The Passenger Rail Agency of South Africa (Prasa) faces the threat of total collapse after shedding millions of customers and haemorrhaging revenue over the past four years.
Now its handling of a R7.5-billion overhaul and maintenance tender to get its trains back on track has the potential to deepen the existing crisis.
The general overhaul tender to refurbish and repair Prasa’s old and wrecked trains is a critical element of the entity’s R173-billion modernisation programme to transform commuter rail infrastructure, through new electric trains, signalling technology, depot and station upgrades.
The modernisation programme, launched in 2014, was supposed to revive South Africa’s passenger rail after decades of underinvestment but the reality has been the complete opposite.
The sorry state that Prasa finds itself in is the result of poor governance, bad leadership and rampant theft and vandalism spanning over a decade. This all came to a head in the latter part of 2019 when the organisation cancelled all its irregular security contracts without a workable alternative to protect its sprawling railway network when the country went into lockdown because of the coronavirus pandemic.
The statistics are shocking: out of 590 stations only 134 stations were functioning “as the other 323 stations had been vandalised” Prasa’s 2021/22 annual report reads. Of 40 lines only 18 are operational, and only offer limited services, while more than 1 100km of signalling cable and 40km of rail tracks has been either stolen or damaged.
The report did not mention the state of the remaining 133 stations.
Passenger numbers have dropped to just 3% of the figure for a decade ago. In 2011, Prasa was conducting 522 million passenger trips a year, according to the organisation’s annual report. In the past financial year, it managed just 17 million.
AmaBhungane previously reported that, like the security contracts, Prasa cancelled its component and general overhaul maintenance contracts in 2019 after the auditor general found that these contracts were irregularly awarded 2009 and extended since. Again, the entity did this without a contingency plan.
A general overhaul is conducted every nine to 12 years to ensure that coaches are restored to a condition that is as close to brand-new as possible, so they are less likely to breakdown.
The first tender to fill this vital gap was issued in 2019 but cancelled without award. It was readvertised in 2020 and finally awarded in June 2022, three years after the programme ground to a halt.
The R7.5-billion tender would go to “five contractors nationally”, Prasa announced. After journalists pushed for names, Prasa disclosed that CTE Technologies, YNF Engineering, TMH Africa, Armature Technology and Karabo-Nhlamolo Projects Cooperative (KNPC) would collectively be tasked with repairing and refurbishing up to 400 metro and long-distance coaches each year.
However, amaBhungane’s analysis of tender documents, email communication and multiple interviews with sources close to the process suggests that companies with the technical experience and capacity to do the work were arbitrarily excluded in favour of companies that did not have the requisite capacity, facilities or equipment when they received the award.
Prasa did not offer any substantial response to our questions, but it has publicly defended the tender process. In June, then acting group CEO David Mphelo described it as “rigorous” during an appearance before the National Council of Provinces which stated that four of the five companies appointed to execute the R7.5-billion contract would “require developing” – a statement met with scepticism by members of parliament.
Apart from CTE, none of the other companies were part of Prasa’s previous contract and apart from TMH Africa, the other companies appear to have little experience in refurbishing and building trains.
“Are we awarding tenders and then allowing people on to site who then have to be taught how to do the work?” the Democratic Alliance’s Tim Brauteseth asked. “For me it is absolutely nonsensical.”
In his response, Mphelo said the contractors were new to Prasa but not the rail industry. He said some may have worked for Transnet, Gautrain and the mining industry but Prasa was “currently reassessing if the five contractors it had appointed would be able to carry out the work.”
“Deep in shit”
To understand why the general overhaul contract is so critical, you have to look at the state of passenger rail.
“When you look at where we are, it does not make for good reading,” Prasa’s acting CEO Hishaam Emran admitted in a presentation to parliament in September.
Only 800 coaches in Prasa’s fleet of over 4 000 coaches are operational and in service. Of the remaining coaches, about 80% are not in use because they either need to undergo light or heavy maintenance and upgrades, or have to be disposed of.
“The [general overhaul] programme and the technical and maintenance support panel that we now have in place is really earmarked to address these challenges that we see with the existing fleet,” Emran said.
Prasa’s existing grey and yellow trains are expected to be operational until 2033 as the rail agency systematically phases in the new blue and grey trains being built by rail transport consortium Gibela.
But at the moment, Gibela’s trains are “vastly underutilised” and sitting in depots because Prasa has failed to build the necessary infrastructure for the new trains, according to the auditor general.
