Transnet: Localisation follow-up meeting

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Trade, Industry and Competition

12 February 2019
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Localisation & Local Procurement Inquiry: day 1
Localisation & Local Procurement Inquiry: bus procurement day 2
Local public procurement in the transport industry: Department briefing; 1064 Locomotives contract: Transnet update
Localisation: Prof Ben Turok & SAMDA reports

The Portfolio Committee met with the recently appointed board of Transnet for a second time to discuss issues of localisation in relation to the order for 1064 locomotives.

The Chairperson of the Transnet board and senior officials explained that the entity had engaged the original equipment manufacturers of the locomotives to begin the process of declaring the contracts null and void and to enter into new negotiations for locomotives that had not yet been manufactured. The contracts had not specifically made provision for local content, but they had allowed for supplier development. Transnet was seeking the assistance of DTI in the process of re-negotiation so that Transnet could force original equipment manufacturers to fulfil the requirements of localisation in the locomotives still to be produced. If corruption was found, Transnet would have no option but to cancel contracts. Transnet planned to complete negotiations by the end March and then the entity would not go to court, not to cancel the contracts, but to seek a just and equitable remedy. Following the changes in the economic environment, Transnet also needed to re-calculate the actual number of locomotives required before going to court.

Senior Executives pointed out that the business still needed locomotives. Some locomotives had already been delivered, and would have to be maintained for about 30 years. That meant that Transnet had to continue the relationship with the original equipment manufacturers that had not acted outside of the law to ensure ongoing maintenance. Only the original equipment manufacturers could supply the required parts for the locomotives.

Transnet had begun the process of opening cases against corrupt officials and several charges had already been laid with the South African Police Service. The Special Investigating Unit, the Hawks and the Asset Forfeiture Unit were assisting the entity. Transnet had also been in consultation with the Zondo Commission in preparation for its engagement with the Commission.

Committee Members were initially concerned that the meeting was unnecessary and a waste of resources as the Zondo Commission was dealing with the corruption in Transnet and not the Portfolio Committee. The Chairperson explained that the objective of the Committee was to ensure that, in the first instance, the instrument of procurement was sharp and, in that particular case, the designation of localisation for rolling stock was adhered to. That required policies in place and the Committee had to know whether an internal policy was in place for localisation and whether that policy dovetailed with government policy. The Committee had to know what action was planned to make the policies a reality.

Members asked how many of the employees who had been charged had belonged to the bid adjudication committee. Had the bid adjudication committee members been given the authority to change the bid requirements? What had been the performance of the original equipment manufacturers regarding supplier development? What were the imperatives guiding the re-negotiations? Could Transnet not build internal capacity so that it did not need to rely on the original equipment manufacturers? Who had drafted the contracts signed by the original equipment manufacturers? Why had Transnet omitted localisation?

Members asked if it was possible to re-negotiate the contracts, knowing that the prices of the locomotives were inflated as Transnet would be regularising something that was illegal in the first place. The Committee asked for copies of the shareholders of companies involved in the locomotive contracts as the names of the shareowners would probably tell another story. Ground zero for the theft and corruption was through the Tegeta Group that had channelled funds via Hong Kong.

Meeting report

Opening remarks
The Chairperson noted the death of Ms Siebritz’s husband, who had been responsible for the documentation of the Portfolio Committee on Trade and Industry.

The Chairperson indicated that there was a full agenda which had to be completed before the House sitting in the afternoon.

Mr D Macpherson (DA) asked the Chairperson if she would be dealing with his correspondence.

The Chairperson replied that, as she had been briefed but had not seen the letter, she would deal with it at the meeting the following day.

To bring everyone up to date, the Chairperson reminded Members that the Committee had begun its enquiries into localisation because of the mandate of the Department of Trade and Industry (DTI). One of the other mandates of DTI was job creation and opportunities. Public procurement was an instrument to facilitate job creation. That was linked to administration pricing, transfer pricing, beneficiation and procurement. In
2017, the Committee had become aware the Auditor-General could assist in regard to the issues of localisation and so on and the Auditor-General had offered his services. Two years previously the Committee had been unable to complete the process as various bills that required the attention of the Committee had not arrived in time and had to be prioritised in the Committee schedule. Consequently, the intention of the Committee to hold a colloquium on localisation would not take place as the Committee schedule had been too full. The Committee would alert the incoming Committee to the matter. The current Committee would be handing over certain relevant information on the procurement issues to the Zondo Commission.

