Malusi in the middle: Treasury report fingers Gigaba in Transnet train deal

2018-11-16 18:05

Malusi Gigaba "acted outside his authority" when he advised Transnet to go ahead and order locomotives worth billions of rand while he earlier "compromised the procurement process".

These are some of the findings contained in an explosive three-part report of more than 600 pages into financial and procurement irregularities at Transnet and Eskom.

The reports were published by National Treasury on Friday. Gigaba, who earlier this week resigned as minister of home affairs, was minister of public enterprises at the time of the Transnet locomotive deals. 

READ: Malusi Gigaba named in bombshell Treasury report on rot at Eskom, Transnet

He approved the multibillion-rand deal for the purchase of 100 locomotives for use on Transnet's coal lines, despite not having enough information to make the approval in the first place.

In addition, Gigaba's approval of the R4.8bn contract took place even before the Transnet board had approved the deal.

The origins of the Gigaba's flawed approval stems from Transnet's large-scale fleet renewal and modernisation plan.

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This plan, approved by the Transnet board in April 2011, entailed the purchase of 1 064 locomotives by the parastatal to expand its aging fleet.

Transnet needed the locomotives sooner, resulting in the expedited procurement of about 100 of these locomotives through a closed tender process in April 2013.

R1bn escalation in contract

But the procurement process was flawed. The forensic report, drafted by Fundudzi Forensic Services, determined that then Transnet chief executive Brian Molefe and chief financial officer Anoj Singh had influenced the procurement process and misled Transnet's board acquisition and disposal council to hand the contract to Chinese rail giant China South Rail (CSR).

Because of the backroom wheeling and dealing, the contract price escalated by R1bn, from R3.8bn to R4.8bn. It also led to Transnet switching suppliers from the 100% locally manufactured Mitsui to CSR, which only manufactured 60% of its locomotives locally.

It would later be reported that Molefe, Singh and CSR had links to the Gupta family, and that the procurement resulted in kickbacks being paid to the Guptas.

The cascading consequences of their actions would result in Gigaba approving the transaction, despite lacking the information required to do so.

It would also lead to Gigaba giving the deal the green light a full five days before the Transnet board formally approved the amount of the purchase.

Gigaba wanted the deal to be exempt from stipulations in the Preferential Procurement Policy Framework Act (PPPFA), but the report says: "Minister Gigaba acted outside his authority in advising Transnet to continue to procure the locomotives as if the exemption of the PPPFA was in place before finance minister granted full exemption."

The report also found that Gigaba "compromised" the procurement process when he agreed to sign the agreement between Transnet and the suppliers as a witness. 

Uninformed decision

The Transnet board initially approved a purchase price of R3.8bn on January 24, 2013. The amount, according to the report, represented the purchase of 100 locomotives at just over R38m each. 

By time the deal landed on Gigaba's desk in May 2014, Molefe and Singh's dealings spiked the cost to the parastatal to R4.8bn.

The increase in the purchase price breached a threshold contained in the Public Finance Management Act (PFMA) and a shareholders' compact signed between the Department of Public Enterprises and Transnet at the time.

In terms of the compact, any acquisition or disposal of assets of more than R2bn must be reported to the minister, and should this amount exceed R3.8bn the minister must provide his express approval for the deal.

Because of the jump in purchase price, from R3.8bn to R4.8bn, Gigaba now had to approve the transaction, instead of simply noting it. Gigaba did so despite lacking critical information he required to make the decision.

His reply to Transnet reads:

"I therefore request that Transnet furnish me with a copy of the agreement concluded with China South Rail (CSR) as this will provide an in depth understanding of the transaction that Transnet is entering into and enable the Department to assess the risks pertaining to the proposed transactions." (our emphasis)

Gigaba raised four other matters on which he required further information from the board, including the board's risk mitigation plans and their reasons for opting for a closed tender.

Worse still, it would seem Gigaba did not even have any approval for the R4.8bn deal.

"Moreover, the amount indicated in the certified excerpt from the minutes of the special board of directors meeting held on 24 January 2014 differs from the amount indicated in the Transnet's section 54 application. I therefore request the resolution of the board of directors approving the transaction at the current transaction amount of R4.84bn as the one indicated in the section 54 application relates to the initial approved amount of R3.9bn."

Despite this, Gigaba concluded his letter with the following:

"In spite of the concerns raised above, I do acknowledge the business need for the acquisition of these additional 100 locomotives for the coal line in order to avail more locomotives to be cascaded to the general freight business. I therefore, grant Transnet the approval to acquire the 100 locomotives subject to Transnet addressing the concerns raised above and providing the department with the outstanding information as outlined".

Gigaba approved a deal for R4.8bn, with only a R3.8bn approval by the Transnet board before him.

Tellingly, the Fundudzi report found that on the day that Gigaba's approval was granted, Singh and Molefe convinced the Transnet board to increase the procurement amount from R3.8bn to R4.8bn.

Recommendation to recover money lost

In his response to investigators, Gigaba claimed that his approval was conditional on Transnet complying with his requests.

However, investigators could find no proof that these requirements had been complied with. 

"We further determined that Minister Gigaba approved the application in terms of section 54 of the PFMA knowing that he was relying on incomplete documentation submitted by (board chairperson Mafika) Mkhwanazi. This is evident by his response to Mkhwanazi requesting, after approving the application, the board resolution for an increased ETC (estimate total cost) to R4.8bn.

"Minister Gigaba approved the acquisition of 100 locomotives at ETC of R4.8bn, despite raising various concerns inter alia, failure by Mkhwanazi to submit a board resolution for the increased ETC to R4.8bn."

The report recommends that the Transnet board considers taking steps to recover some of the money lost in the procurement of the locomotives. 

This includes penalties owed by CSR, China North Rail and Bombardier for the late delivery of the locomotives.

It also recommends that several executives, including Singh, Molefe and Siyabonga Gama be referred to the Hawks for investigation.

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Read more on:    transnet  |  gupta brothers  |  malusi gigaba  |  state capture  |  corruption  |  crime

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