This meeting between the Standing Committee on Public Accounts (SCOPA) and the board and management of Transnet was called following the aborted meeting that should have taken place on 6 December 2017, when the Members of the Committee had gathered for the meeting together with representatives from the Directorate of the Priority Crime Investigation (DPCI) and representatives from National Treasury (NT), but the Transnet delegation had failed to show up.
This had prompted the unusual decision by the Committee to subpoena the board to appear before it. The legal summons meant that at the beginning of the meeting, the Transnet board members each had to take an oath to speak the truth, as the implications of the summons were that false information given at the meeting could result in criminal proceedings. This rescheduled meeting had also resulted in the management of Transnet failing to travel to the World Economic Forum in Davos to market business opportunities for investors in Transnet and the South African economy. The Minister of Public Enterprises had also failed to attend the aborted meeting, as she had sent an apology that she was sick – although it emerged during the meeting that she had attended a Cabinet meeting on the same day when she should have been at Parliament with Transnet. She defended herself that she had got permission from the doctor to attend the Cabinet meeting, as the hospital where she was receiving treatment was nearby. The Committee stressed that money had been spent to hold the meeting and the failure by Transnet to attend it had resulted in fruitless and wasteful expenditure. It also emerged that 13 executives from Transnet had travelled to Cape Town, including a board member. Some of the executives had even been seen within the premises of Parliament, but had then decided not to attend the meeting.
Members of the Committee were extremely critical of the Transnet officials and stated that they would not allow Transnet to set a precedent of defying Parliament and refusing to account. They said they would apply the maximum penalties provided for by the law to stop other entities and institutions from following suit. These included the sanctions provided for in the Companies Act and the Public Finance Management Act (PFMA), which included declaring the board delinquent. The penalties for being declared a delinquent director included a fine and/or imprisonment for a period not exceeding two years.
Members asked Transnet to explain who had taken the decision not to come, how the decision was arrived at and the reasons that prompted that decision. Transnet responded that they were not prepared for the meeting because of the short notice of 48 hours, which made it impossible to gather all the board members to familiarise them with the matters for discussion. The Committee asked how it was that a presentation had been sent to it on 4 December 2017, yet Transnet was claiming that they were not prepared. They questioned the status of the presentation if the other board Members were not familiar with its contents, because the board collectively was the accounting authority.
The main issue of discussion was the contract expansions and deviations from normal tender processes that were happening at the enterprise. There had been 107 contract expansions and deviations recorded during the financial year. Members of the Committee asserted that Transnet had total disregard for the law regarding contracts and tender procedures, and that they were deliberately flouting the law in order to create evergreen contracts for their preferred companies with whom they had links and who were giving them kickbacks. They stressed that contract expansions and deviations from normal tender procedures should be done only in exceptional circumstances, but Transnet had made them the norm. They were also critical of the National Treasury for sanctioning the deviations and expansions, even in situations that did not warrant them. Questions were raised regarding ownership of the companies that were given contracts by Transnet. In its defence, Transnet said that it had thousands of contracts with service providers, and 107 was a relatively small number in terms of expansions and deviations. However, it committed itself to reducing them in the future.
Concern was also expressed about the huge security apparatus that Transnet was operating, and there were allegations by Members that the entity was operating a parallel security structure to that of the state by engaging in the gathering of crime intelligence, and had established a large database of criminal activities and syndicates. Transnet disclosed that it spent about R1.2 billion on security annually, but defended its huge investment in security and denied that the entity was engaging in crime, stating that the security was meant to protect Transnet infrastructure and not to replicate the work of the state security agencies.
The Committee indicated it would make a decision on the measures it would take against Transnet, and communicate this in due course.
The Chairperson welcomed the Minister of Public Enterprises, Ms Lynne Brown, Members of the Committee, and delegates from Transnet, the Ministry of Public Enterprises, National Treasury and the Directorate for Priority Crime Investigations (DPCI). Among the Transnet delegates were the Board Chairperson, Ms Linda Mabaso, and her fellow board members, Mr Siyabonga Gama (Group Chief Executive) and Mr Gary Pita (Group Chief Financial Officer). Also present from the DPCI were Lieutenant General Yolisa Matakata (Acting Head: DPCI), and Brigadier Zama Basi.
The Chairperson reminded the Members that they had had two meetings in successive weeks with Transnet and the third one was supposed to have taken place on 6 December 2017, but it had not taken place. He also reminded the Minister that he had written to her informing her that the meeting of 6 December had not taken place, and that was what had necessitated this particular meeting. He said Members were not happy about this and they had taken the unusual decision of resorting to the legal means of summons to ensure that Transnet appeared before them. One of the unfortunate repercussions of the rescheduling of the meeting was that the leadership of Transnet who were supposed to have travelled to Davos -- and had even made their bookings -- could not do so. This had deprived the entity of the opportunity to go and make a business case for investment at the 2018 World Economic Forum. He used a local proverb which showed that small things sometimes lead to big implications. Since summons had been employed, all the individuals that had been summoned had to attend.
Ms Fatima Ebrahim, Parliamentary Legal Advisor, said she would read out the oath, and that she would ask each summoned person to respond with an oath or an affirmation:
‘You have been summoned in accordance with section 16 of the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act of 2004 to appear before this Committee as a witness and to answer questions on alleged violations of the Public Finance Management Act (PFMA) on contractual deviations and expansions for the 2016/17 financial year, including the first and second quarters of 2018. Please be informed that by law you are required to answer fully and satisfactorily all the questions lawfully put to you and to produce any document that you are required to produce in connection with the subject matter of this inquiry, notwithstanding the fact that the answer or the document could incriminate you or expose you to criminal or civil proceedings or damages. You are, however, protected in that evidence given under oath or affirmation before the House or Committee may not be used against you in any court or place outside of Parliament, except in criminal proceedings concerning a charge of perjury or a charge relating to the evidence or documents required in these proceedings. Please be aware that in terms of section 17(2) a person who wilfully furnishes a House or Committee with information or makes a statement before it which is false or misleading commits an offence, and is liable to a fine or to imprisonment for a period not exceeding two years.’
