The Zondo report into the impact of state capture on Transnet between 2009 and 2018 shows the Gupta enterprise engaged in a pattern of racketeering at the state-owned company.
The primary architects and implementers of state capture such as Malusi Gigaba, Brian Molefe, Siyabonga Gama, Anoj Singh and Thamsanqa Jiyane, were placed in key roles at Transnet, where they could exercise “illicit and corrupt influence/control over decision making”.
This had a devastating and costly impact on procurement.
Gigaba, minister of public enterprises from 2009 to 2014, ensured the appointment of Molefe and Singh as directors of Transnet, and Gama as CEO.
They in turn gave free rein to Iqbal Sharma as chair of the influential board acquisitions and disposal committee of the Transnet board.
The racketeering activity included extortion, theft, fraud, forgery and uttering (putting forged money into circulation).
Key employees at Transnet were disempowered or marginalised.
Substantial fees were paid to consulting and advisory services such as McKinsey, Trillian and Regiments for doing work that could have been done internally. Kickbacks were paid to entities within the Gupta enterprise, and money was laundered through various shell companies controlled by Gupta associate Salim Essa and his associate Kuben Moodley.
Witnesses comprising drivers and close protection officers testified that Molefe, Gama, Singh, Gigaba and Garry Pita (former Transnet CFO) were the recipients of cash bribes from the Gupta enterprise.
In regard to Pita, there is a “reasonable suspicion that he may have received cash bribes” and that further investigation should be undertaken.
The Zondo report recommends that further investigation be carried out to determine if there are reasonable grounds to conclude that Pita should be prosecuted for corruption.
There are “strong and convincing reasonable grounds” that Molefe, Gama, Singh, Gigaba and Jiyane “corruptly received property from and participated in the affairs of the Gupta Enterprise”.
The General Nyanda Security (GNS)/Abalozi contract – for the rendering of security services in relation to cable theft and the prevention of criminal activities against Transnet Freight Rail (TFR) – was signed in June 2008, extended in July 2008, and extended again in May 2009.
The total amount paid to GNS for security services over some two years was R95.5 million.
There were significant misrepresentations and irregularities in the award of the contract, and GNS effectively outsourced the tender as it had no track record in the security service industry.
Transnet issued a summons against GNS for the recovery of R95.6 million on October 27, 2010, but Transnet dropped the litigation action in May 2014, and then “made an improper payment” of R20 million to GNS in settlement of its legal fees.
The procurement of the 95 locomotives
In 2011, 95 locomotives were procured for R3.6 billion.
The Zondo report opines that this was significant as it provided “insight into the evolving relationship” between Transnet and CSR Zhuzhou Electric Locomotive (CSR) and the role of the irregularly appointed CSR as a supplier “as part of the corruption and pattern of racketeering activity of the Gupta enterprise”.
CSR paid Century General Trading (CGT) a 20% kickback amounting to $16.7 million. At least 85% of this was paid to companies controlled by the Gupta enterprise.
The procurement of the 100 locomotives
Next up was the procurement of 100 locomotives that were urgently required for use on the coal export line from the Ermelo coalfields to Richards Bay. Francois Callard, a senior manager of TFR, submitted a business case memorandum for procurement from Mitsui at a cost of R3.871 billion.
The enablers and implementers got involved, and CSR was appointed as the supplier. Assurance was given that CSR could produce 100 locomotives in a short amount of time. The estimated cost was R3.8 billion excluding borrowing costs. TFR management failed to disclose that production would take place wholly in China.
Moreover, the locomotives were not suitable for heavy haul, and had to be modified at an additional cost of R347 million.
The cost of the locomotives was increased to R4.37 billion, with local content of only R657 million – and 60% of the payment price had been paid upfront, “unusual and not in line with past practice”.
On March 17, 2014, Transnet agreed to another increase in price to R4.48 billion.
Then Singh got involved, and the price rose to R4.84 billion.
CSR paid a kickback of R925 million to Regiments Asia, which then paid 85% of this amount to the Gupta enterprise.
Zondo is of the view that there are “reasonable grounds to believe that board members” such as Molefe and Singh, and employees such as Gama and Jiyane, “violated the Constitution and other legislation by facilitating the unlawful awarding of tenders by Transnet to benefit the Gupta enterprise …”
The procurement of the 1 064 locomotives
The acquisition cost of 1 064 locomotives was stated in the business case for procurement in 2011-2012 to be R36.6 billion. The ultimate cost of procurement was ratcheted up to R54.5 billion.
McKinsey was appointed as the transaction advisor.
Kickbacks of 21%, amounting to R1.3 billion, were to be paid to Regiments Asia.
Zondo found that Molefe, Singh, Gama and other members of the board did not act with “fidelity, honesty, integrity and in the best interests of Transnet in managing its financial affairs …” and there are “reasonable grounds to believe that Molefe, Singh, Gama and Essa, as well as others, received corrupt gratifications”.
Transnet is seeking to set aside the 1 064 locomotive contract.
To wrap up
The alleged wrongdoing included the irregular tender awards, the irregular increases in the contract values, the kickbacks paid, the payments made to entities in the Gupta enterprise, and the payment or receipt of bribes.
Value-added and pay-as-you-earn tax may not have been paid over to the South African Revenue Service (Sars).
An inflated amount of legal costs was paid to GNS/Abalozi even though these had already been settled or had prescribed. This expenditure was unjustifiable.
Among the Zondo report recommendations:
- An independent body must be created with the power to review procurement awards.
- Law enforcement agencies should conduct further investigations with a view to the possible prosecution of Essa and his various companies.
- Law enforcement agencies should conduct further investigations with a view to the possible prosecution of Molefe, Singh, Gigaba, Gama, Pita and Jiyane on charges including corruption, receipt of bribes, and racketeering; Singh for his travel costs to Dubai and Gama for the payment of his Oberoi Hotel bill; and Molefe for the unauthorised payment of R20 million to GNS/Abalozi.
You can also read or download the Zondo report on Transnet here.