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Transnet broke all rules to give a R25bn deal to a Chinese company

Brian Molefe has been accused of giving China South Rail special treatment during his tenure at Transnet.
Brian Molefe has been accused of giving China South Rail special treatment during his tenure at Transnet.

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 Mahomedy, who was testifying at the state capture inquiry yesterday, 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.

Mahomedy said Transnet violated sections of the Public Finance Management Act in irregularly awarding CSR three rail contracts worth about R25.2bn:

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 was earmarked 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," Mahomedy said.

"If we look at the maintenance agreement with CSR... 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 already scored by CSR.

But the way in which the contract was procured was also irregular, said Mahomedy.

"This is the Request For Proposal document issued to the market. What it details is the BBBEE rating requirements," Mahomedy said.

But this was changed by Molefe - 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 to 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%," Mahomedy said.

It was unusual for Transnet to pay more than a 10% deposit. Mahomedy said the amount equated to a R5.4bn upfront deposit "before a single locomotive had been delivered".

Mahomedy will continue with his testimony today.

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