Consolidate purchase of all locomotives - Radebe

Col André Kritzinger via Wikimedia Commons

Currently, state-owned companies enter into their own deals when buying locomotives. However, this model has been beset by numerous problems ranging from inadequate hedging and issues with local content verification. Freight and logistics group Transnet and the Passenger Rail Agency of SA (Prasa) are the main state-owned purchasers of locomotives, with deals of more than R50bn each for new rolling stock.

Speaking at a media briefing in Cape Town on Monday, Minister in the Presidency Jeff Radebe said consolidating the procurement would ensure "efficiency and compliance with localisation requirements".

In 2014, Transnet signed a historic R50bn deal to buy 1,064 locomotives from four international manufacturers to increase capacity in its general freight business. The suppliers of the locomotives are Canadian company Bombardier, General Electric from the US, as well as China North Rail and China South Rail Zhuzhou - which have since merged into China Railway Rolling Stock Corporation.

Verification of local content

Transnet is targeting 69% local content for the locomotives.

However, in April, the South African Bureau of Standards (SABS) said it had not received satisfactory information from the manufacturers as it prepared for local content verification. China South Rail Zhuzhou and China North Rail, which won 56% of the tender, are understood to be the main offenders.

This is the first time local content verification would be done on rolling stock, SABS said.

Prasa, in a deal with local empowerment company Swifambo Rail Leasing, purchased 70 Spanish locomotives to save the long distance Shosholoza Meyl passenger service. The cost of Prasa's contract with Swifambo was initially R3.5bn, but it ballooned to R5bn due to a lack of hedging. The transaction has been mired in controversy as the locomotives were too tall for SA's rail lines.

Consolidating procurement holds benefits

University of Johannesburg department of transport and supply chain management head Jackie Walters said consolidating state procurement of locomotives would allow the government to benefit from supplier discounts.

"Locomotives can be used for both freight and passenger services. Consolidating procurement makes sense because the locomotives could then be interchangeable for both uses," said Walters.

Transport economist Andrew Marsay said it was possible government thought Prasa did not have sufficient processes to manage the locomotives procurement after its botched deal with Swifambo. "In terms of managing big contracts, Transnet does know how to do it," said Marsay.

Source: Business Day