Transnet paid R16bn more than the original price of R38.6bn agreed to by its board to procure the locomotives.
FORMER Transnet group chief executive Brian Molefe has admitted that the rail freight company agreed to pay more than R54.5 billion to procure 1,064 locomotives but had failed to legally obtain government approval.
The amount was also R16bn more than the original price of R38.6bn agreed to by the Transnet board in April 2013.
These were the shocking revelations made by evidence leader advocate Anton Myburgh during the third day of Molefe’s testimony when he was replying to allegations of fraud and corruption while he was at the helm of Transnet from February 2011.
Myburgh told the Commission of Inquiry into Allegations of State Capture that Transnet had agreed in April 2013 to purchase 1,064 locomotives for R38.6bn.
The amount, according to Myburgh, included forex hedging and price escalation. The commission heard that more than a year later – in May 2014 – Molefe, acting on advice from former group chief financial officer Anoj Singh and chief executive Siyabonga Gama, recommended an increase of the purchase price of the locomotives from R38.6bn to R54.5bn.
In his support of the increase, Molefe, according to Myburgh, told the board that the reasons for the increase in the Exchange-Traded Commodity was due to forex hedging and price escalation. Molefe’s memorandum was submitted on May 23 and the board under Gupta-linked Iqbal Sharma approved it on May 28, 2014.
During the early stages of his cross-examination, Molefe admitted that the initial amount of R38.6bn had included forex hedging and escalation, but said he used the wrong words in his memorandum to the board on May 23, 2014.
According to him, his failure to capture the correct information in the memorandum was due to “amateurism” by himself and his team.
“There were myriad reasons for these increases. The bidders were willing to receive an amount of R49bn. It was not an increase. It was a negotiated price with the bidders. It was a wrong use of terminology. It was unfortunate,” Molefe said.
He said the amount was increased to R54.5bn after they added 10% of contingency funds for unforeseen circumstances.
But internal Transnet experts on contracts made formal affidavits in which they argued that the increases were not justifiable. Molefe admitted that they did not obtain permission from the minister, but put the blame squarely on his legal and audit team.
“We failed to obtain permission from the minister. I know we had to get approval from the minister,” he said.
Myburgh also revealed that Sharma, the Transnet board and Gupta-linked businessman Salim Essa had strong ties.
The commission heard that one of the successful companies – CSR Hong Kong, which provided electric locomotives – was awarded a contract to build 359 locomotives.
CSR was then allegedly ordered to pay Essa 21% of its total income from Transnet.
When asked to comment, Molefe said he was not aware of that deal at the time.
The hearing continues.
– Political Bureau