Interventions by Transnet’s former CEO Brian Molefe and the group’s former chief financial officer, Anoj Singh, saw the total cost of new locomotives spiral up by R20 billion, the Commission of Inquiry into State Capture heard yesterday.
And, bid evaluation spreadsheets which showed the costs increase from R34 billion to R54 billion were kept secret by the group’s top executives. Transnet’s former electrical engineer, Francis Callard, told the commission what had gone wrong in the acquisition of 1,064 locomotives, a deal which Transnet entered with China South Rail and its sister company China North Rail.
Gupta-linked entities became the main beneficiaries. Callard – who drafted the original business case for Transnet Engineering (TE), a division of Transnet – described the price increase as “illogical”.
According to Callard, inconsistency in the application of TE pricing by Transnet group executives revealed that flawed governance processes were followed. Despite the original price indicated in the TE business model having included forex hedging and other price escalations, figures soon ballooned to R54 billion after recommendations made by Molefe and Singh to the Transnet board.
With the multibillion Molefe-Singh shambles having driven Transnet into a financial hole, the National Treasury report released last year put the blame on Molefe, Singh and other former executives for:
- Contravening section 57 of the Public Finance Management Act (PFMA) due to failure in taking effective and appropriate steps to prevent irregular, fruitless and wasteful expenditure.
- Misleading the Transnet board into believing that the R38.6 billion only excluded borrowing costs, “when in fact the said estimated value included potential effects from foreign exchange market (forex) hedging, forex escalation and other price escalations”.
National Treasury determined that on May 23, 2014, Molefe addressed a memorandum to the Transnet board acquisition and disposal committee, requesting the committee recommend to the full board an increase from R38.6 billion to R54.5 billion in the ETC for the acquisition of 1064 locomotives for general freight business.
According to the memorandum, the increase of R15.9 billion in ETC, which was approved by the board, was due to:
- Escalations from the approved business case to award date.
- Forex from the approved business case to award date, among other things.
Hearings into the capture of Transnet continue.
Brian Sokutu / The Citizen