Chapter Ii: Mckinsey, Trillian and Regiments

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Chapter Ii: Mckinsey, Trillian and Regiments NATIONAL TREASURY Final Report: Forensic Investigation into Various Allegations at Transnet And Eskom: Tender Number NT 022-2016 RFQ 026-2017 CHAPTER II: MCKINSEY, TRILLIAN AND REGIMENTS NOVEMBER 2018 PUBLIC ENTITIES CAPTURED AS A RESULT OF DYSFUNCTIONAL GOVERNANCE STRUCTURES Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom Executive Summary 1. Appointment of McKinsey, Regiments and Trillian at Transnet 1.1. During the period 2012 to 2016, Transnet appointed McKinsey for the following project through a confinement process: 1.1.1. Advisory services for the 1064 locomotives; 1.1.2. SWAT 1; 1.1.3. GFB Breakthrough Contract (sub-contractor); 1.1.4. Coal Contract; 1.1.5. Kumba Iron Ore; 1.1.6. Manganese Contract; 1.1.7. NMMP; and 1.1.8. SWAT 2. 1.2. Transnet presented the same reasons for confining the projects to McKinsey. 1.3. McKinsey and Singh compromised the integrity of the procurement process by sharing pointers of a procurement to be initiated prior to the approval of the confinement by Molefe. 1.4. McKinsey and Regiments commenced with work relating to the above projects before the conclusion of the procurement process. McKinsey used the Letters of Intent issued by Singh as the basis to commence with the said projects. 1.5. McKinsey commenced with the above mentioned projects without concluding an MSA. 1.6. McKinsey, Regiments and Trillian were paid out of pocket expenses without producing supporting documents. 1.7. McKinsey, Regiments and Trillian were paid R1.5 billion in respect of the contracts awarded through a confinement during the period 2012 to 2016. 1.8. There is no evidence that Trillian performed work in respect of the Financial Structuring Advisory Services to support the invoice of R11.4 million approved by Jiyane. 1.9. Ramosebudi made a misrepresentation stating that Trillian assisted Transnet to negotiate with Nedbank, Bank of China, Absa and Libfin in the memorandum dated 17 September 2015. The said misrepresentation resulted in Transnet making an irregular payment of R93 480 000.00 to Trillian Asset Management. Page ii Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom 2. Appointment of McKinsey, Regiments and Trillian at Eskom 2.1. The appointment of McKinsey for the Eskom Top Engineer Programme was initiated by Singh at the time that he was still a GCFO at Transnet. 2.2. Eskom cancelled the MSA with McKinsey and negotiated a settlement resulting in a payment of R1.6 billion to McKinsey and Trillian six months into the contract. 2.3. The appointment of McKinsey for the Top Engineer Programme was not in line with the provisions of Section 217 of the Constitution of Republic of South Africa. 2.4. Payments made to Trillian Management Consulting were irregular as Trillian did not have a contract with Eskom. 2.5. Singh misled the Parliament Portfolio in his submission that Eskom had not paid Trillian for the Duvha 3 Power Station Insurance claim negotiations. Page iii Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom TABLE OF CONTENTS Heading Description Page No. No. 1. Introduction 1 2. Limitations 3 3. Scope and Methodology 3 4. Legislations, Policies and Procedures 6 5. Findings 10 5.5. Background 10 5.7. McKinsey, Regiments and Trillian’s appointment at Transnet 11 5.8. RFP:GSM/12/05/0447- Advisory services for the 1064 locomotives 11 tender 5.9. Investigations relating to the Club Loan 57 5.10. Investigations relating to SWAT 1-GSM/12/05/0445 76 5.11. Investigations relating to GFB Breakthrough Contract 91 5.12. Investigations relating to Coal Contract 108 5.13. Investigations relating to the Kumba Iron Ore Contract 122 5.14. Investigations relating to the Manganese Contract 131 5.15. NMPP Contract – GSM/1404/10040 141 5.16. Capital Optimisation and Implementation Support – SWAT2 156 5.17. 