All the board members and most senior executives of Transnet who had been summoned to attend the meeting took the oaths and made solemn affirmations.
Mr Godi told the Minister that he still wanted to pursue the contents of the letter he wrote to her saying that the Members of the Committee and other delegates, such as representatives from National Treasury (NT) and the Hawks had travelled to Cape Town at their own expense, which had resulted in fruitless and wasteful expenditure, as the meeting had never happened. The money needed to be reimbursed by Transnet, but what had not yet been done was quantification of the exact amounts that had been spent. He hoped that everyone understood the gravity of the whole debacle. He then invited Mr V Smith (ANC) to begin the first part of the meeting, which was to address some important questions to the Transnet board and management.
Transnet’s absence from December meeting
Mr Smith asked the board why they did not attend the meeting on 6 December 2017?
Ms Mabaso said she wanted to apologise humbly on behalf of the board and management of Transnet. The non-attendance was not an act of disrespect or defiance to the Committee. They had received notice only 48 hours prior to the meeting that board members were required to attend. When efforts were made to try to get the board members to attend, it emerged that only one was available. The last board meeting took place on 30 November 2017, and if they had known then, they would have made plans to appear before the Standing Committee on Public Accounts (SCOPA) on 6 December, but the notice was received late. Most of the board members are non-executive members who had other responsibilities, and without sufficient time to prepare for the meeting, they would not have done justice to the matters they were supposed to present. As Transnet, they had written a letter to SCOPA apologising that they were unable to gather the board Members for the meeting, and requested deferment of the meeting to January. The Board truly and profusely apologised to the Committee. The Board respected the role of legislative institutions and the non-attendance was not an act of disrespect.
Mr Smith asked whether it was the unavailability of the board members or their unpreparedness that had caused the cancellation. The onus was not on Ms Mabaso to take a decision whether to attend or not attend. She had said the board took a decision not to come. It did not have the prerogative to decide.
Ms Mabaso said it was both unavailability and unpreparedness, because most of the members had to be taken through the issues. She recalled that Transnet had come before the Committee twice before, and the board members had not been invited.
Mr Smith asked how it was that a presentation had already been sent beforehand to SCOPA, and yet Ms Mabaso was claiming that the Board was not prepared. He asked how that had happened, since the board was the accounting authority.
Ms Mabaso replied that she was prepared, but the other board members were not prepared as the notice was received 48 hours prior to the meeting. She reiterated her apology.
Mr Smith assured Ms Mabaso that the Chairperson was going to accept her apology, but the Committee needed to understand what exactly happened, as they were going to take a decision afterwards. An apology was one thing, but he needed to understand how the decision not to attend had been arrived at. When he did a search on the internet, he had discovered that one of her strong points was good governance, as that was what was indicated on her CV, and he would have an opportunity to ask her what her understanding of good governance was. She was saying that she was part of a collective; she was prepared; and the collective, through the chief financial officer (CFO) or through somebody else, had prepared a presentation and sent it SCOPA so that it could be discussed. However, in the same breath, she was saying that the other board members were not available. Was this because she had prepared and never spoke to them? Maybe the other board members should be asked, because they all had taken an oath individually.
Mr Smith said when he read the Companies Act, all of the board was going to be held responsible and SCOPA had the power to make them delinquent directors. That was how important the issue was, and he did not know whether they knew the consequences of being a delinquent director. For the last time, he was asking Transnet’s chairperson how it was possible for the Committee to have a presentation, and then for her to write a letter or an e-mail to the Chairperson indicating her unpreparedness? He reminded her that she was under oath and that section 69(8)(iii) states that a person can be disqualified to be a director of a company if they have been removed from a position of trust on the grounds of misconduct involving dishonesty. He told the board members that they were going to be removed if it was going to be established that they were being dishonest. Was it unavailability or was it unpreparedness? He wanted only one answer.
Ms Mabaso said it would not be right for the board to come before the Committee without meeting and deliberating on the matters that were meant to be the subject of discussion. It was important that all the board members were familiarised with the issues so that they could be on the same page. At the last two meetings before the Committee, she had been alone as a board member with the management of Transnet, and the other board members had not been invited. That was what she had been trying to explain
Mr Smith asked Ms Mabaso what the status of the presentation was, if the other board members had not looked at it.
The SCOPA Chairperson started asking the board members individually why they could not be available for the meeting on the 6 December. One board member said he had already gone on holiday, and that was why he could not be available. Another said she had just had a baby and was in hospital at the time. She also disclosed that at the board meeting that was held on 30 November 2017, the non-executive board members had been informed that it was only the executive board members that were required for the 6 December meeting. The third board member revealed that he was resident in Swaziland, so when he got notice of the meeting it was already too late. The fourth board member said he had travelled to Cape Town on 6 December, but he was not prepared as he had not had the chance of going through the contents of the presentation. He had arrived very early at Parliament so that he could go through the material before the meeting. The fifth board member said she was not available, given the short notice. Regarding preparedness, she said the information had been discussed at various levels from the oversight point of view, so being unfamiliar was not a fair statement, but preparing for the meeting was what needed to take place. The sixth board member said he was unavailable as he had a meeting in Johannesburg, and he did not have enough time to prepare for the meeting in Cape Town.
Mr Smith told the Transnet board chairperson that the board as a collective was the accounting authority, but the responses from the board members was an indication that they had not endorsed the presentation for various reasons. It meant that the board had not signed of the document and yet it had been forwarded to the Committee to process and to take decisions based on the information contained in it. He asked the other board members whether it was fair to say that they had never endorsed the document that had been submitted to Parliament. Was there anyone that opposed the view that the presentation had never been signed off? Was the information that was presented to Parliament was the product of the board, or was it the product of an individual? What was the status of that information?
The Board chairperson, Ms Mabaso, said the information that was sent to SCOPA was information that was prepared through the governance structures of Transnet and then sent to the board for approval.
