Local public procurement in the transport industry: Department briefing; 1064 Locomotives contract: Transnet update

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Trade and Industry

04 December 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Chairperson announced that there were some changes to the programme because neither Prasa nor the Department of Transport were not available that week and so their reports on localisation would have to be rescheduled for the following year.

The Department of Trade and Industry briefed the Committee on local public procurement in the transport industry, noting that there was a strong focus on localisation in rail transport. The briefing emphasised the importance of localisation in the DTI strategy. Regulation 9(1) of the 2011 Preferential Procurement Regulations empowered the DTI to designate specific industries or sectors, where only locally manufactured products that met the stipulated minimum threshold for local content would be considered for government contracts. Regulations also required organs of state to include local content in their invitation for tenders. The Department added that the legislation had been amended to provide consequences for entities that did not include local content and National Treasury was able to disbar the successful bidders if they could not meet the local content requirements.

Having provided the background to the local content requirement, the Department explained that officials had been unable to acquire copies of the locomotive contracts from Transnet for several years. Adjudication had taken place in 2014 and 2015 but only in April 2018 did the Department receive the locomotive contracts, after intervention by both the Ministers of Trade and Industry, and Public Enterprises. None of the contracts, except one with China North Rail, contained any obligation pertaining to local content. China North Rail declared that “the contractor will deliver 55% local content and supplier development equal to 50.7% of the total contract price”. The exclusion of local content as a contractual obligation created a serious problem in ensuring adherence to, and monitoring of, the implementation of local content requirements. Local content verification by SABS had since commenced and remedial actions would be required, where necessary, in the remaining projects.

Members were concerned that there had been a massive cover up and wanted the Department to explain what was really happening. The same companies had tendered for new projects. What proof was there that the companies would not do exactly what they had done before and ignore the local content component?

Why were tenders approved without local content? Could the Committee go back to the Hansard and check which members of Transnet had lied in previous meetings? Where they had lied, they had to be charged. Why had the Minister not required Transnet or his colleague in Cabinet to produce the contracts? One Member asked if there was a price attached to the local content? How did one measure the local content in terms of quantity and expenditure? What recourse did one have if local content was not included?

The Transnet board decided not to make their prepared presentation which was generic and not specific to localisation. Transnet reported that it was in the interest of the company to verify local content and so he committed Transnet to budgeting for the verification work to be done by the South African Bureau of Standards. Transnet said that SABS could not be totally responsible to verify local content. Transnet had the responsibility, through its own contract and programme managers, to verify that there was compliance at every step of the way, and to keep records of such verification to reduce the inordinate obligation on SABS. The board of Transnet committed to disclosing all information on Transnet contracts and Transnet in general.

The board told the Committee that Transnet had made the biggest single order for locomotives in the world, 1064. 487 had been delivered and accepted. In terms of the delivery schedule the others were far behind. The 1064 that had been ordered had been predicated on the market demand strategy that had predicted that large volumes would have to be moved and because there had not been investment for a long time and old locomotives were going out of service. The predicted increase in business had not happened. Those projections were incorrect and Transnet knew now that it did not need 1064 locomotives. The board anticipated that there could be extensive litigations so it could not, at that stage, reveal certain things that would be used in court to support its case. The board needed some space to complete the investigation outside of the public domain. The board would work with the Minister and would present an equitable remedy that took into account the de facto situation as well as the commercial imperatives of the business to Parliament in the new year.

Members noted that the board had said it would consider a “reasonable and rational” solution. What did that mean? What would be done in the future to ensure that the same debacle did not re-occur and local content requirements would be met? Should the law enforcement agencies not manage investigations into Transnet? Had people been fired? Could Transnet give the Committee the case numbers of people who had been charged for looting the state when the board returned in February 2019?  

The Chairperson asked the board to send particular reports to the Committee in the third week in January so that the staff could prepare an executive report for Committee Members.

Meeting report

Opening remarks
The Chairperson noted that everyone had extremely busy schedules and acknowledged Mr D Macpherson (DA) who was on his way overseas with the World Trade Organisation delegation for attending the meeting before he left.
 
