Transnet contracts, vetting, irregular expenditure, accruals: hearing

Meeting report

Deviations and Expansions
The Chairperson proposed that the meeting not discuss deviations and expansions because two new sets of information had come to his attention. He would check to see if a meeting could be held on Wednesday 6 December. He said the current meeting would focus on vetting, irregular expenditure and accruals.

Mr M Booi (ANC) said a matter that he wanted to bring to the Committee’s attention was that Mr Willie Mathebula was appointed Acting Chief Procurement Officer in Treasury, but that many letters from Treasury were signed by Mr Sole, which was inconsistent. In one instance, the TCP project, Mr Sole had signed off for a R4b deviation from the tender and this matter needed clarity. He wanted Mr Mathebula and Mr Sole or the Director General of Treasury to be present at the next meeting because such contracts were costing the country R94b while students on the other hand were told there was no money to subsidise fees. He said a Transnet board member had received a R1m kickback based on his relationship with the Guptas. The CEO had to provide clarity on the matter because the documents the Committee had received the day before were lacking and provided no information.

The Chairperson agreed that this matter be discussed, and that Treasury be called to a Committee meeting.

Mr M Hlengwa (IFP) supported the proposal for the Wednesday 6 December meeting.

Vetting
Mr Siyabonga Gama, Transnet Group CEO, said that vetting was instituted following a 2014 Cabinet decision that all SCM personnel be vetted. Discussions with organised labour followed on issues of confidentiality and whether all SCM staff had to be vetted. To date only 56 out of 750 staff had supplied all the information requested. He said there had been investigation lapses and no feedback and he was in the process of regularising the process. He would be meeting with the State Security Agency (SSA) to ensure that there was enough capacity to process the vetting. He said the process should have been finalised three years ago and the speed of the vetting was dismal and unacceptable.

The Chairperson asked what the Cabinet decision had been.

Mr Gama said that in initial discussions it had been indicated that Transnet was an organ of state and had to comply and the instruction to the SSA was to vet all SCM personnel countrywide. Transnet had sought to deviate from that instruction then and he (Mr Gama) wanted to regularise the matter to include all personnel.

The Chairperson asked why the SCM personnel would have an issue with being vetted.

Mr Gama said that labour had said that it impinged on their privacy.

Adv Peter Volmink, Transnet Executive Manager: Governance, Supply Chain, who had been present at the meetings with labour, said labour had concerns that the vetting was intrusive, and that staff had a right to privacy. It was agreed that vetting would be only of SCM management officials.

The Chairperson said that Transnet had agreed to labour’s concerns, yet Cabinet had said that all members should be vetted.

Mr Gama agreed and said there had been procrastination and that he was asking for time to regularise the matter. He said that there had been no feedback to management that the vetting process had stopped.

Ms N Khunou (ANC) asked what aspect of public funds was private. She said Transnet was treating labour with kid gloves and all officials had to be vetted.

Mr Hlengwa said it was inconceivable that over a period of three years no one knew that the vetting process had stopped. 56 people vetted out of a total of 750 people was a failure of epic proportions. Who was responsible? Management had to admit they had failed. What follow up was done on the Cabinet decision?

Mr E Kekana (ANC) said the instruction of the previous week to Transnet had been to provide a list of people that had been vetted, not a number. Section 38 of the PFMA spelled out the responsibilities of a CEO. He suspected that the senior management present in the meeting were not vetted.

Mr C Ross (DA) said he was extremely disappointed and that the Committee had to engage with the SSA on why vetting was not done.

Mr T Brauteseth (DA) said vetting tested ethics and if not done would lead to corruption.

Mr Hlengwa wanted the previous week’s testimony by a Transnet official concerning labour’s stance tested. He asked if that testimony was now being withdrawn.

The Chairperson said there was a need to engage with the SSA because there had been other instances where vetting had been stalled, such as in SAA where an official had refused to be vetted.