Mr. Smith showed Ms Mabaso the document that had been sent to the Committee, and said the question was referring to a specific document, and not to general principles of how documents were supposed to be prepared. He asked what the status of the document was.
Ms Nokuthula Khumalo, Group Company Secretary: Transnet, replied that at the board meeting held on 30 November 2017, the document that was supposed to be tabled at SCOPA had been discussed. The persons who were supposed to present the document were the board chairperson, Ms Mabaso, the Group Chief Executive Officer, Mr Gama, and the Group CFO, Mr Pita, so the members were familiar with the document.
Mr Smith said the board members, including the board chairperson, were saying they were unprepared and yet the custodian of the board said the document had been discussed at the board meeting in November. He reminded the board that if they were dismissed on the basis of dishonesty, the Committee would lead the charge to make them delinquent directors. It was either they were not part of the meeting in November and were not prepared, or they were part of the meeting and just felt that it was not important to come to Parliament. It could not be both of them. If it was the latter, and they brought this information to SCOPA, then they were in more trouble than they thought they were, because it was not right to bring before the Committee information that was half-cooked. It was very clear that the board secretary and the members of the board, including the chairperson, were speaking at cross-purposes to the Committee. He informed the board secretary that she was either going to be punished for perjury, or the board members had opened themselves up to being declared delinquent. It was one of the two, because it could not be that the document had been discussed and then the members had said to Parliament that they were unprepared. If the board was unprepared, and they had given SCOPA that document, what was SCOPA supposed to do with it?
Mr Smith indicated that there was evidence that there were members from Transnet who were in Cape Town on 6 December, and who had taken a decision not to come to Parliament. He stressed that it was the height of disrespect for Parliament. The Companies Act, section 7(b)(iii), said that entities like Transnet must exercise high levels of good corporate governance and must be transparent and accountable. Transnet’s failure to appear before the Committee defied those values. Directors that were declared delinquent were liable to imprisonment or a fine. The PFMA section 51(f) stated that an accounting authority for a public entity was responsible for the submission by the public entity of all reports, returns, notices and other information to Parliament. The questionable status of the document that had been submitted to Parliament pointed to a contravention of this section. The PFMA section 82(2) stated that an accounting authority that was guilty of violating provisions of section 51 was liable to a fine, or a sentence not exceeding five years.
He emphasised to the board that he was not threatening them, but he was promising them. They had seen a number of debacles take place in a number of state-owned entities (SOEs), and the Committee was not going to allow that under its watch. They were not going to allow other entities to go down because directors had failed to perform their duties. Transnet was not going to set a precedent of how and when they decided to come to Parliament.
Committee Members’ comments and questions
The Chairperson said he would allow the other Members to make further comments or ask additional questions. He also sought to clarify what appeared to be an administrative shortcoming, in that the previous two meetings between the Committee and the Transnet board and taken place in the absence of the other board members, apart from the board chairperson, who had attended both meetings with the management. He had expressed the need for all board members to attend the December meeting because at the end of the day, according to the PFMA, it was the board of directors that accounted to Parliament, and not management. The board chairperson could attest that she had not answered any questions because they were dealing with administrative matters, and it was the GCEO and GCFO who were answering. It was not the case that the board members were going to be answering questions about deviations and expansions, except that legally they were the ones who had to account. The letter that had been sent by the board chairperson -- that they could not attend – had arrived late in the evening, around 7 p.m. on 5 December, and yet one board member had come to Cape Town, which raises the question of who took the decision not to come.
Mr M Hlengwa (IFP) said it was important for the public record that the decision to hold the meeting on 6 December was made in the same room where they were sitting in the presence of the board chairperson. It would be disingenuous for anybody to suggest short notice, because the matter had been discussed at the meeting. He also took the opportunity of asking Mr Gama where he was on 6 December.
Mr Gama replied that he was in Cape Town
Mr Hlengwa challenged Mr Gama that he had been with President Zuma in Durban at the conference that had taken place there, and that he was right next to the President.
Mr Gama replied that that had been on 5 December.
Mr Hlengwa suggested to the Chairperson that they had been playing “hide and seek.” The Minister had submitted an apology, saying that she was off sick, but the Minister of Communications had said the Minister of Enterprises had been in Cabinet on that day. He wanted to raise those two fundamental points. He disclosed that he had flown to Cape Town with certain members of the Transnet ‘family’ who had come down to Cape Town, and they had been with him on the same flight. He asked who was in Cape Town on 6 December. Certain officials from Transnet had arrived within the precincts of Parliament and had then decided not to attend the meeting. When and where was the decision taken? Members of the press had also disclosed that they were with officials from Transnet in the lifts in the Parliamentary buildings. The decision not to attend had not been taken in good faith.
Mr M Booi (ANC) told Ms Mabaso that the decision to meet on 6 December had been made with her, and she had sounded excited about returning to Parliament. The Committee had a constitutional obligation to defend the fiscus and that they would not allow board members who were delinquent to represent South Africa. Board members had a huge responsibility of defending the interests of the people. If the conduct of the board members was going to be an impediment to development, then measures had to be taken to protect the interests of the country. The board chairperson had agreed to come back to Parliament, so it was surprising to learn that the board was unprepared. The Committee was interested to find out if there had been interference by the Guptas in the operations of Transnet. Money had been wasted in coming for a meeting that never took place. Addressing the Minister, he said the board chairperson had sat right here and been smiling, and had given the Committee confidence that she would attend the meeting. She was blaming the short notice of 48 hours, but the decision had been made at a meeting at Parliament.
Ms T Chiloane ((ANC) said the board chairperson was saying one thing and the other members were contradicting her. How could a member fly all the way to Cape Town if the meeting had been postponed? Where was the truth, and who was fooling who? She suggested taking a decision based on the responses of the board members before proceeding.
Ms N Khunou (ANC) asked the Company Secretary how many board members had travelled to Cape Town on 6 December.
Ms Khumalo replied that one board member, Mr Vusi Nkonyane, was already in Cape Town, as the others had not yet landed in the city.