The Chairperson welcomed the representatives from the Department of Trade and Industry (DTI), Dr Nimrod Zalk, Industrial Development Policy Strategy Advisor in the office of the Director-General, Ms Thandi Pele, Acting DDG: Industrial Development Division and Dr Tebogo Makube, Chief Director: Industrial Procurement.

From Transnet, the Chairperson welcomed Dr Popo Molefe, Chairperson of the Transnet Board, and board members Ms Dimakatso Matshoga and Prof Edward Kieswetter. She also welcomed the Transnet officials Mr Tau Morwe, the Acting Chief Executive Officer of Transnet, Mr Ndiphiwe Silinga, Group Legal Counsel, Mr Ravi Nair, the CEO for Transnet Freight, Mr Thoba Majoka, the Acting CEO for Transnet Engineering, and Mr Ali Tshabalala, General Manager: Supply Chain, Transnet Engineering.

Representing the Department of Public Enterprises (DPE) were Ms Vuyo Tlale, Specialist: Industrialisation and Mr Sedipa Senomadi, Director for Industrialisation and Localisation.

The Chairperson invited Dr Molefe to brief the Committee.

Update on Localisation by Transnet
Dr Molefe and Mr Morwe indicated that they were recovering from the flu and that their voices were somewhat rough.

Dr Molefe apologised to the Committee that his agreement at the previous meeting to send a report on 21 January 2019 had not been fulfilled. The report had, unfortunately, not been delivered despite reminders. He had submitted the report submitted via DPE and it clearly had not been was not sent to Committee. He was embarrassed that he had not met the commitment as that was not how he did things. The Transnet board would do things differently in future. Any report or documents would be sent to DPE as per protocol, but a copy would be sent directly to the Committee Secretary.

Dr Molefe stated that the presentation before the Committee was wide and went all over the place. He would not make the presentation as on the slides but would narrow down his briefing to those matters that the Committee had wanted addressed. The Acting Group CEO would give the initial presentation and the Transnet managers Ravi Nair and Ndiphiwe Silinga would add their contributions.

Mr Morwe informed the Committee that Transnet had begun a process of engaging the original equipment manufacturers (OEMs) of the locomotives to begin a process of declaring the contracts null and void and to enter into new negotiations for locomotives that had not yet been manufactured. Transnet had had discussions with DTI regarding localisation.

The Committee had requested that Transnet open cases against corrupt officials and that process had begun. Transnet had also been in consultation with the Zondo Commission in preparation for its engagement with the Commission.

Mr Nair informed the Committee that the contracts had not specifically made provision for local content but for supplier development. Transnet was seeking the assistance of DTI in the process of re-negotiation so that Transnet could force OEMs to fulfil the requirements of localisation in the locomotives still to be produced.

Mr Silinga stated that the report on the matter of the locomotives had shown that the original tender process was fraught with irregularities. Amongst the irregularities was the fact that three OEMs had not met the requirements of local content in their bids. Only General Electric had included the local content requirements.
Transnet would have to go to court to declare the contracts null and void but if the entity did go to court, the case might come back to bite Transnet as it had received some locomotives and could not return those as the locomotives were definitely needed by the business. However, before going to court, Transnet also needed to re-calculate the actual number of locomotives required. Transnet would not go to court to cancel the contracts, but to seek a just and equitable remedy.

In the December negotiations with each of the OEMS, Transnet had set out the framework for negotiations. On 18 February 2019, Transnet would meet General Electric. Meetings with each of the other OEMs would follow. However, if there was enough evidence to show elements of corruption and collusion with Transnet employees, the approach would have to be different.

There were allegations of R 5 billion paid to a Gupta company, Tegeta. Transnet investigators did not have powers to follow up those allegations but the Special Investigation Unit (SIU) was assisting Transnet and if corruption was found, Transnet would have no option but to cancel contracts. Mr Silinga stated that Transnet planned to complete negotiations by the end March and then it would be ready to go to court for a just and equitable remedy.

