Eskom corporate governance inquiry: David Fine

Public Enterprises

15 November 2017

Chairperson: Ms L Mnganga-Gcabashe (ANC)

Eskom corporate governance inquiry: David Fine 1
Eskom corporate governance inquiry: David Fine 2
Eskom corporate governance inquiry: David Fine 3

Statement of David Robert Fine
ANNEXURE B - 22 August 2014
Annexure A to G
Letter from Minister of Public Enterprises August 2017
Letter from Minister of Public Enterprises 13 October 2017

Meeting Summary

The Eskom Inquiry continued with a submission from Dr David Fine, Senior Partner at McKinsey and Company, who is currently based in London but was, previously, the Head of McKinsey in South Africa.

Before proceedings began, several Members registered their concerns about people who had begun to verbally attack the evidence leader, Adv Vanara. Members stated categorically that Adv Vanara was doing that work at the behest of the Committee. A vote of confidence in Adv Vanara received the full support of all Members.

Dr Fine had submitted a 17 page statement with annexures, which included copies of due diligence processes, the business case for the Transnet Locomotive Project and a range of letters. He spoke of pro bono work done by McKinsey and how McKinsey had turned around large institutions such as Iscor and Transnet’s Vulindlela project, while developing black economic empowerment companies such as Letsema. McKinsey has Level 1 BBBEE status.

Dr Fine declared that McKinsey would pay the R1 billion back to South Africa, regardless of whether the company won the court case against Eskom. McKinsey did not want the money because it was tainted in that, despite Eskom’s assurances to the contrary, National Treasury had not approved the contract. Dr Fine asked Parliament to assist McKinsey to return the money. The company believed that it had done valid work and so had fulfilled its obligation to Eskom, and therefore did not necessarily want to pay it back to Eskom.

The evidence leader initially dealt with the role of McKinsey, including Dr Fine, in Transnet projects. It was because of a conflict of interest that Letsema had in the Locomotive Project, that McKinsey partnered with Regiments Capital, and began working with Eric Wood. A due diligence check had shown Regiments to be a strong company with no skeletons in the cupboard but with great financial modelling skills. The relationship soured over improper conduct by Regiments’ Niven Pillay and the suggestion of the involvement of Regiment’s Mohamed Bobat with the Gupta family.

In seeking a supply and development partner to replace Regiments, McKinsey was directed towards Trillian, which was being set up by Eric Wood and was intended to provide an opportunity to move the consulting part out of Regiments. Although McKinsey began working with Trillian at Eskom, they were unable to finalise the partnership as Trillian did not provide information on their beneficial ownership and confirmation that McKinsey would be working with a black-owned, black-managed, and black management team. Eventually Dr Fine checked company records where he found an indication that Salim Essa might be a 60% shareholder. McKinsey ceased working towards partnering with Trillian.

Discussion moved onto the business case prepared by McKinsey and its partners in a consortium for the purchase of 1 064 locomotives. The business case provided Transnet with a completely realistic figure of R38.6 billion for 1 064 locomotives purchased over a seven-year period. As the only figure missing had been the cost of hedging, Dr Fine was completely unable to explain how the cost could have escalated to R54 billion.

The work done by McKinsey at Eskom was discussed. Although Trillian was supposed to be McKinsey’s partner at Eskom, the agreement was never signed, but McKinsey went ahead with the work. The costing structure was not structured according to the normal flow costing, but was a complicated structure that Dr Fine said would be difficult for the public to understand. The work was audited by the firm of Oliver Wyman, confirming the value of McKinsey’s work. Dr Fine stated that, amongst other benefits, McKinsey saved Eskom over R8 billion on the cost of burning diesel in 2015, justifying the McKinsey consultancy cost of R1 billion.

Members asked why Dr Fine had received an invitation to the Gupta wedding; what his opinion was of Brian Molefe’s management capabilities; whether McKinsey would be laying charges against anyone in accordance with the Prevention and Combatting of Corrupt Activities Act; why had McKinsey refused to cooperate with Adv Budlender; and McKinsey’s treatment of Ms Goodson?

Members asked about the pattern of everyone - Singh, Molefe and McKinsey - moving from Transnet to Eskom. Why was there a tendency for international senior people not being prepared to come to the country, to be seen as the face of the company, and face the South African public? Why had McKinsey reacted so slowly with its investigation, delaying four months after the facts had started to emerge?

Dr Fine made a closing statement talking about his pride in the work his firm had been able to do in South Africa. He was particularly proud that over 80% their young consultants were black, historically disadvantaged South Africans and that they were amazing people who want to do amazing things for South Africa.