The Chairperson announced that there were some changes to the programme due to people being unavailable and to work left over from the previous year. Prasa was unavailable the entire week so their report on localisation could not be attended to. Furthermore, the legacy report deadline was the following year and so she had decided to hold that over until the new year which would mean that details of the localisation reports and the sugar industry could be included in the report. The Committee was required to address the High Panel Report and she was pleased to say that most of the recommendations had been addressed by the Committee, although it recommended that the Committee be more robust in its oversight.
The adoption of the agenda was proposed by Mr A Williams (ANC) and seconded by Ms L Theko (ANC).
 
The Committee Secretary stated that the Department of Transport was not available that week and would have to be rescheduled for the following year. National Treasury’s related report would be held over until the new year. He added that Ms Bridgette Radebe would not be attending as she was not able to travel following an accident.
 
The Chairperson welcomed the Department of Trade and Industry and invited the team to present.
 
Overview of Local Public Procurement in the Transport Industry
Ms Thandi Phele, Acting Deputy Director-General: Industrial Development Division, DTI, introduced the presentation. She noted that there was a strong focus on rail transport and that, two weeks ago, when the DG had briefed the Portfolio Committee, he had emphasised the importance of localisation in the rail industry as part of the DTI strategy.

Dr Tebogo Makube, Chief Director: Industrial Development Division, DTI, indicated that he would brief the Committee on the background and the mechanisms used to increase local content requirements. Regulation 9(1) of the 2011 Preferential Procurement Regulations empowered the DTI to designate specific industries/ sectors, where only locally manufactured products that met the stipulated minimum threshold for local content will be considered. The Regulations also required organs of state to include local content in their invitation for tenders.
He then went into events leading to the problems that had resulted in contracts being awarded without the local content requirement being adhered to. Following designation, Transnet Freight Rail had issued two Requests for Proposals (RFPs) for the supply of locomotivesPost the adjudication and award, in 2014 and 2015, Transnet had provided the DTI with copies of the local content declaration but did not submit the contract and signed bidding documents as required by the Instruction Note.
Another set of declaration documents, including contracts was sent to the DTIDepartment of Public Enterprises and the South African Bureau of Standards (SABS) in April 2018 after intervention by both the Ministers of Trade and Industry, and Public Enterprises.
The DTI reviewed the contracts for local content requirements. In all the contracts, except one by China North Rail (CNR), there was no obligation pertaining to local content. CNR declared that “the contractor will deliver 55% Local Content and Supplier Development total equal to 50.7% of the Total Contract Price”. The exclusion of local content as a contractual obligation created a serious problem for adherence to and monitoring of the implementation of local content requirements.
Dr Makube stated that local content verification by SABS had commenced. Because some of the projects were behind the original schedule, the local content verification would enable timeous implementation of remedial actions and an opportunity existed to review the remaining projects.
Dr Makube added that the legislation (Preferential PPFA Regulations section 14 (1), (2), (3)) had been amended to provide consequences for entities that did not include local content and National Treasury was able to disbar the successful bidders if they could not meet the local content requirements.
 
Discussion
Mr Williams stated that the Committee had heard the information about local content but on the first oversight visit, Members had found that the local companies, such as the smelters of wheels for trains, were not getting work. Quite frankly, he did not believe the promises of local content. Everyone in the room knew about the obligations in terms of local content but government contracts had been signed that did not stipulate the requirements for local content. There should be an investigation into the contracts and how they had come to be signed. The Committee should not take DTI’s word for it. There was a massive cover-up because the Committee had been told that there would be local procurement. In fact, the very companies in the earthmoving equipment that had not done local procurement in the previous contracts were involved in a new tender process. He wanted the DTI to explain what was happening and explain what proof the Department had that the companies would not do exactly what they had done before.
 
Ms P Mantashe (ANC) was equally disappointed because the Committee could not assess the impact of its policies to create jobs in SA. When they went on oversight visits they saw that there was no local content in the contracts. Parliament created laws that were not implemented by its own government. DTI was a counter-revolutionary that was working against the ANC government. Something had to be done. At the end of its term, the Committee could not see results from its legislation. Why were tenders approved without local content?
 
