Transnet awards largest-ever locomotive supply contract in South Africa’s history

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South Africa’s state-owned freight transport and logistics company, Transnet, today announced that it had awarded a R50 billion contract for the building of 1064 locomotives to four global original equipment manufacturers (OEMs).

Transnet said on Monday it had awarded CSR Zhuzhou Electric Locomotive and Bombardier Transportation South Africa contracts for the supply of 599 electric locomotives, while General Electric South Africa Technologies and CNR Rolling Stock South Africa (Pty) Ltd will build and supply 465 diesel locomotives. The multi-billion rand acquisition is South Africa’s single biggest infrastructure investment initiative by a corporate.

Announcing the bidders in Johannesburg, Transnet Group Chief Executive, Mr Brian Molefe said: “This marks a significant milestone in the company’s history together with substantial socio-economic benefits for South Africa. The drive to modernise our fleet is intended to improve reliability and availability of locomotives. This will improve customer satisfaction, ultimately leading to our crucial goal of road-to-rail migration of cargo in line with government’s objectives.”

The award has stringent local content, skills development and training commitments as dictated by the Supplier Development Programme, a government initiative led by the Ministry of Public Enterprises whose main goal is to localise the production of imported machinery and equipment.

In line with South Africa’s commitment to boost its manufacturing capacity, all the locomotives except 70 will be built at Transnet Engineering’s plants in Koedoespoort, Pretoria and Durban, driving South Africa’s regional integration objectives. Transnet Engineering is the company’s engineering, manufacturing and rolling stock maintenance division.

Transnet Engineering’s role in the agreement has been defined to ensure that it transforms into an OEM over time. Transnet Engineering will share approximately 16% of the total build programme – about a third of which will be outsourced to local emerging engineering and manufacturing firms. This will enable it to create export capability for locomotives and related products. In total, the localisation elements are expected to contribute over R90 billion to the economy.

“This transaction is intended to transform the South African rail industry by growing existing small businesses and creating new ones. We are going to create and preserve approximately 30 000 jobs,” Mr Molefe said.

The suppliers have complied with and exceeded the minimum local content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives.

Once all these locomotives are delivered, Transnet would have met all its rolling stock requirements needed to successfully execute the Market Demand Strategy – our record-breaking R307 billion infrastructure investment programme.

The award follows an open and public tender process overseen by the Board of Directors through a sub-committee of independent directors. In addition, the evaluation of the bids was monitored by Transnet Internal Audit to ensure that the process complied with the highest standards of governance as required by the Public Finance Management Act.

The evaluation had six stages, including Broad Based Black Economic Empowerment and Supplier Development; technical ability - including details of technical offers from the potential suppliers; and commercial. The latter included pricing, total cost of ownership and contractual terms and compliance to the supply agreement.

In terms of the agreements signed with the successful bidders, the last locomotive will roll off the production line within three and a half years. In other words, at the programme’s peak, we will be producing 480 locomotives per year at 48 per month.

Commenting on the rationale for splitting the work, Mr Molefe said: “Ability to stick to an extremely tight delivery schedule was one of the key considerations in assessment of the bids. It is our view that no single supplier would have the capacity or resources to deliver within the timelines we had envisaged.”

The majority of the locomotives will be deployed in Transnet Freight Rail’s general freight business (GFB), which is all cargo - excluding the dedicated heavy haul lines for iron ore and coal. Freight Rail, which accounts for roughly 50% of Transnet’s revenue and capital expenditure requirements, will grow its volumes to 350 million tonnes from the current 207 million tonnes. Just over 60% of the growth will be from the GFB.