Ms Khunou reminded the board chairperson that at the beginning of the meeting she had sworn to speak the truth, and yet she had not been telling the truth. She asked whether under her leadership Transnet could turn around. She told the Minister that officials were taking resources from Transnet to build their empires and they were taking assets under their watch to Old Mutual and other places, and this was a trend. She was not surprised by the behaviour of the board, and that was why whistle blowers were out of their jobs. It was not just Transnet and Eskom that were dying, but other entities as well. She said the days of playing with Parliament were over, and every last cent needed to be accounted for.
Ms N Mente (EFF) asked the Transnet chairperson how the expenditure that was incurred in flying the officials who had not attended the meeting would be categorised. If those expenses were not categorised as fruitless and wasteful expenditure, that would be corruption. She asked what the normal practice was regarding the briefing of fellow board members after meetings at Parliament. If Transnet was Eskom, South Africa would have been in the dark. It was necessary to treat Transnet in the same firm way that Eskom was being treated. Corruption at Transnet had reached very high levels, and people on the board and in management were implicated, yet they could not find time to come to Parliament to refute the allegations. It was important to establish who was misusing the State funds at Transnet. She agreed with Mr Smith that the board should be declared delinquent and criminal charges laid against those who would be found guilty.
Mr C Ross (DA) said that what the Committee needed to establish was the level of accountability of the entity and to see whether the level of governance was acceptable within the entity and whether there was a clear commitment from the board members and the administration to improve the accountability. For an entity with revenue of R65 billion in the financial statements, with substantial profits, it was important that there was transparency and accountability. With irregular expenditure of R692 million, fruitless and wasteful expenditure of R21 million, and with expansions and deviations of R74 billion and R94 billion respectively, then alarm bells started ringing. The weaknesses in the systems and accountability needed to be addressed.
Ms N Mazzone (DA) said she was not a Member of the Committee, but was there as a guest. On 6 December, she had happened to be in the Old Assembly Chamber and had met some interesting people in the rest room and the lift. She advised the Chairperson to get records of all the people that entered Parliament on that date from security, as every person went through the security checks, to establish exactly who was were there on that day. When one was carrying out inquiries, one had to pay attention to the nuances people used when answering questions and she was sure that her colleagues in the Committee had picked up when the Company Secretary had said “not all members had landed yet.” That meant members had been en route, and when they landed they had flown back. That issue also needed to be investigated. The Company Secretary had not perjured herself because she had said they had not landed yet, so they were en route to Cape Town. She added that she had seen some people at a restaurant near the waterfront who had even nodded to her when they saw her.
The Chairperson told Ms Mazzone that she seemed to be speaking in parables.
Ms Mazzone said she believed he would be able to work everything out.
Lastly, she said that on 6 December Transnet had released a press statement, which she read out: ‘Transnet confirms that it was aware of the SCOPA meeting that was to take place on December 6 2017. The management of Transnet was prepared for the SCOPA engagement and had, in fact, submitted a further presentation to SCOPA on Monday, 4 December 2017.’ She said the board Chairperson was saying they were not prepared but she had forgotten to tell the author of the statement that they were not prepared.
The Chairperson invited the Hawks to present their report on their investigations
Hawks report on investigations
Lieutenant General Yolisa Matakata, Acting Head: DPCI, said there were four matters that had been reported by Transnet to the Hawks which were still under investigation, but there were more matters that were being investigated which had not been reported by Transnet. She requested that these should not be discussed, as there was a possibility that some of the officials who were in attendance at the meeting could be implicated. Those issues concerned matters related to state capture.
The Chairperson said the time was not right to report on them but eventually they would be reported on.
Lt Gen Matakata handed over to Brig Basi, who was in charge of the investigations.
Brig Basi said the first issue referred to the technical security tender involving R123 million, and which concerned security cameras. The allegation was that the Technical Security Manager had breached procurement policies by involving himself with the service provider and had made material amendments to the scope of the security tender by increasing the number of advertised sites from 70 to 100, and in excess of 800 buildings, thereby increasing the value of bids for three companies. The first company’s bid value had increased from R12 million to R74 million; the second company’s bid value had increased from R17 million to R69 million, and the third company’s bid value had increased from R1.7 million to R12 million. After the tender was closed, the manager had made a misrepresentation to the Transnet Freight Rail’s (TFR’s) investment committee that he needed an increase in funding of R13.9 million for another project, without disclosing to them that in that figure was included R9.6 million that was to be paid to a company that was not part of the bid. The manager would then have received some kickbacks in the form of gifts, accommodation, personal favours and hospitality from the concerned service providers. The case was at 96% finality, and the only thing left was for the Hawks to meet with the complainant and clarify a number of issues that the prosecutor had requested.
The second matter concerned an executive officer from Transnet who had promoted the interests of one company with which he had had a relationship dating back to 2007. The allegation was that the executive received kickbacks from the service provider worth R430 000, where the service provider would have paid a deposit for the purchase of a vehicle for the executive’s wife. The matter had been before the court, but was conditionally withdrawn pending the PriceWaterhouseCoopers (PWC) report which had been received and analysed, and the matter had been taken back to the prosecuting authority for a decision.
The third matter was about a company that had entered into a five-year contract with Transnet worth R25 million to replace the track panels of the Empangeni-Natal main line. The allegation was that the person who was the head of litigation would have signed off where he was not supposed to sign off to settle the dispute of the R25 million. The concerned official was alleged to have received kickbacks amounting to R300 000. The PWC report had already been received and what was outstanding was four affidavits from former employees of Transnet. Once those affidavits were received, the matter would be referred to the prosecutor for a decision.
The last matter concerned a Transnet employee who colluded with a service provider by awarding a contract to service Transnet’s gas pipes in Middleberg. It was alleged that the employee received a kickback of R7 million with which he had purchased a house in Johannesburg. The investigation was at an advanced stage, with only a few issues that the prosecutor had asked to be finalised.
Mr Godi thanked Brigadier Basi for the briefing, and asked the Members for comments.
