TRANSNET INQUIRY REFERENCE BOOK

A Resource for Parliament’s Public Enterprises Inquiry

Civil Society, Journalists & Engaged Citizens

Version 1 In September 2017, Parliament’s Public Enterprises Committee began its inquiry into alleged manifestations of state capture in three of ’s state owned companies (SOCs): , Transnet and . The Committee is mandated to drive a targeted investigation that ultimately brings to light the information necessary to more fully understand the manner in which the governance of key institutions may have been repurposed to facilitate large-scale corruption by a politically connected elite. The authors of this reference book have set out to provide an independent, accessible, concise, and fact-based account of some, but not all, of the alleged instances of governance failure and corruption at Transnet. The authors hope that a streamlined and objective account of the deeply complex challenges facing the SOC will be of assistance to the Committee, as well as members of the general public.

Beyond shedding light on specific instances of wrongdoing – whether through dereliction of duty or overt corruption, it is hoped that the Committee will also probe higher level structural and governance questions in order to make recommendations around strengthening and reforming institutions in the future.

This booklet has been authored by Devi Pillay and Nicky Prins of the Public Affairs Research Institute. Research support was provided by Waseem Holland. It is part of the State Capacity Research Project - a group of academics from research institutions at the Universities of Stellenbosch, , and . TRANSNET INQUIRY REFERENCE BOOK

This report is based on ongoing investigations and information available in the public domain. It is therefore being constantly updated as new information emerges.

State of State Capture...... 2

Setting sights on Transnet...... 3

Timeline...... 4

Repurposing Transnet governance...... 8

Locomotive Procurement...... 12

ZPMC and the seven ship-to-shore cranes...... 16

Liebherr and the 22 cranes...... 18

Transnet and SAP...... 19

Neotel and Homix...... 21

Regiments/Trillian...... 22

T-systems...... 27

Software AG...... 30

Still in the Shadows...... 31

Recommendations...... 32

Transnet Inquiry Reference Book 1 STATE OF STATE CAPTURE

At the start of November 2016, former Public Protector Thuli Madonsela’s State of Capture report was made By shedding light on the modus operandi of a public after President Zuma’s legal team withdrew its network of implicated individuals and joining the bid to interdict its release. A turning point, Madonsela’s dots between examples of known impropriety, the report provided the first comprehensive legal analysis plausibility of any claim that reported irregularities of the alleged systemic corruption being perpetrated are random or unconnected – as would be the case through state owned companies (SOCs). with generalised corruption or maladministration – has been diminished. What the Betrayal of the Since then, South Africans have witnessed the rallying Promise report demonstrated, and what new, of civil society, investigative journalists, academia, emerging information confirms, including this public leaders and concerned citizens, who have come report, is that ‘state capture’ was a systematic together to further this civic work – including through project to repurpose government institutions. groups such as the South African Council of Churches This is evidenced in the centralisation of decision- (SACC), the State Capacity Research Project (SCRP), making power, the hollowing out of executive and and the Organisation Against Tax Abuse (OUTA). The oversight competencies by granting top positions in SCRP’s Betrayal of the Promise report was a defining SOCs and Ministries to inept or corrupt individuals, moment in the turning tide against state capture. and the cultivation of fear and mistrust through the From these efforts, an overwhelming and growing establishment of ‘shadow’ institutions and lines of body of evidence - including that contained in the accountability. Such a ‘project’ would allow for the #guptaleaks – has been built, which indicates that the possibility of grand corruption at the highest level, political power vested in the former President, certain the full ramifications of which have yet to be felt. ministries, and the boards and executives of SOCs has been misused to benefit the interests of connected individuals and entities – most prominently the Gupta Allegations that such practices have been intentionally family. This has been to the detriment of the functioning waged across a range of government institutions and of Government and those entities within the ambit of within SOCs have been levelled, leading the Portfolio state governance. Committee on Public Enterprises to initiate an inquiry into governance failure and the abuse of public resources at Transnet, Eskom, and Denel.

2 Transnet Inquiry Reference Book SETTING SIGHTS ON TRANSNET

Transnet is South Africa’s state-owned freight transport – that is, without a tender. Almost all of the contractors and logistics company and is the custodian of the flagged in this report have paid kickbacks to front country’s rail, ports and pipeline networks. Transnet’s companies related to the . The evidence infrastructure facilitates the movement of goods suggests that payments were often for arranging the from where they are produced to where they are contract awards, for assisting to launder monies abroad, consumed within the country. This promotes trade with or else appear to reflect a business arrangement to our neighbours and provides a connection to export share the ‘plunder’. markets. It is critical as an enabler of cost-effective, These corrupt deals have been facilitated by the efficient, and seamless movement of goods through our ongoing, systematic weakening of governance economic system. structures within Transnet. The appointments of It operates as an integrated freight transport company, captured or otherwise inept individuals to boards comprising five operating divisions in addition to and executive positions has been exacerbated by the Group leadership in the head office. These divisions centralisation of power in Transnet – including hiring and are: (TFR), Transnet National procurement powers – within these boards and within Ports Authority (TNPA), Transnet Port Terminals (TPT), the Group executive team. This has been compounded Transnet Rail Engineering (TRE) and Transnet Pipelines by the outsourcing of elements of internal treasury, (TPL). audit, enterprise data management and other corporate functions to related network of private firms that were Transnet’s assets are valued at R351 billion and its annual often captured themselves. income for the 2017 period was R65bn. Transnet is currently six years into its R300bn capital expenditure Burgeoning costs, arguably propelled by rent-seeking plan, the Market Demand Strategy, aimed at expanding and corruption, have massively increased Transnet’s rail, ports and pipeline infrastructure thereby enabling procurement spend. The impact of state capture – the economic growth. Transnet has invested at least R145 weakening of treasury and governance functions within billion in the last five years, and expects to invest a the Transnet – has damaged the institution’s ability further R229.2 billion by 2024. This aggressive capex to effectively deliver on its mandate. The capture of plan has left the SOC vulnerable to corrupt interests, company leadership, who focus more on malfeasance especially in the realm of procurement. than on steering the company in its interests, has been tremendously damaging. The effects of this on the As this report details, corruption at Transnet has South African economy and prospects for economic centred largely on procurement, including questionable development and transformation hardly need to be contracts for port cranes, locomotives, IT services, and stated and reinforce the urgent need for governance and advisory, financial management and consulting services. structural reforms at the SOC. Many of these contracts were awarded by confinement

Transnet Inquiry Reference Book 3 TIMELINE 2009–2015

Siyabonga Gama dismissed Chris Wells, dismissed from his as Minister of Public President Zuma acting CEO of Anoj Singh position as Transnet Enterprises, having appoints Malusi Transnet since becomes made Acting Freight Rail CEO over resisted President Zuma’s Gigaba as 2009, resigns, President of CFO of irregular contract alleged interest in SOC Minister of Public effective from South Africa Transnet awards Board Appointments. Enterprises March 2011.

2009 2009 2010 2010 May June Nov

Transnet launch the ZPMC makes payments Anoj Singh Market Demand Guptas begin of at least US$4.2m made Strategy, a R300bn targeting to JJ Trading. Most China South Rail Iqbal Sharma permanent capital investment Transnet of it is sent to Gupta win a R2.7bn made head of CFO at programme (including locomotive companies in UAE and tender to build BADC Transnet locomotives of R51bn) contracts. South Africa. and supply 95 locomotives. 2012 Aug McKinsey-led 2012 2012 2012 Dec 2011 to consortium wins July April Jan 2013 contract to provide 2012 financial advisory Oct By this date, Guptas and Worlds Window Swiss-based Liebherr services of R35.2m (parent company of JJ Trading and Century International AG are for the project. General Trading) have made 251 transactions Transnet alleged to have entered McKinsey replaces between their companies in Dubai, India put out into a contract with their empowerment and South Africa, including distributing tender for Guptas to land a crane associates, Letsema, 2012 payments from China South Rail and ZPMC. 22 cranes. contract with Transnet. with Regiments, when Dec Transnet claims a conflict of interest. 2013 2013 Feb New Cabinet An investment Transnet awards Guptas try to Singh begins announced: account, ‘Venus Ltd’, Neotel a contract Amabhugane buy Regiments, first visit Lynn Brown transferred by Gupta to provide CCTV releases report unsuccessfully. to Dubai, takes over as associate into the services worth revealing organized by Minister of Public name of Anoj Singh R329m, without a Sharma’s Guptas. Enterprises. in Dubai. competitive tender. evident conflict of interest with the locomotives tender. 2014 2014 2014 2014 Sharma lodges June May May complaint to press ombudsman over 2014 Amabhungane report, Transnet award Neotel an but loses case as the R1.8bn contract to provide ombudsman finds that network services, but only Singh in Dubai Amabhungane made finalise after Neotel agrees to again, organized reasonable arguments pay Homix a 2% fee. by Guptas. around the conflict of 2014 interest.

4 Transnet Inquiry Reference Book 2014 Aug Governance Board assumes Guptas’ New Age oversight of large Locomotives Advisory accurately predicts new tenders with appointments to Eskom creation of the Board Cranes Money laundering Board (Don Mkhwanazi Acquisitions and and Ellen Tshabalala) & Disposals Committee IT & Media Gifts CEO (Brian Molefe) (BADC)

Brian Molefe appointed Transnet CEO despite 2010 2011 objections from COSATU Dec Feb that he had close links with ZPMC wins contract to ZPMC sign contract Cabinet rejects Gigaba’s the Gupta family 2011 supply Transnet with 7 with JJ Trading, a proposal that Iqbal Sharma March ship-to-shore cranes. Gupta associate be made chairman of board Siyabonga Gama reinstated The contract includes a company, to help at Transnet, reportedly due as a Transnet executive US$12m premium to pay land crane contract. to concerns over his close (head of Transnet Freight JJ Trading. ties with the Guptas. Rail) by new Board despite being dismissed for corruption.

2011 2011 Sept June

Liebherr Singh and Molefe pay Accurate increase McKinsey’s Sharma and Essa Investments, a contract to R41.2m, and Sharma leaks document negotiating to buy VR Gupta company, McKinsey reassigns on 100 locomotive Laser, a potential supplier just under tender to Guptas. most of it to Regiments. US$1m. to locomotive builders.

China South Rail awarded contract to 2013 supply 100 locomotives, July 2013 to 2013 2013 Dec without an open tender. May 2014 Oct Nov China South Rail wins 2014 Singh and Neotel wins Liebherr land a contract contract to supply 359 Jan Molefe increase contract worth to supply 22 cranes to locomotives to Transnet, Regiments’ R300m, after Transnet. Further payments whilst General Electric, contract by Homix offers to made to Accurate, who Bombadier and China North R78.4m. assist for a 10% 2014 forward most of it to Gupta Rail win smaller contracts. fee. Feb relatives in the US. Salim Essa and the Guptas buy VR Laser’s operations 2014 side, and Iqbal Sharma buys 2014 2014 2014 Feb–March April April March the property.

Homix transfers Singh payments from Group Treasurer, Mathane in Dubai Neotel, Burlington, Makgatho, resigns. Replaced again, and Cutting Edge by Phetolo Ramosebudi, organized to BAPU Trading whose brother worked at Continues on next page by Guptas. overseas. Regiments, then Trillian.

5 2014 Early Nov 2015 TIMELINE 2015–2018

Ramosebudi Transnet award Neotel an Burlington Strategy Advisors, a approves Singh extension on the CCTV services subsidiary of Regiments, enter expansion of in Dubai contract worth R505m, the into a contract with Liebherr Regiment’s again, day after Neotel sign another for “market feasibility studies” contract to organized agreement with Homix, and again on cranes for Transnet and are R265.5m. by Guptas. without a competitive tender. paid R2m deposit.