Rebuilding the infrastructure that was damaged will take at least another five years, according to Prasa’s corporate plan. Moreover, without a clear indication of the status of its depot modernisation project – that is at least eight years behind schedule – it’s unclear when the new depots will be ready to ensure the maintenance of the new trains.
Until then, Prasa is stuck with its old trains that are becoming increasingly unreliable. In the past financial year, over 40% of train delays and cancellations were due to “rolling stock failures”.
The only way to revive passenger rail transportation for now is through repairs and maintenance.
“We all thought at this stage, since Prasa is so deep in shit, they had to come up with a better plan,” said one of the losing bidders who spoke to amaBhungane on condition of anonymity. “They couldn’t keep on with the shit that they’re doing because the country really needs this.”
Instead, Prasa appears to have dug itself into a deeper hole.
“Something more nefarious”
The first to raise the alarm about the way the tender was handled was Naledi Rail Engineering.
In July, director Pulane Kingston, the daughter of ANC Stalwart Mendi Msimang and former health Minister Manto Tshabalala-Msimang, filed a court application to interdict, review and set aside the awards made by Prasa.
In papers, Kingston accused Prasa of unlawfully excluding her company’s bid and dangling the tender in front of her to persuade her to drop ongoing dispute with the rail agency.
This was communicated to Naledi in a debriefing meeting with Prasa’s Mphelo and two other executives on 29 April 2022.
All 24 bidders who had put in submissions for the tender were invited to a debriefing session held at Prasa’s offices where they were informed about the outcome of their bids. Naledi’s representatives were told that Prasa could not make a decision until Naledi agreed to drop its case.
In her papers, Kingston also accused Prasa of appointing contractors that are “not financially stable, are fraudulent and corrupt, do not have the technical capability, and do not have the requisite experience in the industry”.
Kingston, whose company Mirai Rail bought Naledi out of business rescue in November 2021, took specific aim at the two companies that had been appointed in Gauteng where Naledi had hoped to get work.
One of them, TMH Africa, a subsidiary of Russian rolling stock manufacturer Transmashholdings, was revealed to be financially unstable after entering into business rescue a few days after it received its award, said Kingston.
TMH Africa entered the South African market in 2018 as part of a R500 million investment strategy to expand its operations on the African continent. However, TMH Africa’s financials show that it was heavily reliant on cash injections and business from its parent company, and after sanctions were imposed following Russia’s invasion of the Ukraine, its cashflow dried up.
TMH’s lawyers argue that the company’s financial stability was a non-issue because it was not in financial distress at the time that Prasa awarded contract in April.
“The intended income to be generated from the contract concluded with Prasa will assist in rescuing TMH. Without it, TMH will be wound-up,” they confirmed
The second company, YNF, had previously been implicated in fraud and corruption, Kingston said.
A 2018 investigative report from Prasa’s protection services found that YNF had invoiced Prasa for R1.7-million to rewind seven traction motors. YNF had supposedly only “polished” the motors and failed to return the parts.
Naledi argued that YNF should have similarly been disqualified for this past dispute with Prasa. In its response, Prasa distanced itself from the report because it was “not signed” while YNF claimed it was not aware of the findings.
The high court ultimately dismissed Naledi’s application for an interim interdict saying the company did not sufficiently show that the harm it would suffer would be irreparable if the award to companies like TMH and YNF was not stopped.
But Prasa’s baffling decision not to inform Naledi about the outcome of its bid led Judge Norman Manoim to conclude that it had “established at least prima facie… that Prasa’s decision to refuse its bid was inconsistent with its approach to approve the bids of the other two successful tenderers”.
“Prasa took into account irrelevant issues and failed to consider ones that were relevant. As a result, the decision taken was irrational,” Manoim said in a judgment in September.
The tender will now be the subject of a review hearing that Naledi believes will result in the awards being set aside because Prasa’s decision was, as stated in the judgment, “so profoundly irrational, that one cannot help suspect that something more nefarious is afoot”.
“Too much controversy”
AmaBhungane spoke to ten losing bidders on condition of anonymity who said despite receiving an unusual request to come to Prasa’s offices where they were informed about the outcome of their bids, Mphelo and the other officials did not provide any tangible detail about why they were disqualified.
One bidder said Mphelo explained that there had been “too much controversy on this thing,” and they had decided to personally inform each bidder of the outcome because they wanted to “kill” all the speculation and bad press around the tender.