Mr Morwe stated that summonses had been issued against Trillion and Regiment which were transaction advisors in the acquisition of the 1064 locomotives, as well as against a number of individuals, including Brian Molefe, Siyabonga Gama, Anoj Singh, Garry Pita, Phetolo Ramosebudi, Thamsanqa Jiyane and Lindiwe Mdletshe.

Transnet was cooperating with the Asset Forfeiture Unit and the Hawks regarding procurement issues. As part of the clean-up, Transnet was streamlining procurement processes and high value tenders would have to meet all the requirements of localisation.

Mr Majoka explained that the business still needed locomotives. Some had already been delivered, and had to be maintained for about 30 years. That meant that Transnet had to continue the relationship with the OEMs that had not acted outside of the law to ensure ongoing maintenance. Only the OEMs could supply the required parts for the locomotives.

The Chairperson noted that the Committee had heard how Transnet was attempting to see whether problems with the contract could be addressed to include localisation in those contracts that had not included it. She wondered whether such a contract was valid if it ignored the legal requirements from one’s government. Was such a contract still valid?

Dr Molefe stated that if it was possible to correct a flaw that was not a fatal flaw; that would be done. The intention was to enter into negotiations with that in mind.

Mr Morwe stated that in the meeting on 4 December 2018, Transnet had said that because localisation had been excluded from the contracts, those contracts were irregular and unlawful and that was the reason for going to court. One of the reasons for going to court was to have them declared null and void.

Ms P Mantashe (ANC) asked whether Transnet had any intention of working with local suppliers because it was still married to those people who had broken the law of the country. DTI had financed black industrialists to manufacture some parts of the locomotives and that was where she became uncomfortable.

Mr Macpherson told Dr Molefe that it was a great relief to hear some of the information after 18 months, which was when he had started raising the issue with Dr Molefe’s predecessor. It was a step in the right direction, and it was now a question of what could be done to rectify the situation. However, he did not believe that there was any way that any of those contracts could be continued. The costs, per train, from China North and China South had been inflated by R 6 billion. The country had been monumentally ripped off. There was no way that those contracts could be continued. The money had found its way from SA to China via Hong Kong. He hoped the money would be recovered.

Mr Macpherson was not surprised to hear that three bidders had not met the requirements for localisation, as he and others had contended for some time. He thanked Transnet for putting that on the record, but he was shocked to hear that there was a question as to whether 1064 locomotives were required in the first place. He asked Transnet to expand on that point.

Mr Macpherson told Transnet that he had previously asked for the shareholders agreements of the OEMs and now wanted a commitment from Transnet to provide those documents to the Zondo Commission. Many dots would be joined once those documents were provided. Ground zero for the theft and corruption was through the Tegeta Group that had channelled funds via Hong Kong. SA could not put up its hands and say that one could not go down that road. He requested that the matter be escalated to Interpol and that justice be sought no matter how far from SA’s shores.
He told Dr Molefe that the country had learnt the most expensive lesson in history and never again could corrupt and connected individuals rob the country and take the money out of the country. Every contract had to be given the necessary scrutiny and he had to ensure that bid adjudications were not conducted in dark places. Transnet had to take the lessons learnt.

Mr D Mahlobo (ANC) thanked the leadership of Transnet. He acknowledged that it was not an easy matter as certain issues had to be dealt with via other platforms. He welcomed the report because the genesis of the problem had started when certain individuals had changed the terms of reference. How many of the employees who had been charged had belonged to the bid adjudication committee. In the middle of the game, the rules had been changed. Had the bid committee members been given the authority to change the bid requirements?

The second part was that when someone entered into a contract, it became binding in law. But what happened when the requirements had been changed? Transnet could not let it go. Action had to be taken. He was bothered about the procurement policy goals of Transnet for localisation? What did localisation mean for each of the types of locomotives? What was it that Transnet was seeking in terms of localisation? What were the socio-economic development goals that promoted localisation? Where were those goals? What were the imperatives? He wanted the Committee to see that policy and those imperatives.