While at times tense and emotional, the hearing was difficult in that McKinsey did not seem to have managed well their suspicions regarding the role of McKinsey in relation to Eskom and Trillian.

Meeting report

The Chairperson read the oath to Dr David Fine and asked if he wanted to take an oath or an affirmation.

Dr David Fine took the oath.

The Chairperson called on Adv Vanara to lead the discussion. She saw that Members had raised their hands and asked him to wait while Members’ matters were attended to.

Dr Z Luyenge (ANC): I apologise for interrupting the process but I want to register concerns about people whose names have been called in this process who have already begun to attack Adv Vanara. I want to make this categorically clear that Adv Vanara is doing this work on our behest. He is here and he is doing what he is doing in the name of Parliament so an attack on him is an attack on Parliament. There is a laid-down process and that process can be produced and given to those people but it is not right and it is unconstitutional and it is demagogical for perceived leaders to attack a process that they know, a process that they were part of constituting. And some of them may not even be aware that letters are already on their way to them so they must be calm in this process. There is a laid down process which is democratic and honest.

Mr P Gordhan (ANC): I want to support Dr Luyenge’s comments. I think that we should formally move, and if possible, adopt a motion of confidence in Adv Vanara and the manner in which he has been conducting himself and that is a manner which reflects absolute integrity in the best tradition of a lawyer and you get many types of lawyers these days, but he has proved himself to be an excellent public servant who should, in fact, be emulated by others. That was the first point. The second is that we need to be a little bit more direct. There is a statement by Deputy Minister Martins and I agree with Dr Luyenge that it is a blatant attack on Parliament’s work and completely unjustified in the circumstances. Under the Chairpersonship of Ms Rantho, it was very clearly stated that everyone who was implicated in one way or another, or mentioned in one way or another, would have the opportunity to present their case here after which we will present a report to Parliament itself in the National Assembly.

Mr M Gungubele (ANC) Chairperson, under your leadership, we must look at a possibility of a statement for those who are not able to listen to what the Members are saying so they understand our stance because there is an insinuation that some of those who appear aggrieved in public will be called because they complain, otherwise they were not going to appear here. And I think that must be dismissed with the contempt that it deserves. The very, supposedly, senior people who speak in pubic know the terms of reference of the Commission. But when they speak in public, they pretend as if they do not know the terms of reference. I hope the insinuations from the Minister with regard to this being a kangaroo court are false and I think that we need to find out if they are true. Parliament is independent; it is an established institution on its own. There are those who are beginning to teach the public what the powers of this Committee are. We know what the powers of this Committee are. We know what we are capable of doing and what we are supposed to do. People must be clear that we know what we are doing and we are determined to do it and we are here to do it in the interest of our country. There is nothing that is going to make us waver.

Ms N Mazzone (DA): I would like to second the vote of confidence in Adv Vanara proposed by Mr Gordhan. I am very much covered by Mr Gungubele. I was also going to suggest that we put out a statement from this Committee outlining our terms of reference which are very clearly set out in the Constitution and we are simply executing a mandate that the Constitution insists we must adhere to.

Chairperson: I just want to remind Members that in all the statements issued on behalf of this Committee, the first sentence deals, since I joined this Committee some two weeks ago, the statement starts with the assurance that the ordinary members of the public, or in higher offices, in government or Eskom Board members or former Board members, are going to be given the opportunity to come before the inquiry and give their own version of the events. But, over and above that, I have noted the proposals by the Members. We can now resume our interaction. Advocate, you may lead us.

Adv Ntuthuzelo Vanara: I must confess that I am humbled and encouraged by the confidence shown by the Committee in my capabilities. Dr Fine, before I start with you, I just need to indicate to the Committee, this is the only witness for the day, and depending on the time available to interrogate the witness, I’d do anticipate that we should be finished by 13:00.

Witness: David Fine

Adv Vanara: Dr Fine, before you proceed, can you please state your full names?

Witness: My full name is David Robert Fine.

Adv Vanara: Can you share with the Committee your current employment?

Dr Fine: I am currently employed with McKinsey and Company as a senior partner in the London Office.

Adv Vanara: You have made a 17-page statement with annexures, ranging from Annexure A to F (G). Do you confirm that this is your statement and that represents your account of the events as accurately as possible?

Dr Fine: I do.

Adv Vanara: I confirm that with your permission, the statement with its annexures have been shared with Committees members. It is my understanding that the Committee members are in possession of your statement with annexures. Do you have any objection to that?

Dr Fine: I don’t.

Adv Vanara: In the interest of time, we are not going to traverse every word in your statement. I do guarantee you that I have read the statement and annexures and I am sure that Members have done the same. Who is McKinsey and Co?