A second bidder said their company had spent millions setting up their facilities to meet the tender requirements and, despite being unsuccessful, was told by Prasa that “you’ll definitely be part [of the contract], because they don’t have enough guys, they are going to add some extra, and they don’t want to lose our skills, so they would like to ask us to please just wait for them,” said the bidder.
Naledi was not the only company that tried to get to the bottom of why it was disqualified.
In the background, Transnet Engineering (TE) had tried in vain to get information about why its bid was disqualified. It was only after submitting an application in terms of the Promotion of Access to Information Act for the record of Prasa’s decision, that Transnet Engineering learnt it was disqualified for submitting unsigned financial statements.
Three years’ signed financials were one of the mandatory documents that bidders had to submit, although Prasa’s tender advert seemingly allowed companies to submit basic compliance documents within seven days of an award being made, “failing … which the award will be recalled”.
In a letter sent in August this year, Transnet’s chairperson Popo Molefe asked Minister of Public Enterprises Pravin Gordhan to mediate between the two entities.
If unsigned financials was the only reason for disqualifying Transnet, which has been Prasa’s “primary service provider” for rolling stock engineering services for years, then the decision should be reviewed, Molefe argued.
“TE has received sub-contracting requests from companies that were successfully awarded provision on the Prasa [general overhaul tender],” said Molefe. “This just goes to show TE’s capacity and capability which should be the subject matter of fair consideration.”
“Prasa’s behaviour is indicative of unfair prejudice imposed on TE … which prejudice is largely to the detriment of Prasa and South Africa as a country,” he added.
The department confirmed it had received the Molefe’s letter but said it had informed him it could not intervene between the two state-owned entities. Transnet did not respond to specific questions only saying that it was “reviewing the decision by Prasa and considering its options.”
Prasa did not respond to amaBhungane’s question asking why it did not give Transnet the opportunity to submit signed financials. In fact, the Prasa did not answer any questions related to the general overhaul contract, only partly responding to issues involving its current operations.
In his judgment, Manoim had described Prasa’s approach to vetting the bidders as “inconsistent”.
While Transnet was disqualified for not submitting signed financials, TMH Africa and YNF only submitted one year’s signed financial records instead of the three which Prasa needed to determine a company’s financial stability. Neither TMH nor YNF were disqualified on this ground.
Enter the board
In October, another unsuccessful bidder – Field Service Engineering (FSE) and Mbita Consulting Services – launched a separate legal challenge to review Prasa’s decision.
By this point, Prasa had been forced to share the record of decision as part of the Naledi case, which revealed that curious changes were introduced when the tender went to the board for approval.
The documents showed that Naledi, Transnet and FSE-Mbita were among the contractors who had passed the evaluation and adjudication stages and were initially recommended for appointment by the bid adjudication committee (BAC) but later disqualified after the board got involved.
The BAC had selected 11 successful bidders across the country and had also made provision to place other firms on standby as “reserve capacity”, following a special request from the technical department to increase the number of contractors beyond what Prasa had advertised would be appointed.
This would not only help to tackle the maintenance backlog but also mitigate against the poor performance of new entrants that were still “setting up” and allow the more experienced contractors to “recover” after years of being inactive, according to the request.
Ironically, it was Prasa’s concern about irregular expenditure and exposure to litigation that would cull most of the more experienced firms.
“When we went out into the market, we wanted ten service providers spread across all of the provinces,” former acting CEO Mphelo told Parliament in June 2022. But the “rigorous process that we have run ended up with five”.
In September, Prasa’s current acting CEO Hishaam Emran told Parliament that the board instructed management to put the tender process through an extensive compliance assurance audit “to ensure that this programme does not become irregular expenditure again”.
Prasa appointed audit firm SNG Grant Thornton (SNG) to assess if the bidding process was compliant.
In a memo to transport minister Fikile Mbalula, Prasa chair Leonard Ramatlakane said SNG had raised concerns that Transnet’s financials were not audited while other bidders – including the Pamodzi and Thaleka joint venture – had “failed to submit proof of premises or simply submitted letters for intention to lease.” The FSE and Mbita joint venture, he said, was disqualified for supposedly not meeting the 80% functionality threshold.
“The view was that Transnet Engineering, FSE & Mbita JV, Pamodzi and Thaleka should have been disqualified for failing to meet Stage 1 mandatory requirements,” Ramatlakane reported.
