The Committee convened on a virtual platform to be updated by the Special Investigating Unit (SIU) on the outcomes of the investigations it had conducted at Eskom, Transnet, and the Passenger Rail Agency of South Africa (PRASA).
Reporting on corruption, fraud, mismanagement and other irregularities at Eskom, the SIU said that 5 567 disciplinary referrals had been made, which showed an increase of 44 referrals since the last briefing of the Committee in October 2020. A total of 5 452 implicated officials had failed to submit their declarations. In addition, 13 resignations had been tendered and two officials dismissed. 39 matters had been referred to the National Prosecuting Authority (NPA) and 32 matters referred to the Asset Forfeiture Unit (AFU). Through these processes, the SIU had prevented future payments involving coal supply agreements amounting to R2.68 bn, the cancellation of contracts valued at R 6.95bn, and the successful recovery of funds amounting to R1.57bn.
The Committee expressed concern regarding Eskom officials who had failed to submit their declarations of interest, and others who had resigned to avoid disciplinary action. The SIU said it was fully aware of the situations in which officials resigned in the face of disciplinary proceedings, and investigations were continuing in those instances where criminal conduct was found. It was continuously making referrals to the National Prosecuting Authority (NPA) on those matters.
The SIU said it had adopted a phased approach to its investigation into Transnet due to the significant volume and complexity of the matters to be investigated. The SIU had forged relationships with the NPA and the AFU, and was conducting monthly meetings to ensure cooperation. It listed the various tenders and contracts where there had been allegations of irregularities. This was the first time that the investigations into Transnet and its outcomes had been presented to the Committee.
The Committee was of the view that it was its responsibility to assist the SIU in ensuring that all corrupt officials in the system and the implicated service providers were removed and held accountable. The SIU was requested to provide the Committee with the names and details of the implicated service providers, together with a list of the names of the Transnet officials who were implicated, with details on the nature of their involvement in the allegations of corruption and fraud.
The SIU expressed alarm regarding the dire situation at PRASA as a result of corruption. It had analysed all of the 227 reports it had received, which had an estimated contractual value of R33.05bn. It had determined that there were several irregular payments made to contractors, which occurred when PRASA paid the service providers more than the contract price. In addition, there were findings of conflicts of interest between service providers and PRASA directors, officials and employees. Significant and dire contraventions of various legislative prescripts, including the Public Finance Management Act (PFMA) had been identified, as well as contravention of PRASA’s own procurement policies. 79 contractors had been appointed through irregular processes, but all the officials who had drafted and approved procurement through this process were no longer at PRASA. The SIU was being hampered by the non-availability or disappearance of relevant documentation, and there was suspicion that it had been wilfully destroyed.
Members expressed concern that culprits and guilty officials were still part of the system, with full access and control over other key or critical documents which could be required in the further investigations of the SIU. They asked if the SIU had been able to identify whether or not the implicated officials were still occupying the same positions they were in when they were involved with the alleged corruption and fraud, and insisted that such officials must be removed immediately. The Chairperson described PRASA as the ‘Armageddon of corruption’ because the Auditor-General’s report and the investigations conducted by the SIU showed the dire state of the entity. The SIU said it was committed to ensuring that disciplinary actions and criminal prosecutions were implemented to ensure that the administrative systems of state-owned entities were improved.
It was resolved that the SIU would have a meeting with the Committee in the near future so that Members could follow up on the two main issues regarding PRASA -- the missing documentation and the question of whether the implicated officials were still occupying the same positions. This would be a matter of urgency.
The Chairperson convened the virtual meeting and welcomed Members, and the delegation from the Special Investigating Unit (SIU), which consisted of Adv Andy Mothibi: Head of the SIU; Ms Claudia O’Brien, Programme Manager, Ms Gina Beretta Pretorius, Lead Investigator, Mr Pranesh Maharaj, Chief Programme Portfolio Officer, Mr Mike Koya, Project Manager, and Mr Ashish Gosai, Forensic Lawyer.
The purpose of this meeting was for the Committee to be briefed by the SIU on the outcomes of their investigations conducted at Eskom, Transnet and PRASA.
The Chairperson requested the delegation from the SIU to deal with the briefing for each entity separately, after which discussions with Members would follow. If there were any cross-cutting issues applicable to all three entities, Members would be afforded an opportunity at the end of the meeting to raise such concerns or any relevant questions. It was paramount that the meeting finish on time to afford Members time to prepare for the State of the Nation Address (SONA) debate, which was scheduled to continue for a second day after the meeting.
SIU investigation: Eskom
Ms Claudia O’Brien, Programme Manager, SIU, presented the briefing on the outcomes of the investigations into the state-owned entity and electricity provider, Eskom. The purpose was to update the Committee on the developments since the last briefing.