Mr Booi asked for the correspondence between Transnet and the Cabinet on the vetting issue.

Mr Gama replied that the CEO at the time, in 2014, had authorised that vetting take place but three years later only 56 people had been vetted. He added that he wanted to withdraw the statement that the unions had stopped the vetting process.

The Chairperson asked if the CEO was aware that a Transnet official had said that the unions had stopped the vetting process.

Mr Gama replied there were management and governance systems lapses. Transnet had to comply with the Cabinet directive and it was non-negotiable. The unions had raised concerns, but it could not be said that they had stopped the process. Transnet could provide the list of names of the 56 people. The SSA had been provided with names, but then the SSA official had been moved elsewhere and the process had not continued, and this was what he wanted to engage the SSA on.

Mr Booi said that what the CEO was saying was not factual.

Mr Hlengwa asked why the list of names was not provided, as it had been asked for the previous week.

Ms Khunou said the list could be provided electronically. SOEs were falling apart because vetting was not being taken seriously.

The Chairperson asked what timeframes Transnet had in mind to complete the vetting. It was important that the Committee meet with State Security Minister Bongo and his team about what happened at Transnet and on vetting in general. He asked why the Transnet official who made the comment on the unions was not present at the meeting.

Mr Gama replied the official had been replaced by Adv Volmink who worked on governance issues as that was to be the focus of the meeting.

The Chairperson said he wanted a consequence management report on the official concerned as it was a serious matter that the official sought to mislead the Committee.

Ms Khunou asked why there was a need to regularise something that should have been there in the first place.

Mr Kekana agreed that State Security Minister Bongo be invited to a Committee meeting. The DPME should also be invited to the meeting to brief the Committee on what monitoring of Cabinet decisions was taking place. The CEO must provide a comprehensive report because he was the accounting officer and had to take full responsibility. The report should include a full list of senior management vetted and those that had not yet been vetted.

Ms T Chiloane (ANC) asked that the SSA brief the Committee on all entities.

The Chairperson said that the Committee’s interest was how the vetting process got stalled.

Media allegations on Transnet contracts
Mr Booi said the CEO had promised information on the media allegations but had only provided a brief paragraph. Who were involved in the media allegation cases and who was doing the investigations into the allegations?

Mr Gama replied that various allegations had been made against companies in the media. Some of the companies did business with Transnet and some did not. Transnet had provided a list of what was known of the reported allegations involving Transnet. He asked that Transnet be allowed to report back to the Committee when the internal investigations had been completed. The paragraph mentioned by Mr Booi only referred to the companies involved. The investigations were at different stages, except the SAP investigation, where Transnet already had the final report.

Mr Gama outlined the allegations in the media:
• On the Transnet contract with SAP, the media reported that documents in their possession showed SAP had paid CAD House a 10% commission to get Transnet contracts and CAD House was indirectly owned by the Guptas and Mr Duduzane Zuma. Cutting Edge and Choubey’s names were mentioned again in October 2017 in media reports that SAP paid the Gupta linked company CAD House a kickback to secure Transnet business. Most of the money paid to CAD House was distributed to three companies in the Sahara group of companies: Cutting Edge, Futuretec and Sahara Systems.

• There were media reports that Zestilor was given a contract to supply IT services to Transnet without proper tender processes being followed and Zestilor was owned by Salim Essa’s wife and these funds were channelled back to Sahara.

• There were media reports that Software AG entered into an apparent kickback agreement with a Gupta controlled company to secure a R180m Transnet contract. Software AG agreed to pay GSS up to 35% of the value of the contract it secured with Transnet, the Department of Correctional Services, the Mangaung municipality, Sasol and Multichoice. The Guptas’ Sahara Systems was in the process of buying into GSS and GSS was potentially agreeing, on the Transnet deal, to pay R27m to Sensational Signs as finder's fee. In May 2016 Sahara Systems sold its 50% stake in GSS to Futureteq.

