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A cool R36m for a day’s work: Transnet and a notoriou...

South Africa

DAYS OF ZONDO

A cool R36m for a day’s work: Transnet and a notorious Homix deal

Illustrative image. Photo: Salim Essa/Daily Maverick and Former Transnet CEO Brian Molefe, May 30, 2017 in Cape Town, South Africa. (Photo by Gallo Images / Sowetan / Esa Alexander)

Former Transnet negotiator tells State Capture Commission of delays and diversions that snarled up communications network transaction with Neotel.

Transnet bosses played ping-pong with a lucrative deal, one with potentially catastrophic consequences for the business, until it was finally awarded to telecommunications company Neotel back in 2015.

And the deal was sealed only after the arrival on the scene of the notorious Gupta-linked letterbox company, Homix, which raked in R36-million – ostensibly for having helped Neotel to conclude the R1.8-billion network services contract.

Based on documents submitted to the State Capture Commission, it would appear the payment, at two percent of the contract value, was effectively for just one day of “work”.

This was revealed on Monday in testimony to the commission by Gerhardus van der Westhuizen, Transnet’s lead negotiator in a controversial 2015 contract for network services, essentially the backbone of communications across Transnet’s rail and port systems.

The genesis of this deal goes back to around 2007, when Transnet sold various non-core assets, including Transtel, its network service provider that owned and ran the parastatal’s ICT network infrastructure, including some 9,000 km of underground fibre and copper cabling that allowed its systems to communicate, to Neotel.

The deal expired in 2013 when Transnet invited new bidders to tender. Neotel won but former Transnet CEO Brian Molefe allegedly unilaterally overturned a formal decision to award the company the deal, instead deciding it should go to bidder number three – T-Systems.

Things were also complicated by the fact that Neotel effectively owned Transnet’s infrastructure as a result of that earlier deal and ultimately Neotel was brought back to the negotiation table to renegotiate a new Master Service Agreement and to thrash out how Transnet would buy back its assets as part of the deal.

Van der Westhuizen, a chartered accountant formerly employed by Transnet, explained how, towards the end of a protracted process to finalise the deal, he had attended a meeting at Neotel on December 13 2014 at which he presented the final draft of a Master Service Agreement (MSA) between Transnet and Neotel.

He said Neotel had had Transnet over a barrel and the parastatal was the company’s biggest customer – walking away from the negotiations was never an option for either of the two parties.

But unbeknown to Van der Westhuizen, Homix had sent a letter to Neotel a day earlier, on December 12 2014, in which it said it would be able to help finalise the deal with Transnet.

This would be in exchange for a “success fee” of R25-million payable within 30 days of Neotel and Transnet signing the MSA. The price later shot up.

The letter shows how Homix – a company that had never featured during the lengthy negotiations between Transnet, Neotel and external legal advisers – was somehow aware of an apparent non-existing deadlock in the negotiations that would result in a “loss of business”, a factor seemingly confirmed to Homix by Transnet.

The timing of this Homix consultancy letter and a subsequent agreement dovetailed perfectly with the envisaged dates of Transnet and Neotel signing the deal, Van der Westhuizen told the commission.

It suggests that Homix had an inside track on the status of the negotiations and the anticipated timeframes for signing the Master Service Agreement.

And, while virtually all the work to conclude the deal had been wrapped up, Homix then sneaked in as a de facto saviour for Neotel – albeit unwarranted.

Extensive reporting by Amabhungane has exposed Homix as the alleged recipient of kick-backs from deals between state-owned companies and private suppliers.

The company’s name also came up during recent testimony by Standard Bank’s group legal counsel, Ian Sinton.

Van der Westhuizen told the commission that he had been intimately involved in the negotiations for the contract right up to the end of 2014, when he left the company.

He had resigned months earlier but Transnet bosses, including former CFO Anoj Singh, had asked him to stay on to wrap up the deal in view of his intimate knowledge of the various factors at play. He received a R350,000 bonus as part of an incentive to see the deal through to the finalisation.

He had led a commercial stream on the Transnet side and there was nothing about the deal or the negotiations that Van der Westhuizen did not know.

Yet, he would learn about the existence and role of Homix in allegedly facilitating the deal some six months after he left Transnet through an Amabhungane expose.

The commission unraveled a series of communications between Homix – a company with ties to Gupta kingpin Salim Essa – and Neotel over a consultancy agreement between the two entities.

This is widely believed to have been a kick-back agreement disguised as a consultancy deal.

A letter from Homix to then Neotel MD Sunil Joshi confirms “today’s engagement” regarding the MSA and the related asset sale negotiation with Transnet and the “impasse”, and presumably, the prospect of “lost business”. Furthermore, it said that Neotel wished to engage Homix to settle the “impasse” and to help find a workable solution for both Transnet and Neotel.

Importantly, it noted an initial success fee of R25-million for such assistance and “expertise” for the deal, which would otherwise be lost.

Van der Westhuizen testified that there was no “impasse” at this stage and if there had been, he would have been aware of it.

The final MSA had been drawn up and was concluded – the very next day, Van der Westhuizen said.

The commission’s legal team then presented an updated consultancy agreement containing slightly different terms as well as an invoice from Homix to Neotel, dated 2 January 2015, now in the amount of R36-million.

I would love to know who at Transnet they had engaged. There was no option for Transnet but to contract with Neotel at this stage. They had us cornered,” Van der Westhuizen testified.

He said the various correspondence presented by the commission’s legal team between Homix and Neotel appears to relate to the very MSA discussions he had been involved in and Transnet’s negotiations as well as an asset buy-back component. The commission is expected to hear further evidence, including on money trails, involving Homix.

Van der Westhuizen earlier testified on the circumstances around which Molefe allegedly initially switched the awarding of the contract from Neotel to T-Systems.

He told the commission that no process was followed and that Molefe had called him into a single meeting to announce that the deal would not go to Neotel for a range of reasons, including a late reduction in price from T-Systems. This, Van der Westhuizen said, was not a factor that should have been considered because none of the other bidders had been given a chance to better their prices.

Prior to legal concerns resulting in Neotel, in fact, clinching the deal, Van der Westhuizen said Molefe had made him feel that his job was on the line for objecting to Molefe having overturned the awarding of the bid.

He said he had “violently objected” to Molefe’s decision but realised it would have been career suicide had he persisted.

He started circulating his CV almost immediately after that meeting with Molefe and others on the 49th floor of Transnet headquarters. DM

  • The commission continues on Tuesday with testimony by Tshiamo Sedumedi of MNS Attorneys, a law firm that has investigated various Transnet deals.
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