2015 2015 Feb March

Regiments SAP sign contract appointed as Salim Essa buys Trillian, a with CAD House, Regiments starts organizing asset manager of competitor to Regiments. a subsidiary of interest rate swaps on Transnet’s Second Eric Wood begins Sahara Computers, Transnet loans, where the risk Defined Pension splitting from Regiments to land contracts is transferred to the Transnet Fund. to join Trillian. with Transnet. Second Defined Benefit Fund

Regiments presents unsolicited proposal 2015 to Transnet to 2015 Sept Aug monetise non-core 2015 property, appears to Oct Ramesobudi Regiments concludes the gain support from seeks approval first tranche of interest rate Transnet executives. for Regiments to swaps, earning R161.8m, Burlington reneges arrange hedging and which involves passing on contract with Richard Seleke made on the loans, using risk to the Transnet Second Liebherr, but retains Director-General at interest rate swaps. Defined Pension Fund. the payment made. Department of Public Enterprises. 2015 Nov Transnet issues tender for an IT contract, to SAP only, 2015 and with condition that Dec 60% be sub-contracted to SARB seizes Tokyo Sexwale, GSS (a part-Gupta-owned R14.5m held chair of Trillian, The TSDBF terminate company). by Homix at launches a probe Regiments and their contract with Trillian begin Regiments and sue BADC, chaired by Stanley Mercantile Bank, into Trillian’s suing each Regiments and Trillian for Shane, awards T-Systems new based on concerns dealings with other the R228.9m in fees. IT contract, defying Transnet over illicit flows. Transnet. management recommendations.

Transnet advertises for 2017 a service provider to Feb 2016 2016 2016 develop proposals to Dec Oct July monetize its non-core properties. 2017 Co-founder of SAP, Hasso US and UK authorities April Plattner, makes public apology to announce that they Stanley Shane South Africa for the R100m-plus will investigate The Budlender report on resigns from the bribes paid by the company for money-laundering Trillian is published, amidst Board and as chair contracts at Transnet and Eskom and corruption by the 2017 attempts by Essa to remove of the TSDBF. between 2014 and 2016. Guptas. Sexwale as chairman. June

6 Transnet Inquiry Reference Book 2017 2017 2017 July Sept Oct Governance Neotel’s auditors raise Molefe Locomotives Advisory suspicions and their Board moves over Regiments lands launch an investigation into to Eskom. additional contract payments to Homix. The Gama takes to design strategies Cranes Money laundering findings lead to the chief over at for optimizing the executive and chief financial Transnet as General Freight IT & Media Gifts officer resigning. Acting CEO. Business.

Ramosebudi tries to get JP Morgan to use Regiments in 2015 their financial advisory work for April Transnet, but is refused. The CEO of Homix, Ashok Narayan, gets Eric Anoj Singh Wood of Regiments Capital to invoice Techpro, seconded to Eskom a supplier to Neotel on the Transnet CCTV Salim Essa’s Tequesta signs as Acting CFO. contract, for R15m, and sends through a back- agreement with China South Garry Pita takes dated contract. The New Age then invoices 2015 Rail to assist with landing the over as Acting CFO Regiments for the same amount. Techpro and May ‘359 locomotives’ contract, at Transnet. other Regiments directors say they did not for a R3.8bn (which has perform any of the work the invoices claimed. already taken place).

Homix transfers R66m to two 2015 2015 Hong Kong companies that July June appear to belong to Salim Essa, and against invoices that turn Eric Wood and Bobat appear to Mass Dubai gathering organized by Guptas, out to be fraudulent. SARB play a role in Finance Minister includes: their families, Salim Essa, Duduzane freezes transfers on the account. Nhalanhla Nene’s removal, and Zuma, Ace Magashule’s sons, Ronica Ragavan, prepare to assist his replacement, Ashu Chawla, Fana Hlongwane, , Anoj Singh, , Tom Moyane, Des van Rooyen, who lasts only a Eric Wood sends fraudulent Kim Davids, Dan Mantsha, Matshelo Koko and few days in the position. invoices to Transnet, in Siyabonga Gama. Trillian’s name, for work done by Regiments. 2016 Dec 2015 to Feb–June Eric Wood, Mohammad Jan 2016 Bobat and others SAP pay R100m to CAD officially join Trillian Transnet’s House for landing them Trillian takes over 2016 from Regiments. internal audit Transnet Contracts. Regiments’ proposal to March calls a halt to CAD House distributes monetize Transnet’s non- Regiments the SAP/GSS this to Sahara core property portfolio, perform further interest rate contract award Computers and others. then invoices for R41m. 2016 swaps, earning March–April R335m.

Trillian takes over arranging the interest 2016 2016 2016 May April–Dec April rates swaps, and Regiments siphons Siyabonga Transnet hires law firm UK firm EMR begin R228.9m from the Gama files court Werksmans to investigate investigating alleged Transnet calls the Second Defined application to what it called media involvement in Werksmans report Transnet Benefit have T-Systems allegations of impropriety money-laundering by “inconclusive” and Fund to pay fees back tender award linked to procurements of Worlds Window, of declines to act on its to Trillian. overturned the 1064 locomotives which it owns 49%. recommendations

7 2017 2018 2018 Dec Jan Feb REPURPOSING TRANSNET GOVERNANCE

Stature capture of SOCs has involved an organised well as other appointments to the new Transnet board. process of reconfiguring the way in which these Transnet non-executive director, Juergen Schrempp, institutions are structured, governed, managed and who had only been appointed a few months before, funded so that they serve a purpose different to their resigned shortly after Molefe’s appointment. The media formal mandates. At Transnet, governance structures reported that he was unhappy about the handling have been repurposed to enable corruption and rent- of Molefe’s appointment and the fact that Mafika seeking on a massive scale. This repurposing has come Mkhwanazi, the board chair, had submitted three names at the cost of Transnet’s ability to function effectively of candidates to Gigaba without prior board approval. and to fulfil its mandate to the South African people. COSATU also raised concerns about Molefe’s links to the Guptas and the circumstances around his appointment This repurposing began with the appointments of at Transnet. boards and executives. Minister of Public Enterprises Barbara Hogan resisted this emerging undue influence In July 2012, Anoj Singh, a close friend of the Gupta on appointments, which likely accounted for her family, was appointed as Transnet CFO. He had been dismissal only 18 months after her appointment. Malusi acting in that position since 2009. Gigaba replaced her as Minister of Public Enterprises Gigaba appointed a senior dti official Iqbal Sharma to in November 2010. While Gigaba was an early, vocal the Transnet board in December 2010 and reportedly supporter of using procurement budgets of SOCs to tried to have him appointed as the chairperson of the pursue economic transformation, often the result was to Transnet board in June 2011. This was vetoed by Cabinet, unduly benefit elites, including local politicians, wealthy reportedly based on Sharma’s close proximity to the international corporates, and a foreign (Indian) family Gupta family. In August 2012, Sharma was appointed to that would become billionaires as a result. Starting chair the Board Acquisitions and Disposals Committee. with the new board headed by Mafika Mkhwanazi, who has admitted to a personal relationship with the Gupta The new board also reinstated Siyabonga Gama as family, there would go on to be many individuals with CEO of Transnet Freight Rail, who had been previously ties to the Guptas who would be appointed to Transnet’s dismissed on charges of misconduct and corruption. board and executive team. This followed “a review of his dismissal”, sidestepping an appeal process at a bargaining council due five days In January 2011, Transnet created a new structure, later. called the Board Acquisitions and Disposals Committee (BADC), to oversee the planned pipeline of future large- From the beginning of Molefe’s tenure, there was a scale infrastructure spending (all tenders worth more move to commission large-scale industrial projects, than R2.5 billion). The BADC became central to state procure key services and goods from private companies, capture at Transnet. and and ensure that those companies that weren’t conducive to a particular agenda were replaced with Gigaba appointed Brian Molefe as CEO of Transnet in preferred beneficiaries. In 2012 Molefe announced the February 2011. By March 2011, the media was reporting Market Demand Strategy, a R350bn capital expenditure several anomalies associated with the “miraculously program, including a plan to spend more than R50bn on quick” appointment of Molefe as the new CEO of new locomotives to kick-start the growth of its general Transnet. Details of the appointment process suggested freight business. These ambitious procurement plans it was a sham put up to disguise a pre-arranged are now at the centre of many corruption allegations at outcome. The advertisement for the position was Transnet. It was at this point that Gupta-linked entities published on 26 January 2011 and candidates were only began benefitting from Transnet tender opportunities. given until 1 February to respond. The Gupta newspaper the New Age had correctly predicted Molefe’s This pattern was reiterated in the appointment of the appointment three months before it was announced, as next board in December 2014, under as

8 Governance Minister of Public Enterprises. Brown appointed several board members with connections to former President Jacob Zuma and the Gupta family, including Linda Mabaso, Brett Stagman and Richard Seleke. Many of these board members had no knowledge or experience of Transnet’s business when they were appointed, according to Transnet employees, nor did they bring sufficient depth of relevant experience, leaving them vulnerable to being mislead or influenced.

In 2015, Siyabonga Gama took over as CEO when Brian Molefe was seconded to Eskom. Anoj Singh followed Molefe and was replaced by Garry Pita. In early 2015, the then-group treasurer of Transnet, Mathane Makgatho, resigned unexpectedly. The media reported that she told her staff: “I arrived here with integrity, and I will leave with my integrity intact.” She was replaced by Phetolo Ramosebudi, the previous Treasurer of SAA, and whose brother was working at Regiments alongside Eric Wood.

Under Gigaba and Brown, multiple tenders were awarded to Gupta-linked companies, often without a competitive tender process (via “confinement”), and frequently ballooned in cost over time. Many of these contracts were awarded without a competitive tender process (via “confinement”), and frequently ballooned in cost over time. The governance structure of Transnet was also changed to facilitate this repurposing. Many of the core functions of Transnet’s treasury department (at one point, one of the largest and most sophisticated corporate treasury departments in the country) were outsourced to external companies at great cost. Transnet’s individual operating divisions were also systematically disempowered, whilst many executive functions and responsibilities, including hiring and procurement decisions, were removed and centralised in “Group” – Transnet’s head office.

Rebuilding and reinforcing good governance at Transnet, including through reviewing systems of appointment and the structure of the SOC itself, will likely be a critical area where recommendations should be developed.

Governance 9 Questions for Transnet Questions on Transnet executives and managers Governance

1. Were you put under pressure to approve 1. What were the processes for Ministers Gigaba decisions that you did not feel comfortable with? and Brown’s appointments of new Transnet 2. Did you experience anything untoward taking boards in 2011 and 2014 respectively? place that would put procurement operations in 2. What were the nature and content of the jeopardy of interference? Ministers’ interactions with the Transnet 3. Did you at any time during your leadership at board? Transnet take instructions from third parties? 3. Did Ministers Brown and Gigaba ever give 4. Did you ever declare your close relationship the board instructions to take decisions with these parties? incongruent with the rules of independence and good corporate governance? 5. Were you involved in the award of any tenders to these parties? 4. Were board members suitably qualified? How did the Ministers satisfy themselves that the 6. Did members of the executive/board ever board appointments they made fulfilled the exert, or threaten to exert, power beyond their requirements from a skills, integrity, experience mandate? and transformational perspective? 7. Do you know of any cases where sensitive 5. Were links of the relevant board members information was shared with the Guptas, their to the Gupta family known at the time of close associates or others who had not been their appointment? If so, was this a cause for cleared to receive such information? concern? If not, what might this imply about the 8. Were you given any instructions by the Guptas use of due diligence checks? or their close associates? 6. What role did the board chairs and individual 9. Did you feel under pressure at any stage to take board members play in procurement processes? or comply with demands from them, and if so, 7. What is the role of the Board Acquisitions and how did this play out? Disposals Committee? What is and is not in 10. What was your understanding at the time of the their remit? Why was the BADC created? Gupta’s relationship with Transnet, and with other SOCs, and the executive? 11. Describe your relationship with the Gupta family, Salim Essa and senior executives of the Gupta companies? 12. Why was sensitive information shared with the Guptas and associates? 13. Were you ever offered any gifts from the Guptas and associates?