Outcomes: Conflicts of interest
In previous engagements with the Committee, the SIU had reported that a total of 324 officials who were linked to entities which were Eskom vendors, were currently under investigation. In October 2020, the SIU had reported that 55 disciplinary referrals had been made to Eskom. An additional 44 referrals had now been made to Eskom for disciplinary action, increasing the total to 99 referrals. Four matters were closed by the SIU, as no contraventions were found to have been committed, and one official referred for disciplinary action had resigned. Of the 324 officials under investigation, it was reported that 135 of these officials had conducted business with Eskom to the value of at least R6 billion. Eight additional matters were being finalised for referral to the National Prosecuting Agency (NOA) by the end of March.
It was reported that 5 452 Eskom officials had failed to submit declarations of interest, and this matter was referred to Eskom as reported to the Committee in October.
The SIU reported that other matters involving conflicts of interest and whistle-blowers had given rise to 17 investigations since the last briefing in October. Ten of these investigations had already started, with the remaining seven still awaiting commencement. Out of the ten investigations that had already started, the SIU had made five disciplinary referrals. Subsequent to the disciplinary referrals, one official had resigned, and two officials were under investigation for criminal conduct.
Outcomes: Lifestyle audits:
Eskom had commissioned lifestyle audits on all executive management, and had red-flagged 34 individuals for further investigation. Of the 34 officials referred to the SIU from the lifestyle audits conducted, eight were referred to the NPA and Eskom, and seven officials had resigned. Since the briefing in October, one additional official had resigned, and one official had been dismissed. The SIU had closed seven matters, as no contraventions were found to have been committed. Criminal investigations were ongoing in certain instances where it was appropriate.
Outcomes: Coal supply agreements:
The SIU’s discussion on the outcomes of the investigations into the coal supply agreements centred on Brakfontein, Koornfontein, and Optimum.
The contract of R 3.8bn was declared invalid and set aside by the High Court of South Africa on the basis that the process followed to conclude the contract was unconstitutional. As a result of the declaration of invalidity, future payments that were prevented amounted to R2.68bn. The recovery of the remaining R734 million that had already been spent was under way.
The contract of R 6.95bn was cancelled by Eskom, as it had been concluded on the same basis as the Brakfontein contract. Investigations were ongoing regarding possible contract pricing irregularities and overpayments. Two officials were under investigation (and would be referred for disciplinary action) for failing to act in Eskom’s best interest by agreeing to coal qualities that were not in line with the relevant technical advice that was rendered.
The contract had run its course and as such, no application to set it aside was brought by the SIU. Civil proceedings had been instituted by the SIU and Eskom to recover the R3.8bn. The Eskom officials implicated in this investigation were no longer in Eskom’s employ, and as such no disciplinary referrals would be made by the SIU. The SIU was supporting criminal investigation in respect of Tegeta with regard to money flows and asset tracing.
Outcomes: Build projects:
The SIU had identified 32 total contract packages as the subject of its investigations -- 24 packages at Kusile, five packages at Medupi, one package at Ingula, one contract at Majuba, and one contract at Matla.
Investigations on 25 of the contract packages had now commenced, showing an increase from 22 investigations as reported during the SIU’s last briefing to the Committee in October. In this regard, the SIU had made 39 referrals to the NPA, 32 referrals to the Asset Forfeiture Unit (AFU), three disciplinary referrals (where two officials had resigned and one official was dismissed), and four matters had been referred to legal counsel for civil litigation which was currently being undertaken. Since the last briefing, two former Eskom officials had appeared in court with their cases ongoing.
The SIU had identified a number of false declarations involving a director of the Bbuild contractor and a former Eskom official. Fraudulent claims submitted by the build contractor, which totalled R66.9 million, had been identified. Evidence pointed to money laundering and racketeering. Claims submitted by the build contractor regarding a further three contracts were still under investigation during the SIU’s last briefing to the Committee.
The SIU, Eskom and ABB International had entered into a settlement agreement and in accordance with the settlement, ABB International had repaid R1.57bn to Eskom in December. The SIU and Eskom would bring an application to set aside the contract concluded between Eskom and ABB International. A draft set of papers had been prepared by legal counsel, who would shortly advise in which forum – the Special Tribunal or High Court -- the proceedings must be initiated. The SIU would issue the papers on or before the end of February. The SIU and Eskom were in discussions with the National Treasury regarding a new contract to be concluded with ABB International, to complete the outstanding work at no profit.
Mr Jerome Mthembu, former Group Executive: Legal Compliance, at Eskom, had brought an application against the SIU and Eskom for an order that the court declare the findings of the SIU, set out in a letter dated 12 November 2019, invalid and unlawful, or to declare it as null and void ab initio. The SIU had opposed the application and served and filed its opposing affidavits. The pleadings were closed, and Mr Mthembu (the applicant in the case) had not yet set the matter down for hearing.
Outcomes: Cloud computing, software, and licences
The SIU said that it previously reported that the progress made, and evidence gathered in the investigations into cloud computing, software, and licences, suggested a payment of kickbacks totalling R100 million, paid to a sub-contractor to secure Eskom contracts. Criminal referrals were being prepared and civil remedies would be considered after the investigation was complete. Investigations were still ongoing.
