Aveng - termination of Mtentu Bridge Contract


The Aveng-Strabag Joint Venture ("ASJV"), which is a joint venture between Aveng and Strabag International GmbH ("Strabag"), was awarded the Mtentu Contract ("Mtentu Contract") for the construction of the Mtentu Bridge Project ("Project"), a 1.132 m long bridge crossing the Mtentu river, by the South African National Roads Agency SOC Ltd. ("SANRAL").

As from 22 October 2018, the ASJV has not been able to execute works on the Project site due to threats of violence and levels of community unrest and protest action related to demands made against SANRAL.

SANRAL has expressed the view that although the demands of the community have yet to be fully resolved, its engagement process has reached a stage where works can continue safely. The ASJV does not agree with SANRAL's view and related events do not support SANRAL's view.

The ability to execute works safely and in accordance with international best practice is ASJV's primary concern.

Aveng and Strabag, on the strength of their combined local and international experience and track-record in complex bridge projects, have come to the reasoned conclusion that the ASJV cannot resume the execution of the works given the risk to the safety and wellbeing of its personnel and has therefore elected to terminate the Mtentu Contract following consultation with external legal advice. SANRAL was notified accordingly on 30 January 2019.

Contract Securities
The ASJV has provided 2 bonds ("Contract Securities") to SANRAL in connection with the Mtentu Contract being:
- A performance guarantee ("Performance Security") in favour of SANRAL in the amount of R245.1 million and
- A retention money guarantee ("Retention Money Guarantee") in favour of SANRAL, in the amount of R81.7 million

In terms of the Mtentu Contract, although the Contract Securities are typically described as "on-demand" bonds, SANRAL's rights to make a call against the Contract Securities are strictly regulated and limited in terms of the Mtentu Contract itself. The ASJV is taking steps to protect the position of Aveng and Strabag in this regard.

The ASJV is mindful of the impact the termination of the Contract may have and has made itself available for further discussions with SANRAL to work collaboratively with SANRAL to finding pragmatic outcomes to the unwinding of the Mtentu Contract.