Transnet paid McKinsey‚ Trillian and Regiments more than R3bn

Transnet paid McKinsey‚ Trillian and Regiments R3.26bn between 2005 and 2017.

This is one of the findings of Fundudzi Forensic Services following its forensic investigation for the National Treasury into Eskom‚ Transnet‚ McKinsey and others. The reports were released on Friday.

Fundudzi investigated allegations and irregularities in the appointment and management of work done by McKinsey‚ Regiments Capital and Trillian at Eskom and Transnet for:

• Advisory services in buying 1‚064 locomotives;
• SWAT 1;
• GFB breakthrough contract (sub-contractor);
• Coal contract;
• Kumba Iron Ore;
• Manganese contract;
• NMMP;
• and SWAT 2.

The report recommended that there should be criminal investigations into former Transnet executives Brian Molefe‚ Siyabonga Gama‚ Garry Pita‚ Anoj Singh‚ Edward Thomas and Phetolo Ramosebudi‚ as well as Trillian’s Daniel Roy and Johannes Faure.

The report discusses the procurement of 1‚064 locomotives from China South Rail and China North Rail. Their costs were inflated by R1.2bn and R16bn respectively.

The report found that:

• Ramosebudi contravened the Public Finance Management Act (PFMA) by recommending that Trillian be appointed knowing Trillian had no part in getting the loan to buy the trains‚ which resulted in R82m in fruitless and wasteful expenditure;
• Transnet did not do any due diligence on Trillian before appointing them as the lead arranger for the loan;
• Ramosebudi lied when he said Trillian helped Transnet in negotiating the loan with‚ among others‚ Nedbank‚ the Bank of China‚ Absa and Libfin;
• and Pita contravened the PFMA by signing Trillian’s letter of engagement on November 18 2015 "knowing that the work in respect of the club loan was performed by Regiments".

The report recommended that the Transnet board recover the R82m illegally paid to Trillian.

The report also looked into a series of general freight business contracts awarded to McKinsey as the main contractor and Regiments as a partner. Transnet thought Regiments had gained enough experience from McKinsey to take the lead from McKinsey.

The report found that:

• Regiments was awarded a R375m contract‚ which was more than the R300m in Regiment’s proposal;
• It was illegal for Regiments to accept the R375m contract;
• and Trillian was paid R46m despite there being "no evidence that Trillian rendered any service". The report recommended that Transnet start disciplinary proceedings against officials who facilitated the irregular contract.

According to the report‚ in 2014 Transnet wanted to maximise its coal supply by improving its coal line to 2-million tons a week. Singh compiled a memorandum for Molefe on March 31 2014 to request approval from the group chief executive for the financing of the increased coal line and to award McKinsey the contract as consultants in the renegotiation.

The investigation found that:

• McKinsey was given preferential treatment; its proposal was received after the closing date of June 10 2014;
• McKinsey and Regiment were paid R111.1m before a master service agreement (MSA) was signed;
• McKinsey and Regiments started working on the project before the MSA was signed; and
• Transnet officials contravened the PFMA.

The report recommended that Transnet recover R8.85m paid to McKinsey and R10.5m to Regiments because there are no documents to support these amounts. It said public enterprises minister Pravin Gordhan should bar former employees who abused the supply chain management system from being hired by state entities‚ or from doing business with them‚ for five years.

In 2014‚ Transnet renegotiated tariffs with Kumba Iron Ore.

The report found that:

• McKinsey prepared pointers for Singh to convince Molefe to hire McKinsey to help in the renegotiation of the tariffs‚ thus compromising the integrity of the procurement process;
• McKinsey and Regiments continued to invoice Transnet despite exceeding the approved budget of R100m; and
• McKinsey and Regiments were paid R12.476m and R7.689m respectively for out-of-pocket expenses with no document to support them.

The report recommended that Transnet recover the R12.476m and R7.689m.

According to the report‚ Tansnet paid McKinsey R1 993-trillion from March 1 2005 to March 31 2016. Here is a breakdown of the year-end amounts:

• March 31 2006 - R113‚719‚141.62
• March 31 2007 - R369‚050‚268.45
• March 31 2008 - R270‚603‚499.58
• March 31 2009 - R302‚941‚229.85
• March 31 2010 - R47‚389‚075.28
• March 31 2011 - R14‚455‚200.00
• March 31 2012 - R29‚098‚978.80
• March 31 2013 - R56‚618‚558.78
• March 31 2014 - R203‚931‚874.55
• March 31 2015 - R318‚755‚975.99
• March 31 2016 - R267‚413‚676.68

Transnet paid Regiments R1‚085-trillion from March 1 2013 to March 31 2017. Here is a breakdown of the year-end amounts:

• March 31 2014 - R105‚156‚802.00
• March 31 2015 - R503‚224‚614.20
• March 31 2016 - R475‚226‚031.20
• March 31 2017 - R2‚179‚141.92

Here is a breakdown of what Transnet paid Trillian Partners in the four months they were hired:

• April 15 2016 - R41‚04m
• April 7 2016 - R7‚98m
• April 7 2016 - R36m
• May 23 2016 - R7.98m
• May 23 2016 - R7.98m
• May 20 2016 - R2.68m
• May 19 2016 - R11.4m