10 Governance Potential Interviewees: Transnet Executives and Managers

CHIEF EXECUTIVES OTHER INTERVIEWEES OUTSIDE OF TRANSNET Brian Molefe Lucky Montana, former CEO of PRASA Lynn Brown, former Minister of Public Enterprises Siyabonga Gama , former Minister of Public Enterprises Chris Wells Kim Davids, former personal assistance to Lynn Brown Tsediso Matona, former Director General of DPE Matsietsie Mokholo, former acting Director General of FINANCE DIRECTORS / CFOs DPE and Head of Legal at DPE Anoj Singh Siyabonga Mahlangu, advisor to Minister Gigaba at DPE Thamsanqa Msomi, advisor to Minister Gigaba at DPE Garry Pita

FROM THE PRIVATE SECTOR OTHER TRANSNET EXECUTIVES Eric Wood, Magandheran Niven Pilay, Saliem Essa, Mathane Makgatho, former head of Treasury Daniel Roy, Jan Fourie of Trillian and/or Regiments Phetolo Ramesobudi, head of Treasury Kuben Moodley of Albatime Liebherr International Oliver Wyman FORMER BOARD MEMBERS SAP Mafika Mkhwanazi, former chairperson McKinsey Shanghai Zhenhua Heavy Industries (ZPMC) Linda Mabaso, former chairperson Neotel Richard Seleke, former board member for T-Systems Transnet, and Director General at DPE Sechaba Brett Stagman, former board member Zestilor Software AG Jeurgen Schremp, former board member Global Software Solutions (GSS) Seth Radebe Nkonki, Ernst & Young, KPMG & SekelaXabiso (internal auditors) SNG (external auditors) PROCUREMENT PwC (investigations) Werksmans Attorneys (investigations) Iqbal Sharma, former head of procurement sub-committee on Transnet Board Harvey Weiner (forensic specialist at Wits University) Bombadier Stanley Shane, former head of procurement General Electric sub-scommittee on Transnet Board China South Rail China North Rail VR Laser PENSION Tokyo Sexwale, former chairman of Trillian Geoff Budlender Peet Maritz, Transnet’s Principal Officer of the Travel Excellence, Lenasia (Dubai travel bookings) Transnet Second Defined Benefit Fund

Governance 11 REPURPOSING GOVERNANCE

TRANSNET BOARD UNDER MALUSI GIGABA

Minister Public Enterprises November 2010 to May 2014

Director General Advisors to the Minister Public Enterprises Siyabonga Thamsanqa Tshediso Matona Mahlangu Msomi Dec 2010 – Sept 2014 Dec 2010 – (Chief of Staff) May 2014 Dec 2010 – May 2014

Transnet Board Chair Transnet Board Members Transnet CEO

Ellen Tshabalala Israel Skosana Nazmeera Moola Michele Fannuchi Doris Tshepe Mafika Mkhwanazi * Chris Wells (Acting) Dec 2010 – Dec 2014 Iqbal Sharma * Mar 2009 – Mar 2011 Nunu Ntshingila/Njeke* Ayanda Ceba (company secretary) * Chair of Board tender Juergen Schrempp (a) committee Nishi Choubey (b)(d) Yasmina Forbes (b) * Peter Malungani(c) Brian Molefe Peter Moyo (c) Mar 2011 – April 2015 Nowazi Gcaba (c) Don Mkwananzi (c) * Don Mkhwanazi Financial Director Jan 2011 – July 2012 Tembakazi Mnyaka (c) Harry Gazendam (d) Nomavuso Mnxasana (e) *

* On Board Acquisitions and Disposals Committee Anoj Singh Iqbal Sharma * # Director of Transnet Second 2009 – Aug 2015 Aug 2012 – Dec 2014 Defined Benefit Fund

12 Governance TRANSNET BOARD UNDER LYNNE BROWN

Minister Public Enterprises May 2014 to February 2018

Director General PA to the Minister Public Enterprises Kim Davids Richard Seleke May 2014 – July 2017 Nov 2015 to Present

Transnet Board Chair Transnet Board Members Transnet CEO

Gideon Mahlalela Potso Mathekga Vusi Nkonyane Zainul Nagdee * Yasmina Forbes # Brian Molefe Linda Mabaso * Richard Seleke (f) * Feb 2011 – April 2015 Dec 2014 - May 2018 Nazmeera Moola (f) Ayanda Ceba (company secretary) (g) Chair of Board tender Nokuthula Khumalo (company committee secretary) (h) Stanley Shane (i) * Peter Williams (j) Siyabonga Gama * Lana Kinley (k) April 2015 - Present Seth Radebe (k) Brett Stagman (l) Head of Group Stanley Shane (i) * # Treasury

Financial Director

Anoj Singh Garry Pita 2009 – Aug 2015 Oct 2015 to April 2018 Mathane Makgatho Mar 2013 to early 2015

(a) Resigned 2011 (f) Resigned 2015 (k) Appointed 2017 (b) Appointed 2011 (g) Resigned 2016 (l) Appears to have (c) Dismissed / resigned 2012 (h) Appointed 2016 resigned been dismissed by 2018 (d) Retired 2013 (i) Resigned 2017 Phetolo Ramesobudi (e) Appointed 2013 (j) Passed away 2017 Early 2015 to Present

Governance 13 LOCOMOTIVE PROCUREMENT

Management Brian Molefe Tender for 95 recommends the CSR bid flies to Hong Contract CSR begins locomotives to the BADC, as well as Kong to meet awarded to payments to issued retrospective changes to CSR CSR CGT the bid criteria

95 LOCOMOTIVES 1064 LOCOMOTIVES

2011 August 9 October October December 2012 2012 2012 2012

95 Locomotives to Worlds Window companies, CGT and JJ Trading (JJT). The spreadsheet was sent by Worlds Window director In late 2011 Transnet issued a R2.7bn tender for 95 electric Rupesh Bansal to the vice-president of CSR Locomotives, locomotives for its general freight business, which and then forwarded to the Guptas. On the “95 Project”, eventually awarded to a consortium led by China South it shows that R537m commission was agreed, and of this Rail Zhuzhou Electric Locomotive (CSR). CSR owned 70% US$16.7m had been paid by 6th January 2015. of the consortium with local partner Matsetse Basadi owning the remainder. A further spreadsheet in the #guptaleaks, simply called “Worlds Window”, contains a Hawala ledger where In August 2012, the Board Acquisitions and Disposals transfers take place between individual Gupta and Worlds Committee (chaired by Iqbal Sharma) approved Window companies on an almost daily basis between retrospective changes to the bid criteria and the way January 2010 and February 2013, across South Africa, locomotive “cost” was calculated – both of which altered Dubai and India. The spreadsheet shows how these the result in CSR’s favour. According to the minutes: transfers offset the overall balance between the two “Management informed the committee that [CSR] was groups at any one point in time. There are entries showing recommended as the supplier that can deliver in 2014, transfers from CSR to CGT: on the 29 December 2012 for whereas other bidders can only deliver 18 months from US$5,932,935, and on 9 February 2013 for US$351,941. the appointment date. The total cost of ownership did The spreadsheet then shows how these amounts are not take into account the delivery date. By the time the owed by the Worlds Window group to the Guptas and is other bidders deliver, the Company would have earned paid off through transfers from sister companies, such revenue.” as JJT, Arctos, FMT and Everest to to Gupta companies CSR was awarded the contract in October 2012, shortly such as SES Technologies (India), Global Corporation LLC after Transnet CEO, Brian Molefe, had visited them in (Dubai), LCR Investments (India), JIC Mining and others. Hong Kong, which he claims was to check they had the necessary facilities to do the job. 1064 Locomotives In 2012 Transnet’s Market Demand Strategy was CSR agreed to pay R537m (a 20% “commission”) to a launched: a capital expenditure plan to spend more than Dubai company called Century General Trading (CGT), which appears to be a subsidiary of the India-based R300bn between 2012-2019 in upgrading infrastructure Worlds Window conglomerate established by its and capacity. R51bn would be directed towards chairman, Piyoosh Goyal. CGT and Worlds Window expanding the coal, iron ore and general freight lines, appear to have been integral to the business dealings of as well as related infrastructure. To that end, Transnet the Guptas at one time, according to correspondence initiated the largest procurement project in its history, and financial data in the #guptaleaks documents. One the purchase of 1064 locomotives. email chain from January 2012 shows that CSR directors By 2013, National Treasury and the Minister of Finance forwarded a letter to the Transnet chief executive were concerned that the profitability of the project seeking participation in the locomotive tender to several relied upon Transnet’s general freight business being employees and executives at Gupta-owned companies. able to grow the volumes transported at amounts above A spreadsheet contained in the Sahara server, entitled GDP growth and tariffs charged above inflation. While “359, 100 and 95 Project Workings” sets out the Transnet claimed that increasing locomotive capacity commissions owed for each locomotive contract by CSR and efficiency would lead to lower tariffs for customers,

14 Locomotives National Treasury 1064 Market Demand Transnet issues concerned about locomotives Tequesta and Strategy tender for 1064 1064 locomotives tender winners CSR sign kickback launched locomotives profitability announced contract

1064 LOCOMOTIVES

April July 2013 March May 2012 2012 2014 2015 real increases in tariffs were being projected to sustain due to be paid on the “359 project” to JJT, equivalent the project. to R3.8bn. The spreadsheet shows that by 6 January 2015, CSR had paid JJT US$107,203,921, for both the The Werksmans report found that with the assistance of 359 and 100 locomotives contract. However, it appears Brian Molefe, Anoj Singh, Iqbal Sharma, and TFR chief that JJT and CGT were replaced as conduits during procurement officer Thamsanqa Jiyane, the contract 2015: a contract was put in place on 18 May 2015 (after ballooned from R38.6bn to R54.5bn. Molefe asked the the contract had been awarded) between CSR and a board to approve the increase in costs, saying that the company called Tequesta that was directed by Gupta- inflated amount was to accommodate fluctuations in associate Salim Essa. CSR would pay 21% of the total currency value and variations in cost. However, these fee it received from Transnet for the supply of 359 had already been factored into the R38.6bn figure which locomotives to Tequesta or any other firm of Tequesta’s Regiments had calculated and Transnet had evidently choosing as an “advisory fee”. The total amount that was not bothered to verify themselves. to be received from CSR was around R3.8 billion. In March 2014 the winning bidders for the 1 064 Media investigations found that a portion of this locomotives were announced. It was split between four money ($65m) went into the account of a company companies: China North Rail (232 diesel locomotives called Regiments Asia, which is closely connected with at R7.8bn), China South Rail (359 electric locomotives Tequesta. They share the same Hong-Kong address at R14.6bn), General Electric (233 diesel locomotives and were both founded by Essa. Regiments Asia is a at R7.1bn) and Bombardier (240 electric locomotives subsidiary of Regiments Capital based in South Africa, at R10.4bn). The decisions to split the locomotive order a key player in what occurred at Transnet. The money was based on a strategy developed by Regiments, received by Regiments Asia and Tequesta was moved a Gupta-linked company. Although this would make on to more than a dozen shell companies with no each locomotive more expensive, it was argued that substantive activities or capacity in places like Dubai, the full complement of 1 064 could be delivered more London, Johannesburg and Hong-Kong. quickly, saving Transnet in escalation and hedging costs. The strategy also supposedly decreased the risk of According to the investigation by Werksmans relying on only one company to deliver. However, the Attorneys, by September 2017, about 2.5 years into Transnet Freight Rail staff argued that they had neither the contract, CSR had underperformed by 59%, the budget nor the operational capacity to absorb delivering 124 locomotives of the 302 it was supposed the accelerated delivery of trains, but were evidently to have supplied by that point. China North Rail and ignored by the Group Executive of Transnet. In addition, Bombardier Transportation had delivered none of their Transnet also to make prepayments of R11.2 billion respective 179 and 215 locomotives. The best performer to the four bid winners, in installments in over a year, was General Electric, which underperformed by 29%, before they delivered a single locomotive, according to delivering 162 of its 228 locomotives. Werksmans found Werksmans. that instead of speeding up delivery, the division of the contract between four companies slowed down The “359, 100 and 95 Project Workings” spreadsheet procurement of the locomotives and hiked the cost by mentioned above showed that commission of 21% was R5.1bn.

