State-owned freight-rail and ports company Transnet, which itself has been caught up in the crosshairs of state capture, has reached a settlement with Gupta-linked Regiments Capital in relation to the controversial ‘1064 locomotives contract’.
Transnet acting group CEO Mohammed Mahomedy told Moneyweb during its interim results briefing on Monday that the settlement agreement effectively means Transnet will get back around R180 million in advisory- and other fees related to the multi-billion-rand locomotives contract.
While Mahomedy did not go into further detail about the agreement with Regiments, he conceded that the contract – which involved four major global rail locomotive companies – had been racked by irregularities and delays.
Resignations and suspensions
It was in 2014 that Transnet’s former board approved the deal to buy locomotives from China South Rail, China North Rail, General Electric and Bombadier. At the time Brian Molefe and Anoj Singh were Group CEO and CFO at Transnet respectively, while Siyabonga Gama was also an executive.
Costs around the contract spiralled from an estimated R38 billion in 2014 to more than R50 billion last year when Gama, who took over from Molefe as Group CEO in 2016, was fired. All three former executives have been implicated in state-capture allegations at Transnet, while several other executives have either resigned or been suspended as investigations continue.
Mahomedy says that as part of the state-capture clean-up process, Transnet is addressing the issues and several court processes are now underway. However, he stresses that the legal processes need to take their course.
“Transnet has commenced various legal proceedings with both entities, as well as employees and executives who were implicated at the State Capture Commission. Transnet is in the process of pursuing these conversations with the individuals and entities, but largely we have commenced civil- and, in some cases, criminal proceedings.
“We will pursue these matters to the full extent of the law,” he adds.
“These matters are now in the hands of the courts and we will look to expedite these matters as quickly as possible.”
Mahomedy notes that one of these cases involved the negotiated settlement with Regiments to pay R180 million back to Transnet. “We look forward to this amount being paid back to Transnet in the very near future.”
Transnet’s new board under Popo Molefe as chair, has been trying to clean up the state capture mess at the company since last year. The entire 1064 locomotives contract has been interrogated and Transnet has been in talks with the locomotive manufacturers to bring the costs down and address delays related to delivery schedules.
Watch: Transnet’s interim results highlights
During Transnet’s results presentation for the half-year to September, Mahomedy conceded that the delays in taking delivery of the locomotives had seen Transnet only spending around R7.9 billion of its more-than R12 billion in planned capital expenditure for the period. However, he says cost savings achieved by interrogating its spending plans benefited the group, considering the tougher economic environment.
“The locomotive contract was riddled with irregularities and unlawful agreements,” notes Mahomedy. “Our talks with the locomotive manufacturers have progressed. Transnet has, from its side, concluded what it set out to achieve in the talks. We will now approach the courts to hopefully come up with just and equitable agreements,” he adds.
Transnet reported a slightly stronger first half performance for its 2019/2020 financial year compared with the previous full year. Group revenue increased by 2.9% to R38.7 billion, while profit for the half -year increased by 3.5% to R2.9 billion. Operating costs increased by 1.2% to R21.2 billion, with staff and energy costs accounting for almost 75% of this. Cash generated from operations increased by 5.3% to R16.2 billion, while its gearing came in at 43.2% and its cash interest cover ratio was at three times.
Mahomedy says Transnet delivered a “credible performance” for the first six months of its current financial year, despite tough trading conditions. He concedes that on an operational side, the general freight part of the business is facing challenges with lower throughput.
He also notes that irregular expenditure recorded in last year’s financial results had seen Moody’s Investors Service changing its ratings outlook for Transnet from stable to negative. “We continue to engage with the rating agencies and are confident this rating will return to stable soon.”