11 Million invoice approved by Jiyane 179 5.18. Liquid fuels and gas demand - GSM/14/10/1167 183 5.19. Lack of administrative and political support frustrates the fight 195 against corruption Page iv Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom Heading Description Page No. No. 6. Department of Public Enterprise 207 7. Eskom 213 7.1. Appointment of McKinsey for the development of Top Engineers 213 Program 8. Anoj Singh’s overseas trip facilitated by McKinsey 243 ROLE PLAYERS IDENTIFIED Name Description Gama Siyabonga Gama, Group Chief Executive, Transnet Essa Salim Essa: Director Elgasolve (Pty) Ltd Jiyane Thamsanqa Jiyane: Group Chief Procurement Officer, Transnet Khumalo Nokuthula Khumalo: Group Company Secretary, Transnet Mahomedy Mohamed Mahomedy: Acting GCFO, Transnet Mdletshe Lindiwe Mdletshe: Executive Manger Sourcing , Transnet ME Mkwanazi ME Mkwanazi: Former Board Member, Transnet Minister Minister Malusi Gigaba: Former Minister, Department of Public Enterprises Gigaba Minister Minister Pravin Gordhan in his capacity as the then Minister of Finance Gordhan Molefe Brian Molefe: Former Group Chief Executive, Transnet and Eskom Moropa Sithokozile Moropa: Head of Forensics, Transnet Pita Garry Pita: Former Group Chief Financial Officer, Transnet Shiceka Cleopatra Shiceka: General Manager; office of the Chief Executive Officer, Page v Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom Name Description Transnet Singh Anoj Singh: Former Group Chief Financial Officer, Transnet and Eskom Thomas Edward Thomas: Group Chief Procurement Officer; Transnet Ramosebudi Phetolo Ramosebudi: Group Treasurer, Transnet TERMINOLOGY USED AC Acquisition Committee BADC Board Acquisition and Disposal Council BBBEE Broad-Based Black Economic Empowerment BIS Business Intelligent Searches BOD Board of Directors CAPIC Capital Planning and Investment Committee CE Chief Executive CEO Chief Executive Officer CFET Cross Functional Evaluation Team CFET Cross Functional Evaluation Team CFO Chief Financial Officer CNR China North Rail COS Chief of Staff CPO Chief Procurement Officer CSR China South Rail DAF Delegation of Authority Framework DG Director- General Page vi Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom DPCI Directorate of Priority Crime Investigations ETC Estimated Total Cost EXCO Executive Committee EY Ernst & Young FRC Future Recognition Criteria GCE Group Chief Executive GCSCO Group Chief Supply Chain officer GESAT General Electric South Africa Technology (Pty) Ltd GF General Freight GFB General Freight Business GM General Manager iSCM Integrated Supply Chain Management JV Joint Venture LC Local Content MARS Mitsui & Co African Railway Solution (Pty) Ltd MDS Market Demand Strategy MRS Materials and Reliability Support NT National Treasury OD Operational Division OD’s CE Operational Division Chief Executive OD’s CPO Operational Division Chief Procurement Officer PFMA Public Finance Management Act, 1999 (Act 1 of 1999) Page vii Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom PED Primary Energy Division PPM Procurement Procedure Manual PPPFA Preferential Procurement Policy Framework Act; 2000 (Act 5 of 2000) RFP Request for Proposal SAPS South African Police Service SCS Supply Chain Services SD Supplier Development SOC State Owned Company TCO Total Cost of Ownership TE Transnet Engineering TFR Transnet Freight Rail TFRIC Transnet Freight Rail Investment Committee Transnet Internal Audit TRE Transnet Rail Engineering VAT Value Added Tax Exhibit list ANNEXURE DESCRIPTION Advisory services 1064 Locomotives D 1 Copy of an RFP GSM/12/05/0447 for advisory services on 1064 Locomotives dated 30 May 2012 D 2 Copy of a Confinement memorandum from Pita to Molefe and Singh dated 7 May 2012 D 3 Copy of Proof of Payment for tender documents Page viii Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom D 4 Copy of McKinsey submission dated 07 June 2012 D 5 Copy of Bouwer declaration of interest D 6 Copy of Gillman declaration of interest D 7 Copy of 2009 Procurement Procedure Manual D 8 Copy of stage 3 of technical evaluation report D 9 Copy of stage 4 of evaluation report D10 Copy of a memorandum dated 22 August 2012 D11 Copy of the TAC minutes of meeting held 26 July 2012 D12 Copy of a memorandum from Singh to Molefe dated 22 August 2012 D13 Copy of an LOI dated 30 November 2012 D14 Copy of Letsema’s response in relation to the alleged conflict of interest D15 Copy of McKinsey’s response D16 Copy of the Supply Chain Policy effective 1 May 2012 D17 Copy of a letter dated 22 May 2013 from Singh to Kloss informing him about a potential conflict of interest D18 Copy of McKinsey’s letter dated 12June 2013 to Singh responding to the alleged conflict of interest D19 Copy of Singh’s reply letter to Mckinsey dated 19 November 2013 D20 Copy of a letter/agreement dated 20 January 2014 sent by Niven Pillay to Singh D21 Copy of a memorandum by Singh to Molefe dated 17 April 2014 D22 Copies of two invoices totalling to R9 194 049.46 dated 11 April and 19 December 2014 D23 Copy of Ningiza Horner Inc Invoices totalling R 4 707 630.0 issued 31 Page ix Final report: Forensic investigation relating to the appointment of McKinsey, Regiments and Trillian at Transnet and Eskom March
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