnet  |  bombardier  |  popo molefe
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