After some debate, it was decided that Naledi’s bid would be put on hold until its litigation with Prasa – which related to outstanding payments on a previous contract – had been resolved.
This left just five bidders to complete the R7.5-billion tender. But the fine-toothed comb which the Prasa board used to disqualify the losing bidders was nowhere to be seen when it came to picking the winners.
And while Transnet was licking its wounds, the winning bidders came knocking.
Knocking on Transnet’s door
One of the main requirements for the general overhaul tender was that contractors have a facility equipped with a railway siding and other equipment in order to carry out the work. Bidders who failed this requirement would be disqualified.
Armtec Rewinds was one of the companies Prasa appointed to conduct general overhauls in KwaZulu-Natal. In September 2022, Armtec chairperson and former ANC provincial executive council member Mzwandile Mkhwanazi wrote to the department of public enterprises with a proposal to lease Transnet’s Durban facility for ten years and possibly sub-contract some of the work to the state-owned entity.
“A facility was secured in Umbogintwini but unfortunately the facility was damaged in the recent devastating floods in KwaZulu-Natal. The cost of repairs and the time period for the repairs renders the site now not feasible,” Mkhwanazi said in his letter.
What this means is that when Armtec was awarded the Kwazulu-Natal portion of the tender, it had no working facility, the single most important criteria of the tender.
This was not the first time Armtec had made a proposal to lease one of Transnet’s facilities.
Armtec’s CEO Langa Ngcobo had made a similar proposal to Transnet in March, a month before the April floods. At the time, Armtec said it wanted to lease a different warehouse where it planned to “extend” the general overhaul contract if it was successful.
Ngcobo told amaBhungane that their original facility was evaluated by Prasa and was compliant with all the criteria but “due to unforeseen circumstances and the lengthy adjudication process we had to look at alternative options”.
Prasa, he said, was “made aware of the challenges regarding our site”. He added: “We have since secured a new site, which has been audited by Prasa and we … are currently executing our allocation as per the contract.”
Transnet, he said, never responded to Armtec’s calls or emails.
Moving in on a rival’s turf
In the Eastern Cape, a similar pattern was playing out as the sole winning bidder, KNPC, was seemingly still shopping for a facility.
In June, after the tender was awarded, KNPC allegedly applied to lease the Transnet Goods Shed in East London to use as its workshop for the general overhaul contract.
Until April, the same facility had been occupied by Rolling Stock Repair Services (RSRS).
RSRS was part of Prasa’s previous general overhaul contract and had also submitted a bid for the same contract but lost and soon after was placed under voluntary liquidation.
It is not clear which premises were evaluated in KNPC’s bid submission but the evaluation documents show that it was scored for having compliant premises. The Transnet Goods Shed is unlikely to have been the location because RSRS was still occupying the facility.
KNPC’s facilities evaluation shows that the company failed on every plant and equipment metric except for having a rail siding. In September, five months after the contract was awarded, the company purchased RSRS’s equipment from the liquidator.
AmaBhungane was able to speak to KNPC’s director and former Prasa executive Enos Ngutshane once over the phone where he claimed to have not seen our questions sent through Whatsapp. Shortly after they were sent to his email address Ngutshane blocked us. His co-director Joan Ratone was also forwarded questions and did not respond to text and phone calls.
In Gauteng, one of the winning bidders, YNF, had secured a facility but was struggling to keep it.
YNF’s principal business is maintenance of train components, such as traction motors, not train refurbishments. The company allegedly approached Transnet with a request for support and collaboration after the bids were awarded.
In its court papers, Naledi accused YNF of moving to a new premises in Ekurhuleni, alleging it was no longer located at the Pretoria facility that it used to apply for the tender.
It argued that not only was YNF’s new premises too far from the Prasa’s Wolmerton depot, whose trains the company is earmarked to service, but it also does not have a rail siding.
Bidders were scored on how far their facilities were from Prasa’s depots and disqualified if they did not have a rail siding which would allow Prasa to transport trains to their various warehouses.
Although YNF strongly denied moving its operations to Ekurhuleni, amaBhungane is in possession of a court order authorising the eviction of YNF from the Pretoria warehouse in February 2022, two months before Prasa awarded the contract and after each bidder’s premises had been evaluated.
YNF was served with an eviction order after failing to pay rent for the Pretoria warehouse it was leasing from steel company ArcelorMittal South Africa (AMSA) since February 2019.