Ms Theko was not happy at all because nothing new had been presented, except the recommendation that said that an opportunity existed to review the project. It took four years to get the contracts. When would they get the report? After 2022? The President said that things needed to change on the ground. The World Group had said that SA had to address its challenges, but it could not do so if people were working against the government. How could the challenges be addressed? There was an ongoing investigation into the locomotives that was not assisting the Committee. When would the Committee get the report back on the contracts, showing either compliance or not? She was not happy with the report.
 
Mr D Macpherson (DA) said that the frustration of colleagues was justifiable but directed to the wrong entity. In September 2017, the Committee had agreed to conduct an enquiry into local content and local procurement with special attention to the 1064 locomotive contracts. The enquiry had been derailed and had never resumed. The desire was there to get to the bottom but the Committee had been hindered from getting to the bottom. Secondly, the people who had to answer had been in those rooms with Mr Gama, the former CEO of Transnet, and the Committee had let them not answer. They had either lied or not responded. The Committee had to go back to the Hansard. Where they had lied, they had to be charged.
 
Thirdly, Mr Macpherson told Dr Makube that he knew that he and Mr Strachan had been raising the issues for years. The person who had to answer to the Committee was Minister Rob Davies. Why had the Minister not required Transnet or his colleague in Cabinet to produce the contracts? He had to say how he had allowed that to happen. It was an unmitigated disaster. It was a R50 billion rip-off and the greatest rip-off in the history of the country but that money was long gone.  And now it was going to happen again.
 
Mr Macpherson stated that the Committee had to take up the investigation into the contracts. The Committee had to determine how to stop it happening again because the loopholes were so big; one could drive a train through them.
 
The Chairperson reminded Mr Macpherson that the Committee had approached the Auditor-General and National Treasury because the Committee had found that the local content requirement did not exist in the contracts. The Auditor-General and National Treasury had been requested to investigate. The Committee had all of those reports and if anyone did not have them, she would send them.
 
Ms E Ntlangwini (EFF) had the same sentiments as her colleagues on the presentation. It was a period of madness. She agreed with Dr Makube who had said that Transnet did not get to choose whether it obeyed the regulations or not. She stated that regulations were non-negotiable. She remarked that that was what happened when the Guptas captured the state.
 
Ms Ntlangwini asked if there was a price attached to the local content or how did one measure the local content in terms of quantity and expenditure? As far as she could see, the majority of the money went out the country because the bulk of the train was not locally made but came from China or USA. Secondly, she asserted that the country would not get it right until SABS received more money for its resources, especially auditors to go out and investigate. SABS had a very small budget. The Committee had to direct intervention into the resources made available to SABS. An enquiry into Transnet would be a waste of time. The inquiry had been overtaken by State Capture inquiry. The Committee should find out if one could send the report to State Capture.
 
Mr Radebe stated that there was rot in those contracts. He asked what recourse one had if local content was not included. He agreed that there was no point in a Committee enquiry at that stage. The DTI could not be held accountable. The people from Transnet and Prasa had to answer. Union workers had told him that workers from China waited for lunch time and then they put the equipment in the locomotives when the SA workers went to lunch so that they did not transfer skills. The workers could not even verify that they were using SA parts. He agreed that the Committee should let the State Capture inquiry manage the process.
 
Mr Macpherson said that SABS had to verify the local content, not the Auditor-General. He reminded the Committee that there was an argument between SABS and Transnet as to who would pay for verification. As a result of that, the Committee had asked the Auditor-General to get involved in the issue.
 
The Chairperson recalled that the Auditor General had said that the cost had to be put in the tender or the bidder would pay the cost. The Committee had asked for that in writing. DTI would clarify that point. She noted that declarations on local content had been made but was that the actual situation? DTI had spoken about remedies and that regulations had been amended. She asked when that had been done – year and month. She recalled that it had been done because problems had arisen with verification.
 
Dr Makube stated that the cost of verification was a grey area that had not been clarified. The Chairperson had written to the then Minister of Finance, Mr Pravin Gordhan, to find out how the cost of verification was to be met. Was it a fiscal transfer or should the documents be amended to include the cost of verification? DTI had not won on the amendment of the bidding documents so SABS had engaged Prasa and Transnet on the verification of costs. There was an agreement between Prasa and SABS to pay and so SABS was contracted to do the verification. On the Transnet side, there was no agreement and there had been no verifications until DTI had transferred money to SABS. The verification currently taking place was paid for through the fiscus. The funding of verifications had not been formalised, but had to be. If the government was to address local content, the issue of funding of verification had to be properly addressed.
 