Ms Khunou said when the Committee started working with the Hawks, advice had been given that the Hawks should work closely with the Anti-Corruption Task Team (ACTT) so that there would be no need to wait for the prosecutor to conclude the cases. She asked how long it had taken the Hawks to investigate the cases.
Brigadier Basi said the first case had been reported in October 2012, the second in November 2013, the third in August 2016, and the fourth in December 2016.
Ms Khunou observed that in all the cases, the Hawks were either still awaiting a decision from the prosecutor or waiting for information from the complainant, which was Transnet. She asked at what stage the Hawks resorted to a seizure of documentation, because if that had been done then there would have been no delays in getting information.
Brig Basi replied that it depended on the case. If evidence was readily available, an application was made either through a subpoena in terms of section 25 of the Criminal Procedure Act, or a search and seizure was carried out, resulting in the seizure of documents. However, if there was cooperation, then a simple letter sufficed. If there was substance to an allegation, a search and seizure was effective.
Ms Knunou recalled that even when the Passenger Rail Agency of SA (PRASA) had come before the Committee, none of the cases had been concluded and all of their cases were still being investigated by the Hawks, and whenever questions were asked the response was always the same – information was being awaited. She urged that search and seizure should be used more frequently and effectively. She asked whether using that method was a challenge, as there was a need to come up with a solution to the investigations that were stalling. The stalled investigations were impeding consequence management.
Brig Basi said the colossal amounts involved were an indication that the cases were complex in nature, and time was required to do accurate analyses and evaluations. What also resulted in delays was the lack of cooperation from witnesses, as well as those implicated who were the ones who were sitting on the required documents, which sometimes necessitated the use of the search and seizure method, which was a last resort.
Ms Khunou referred to the case dating back to 2012, which she said should have long been concluded.
Brigadier Basi disclosed that part of the problem was that the forensic expertise that was utilised was external, and not under the Hawks.
Ms Khunou referred to the second case, which had been reported in November 2013, involving a Mr Nayaka, who was alleged to have received R49 million for deviations. She asked how many security companies were being operated by Transnet nationally and regionally. She said security was a key problem at Transnet, and asked how much money was being spent on security.
The Chairperson guided the meeting, saying they needed to focus on the four cases and that the question asked by Ms Khunou could be answered at a later time during the meeting.
Ms Khunou said the cases were taking too long, and asked the Hawks what their major challenges were.
Lt Gen Matakata responded that one of the challenges was that experienced investigators were leaving the institution. They had complex cases, but they had limited human resources. The second challenge was that the persons under investigation were able to afford top lawyers who were able to defend them, and in some cases were successful in dragging out the cases. The third challenge was a lack of internal forensic expertise in the institution, and the reliance on external service providers was not helpful.
Mr Booi said that Transnet was spending a lot of money on security, and he wondered why they could not invest this money in trying to boost the capacity of the Hawks. The money could be better spent by building the capacity of the police. It was odd that Transnet was creating its own security companies, and the GCEO was now being accused of spying.
Ms Chiloane asked about the whereabouts of the people who had been implicated in the investigations, and about the possibility of recovering the money that had been embezzled.
Ms Mente said the ultimate goal was to recoup the stolen funds and then get justice for the guilty parties. She asked how cases at the DPCI were allocated, as the question raised the issue of priority. Once a case went to the Hawks, it was a high priority case. She stressed that a priority case should not take as long as the first case had taken. The longer the case dragged on, the harder it became as evidence went missing and witnesses began to forget information. The longer the cases took, the higher the likelihood that even the suspects could leave the country.
Mr Ross said he shared the concerns of his colleagues on finalising cases, but some progress had been made by the National Prosecuting Authority’s Asset Forfeiture Unit, as was the case in the Estina Dairy Farm Project in Vrede, where a preservation order had been issued against Gupta-owned companies. This was an example of the law enforcement agencies taking charge and finalising cases. He hoped that the same would happen with the Hawks.
The Chairperson said he had listened to the explanation regarding the complexity of the cases as one of the reasons for delays in dispensing cases, but it was important that it did not become a cliché. In the first case, what was outstanding were the documents from Transnet, who were the complainants, and five years later the Hawks were still waiting for documents from the complainants who had reported the case. There was no complexity involved here. It did not make sense for Transnet to take five years to give the Hawks documents to prosecute a case which they themselves had reported. It was just a problem of cooperation, because when one checked one of the cases, it was tender fraud documentation involving the inflation of figures from R40 million to R123 million.
Mr Gama said sometimes executives could be unsighted about the issues, and he had never been approached about a lack of cooperation. His office was always open to assist the Hawks.
The Chairperson interjected, saying the problem was with the Hawks and much less with Transnet. They could not take five years to get documents that were the basis of the inflation from Transnet. How did Transnet know that there had been an inflation? The problem was with the Hawks, with their internal problems that lieutenant General Matakata had spoken of diplomatically. Even the November 2013 case had the problem of having a new investigating officer and a new prosecutor. The case had been to court and had then been withdrawn. It was a classical example of a case being dragged out. Why would a new prosecutor and a new investigating officer be employed if not for the purpose of delaying the case? He was worried and that he was not getting a sense of anything being concluded by the Hawks. He asked the Hawks not to give a general answer that the cases were complex, but to give specifics about each case. The word ‘complex’ must be taken out of the discourse. If things appeared complex, it might be a reflection of a lack of capacity at the Hawks.
Lt Gen Matakata said it was important to correct the impression that the Hawks had been waiting for five years to get documentation from Transnet. Cooperation had been received from Transnet as and when information was requested. The real issue was the high turnover of staff, with old members leaving and new ones coming in. She confirmed that the Hawks did have an asset forfeiture investigating unit that was active. On the allocation of cases, cases were allocated after being assessed by a team of investigators and they were treated accordingly. On the question of capacity, she conceded that the DPCI did not have the capacity of forensic auditors or investigators internally.
Mr Hlengwa asked how Transnet managed its supply chain management (SSCM), and why normal processes were not followed when they involved huge amounts of money.
