State capture ‘hurt’ local rail firm
Cast Products SA insider says locomotive specifications were tailored for Guptalinked company
● An engineering company majority-owned by the Industrial Development Corporation (IDC) was elbowed out of a share of Transnet’s R54bn tender to build 1,064 locomotives after the specifications were tailored to benefit a Gupta-linked entity, a company insider says.
Almost 10 years later, the company, Cast Products SA, is now in business rescue. Cast Products, once a foundry division of Scaw Metals before it was sold by Anglo American to an IDC-led consortium in 2012, was among the local locomotive component manufacturers that expected to get a slice of Transnet’s R300bn infrastructure investment programme.
While the company, which was carved into four companies in 2018 and renamed Cast Products, has not blamed Transnet for its woes, former employees say if the business they expected had materialised, Cast Products would have been on a firmer financial footing.
Company representatives attended Transnet’s market demand strategy programme’s roadshows in 2013 and 2014, some of which were addressed by former group CEO Brian Molefe who was arrested and appeared in court this week on charges arising from an alleged fraudulent R93m related to a 2012 advisory tender, a precursor to the locomotives contract.
The payment was made to Gupta-linked company Trillian, which was lead arranger for a club loan to finance the 2014 deal.
A Cast Products spokesperson said yesterday the company had spent money to position itself to benefit from the Transnet capital investment programme, but came away empty-handed.
The spokesperson gave no details of the investment but said it was “only a small part of its overall business operations at the time”. The company “has been experiencing severe financial problems over the past four years and has been unprofitable for a very long time”.
However a company insider, who spoke on condition of anonymity, said Cast Products had invested “millions” in a new plant in expectation of winning a share of the Transnet contracts, only to lose out after the specifications were tailored to suit Guptalinked VR Laser. VR Laser was acquired by Gupta associates Salim Essa and Iqbal Sharma in 2013.
Sharma was arrested and appeared in court last year in connection with a payment of R25m that the Free State department of agriculture
made to his company, Nulane Investments.
Essa’s name features in the indictment detailing the case against Molefe, former Transnet CFO Anoj Singh and their co-accused.
The Cast Products insider said at the time the company, whose Germiston foundry is one of the largest in the southern hemisphere, expected “big” orders from the four foreign companies that won tenders to build the 1,064 locomotives.
“The way it was going to work, we would have made the components and supplied the components to the locomotive builders Bombardier, General Electric and the two Chinese locomotive builders [China South Rail and China North Rail] ... to eventually supply to Transnet, as there was a requirement for meeting certain localisation targets,” the insider said.
“The modelling that we did showed that ... the company would be sustained for between five and 10 years, as the orders from Transnet would have provided a base for the foundry business to seek other business internationally.”
But when the contracts were awarded, Transnet specified that it wanted the locomotive frames to be fabricated, not cast — a different process that effectively excluded Cast Products and pushed the business to VR Laser.
“Transnet opted to use fabricated frames not cast frames, so we discovered afterwards that VR Laser got the contracts to supply the steel,” the insider said. “It was only later when the information became public that we were able to join the dots.”
Transnet Freight Rail (TFR) is now issuing a request for proposals as it seeks to acquire more locomotives. It declined this week to specify a number, saying that information will only be made available when a request for proposals has been issued to the market.
“New locomotives are needed in order to address the shortage of rolling stock and replacement of legacy fleets as well as address the volume demand which is anticipated to increase to 233Mt [in freight] over the next 10 years,” TFR said in a statement.
Meanwhile, the Special Investigating Unit (SIU) is awaiting the outcome of its application, lodged in association with Transnet in the high court in Johannesburg, for the review of the contracts for the 1,064 locomotives. In September last year, the SIU and Transnet were granted a preservation order to freeze R4.2bn held in bank accounts linked to CRRC E-Loco Supply, the Chinese company formed out of the merger between China South Rail and China North Rail.
“Once we set the contract aside, we will then move with speed towards recovering the money,” said SIU spokesperson Kaizer Kganyago.
This week, Business Day reported that Transnet reached an in-principle agreement with CRRC to resolve all legal disputes after the company withheld spare parts for the locomotives it had supplied.
“The next steps will be to finalise a definitive settlement agreement and complete the resolution of the current legal disputes,” Transnet said.
Transnet spokesperson Ayanda Shezi declined to comment on the Cast Products case.
We discovered afterwards that VR Laser got the contracts to supply the steel. It was only later when the information became public that we were able to join the dots Cast Products source