The question of compliance had been another issue. In 2011, the regulations had been silent on what government had to do to enforce local content. On 27 April 2017, the regulations had been amended to deal with non-compliance. DTI was currently dealing with the 2017 Preferential Procurement regulations.
From 2017, designation had been defined and regulation 9 explained that local content was the product that had been designated by the DTI. Regulation 8 made it clear that all departments had to advertise with conditions of local content. Compliance was not at the end. DTI was alerted by Proudly South Africa if tenders were not in line with those regulations. The DTI then required the municipality, department or state-owned enterprise (SOE) to amend or cancel the contract in accordance with Regulation 8.2. If there were challenges, those tenders were referred to the Auditor-General.
 
The difference between the role of the Auditor-General and SABS is that the Auditor-General would audit expenditure to ensure that expenditure was in accordance with local content and DTI did see the effect of that. The Auditor-General was on the financial side whereas SABS was on the technical side. Reliance on documents was not enough so SABS had been given powers to go on site to ensure that production took place in accordance with the local content requirement in the contract. Despite the lack of clarity around who was going to pay for verification, entities were responsible for their own compliance with the legislation. There were various penalties for non-compliance. The argument that compliance was not required did not gel. There was a requirement to comply.
 
Ms Phele explained how local content compliance had to be discharged. DTI identified what was being manufactured in SA and then gave direction as to which components had to be locally sourced. DTI identified components that had to be created, promoted and supported. Because local content was a requirement, DTI had to know what was available locally or there could not be compliance. There were about 10 components that it was compulsory to include in manufacturing, if the components were required. That was a requirement of the relevant Instruction Note. The first Instruction Note on rolling stock was issued in 2012. Certain components were not available as there had been a depletion of industrial capabilities, and so DTI was phasing in new capabilities. As new components became available locally, they would be added to the Instruction Note.
 
Ms Phele agreed that SABS capacity was a grey area in respect of how local content verification would be paid for. Government needed to develop a sustainable model of funding. SABS had to develop and sustain capability so the cost had to be resolved. The contract issues would be addressed in the Transnet presentation.
 
Dr Nimrod Zalk, Industrial Development Policy and Strategy Advisor, DTI, suggested that Mr Radebe had put his finger on the issue. Localisation was the policy that bound government and SOEs. It was not simply the policy of DTI. DTI had sought to drive the policy but, ultimately, DTI did not source or negotiate the contracts. That was the work of the procuring units of the entities. DTI had raised the challenges in ensuring that public entities gave effect to the localisation policy, both with counterparts at all levels, and in the Committee. The key questions were about how one strengthened the legal framework going forward and how one dealt with non-compliance.
 
The Chairperson stated that the agenda had been amended to allow for a second round of questions.
 
Ms Mantashe said that the Committee was frustrated but appreciated DTI for giving funds to SABS. She knew that it was not solely the responsibility of DTI and Minister Davis, despite Mr Macpherson’s allegations. The Committee was voicing its frustrations.
 
Ms Ntlangwini was not clear on the explanation regarding the amounts. Perhaps the next presenter could explain what amount, of a train built in South Africa, was local content. If 70% of the train was local content, could they explain exactly where black industrialists were benefitting? Which parts of the locomotive were local content and did 90% of the costs still go out of the country? She wanted to see where black industrialists were contributing. SABS needed more teeth. Hopefully when she came back as Minister of Trade and Industry in the next term, she would see local content implemented.
 
Mr Macpherson said that the problem with the conversation was that no one wanted to be held responsible or apportion responsibility. Everyone was absolved.
 
The Chairperson asked him to pause while she found the resolution.
 
Mr Macpherson objected to the Chairperson’s interruption as he was not allowed to interrupt her.
 
Ms Ntlangwini stated that, for those who did understand politics, she had made a proposal to the Committee. She had not stated that it had to happen. She had even recommended that the Committee should find out if, legally, it could be done. People should understand politics.
 
