Light shed on irregular rail deal
• Draft report reveals Molefe and Singh signed off on locomotive deal while other executives and managers were on holiday
Brian Molefe and Anoj Singh signed off on an irregular rail deal on New Year’s eve that resulted in two train makers scoring contracts that were allegedly inflated by R11bn.
This emerged from an explosive draft report that was commissioned by the Treasury into an alleged looting spree at Transnet and Eskom by the Guptas and their associates.
The interim report, by Fundudzi Forensic Services, pointed to several anomalies in procurement processes followed when Bombardier and China South Rail (CSR) were awarded the contracts. Bombardier was contracted to supply 240 electric locomotives for R13bn and CSR 359 locomotives for R18bn, bringing the total price tag to R31bn. Bombardier initially stood to earn only R8bn and CSR R12bn, or R20bn in total.
Bombardier has said the price differential could be explained by the fact the firm initially put in a bid for 599 locomotives at a lower cost per unit.
The draft report for the Treasury flagged several irregularities with the deal.
It found that Molefe and Singh had signed a memo on December 31 2013 while their fellow executives and managers were on holiday, requesting best and final offers from only two out of five shortlisted bidders to supply 599 electric locomotives.
This formed part of a tender Transnet issued for 1,064 locomotives. By contrast, the four shortlisted bidders for the remaining 465 diesel locomotives were asked for final offers.
The draft report concluded that Molefe and Singh’s “conduct did not treat the bidders equally when they requested best and final offers for two bidders only in respect of the 599 tender”, which contravened Transnet’s supply chain policy.
The report also found that Transnet had failed to penalise the companies for late delivery of locomotives, as stipulated in their contracts. In the case of CSR this amounted to a total of R190m for its three contracts at Transnet worth a total of R25bn.
The investigators cited a host of irregularities with these contracts, including huge price escalations without proper justification. Documents contained in the Gupta leaks later showed that CSR had earmarked suspected kickbacks worth R5.3bn for Gupta-linked companies in the UAE and Hong Kong.
The report cites documents that showed that in the original business case the total pricetag for all 1,064 locomotives was R38.6bn. This included R6.7bn for contingencies, price escalations and forex fluctuations. But in March 2014 Molefe signed contracts with four train makers worth a total of R54.4bn.
The report found ministerial and Treasury approval had not been obtained for the price increase before the contracts were concluded.
Documents cited in the draft report said the new calculation included an added contingency fee of R4.9bn, which it described as an “overstatement” because contingency costs had already been budgeted for in the original business plan.
Another irregularity flagged was that currency hedging costs were calculated on advance payments totalling R11.8bn made to the four rail manufactures when they signed the contracts on March 17 2014. This led to an cost overstatement of R1.1bn , the report concluded. But when the Transnet official who drafted the original business case heard the price tag rose by R16bn, he redid his calculations but could not determine how Transnet had arrived at the inflated figure, the report says.
Molefe and Singh had not responded to questions from the investigators by the time the interim report dated July 2018 was drafted.