Court filings for the eviction application show that YNF had only made three payments towards the rent since February 2019. Email communication and details of phone calls show that AMSA could not get the company to pay rent or even sign an acknowledgement of debt or comply with a payment plan that YNF itself had proposed.
YNF only started responding to emails in April 2021, when the steel manufacturer’s lawyers issued an eviction notice. At this stage, YNF had not paid rent for more than two years and owed AMSA over R11-million.
In April 2021, one of YNF’s directors, Riccardo Orren, responded to the lawyer’s email asking for “leniency” and proposing a settlement agreement. Orren said YNF had a potential work/contract that was going to be awarded in 2019, got postponed to 2020 but because of Covid did not materialise. It was now back on track, he indicated.
The timeline shows that YNF was able to buy itself some time, at least enough to ensure it had a valid facility when Prasa’s evaluation committee arrived to conduct a site evaluation visit in May 2021.
But by August 2021, YNF once again failed to honour its rental payments and AMSA had run out of patience: it instructed its lawyers to send the company a notice to cancel the lease and launch eviction proceedings.
Interestingly, AMSA told the court that after it sent YNF a notice cancelling the lease, YNF called AMSA’s lawyer to say that the company wanted to remain on the property because “the tender the respondent was awaiting had, after many delays, been awarded and that operations in the Occupied Property would soon commence”.
As mentioned before, Prasa only told the bidders about the outcome of the tender in April 2022.
YNF either lied to AMSA or was aware of the outcome of its bid nine months before it was officially communicated to the bidders.
AMSA told amaBhungane that YNF had “never occupied the premises but had the right to occupation in terms of a lease agreement…. This right was terminated when the eviction order was granted”.
Despite this, when Naledi alleged in court that YNF had been evicted from the Pretoria facility, YNF immediately sent an email to Prasa’s acting head of legal Thato Tsautse and then acting CEO David Mphelo denying the allegations.
As proof, it attached a copy of the original lease agreement but seemingly failed to tell Prasa about the eviction order.
“YNF approached ArcelorMittal South Africa on 17 May 2022” – after the tender was awarded – “enquiring about premises in Pretoria and requested if the ‘old bay’ was still available. They were told that it was available and [AMSA] team started negotiations with YNF to enter into a new lease, which included the settlement of all arrears,” said AMSA group communications manager, Tami Didiza in an email.
Didiza said the new lease agreement and the settlement agreement were not yet signed but the company had been granted “early occupation” in September.
In October, shortly after learning that amaBhungane had approached AMSA with questions on the eviction, YNF director Jade Orren invited us to the facility in Pretoria to show us that it the company’s premises was compliant.
But when amaBhungane sent Orren it’s questions, YNF responded through a letter from its lawyers who claimed the matter was “sub judice” as it was still before the courts: “We would therefore appreciate it if you could … refrain from communicating with our client further.”
Naledi’s hearing to review Prasa’s decision has been set down for April 2023. This could lead to the tender being cancelled for a second time, adding to the tally of self-inflicted setbacks by Prasa’s management and board.
Prasa failed to meet 81% of its performance targets in 2021/22.
In its evaluation, the Auditor-General said, “the major root cause for non-performance was failures on the procurement front with planned contracts not having been awarded and in certain instances awards that were cancelled.”
The millions of commuters who rely on Prasa’s services are the ones who feel impact the most, as Prasa admits in its corporate plan:
“The direct cost to Prasa and government of the theft and vandalism is estimated to be R6.4 billion, however, it is the direct and indirect costs to commuters that comprise the bulk of the overall cost to the economy.
“The direct loss of income, because of higher transport costs and loss of person hours to delays, costs commuters between R4-billion and R5-billion per year.”
In these circumstances, leaving such a critical tender in the hands of contractors who may not be able to do the work is a massive risk.
Or, to borrow from Naledi’s lawyer, Tembeka Ngcukaitobi’s comments during the interdict hearing: “I hate to use the analogy, but the train is coming and it is going to hit all of us.”
Note: A previous edition of this article said Prasa’s decision to withhold its decision on Naledi Engineering’s bid until a separate dispute between the parties was finalised was described as “entirely unfair” in a judgment by Judge Norman Manoin on 30 September 2022. This was a mischaracterisation of the judgment and has been corrected.
Main pictures sourced from GroundUp: Picture 1 and 2 (Ashraf Hendricks/GroundUp), Picture 3 (Mandla Mnyakama/GroundUp)