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Gupta-linked firm solicited funding on behalf of Transnet 'without permission'

Deputy Chief Justice Raymond Zondo who heads the commission of inquiry into state capture.
Deputy Chief Justice Raymond Zondo who heads the commission of inquiry into state capture.
Image: Alon Skuy

Former Transnet group treasurer Mathane Makgatho has told the state capture inquiry of four controversial unsolicited proposals that arrived on her table from Gupta-linked company Regiments ahead of the state-owned company's contentious procurement of 1,064 locomotives in 2014.

Makgatho, a straight talker who pulled no punches on Thursday, was allegedly put under pressure from Transnet executives Brian Molefe and Anoj Singh to enter into the deals with Regiments - but stood her ground where she felt obtaining the consultancy company's services would result in wasteful expenditure.

She detailed four instances where Regiments submitted unsolicited proposals in 2013 to advise Transnet on the structure of its upcoming deal to procure 1,064 locomotives from various manufacturers - a transaction since shown to be riddled with fraud and corruption.

The first proposal:

According to Makgatho, she received a proposal from Regiments on January 9, 2013, wherein the company offered their transaction advisory services for the 1,064 locomotive deal. The services included, among others, developing an optimal funding structure for the deal, financial risk management, an economic evaluation, and a collateral assessment.

She told the commission that Transnet had the capacity to conduct these tasks internally. However, Regiments and McKinsey landed the deal, and earned in total about R700m from the advisory services.

The second proposal:

The second proposal which came soon afterwards, in the third quarter of 2013, related to a R5bn loan transaction.

Makgatho said she received a call from Nedbank asking if Transnet "is looking for money".

"I was taken aback because if Transnet is looking for money, I was the one who was supposed to know… We were not short of cash and we were not short of options," she said.

Makgatho said Regiments was in the market looking for money on behalf of Transnet. She claimed she then received a proposal from Singh for a R5bn loan facility from Nedbank.  

"The interest rate that this proposal was quoting was much higher, the additional interest payment per annum was R150m. I told [Singh] I could not recommend the structure. [Singh] wanted a recommendation drawn up on the same day," she said.

"He was telling me it was an urgent request from [Molefe] and he didn’t want to listen to my analysis that it was a waste of money. He would not listen. I then decided that I would go to Molefe straight. I asked if he was aware that R750m was going to be stolen?

"He asked me to give him my analysis so I said this proposal means we are recommending that Transnet pays over and above what's normal. I said if you execute this, jail time is waiting for you. He said he would handle this matter…The structure was not implemented".

Regiments did not have a mandate to talk to banks on behalf of Transnet.

The third proposal:

Makgatho described the third proposal as "a shocker of note".

This time, Regiments apparently proposed that Transnet deviate from the normal practice of using commercial banks when conducting cross-currency swaps. It proposed that Transnet use the South African Reserve Bank as a counterparty.

"Towards the end of the 90s, there was a policy decision taken at government that the SARB would not play in the forward book market any more. By this time I had lost whatever patience I had for Singh," she said.  

"By this time we had been busy discussing all sorts of proposals, for a lack of better word, and in my opinion Singh was doing as he wishes and what I couldn’t grasp was that the man was running like a loose cannon and [Molefe] was giving him more and more powers.

"I told him (Molefe) it was a ticking time bomb and he just brushed me aside and he said that he would manage him (Singh)."

She said Molefe did not go through with Regiments' proposal this time round.  

The fourth proposal:

The fourth proposal occurred between April and May 2013.

Makgatho said Singh introduced her to McKinsey partner Vikas Sagar and suggested that they should meet every fortnight.

She said McKinsey proposed a 14-week assignment wherein they would help Transnet develop a shadow rating tool for the 1,064 locomotive deal.

For this service, McKinsey was to charge Transnet R1.1m (excluding VAT) per week, which would total R15.4m after the exercise was complete.

Makgatho said she decided to use her own team despite disapproval from Singh and Molefe.

Her testimony will continue on Friday.

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