Locomotives 15 Sharma and Salim Essa negotiating to buy VR Laser, a potential supplier to Transnet put out Iqbal Sharma Essa, Guptas and Sharma 1064 tender locomotive builders. tender for R51bn becomes head of Duduzane Zuma acquires VRLS winners Sharma received acquisition of BADC acquire VR Laser Properties announced locomotives R20m from Aerohaven

VR LASER 100 LOCOMOTIVES

July August December February March March 2012 2012 2013 2014 2014 2014

VR Laser relationship with Essa. Leaked emails show that Sharma sent a letter to Tony Gupta with a VR Laser valuation in In February 2014, a company called Elgasolve, owned by July 2013. The valuation was done for Issar Investment Salim Essa, acquired a 75% stake in VR Laser Services, Holdings - Sharma’s company. He also sent an offer for a engineering firm that produces steel plate the acquisition of VR Laser Services to Benny Jiyane, components for heavy vehicle bodies. The other 25% the COO of VR Laser at the time. VLRS Properties was acquired by Craysure Investments in the same also clearly stood to benefit indirectly from VR Laser’s month. Craysure is owned by Westdawn Investments, business. which is in turn owned by the Guptas and Duduzane Zuma. Around this time, Iqbal Sharma’s Issar Capital Following media revelations of Sharma’s apparent bought VRLS Properties, which owns the factory conflict of interest, Transnet hired PWC to investigate premises where VR Laser operates. the matter. According to the Werksmans’ Report, the PwC found the Sharma was conflicted, that the Board At the time, Sharma was a director of the Transnet board did not afford them an opportunity to present their and chaired the BADC, the board subcommittee that findings, and had failed to take the appropriate action oversees the company’s tender processes and approves that the PFMA requires. tender recommendations. Throughout this period, Sharma was overseeing the 1064 locomotive tender process. He tied up his acquisition of VRLS Properties 100 Locomotives a matter of weeks before Transnet announced the On 11 October 2013, the then chief executive of the main tender winners in March. On 19 December 2013, Transnet Freight Rail division, Siyabonga Gama, documents in the #guptaleaks show that Gupta circulated a document addressed to the Board company Aerohaven paid R20m to Sharma. It was Acquisitions and Disposals Committee calling for the styled as a loan to finance his portion of the purchase of procurement of 100 heavy haul electric locomotives VR Laser. from Japan’s Mitsui via a “confinement” (without an open tender). Gama’s motivation for the confinement The winning bidders for the locomotives deal were required by state procurement policy to source up was the delay in the procurement of 1064 locomotives to 60% of their components from South African for Transnet’s general freight business, creating a subcontractors, placing VR Laser in a highly temporary gap in the fleet. Gama argued Transnet advantageous position. While both Amabhungane and would not be able to meet its aggressive freight targets PwC was informed that each of the four multinational without this emergency procurement. train manufacturing companies that would later win On 14 October Iqbal Sharma, the chair of the BADC, sent a portion of the 1064 locomotive supply contract had a letter to the Director General of the Department of visited the engineering company’s premises to assess Public Enterprises Tshediso Matona arguing against the the possibility of subcontracting work to VR Laser, confinement, stating that: “We do not readily support Sharma claims this is untrue . the use of confinement as a method of procurement Sharma claimed that he had “no direct or indirect and in this instance we would urge the [acquisitions relationship with VR Laser Services”, and Transnet and disposals committee] to not grant approval for stated that there was no conflict of interest as Sharma this procurement with a confinement.” On 17 October does not own shares in VR Laser. However, during 2014, Sharma sent this letter to Tony Gupta, along the initial purchase negotiations Sharma represented with a proposed draft response in Matona’s name. both companies, and Sharma has a close business The #guptaleaks showed that Sharma had sent this

16 Locomotives Mkhwanazi (board chair) Sharma sends Molefe submits 100 seeks ministerial approval to Gama calls for Sharma document on 100 Molefe new confinement locomotives/ raise the tender 100 locomotives writes to DG locomotive tender withdraws motivation to special CSR price from acquisition motivating to Gupta associate Mitsui board meeting, for confinement R3.87bn to confined to Mitsui against the Ashu Chawla proposal 100 locomotives approved R4.84bn tender from CSR 100 LOCOMOTIVES

11 October 14 October 19 October 21 October 24 January 10 April 2013 2013 2013 2013 2014 2014

document to a Gupta employee, Ashu Chawla, on 19 Central to the process of the state awarding contracts October 2013. is the Preferential Procurement Policy framework, through which the dti can prescribe the local content A few months later, Molefe submitted a new required in the procurement of designated sectors. confinement motivation to a special Transnet board For the procurement of locomotives, National Treasury meeting – almost identical to the previous one, except issued an instruction note allowing dti to determine the that the contract was to be confined to CSR, not Mitsui. minimum percentage of local content required when Molefe’s request to the Transnet board to confine the procuring rolling stock. bid to CSR was still based on “urgency”, despite the fact that CSR (unlike Mitsui) did not have a proven, off-the- These local content expectations do not appear to shelf product, which would lead to significant delays in have been enforced by Transnet despite the fact that production and delivery. Transnet’s board approved the they also actually allowed the four winning bidders to uncontested award for 100 Electric Locomotives to CSR charge an additional R2.6bn premium just for being the same day, 24 January 2014. made to use local companies (Transnet Engineering), as well as an additional R1.2bn for relocating two of On 10 April 2014, Mafika Mkwanazi, the then-Transnet the companies’ assembly from to , board chairperson, directed a memorandum to according to Werksmans. GE and Bombardier appear Minister Malusi Gigaba, copied to Matona, in which he to have made significant strides in local investment sought “section 54 approval” under the PFMA for the in their supply chain for skills and manufacturing confinement to CSR. Just three months after a price of development. Despite assurances that CRRC would R3.87bn was approved by the board, the price had now commit to local investment, including the signing risen to R4.84bn. of a MOU with Transnet to cooperate on setting up Once again, the spreadsheet “359, 100 and 95 Project development and training facilities, none of this has Workings” shows that CSR was committed to pay a appears to have come to fruition. Research by Trade commission to Worlds Window subsidiary, JJ Trading: and Industrial Policy Strategies (TIPS) indicated that, this time for R924m against a R4.4bn Transnet contract. despite local-content obligations, by April 2017 not one As mentioned earlier, the spreadsheet indicates that of the CSR locomotives being procured for Transnet has payment of US$107.2m had been made against what been assembled in South Africa and that all have been was owing for both the “100 Project” and the “359 manufactured in China. However, Transnet disputed Project” by 6 January 2015. this, saying that CSR manufactured the first 40 of the 359 locomotives in China, and were in the process of Localisation assembling the rest locally, with 58 already tested and Meanwhile, the Department of Trade and Industry accepted into operation. (dti) had been working on a large-scale localisation Localisation is the fundamental consideration with programme for the production of locomotives. It had regard to preferential procurement. It is clear that while reached a deal with GE to build a factory in South Africa, there are stringent mechanisms in place in adjudicating which would employ local labour and sub-contract the awarding of contracts to bidders who display an with other South African industrial firms. This was in intended commitment to localisation, there are not alignment with the New Growth Path developed by the equally robust mechanisms to ensure compliance. Economic Development Department. These initiatives were largely thwarted by what happened next.

Locomotives 17 Questions 11. 11. Why was the 1064 locomotives delivery accelerated, when Transnet Freight Rail’s staff 1. What work did Tequesta carry out in return had made it clear they could not absorb this? And for the 21% commission earned on the CSR by what process was the splitting of the tender contract? Given that Tequesta’s role was to justified, as there appears to be no evidence of advise CSR on BEE related matters, has CSR technical teams in Transnet providing such a been able to fulfil its BEE requirements on the case? contract? 12. 12. Why did the Board approve the increase 2. In accordance with the logic of undertaking to R52.6bn, and what quality of information a split tender, why were the CNR and CSR were they supplied on how this was calculated? contracts not re-negotiated after the two merged? And why was this and Ministerial approvals 3. Was the 1064 locomotive tender justified in only saught after the contracts were already ballooning from R38.6bn to R54.5bn? concluded? 4. Why was Iqbal Sharma’s stake in VLRS 13. 13. Why were the 1064 train manufacturers given Properties not declared as a conflict of interest large prepayments? and action not taken against him after the PwC 14. 14. Why did Transnet agree to pay large investigation? premiums for localisation and for relocation? Did 5. During his time on Transnet’s Board, what they do any work to verify that the amounts were contact did Iqbal Sharma have with the Guptas justified? and Saliem Essa? How often did they meet, and 15. 15. Given the numerous issues with the locos why? Were any of these meetings related to tenders, are they now subject to legal challenge Transnet business? (and cancellation), both by Transnet and by 6. Why did the tender committee approve the losing bidders? For example, Werksmans has confinement of the 100-locomotive contract to found that Jiyane secured approval for changes CSR? How was this confinement different to the to be made to the evaluation criteria during the proposed confinement to Mitsui, which had been evaluation stage for the 1064 locomotives, which rejected? questions the integrity of the tender process. 7. Transnet commissioned an investigation into the 16. 16. A Sub-Committee of the Locomotive Select locomotives deals in 2017, which was conducted Committee appeared to be operating and making by Werksmans, but then the Board appears to key decisions, but was this justified or legal, or have dismissed its findings, and appears not to amount to secret, parallel process? have acted on them, why? 17. 17. Were the Board misled on various aspect 8. What local development commitments have of the train deals, and/or did they not apply CRRC actually demonstrated? Why was the themselves sufficiently? largest portion of the locomotives contract 18. 18. Has Transnet yet taken any disciplinary or given to a company that has displayed little legal action with regard to the train deals? to no commitment to investment in local manufacturing and skills development? 9. 9. Did the locomotive acquisitions follow Transnet’s High Value Tender Process? If not, why not, and does disciplinary action need to be taken? 10. 10. Why was the tender for the 1064 locomotives put out before approvals from the Board or Minister? And was the acceleration not explicitly mentioned to the Minister for approval, given its material impact?

18 Locomotives ZPMC AND THE SEVEN SHIP- TO-SHORE CRANES

ZPMC sign contract with JJ Trading, ZPMC wins contract to supply ZPMC makes payments of at least a Gupta associate company, to help Transnet with 7 ship-to-shore cranes. US$4.2m to JJ Trading. Most of it is land crane contract The contract includes a US$12m sent to Gupta companies in UAE and premium to pay JJ Trading South Africa

June 2011 September 2011 Dec 2011– Mar 2012

In late 2010, Transnet put out a tender for two ship-to- JJT is a subsidiary of Worlds Window Index in India, one shore gantry cranes, which would be placed at Durban’s of the biggest scrap metal traders in India, and which container terminal and used to offload containers from itself has a close business relationship with the Guptas. ships. But in 2011, the tender then got changed to seven This includes investing in Gupta mines in South Africa cranes and with a different set of specifications. Insiders (which turned out to be a farce, as no shares where who spoke to Amabhungane alleged this was done at transferred to Worlds Window and the relevant mines the behest of certain bidders, who had gotten hold of are dormant), assisting with certain aspects of their trips confidential documents, such as port budgets, upcoming to India, and, according to financial records contained procurement plans and competing bidders’ proposals. in #guptaleaks, appears to operate as a conduit for Moreover, industry experts have claimed that the high- Gupta money laundering. A spreadsheet contained in spec cranes were not needed, and that in fact, outside #guptaleaks shows there were 251 transactions between of China, no-one used them, partly because they are Worlds Window (including JJT) and Gupta companies double-left cranes which are difficult to operate, making between January 2010 and February 2013. This included the operation less efficient. payments in its Dubai accounts from China South Rail of over US$107m for helping them land Transnet locomotive Brian Molefe, who was by now the Chief Executive of contracts. The UK’s largest metal recycler, EMR, owns a Transnet, claimed that the new specifications were 49% in Worlds Window, announced in January 2018 that necessary as Durban sometimes hosted very wide ships it has begun investigating the company after revelations and the existing cranes could not reach the other side of of money-laundering by Worlds Window surfaced in the the vessels. He argued that the new cranes would be able #guptaleaks. to do this, and to take two containers instead of one. But a crane specialist Amabhungane interviewed, said that In the contract, ZPMC made it clear that payment would most cranes can do the double container lifts, refuting only take place, if they won the contract. JJT certainly did Molefe’s argument. appear to deliver: and in September 2011, ZPMC won the contract, and the cranes were delivered to Durban in 2012 Meanwhile, a Chinese state-owned supplier, Shanghai and 2013. Zhenhua Heavy Industries (ZPMC) signed an “agent agreement” with JJT Trading, registered in Dubai, in But Transnet appears to have ended up buying the seven June 2011. JJT would “facilitate” and “handle” ZPMC’s bid cranes at highly inflated prices. It turns out that the price “and other relevant matters”. It would communicate with had been inflated from US$81m (R570m then) to US$92m Transnet on behalf of ZPMC and help the Chinese staff (R650m then) in order to pay “commissions and fees” of to understand South African laws, codes and customs. US$12m (ie a fee to Guptas, via JJT Trading, for landing JJT would even send out invitation letters, make hotel the contract for ZPMC) and Transnet appears to have reservations and arrange airport shuttles. paid this. As well as highly suspicious and irregular, a crane expert interviewed by Amabhungane advised that JJT’s website claims that it is a scrap metal trader, and this would make them the most expensive cranes in the just why a Dubai scrap metal company would provide world that they knew of. the listed services to an industrial-size crane supplier is a mystery.