Mr Pita replied that on an annual basis, Transnet looked at its entire procurement plan and budgets. They then submitted those procurement plans to the National Treasury (NT). It was part and parcel of the corporate planning process, because if one budgeted for something, one should know what one was going to be spending. This process was used to identify when a contract would expire and how early they had to go out and start planning for the procurement process. The procurement process was never driven by procurement, as business had to provide the business requirements, technical specifications, etc. Procurement ran the process. They would then use those business requirements to go out on a request for proposals and ensure that an award was made before the expiry of a contract. That was the general process in terms of procedure. On the MTN contract, Transnet had gone out way before the contract had expired and had been ready to award, if not for the complaint. On the Bidvest Protea Coin matter, it was a Transnet Freight Rail matter on which the procurement officer would give more details.
Ms Shantell Mackay, Chief Procurement Officer: TFR, said on the Protea Coin matter that the reason for the extension was due to the fact that they had gone out on tender within that period of time, but the specifications provided to the procurement department had been incorrect. This had been identified and the end user had advised that there was a need not to award the tender, and they would re-submit the specification order for Transnet to go out on tender again.
The Chairperson asked whether that made sense, and whether that was responsible.
Ms Mackay replied that it was not sensible.
Mr Hlengwa said the original period of the contract was 1 August 2011 to 31 July 2012. The current period of the contract had subsequently been from 1 August 2012 to 31 January 2017, which was five years and six months. The proposed period of contract had then become 1 August 2011 to 31 October 2017, which made the contract six years and three months. This constituted a foundation for having an evergreen contract, and that was why the specifications had found themselves wanting. This contract had been extended, with the original value of the contract being R35 million, excluding VAT. The value of previous amendments to the contract became R195 million, excluding VAT, and the current cumulative contract value was R230 million, and hence NT had made the point that this constituted a variation of 549 per cent. This was a huge amount of money. It was not a contract that could be carried through with extensions as if it was right. There were many other similar examples. He asked which Transnet’s top five extensions were, their values, and who owned those companies, as well as the percentage of variations for each one. Big contracts would require far better planning.
Mr Pita said that there were two items involving Group 5, which was a construction organisation related to Transnet Group Capital. One was for an amount of R178.8 million and the other was for an amount of R620.5 million for work on the NEPP, the first one for terminal one, and the second for terminal two. The next one was for T Systems, which was an outsourced contract and had a master service agreement around data worth R637 million for the 2016/17 financial year. There was also an additional amount for On-track Machines, which was in 2017/18, totalling R797 million and that was for Aveng, trading as Lennings Rail Services, Mazia Capital and Sim. There were a number of companies which provided that service. There was another on physical guarding security services worth 409 million, which involved a number of suppliers. Isidingo, Marshall Nights Security Services, Afri-Guards Security and Born to Protect were the companies in question.
Mr Hlengwa said he was interested in finding out who owned these five companies, and asked what necessitated the instruction to change security contracts to one year.
Mr Pita said they knew only black women’s ownership and directors names in terms of what was required to be disclosed.
Mr Godi asked if Transnet was monitoring black ownership.
Mr Pita said it was part of their mandate to encourage black empowerment and transformation in the economy
Mr Gama responded to the question on the year-long security contracts, and said the group had been going through a process of rationalisation. He disclosed that Transnet paid no less than R1.2 billion per annum on security and security-related matters, and each division in Transnet had their own security personnel in different parts of the country. Sometimes even in the same region there would be different security contracts. From 1 April 2018, there were plans to have a centralised security for Transnet which would reduce the cost of security by between 20 to 30 per cent. Sometimes there were two security firms operating in the same area, but the charges were different.
Mr Booi asked what had prompted Transnet to create its own security company instead of using the police.
Mr Gama corrected him that Transnet did not have its own security company, but contracted security firms to provide security.
Mr Hlengwa asked why Gartner Computer Financial Consultants were single sourced for the provision of a server, and what due diligence had been done to determine that they were the only ones who could provide the service.
Mr Pita clarified that the item around Gartner was around the provision of advisory and research services. Transnet had entered into a contract with Gartner Ireland as well as with Price Waterhouse Coopers, as it was a split award as part of an open tender process where they had to provide for advisory services for information technology (IT), as well as research and best practice for a period of two years, with an option to extend for 12 months. It had been awarded in January 2014 and in 2015 PWC had given notice to terminate the contract. Transnet had then approached the Acquisition Council to negotiate and conclude an amendment to include the balance of PWC. They had said they had a conflict of interest with their foreign partner in the United States.
Mr Hlengwa asked whether the MTN contract had been finalised or not.
Mr Mark-Gregg McDonald, Group Executive: Transnet, said negotiations had been concluded on the mobile voice and data contract and currently the contract wasx circulating for comments between the parties and was expected to be signed within two weeks.
Mr Hlengwa disclosed that in a letter dated 26 April 2017, NT had responded to a request from the GCEO requesting permission to single source Gartner Computer Financial Consultants to assist Transnet with reviewing and re-negotiating the Microsoft server and cloud enrolment renewal contract worth R224 million for a period of six months. He asked how Transnet had arrived at the decision to single source Gartner.
Mr Pita said the procurement department would have requested information from the IT department to do an analysis of the market and provide information that would suggest that the computer financial consultants company, Gartner, had the largest database of Microsoft licence agreements in the world, and that they would be best suited to assist Transnet to get a cost reduction. This particular agreement had actually resulted in cost reduction of about R10 million on Microsoft licensing, with only R1.8 million being paid to the consultants.
Mr Hlengwa asked what made Transnet decide that Gartner was the best possible service provider, as the letter from NT showed that the market had not been tested.
Mr McDonald said they had been open with NT that Gartner was not the only company that negotiated Microsoft licences, but that they had the largest data base.
The Chairperson asked how they had acquired that information.
Mr McDonald replied that it was the IT department that had provided that information.
The Chairperson asked who specifically in the IT department.