Summary of the outcomes
The SIU reported that investigations were under way for the categories of matters where disciplinary referrals were made; matters involving resignations; matters involving dismissals; matters that had been referred to the NPA; and matters that had been referred to the AFU. This was reported to the Committee during its earlier engagements with the SIU in October.
In conclusion to the briefing on Eskom, the SIU reported that 5 567 disciplinary referrals had been made, which showed an increase of 44 referrals since the last briefing to the Committee. A total of 5 452 implicated officials had failed to submit their declarations. In addition, 13 resignations had been tendered and two officials dismissed. The SIU also reported that 39 matters had been referred to the NPA and 32 matters referred to the AFU, showing no change since the last briefing to the Committee. In these processes, the SIU had prevented future payments amounting to R2.68 bn (relating to Brakfontein), contracts valued at R6.95bn (relating to Koornfontein) had been cancelled by Eskom as a result, and recovery of funds amounted to R1.57bn (relating to ABB International).
Ms B van Minnen (DA) thanked the SIU for its work relating to the investigations into Eskom, which seemed to be paying off. Referring to the Eskom officials who had failed to submit their declarations of interest, she said that there had been no progress since October. There were quite a large number of officials who had failed to submit their declarations. What was Eskom doing in this regard and what was the process going forward? She expressed concern regarding the 13 officials who had resigned to avoid disciplinary action. How many of those officials would be facing further criminal investigation?
Ms O’Brien responded that Eskom had indicated late in October that it had implemented a process to institute action against the Eskom officials who had failed to submit their declarations of interest. This meant that the process was currently in the hands of Eskom. Regarding the 13 officials who had resigned as attempts to avoid disciplinary action, she responded that there were 11 matters under investigation for criminal conduct. The SIU was fully aware of the situations in which officials resign in the face of disciplinary proceedings. She assured the Committee that investigations were continuing in the instances where criminal conduct had been found. The SIU was continuously making referrals to the NPA on those matters.
Mr A Lees (DA) said that Eskom’s power supply relied heavily on coal generators. South Africa was in the midst of load-shedding and blackouts. He asked whether the cancelled contracts referred to operational contracts that contributed to Eskom’s coal supply. Had those coal and power supplies been replaced? He recognised that it was a question best suited for Eskom to answer, and not the SIU.
Ms O’Brien responded, in relation to the contracts of Brakfontein and Optimum, the supply of coal had already ceased when the contract was set aside, and had not affected Eskom’s current coal supply. The Koornfontein-contract was meant to be in effect until 2025, but the relevant entity was now under business rescue, and issues of coal quality had been raised, meaning that it was not a great loss to Eskom. She agreed with Mr Lees that Eskom would be better able to respond to his question.
Mr S Somyo (ANC) referred to the successful recovery of money by the SIU from various entities involved in wrongdoing. Did the recovery of money amount to a mitigating factor in the prosecution of the involved entities or in the SIU’s civil litigation against these entities?
Ms O’Brien responded that the SIU dealt with all the remedial action and measures at the same time. ABB International faced significant pressure at an international level in terms of the potential for criminal prosecution and fines by the United States Securities and Exchange Commission. There was overwhelming evidence of wrongdoing which had contributed significantly to the repayments received from ABB International. The SIU was working closely with the NPA to ensure that there were arrests of the implicated (and subsequently dismissed) employees at ABB International who were involved in the scheme. These implicated employees were being prosecuted in their home countries of Switzerland and Germany. The SIU was sharing information with other law enforcement agencies in this regard. It was a combined effort.
Ms N Tolashe (ANC) echoed the words of appreciation from other Members for the work done by the SIU.
Adv Mothibi (SIU Head) assured the Committee that where the SIU had made disciplinary referrals, the appropriate follow-ups were being conducted to ensure progress on the investigations. This included ensuring that Eskom took the appropriate action against those officials who had failed to submit their declarations of interest, and related to the international investigations into ABB International as well. The settlement agreement entered into with ABB International did not absolve the entity of any criminal prosecution.
The Chairperson said that the Committee would be meeting with Eskom in the next week, and the investigations reported on by the SIU would form part of the discussions in that engagement.
SIU investigation: Transnet
Ms Gina Beretta Pretorius, Lead Investigator of the SIU, presented the briefing on the outcomes of the investigations conducted into the state-owned entity, Transnet. She said the briefing would outline the list of matters that were under the SIU’s investigation, and would summarise the status of the matters investigated in Phase 1 and Phase 2. This was the first time that the investigations into Transnet and its outcomes were being presented to the Committee.
The SIU had adopted a phased approach as the investigation methodology, due to the significant volume and complexity of the matters to be investigated. It had forged relationships with the NPA and the AFU and was conducting monthly meetings to ensure cooperation. Monthly engagements were held with all the relevant stakeholders of the Transnet Strategic Coordination Forum.