Cranes 19 Thereafter, records contained in the #guptaleaks show Goyal denied he works with JJT, and that Worlds Window how ZPMC made transfers to JJ Trading in the UAE, never received money from JJT, the Guptas or ZPMC. of just under US$1m in December 2011, again in March ZPMC has also stated to AmaBhungane, “What you intend 2012, May 2012, and then US$1.2m in January 2013. It is to report relevant to ZPMC is untrue. We have no business not clear where the remainder of the US$12m was paid. or other relationship with the Guptas, your president At one stage during this time instructions are sent from Jacob Zuma or his family.” However, they declined to Gupta employees to JJT and Worlds Window on how explain their relationship with JJT. to distribute a larger sum of US$3.3m to three G-owned companies in India. JJT promptly transfers funding to these Gupta companies.

Questions 1. Were the bid specifications for the cranes changes because it was necessary or because it suited a particular potential supplier? 2. If the changes were necessary to achieve a certain efficiency rate, then can it be confirmed that this rate has now been achieved (the cranes have been in place for a number of years)? 3. Did JJT do the work it was required to do in terms of its contract with ZPMC, it was this just a means to pay The Guptas and Essa for illicitly securing the contract? 4. Why would JJT be the natural party to perform the required duties for ZPMC – they are a Dubai- based company focused on scrap metal and agricultural products, according to their website? 5. Why would ZPMC only pay JJT if the contracts were secured, when South Africa law says that public sectors contracts will be determined by an open, fair, competitive process, over which JJT should have had no control? Or was JJT hired to ensure that the contracts were fraudulently secured? 6. Why was Transnet prepared to pay the premium of US$12m on top of the contract so that JJT could get paid? Did Transnet not find it irregular, suspicious and against its policies? 7. Given the evidence from #guptaleaks, is there any other way to explain the relationship between World Window Index companies, such as JJT and Century General Trading, and the Gupta companies, than that of money-laundering?

20 Locomotives LIEBHERR AND THE 22 CRANES

Liebherr lands 22 cranes Liebherr pays US$905,000 to Liebherr pays contract, and pays Accurate investments US$1.1m to Accurate US$202,000 to Accurate

July 2013 17 February 2014 May 2014

In a familiar pattern, the Guptas once again appear #guptaleaks also reveal that Accurate investments then to have been central to helping another international forwarded a large part of the funds on to Ashish and supplier to land crane contracts with Transnet. Amol Gupta in Texas, USA, to their company Brookfield Consultants. According to their website, Brookfield In 2013, Transnet put out a tender to supply 22 cranes. specialise in healthcare consulting. Perhaps as a cover, During that year, Amabhungane reported that they’d Ashish Gupta had written to Accurate Investments during had a tip-off that the Guptas had signed a deal with 2014 claiming that a payment was due to him of US$10m, Swiss-based Liebherr International AG to help them land and that it should be paid into Brookfield’s bank account the contract. The tip-off alleged that the deal involved at Standard Chartered, New York. However, this was done referring Liebherr to ‘local partners’ of the Guptas, who in shortly after US$2m was was already transferred to the turn are alleged to have spoken to then-Public Enterprises account. Minister Malusi Gigaba. In 2017, after the #guptaleaks surfaced, the US Authorities According to #guptaleaks, Liebherr began making announced they would start investigating the potential payments to the Guptas during 2013, ahead of even illicit flows of Gupta money into the US, notably sparked landing the contract. In July 2013, Liebherr paid by the Brookfield case. The US Department of Justice and US$905,000 to Accurate Investments in the UAE. Federal Bureau of Investigation (FBI) are undertaking Liebherr went on to win the tender. The same day they a joint investigation into potential violation of the US’ announced the news, 17 February 2014, they made Foreign Corruption Practices Act, of potential money another payment of US$202,000 to Accurate. A further laundering and according to Business Day are preparing transfer of USUS$1.1m is made in May 2014. (Accurate to seize bank accounts and confiscate propertied linked Investements is the company that the Guptas purportedly to Gupta relatives living in the US. The UK is believed to used to launder the Free State funding for the Vrede farm, be undertaking similar investigations and preparations for partly to pay for the infamous 2013 Wedding). asset seizure.

Questions 1. Why did Liebherr feel it needed the Gupta’s assistance to land the 22-crane contract? 2. Why did Liebherr make payments to Accurate Investments? What business did they believe Accurate was in, and what did they expect in return?

Cranes 21 TRANSNET AND SAP

Transnet confines IT tender to SAP submits bid SAP signs sales SAP lands R100m SAP and requires 60% of the and commits itself Transnet’s internal commission agreement software contract with value to be spent on “supplier to placing the entire audit halts contract with CAD House Transnet development” 60% with GSS award process

August September November December May 2016 2015 2015 2015 2015

SAP and CAD House through the #guptaleaks that confidential SAP-Transnet contracts were forwarded to the Guptas. amaBhungane In August 2015, German software multinational SAP identified R99.9m in SAP payments (including business signed a sales commission agreement with CAD House, with other SOCs) of which all but R5.7m flowed straight a 3D printer sales company linked to the Guptas. The out of CAD House to Gupta controlled companies, terms of the contract state that if CAD House were the including Sahara Systems, Cutting Edge, and Futureteq. “effective cause” of SAP landing a Transnet contract worth R100-million or more, it would receive 10% of the contract value. SAP and GSS IIn November 2015 Transnet Freight Rail (TFR) issued a Transnet was already a SAP client at this point, and SAP tender for an IT solution and confined the tender to one considered the SOC a key “strategic customer” in 2014. bidder – SAP. The tender was for a four-year deal to re- It is unclear why they needed assistance in landing a engineer all TFR’s commercial business processes and contract with Transnet. It is also unclear why CAD House retire all its old software in favour of an “end-to-end” was considered for this software deal: the group sells system supplied by SAP. 3D printers and has little marketing or sales capability, and was going through business rescue at the time. It A condition of the tender was that an unusually had no previous relationship with SAP and no apparent high 60% of the value was to be spent on “supplier expertise in the field. SAP South Africa’s CFO Deena development”, normally aimed at black economic Pillay claimed that SAP engaged CAD House because empowerment (BEE). The 60% condition originated of its “existing relationship [and] understanding the from the board tender committee, which included Linda processes within Transnet”. Mabaso, Stanley Shane, Richard Seleke and its chair, Iqbal Sharma. The sales commission agreement contains a number of red flags. 10% is very high for a commission agreement, When SAP submitted its bid in December, it committed which would usually be around 2 or 3%. The timeline of itself to placing the entire 60% with just one company, deliverables attached to the agreement is very short – Global Softech Solutions (GSS). At that time, GSS was SAP wanted the deal signed within a month. CAD House half-owned by the Guptas’ Sahara Systems and the was expected to secure a meeting with Transnet CFO remainder by an associate of theirs. GSS is led by Leela Garry Pita within just three days to “position the financial Yemineni who previously worked as a SAP consultant to benefit” of SAP’s proposal. The timeline expected that Transnet and Mukul Teckchandani‚ a general manager at Pita would have the required R100m - plus budget the Gupta’s Sahara Systems. “reallocated for capital approval” only a week later. In its bid documentation, SAP told Transnet that the By 21 September 2015, a month after SAP signed the price it had quoted (R800m) was pushed up by the commission agreement, CAD House was expected to “risk” of subcontracting so much to GSS, a company it “fast-track and attempt to obtain contract signature” had not used before. SAP suggested the choice lay with from Pita and Transnet’s chief information officer – Transnet, saying: “Should Transnet have a preference of although it had leeway until the end of December still to an additional specific partner to engage with, SAP will qualify for the commission. be happy to review their skills and their resource matrix.”

CAD House is owned by Duduzane Zuma and businesses The freight division forwarded a letter of award to the within the Guptas’ Sahara Group. It was further revealed

22 IT Transnet group executive to sign off in February 2016, The probe confirmed that there were payments to but the tender was stalled and withdrawn on 1 June. The Gupta-related entities, indications of misconduct withdrawal was based on a technical concern raised by relating to the management of Gupta-related third Transnet’s internal auditors that CEO Siyabonga Gama parties and irregularities in the adherence to SAP’s had not signed off on the tender. Five days later, Gama compliance processes. The principal contact for GSS and signed approval for the tender to be re-issued — again CAD House was Gupta intermediary Santosh Choubey, confined to SAP. The tender was reissued with very tight an employee at Sahara. deadlines — providing for 11 working days to receive the SAP confirmed it had two contracts with Transnet: new bid, evaluate it and recommend the award — which suggests that the award was a foregone conclusion. • A December 2014 contract for the sale of software to Transnet, with GSS serving as a sales commission Transnet’s technical team appeared puzzled by the agent. SAP provided software and received revenue choice of GSS. Minutes of a January 2016 meeting of around R65m and paid a commission to GSS of between Transnet and SAP representatives to discuss about R6.5m. Including VAT, SAP paid the third SAP’s bid noted: “SAP to use GSS for local supplier party R7.4m. This represents a 10% commission. development. Why only one entity? Where [is] GSS track record? Not provided.” • A September 2015 contract for the sale of software to Transnet. CAD House acted as a sales The memo presented to the board committee setting commission agent. SAP provided software and out the case for confinement and award of the contract received revenue of about R100m, and paid a draws heavily on SAP’s pre-existing promotional commission to CAD House of R14.9m. Including material. It appears that TFR had not analysed its VAT, SAP paid the third party about R17m. This existing business processes to define how best to represents a 14.9% commission. re-engineer them, but entrusted this to SAP, who were trying to sell their own solution. The benefits of software integration were not compared with the risks of relying on a single supplier, and the stated annual savings Questions of R18m in respect of retired software applications 1. Was SAP approached by CAD House or did were not balanced against the cost of new software CAD House approach SAP? Why was CAD House chosen to secure a software deal? requirements set out by SAP. Commercial arguments How was the commission of 10% justified? were based on data and projections that appear to be How much money was paid to CAD House highly speculative. specifically for securing Transnet business? The risks the committee appears to have ignored are What was the existing relationship between Transnet and CAD House? What role did illustrated by the way in which SAP later refused to CAD House play in securing business accept Transnet’s terms and conditions, especially between Transnet and SAP? regarding penalties. Comments by Transnet’s own 2. Why did the BADC insert the 60% supplier negotiation team highlight concerns about the way in development precondition? Are there which SAP transferred risk to Transnet. any other contracts that have a 60% SD Had the deal gone through, GSS would have received precondition? Why was only one SD partner roughly R500m. chosen? Why did SAP choose GSS, despite having no prior relationship with them? Did Transnet suggest GSS as the SD partner? Fallout What is the relationship between Transnet In the fallout from the media exposés, SAP launched an and GSS? internal investigation and subsequently suspended three 3. Why was the 2015 TFR tender confined of its managers in South Africa. SAP also approached to SAP? What was the motivation to re- the US Department of Justice and the Securities engineer all TFR’s commercial business Exchange Commission in a voluntary disclosure processes and retire all its old software in regarding the Gupta deals. favour of an “end-to-end” system?