• There were media reports that in Transnet’s R50b locomotive acquisition, about R5.3b kickbacks were received from China South Rail, by the Tequesta group, which allegedly belonged to a Gupta associate.

• There were media reports that alleged that Transnet bought seven cranes and the Chinese state-owned supplier inflated prices to pay off the Guptas. The allegations were that when Transnet entered into the contract the cranes were worth $81m but ZPMC inflated prices to $92m to pay for the commission and fees. The companies involved were Liebherr, ZPMC and JJ Trading.

• There were media reports in which Transnet was accused of appointing a Gupta related company Regiments Capital to handle Transnet's Second Defined Benefits Pension Fund and that Regiments misappropriated at least R232m with Transnet’s blessing. The media reports also questioned why Transnet would enter into an interest rate swop that caused it to pay more than it should have in interest payments. This matter was before the courts and sub judice.

Mr Gama said that in all instances internal forensic investigations were taking place. The report on the 1 064 locomotives contract was expected by the middle of December. The SAP investigation was completed. There was found to be no wrong doing by Transnet employees and that SAP would be doing an investigation into three of its staff members. The internal investigations were continuing, and he would report back to the Committee when they were completed.

Mr Booi said that Parliament had received a report, but it had not included any of those related to these allegations, it contained matters relating to ‘small fry’ allegations. Even the completed investigation on SAP was not passed on to the Committee. He asked why the investigations were done in-house, Transnet could not charge and then judge itself. He asked why the investigations were not given to the Hawks to do.

Mr Gama replied that the previous week’s information had related to events up to the end of the financial year, 31 March 2017. The media allegations had emerged subsequent to this, especially in July. All these issues had been raised with the police and Special Investigating Unit (SIU) officials had visited Transnet offices. He was hopeful and confident that these issues would be dealt with.

On the 1 064 locomotives, Mr Gama replied that the SIU had been to his office to discuss this.

On the R1m related to Trillian, Mr Gama replied that he had seen these reports and it was a matter under investigation. Transnet had reported the matters to Hillbrow police station, but not directly to the Hawks. Transnet did not have an issue dealing with the Hawks.

Ms Khunou was concerned that action was only taking place when the media made allegations. One could not wait for the media to raise issues before action was taken. She asked if officials were dismissed or suspended in connection with the allegations. The Hawks should be asked to indicate how many Transnet cases they had and how many had been processed.

Mr Ross said that the Committee had been given a huge document containing trivial offences. The processes appeared to be internal investigations, not external ones. What actions had been taken regarding their engagements with the SIU? What was reported to the Hawks? The Committee needed to take a decision on taking matters to law enforcement agencies.

Mr Booi said he did not know how Transnet could be investigating the matters after it had misled the Committee twice already. Transnet was happy to investigate itself. Information was reaching the Committee in drips and the CEO had not talked about the amount of money involved. He asked if Parliament could not institute an investigation.

Mr Ross supported the call for a parliamentary investigation. Parliament could not allow an entity that did R60b in turnover to be undermined by devious contracts.

Mr Hlengwa supported the call but suggested that the Committee first probe the matters in the form of a pre-investigation.

Mr Booi asked that Transnet provide all the details on all the allegations it had provided to the meeting

The Chairperson said the Committee had a relationship with the Hawks and needed to find out how the matters could be taken forward. The Hawks could provide corroboration on the Transnet cases.

Mr Booi said Treasury had to be asked how much they had on the allegations and the Committee had to get that information.

Ms Chiloane said there were still outstanding reports due from Treasury. She wanted to know what progress there had been on those reports. She asked what the timeframe was for the completion of the matters under investigation.

Mr Gama replied that the matters had been investigated after the allegations had been made. He could not provide a timeframe as to when they would be completed. A lot would be finalised by the end of January, but some would be completed much later.