The SIU had investigated the acquisition of the 1 064 locomotives, and the relocation of its manufacturing sites from Koedoespoort to the Durban facility. Two matters were interlinked, and involved the procurement of 1 064 locomotives by Transnet for its general freight business at an initial estimated cost of R38.6bn, which had escalated to R 54bn. The costs were further escalated by R1.4bn to relocate the building yards. In respect of both the above matters, the investigation had progressed well. The SIU had uncovered evidence that pointed to the irregular award of these contracts. The SIU had appointed Senior Legal Counsel, who was working with Transnet’s Senior Legal Counsel, to prepare the necessary court papers to bring a review application.
The SIU had identified evidence pointing towards maladministration, irregularities and significant losses to Transnet, as well as future losses in respect of the interest rate transactions and the role of a financial institution doing business with Transnet that had taken place in the financing of the deal. The quantification thereof was being finalised. The SIU had briefed Senior Legal Counsel to act in this matter. Various other referrals were being prepared for handover to the relevant law enforcement agencies oversight bodies.
A settlement agreement had been concluded with Transnet and the specific transactional advisors to the value of R180 million, in full and final settlement of all claims. The matter was at a sensitive stage and the SIU was in the process of taking advice on the best way forward.
Regarding the automation of processes contract, the SIU’s investigation was complete and the evidence available indicated that there were no procurement irregularities. The matter had been subjected to arbitration, and the service provider was ordered to complete the service delivery, while Transnet was ordered to pay a relevant amount to the service provider. The SIU was monitoring the outcome.
Conflict-of-interest investigations were being conducted in respect of Transnet officials who had been identified that had an interest in a business, failed to declare this interest, and had done business with Transnet. The SIU had prioritised high level officials. These investigations were ongoing. The SIU had already made systemic recommendations to Transnet, recommending that action be taken to strengthen and improve controls, policies and employment contracts to prohibit officials from doing business with Transnet. Investigations were ongoing into the various allegations of corruption within Transnet.
Status of Phase One investigations
The Phase One investigations at Transnet included the Roll-On-Roll-Off tender; the reconstruction, deepening and lengthening of the Durban container terminal berths; the new multi-product pipeline; the tandem cranes procured under tender; the cranes procured for a value of R737 million and R199 million respectively (the latter of which had escalated by R340 million), and the Transnet pipelines investigation referred to the SIU by Transnet Group Forensics.
Roll-On-Roll-Off tender (value R133.12bn)
The SIU reported that the investigation into the matter had been completed and no evidence had been found to support the allegation. Several systemic recommendations had been made to Transnet to improve its systems.
Reconstruction, deepening and lengthening of the Durban container terminal berths
The SIU reported that the investigation had been completed and it had concluded that the award was flawed. The SIU had identified a possible civil recovery, and had moved to a civil support phase. Several Construction Industry Development Board (CIDB) referrals were currently being packaged. Legal counsel had been briefed on this matter. The SIU had provided input on the draft set of papers from junior legal counsel. Papers would be settled by senior counsel at the beginning of March, which would inform the relevant disciplinary referrals that would be enforced.
New multi-product pipeline (value R 150 million)
It was clear that prior to the SIU’s involvement in this matter, the High Court had set aside the contract concluded with the service provider. The SIU’s investigation then focused on allegations of a corrupt relationship between the official and the service provider. The investigation had been completed, and the SIU had established a corrupt relationship between a senior official and a service provider. The senior official had been dismissed, based on the referral made by the SIU for disciplinary action. Criminal charges of corruption had been referred by the SIU to the NPA. The SIU and Transnet had initially obtained a preservation order against the official and the service provider. The hearing of the application for the forfeiture order was held on 3 November. Judgment was handed down on 17 November in favour of the SIU and Transnet. The official’s assets to the value of R18 million were forfeited to the State. The official had since filed leave to appeal the judgment. The SIU was opposing the appeal. The appeal was currently pending hearing.
The procurement phase of the investigation relating to the tandem cranes had been completed. The SIU had established that there were material irregularities in the procurement process, based on the needs analysis, and further that Transnet was not receiving value for money. The matter had moved to the civil litigation support phase. Legal counsel had been briefed and the SIU had been informed that there were reasonable prospects of success to review and set aside the award and to recover damages. Disciplinary referrals would be informed by the papers. An expert had been appointed to determine whether Transnet had received value for money in terms of the acquisition of the cranes, and to assist in the quantification of any loss suffered by Transnet. The expert’s report had been provided to counsel to draft papers.
Cranes (contract value R737 m and R199 m)
The SIU reported that the investigation was ongoing. It had revealed a failure by the service provider to comply with the supplier development aspect of the contract, which may constitute a breach of contract based on the evidence on hand. A brief to counsel was being finalised to assess the probabilities of success regarding the recovery of misappropriated supplier development funds. Evidence of criminality had been uncovered and had been included in the brief to legal counsel. A criminal referral would be made by the SIU, depending on advice from legal counsel.