IT 23 NEOTEL AND HOMIX

Neotel awarded Neotel pays R35m Neotel awarded Neotel preferred Neotel agrees on Transnet delays Neotel and R505m extension of to Homix for R329m CCTV bidder for R1.8bn 2% success fee with paying Neotel, Homix sign CCTV contract without facilitating R300m contract without telecom service Homix. Transnet allegedly a business competitive tender. IT equipment competitive agreement with returns to negotiations because Neotel consultancy Neotel subcontracts contract with tender Transnet, but table and awards has not paid agreement Techpro and money Transnet negotiations stall contract to Neotel Homix flows to TNA Media

April May August December Jan-Feb February March 2014 2014 2014 2014 2015 2015 2015

National telecom company Neotel was awarded multi- that it had been awarded the extension, worth another million rand Transnet tenders between 2014 and 2015, R505-million over three years, at the end of March 2015. after making payments to a shell company named Neotel then subcontracted a CCTV specialist company, Homix. Homix, linked to the Gupta family and named in Technology and Procurement Holdings (Techpro). 10% of numerous money laundering allegations, appeared to this second contract (R17.1-million) seems to have been have positioned itself as a facilitator of SOC contracts. laundered through Techpro and Regiments, another Despite Homix being virtually untraceable, Neotel paid Gupta-linked company discussed in this book, before the company tens of millions of rands in “commissions” being channelled to the Gupta-owned TNA Media. – ultimately more than R100-million – for assisting them After Deloitte, Neotel’s auditors, alerted the Neotel to secure Transnet deals. Neotel management seems to board to the questionable payments to Homix, Neotel have approved the Homix payments despite not knowing ordered an investigation which led to the resignation of “who this entity is”, according to their auditors. its chief executive and financial officer. The matter was In April 2014, Homix offered to land contracts for Neotel also reported to the Independent Regulatory Board for with Transnet in return for a 10% fee. Neotel subsequently Auditors (IRBA). In May 2015, the Reserve Bank froze secured an IT equipment sales contract worth over Homix’s transfers to Hong Kong on suspicions of money R300m with Transnet, and paid Homix R35m. laundering.

In May 2014, Neotel was awarded a large contract to install CCTV cameras at ports, worth R329-million, without a competitive tender. Questions In August 2014, Neotel was the preferred bidder for a 1. Why did Transnet and Neotel need an master service agreement to provide Transnet with a obscure shell company to broker a contract suite of telecom services. Contract negotiations seem between the two large companies? What to have stalled until Neotel reached out to Homix again was the role of Homix in brokering: the in December 2014, following a meeting between Neotel April 2014 R300-million equipment deal executive Sunil Joshi and Transnet CFO Anoj Singh. A and the December 2014 master agreement “success fee” was agreed between Neotel and Homix – deal? 2% of the R1.8-billion contract value, R36-million, plus 2. Why did negotiations between Transnet R25 million later. Transnet subsequently returned to the and Neotel on the master agreement negotiating table and Neotel was awarded the contract. stall in December 2014? How was this subsequently resolved? What was discussed In February 2015, Neotel and Homix signed a “business at the meeting meeting between Neotel’s consultancy agreement” to give effect to the success Sunil Joshi and Anoj Singh? fee agreed in 2014: R36 million, or 2% of the contract. Leading up to this, Transnet had failed to pay Neotel 3. Why did Transnet management recommend for its January and February services – on the “express confinement for the CCTV contract and its instruction” of Anoj Singh, Neotel staff told journalists, extension? “precisely” because Neotel had not yet paid Homix. 4. What are the results of the investigation into Transnet suppliers, announced by One day after the business consultancy agreement was Transnet CEO Gama in November 2017, signed, Transnet management recommended extending concerning Neotel? the CCTV contract with Neotel. Transnet notified Neotel

24 IT REGIMENTS/TRILLIAN

Transnet seems to have paid excessive fees for services Former public protector Thuli Madonsela named Trillian that could have been performed internally, to two in her State Capture report in 2016. Former Trillian Chair companies, Regiments Capital and Trillian. The total Tokyo Sexwale asked Advocate Geoff Budlender to paid to the two companies appears to be in excess of investigate the controversies after a whistleblower’s R600-million. account of the goings-on at Trillian, including that Trillian executives had been aware that Transnet had, at one point, one of the largest and most would be fired as finance minister months ahead of sophisticated corporate treasury departments in the time. Budlender’s report revealed concerning links to country. This unit, which managed the risk and cost corruption at the company, and confirmed that the of Transnet’s multibillion-rand borrowing portfolio, company was intrinsically linked to the Gupta family. has been side-lined in favour of Regiments, and subsequently Trillian, at great cost. Trillian CEO Eric Wood is named in court papers as a key figure in helping to process kickbacks for Gupta Who are Regiments and Trillian? entities. In a 2016 affidavit, Regiments director Nyhonya Regiments, started by six Johannesburg-based submitted evidence he says was discovered after entrepreneurs in 2004, is a fund manager and Wood left that shows that Wood “knowingly allowed investment advisor specialising in public sector Regiments to be used as a conduit for an entirely infrastructure programmes and projects. fictitious set of transactions” to launder money.

In 2014 the Guptas had tried to buy Regiments, but Eric In July 2017, Essa sold his shares in Trillian Capital Wood’s partners at Regiments had refused the offer. Partners to Trillian CEO Eric Wood. The acquisition The financial advisory firm Trillian Capital Partners brought Wood’s share to 85% with the rest of the shares was acquired in 2015 by Gupta partner Salim Essa. In owned by management and staff. March 2016, Wood officially left Regiments to join Trillan Transnet director and board member Stanley Shane, as CEO, intending to take the Transnet business with who was the chairperson of the Board Acquisitions him. An agreement that would specify which areas of and Disposals Committee, was actively involved business Wood could take with him was never finalised. in Trillian management and strategy according to Yet, in April, the Board approved the cession of contract former Trillian Management Consulting CEO Bianca work from Regiments to Trillian, although this appears Goodson, representing a clear conflict of interest. not to have been agreed with Regiments. Ex-Trillian Financial Advisory CEO Mosilo Mothepu The details of Wood’s transfer to Trillian are entangled told parliament’s state capture inquiry that Shane was in controversy. Regiments’s remaining partners have a member of Trillian Capital Partners, and received claimed that both Transnet and Eskom paid Trillian for R700,000 a month from Trillian. work their company had done. In some cases, Transnet Whistleblower Biance Goodson testified that Trillian even paid Trillian after already paying Regiments. facilitated access to government departments and Regiments’s directors are now locked in a legal state-owned enterprises for international consultancy battle with Wood, who remains a 32% shareholder firms. If these firms wanted contracts from certain state in the company; they want the court to declare him entities, they would have to take on Trillian as their a delinquent director. Wood has a similar application “supplier development” partner, effectively making the against his former partners. Regiments’s directors firm a gatekeeper to lucrative contracts. Trillian would accuse Wood of diverting SOC business away from then be given up to half the contract. She claimed that them, leading to material losses from losing business Trillian did not do any work for government directly, but from Transnet, among others, worth more than R40- secured the work and passed it on. Mosilo Mothepu, million. another ex-Trillian whistleblower, confirmed that the Numerous media reports have linked both Regiments same method at Transnet was used across other state and Trillian to the Gupta family and state capture. entities such as Eskom, Denel, and SA Express.

Advisory 25 McKinsey-led consortium wins contract to provide financial Transnet advisory services of R35.2m for the Transnet CFO Anoj The contract value is Singh sends Molefe a announces project. McKinsey replaces their Singh confirms that increased to R41.2m memo motivating for 1064 empowerment associates, Letsema, the main scope of of which a R21m a revision in the fee locomotives with Regiments, when Transnet the contract is now “fixed price” would allocation to Regiments, to tender claims a conflict of interest. allocated to Regiments. now go to Regiments add an additional R78.4m for a total of R99.5m LOCOMOTIVES

2012 December November February April 2012 2013 2014 2014

Locomotives a R21m “fixed price” would now go to Regiments. In 2012, when Transnet issued the 1064-locomotives In April 2014 Singh sent a memo to Molefe in which tender, the rail company appointed a consortium led by he now motivated for a post-facto revision in the consultants McKinsey to advise on the deal structure fee allocation to Regiments, to add an additional and how to fund it. Financial advisory services were R78.4 million. This fee was based on Regiments’s own included in the mandate and payment was capped at calculation of the billions its advice had supposedly R35.2 million. Months after the contract was awarded, saved Transnet. Transnet invoked unexplained conflict-of-interest The Regiments strategy for the locomotive purchase concerns relating to first Letsema, then to Nedbank, was to split the locomotive order between four bidders. two of McKinsey’s partners. To resolve this conflict of Although this would make each locomotive more interest, Transnet proposed the relatively unknown expensive, the full complement of 1 064 could be Regiments as a substitute. delivered more quickly, which would supposedly save Regiments was subsequently given an estimated Transnet in escalation and hedging costs. R10 million share of the contract. The scope and cost of Singh also noted that Regiments had been brought this contract ballooned dramatically over the next three in under a fixed remuneration model accepted by years, driven by Transnet CFO Anoj Singh and approved McKinsey, but preferred a “success fee”, and the contract by Transnet CEO Brian Molefe. was consequently amended again. This amendment The nature of the relationship between Regiments and to the value of the contract increased Regiments’s take McKinsey is disputed. Both Transnet and Regiments from R21 million to R99.5 million. claim that Regiments was selected and subcontracted by McKinsey as a supplier development partner. Repurposing treasury McKinsey claimed that Regiments did not begin its In 2015 Regiments was, without any competitive relationship with Transnet through McKinsey, and process, appointed as transaction advisers and to that neither Regiments nor Trillian were supplier lead negotiation of the terms of a loan from the China development partners to McKinsey. Development Bank. The Chinese state-owned bank In November 2013 Singh confirmed in writing that the was proposing to put up the cash to fund Transnet’s main scope of the engagement was now allocated to purchase of locomotives from the two Chinese bidders, Regiments. McKinsey, originally the consortium leader, China North Rail and China South Rail. The bank’s initial remained “only responsible for the business case and terms and the fees proposed by Regiments appear to limited technical optimisation aspects”. In fact, McKinsey have been very expensive – and outsourcing such a withdrew from the contract on 4 February 2014 entirely. negotiation process was contrary to Transnet policy This, together with the swapping out of other partners and practice, given that it had an experienced internal in the original consortium, brings into question whether treasury department. the tender should have been re-issued, and Regiments’ Transnet’s treasury department is said to have pushed contract was valid. back, but in early 2015 the then group treasurer, Mathane In February 2014 the contract scope for Regiments was Makgatho, resigned unexpectedly. The media reported amended to reflect the new arrangement. Singh, signing that she told her staff: “I arrived here with integrity, and I on behalf of Transnet, also increased the contract value will leave with my integrity intact”. In March 2015 Phetolo by R6m, bringing the total contract to R41.2m, of which Ramosebudi, the previous Treasurer at SAA, and whose

26 Advisory Regiments appointed Ramosebudi proposes Transnet announces R12bn club loan Ramosebudi proposes transaction advisors on China contract extension for for purchase of 1064 locomotives, pays outsourcing interest rate Development Bank loan Regiments, raising fee Regiments and Trillian (who had not done the management to Regiments REPURPOSING to R166m work) R93m for arranging it TREASURY

