Transnet: Brian helped to loot

Brian Molefe was found to have lied to the Transnet board to inflate the controversial 1 064 locomotive tender – from which Gupta family-linked businesses scored billions of rands in kickbacks – from R38bn to R54.5bn.

The name of the former Transnet group chief executive looms large in the 219-page report, in which the transaction is described as “cloaked in corrupt and reckless activity”. It was compiled by law firm Werksmans and is dated December 7 last year.

The report, which City Press obtained, precipitated the resignation of three board members from the parastatal two weeks ago. They were chairperson Linda Mabaso and nonexecutive directors Vusi Nkonyane and Yasmin Forbes.

Public Enterprises Minister Pravin Gordhan criticised the Transnet board in Parliament two weeks ago. He accused it of deliberately stalling on taking action against individuals implicated in corruption worth billions of rands.

He accused them of failing to act on the report’s recommendations and conclusions, which included that Transnet take immediate steps to:

- Hold the members of the board at the time, who “failed to apply their minds to the transaction”, accountable;

- Discipline “all those currently in the employ of the enterprise” who gave the board “misleading, incorrect and inadequate information” about the deal;

- Ask the Hawks and the State Security Agency to investigate the transaction;

- Institute action to recover wasteful expenditure from those responsible and who unlawfully benefited from the transaction; and

- Consider suspending “certain executives” to “ensure that the investigation and disciplinary inquiry is allowed to proceed without interference”.

Because of the size of the contract and the resultant financial exposure it posed to the company, the report’s authors recommend that the conduct of Molefe, current Transnet chief executive Siyabonga Gama.

Gama, the chief executive of subsidiary Transnet Freight Rail at the time, however, told Werksmans’ investigators that the 1 064 locomotive tender was presented to him as a done deal by his parent company executives.

“According to Gama he was not even consulted in this regard and delivery schedule was presented to him as a fait accompli,” the report reads.

The report is a scathing indictment of how the country was looted.

“Part of the increase of almost R16bn over the estimated and originally approved total estimated cost appears inexplicable, unreasonable and excessive; and various instances of suspicious conduct suggesting at the very least wasteful expenditure and/or a wilful disregard for the interest of Transnet and a cavalier waste of vast sums of money were identified,” the report reads.

“The transaction is cloaked in corrupt and reckless activity. An appropriately empowered judicial inquiry is required to be instigated by Transnet to properly investigate the various suggestions of bribery and similar unlawful conduct.”

Shedding light

But instead of acting on the report, which Gordhan told Parliament cost it R18m to compile, Transnet found it vague and lacking specifics. It appointed another law firm, MNS Attorneys, to investigate the allegations further.

Gordhan told MPs that under the stewardship of the recently reconstituted board, Transnet became “embroiled in serious allegations of flagrant corruption and state capture”.

In April 2013, Transnet’s board approved a proposal to buy 1 064 electric and diesel locomotives for its general freight business, which would cost them R38.6bn over seven years. However, the report found that with the assistance of Gupta lieutenants Molefe, former chief financial officer Anoj Singh and board tender committee chairperson Iqbal Sharma, the contract ballooned to R54.5bn.

The report’s authors found that Molefe asked the board to approve the increase in costs, saying that the inflated amount was to accommodate fluctuations in currency value and variations in cost. However, these had already been factored into the R38.6bn figure.

Despite concerns raised by Gama and his senior executives that they would not have capacity for an additional 1 064 locomotives or the staff to oversee the building of them, an urgent business case was made to buy them.

The board was told that to speed up the acquisition, the tender had to be divided between four suppliers. One of those was China South Rail (CSR), the Guptas’ business partners. According to reports by amaBhungane, the company was to give the Guptas a R10m kickback on every R50m locomotive they built.

A forensic report compiled by Wits University accounting Professor Harvey Wainer, which is attached to the Werksmans report, found that CSR was allowed a 30% advance payment on its contract, before delivering any locomotives. He found that advance payments of R11.2bn were made to the four bid winners, in instalments over a year, before they delivered a single locomotive.

Wainer came to damning conclusions about the involvement of Tequesta, a Gupta-linked company headed by Salim Essa, which provided advisory services to CSR and helped it secure the Transnet contract.

“On the face of it, the Tequesta contract, if it is genuine, suggests bribery by payments made, and to be made by CSR in relation to the award of business on the 1 064 contract, and related to the pricing thereof,” he found.

Werksmans found that instead of speeding up delivery, the division of the contract between four companies slowed down procurement of the locomotives and hiked the cost by R5.1bn.

Included in the report are memos Gordhan sent to the Transnet chairperson later in 2013.

“I am concerned that the profitability of the project is highly dependent on Transnet’s general freight business being able to grow the volumes transported at amounts above GDP growth and tariffs charged above inflation. Failure to achieve these optimistic growth figures will have an adverse effect on the expected revenues and thus the profitability of the project,” Gordhan writes.

“I have noted that, whereas Transnet is claiming that increasing locomotive capacity and efficiency will lead to lower tariffs for customers, real increases in tariffs are being projected to sustain the project.”

The report sheds further light on Sharma’s conduct. Sharma had by then acquired a stake in Gupta-linked company VR Laser Services. Before the winning bidders – who were required to source up to 60% of their components in South Africa – were announced, he took them to see its operations. VR Laser manufactures such components. He did not declare his interest to the bid adjudication committee. Werksmans found that he refused to recuse himself from the meeting where the draft report by auditors PwC containing those allegations was discussed.

Wainer’s report contains information about the performance on the contract by its four winning bidders: CSR, Bombardier Transportation, General Electric and China North Rail.

By September last year, about two and a half years into the contract, CSR had underperformed by 59%, delivering 124 locomotives of the 302 it was supposed to have supplied by that point. But China North Rail and Bombardier Transportation had delivered none of their respective 179 and 215 locomotives.

The best performer was General Electric, which underperformed by 29%, delivering 162 of its 228 locomotives.

Transnet spokesperson Molatwane Likhethe said the report was found to be inconclusive.

“All the report says is that the business case to the board was signed by Messrs Gama, Singh and Molefe.

“That is a standard practice for any procurement process and therefore there is no criminality.”

MNS Attorneys’ chairperson Mncedisi Ndlovu confirmed his firm had been asked to investigate the 1 064 locomotive tender further as well as the alleged role individuals involved played in any corruption.

Molefe told City Press this week that he had not seen the report, which had been handed to both the Transnet board and Gordhan. “I will not comment until I see it,” Molefe said.

Molefe did not avail himself to read the report, saying he had a family bereavement.

Apology to Jiyane

City Press unreservedly apologises and retracts false statements about suspended Transnet Engineering chief executive Thamsanqa Jiyane, in which it was claimed that the Werksmans’ report has found that he was a Gupta lieutenant, and for not asking him for comment on this issue.

This was carried in the story headlined Transnet: Brian helped to loot published on May 13 last year.

Jiyane complained to the Press Ombudsman that the references to him in the article were defamatory, he was not afforded an opportunity to comment; the newspaper did not supplement the article insofar as it related to him and that the reportage has caused him serious and unnecessary harm to his dignity and reputation.

The Ombudsman ordered City Press to unconditionally retract the statements and apologise to Jiyane for the possible unnecessary damage that this unsubstantiated statement could have caused to his dignity and reputation.

City Press further apologises to Jiyane for stating that the Werksmans report had recommended that his conduct with regards to the locomotives contract be investigated and that, with his assistance, the contract has ballooned from R38.6 billion to R54.5 billion – without adequately clarifying that that report was inconclusive and was not accepted by the Transnet board.Visit www.presscouncil.org.za for the full ruling

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