Popo Molefe: Transnet haunted by state capture past

The unveiling of Loco42 - the most advanced and most locally built diesel locomotive in SA, on June 27, 2012 in Pretoria.  (Photo by Gallo Images / Foto24 / Deaan Vivier)
The unveiling of Loco42 - the most advanced and most locally built diesel locomotive in SA, on June 27, 2012 in Pretoria. (Photo by Gallo Images / Foto24 / Deaan Vivier)

Transnet told Parliament's Portfolio Committee on Public Enterprises on Wednesday that it was seeking to have irregular expenditure dating back to the state capture era ring-fenced, so it would not undermine the entity's audit outcomes and credit rating.

Transnet told the committee that it had worked to improve governance and unearth irregularities behind by past leadership. The Auditor General found irregular expenditure of R49.9bn and fruitless and wasteful expenditure of R507m in its 2019 report, up from R23.5m in 2018.

Molefe added that because much of the earlier irregular expenditure, as well as fruitless and wasteful expenditure, was only unearthed during the past financial year, it reflected as having been incurred in the period under review.

The findings, which led to a second consecutive qualified audit opinion for the entity, played a role in ratings agency Moody's changing its outlook for Transnet to negative, although it affirmed the entity’s Baa3 rating. This has implications on borrowing costs and ability to raise funds for Transnet.

Molefe told the committee that receiving back-to-back qualified audit opinions was of deep concern for Transnet, but stressed that this did not mean that the entity was not working on improving governance at the entity.

'No hiding' irregular spend 

"The results of our investigations which revealed irregularities, would mean that irregular expenditure was going to be high. There was no hiding that. This irregular spending is a confirmation of the assessments we had been making in that year," said Molefe.

Molefe said in some instances the Public Finance Management Act did not allow Transnet the flexibility to procure goods and services it needed for operations and capital projects.

"The old way of PFMA takes us months on end to procure straddle carriers. We need a discussion with the Department of Public Enterprises and National Treasury that if we are dealing with extraordinary circumstances you need to adopt extraordinary measures to address the challenges," Molefe said.

Transnet acting Group CEO Mohammed Mahomedy said it was likely that irregular expenditure would continue to appear in Transnet's financial statements in future, but that this was as a result of long-term contracts entered into years ago which were irregular.

"Irregular expenditure in the next financial year will continue. Some of these contracts will continue. We have been engaging with entities to ensure that we can find a way to discontinue to these contracts," said Mohamedy.

Mohamedy told Fin24 that Transnet already had internal talks on the matter and was developing a document for the Department of Public Enterprises and National Treasury to consider.

Transnet saw its profit for 2019 increase by 24.7% to R6bn, according to the entity’s annual financial statements. Revenue increased by 1.6% to R74.1bn for the year.

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