Court halts Durban port upgrade plan

A Durban High Court judgment handed down on Wednesday has halted Transnet’s planned upgrade of Durban Container Terminal Pier 2 (DCT2).

The upgrade involved the appointment of a private-sector equity partner to handle the expansion and manage the operations of DCT2.

Transnet had awarded the contract to Philippines-based company International Container Terminal Services Inc (ICTSI).

APM Terminals, a subsidiary of the Danish shipping giant Maersk and one of the losing bidders for the contract, took the matter to court and an interim interdict was granted on Wednesday in its favour.

The interdict prevents Transnet from proceeding with any actions related to the awarded tender, effectively pausing negotiations or the conclusion of any contracts with ICTSI or other parties, until a hearing of Part B of the court challenge can take place.

Part B seeks to deal with a review of the awarding of the contract to ICTSI.

Transnet had said in March this year that ICTSI was selected due to it being the largest independent terminal operator and operating 34 terminals in 20 countries across six continents, including four in Africa.

The Durban Pier 2 is Transnet’s biggest container terminal, handling 72% of throughput from the Port of Durban as well as 46% of South Africa traffic.

Transnet’s partnership with ICTSI aimed to help reposition the terminal for best practice performance, ensuring growth in volume throughput, and will support the terminal in providing operational and commercial support to access global shipping line call routes.

It was explained in the judgment that in terms of the contract, the private sector partner would be obliged to purchase 49% of the shareholding in a new special purpose vehicle to be registered, referred to as “Newco”, with Transnet to hold the balance of the shares in Newco.

While Transnet would hold the majority shareholding, Newco would be managed by the successful private sector partner.

A bidder was required to indicate how much it would pay Transnet to acquire the minority shareholding.

Newco would operate and maintain the DCT2 terminal, and attend to the supply, financing, and commissioning of all terminal equipment and the ongoing operation, maintenance, repair, and improvement of DCT2 for the contract period of 25 years.

The court noted that given the nature of the contract, substantial amounts of capital would be needed and therefore a bidder would have to show financial capability.

It is a question around the calculation of financial capability that was raised by APM Terminals.

The court explained the grounds of review that were advanced by APM Terminals.

“Firstly, it alleges that the second respondent (ICTSI) did not meet the solvency test required by the Request for Quote (RFQ) and it thereafter alleges that no independent third party verification of ICTSI solvency, as required by both the RFQ and the RFP, occurred.”

The court said that APM Terminals contends that due to this ICTSI should have been excluded at the RFQ stage.

“APM submits that it is clear that financial capacity was vitally important and had to be established at the commencement of the bid process. None of the bidders apparently had any difficulty in understanding the requirements of, or the manner in which, the solvency ratio calculation was to be applied and executed.”

The court said according to documentation presented it was mandatory for ICTSI to submit a solvency ratio.

“Having considered the grounds of review, the applicant has good prospects of ultimate success in the review. It therefore seems to me that I should exercise my discretion and grant the interim relief sought by the applicant.”

APM Terminals maintained that its own bid for a minority shareholding, totalling $515 million ( about R9 billion) – should have secured it the right to negotiate the contract with Transnet.

According to the court, the ICTSI bid included a commitment of $618m for a minority shareholding in Newco.

Transnet and ICTSI were ordered to pay APM Terminal’s costs. All parties were asked to approach the Judge President, alternatively the senior civil judge, to make representations for a date to be determined for Part B of the application to be heard.

Transnet said it noted the court’s judgment.

“Transnet wishes to affirm its commitment to the judicial process and is currently evaluating its options.

Transnet is committed to concluding the transaction expeditiously in the interest of economic growth and development.”

APM Terminals said: “The court has granted the interim interdict pending the outcome of the review of Transnet’s decision to award the contract to ICTSI. This is a welcomed development, given how the process has been run.

We will commence our preparations for the second part of the legal review process with confidence, and we remain committed to playing a role in developing South Africa's infrastructure and contributing towards its economic growth.”

The Mercury