Then Transnet CEO Brian Molefe and representatives of CSR sign a new contract on March 17 2014.Picture: PUXLEY MAKGATHO/BUSINESS DAY
Then Transnet CEO Brian Molefe and representatives of CSR sign a new contract on March 17 2014.Picture: PUXLEY MAKGATHO/BUSINESS DAY

Transnet paid R509m more than it needed to on one train deal alone awarded to a Chinese rail company that paid large suspected kickbacks to the Guptas.

The deal also resulted in a large proportion of the locomotives being imported from China rather than being manufactured locally. This emerges from an explosive draft report commissioned by the Treasury into looting at Transnet and Eskom by the Guptas and their allies. The draft report by Fundudzi Forensic Services, which Business Day has obtained, investigated three rail contracts worth a total of R25.2bn awarded irregularly to China South Rail (CSR).

The first deal for 95 locomotives was worth R2.7bn. For the second contract for 100 locomotives, the company was paid R4.4bn and for the third, to supply 359 out of a total of 1,064 locomotives, it was paid R18.1bn.

Documents contained in the Gupta leaks showed the company had earmarked suspected kickbacks for the Transnet deals totalling R5.3bn to be paid to various Gupta-linked entities in the United Arab Emirates and Hong Kong.

The draft report sheds new light on how Transnet’s plan to buy 100 locomotives from Japanese manufacturer Mitsui was ditched in favour of a more expensive deal with CSR.

Transnet had previously bought 110 electric locomotives from Mitsui for its export coal line through an open tender process, which were delivered in August 2012. The locomotives "performed well and proved to be both efficient and reliable".

Rather than test the market again, Transnet asked for board approval to award the new contract for 100 more locomotives to Mitsui through a "confinement", which means it does not go out to open tender. This was because Mitsui had an established production line in SA, its locomotives were already operating here and were easy to maintain, and drivers had been trained to operate them.

The Treasury-appointed investigators determined that in 2014 a memo from former Transnet Freight Rail CEO Siyabonga Gama that had recommended confining the tender to Mitsui was changed in favour of CSR by former Transnet chief financial officer Anoj Singh. The memos presented to the board recommending CSR provided similar justifications previously offered for Mitsui, although the Chinese firm had not supplied Transnet with the same locomotive model before.

The draft Treasury report also stated that it was "unclear how CSR could retain and create the same number of jobs as Mitsui while they imported 40 locomotives and Mitsui would manufacture all 100 locomotives locally". No jobs were created locally for the said 40 locomotives, it said.

On January 24 2014 the board approved awarding a R3.8bn contract to CSR, which fell below the threshold of R3.9bn requiring ministerial approval and Treasury notification. Less than two months later, then Transnet CEO Brian Molefe signed a R4.4bn deal with CSR, without the necessary approvals.

The draft Treasury report concluded that if Transnet had bought the locomotives from Mitsui, "they would have paid an amount of R3.8bn, which equates to a saving of R509m".

The investigators had not received responses from Singh and Molefe by the time the interim report, dated July 2018, was drafted.

Correction: August 2 2018

An earlier version of this article carried a picture of a Botswana Railways locomotive made and designed in the US. This was an error, and was not intended to suggest Botswana Railways had anything to do with the Transnet contract referred to in the article.

stephanh@businesslive.co.za

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