Dr Fine: McKinsey and Co is a global management consultant. It was started 90 years ago in the US, in Chicago. It has offices in over 122 countries and has over 36 000 employees. It is a privately-owned partnership. It is fully owned by the partners worldwide.

Adv Vanara: In South Africa, you would want to share with the Committee pro bono work that McKinsey provides?

Dr Fine: McKinsey has a long history of providing pro bono support in South Africa. We take 26% of our profits per year and invest them directly for black South Africans, historically disadvantaged. We have worked in South Africa with 100 police stations to help them turn around. We are currently working in Knysna with the reconstruction efforts after the fire. We have a long history of investing in the leadership of this country and as part of our commitments to black economic empowerment, we also have a black leadership program, bringing leaders and people across the spectrum to help them to develop into productive leaders in South Africa, and that is a very strong commitment that we have had over time. In addition, people will also know that we have done research on behalf of South Africa and Africa about the potential for South Africa and Africa and communicated that broadly in the world.

Adv Vanara: You had a working relationship with Transnet between the periods 2005 to 2016. Can you take the Committee down memory lane? What was your involvement with Transnet?

Dr Fine: We have served Transnet, almost continually, as an institution since 2005. We have worked for multiple chief executives and multiple executives at Transnet. It began in 2005 on a project called Vulindlela. At the time Vulindlela was focused on Transnet, particularly around operational matters and procurement. That work involved more than 100 consultants continuously. We had the 94 international people come in to help Transnet. We have extensive expertise in railways and ports around the world which we brought to bear. This work, in our view, was audited by internal auditors at Transnet at the time and had significant benefits for Transnet. My understanding is that over R5.6 billion worth of benefits were signed off by the auditors at the time and it also included other non-financial benefits. The improvement of locomotive and wagon availabilities, which was very important, the expansion of the harbour through better operational improvements and an important part of this work, which we did between 2005 and 2011, was developing and working with a small management consultancy called Letsema Consulting, in supply and development obligations to help them grow and develop into a vibrant and successful company.

Adv Vanara: Can you tell the Committee about your support for Transnet’s new Market Demand Strategy?

Dr Fine: As the Committee would know, in 2011 Government policy talked about the developmental state and so in 2012 we began working with Transnet in a more substantive way, again on what was, at that time, called the Market Demand Strategy. At the time, as you may recall, South Africa had not benefited from the commodity boom globally and had, in fact, lost market share, particularly in commodities like coal and iron ore. And so, the objective of the Market Demand Strategy, it was owned by Brian Molefe at the time, was to change the philosophy of how Transnet would think of projects. So, in the past Transnet always needed to confirm customer demand and confirmation from customers before it invested in infrastructure, but the Market Demand Strategy was based on the philosophy of actually investing in infrastructure ahead of demand so that infrastructure was not a bottleneck to South Africa’s growth. The work we did there was initially, predominantly around the capital project portfolio, helping Transnet to understand all the projects that they were doing then and whether they had real benefits or not. How to think through and sharpen the project portfolio was the first piece. We helped Transnet to avoid or defer projects of about R100 million. Some of those included the Durban dig-out port. People may recall, where we, after having done the analysis, felt that it was not necessary, at that moment in time, to actually proceed with that project and that it could be delayed. The second piece of work that we did was related to the locomotives’ extensive business case which was submitted to the Board as in the annexure. The issue of locomotive was important because the number of locomotives was declining because of the age of the fleet at Transnet. The safety record at Transnet meant that locomotives were being written off and it was actually required in terms of the capacity plan to acquire locomotives. What McKinsey did with that was to do a few things. First, it was to understand what the future demand was likely to be in South Africa and abroad. Secondly, to help Transnet to then identify how many locomotives would be required. The third thing we did, which was a policy of McKinsey, and I want to stress that it was a policy of ours, was to make sure that the way in which Transnet would consider the procurement event would be in a flexible way so that if the volumes dropped, they would then not incur all the costs for the locomotives. The fourth thing related to locomotives was putting in place and making sure we had recommendations on governance and security given the size of the transaction. So that was the second piece of work. The third piece of work related to operational improvements.

Adv Vanara: Talk to the Committee around your supplier development partners at Transnet.

