Zondo report: Charge bosses for R15bn rail rip-off

Law enforcement agencies have been directed to launch criminal investigations against officials at state rail and ports company Transnet for their alleged involvement in the procurement of 1,064 locomotives — the price of which was unlawfully increased by more than R15bn without a valid reason. 

Former Transnet CFO Anoj Singh and former CEOs Brian Molefe and Siyabonga Gama are some of the senior officials acting chief justice Raymond Zondo wants investigated for possible fraud, violations of the Public Finance Management Act (PFMA) and the Prevention and Combating of Corrupt Activities Act. 

The chair of the commission of inquiry into state capture also wants directors of China North Rail (CNR), Business Expansion Structured Projects (BEX), Integrated Capital Management and Gupta company Confident Concepts probed for corruption, racketeering and offences related to a payment of R76.6m paid by CNR to BEX.     

The 2014 deal to purchase 1,064 locomotives saw Transnet — without any reasonable justification — agree to increase the price it would pay for the locomotives from R38.6bn to R54bn. In return, evidence led before the commission by Shadow World Investigations showed that more than R6bn in kickbacks were traced from both China South Rail (CSR) and CNR to Gupta-linked companies outside SA .

CSR and CNR have since merged to form a single company, CRRC.

Transnet has instituted civil claims in the high court with regards to the entire procurement, including having the award to four companies — CNR, CSR, General Electric and Bombardier — set aside. Of the 1,064 locomotives only 583 were delivered, with General Electric having delivered the 233 locomotives it was contracted for. CSR was contracted for 359 locomotives and delivered 260. 

CNR, contracted for 232 locomotives, delivered 22. Bombardier Transportation, contracted for 240 locomotives, delivered 68.

In part 2 of his report submitted to President Cyril Ramaphosa’ on Tuesday, Zondo found that “the procurement of the locomotives was attended by a wide range of wrongdoing that reflected a pattern aimed at favouring CSR and CNR with the objective of facilitating the kickbacks to the Gupta racketeering enterprise”. 

The wrongdoing included: 

• misrepresentation to the Transnet board of directors that the initial estimated cost of the trains — R38.6bn — did not include cost escalations and forex and hedging costs. This was later used by Singh, Gama and Molefe as reason to increase the cost of the locomotives to R54bn; 
• non-compliance with the preferential points tendering system;
• unfair favouring of one of the bidders, CSR; 
• understating CNR’s best offer which was accepted despite it excluding logistics, royalties, training costs and technical support;
• non-compliance with local content manufacturing requirements; 
• failure to obtain approval of the minister for the price increase, even though the initial procurement at R38.6bn was approved by the minister; and
• excessive advance payments of hundreds of millions of rand. 

“Taken with the evidence against Molefe, Singh and Gama concerning their receipt of cash gratifications from Gupta enterprise and the payment of kickbacks to [Salim] Essa’s companies and the Gupta enterprise by CSR and CNR, there are reasonable grounds to believe that Molefe, Singh, Gama and Essa, as well as others, received corrupt gratifications,” the report said. 

“There are also reasonable grounds to believe that they may have committed various offences under section 2 of Poca (Prevention of  Organised Crime Act) and those relating to money laundering and the proceeds of unlawful activities in terms of sections 4-6 of Poca.”

The report is the second of three Zondo will submit to President Cyril Ramaphosa after a marathon commission of inquiry into allegations of state capture that spanned more than four years.

Former Transnet engineering CEO Thamsanqa Jiyane, who led the acquisition of the locomotives, was recommended for possible fraud charges in relation to his role in the addition of R2.7bn to the price of the locomotives when there was no justifiable reason to do so.

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