Transnet Pipelines investigation
The SIU had completed an assessment and provided Transnet with a memorandum regarding the outcome of the assessment. In summary, it was established that the transaction in question was not finalised, so no loss was suffered by Transnet. Furthermore, the implicated official had been dismissed from Transnet’s employ. Transnet was alerted to its obligation to report the matter in terms of section 34 of the Prevention and Combating of Corrupt Activities Act 12 of 2004.
Status of Phase Two investigations
The SIU was conducting Phase Two investigations into the various allegations of irregularities in various contracts, including the two contracts awarded to a telecommunications company for wide area network (WAN) amounting to R1.8bn, and closed circuit television (CCTV) cameras amounting to R800 million, software solutions for R280 million, maintenance of locomotives; the procurement of an analytical tool; an information communications technology (ICT) contract; and a wagon optimisation and demurrage solution, and the payment of R16 million. The SIU reported that the investigations into the asset buy-back and WAN were ongoing. The investigations into the contracts awarded in respect of software solutions were also ongoing, and the SIU was working closely with the NPA on this matter.
CCTV cameras contract of R800 million
The SIU investigation had uncovered evidence pointing towards undue gratification and fraud. On 14 February 2020, the SIU had referred evidence of criminality and contraventions to the NPA of, inter alia, the Private Security Industry Regulatory Authority (PSIRA) legislation and financial misconduct in terms of section 86(2) of the Public Finance Management Act 1 of 1999 (the PMFA), and irregular expenditure to the value of R882 million. The SIU had also found irregularities with the procurement process, and had briefed senior legal counsel, who had nearly completed the court papers. Transnet was joining the proposed litigation as the co-applicant with the SIU.
Analytical tool (value R72 million)
The SIU had found evidence pointing towards an irregular procurement process. It was preparing to brief the State Attorney to appoint senior legal counsel in this matter.
Wagon optimisation and demurrage solution
The SIU had found evidence pointing towards an irregular procurement process. It was preparing to brief the State Attorney to appoint senior legal counsel in relation to this matter. The SIU had uncovered evidence of misconduct and was finalising disciplinary referrals against the implicated officials from Transnet, one of whom had subsequently resigned. The disciplinary referrals were scheduled to be completed within the next month.
Investigations into the maintenance of locomotives and the implicated ICT contract were ongoing.
The scope and allegations to be investigated in Phase Three were currently being drafted, and included new matters referred to the SIU by Transnet. The SIU would also investigate the role of the various boards of directors at the relevant times at Transnet.
Adv Mothibi said that the briefing on Transnet had been quite extensive. As with other state-owned entities, the maladministration and corruption within Transnet got entangled in its complex transactions. It had required a great amount of work by the SIU to uncover the issues through intensive investigation. It was comfortable with defending its processes and allegations in the various forums, including disciplinary hearings and civil litigation proceedings. It was the teamwork of the involved SIU officials that ensured that investigations were carried out in a focused and effective manner, especially as they were utilised by the Zondo Commission.
The Chairperson expressed appreciation for the briefing on Transnet.
Ms N Mente-Nqweniso (EFF) said that it was the role of the Committee to assist the SIU in ensuring that all corrupt officials in the system and the implicated service providers were removed and held accountable. She requested that Members be provided with a list of the names of the officials who were implicated, and details on the nature of their involvement. This was paramount for when the Committee called the NPA and other governmental departments to appear before it. She expressed concern that the Committee did not hear about the freezing of the dismissed officials’ pension funds as a disciplinary measure. She asked for a report on the several other law enforcement referrals that were being considered by the SIU.
Adv Mothibi appreciated the assistance from the Committee to ensure that consequence management measures were effected. He gave an assurance that the list of the names of the officials who were implicated, and details on the nature of their involvement, would be provided.
The Chairperson requested that the SIU provide detailed lists of the implicated officials for all the state-owned entities discussed during this meeting -- Eskom, Transnet and PRASA.
Adv Mothibi responded to the question about the freezing of officials’ pensions by stating that the SIU had found that it was a litigation strategy that was quite effective. The SIU was implementing this measure.
Mr Pranesh Maharaj, Chief Programme Portfolio Officer: SIU, confirmed that the implicated official mentioned in the briefing faced the consequence of the freezing of their pension. The relevant pension fund had been interdicted from paying out the pension pending the finalisation of legal proceedings to recover the profits made by the implicated official.
Adv Mothibi assured the Committee that the SIU would implement the same measures in other areas of investigation when it was found to be effective. To ensure that accountability was enforced, evidence had to be uncovered at all levels of management, including the accounting and executive authorities of Transnet.