2015 April 2015 November 2015 December 2015

brother worked at Regiments and then Trillian alongside not Trillian, did the work and was paid for it – meaning Eric Wood, was appointed as her replacement. On April Transnet may have paid double. 28 2015, he compiled a proposal purporting to approve It is unclear why either Trillian or Regiments (or both) a “contract extension” for Regiments’s support to were paid for arranging the loan, as Transnet’s own Transnet on the 1 064-locomotive transaction, raising its corporate treasury, one of the largest in the country, was fee from R99.5m by R166m to total R265.5m. accustomed to doing this type of work itself. The document credits Regiments with a series of A further loan of R6.99bn loan was arranged, mostly supposedly innovative adjustments to the Chinese loan from Investec, to pay for the Bombardier locomotives. and estimates the financial benefits to Transnet from Transnet paid a fee of R73m to Regiments for arranging the negotiating strategy “pioneered by Regiments” to these loans. be in excess of R2.7bn. This transaction was supported by Singh in one of his last acts as CFO before he joined At the same time, Regiments began organising hedges Molefe at Eskom. Transnet’s external auditors later on these loans, but this would require an official queried the R166-million payment, pointing out that mandate. On 3 December 2015 Ramosebudi sent a Transnet’s treasury was well equipped to handle this memo to Transnet’s acting chief financial officer, Garry transaction. Pita, calling for unusual changes in the company’s securities trading policy. The memo made three key Ramosebudi also proposed appointing JP Morgan, the recommendations. First, to hedge the exposure from a American bank, to manage the foreign currency hedging float to a fixed basis on the amount of R12bn. Second, on the Chinese loan, which was in dollars. He claimed interest rate risk management, rather than Transnet this would also benefit Regiments as the empowerment handling it in-house, as had been the normal practice, partner of JP Morgan. But JP Morgan and Regiments would be outsourced to Regiments. Third, Regiments’ have denied any such relationship. According to consulting fees for this would be paid in the rates on AmaBhungane, JP Morgan was asked to pay Regiments the interest rate swaps -- essentially hiding them from what appears to have been a form of commission scrutiny. The motivation given was that inflation was payment in respect of JP Morgan’s work on the Chinese expected to be volatile in the period ahead, causing loan. Marc Hussey, head of JP Morgan in South Africa, is the interest rates to spike, so it was best to hedge at a said to have refused. fixed rate now – even though the immediate results was In November 2015, Transnet announced it had signed that the effective average interest rate would rise from a R12-billion “club loan” with Absa, Nedbank, Bank of around 9.2% to 11.8%. China, Futuregrowth Asset Managers and Old Mutual The execution of the swaps then involved using Specialised Finance, in order to purchase the 1064 Nedbank and the one of Transnet’s pension funds, and is locomotives. covered in the Pension Fund section below. Transnet paid Trillian R93 million for arranging this club loan, supposedly as a supplier development partner of Pension Fund Regiments, who were the funding advisory for the 1064 The Transnet Second Defined Benefit Fund entered locomotive purchase. However, it seems that Trillian into a contract with Regiments to manage its assets had not actually done the work, had no contract with in September 2015, which was later cancelled in Transnet, and it had never been a supplier development September 2016. Regiments’ contract gave it “powers, partner to Regiments. It also appears that Regiments, without prior approval or consent from the fund, to

Advisory 27 Regiments concludes the first tranche of interest rate swaps, Trillian takes the TSDBF Regiments earning R161.8m, over arranging terminate their starts organising and which involves the interest contract with Stanley Shane interest rate passing risk to the rates swaps, and Regiments and resigns from Regiments swaps on Transnet Second Regiments siphons sue Regiments the Board and appointed as Transnet loans, Defined Pension Fund. R228.9m from the and Trillian for the as chair of the asset manager where the risk Transferred to the TSDBF to pay fees R228.9m in fees TSDPF of TSDBF is tran TSDBF to Trillian PENSION FUND

September October December Mar - April July July 2015 2015 2015 2016 2016 2017

deal with the portfolio in whatever manner it deemed at Trillian, he was also actively involved in operations necessary or appropriate in order to achieve the fund’s and management at Trillian at the time, alongside investment objectives”, according to court papers filed his partners in a company called Integrated Capital by TSDBF. It also came with a generous management Management. fee that would amount to over R300m per year. On top On 30 March 2016, a single interest rate swap was of this, Regiments paid itself a R4m outperformance arranged, and on 8 April 2016, a further three. This bonus after its first three months of managing the fund time, however, the swaps were arranged directly with – by incorrectly measuring its own performance. It paid the Benefit Fund. Regiments continued to approve itself the bonus without authorisation from the fund, the transactions from the Benefit Fund’s side, and which was investigating the invoice at the time. also that fees be drawn from the Benefit fund for Meanwhile, Regiments became involved in arranging the amounts of R284.6m and R184m respectively. interest rate swaps on some of Transnet’s loans. This Regiments transferred most of this to Trillian, and sent was organised from the Transnet Treasury side, where a further R50m to Albatime, a company that assists Regiments had been gaining control. Ten interest with arranging contracts with state-owned companies, rate swaps were carried out in all. The first three took owned by Kuben Moodley. Certain payments made to place on 4 December 2015 – the very next day after Albatime and Trillian were made to the same Bank of Ramosebudi’s memo was submitted. Nedbank was Baroda account – the same account flagged by former used as the counterparty, and Regiments received public protector Thuli Madonsela as having been used to R161.5m in fees, and Nedbank R28.2m. A further raise funds for Gupta company Tegeta to buy Optimum. three on 7 March 2016; Regiments earned R335m and The Benefit Fund’s financial statements show that in Nedbank R46.1m. On both these tranches, further all, Regiments moved 14% of the pension’s funds out back-to-back swaps were organised from Nedbank to of bonds and into more risky derivatives. Not only was the Benefit Fund, essentially now passing the risk from there no defensible reason for this, but the volume of Transnet to Nedbank and finally to the Benefit Fund. derivatives that the Benefit Fund ended up holding Regiments, in its role as asset manager of the Benefit was a violation of pensions regulations aimed at Fund, approved the transactions from the Fund’s side. protecting pensioners from excessive risk. There was Firstly, this represented a serious conflict of interest no legitimate reason for the Pension Fund to pay these from Regiments’ side, as they could not be looking after fees, regardless of whether the transactions themselves the Funds’ best interests if they were using it to benefit were legitimate or not. The Benefit Fund terminated their work on Transnet’s loans for the locomotives. Regiments’ contract later in 2016 and is currently suing Secondly, it was inappropriate, if not illegal, to manage Regiments, Trillian and Albatime for the misappropriated the Benefit Fund in this way, replacing their safe low-risk funds. Old Mutual has since taken over the management investments with higher risk ones. of the fund, and has reversed the swap transactions. At this point, around March 2016, Trillian took over from Regiments are suing to be re-instated as the fund’s Regiments in managing various functions in Transnet’s managers and to reclaim potential lost earnings. Official Treasury, including arranging further interest rate swaps. statements from Transnet claim that Pita and Transnet It should also be noted that the chair of the Benefit were unaware of the payments, but this contradicts a Fund at the time was Stanley Shane, who was also a letter produced by Garry Pita, Transnet’s CFO at the on the Transnet board. According to whistle-blowers time, authorising the payments.

28 Advisory Property fund Media reports alleged that Pamensky drew up the scheme while privy to inside information as chairperson In April 2016, Transnet paid R41-million to Trillian for of Eskom’s investment and finance sub-committee. a proposal to sell off various properties from its R4bn The intention was to offer the same service to other portfolio to enhance Transnet’s balance sheet. The parastatals, including Eskom. Trillian and FPG stood to proposal — first made by Regiments and then Trillian — earn large fees from the sale and development of the was to create a ring-fenced fund to dispose of non-core properties. estate assets. These would be sold to the fund at market value and developed, with returns flowing back to The proposal was never implemented. On 26 April 2017, Transnet. Transnet then posted a tender for “the development and implementation of a holistic and sustainable non core Fuel Property Group (FPG), headed by Mark Pamensky property solution for Transnet that achieves improved (at the time, an Eskom board member and Oakbay profitability”. The tender closed in mid-June 2018 but board member) was sourced by Trillian to perform the the results are so far unknown. Transnet property analysis. This proposal was given to Transnet in mid-April 2016 together with a R36-million invoice (R41-million including VAT).

Questions 10. Why did Transnet authorise the interest rate swaps on its floating rate loans, which did not 1. Did Transnet pay the R93 million for the seem in its best interest? club loan to Trillian, Regiments or to both companies? Did either company have a 11. Why was Regiments allowed so much control contract with Transnet for this work? of the Benefit Fund? 2. Why was Regiments needed to arrange the 12. Was Letsema and Nedbank’s removal as club loan and not Transnet’s own treasury? McKinsey’s partners in the consortium justified? Was it approved via the necessary 3. Were the fees that were paid to Regiments and governance structures in Transnet? And Trillian justified? given that the consortium tendered based on 4. Why was Regiments appointed as transaction what these partners brought to their service adviser without a competitive process? offering, should their removal not have led to 5. Why did group treasurer Mathane Makgatho the tender being re-issued? resign? 13. Why did McKinsey withdraw from their 6. Why were changes made to Transnet’s contract with Transnet? Following this, securities trading policy, ceding normal why was Regiments allowed to continue the treasury functions to Regiments? What was mandate, as the contract should now have the response of Transnet’s treasury? been void? 7. Why were Regiments’s consulting fees folded 14. Were the continual changes to scope and into interest rates? pricing of Regiment’s contract justified and 8. Why was Stanley Shane’s conflict of interest all above board? not declared? To what extent was Shane 15. Why did Transnet approve the transfer involved in the contract with Trillian? of Regiments’ contract to Trillian, when 9. Why was Regiments allowed to work on the Regiments had not officially agreed to this? interest rate swaps without a mandate, and 16. Why was Regiments allowed to work on both thus requiring a memo to be rushed through Treasury operations and the Benefit Fund, by Transnet the day before it was ready to an obvious clear conflict of interest, of which conclude the first tranche? Transnet was aware?

Advisory 29 T-SYSTEMS AND ZESTILOR

T-Systems buys Transnet contract up for extension New IT BADC, chaired by Stanley Shane, Siyabonga Gama files into arivia.com - T-Systems subcontracts Sechaba Computer contracts awards T-Systems the new court application to and inherits five- Services for Transnet work goes out to IT contract, defying Transnet have BADC decision year ICT contract tender management recommendations overturned with Transnet - T-Systems cedes Transnet contract to Zestilor

2009 2014 2015 February 2017 November 2017

T-Systems South Africa bought into local IT company In November 2015, Transnet issued a request for proposals arivia.com in 2009, inheriting a five-year contract (worth inviting bids for a five-year contract to provide IT data R1.7bn) to supply Transnet with ICT services. Transnet services. T-Systems was bidding for the new contract, started to prepare a tender process near the end of 2013, which it was awarded in February 2017. as T-Systems’s contract was set to expire at the end of In November 2017, Transnet CEO Siyabonga Gama filed an the following year. But in January 2014, T-Systems was affidavit in an application at the Pretoria high court to have awarded a two-year extension, which would start in 2015, the board’s decision to award T-Systems the data services a decision that earned the company nearly R1.3bn in contract set aside. He claimed executive management additional revenue. recommended awarding the contract to another company, Media sources who interviewed staff within Transnet Gijima, which had earned higher points in the bidding alleged that the board gave those who had worked on process. Gama claims that the Board Acquisitions and the tender no reasons for extending T-Systems’ contract, Disposals sub-committee, at that time headed by Stanley and that the decision “bypassed every process that exists Shane, went against the recommendation and awarded in Transnet”. They also claim that Transnet’s decision to T-Systems the contract. extend the tender in 2014 came as a result of orders from Solly Tshitangano, the Chief Director of Governance, Transnet CFO Anoj Singh. Monitoring and Compliance at National Treasury, warned In 2014 T-Systems ceded a rental contract to Zestilor, a Gama in a letter dated 18 July that Transnet’s board had company owned at the time by Zeenat Osmany, the wife an obligation to award the tender to the preferred bidder, of Salim Essa. Media sources alleged that Essa would Gijima. Treasury and Transnet’s own legal team have both attend meetings during 2013 and 2014 as a negotiator concluded that the tender should be awarded to Gijima for T-Systems, but T-Systems denied that there was an following two separate probes, but the matter is now being agreement in place for Essa to act as an agent to secure heard in the high court in Johannesburg after Transnet deals. sought to obtain a declaratory order.