The Chairperson stated that, because she had fallen in the corridor on her way to the meeting and had a headache, she might have forgotten something and had wanted to check her notes.
 
Mr Macpherson noted that, even with all their qualifications, people could not get it right.  He said that on 17 September 2017, the Committee had taken a decision in terms of the parliamentary rules that it would launch an investigation into local procurement with a focus on the 1064 locomotive contract by Transnet. He suggested that some Members may not have attended that meeting but he could not account for that. However, the Committee had dragged its feet and had never concluded the process. The result was that the Committee Members were wringing their hands saying that it should be sent to the State Capture Inquiry.
 
He alleged that the Members were trying to absolve the Committee from its obligations and the decision that it had made. The Committee could not do that. Secondly, the Committee could not absolve Minister Davies because when he was alerted to the issue, he should have demanded the documents but he had not done that. Until such time as Parliament and Members took their responsibilities seriously, they would have the same discussions about implementing better and improving mechanisms. Those mechanisms were there and unless the Committee was prepared to take its responsibilities seriously, it became problematic.
 
Mr Macpherson stated that Dr Makube had repeatedly told the Committee about those challenges. What could one expect if the Committee did not listen? There were only so many people who could raise the alarm so many times. Either the Committee had to complete its enquiry or it had to rescind the decision. He added that the enquiry had been permitted by the Speaker and must either be completed or permission requested not to continue.
 
The Chairperson responded on behalf of the Committee. She explained, as Mr Macpherson should know in his position, that the priority of any Portfolio Committee was legislation and it took precedence over everything. The Committee had hoped to receive the bills earlier but the reality was that the Committee had the choice of railroading the bills through or conducting robust oversight. She knew that Mr Macpherson supported robust oversight.
 
The Chairperson stated that the Committee had undertaken to hold an enquiry into localisation and the designations for the reasons referred to that morning. Localisation would have extended the value chain and created more skilled employees. The reports showed that localisation was flouted by local government, SOE’s, and even national departments, repeatedly, because the verification had been problematic and, secondly, the contracts had been very loose and there had been no set format. The Committee had raised that in its reports. Finally, downright untruths were made to Parliament.
 
She continued that by the end of 2017, the Committee had taken a decision that it would pursue the matter. However, the Committee had not foreseen how long the bills would take or that constituency time would be extended by a month. Those factors had contributed to the Committee not being able to meet its commitment. Anyone would agree that it was reasonable that it had not been done. However, the Committee had decided to bring it back and to close off with an interim report in the legacy report.
 
The Chairperson had realised that the localisation matter could not be finalised at the current time owing to the appointment of new boards and people not being available so she had tried to explain at the beginning of the meeting that the Committee would pursue the matter in the following year when there was no legislation to be addressed. Everyone in the Committee agreed that they would have liked to investigate, but no other Members blamed the Committee. The Chairperson was under the Speaker and could not flout her rules to complete the legislation.
 
The Chairperson stated that she shared Mr Macpherson’s disappointment and frustration but the Committee would do as much as it could. The enquiry into localisation would continue the following year.
 
DTI was requested by the Chairperson to respond to comments made by Members.
 
Dr Makube clarified that local content was a percentage of the tender price but, in addition there was legislation and National Treasury Instruction Notes that had put certain parameters in place for all manufactured products except pharmaceuticals. On railroad stock, certain components were designated at 100% localisation because SA had the capability to manufacture those parts. When awarding a contract, it had to be made clear to suppliers that those components had to be manufactured in SA.  If that was not done and the Department simply said that local content was a percentage of the total cost, there were creative ways around it. Companies would say that they were domiciled in South Africa and so that was the local content. There were national standards as to how one had to discharge and evaluate local conduct.
 
Mr Williams stated that he had asked about future tenders, and about the moving machinery. Why where the same companies that had had the tenders previously and had flouted localisation requirements, being given the tenders once again?
 
Mr Macpherson thought that he ought to have an opportunity to respond to the Chairperson. He did not think that it was ever a choice of one or the other. There was no reason why the Committee could not have done both and that had always been his position.
 
The Chairperson asked Mr Macpherson to indicate on the Committee programme where there had been time for both. She had asked if the Committee could sit every Friday until 4pm and had asked Members to sit until 11pm but that had had not been acceptable to Members so she wanted to leave that matter alone as he was being unreasonable. She asked DTI to respond to Mr Williams.
 