Ms Pretorius said that the several other law enforcement referrals that were being considered by the SIU pointed mostly towards the conduct of the transactional advisor, which was a company in this matter. They also pointed to the financial services sector and stock exchange contraventions in relation to the JSE, including the Financial Services Board. The SIU’s stance on this issue had not yet been finalised conclusively.
Adv Mothibi said that any service provider for a state institution was managed and monitored by state officials. The SIU would look at where the transactional advisor had faltered.
Ms Van Minnen referred to the investigation into the acquisition of the 1 064 locomotives, and the relocation of its manufacturing sites from Koedoespoort to the Durban facility. The SIU had reported that two matters were interlinked and involved the procurement of 1 064 locomotives by Transnet for its general freight business at an initial estimated cost of R38.6bn, which had escalated to R 54bn. The costs were further escalated by R1.4bn to relocate the building yards. Was this inflation of costs due to interest rates factors? Regarding the settlement agreement with the transactional advisor, she said that the reason for the settlement was understandable. However, it impeded criminal prosecutions and allowed for a situation where implicated officials had been caught but allowed to get away scot-free because of a settlement. Consequence management must be improved in this regard. Regarding the new multi-product pipeline and the R18 million that was forfeited to the state, she asked for clarity on the difference between the full quantum of what was lost, and the money forfeited to the state.
Ms Pretorius responded that the cost of R38.6bn for the acquisition of the 1 064 locomotives was merely an initial estimate. The final cost had amounted to R 54bn, with various factors contributing to the escalation in costs. One of the key factors was the need to expedite the timeframes for the delivery of the locomotives. A comprehensive breakdown of the contributing factors for the increase was still being finalised. Regarding the settlement agreement with the transactional advisor, she responded that the matter was at an extremely sensitive stage, and the SIU was consulting with senior legal counsel to determine the best way forward.
Mr Maharaj responded to the question on the difference between the full quantum of what was lost, and the money forfeited to the state with regard to the new multi-product pipeline. He said there had been no loss to Transnet in this matter. Transnet’s claim was to recover the profits made by the employee at the expense of the employer in breach of their fiduciary duties.
Adv Mothibi said that the claim was to recover the unlawful and corrupt profits made by the employee at expense of Transnet. All the profited assets and wealth had been siezed and forfeited to the state, based on the evidentiary assessments of the SIU.
Mr B Hadebe (ANC) agreed with the request for a list of the names of the officials who were implicated, and details on the nature of their involvements. He asked that the names and details of the implicated service providers be submitted to the Committee as well. It was important that government entities and departments be made aware of the service providers defrauding the government so as to avoid conducting business with the implicated and fraudulent service providers. Would criminal charges of corruption be instituted against the Transnet official who had been dismissed?
Adv Mothibi confirmed that the names and details of the implicated service providers would be submitted to the Committee, together with the list of the names of the officials who were implicated and details on the nature of their involvements in the allegations of corruption and fraud within Transnet.
The Chairperson said that it was the first time that the Committee had had the opportunity to engage over the allegations of corruption and fraud within Transnet. It had a scheduled meeting with Transnet for 9 March. He thanked the SIU for its informative briefing to prepare Members for the upcoming engagement with Transnet and its officials.
SIU investigation: PRASA
The last item on the agenda was for the Committee to be briefed by the SIU on the outcomes of the investigations conducted into the state-owned entity, the Passenger Rail Agency of SA (PRASA). Mr Mike Koya, Project Manager: SIU, presented the briefing to Members.
Collection of investigation reports:
The SIU had been provided with a compact disc containing 288 investigation reports for review, of which 227 were complete but with no annexures attached. There were 37 investigation reports (Section 34 referrals) that had been referred by PRASA for further investigation. There were 23 investigation reports outstanding. This was due to the non-availability of investigation reports either from Werksmans Attorneys or National Treasury. Letters had been written to National Treasury and Werksmans Attorneys to obtain the reports, with no luck. Werksmans Attorneys had reported that 32 contracts referred to them had a value below R 10 million, and had been investigated by PRASA’s internal audit processes. The SIU had received only 17 of these reports. It had analysed all of the 227 reports it received, which were estimated to have a contractual value of R33.05bn.
High-level summary of the analysis
The SIU had determined that there were several irregular payments made to contractors. These irregular payments occurred where PRASA paid the service providers more than the contract price. In addition, there were reports with findings of a conflict of interests between service providers and PRASA directors, officials and employees. Significant and dire contraventions of various legislative prescripts (including the PFMA) were identified, as well as contravention of PRASA’s own procurement policies.
Instances were identified where payments were made to service providers without underlying contractual agreements. There were findings of deviations from prescribed processes, where Treasury regulations were not adhered to, and additional findings of fraud and corruption. Some of the reports were not fully investigated by the investigating firms, citing lack of documentation. The majority of the 37 reports referred to the NPA by PRASA had adverse findings.
