How Transnet was the primary site of state capture

The Zondo Inquiry established that racketeering, money laundering, fraud, kickbacks, corruption and many other financial crimes were the order of the day at the company that served as the engine of the country’s economy.

Picture: www.transnet.net

JOHANNESBURG - The state capture commission revealed that Transnet was the primary site of state capture in financial terms.

The Zondo Inquiry established that racketeering, money laundering, fraud, kickbacks, corruption and many other financial crimes were the order of the day at the company that served as the engine of the country’s economy.

In part two of the detailed report presented to the Presidency on Tuesday, Transnet and Denel took centre stage, with even more explosive information about how the Gupta family and other key players such as former President Jacob Zuma caused the capture of the institutions.

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The testimony of Paul Holden, director at Shadow World Investigations, was cited to determine the value of the malfeasance that took place at Transnet.

The ballpark figure was set at R41.2 billion.

The funds were awarded irregularly to benefit entities linked to the Gupta family, mainly through companies established and controlled by an associate of theirs, Salim Essa.

The Commission said that the amount represented 72.2% of the total state payments regarding contracts tainted by state capture.

This means that findings concerning other state-owned companies such as Eskom, Denel, and South African Airways are almost incomparable to the financial damage caused.

Part 2_Vol 1_Trasnet_Report of the State Capture Commission PART II Vol I 010222 by Primedia Broadcasting on Scribd

The Commission’s terms of reference gave it scope to probe Transnet, whether attempts were made to influence members of the national executive, office bearers or employees of the company through any form of inducement or any form of gain.

It also gives space to ascertain whether they breached or violated the Constitution or any relevant ethical code or legislation by facilitating the unlawful awarding of tenders to benefit the Gupta family or any other family, individual or corporate entity doing business with government or organ of state, among others.

In its findings as presented in the report, the Commission traced the root cause or point of entry for the looting to a decision to roll out what Transnet called “Market Demand Strategy”, or MDS, in 2011.

This involved the investment of R300 billion in Transnet’s different units, Transnet Freight Rail, Transnet National Ports Authority, Transnet Ports Terminals and Transnet Engineering based on the premise that demand would peak by 2014.

“The biggest portion of the proposed investment spend was allocated to an accelerated procurement of locomotives to enhance locomotive operational efficiency to enable delivery against the MDS,” read the report.

But this was not before the right players were well-positioned to use MDS as a vehicle to fill the pockets of the corrupt.

WHAT STATE CAPTURE LOOKED LIKE AT TRANSNET

The 506-page report details how there was a “systematic scheme of securing illicit and corrupt influence or control influence over staff appointments and governance bodies to influence large procurements and capital expenditure by changing the procurement mechanisms, such as the confinements rather than open tenders, the altering of bid criteria to favour corrupt suppliers, and the payment of inflated costs and advance payments”.

This involved collusion between individuals inside and outside Transnet as part of coordinated efforts to access and re-direct funds and benefits in substantial procurements, resulting in the strategic positioning of particular individuals in positions of responsibility.

The architects of the plan, as cited in the report, sustained the corrupt procurement practices by “bringing approval authority for high-value tenders under centralised control and the weakening of the internal controls designed to prevent corruption”.

Part 2_vol_2 _Denel_Report of the State Capture Commission PART II Vol II 010222 (1) by Primedia Broadcasting on Scribd

It further reads that “a small group of senior executives and directors strategically positioned to collude in the awarding of key contracts. The evidence shows that key employees at an operational level in Transnet were disempowered or marginalised from participating in important procurement decisions which affected their work.”

Other findings are that;

• Internal controls were deliberately relegated with the result that irregularities went unchecked.
• Procurement processes were manipulated to ensure preferential treatment of certain suppliers linked to the Gupta enterprise.
• There was an increased reliance on consulting and advisory services (McKinsey, Regiments, Trillian) that was accompanied by the weakening of internal controls and the payment of substantial fees for work that should have been done internally.
• These fees were then shared with companies established and controlled by Essa.

THE ARCHITECTS OF TRANSNET’S FALL

In the report, the Commission identified three people as the “primary architects and implementers” of state capture at Transnet.

The individuals are no strangers to scandal, some with tentacles that can be traced at Eskom, which was also victim to state capture.

They are former group chief executive officer Brian Molefe, former group chief financial officer, Anoj Singh, and former CEO of Transnet Freight Rail, Siyabonga Gama. However, their power stemmed from high political office as related in the report.

BRIAN MOLEFE

Molefe was appointed group CEO of Transnet in February 2011 after proving his prowess at the Public Investment Corporation where he was praised for his running of Africa’s largest asset manager with efficiency. He was later seconded as acting CEO of Eskom in April 2015 and became CEO of Eskom in October of the same year.