Dr Makube stated that his question related to earthmoving equipment. DTI had attempted to designate earthmoving equipment a few years earlier. National Treasury had said that the volumes were not big enough to necessitate designation. Designation was of products, not tenders. Regardless of the procurement methods, designation had to be implemented. With earthmoving products, all spheres of government outsourced services relating to earth moving equipment and there was now a problem as to whether or not designation could be extended to leasing. Government contracted the service and not the product. DTI contended that it was government procurement and local content designation applied regardless of whether it was direct purchase or leasing. DTI had written to the National Roads Agency because there was an intention to put out contracts for service products to undertake earth moving. Local tenderers would lease and the designation stated even leasing, there had to be local content but it was a challenge to be addressed.
 
The Chairperson thanked the DTI team and asked that one or two of the issues be responded to in writing. She explained that some of those invited to the meeting were engaged in inquiries and could not attend the meeting. She welcomed Transnet board chairperson, Dr Popo Molefe and board members as well as members of the Transnet management team, including Mr Tau Morwe, Acting Group Chief Executive. She stated that the board was a new board. She apologised for the delay in commencing with the briefing by Transnet.
 
Update on 1064 Locomotives by Transnet
Dr Molefe stated that he wished to commence with a few remarks. Firstly, he addressed the question of who funded the verification of localisation by SABS. It was in the interest of Transnet to verify local content and so he committed Transnet to budget for the work to be done. Secondly, he stated that SABS could not be totally responsible to verify local content. Transnet had the responsibility, through its own contract and programme managers, to verify that there was compliance at every step of the way, and to keep records of such verification. That would reduce the inordinate obligation on SABS.
 
Dr Molefe stated that the board was a new board and when the Committee had decided to undertake an enquiry, it was because the management and board of Transnet would not disclose as much information as was necessary to enable the Committee to form an opinion. That was a thing of the past and the new Board was prepared to open up. Things had been hidden from the board but a lot had been uncovered. It was not his prerogative to tell the Committee what to do but he felt that there might not be a need for an enquiry because the board was prepared to disclose. At the Zondo Commission, in April, the board would present what it had had. The board had nothing to defend and could only present the facts as they were. The board separated between civil and criminal action because that could not wait for the completion of the Zondo Commission.
 
The current issue was local content: what was the current status and what were the remedial actions Transnet was taking? When the detailed presentation had been prepared, the board had not known exactly what the subject was. He added that only the management had been invited to Parliament but the board was insistent that it came as it was the board that was accountable to Parliament.

Discussion
Ms Theko noted Dr Molefe’s pre-amble and, the responsibility that the Board was taking, and she was wondering whether it was premature to expect the board to give a detailed report. The board was new but had committed itself to comply. Should the Committee not give them time and the board could come in February 2019 to give a status report?
 
Mr Radebe understood Ms Theko but said that, by taking Ms Theko’s advice, the Committee would bury that board as the trip to Cape Town would become fruitless and wasteful expenditure.  He was happy that the board had committed to present to the Zondo Commission. The board had to present and to take responsibility.
 
Ms Ntlangwini agreed with Mr Radebe but said that Dr Molefe should present because he had been there during the period of madness and could give the Committee a way forward. It would be a waste for the Committee to hold an inquiry. Members had to trust the Zondo Commission.
 
The Chairperson accepted that it was a new board but the Committee required a preliminary response. Because as the board had taken on the mantle, the board had taken on the liabilities.
 
Mr Macpherson was feeling uncomfortable with the Committee going down the same road of being cuddly.
 
The Chairperson asked Mr Macpherson to stop speaking so that she could move on to the next speaker.
 
Mr Macpherson and the Chairperson engaged in a back and forth dialogue.

Mr Macpherson informed the Chairperson that if she did not withdraw her comment, he was leaving the Committee.
 
Ms Mantashe said that Mr Macpherson should not backchat.
 
Mr Macpherson left the room.
 
Mr D Mahlobo (ANC) suggested that Transnet should be allowed to do the presentation while not going into too much detail. The overview was more important and Dr Molefe could give some direction going forward.
 
