Anoj Singh’s push for delivery of locomotives was ill considered, says former Transnet engineer
Francis Callard tells state capture inquiry the move was baffling and doomed to fail
Former Transnet engineer Francis Callard has detailed how Gupta lieutenant Anoj Singh called for the state-owned logistics company to embark on an aggressive delivery schedule for the 1,064 locomotives.
Continuing his testimony on Monday before the commission of inquiry into state capture, chaired by deputy chief justice Raymond Zondo, Callard described how this was doomed to fail, given the logistics needed to commission a new locomotive.
No reasons were given why the delivery should be accelerated. “It was given to us post event that it would save forex costs in the future … but it was not demonstrated how this would be achieved.”
Callard said he and colleagues made it clear to Singh that they could not absorb more than 300 locomotives per year due to marketing and other constraints. Callard’s business case for the acquisition of the locomotives put the estimated total cost at R38.6bn, which later ballooned to R54.5bn.
The R38.6bn was inclusive of potential effects from forex hedging, forex escalation and other price escalations and excluded borrowing costs.
The delivery of the 465 diesel and 599 electric locomotives was initially planned over a seven-year period ending 2018/2019, but this was reduced to up to four years.
Callard said the February 2014 request by Singh, who was Transnet’s CFO at the time, to accelerate delivery of the locomotives did not make operational or commercial sense. “It was ill-considered, as it was,” said Callard. “Initially, we were asked what would be our view on accelerated delivery of 300 locomotives per year.”
Callard explained that commissioning a locomotive required staff with expertise and Transnet had an insufficiently skilled workforce at the time. He said it took two to three years to train a locomotive driver.
“We were not ready to deal with this number of locomotives,” he said, explaining that they sent a report to now axed group CEO Siyabonga Gama, among others, to that effect. The report’s tone was “tread very carefully before accelerating [delivery of] these locomotives”.
But a November 2018 report by Fundudzi Forensic Services, commissioned by the Treasury to investigate various allegations at Transnet and Eskom, found Transnet’s Yusuf Mahomed had changed the business-case figures to indicate that the R38.6bn excluded potential effects from forex hedging, forex escalation and other price escalations.
“Mohamed indicated that Singh verbally instructed him to change the business case to reflect that the R38.6bn did not include potential effects from forex hedging, forex escalation and other price escalations,” the report stated.
The Transnet board contravened the Public Finance Management Act for failing to report the R15.9bn increase in estimated total cost for acquisition of the locomotives to the shareholder minister, according to the report.
The estimated total cost increase, according to a memorandum signed by Gama, Singh and Gama’s successor, former group CEO Brian Molefe, was attributed to the cost of future escalations over the life of the contract, contingencies related to variation orders, options and capital spares, and escalations from the approved business case to award date, among others.
The Treasury report determined that Gupta-linked financial services company Regiments Capital was part of the team that assisted Transnet in the calculation of the increased estimated total cost of R54.5bn.
“Regiments did so knowing that the costs were already included in the estimated total cost of R38.6bn.”
Transnet acting group CEO Mohammed Mahomedy told the commission last week how the parastatal paid Regiments R227m for swapping interest rates in billions of rands’ worth of loans involving the Transnet Pension Fund, Nedbank and the China Development Bank, among others.