Transnet 'inflated' locomotives contract when Brian Molefe was boss

10 July 2019 - 16:09
The commission of inquiry into state capture has heard damning evidence about Transnet's locomotive deals.
Image: Gallo Images The commission of inquiry into state capture has heard damning evidence about Transnet's locomotive deals.

The state capture inquiry on Wednesday heard how Transnet spent billions of rands over five years to procure locomotives from various suppliers.

Testifying at the commission, acting manager of governance, risk and compliance at Transnet Janet Walsh broke down the purchase history for the state-owned company's controversial acquisition of locomotives.

The purchases were broken down into three different contracts, one for 95 locomotives, another for 100 and a third for 1,064. Transnet spent more than R40bn over the past five years on purchasing the trains, transaction advisory services and relocation costs for suppliers.

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The commission previously heard testimonies about how these deals were shrouded in corruption and procurement irregularities.

For example, Transnet, under Brian Molefe's leadership, allegedly flouted the Public Finance Management Act and inflated costs when awarding the multi-billion-rand contracts to build and deliver 95 and 100 locomotives to China South Rail (CSR). The Gupta family is alleged to have secured billions of rands in kickbacks from CSR after the deals were awarded.

The commission also heard previously how former Transnet CFO Anoj Singh irregularly appointed Gupta-linked company Regiments Capital as transaction advisers for the deal for the 1,064 locomotives. Others testified that Transnet footed the bill to relocate manufacturing sites for two contractors, China North Rail (CNR) and Bombardier Transport, even though the moves never happened.

This is a breakdown, according to Walsh, of all the transactions relating to the locomotive purchases:

  •  For the 95 locomotives, Transnet paid CSR about R306m in the 2013 financial year; R13m in 2014; R1.9bn in 2015; R786m in 2016; R239m in 2017; R156m in 2018, and R2m in 2019. The total spend for CSR on the deal was about R3.4bn.
  •  For the 100 locomotives, Transnet paid CSR about R3bn in 2015; R1.9bn in 2016; R58m in 2017; R152m in 2018, and R4m in 2019. The total spend on CSR for the deal was about R5.1bn.
  •  Transnet contracted four suppliers in its procurement of 1,064 locomotives. These were: General Electric, CSR, CNR and Bombardier. General Electric earned about R9.5bn from the 2015 financial year to present; CSR about R14.9bn; CNR about R2.4bn, and Bombardier about R6bn.

The total amount paid to all four contractors was about R32.9bn.

For the locomotives to be manufactured, facilities for Bombardier and CNR had to be relocated. This cost Transnet about R617m, even though the moves never happened.

Transnet then acquired the services of Regiments Capital and McKinsey to provide advice on how to structure the deal for the 1,064 locomotives. Regiments earned about R305m between 2014 and 2016, while McKinsey earned about R11m in 2014.

Walsh said there were still payments due for the locomotives.