In June 2019, the SIU had advised the PRASA legal department to instruct the State Attorney to issue papers to interrupt the running of prescription, and recover R4.5 million from a service provider that had under-delivered on their contract with PRASA. A legal firm that conducted the investigation had been instructed by PRASA to issue a summons. With the help of the SIU investigations, PRASA had suspended and dismissed seven senior managers during 2020 and 2021. On 11 September 2020, the SIU and PRASA had entered into a six-month agreement for the SIU to investigate material irregularities identified by the Auditor-General of South Africa (AGSA), anonymous allegations made by whistle-blowers, and to investigate irregularities by Werksmans Attorneys. This agreement had identified the 17 focus areas for investigation by the SIU.
Limitations and challenges in the investigation process
The SIU reported several challenges in its investigation process. This included mainly the non-availability of documentation. Investigations were being delayed by the lack of documentation from PRASA. Some documents could not be located. Attempts were made to request these documents from National Treasury and Werksmans Attorneys. Other challenges reported included the lack of proper document control, inadequate contract management, and implicated officials who were also assigned to collect the relevant documents. The SIU was identifying the officials responsible for the keeping of records and documents for possible disciplinary action.
Outcomes of investigations and the way forward
The SIU reported, in relation to confinement processes, that 79 contractors had been appointed through irregular processes. All the officials who drafted and approved procurement through this process were no longer at PRASA. The SIU was currently assessing evidence at its disposal for possible criminal or civil legal action against these former officials. Regarding competitive bidding, the SIU had determined that 97 contractors were contracted through a bidding process for the first contract, but the contracts were extended multiple times in contravention of the Treasury regulations. The SIU had been unable to obtain the underlying contracts for these payments. The SIU was now working to identify the implicated officials who had the responsibility of keeping the contracts for possible disciplinary action.
Regarding the outcomes of the disciplinary referrals, the SIU had established that there were 46 officials identified in the investigations who had acted irregularly, and 20 of these officials were no longer employed by PRASA. Of the remaining potential 26 disciplinary cases, two senior officials had been suspended and were awaiting disciplinary hearing dates. The SIU had assisted PRASA in the disciplinary enquiries involving two officials (senior and assistant manager) who were dismissed in September 2020.
Regarding the outcomes of the criminal referrals, the SIU reported that there were 34 cases currently with the Hawks for investigation. Regarding the outcomes for civil recovery, most of the contracts under investigation had already run their course. The SIU was reviewing evidence to assess whether there was a legal basis to consider civil proceedings to recover losses suffered by PRASA.
Adv Mothibi said that the situation at PRASA was significantly dire when examining the evidence uncovered by the SIU. The SIU was committed to ensure that disciplinary actions and criminal prosecutions were implemented to ensure that the administrative systems of state-owned entities were improved. He emphasised that the non-availability of documentation was a significant strain on the investigative powers of the SIU. Investigations were being delayed by the lack of documentation from PRASA. The biggest risk that had to be addressed at PRASA was the lack of an adequate document management system.
The Chairperson said he regarded PRASA as the ‘Armageddon of corruption’ because the AGSA’s report, and the investigations conducted by the SIU showed the dire state of the entity. All was not well with PRASA. Conducting oversight over PRASA must be a key priority of the Committee. He shuddered to think what a comprehensive report into the administration of PRASA would look like.
Ms Van Minnen commended the SIU for the work it had done into the administration of PRASA. There were a lot of issues that had to be addressed with PRASA directly. She asked whether the law firm that was instructed by the SIU to interrupt the prescription period by issuing summons had followed through on the instruction. As with Eskom, she emphasised the problem of officials who resigned to avoid disciplinary action simply by no longer being in the employ of PRASA. The Committee needed reassurance from the SIU that there would be follow-up processes in this regard, especially that the SIU would give serious consideration to the Committee’s recommendation of implementing criminal proceedings against the implicated officials.
On the issue of the missing documentation, she sympathised with the SIU’s frustrations. She asked for reassurance that the issue of inadequate filing and document systems was taken seriously by the SIU, and that appropriate measures and consequence management would be effected.
Adv Mothibi assured the Committee that the SIU took the disrupting and disturbing limitation of the missing documentation very seriously, and an investigation into the circumstances of the matter would be conducted. There was significant potential that the documents had been involved in the destruction of evidence. The SIU would take the appropriate action against those individuals implicated in the disappearance of key documents.
Mr Koya responded to the question on whether the law firm that was instructed by the SIU to interrupt the prescription period by issuing summons had followed through on the instruction. He said that when he had enquired with the law firm regarding this issue, it had informed the SIU that it had delegated the task to the investigating firm. However, the employees in the legal department had had their contracts terminated, so the SIU had to follow up on this issue again.
Regarding the officials who had resigned to avoid disciplinary action simply by no longer being in the employ of PRASA, he responded that some of the officials had been dismissed before the SIU’s investigations. The SIU was engaging with the relevant entities to determine how much of these officials’ pensions had been paid out already to determine the way forward. Unfortunately, some of the officials had already had their pensions paid out. Civil recovery was being considered as an alternative mechanism for accountability for those implicated officials.