Another issue, according to Mr Mahlobo, was the supplier development component. What had been the performance of the OEMs regarding supplier development? The supply and development component was part of the localisation requirement. Had the four OEMs made any progress in that area and were they on target? That was also empowerment.

He added that going to court for a just and equitable remedy would not be an easy process. Unless there was an illegal incentive or a kind of coercion, it was not going to be easy to prove. If Transnet had entered into an incorrect contract, it was stuck with it. Transnet would need a multi-disciplinary team to deal with the matter as a lot of money had been lost.

Mr Mahlobo asked what imperatives guided the re-negotiations.

Ms N Ntlangwini (EFF) had listened to the presentation but could not grasp the purpose of the engagement. Transnet was going to make representations at the Zondo Commission and some things still had to be ironed out. There would still be a platform for the Members. For her, it was a waste of time and resources. The Committee knew that there had been corruption in the locomotives contracts, so it was a waste of time.
The Committee was shooting itself in the foot, considering what it sought to achieve.

Transnet was there and she had to engage them. Ms Ntlangwini wanted the documentation to see what had been served on Trillion and Regiment and whether they had been asked to pay back the monies.

Ms Ntlangwini noted that Mr Silinga had said that Transnet wanted to continue working with the OEMs. Could Transnet not build internal capacity so that the entity did not need to rely on the OEMs and did not find itself sitting with court cases? To prevent the trip to Cape Town being a total waste, she suggested that Transnet could brief the Committee on its way forward on localisation. What was its policy? Concerning the corruption, the Committee would use Transnet’s representation to the Zondo Commission.

The Chairperson reminded the Committee that the focus had to be on what the Zondo Commission would not focus on, such as the policy, etc.

Mr G Cachalia (DA) had heard that it was probably going to be difficult to cancel the contracts but there was a R 6.18 billion maintenance contract, of which R 618 million had been repaid and the supply of locomotives was R 28 billion. There had been no localisation in the supply and that could not be dealt with retrospectively. If Transnet did not cancel the entire contract, it would have to continue with the maintenance contract going forward. What did that say about the R 618 million because that would just be paid out again when maintenance began? He was not following the logic of that.

Mr Cachalia referred to the oversupply in the 1064 locomotives contract instead of the 700 plus locomotives currently required. Could the oversupply be corrected because that was where the big money lies? – not the money that McKinsey, Guptas, etc stole?. That was small beer in comparison.

Mr S Mbuyane (ANC) welcomed the presentation. In terms of the continuation of work with OEMs for maintenance, what criteria would Transnet use to choose OEMs for maintenance? Did that mean the negotiations would they take place next week before the investigations had been completed? That was putting the cart before the horse. Who had drafted the contracts signed by OEMs? Why had Transnet omitted localisation?

Mr Mbuyane did not know whether the case was sub judice and whether the Committee was doing justice to South Africans. Members were asking clarity seeking questions that should be dealt with by the SIU or the Zondo Commission. It was duplicating the process and he did not know why the Committee was there.

The Chairperson explained that the terms of reference of the Committee were not the same as the Zondo Commission and Members should appreciate that. The Committee had not dropped the matter, despite knowing about the Zondo Commission, because it had a different purpose. That needed to be very clear.

The Chairperson stated that the objective of the Committee was to ensure that, in the first instance, the instrument of procurement was sharp and, in that case, the designation of localisation for rolling stock so that there was public procurement. That required policies in place. Members of the Committee had asked repeatedly what the internal policy of Transnet was, and whether it dovetailed with government policy in that regard. Policies sometimes simply made good wallpaper. What was needed was action to make the policies a reality.

The Zondo Commission was looking at wrongdoing. It was not looking at minor irregularities, such as things as wrong dates, which the Auditor-General would say was not material to an audit. The Zondo Commission was looking at far more serious things and the Committee would benefit from those inquiries. The Portfolio Committee was exercising its oversight role. The Committee was looking at policies that were not in place. Did the person who had drawn up the contract have the expertise to do so? She added that a Roman Dutch law contract was one of the most difficult in the world to get out of.

The Chairperson stated that capacity issues were critical. She did not agree that the meeting did not have value. The Zondo Commission would help by uncovering the corruption that had occurred. She welcomed the fact that the Members were making a contribution to good governance.

