South Africa

Days of Zondo Newsflash

Transnet’s acting chief, Mohammed Mahomedy dishes the dirt on dodgy contracts

Transnet’s acting chief, Mohammed Mahomedy dishes the dirt on dodgy contracts
Archive Photo: Transnet CEO Brian Molefe at the signing of a new deal to build locomotives for Transnet Freight Rail on March 17, 2014 in Johannesburg, South Africa. Transnet has awarded a total of R50bn worth of contracts to two Chinese and two North American railway groups for the production of new-generation locomotives. China South Rail (CSR) will take the biggest share of the R50.4 billion contract. Transnet plans to build 1,064 electric and diesel locomotives as part of its R308bn market demand strategy to 2019. (Photo by Gallo Images / Business Day / Puxley Makgatho

Transnet acting group chief executive Mohammed Mahomedy is currently testifying at the Zondo Commission to a series of suspect dealings around several controversial contracts under investigation by the State Capture Commission.

As expected, Mohammed Mahomedy named former executives and senior managers, Brian Molefe, Anoj Sigh, Thamsanqa Jiyane, Gary Pita and Phetolo Ramosebudi whose fingerprints are allegedly all over the questionable dealings, in the following deals:

  • The acquisition of 1,064 locomotives from four original equipment manufacturers including China South Rail which appears to have enjoyed several special favours. The Commission previously heard testimony about how CSR had paid up to 21% of invoices billed to Transnet to a suspicious Gupta-linked company called Homix;
  • An advisory contract for the locomotive deal that was “ceded” to another Gupta-linked Regiments Capital Partners by McKinsey & Co which originally held the contract. Mahomedy told the Commission the price tag for this service went from R35-million to R280-million once switched to Regiments;
  • A bid to double the value of auditing work with another Gupta-linked company, auditing firm, Nkonki to R1-billion in 2017; and
  • The circumstances and costs relating to the relocation of operations from Gauteng to Durban for two of the locomotive suppliers, including China South Rail.

Mahomedy told the Commission that a high-level review of these deals was done once the new Board arrived in May last year and was largely triggered by media reports around corruption at Transnet.

On the review of governance within Transnet, we found that some of these deals were approved through the normal process and some not.”

The 1,064 locomotive deal is by far one of the biggest deals done to date in South Africa since 1994 but the deal has been marred by allegations of corruption after it went from an initial price of R38-billion to R54-billion.

Mahomedy testified to how the price tag shot up after an initial business case and financial model that took into account currency fluctuations and contingencies among other things, were simply overridden.

He referred to a memo submitted directly to the Transnet Board by Brian Molefe for approval of the new total price tag for the locomotives without subjecting it to any further processes through Transnet’s usual structures.

Molefe’s memo for Board approval also went through after Transnet had entered into contracts for the locomotives, he said.

Then, he testified to how McKinsey & Co had landed a contract to advise Transnet on the 1,064 locomotive deal but walked away when confronted with a super tight six-week deadline.

This paved the way for Regiments Capital to step in. While there have been claims that McKinsey had ceded the contract to Regiments, Mahomedy says investigations have to date found no trace of an actual contract for the cession thereof.

There was discomfort from McKinsey around the time frame of the proposed negotiations which did not make any sense in view of the magnitude of the deal (one of the biggest in the world then), Mahomedy said.

While Transnet has not been able to find a copy of a contract ceding the deal to Regiments, they have found a letter in terms of which McKinsey ceded the work to Regiments.

The date of this letter, April 2014, is significant because by then Transnet’s letter of intent issued to McKinsey had actually expired so there was no Master Service Agreement in place.

In other words, there was no contract to “cede” to Regiments, he said.

And, based on that letter from McKinsey to Regiments, the supposed cession was effective from February 2014.

Yet, another piece of dated correspondence shows that Anoj Singh had entered into a contract for the exact deal at least a month earlier, Mahomedy said.

This illustrates a parallel system at play,” Mahomedy said.

McKinsey was appointed through a process but Regiments was now being appointed for the same service on the side.

Again with no sign of procurement processes,” he said.

And, the contract between Singh and Regiment’s director, Niven Pillay, contained a handwritten note signed by Singh, now providing for the value of the deal to jump from R35-million to R285-million, Mahomedy told the Commission.

His testimony continues with a detailed account of the various interventions by some Transnet bosses in allegedly aiding China South Rail to a slice of the lucrative locomotive deal. DM


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