Correspondence in the #guptaleaks indicates that Zestilor T-Systems cancelled the Zestilor contract on 17 August 2017. was taken over by the Guptas’ Sahara Computers during the first half of 2015. When Transnet’s business support manager, Karen Ferreira, delayed payments to Zestilor Questions because she had questions about why they had been 1. Why was the T-Systems contract extended in allowed to take over the contract, a Gupta employee, 2014? What role did Anoj Singh play in this Stephan Nel, wrote to Siyabonga Gama on Zestilor’s behalf decision? to make a complaint about her. 2. Was Zestilor properly vetted by Transnet when it approved the ceding of its contract In 2011, T-Systems began a working relationship with with T-Systems to Zestilor? Sechaba Computer Services, on the basis of what is described as “body-shopping” contracts which essentially 3. For what reasons did the BADC award the aims to contract services for short-term work. In 2014, 2017 IT contract to T-Systems contrary to when the Transnet contract was up for extension, recommendations from management and T-Systems subcontracted Sechaba for some of its Transnet Treasury? What role was played by Stanley work. The #guptaleaks emails have revealed that Zestilor Shane in this decision? was invoicing a R200 000 a month management fee 4. What role did Salim Essa play in negotiations to Sechaba, for work done for Transnet. The emails also between T-Systems, Zestilor and Transnet? contain statements that Zestilor owned Sechaba Computer 5. What is the relationship between Zestilor, services and that the company structures were meant to Sechaba, Sahara Computers and T-Systems? reflect that arrangement.

30 IT SOFTWARE AG

SAP’s Kandaswami Sensational Signs “Power Up” agreement Transnet begins pilot Sahara acquires sends GSS details on kickback agreement between Software AG project with Software GSS Software AG deals drafted and GSS signed AG and GSS

October 2014 March 2014 May 2015 2015 September 2015

Leaked emails and documents show a second German indicates that GSS would receive between 49.5% and 50% company, Software AG, entered into an apparent of the revenue generated for Transnet: a potential R263- kickback agreement with a Gupta-controlled company million in total. Software AG would receive a royalty for in an attempt to secure a R180-million contract from providing the software. Transnet Freight Rail (TFR). Evidence shows that “Transnet received an unsolicited proposal from Software Software AG agreed to pay Global Softech Solutions AG and Global [Softech] Solutions for the provision of (GSS) up to 35% of the value of the contracts it secured a demurrage system…” Transnet spokesperson Viwe with Transnet, the department of correctional services, Tlaleane confirmed. Transnet bills clients for demurrage Mangaung municipality, and MultiChoice. fees when a scheduled rail trip cannot go ahead because Lawrence Kandaswami, the now-suspended managing of delays on the client’s side. The proposed system would director of SAP South Africa, first introduced Software help Transnet to increase the amounts it collects. “At AG to GSS in October in 2014. In the months to follow, the time, [Transnet] did not have a structured way of GSS became Software AG’s chosen partner on a number determining demurrage fees, and saw the value in having of potentially lucrative opportunities. Although Sahara a system that would enable it to ensure effective and Systems would only formally take up its shareholding in optimal use of its rolling stock,” Tlaleane said. GSS by September 2015, minutes of monthly meetings Although Transnet said the pilot project was ongoing, show that by March that year it was already in control of Software AG’s Cassoojee denied any knowledge of it: GSS. “Software AG has not generated revenue from any of the On 4 March 2015, Santosh Choubey sent GSS’s new references made in your request … apart from one Private budget to Essa and Tony Gupta. It included four Software Sector transaction which we cannot disclose... All other AG deals with potential revenue for GSS of R56.9-million Proposals have subsequently expired and we have not by December 2015 and another R54-million by December entered into any additional agreements with GSS since 2016. The largest was a R180-million project for Transnet December 2015.” Freight Rail. The commission agreement that Software AG would eventually sign with GSS allowed GSS to claim “referral fees” and “sales assist fees” for helping Software Questions AG identify leads and helping Software AG close these 1. Is the demurrage pilot project with GSS and deals. Software AG ongoing? Also exposed in the leaked documents was an apparent 2. Why has Software AG denied knowledge of plan for secondary kickbacks to a company called the project? Sensational Signs, as a ‘finder’s fee’. Sensational Signs’ 3. What are the details of the project? sole director is Mohamed Mobeen Jeena, who has links to Software AG’s sales director, Riaaz Jeena. This 4. Was GSS properly vetted as a service arrangement was set up in what appears to be an provider? attempt to ensure that Jeena would benefit personally 5. How much money was paid by Transnet to from securing contracts for Software AG, beyond his Software AG, and by Software AG to GSS? mandate. 6. What is the procedure for responding to This resulted in Transnet entering a pilot project with unsolicited proposals of this sort? Software AG and GSS in 2015. The draft agreement 7. Why did Transnet not put out a tender for between GSS and Transnet found in the #guptaleaks the demurrage project?

IT 31 STILL IN THE SHADOWS

There are additional stories that arguably warrant further but which is owned by the Guptas (51% owned by the investigation. Sahara). Cutting Edge have apparently taken over a floor at Transnet, having been hired indirectly via Trillian Having awarded a contract to China North “on the grounds that they can secure cost savings for Rail (CNR) in March 2014 to deliver 232 diesel Transnet”. The nature of their involvement deserves locomotives, Transnet then decided that special attention, given their Gupta connection, and their they should be built in Durban, rather than in Pretoria. likely access to key corporate information through their CNR hired an unknown company, Business Expansion data systems work. The #guptaleaks suggests that they Structured Products (BEX), to negotiate the relocation have been involved in dubious financial transactions, such costs with Transnet. BEX’s sole director was listed as as transferring funds to Homix, a shell-company used for Taufique Hasware, who has been a director of other shell by the Gupta network for money-laundering, between companies registered to Salim Essa, such as Forsure and October 2014 to February 2015. The bribery scandal Foretime. While CNR apparently originally estimated surrounding SAP and SOCs has revealed that payments the relocation costs at R9m, BEX negotiated for a were made by SAP to CAD House and then on to Cutting significantly more costly R647m, receiving an R65.9m Edge, Futureteq and Sahara Systems. Cutting Edge have fee for itself. CNR’s local minority partners objected to also been based at Eskom’s headquarters, including as this, ultimately reporting it to the police. CNR’s auditors, part of a McKinsey team focused on procurement. KPMG, have reported it to the auditing authorities, whilst the Werksmans report into the locomotives deals also #guptaleaks documents show that between highlighted this as suspicious. December 2015 and January 2016, the Guptas made travel arrangements for a number of key Nkonki, a local auditing firm, was revealed by public servants to go to Dubai during a time when the Amabhungane as having effectively come Guptas and their business network were based there. under the control of Salim Essa in recent years, The record of officials includes Transnet CEO Siyabonga following Essa’s funding of a management buyout Gama, with bookings for 22-24 January 2016. Why was where significant control was ceded to him. Were Nkonki he there at the same time as: Atul Gupta, Ajay Gupta, targeted because of the significant share of work they did Rajesh Gupta, Salim Essa, Ronica Ragavan, Ashu Chawla for state-owned entities? And how did this affect Nkonki’s and Duduzane Zuma, and shortly after: Des van Rooyen, work for Transnet? Nkonki had been playing a significant Anoj Sign, Ayanda Dlodlo, Tom Moyane, Gift Tshepiso role in internal audit at Transnet, including recent years Magashule, Thato Magashule, Kim Davids, Mantsha, and where many irregularities should have been surfaced. Matshela Koko? As with other SOCs, attention needs to be McKinsey, together with Regiments, also landed paid as to why so many of the substantial a contract with Transnet “for the provision irregularities that are now coming to light did of professional services to support Transnet not show up as findings in Transnet’s annual reports, increasing General Freight Business with breakthrough or even trigger qualified audits. The fact that those to reach the planned volume targets for the financial year who are legally responsible, and/or those with well- 2015/16 and 2016/17”. However, McKinsey apparently founded suspicions of on-goings at the SOC, failed to withdrew in March 2016, and the contract was terminated trigger this and other important mechanisms that are in November 2016, by which time McKinsey had been meant to prevent the abuse of resources or executive paid R187m. What happened on the project? Did the power indicates either an alarming failure or extensive failure of the project have anything to do with the fact usurpation of Transnet’s governance. that McKinsey substituted Trillian for Regiments as its Cutting Edge Commerce, is a small consultancy partner midway, citing “political exposure and under- that provides IT services and consulting delivery by Regiments”, but then weeks later also had to services, that has been active at Transnet, fire Trillian as they failed a due diligence?

32 Transnet Inquiry Reference Book RECOMMENDATIONS

Parliament’s Committee on Public Enterprises’ Inquiry will relevant stakeholders, to testify on how Transnet came likely make findings about how governance of Transnet to where it is today and what might be done to prevent has been undermined and repurposed to materially “capture” in future. The immediate task of the Committee benefit a politically connected elite, while compromising will be to probe breaches of laws and regulations and national economic and social development. Hopefully it expose individual acts of corruption. Where these are will also make recommendations to prosecute culpable clear, it will need to hold to account those that have been individuals, reform governance, and restructure South involved in malfeasance. In cases of criminal conduct, Africa’s freight transport sector so that grand corruption it must recommend prosecution and forward relevant is less possible in the future. details to the national prosecuting authorities. The Inquiry is a unique opportunity to force implicated individuals The inquiry will likely also illuminate the systematic acts to answer, under oath and publicly, to widely publicised of corruption around Transnet procurement. The acts of incidents of administrative and financial malfeasance, and corruption outlined in this book often exploited supplier blatant corruption. development and preferential procurement policies thus denying opportunities for genuine supplier development A further, and in many ways more fundamental, task of and other socio-economic upliftment benefits to take the Committee will be to expose the way in which board place. and executive appointments and directives have been subsumed by a political project that serves a narrow In addition, the way contracts are secured for large and corrupt elite, and to make recommendations on international companies using third parties to provide how governance of Transnet could be reformed and “business development services”, i.e. to pay bribes is strengthened in the future. Much work has already been another matter for concern, and policies that can asist done. A Cabinet sanctioned activity by the an Inter- with removing this element in South Africa need to be Ministerial Committee focused on SOCs has looked at considered.” The way that procurement information the way in which SOC board appointments are made, is misrepresented between the exective and boards including instituting nomination committees and eligibility has also been a major factor, as has a general lack of criteria, as well as arms-length performance contracts transparency beyond a small group of people on the which map out government’s policy and economic decision-making processes around deals, together with objectives, set specific targets and then hold boards and the disempowerment or collusion of internal audit or management to account. other oversight functions that are crucial to identifying where procurement functions are becoming corrupted. It is hoped that the recommendations of the Committee The weaknesses in these procurement processes must be will fuel the momentum that is building for the reform identified and corrected. Transparency and oversight will of SOEs. South Africans are watching Parliament’s be paramount to procurement reform. Committee on Public Enterprises’ Inquiry into Transnet and look forward to its recommendations around holding Parliament has the power to call on Ministers, Transnet individuals, as well as institutions, to account. board members, executives, professionals, and other

Transnet Inquiry Reference Book 33 This work is part of a larger academic initiatvie, the State Capacity Research Project: an interdisciplinary, interuniversity research partnership that aims to contribute to the public debate about ‘state capture’ in South Africa. The SCRP brigs together researchers from the University of Stellenbosch’s Centre for Complex Systems in Transition, the University of Cape Town’s Development Policy Research Unit and Graduate School of Business, the University of Witwatersrand’s Public Affairs Research Institute and Department of Economics, and the University of Johannesburg, as well as independent journalists and key informants.

We would like to acknowledge the work of researchers and journalists on which this booklet has drawn.

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