Transnet briefing continued..
Dr Molefe stated that he would not make the presentation but make a few remarks. However, he would cut to the chase. Transnet had put out the biggest single order for locomotives in the world, 1064. 487 had been delivered and accepted. In terms of the delivery schedule, the others were far behind. Numbers had been predicated on the market demand strategy that had predicted that there would be large volumes to be moved, and also that there had not been investment for a long time and old locomotives were going out of service. However, the increase in business had not happened. Those projections were incorrect and Transnet knew now that it did not need 1064 locomotives.
 
Dr Molefe stated that the new board had found two investigations underway. The board had found that the award of the 1064 contract was irregular and unlawful. Transnet had to act appropriately in respect of the violation of the law that had occurred, but one had to understand the challenges of the country and the needs of Transnet as a business. He stated categorically that local content had not been met. The declarations had been made but had not been actualised. Local content had not been met. He repeated that the contract had been irregular and unlawful and could not be supported.
 
The board had investigated. It anticipated that there could be extensive litigations so the board could not reveal certain things that would be used in court to support its case. The board needed some space to complete the investigation outside of the public domain. Transnet would not make the Committee wait forever but it would work with the Minister and would ask him to arrange for the board to present to Parliament in the new year. At that point the board would address an equitable remedy that took into account the de facto situation as well as the commercial imperatives of the business. The management of Transnet Engineering (TE) and Transnet Freight Rail (TFR) had been requested to give a report on the business needs of locomotives. It might result in a reduction in numbers or even a change in the delivery schedule. Transnet had moved from the seven year schedule and had suppressed it into three years. Money had not been saved and the company had had to pay huge loans in a short space of time. Dr Molefe requested indulgence of the Committee, promising to return in February with a full report.
 
On the 70% local content versus Rand and cents, Dr Molefe said that Transnet needed to do an analysis to say whether it made a significant impact. He thought that his board had acquitted itself very well.

Discussion
Mr G Cachalia (DA) thanked Dr Molefe for unambiguously stating that the contract for the 1064 locomotives was irregular and unlawfully commissioned and that the matter required action. He noted that Dr Molefe had said “reasonable and rational”: what did that mean? Without casting aspersions, it could hide a multitude of sins and the Committee had to guard against that given the magnitude of what had happened in the past. What would be done in the future to ensure that the same debacle did not re-occur and local content requirements would be met? Those questions needed an answer so that the Committee had something to measure against when he returned.
 
Mr Radebe welcomed the input from Dr Molefe. The Committee would give his board space to prepare a comprehensive report. There were certain things that had to be done. That R50 billion had been an opportunity cost for SA as it could have built schools, clinics and hospitals. Anyone who had done that was unpatriotic and patriotic citizens had to do something. Something had to be done about the rot. Those people had to be charged immediately. Something had to be done about the rot in SoEs. The Committee could not wait until after the Zondo Commission. Where there was evidence of thieving, those people had to account.
 
Ms Mantashe seconded Mr Radebe. The President had said that people must be prepared to fight corruption as it started to raise its ugly head. She assured Dr Molefe that the EFF would not rule SA. It would be the ANC.
 
The Chairperson noted that it was good to have a light moment but the Committee needed to get on with the matter.
 
Mr Mahlobo welcomed the presentation and the interlinkages. He commended the Chairperson on his unpopular task but correct choices he was making. He encouraged him to follow a multi-pronged approach. Accountability should be the norm. Corruption and fraud should be addressed. The law enforcement agencies should be able to dedicate capability to dealing with Transnet. Disclosure of highly organised crime needed the correctly skilled investigators as a case would depend on the quality of the investigation and evidence.
 
Mr Mahlobo said that the board should not lose sight of the role that it had to play as a leader of society and the development of infrastructure. SA ought to be able to assemble locomotives and trains for Africa. The books were distorted because of corruption but SA should not miss the opportunity to take on work for African countries. He offered the full support of the Committee and asked the members of the board to be resolute as they were doing SA a service.
 
He appreciated the Committee Chairperson’s explanation of the reason why the inquiry should not go forward because he did not want people to think that the ANC did not want to root out corruption. The board had to be given a chance while Deputy Chief Justice Zondo would also root out corruption through the Commission.
 