Mr Macpherson agreed with the Chairperson. A meeting of that kind could never be seen as a waste of time. There was nothing before the court so Transnet could answer fully. Sub judice was an old apartheid era notion and so he would like Transnet to answer fully.

The Chairperson did not want a tit-for-tat but allowed Ms Ntlangwini to respond.

Ms Ntlangwini said that she had not said it was a waste of time. It was a fact that the Zondo Commission was busy with the case. Dr Molefe had not even gone through his presentation page-by-page because the Committee was shooting Transnet in the foot in respect of the work that it wanted to do. That was the reality. Mr Macpherson could not undermine a Member by saying that the Member could not use certain wording. That was unacceptable. She asked the Chairperson to call Mr Macpherson to order as he continuously undermined the Members.

Ms Ntlangwini said that Mr Macpherson spoke for hours and no one interrupted him but when he did not like what they were saying, he interrupted the Members. He should stop his rudeness because he undermined Members. Mr Cachalia also had to stop it. The Chairperson needed to chair the meeting. Members had been sent by their constituencies. She would be damned if anyone would stop her from doing her constituency work. She was not scared of them.

The Chairperson agreed that many Members would share the points that Ms Ntlangwini was making. She asked Mr Macpherson not to interrupt Members. Commenting on anything that was untoward remained the Chairperson’s prerogative. She had made it clear that the meeting had value and asked that Members be mindful of their comments.

Dr Molefe noted that a lot of questions had been asked. He would give a broad response and then return to each question and provide detail. He informed Mr Cachalia that the maintenance contract had been irregular because of the way that it had been discussed and quickly agreed to by the previous board and that was why the money had been paid back. R 618 million had been re-paid. The VAT, which would bring the total to R 700 million, had not been paid. That was all that Transnet had paid on that contract. Transnet wanted the VAT amount too and the OEM had agreed to pay, but subject of broader negotiations was the need for maintenance of the locomotives. He could not say, at that stage, what the outcomes of the negotiations would be.

Dr Molefe stated that the Zondo Commission was not impeding negotiations, nor were the negotiations pre-empting the investigations. Transnet consulted regularly with the Zondo Commission and the SIU but could not wait for the outcome of the Commission. It had been agreed that, where there was sufficient evidence, Transnet would proceed with legal action. The purpose of the Commission was to assist the state to deal with the mechanisms that had led to state capture and so that they did not continue into the future. Transnet had to deal with the individuals who had broken the law through the organs of state that enforced the law.

Dr Molefe said that when one asked who had signed the documents, one had to understand that the phenomenon of State Capture was real. State Capture had started in Transnet, but the politicians had been captured. The Ministers had done things that were unlawful and against policy because they had been captured and were beholden to someone powerful who had money or could make decisions.

Dr Molefe said that he had watched members of his own party, the ANC, refusing to believe that Nkandla was wrong and that the money had to be paid back until the person directly affected said that he would pay back the money. Then all the ANC members had agreed that the money had to be paid back, as if they had not had the brains to see that in the first place. But that was what power did. In Transnet, individuals had been intimidated and had been captured in the atmosphere of state capture. That did not mean that those people would go unpunished. He had refused when the former Minister had told him to stop the investigation and when the former President had told him to stop. He had said that he would not stop. As long as he was Chairman of the board, he would continue with his work. Not everyone could withstand that onslaught. It was not about capacity but about resilience.

Dr Molefe stated that It was true that there was a problem of capacity, but not because people with skills did not exist in the country. There was a shortage of capacity because the modus operandi of state capture was to weaken the system, remove the good people in order for the system of corruption to work. Then one brought in cronies and fired good people who would not become cronies and people who could stop corruption. Many good people who had been turned into paper pushers. He recalled that the Chairperson had asked if any of the people in the Transnet delegation were engineers. There were many good engineers, but they had been pushed out of their positions.

The Chairperson noted that he was acknowledging a lack of capacity. She asked Dr Molefe to tell the Committee what measures were being put into place to address the capacity.

