Transnet ‘went off track’ to sweeten Chinese deal
Acting Transnet CEO tells the state capture probe how China South Rail appeared to enjoy special treatment
Transnet jumped through hoops, broke the law and astronomically inflated prices just to secure a Chinese locomotive company a sweet R25bn deal – a transaction facilitated by the Guptas and their cronies at the state-owned entity.
According to Transnet’s acting chief executive Mohammed Mohamedy – who was testifying at the state capture inquiry on Wednesday – China South Rail (CSR) appeared to have enjoyed special treatment from the company’s former administration under Brian Molefe, whose fingerprints, along with those of his chief finance officer Anoj Singh, are all over dodgy deals dating back to 2012.
Mohamedy said Transnet violated sections of the Public Finance Management Act in awarding the deal to the company.
CSR scored three rail contracts worth about R25.2bn in total, all of which are alleged to have been awarded irregularly:
The first was for 95 locomotives, worth R2.7bn;
The second for 100 locomotives, worth R4.4bn; and
The third, to supply 359 out of 1,064 locomotives, worth R18.1bn.
It is believed R5.3bn from those deals were earmarked for bribes to be paid to various Gupta-linked entities in the United Arab Emirates and Hong Kong.
“Certain transactions were approved through normal processes and some of the transactions did not go through the governance processes prescribed within Transnet,” Mohamedy said, outlining some of the information Transnet’s new board, which was appointed in 2018, found.
“If we look at the maintenance agreement with CSR ... As far as we have reviewed we have not seen any evidence of it surfacing at any management committee meeting. It was presented directly to the board of directors and then subsequently delivered to the minister’s office for approval.”
The R6.18bn maintenance contract was in addition to the R25bn in contracts awarded to CSR.
But the way in which the contract was procured was also irregular.
“This is the RFP issued to the market. What it details is the BBBEE rating requirements. What it does say is that the respondents will be required to furnish proof of the above, a detailed scorecard. Failure to do so will result in a score of 0 being allocated for BEE,” Mohamedy said, referring to a Request For Proposal document.
But this was changed, with Molefe’s signature of approval, to allow for additional out-of-country bidders. CSR then became eligible to tender and finally secured the deal.
Then came the suspicious deposit and interest payments.
“On the 95 locomotives which we entered into in 2012 with CSR, we paid a 10% deposit to CSR ... We then heard that they negotiated with CSR to pay a deposit on the date of signing of 10%, and within six months pay an additional deposit of 20%,” Mohamedy said.
It was unusual for Transnet to pay more than a 10% deposit. Mohamedy said it amounted to a R5.4bn upfront deposit “when no single locomotive had been delivered”.
“Transnet at the time had significant credit facilities available that we could have utilised and the interest rate was 6.4% and 7%; whereas the locomotive supply agreement called for interest to be paid at prime rates of 9.25%. Transnet continued to pay CSR 229m for interest and 68m for what came across as further hedging costs.”
Mohamedy concluded that key roleplayers at Transnet colluded with various businesses.
“I understand that there was a system where a set of key roleplayers and Transnet executives, board members and certain companies acted in consult to the detriment of Transnet’s best interests,” he told the commission.
His testimony continues on Thursday.