The Chairperson said that the CEO should send a letter to the Committee indicating the list of investigations and where each one was at.

Mr Booi said he wanted details on the allegations that a Transnet board committee chairperson had received R1 million.

Irregular expenditure
The Chairperson referred to the physically big spreadsheet that Transnet had provided the Committee. He said he had briefly looked at the spreadsheet, which dealt with irregular expenditure. He would like context and clarity as the spreadsheet engendered more questions than answers, especially on big figure items of R10m and over. There appeared to be continual non-compliance where officials did not follow processes. Any single non-compliance issue was a matter of concern. He had noted two incidents of R10m and R20m in which the same official, a Mr Du Plessis, was involved. In both cases the transaction happened on 31 March, the financial year end. The payments were to the same company. At issue was that processes had not been followed. The Chairperson was not confident that there was consequence management taking place; that senior managers were following processes; and that action was being taken against those that transgressed. There was enough on the spreadsheet to warrant a hearing on its own. Could the Committee be sure that people in Transnet were not benefitting their friends?

Mr Booi said the case of Equestrian Security showed that Treasury had a relationship with Transnet on deviations and this made security a huge business.

The Chairperson agreed. He noted an instance where R153m was spent to organise a workshop which was done on 31 March. This had led to a hearing and the employee resigned prior to the hearing.

Mr Booi said there was a syndicate being run between Transnet and Treasury and the discussion into the matter should be postponed.

Ms Khunou said the required bidding process had not been followed by an official who had received a 12-month written warning only. This was collusion to make their own moneymaking scheme out of Transnet.

Mr Kekana supported Mr Booi’s suggestion that the matter be postponed as he had done an analysis on the spreadsheet and the matter needed to be dealt with in a more structured way.

Ms Khunou suggested that all officials involved in transgressions be traced and appear before Parliament to be held to account for their actions.

The Chairperson said he wanted to have a relook at the list and have the officials be accountable for their actions where they did not follow proper processes. He asked the CFO what was being done about the transgressions.

Ms Khunou said names should be attached to all incidents.

The Chairperson said the information given to the Committee was sufficient, but the CEO had to provide the justifications and the consequence management for each incident.

Mr Kekana said that some of the reasons given on the spreadsheet did not make sense, so he asked the CEO to revisit the reasons given and the penalties given in each incident.

Accruals
On accruals, Mr Ross asked about the amounts of R12.3b and accrued expenditure to creditors of R5.8b of which R5.4b were for the 1 064 locomotives contracts and were related to Bombardier, China South Rail, China North Rail and General Electric. He wanted a detailed breakdown of which contracts went to which company and were there any concerns about these accruals.

Mr Garry Pita, Transnet CFO, replied the total amount for accruals was R19.4b as at the end of March, the bulk of which was R12.3b. R9.3b was for Transnet Freight Rail. The supplier names were provided in the supplementary schedules. The R29m was for the internal and external auditors. Other suppliers' payments were based on milestones achieved were also in the schedules. All payments based on milestones had been paid. There were also payments for utilities and leases.

The Chairperson asked about a supplier named SANCO and what they supplied.

Mr Pita replied that all the suppliers were security suppliers.

The Chairperson said he would ask the Hawks to check its files for cases from Transnet and at what stage the Hawks were in their investigations of these cases. He would ask Treasury to report on Transnet deviations that had been approved.

Mr Hlengwa wanted the list of names of the 56 people that had been promised.

Ms Khunou suggested an oversight visit to Transnet supply chain management.

Ms Linda Mabaso, Transnet Board Chairperson, welcomed the oversight visit.

On the matter of municipalities and the discontinuation of water supplies to residents in December for non-payment of water bills, as in the case of Matjabeng municipality, Mr Ross proposed that Treasury be asked to engage with municipalities on the cutting of water and electricity and that the Committee engage with municipalities.

The Chairperson agreed that the Committee had not followed up with Eskom.

The meeting adjourned.