Mr McDonald said the Group Chief Information Officer (CIO), because she had previously dealt with Gartner and she knew that they had that capability.
The Chairperson said Transnet had not followed the law simply because its CIO had said Gartner was the best.
Mr Gama said the Gartner space was a unique one, where they had conquered all of that space and become a monopoly, and all the IT consultants advised that Gartner were the best.
The Chairperson asked why they had not just gone on open tender, because Gartner would have scored brilliantly.
Mr Booi asked the GCEO whether he was saying South African law should be disrespected simply because Gartner had a monopoly.
Mr Gama said he was not advocating breaking South African law, because the Microsoft licences were based overseas. Gartner were the ones with the largest database in the world.
Mr Booi addressed Minister Brown, and said the management at Transnet had total disregard for the laws of the country, exemplified by the expansions and deviations. He informed her that a letter that had been received from NT showed that there was interference by executives at Transnet in the procurement processes. Addressing the Chairperson, he said he was interested in the relationship between Transnet and National Treasury, and it was important to look at the correspondence. He referred to a letter from NT dated 2 November 2016 concerning a request for a deviation from the tender validity period. The deviation concerned a R4 billion contract for infrastructure procurement, delivery and management. The approval had been granted by NT, even though the proper processes had not been followed. The Transnet GCEO, Mr Gama, had no respect for the law. In the relationship between Transnet and NT, at least the latter had provided evidence to exonerate themselves, but Transnet had not given satisfactory answers related to the deviations and expansions.
He expressed shock that Transnet had even requested a deviation from the normal bidding process for the procurement of swing check valves. Valves that could easily be manufactured in South Africa were being imported from China. The reason that had been given was that a genuine urgency had arisen as a result of the cancellation of the Industrial Gas Solutions (IGS) contract, due to IGS deviating from the initial design specifications of the valve from AP 16D, to BS 1868, which had been rejected by Transnet Capital Project. The National Multi Product Pipeline (NMPP) project was required to be completed on or before November 2017 as approved by the Transnet Board and that it would not, therefore, be feasible to go out on an open tender. The board and management had decided to import those valves just to avoid the open tender because it was hard to understand that South Africa did not have the capacity to produce valves.
Mr Godi asked Transnet to respond to the issues that had been raised by Mr Booi.
Mr Gama said that with the first example the issue was not very clear, as there had been a mention of R4 billion and he was not sure which entity Mr Booi was referring to. He sought clarification so that they could answer.
Mr Booi said the correspondence was dated 2 November 2016, and it concerned Transnet Capital Projects.
Mr Gama said he would address the matter of the valves first. He reported that they had actually gone out on tender and procured some valves in South Africa. These were specialised high pressure valves that were installed on the underground piping system. They were steel valves that required a certain amount of pressure, and were very big. He disclosed that they were made only in Italy, China and a few other places. In order to secure them, they had had to go to the Department of Trade and Industry (DTI) for permission to import them from overseas. It was a specialised valve that could handle jet fuel and other similar products. Transnet had attempted to procure them locally, but it had not worked out. He rejected the allegations in media reports that he was spying, saying that nothing could be further from the truth.
Mr Booi interjected and advised Mr Gama against speaking about the media, saying if he had a problem with the media it was his problem alone. He said that the last time that he had appeared before the Committee he had not wanted to speak about the Gupta-related matters that had been raised by the media. He cautioned him not to go in that direction.
Mr Gama said Transnet was not engaged in any manner in trying to take over the state security agencies, and that the security secured by Transnet was about guarding the network, which was the ports and the railways. There was a lot of cable theft that was taking place along the railway lines, and they had employed Sinqobile Equestrian Security Services to deal with the thefts in some of the hilly parts of the country. Information concerning syndicates that were involved in the thefts was gathered and there was cooperation with the police, Telkom and Eskom. He clarified that there was no overlap with the work of the national security services.
Mr Booi said based on information that Mr Gama himself had provided to NT, after 14 years the DCPI had built up a comprehensive database of known crime incidents. Based on that, it was clear that Mr Gama had no regard for the law. Transnet kept records of vehicles and cell phone records in order to identify syndicate leaders and dealers of stolen conductors. He reminded Mr Gama that that was information that he himself had provided to Parliament. He asked him whether those were not the capabilities of state security. He disputed Mr Gama’s claim that Transnet was collaborating with state security on its capabilities and reiterated that Mr Gama had no regard for the law, and that correspondence between Transnet and NT that had been provided by the latter attested to this. He claimed that Transnet had hundreds of cases which they had never reported to the Hawks, and only four had been reported. What had happened to the other cases? He had experience with security and the allegations that Mr Gama was spying on his own people at Transnet was not a lie. He claimed that the security at Transnet had the capabilities of the police and that that was how rogue units began. He asserted that Mr Gama had himself provided this information to Parliament and his assertion was not based on rumours. Mr Gama was running a parallel structure to the police.
Mr Gama said Transnet was allowed, in terms of the strategic security information, to collect information around cable theft in as far as it referred to the departmental work that it did. Transnet did not veer off its particular mandate and the entities that it worked with cooperated with the police regarding crime intelligence to deal with these issues, and they were known. These were not bogus entities that were working outside of the norms. They dealt only with the criminals that stopped the trains of Transnet. Information was submitted to Treasury, and it was not hidden. It was the responsibility of Transnet to ensure that criminals did not sabotage the economy through cable thefts.
Mr Booi said there was information that the DCPI employed the services of two full time legal practitioners, admitted attorneys, to assist with prosecutions. He asked where the law came in and where normal structures came in. He claimed Mr Gama was using people outside the system to do prosecutions for them. Mr Gama was pretending, as if he was lying.
Mr Smith said it was difficult to follow what was happening, because there was almost a dialogue that was happening and the rest had become spectators. He suggested that Mr Gama be allowed to respond to all the questions that had been asked and then follow up questions could come later.