Mr Somyo said that the issue of missing documentation was becoming an endemic matter that was significantly hampering the procedures of the SIU. This matter had to be addressed urgently, and the Committee and the SIU must determine a way of insisting that better document management was adhered to. Contracts must be looked at in terms of the overall loss in costs and funds. There was a clear failure of governance at PRASA which had led to the erosion of proper decisions being taken on important matters such as procurement. These issues that had been identified at PRASA must be analysed at their root causes to improve the sustainability of the state-owned entity.
Adv Mothibi agreed with Mr Somyo’s impression that the issue of missing documentation was becoming an endemic matter. It was an issue that would be continuously raised in engagements with PRASA. The current way of conducting business at PRASA had to be analysed and a turnaround plan compiled in which identifiable plans of actions and recommendations were listed, and which had to be implemented. The SIU had to ensure that there was consequence management, and that action was taken against everyone who was involved. That was the part that would bring about deterrence among all those who would be corruptors and maladministrators going forward. PRASA had shown high levels of maladministration which would be quantified by the SIU.
Ms Tolashe said that PRASA was doing what it wished without regard for the law and good governance. The Committee must follow up on the issues identified by the SIU and engage with the AGSA in this regard to ensure more immediate and effective solutions and consequence management. It was paramount that immediate solutions were implemented to prevent the corruption at PRASA from continuing.
Adv Mothibi responded that a copy of the systemic referral at PRASA would be forwarded to the Committee to assist Members with discussions and oversight over the state-owned entity.
Mr Koya said that the SIU was not investigating the procurement processes of PRASA (as they related to the procurement of the locomotives for which there was no delivery), but was rather looking at how PRASA could recover the payments it had made for service delivery that had not been delivered. There were ongoing negotiations between PRASA and the liquidators of the service provider. If the liquidation process went ahead, then PRASA would be able to recover only R65 million of the amount that had been paid, which would reflect a significant loss of money.
Adv Mothibi stated that there could still be an opportunity for the SIU to unpack in detail the R2.3bn that had been paid for the defective locomotives, based on the contract that had been set aside. The SIU would provide the Committee with written feedback on the matter. The issue of why PRASA would be able to recover only R65 million must also be investigated and considered thoroughly.
The Chairperson agreed with Adv Mothibi that the reason why PRASA would be able to recover only R65 million must also be investigated and considered thoroughly. PRASA had to be put into a position to explain the actions and shortcomings of the entity, together with the relevant Ministry. The Committee must not lose sight of conducting a full-scale inquiry into PRASA, especially given that the majority of South Africans were heavily reliant on the entity for the purpose of commuting. The festival of incompetence, corruption, chaos, and uncertainty at PRASA was unacceptable and could not be tolerated.
Ms N Nolutshungu (EFF) thanked the SIU for its presentation and the findings, which made it evident that there was collusion and corruption within PRASA. There was no way to explain the over-payments to contractors without corruption being involved. There was a total disregard for procurement processes. It would be useful to determine whether PRASA’s procurement department was comprised of the same employees who were implicated in the investigations by the SIU. Had any of the employees in the procurement department been subjected to disciplinary measures or criminal prosecution? The SIU must consider the option of blacklisting the officials who had been found guilty or who were implicated.
The Chairperson responded that the Committee was working on the option of blacklisting the implicated officials, and this matter would be discussed further by Members.
Adv Mothibi agreed with Ms Nolutshungu that there were clear indications of a disregard for procurement processes within PRASA and contraventions of the law on public procurement.
Mr Koya stated that the option of blacklisting the implicated officials would go a long way towards preventing the scale of corruption present at PRASA to recur or be found in other state-owned entities and departments.
Mr Hadebe referred to the issue of missing documentation, and expressed his appreciation for the SIU’s commitment to conduct follow-up processes in this regard and ensure that consequence management was implemented against the implicated officials. However, he felt serious discomfort that the current situation at PRASA was that these culprits and guilty officials were still part of the system with full access and control over other key or critical documents which could be required in the further investigations of the SIU. Had the SIU been able to identify whether or not the implicated officials were still occupying the same positions they were in when they were involved with the alleged corruption and fraud? Such officials must be removed immediately.
Adv Mothibi responded that the SIU would look into the matter of whether the implicated officials were still occupying the same positions, given that the Committee had raised it as a unanimous and serious concern. This issue and concern would be given priority and expedited.
Ms Mente-Nqweniso requested that the SIU have a meeting with the Committee in the near future so that Members could follow up on the two main issues regarding PRASA -- the missing documentation and the question of whether the implicated officials were still occupying the same positions.
The Chairperson agreed with Ms Mente-Nqweniso, and requested the SIU to update the Committee as a matter of urgency regarding the two main issues raised by Members.
The meeting was adjourned.
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