Dr Molefe stated that the lack of capacity was deliberate, but Transnet was cleaning up and bringing in the capacity, and as they went along, they would report on those matters. Lack of capacity was fundamentally part of the mechanisms, tactics and strategies used by those who had wanted the state capture to succeed. Mr Nair had 28 people in his executive who had simply been thrown into his division. The Corporate division of Transnet had 1 400 people who were just doing support and earning huge salaries because they were cronies of people in powerful positions.

Dr Molefe apologised for taking up so much time. He was feeling the nostalgia of politics. He asked Mr Ali Tshabalala to address the question of the Transnet policy on local content.

Ms Ntlangwini said that she could not wait for Dr Molefe to testify before the Zondo Commission. She had not wanted him to testify that day as it would spoil his testimony for her.

Mr Tshabalala addressed the matter of policy in relation to localisation. He stated that Transnet applied the Localisation Designation Sector 4 on rolling stock: diesel 65 %, electric 60%. Transnet also applied the policy concerning buggies, wheels, couplets, etc. which needed to meet certain levels of local content. Advertised tenders referred to the Instruction Note which said that if suppliers did not have capacity, they had to obtain exemption from DTI, or they would be disqualified for not meeting local content requirements. A lot of suppliers did not have capacity and so Transnet often had to re-issue tenders and sometimes had to discuss an issue with DTI.

Mr Tshabalala explained that maintenance was not predictable and was conditions-based. Because the required demand was not there, sometimes the local suppliers could not meet requirements. However, DTI did grant exemptions in such cases. Transnet was applying the policy of localisation.

Dr Molefe promised to provide the documentation regarding the summonses. The Shareholder Agreements with OEMs would be provided to the Zondo Commission, if required. Transnet had an engineering unit that had the capacity to produce locomotives, but it did not have the capacity to produce 1064 units. That would impact on the steel industry. Transnet had 30 000 metres of rail and most rail components were imported. Transnet had begun discussions regarding manufacturing rail locally as that was direction that they were going.

Dr Molefe had stated that the contracts were not valid. Why go back to the same entities? The point was to begin the negotiations and to change the way in which things were done. Transnet would work closely with DTI and for each locomotive the OEM would have to agree on a certain percentage of local content. Transnet would also have to determine how many locomotives General Electric could manufacture, given its capacity.

Dr Molefe informed the Committee that the individuals named earlier were facing prosecution but there were also those individuals who had been part of the board Disposals and Acquisitions Committee and once those names had been given to the SIU and the Hawks, they would determine the culpability of the individuals. The new board had done away with the Disposal and Acquisition Committee and the board would not again enter that space of corruption. The board would not dabble in matters of procurement but simply ensure good governance.

Dr Molefe responded to the issues around the delegation of authority. In the past only two or three signatures were required for procurement. Now, not even he could sign high value contracts. Committees would sign off on those high value contracts: Executive Committee, Procurement Committee and Property Committee. He noted that Transnet had found lots of corruption around the property space. The terms of reference for the delegation were such that no individual or group of individuals could sign off on a contract.

Mr Morwe assured Mr Macpherson that Transnet would recover the money paid in Hong Kong, and informed Mr Mahlobo that Transnet did have multi-disciplinary teams working on the cases. He cited the 1064 locomotives issue as an example. The SIU, the Asset forfeiture, the Hawks and the Zondo Commission were working on that case and would be able to follow the monies paid in Hong Kong, etc. Transnet had met with the SIU and had a follow-up meeting coming up shortly in February or March. The Hawks had confirmed with SCOPA that they were receiving full co-operation from Transnet. Every effort was made to avoid the duplication of processes to avoid unnecessary costs, but there were areas where the investigations did overlap.

Mr Morwe responded to Mr Mahlobo’s question about the terms of reference. He said that the irregularities were found because the people who had made the changes, had not had the necessary delegation of authority. If they had had authority, it would not be an irregularity. Some people had been suspended and were going through the processes. He concurred with Mr Mahlobo’s comment on the difficulty of obtaining a just and equitable remedy through the courts.