One of the Transnet staff responded to the question of the R4 billion project. The Durban Berth Deepening Project had been given approval in May 2016. Part of that project was an estimated R4 billion package for a marine infrastructure upgrade, and the package had gone to the market on 26 January 2017. The R4 billion was budgeted within Transnet. The original tender closing date was 30 May 2017 and it had to be extended to 22 August 2017, based on certain addenda issued by Transnet to ensure that there was a sufficiently long enough evaluation period. In order to have enough time for risk management and negotiations, the request to extend the tender validity period from 41 weeks to 67 weeks had been approved. The only thing for which approval had been sought was the extension of the validity period to ensure that a full evaluation could take place.
On the question of the valves, the original valves that were in the NMPP project had failed under hydro testing in 2015, and at that stage the original contracts were stopped and there was currently a legal process going on with the original suppliers of the valves. After that, in 2015, they had gone to the open market and appointed several contractors for the different types of valves. During the period after that, one of the contractors had come back and said that they could not deliver the specifications of one of the specific valves that were needed, as they could not do it to the quality standard required. Based on that, a request had been made to have a single source approved so that they could go back to the original equipment manufacturer and order those specific valves, since it was in a critical part of the NMPP and would have had a huge impact on the ability of the overall project to operate.
Ms Mackay said that with regard to the approval of the Equestrian Anti-Crime Prevention Security Services, this was aimed at developing one security strategy to be developed for the entire Transnet. The Operating Divisions (ODs) were therefore advised not to go ahead with any new procurement events and as such the request for a contract extension had been entered into.
Ms Mente said the issue of reporting cases by Transnet was taken seriously, and it was not always initiated by Transnet management but by whistleblowers. That in itself showed the levels of corruption at Transnet, and the management could not deny the fact that there were corrupt individuals among themselves. The trains were not going to be stopped by cable thefts, as there were bigger problems at Transnet. There was a lack of contract management, which pointed to the staff lacking the necessary skills and a lack of attention to detail. The expansions and deviations were the result of administrative weaknesses and there was no consequence management exercised on those staffers who were responsible for the lapses that resulted in the deviations and expansions. Others were a result of the desire to get kickbacks from the companies that would be the beneficiaries of the expansions. Some of the delays were deliberate. Transnet should be treated with the same firm hand as Eskom.
Mr Hlengwa said he wanted to conclude by going to NT on the level of expansions. He was not convinced that deviations and expansions were being dealt with in a manner which was responsible. All the explanations were “a big fat lie,” and he wanted NT to take the following to heart because it was the reason that Transnet was abusing deviations and expansions. In a letter dated 18 November, NT granted a variation but in the same letter indicated to Transnet that it was not clear how the industrial action contributed to the need to revise the scope, yet the basis of that application had been that there was industrial action. On 26 April, on the Gartner matter, on one hand NT hadagreed to grant the deviation and on the other hand had indicated that the reasons for the deviation were not verifiable, as there was no evidence that the market had been tested to confirm the competitive advantage of using Gartner. Despite the lack of evidence, NT had gone ahead to grant the deviation.
On 1 February 2017, NT had supported a variation but in the same letter had indicated that it was not clear whether the design changes were due to poor planning or unforeseen circumstances. yet it went ahead to grant approval. In the letter dated 30 January 2017 it was the same thing, where the letter indicated that there was no evidence for the request, yet approval was still granted. The letter clearly stated that the reasons provided by the institution were not justifiable, but permission was granted. He said the picture he was painting of what was happening between Transnet and National Treasury was hopefully being appreciated. He was left with no other conclusion than to say that there was a need to probe the nature of the relationship between Transnet and NT in so far as the deviations and expansions were concerned.
The Chairperson asked the representatives from the National Treasury to respond.
Mr Willie Mathebula, Acting Chief Procurement Officer: NT, said he appreciated the engagement and had taken note of the observations that had been made regarding the weaknesses in the system of approvals of the expansions and deviations. The point had been made throughout the discussion that deviations and expansions were by their very nature exceptional. He also appreciated the comments from the GCEO, that from Transnet’s perspective they would try to reduce the number of the applications because they were a concern and were not ideal for good governance and could result in abuse. He said the expansions and deviations had the potential to undermine government goals of ensuring economic development and social upliftment.
He wanted to raise an issue which was not part of the agenda, but which was important. He appealed to Transnet to pay suppliers on time, as not paying them had dire consequences, particularly for small businesses.
Minister Brown said she wanted to thank the Committee for the engagement. She said the serious issue that had come out was that there were systemic issues around procurement and contract management. She was awaiting a proclamation from the Special Investigating Unit (SIU) on Eskom, and she would do a sample for Transnet as well, because if the systemic problems were understood in procurement and contract management then it would be easier to fix them. Entities like Eskom and Transnet were old organisations and their names had changed over time, but they had not really changed structurally and operationally.
The issue of transformation was a policy of the government that had to be managed within the entities. A number of meetings had been held with the DTI around localisation and it was about getting every level of the SOEs to buy into the idea of transformation. Transnet had about 61 000 employees, so it was a large company, and whether it was state capture or a company capture, one needed to get to the bottom of these matters. There were probably a number of companies that had been captured, including Transnet. It was easy to speak about allegations, but the facts needed to be established.
Regarding the deviations and expansions, she said that she had nothing to do with them and that was one of the issues that she had raised because it did take the oversight role away from the shareholder representative, who was the Minister. Transnet should reduce the condonations, deviations and expansions. She would look at how they could deal with it within the DPE in either the significance materiality framework or the shareholder contract, so that targets were set for them to reduce deviations, deviations and condonations.
On security, she said it was true that copper theft was a huge problem and that she actually sat on a committee at Parliament that dealt with copper theft, so it was not a non-issue but a big issue. The security of the logistics of freights and trains was important, but the concerns raised would be addressed. Transnet had a decent financial position and it was nowhere near where SAA was, but the number of issues, whether they were anecdotal or real, were not taken lightly.
The Chairperson thanked the Minister, the Members and the delegates from the Hawks, National Treasury and Transnet for their engagement and contributions.
The meeting was adjourned.
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