Ms Ntlangwini thanked Dr Molefe. She said that he needed to act and to give the Committee case numbers of people who had been charged for looting the state. People who had looted could not continue to be paid by the state. She believed that he would not succumb to intimidation.
 
Dr Molefe responded to the questions on consequence management. Transnet had terminated the contract of Mr Gama, the former CEO. Two people had been released: the CEO of Transnet Property because of those shenanigans there and the Treasurer of Transnet who had been working closely with Regiment and Trillion. Transnet had suspended Thamsanqa Jiyane, the Chief Officer of Advanced Manufacturing of Transnet Engineering and Lindiwe Mdletshe the Senior Manager of Strategic Sourcing for Transnet Freight Rail. The company had suspended Mr Edward Thomas, the Group General Manager of Finance and previous Chief Procurement Officer.
 
Dr Molefe said that disciplinary processes were underway with a number of people and summonses had been served for them to pay back the money they had caused the company to lose. Transnet was also engaging with Trillion and Regiment to get money back. It was working closely with the Special Investigations Unit of SAPS and the Hawks (the Directorate for Priority Criminal Investigations). He added that the President was about to appoint a Head of the National Prosecuting Authority (NPA) and then things would really move. Already Transnet had enjoyed good cooperation in the clean-up process and already had some case numbers. Other monies had been siphoned off, Gupta-style, and the Asset Forfeiture Unit would freeze those monies and Transnet would go after those people.
 
Dr Molefe told Mr Cachalia that in respect of rational and reasonable, Transnet needed to approach the matter from the reality that the business needed locomotives. The company needed to know exactly how many were needed. He explained that when one went to a court and asked for nullification of the contract, the courts would say that some, such as General Electric, had delivered value. The courts would ask if they had complied with local content and whether a penalty could be levied. Unfortunately, Transnet had not included the legislated requirements for local content in the contract, which created difficulties for the company.
 
Dr Molefe asked his colleague if he had anything to add.

Mr Tau Morwe, Acting Group Chief Executive, Transnet, stated that a key issue to be resolved was to find an explanation as to why regulations were not included in the contracts.
 
Dr Molefe said that the lawyers of Transnet would have to explain to the board why the contracts had not contained legal requirements and why they should retain their jobs.
 
The Chairperson said that the short engagement had given the Committee valuable information and had clarified many issues. The Committee staff would be in office in January. She asked that the board could send the reports to the Committee in the third week in January so that the staff could prepare an executive report for Committee Members.
 
Mr Molefe committed to sending the report on 21 January 2019.
 
The Chairperson told Members that they would receive an email in that regard in January and they would have to indicate to Mr Hermans (the Committee Secretary) if any further clarification was required.

The Chairperson said she had known Dr Molefe for years as a man of integrity. She knew that he would be thorough in cleaning up. She hoped that there would be no slippage as the board held the lives of South Africans in their hands. The law also included social justice and the lawyers should be reminded of that. She looked forward to future engagements.
 
Committee business
The Committee Annual Report had been distributed to Members and the Chairperson expected all Members to study the report.
 
Consideration of the High Level Report
The Committee was required to submit a report on its consideration of the High Level Panel Report in respect of matters relating to Trade and Industry.
 
The Committee Content Advisor took the Committee through the draft report.  In particular, the report had required the Committee to consider the ease of doing business, the exemption of small enterprises below a certain turnover and number of employees from specific components of BEE legislation.

The Committee had addressed the issues around credit regulations and over-indebted consumers. The Companies and Intellectual Property Commission had been turned around and had made progress and the DTI incentive scheme had provided funds for development. The Committee had determined that despite concerns, the Labour Laws could not be relaxed. Transformation through skills development had not been an area for discussion during the Fifth Parliament.
 
The Content Advisor had recommended certain conclusions but the Members would have to take another look at them that evening so that those could be finalised the following day.
 
Closing remarks
The Acting Chairperson noted that Ben Turok would address the Committee at 8:30 the following morning. That would be followed by presentations from various bodies in the South African Sugar Industry. The Chairperson thanked the Members and adjourned the meeting.
                                                                                                               
The meeting was adjourned.

 

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