Mr Morwe responded to Mr Cachalia’s question on the maintenance agreement regarding the R 618 million. That maintenance agreement had been cancelled. It no longer existed, and the amount that had been paid, i.e. R 700 million, had been paid back less VAT, i.e. R 618 million. Transnet had requested re-payment of the VAT as well. The contract had been signed in 2016 and the media, such as amaBhungane, reported on the corruption in the 1064 contract. Transnet had then cancelled the agreement and had intended signing another, but no other agreement had been signed to date.

Some money had been recovered from Trillion, Regiments, and Transnet individuals who had made their corruption possible. Transnet was claiming the difference between what was due to them and what had been overpayment. Investigations were continuing but Transnet needed to have a strong case so that it did not collapse.

Dr Molefe stated that, in following the money, Transnet had prima facia evidence but needed those with the powers to do the search and seizure.

Mr Nair stated that all four OEMs were monitored monthly on the supply and development requirements. Transnet had just completed two audits on the OEMS and both audits had indicated that the OEMs had not met the requirements. The OEMs had been informed in writing that they were in breach of contract. The contract made provision for a penalty, but a penalty had not been issued because the penalty was insignificant to the OEMs. Paying 2.5% for breach of contract would get the OEMs off the hook. Transnet wanted to use that breach in their negotiations with the OEMs.

The Chairperson asked when the summonses referred to had been issued.

Dr Molefe replied that they had been issued at the end of November 2018.

The Chairperson noted that they were the same summonses as those referred to in the meeting of 4 December 2018. She reminded Members that those points were captured in the resolutions in the minutes of 4 December 2018: Any allegations relating to graft in Transnet should be submitted to the Zondo Commission; Transnet should return to the Committee and provide a detailed update in respect of its localisation commitments and should submit a report on its investigations with respect to the procurement processes. That was the reason for the presentation by Transnet. Certain documents were outstanding.

Mr Mahlobo supported the Transnet team and the board – it was not an easy task. However, Transnet could not rely on a Practice Note. Transnet had to develop its own procurement policy with clear goals and had to share them with the Committee as well as with the Portfolio Committee on Public Enterprises. The Practice Note had been an in juncture to force them to include localisation in the contracts; it was not a policy.

Mr Mahlobo reminded Transnet that local supply and demand did not mean that the item had been produced locally. People imported goods and passed them on. That was fronting of a different kind. Transnet could change the economy in South Africa and change the face of the way things were done in SA. Transnet had to look at insourcing and not just local supply because the goods might come from external manufacturers. SA had promised the African Union that SA would build capacity to supply rail locomotives. SA had to build capacity as that capacity had been destroyed. Command and control had been handed over.

The past was dark and ugly, but the future would be bright if the right things were done properly because there was a value chain. Transnet had to look at the bigger picture.

Mr Macpherson asked if it was possible to re-negotiate the contracts, knowing that the prices of the locomotives were inflated. Transnet would be regularising something that was illegal in the first place. It could not manufacture locomotives for which Transnet had overpaid. Secondly, he asked about the required number of locomotives. Where had the new figure come from? Also, he still needed the list of shareholders of OEMs. He had asked that the Zondo Commission received copies of the shareholders, but the Committee also needed copies.

Dr Molefe stated that Transnet would provide the documents regarding shareholders to the Zondo Commission. They should have been supplied to Transnet during the due diligence process.

Could Transnet re-negotiate the contracts? Dr Molefe explained that the number 1064 had been derived from the Transnet projection based on the market-demand strategy which had projected an increase iron ore, coal etc. and a demand outside the country for exports from SA and Transnet had positioned itself to meet the demand but the demand had not materialised. However, the procurement had already happened. It was also about the very old locomotives that would be going out of service and what was needed as an interim measure. 95 and 100 locomotives had been procured even before the 1064. Transnet needed locomotives. If one left out the irregularities, the locomotives were fit for purpose. If Transnet cancelled the contracts when it needed locomotives, the courts would think that Transnet was irrational. Hence, fixing irregularities and paying levies etc. could be negotiated and a just and equitable agreement was possible. Where there was outright corruption; that would be dealt with differently.

The Chairperson explained that answers to any outstanding questions would be sent in writing. The Committee had already directed Transnet that allegations would go to the Zondo Commission.