However, the report details a sordid plan to steal money, which he was integral to at Transnet.

His very appointment as GCEO was shrouded by a cloud of suspicion after the folded New Age newspaper, then owned by the Gupta family, predicted his appointment. At the time, exposés of top government post candidates were understood to be due to the Gupta family’s influence in those appointments. The Commission also found that Molefe was not the highest-scoring candidate but was nonetheless appointed GCEO on the recommendation of then-Public Enterprises Minister Malusi Gigaba, who is described in the report as the common thread among the three “architects” of state capture at Transnet.

A determination was also made that the two men were friends of the Gupta family, with testimony heard about their regular visits and interactions.

Molefe’s hand in the proverbial cookie jar is traced as far back as the very year he set foot at Transnet in 2011.

Although part two of the report does not reveal the details around the procurement of cranes from ZPMC and Liebherr, the Commission said that evidence shows that this was the first transaction that was tainted by corruption to advance the interests of the Gupta enterprise.

But it was with the procurement of 95, 100 and 1,064 locomotives that Transnet started to go off the rails, with a Chinese manufacturer of locomotive and rolling stock - China South Rail (CSR) - at the centre of the dodgy dealings that saw individuals and businesses with ties to the Guptas unlawfully pocket billions of rands.

CSR was favoured above Mitsui Africa Rail Solutions, which already had an established relationship with Transnet in 2009 when it supplied 110 class 19E electric locomotives for use on the coal export line with evidence that the evaluation criteria were changed to favour CSR.

Riddled with irregularities, the deals between Transnet and CSR were declared in the report as favouring the Chinese corporation against the best interest of Transnet.

Even the decision not to subject McKinsey Consortium to an open tender process before issuing it a contract for its advisory services has Molefe written all over it as the approver of the confinement in the 1,064 locomotives transaction and others that followed.

With many other questionable decisions and actions committed since 2011, it appears that by 2014 the irregularities became glaring and its perpetrators more emboldened.

Molefe and CFO Anoj Singh misrepresented the profitability of the procurement of locomotives to motivate the increase in price, which at the amount of R54,4 billion meant Transnet would have a negative net present value. Yet the hurdle rate was manipulated to produce a positive value to the board.

They had increased the procurement price by a staggering 41%.

And for their efforts, the commission said "CSR paid a R3.81 billion kickback in respect of 359 locomotives awarded to it as part of the 1,064 locomotive transaction, of which 85% was laundered further on to companies associated with the Gupta enterprise".

"It is also reasonable to conclude that the unjustifiable expenditure of R9,124 billion, which increased the price paid to CSR, probably facilitated the ability of CSR to make the kickback payment," read the report.

The report also dealt with evidence of cash bribes that several witnesses attested to Molefe receiving.

The State Capture Commission makes several recommendations for Molefe to be investigated or prosecuted for his role in the events at Transnet including for the following:

• The 100 locomotives

"It is recommended that law enforcement agencies conduct such further investigations as may be necessary with a view to the possible prosecution of Brian Molefe, and others, on a charge in terms of section 86 (2) of the PFMA of wilfully or grossly negligently contravening section 50 or 51 of the PFMA by presenting misleading information and failing to disclose material information to the board of Transnet in January 2014 regarding the acquisition of 100 electric locomotives from China South Rail using confinement."

• 95 locomotives

"It is recommended that the law enforcement agencies conduct further investigations as may be necessary with a view to the possible prosecution of Brian Molefe and Siyabonga Gama on a charge of contravening section 50 (1) (a) of the PFMA and or on an offence relating to the proceeds of unlawful activities and/or racketeering as contemplated in Chapter 2 and 3 of Prevention of Organised Crime Act (POCA) concerning their decision to recommend to the board the change in the evaluation criteria in the procurement of 95 locomotives to favour China South Rail as a bidder for the tender."

• GNS/ABALOZI

"It is recommended that the law enforcement agencies conduct such further investigations as may be necessary to determine whether Brian Molefe acted wilfully or grossly negligently in contravention of section 50 or 51 of the PFMA with a view to his prosecution on a charge in terms of section 86(2) of the PFMA about his agreement on 16 Jan 2016 to pay GNS/Abalozi an unjustifiable payment of R20 million."

• Receipt of gratification by individuals

The commission also stated that it wants law enforcement to pursue Molefe and others, including Gigaba, on charges of corruption and racketeering charges in terms of chapter 2 of POCA concerning cash payments allegedly received by them during visits to the Gupta compound in Saxonwold between 2010 and 2018.

During his appearance at the inquiry, Molefe denied all wrongdoing, disassociating himself with the transactions that bled Transnet dry.

Further details of what transpired at Transnet will also likely feature in the third and final report of the commission.