The Committee had made requests for shareholders’ information and the policy that would address the challenges was required in writing. She knew that the next Committee would take the matter up and follow through. The Committee required the details of measures to tighten up procurement to make it more robust, as well as the measures that Transnet was putting in place to avoid a repetition of such an event. Those reports were essential for the completion of the Committee’s report on localisation.

The Chairperson thanked Transnet for its frankness and remarked that it would have been helpful if the Committee had enjoyed that frankness from all of the entities over which it had oversight over the past five years. She asked the DTI if there were any comments.

Dr Zalk stated that, going back to the original intent of localisation, the objective was not just to take advantage of the major public investments that SA was making, but to use localisation as a platform so that SA could develop a competitive industry that had the capacity to sustain itself after the locomotive contract had come to an end. What was important was seeking remedies to address the lack of localisation. Where localisation had not happened, SA had to link localisation to the integration by OEMs of SA suppliers to their international production line as that would give SA access to international markets. That element of the remedial action would form an important point going forward for both DTI and Transnet.

Ms Tlale stated that DPE had realised there had been a short-coming in terms of the Department’s oversight concerning localisation and regionalisation. Through its restructuring process that had kicked off on 1 January 2019, a new unit had been created in DPE to look at localisation. The unit was working closely with DTI.

The Chairperson stated that there would be an interim report as the Committee had not completed its work but would be handing over to the new Committee. She thanked Transnet for its briefing.

Portfolio Committee Second Quarterly Report on DTI
The Chairperson informed Members that it was the Committee’s report that she was referring to. The staff had drafted the report, but Members were required to provide the conclusion to the report and to check the report to ascertain that Members’ issues had been correctly captured. The report would be concluded the following day.

Minutes of 27 November 2018 were again presented, following amendments: Mr Macpherson proposed the adoption of the minutes without further amendments and Ms Mantashe seconded the proposal.

Matters rising
Mr Macpherson referred to resolutions of the Committee in paragraphs 5.1.1, 5.1.3 and 5.1.4 on page 3 of the minutes. A number of issues had been addressed, including outstanding questions, a report on pro-active funding and outlining how the National Lottery Commission and the National Regulator for Compulsory Specifications would address conflicts of interests. Those things were to be addressed in early February. He was not aware of whether the information had been submitted, and if not, could the Secretary be instructed to follow up by an agreed date?
The Chairperson explained that she had thought that Parliament was rising at the end of April and not in mid-March. Consequently, all Committee Programmes had had to be changed. Some of the folks had been called in but she was not sure if the information had been received. Finding the time to address the matters, was another issue.

Mr Tenda Madima, Committee Secretary, said that he had not received the documents requested from the National Lottery Commission and the National Regulator for Compulsory Specifications. He checked with Secretary Hermans and the Chairperson was informed that she would be receiving a letter from Mr Macpherson.

The issues relating to the National Lottery Commission and the National Regulator for Compulsory Specifications had not been included as only priorities could be contained in the programme and there were no other opportunities for meetings. The Chairperson promised to look at the programme again, but she did not think that there would be any space for the issues raised by Mr Macpherson. Issues relating to the National Lottery Commission and the National Regulator for Compulsory Specifications would have to go forward to the next Parliament.

Mr Macpherson was happy to meet on a Friday. He asked when the Chairperson would look at the correspondence that he had sent to her.

The Chairperson explained that the Committee had raised the issue of drought in relation to the sugar industry and Mr Macpherson could raise the matter with the DG of DTI when he next appeared before the Committee.

Ms Mantashe said that Mr Macpherson was taking them back as he had not availed himself of the opportunities to visit the sugar cane farms and mills.

Mr Macpherson asked for his letter to be distributed to Committee Members.

The Chairperson reminded Mr Macpherson that she was chairing the meeting and the Committee would not be meeting on Fridays.

Further minutes
Minutes of 4 December 2018: Mr Mbuyane proposed the adoption of the minutes without amendments and was seconded by Mr Mahlobo.

Minutes of 5 February 2019:  Ms Theko proposed the adoption of the minutes without amendments and was seconded by Mr Mbuyane.

Closing remarks
The Chairperson reminded Members of the meeting on the following day with the National Consumer Commission, the DTI and the status report on SA relations with the UK post-Brexit.

The meeting was adjourned.


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