Dr Fine: So, I first want to start off by saying that McKinsey is committed to supply and development in South Africa. We are a BBBEE Level 1 contributor. That has not only been based on supply development but it has also been based on the procurement we made based on BBBEE codes. I, personally, was part of the formation as our response as McKinsey and the spirit in which we did this, which was to help and develop South Africans who had been historically disadvantaged, participate meaningfully in the economy. And therefore, I first of all just want to state that the comments that are attributed to Mr Jüngling, which, as I have said in my statement, which Bianca Goodson referred to, are deeply upsetting to me, and are not in line with our values, and are not in line with the spirit in which we have embarked in our supply and development efforts. At Transnet, we started working with Letsema Consulting. As I said before, this was a small consulting firm, and over the course of our work with Transnet, we invested in helping them both with their recruitment, with the development of their consultants, giving them access to our training, on-the-job training, etc. And over time, they actually built a very vibrant and capable consultancy which even competed against McKinsey and, I will say, it did cause some tension at some point in time because they built a very successful firm, which I am proud of, but they also sometimes competed against us and, in fact, won. This wasn’t necessarily always an easy journey. It was a challenging journey at times. There were conflicts, there were issues sometimes on the resources that Letsema sometimes put on the project, and sometimes the international consultants from McKinsey didn’t understand supply and development and they needed to be reminded of what we were trying to do. And these issues were normal issues and we would sit down with Isaac Shongwe at the time and resolve them. It worked very well. So that concluded our work with Letsema at the end of the project that was called Vulindlela. We did continue to work with Letsema again. In 2012 we were going to partner with them on the locomotive transaction. Unfortunately, we were told by Transnet that there was a conflict of interest because Letsema was serving General Electric who was a potential bidder for locomotives, and while a consortium would be awarded the tender, we were asked to provide an alternative. At that point, we asked Transnet who was an approved supplier on their supply and development base and they gave us the name of Regiments.

We did some due diligence on Regiments, which I shall talk to in a moment, and we included them therefore as part of our consortium on locomotives and subsequently on other projects, but we did work with Letsema thereafter and, in fact, even Regiments, when they did not have the required resources and outsourced some of their work to Letsema. I have attached in the Annexure the document from 2012 which was the document which extensively talks to the qualifications of Regiments at the time. It talks to the individuals. They have extensive experience in the public sector. They had worked at Transnet. The individuals, Litha Nyhonyha, had an impressive resume, Niven Pillay has two degrees from Princeton and Eric Wood has a cum laude degree from Wits. These were impressive resumes. I reached out with my personal contacts to people who actually spoke highly of Litha and Eric Wood’s capabilities. And I did a Google search and you can see that we did come up with an issue at the time. It was related to a contract with the City of Johannesburg and the answer that they gave us was that this was work done at risk and the City was contesting their fees which seemed like a reasonable issue at the time and nothing of significance was raised. And then, finally I would say that they brought a very a particular set of capabilities because of their investment banking experience to the projects that we were going to do which required quite sophisticated mathematical and financial modelling. Do you want me to pause or continue?

Adv Vanara: I just want to confirm that the annexure in respect of Regiments, that is the first annexure?

Dr Fine: That is Annexure A, correct.

Adv Vanara: You may proceed.

Dr Fine: The work with Regiments started in early 2013 on a project which we had won related to supporting the MDS strategy to make sure that the various elements of the strategy were being implemented. The project proceeded. I would say that the beginning of the relationship with Regiments was not straightforward. There were concerns from some of our consultants that the quality of people that had been allocated was not necessarily up to scratch. There were concerns from the Regiments’ people that we weren’t, or our international people were not, treating them properly. We decided to proceed with the relationship and see where it went because this was very similar to the kind of experiences that we had had in building Letsema Consulting. We got an external facilitator to work with us and, thereafter, actually things improved. Most of the projects that we did with them in 2013 and 2014, were capital projects. They were related to taking projects and looking to see if they could be improved in pace and speed and cost or looking at the project portfolio, and the quality of their modelling skills was very, very high and very complementary to McKinsey. They added value to our projects. They brought capabilities that we didn’t have in some instances and there were examples where they took on particular pieces of work and delivered them well. For example, in Durban, at the pipeline container terminal, that construction was behind and they took leadership of that project and delivered it well. There were challenges and I just want to talk to those if I could. The first one was a Mail & Guardian article in 2014 which alleged that Mr Pillay had had an improper relationship in a project that was related to Gauteng Health. We, immediately, after we had read the article, wrote to Mr Pillay and to Regiments, requesting that they confirm that they were compliant with the US Foreign Corrupt Practices Act, the UK Foreign Corrupt Practices Act, and the South African laws, which they did. The letter and the responses are in Annexure B. We also asked that Mr Pillay be separated from all work that Regiments did with McKinsey, which they did and it was at that time that Mr Woods became the primary contact between Regiments and McKinsey. Mr Pillay has confirmed this recently in the press that he had been removed from the project with McKinsey.

I think that the second challenge was in the middle of 2015. There were challenges in working with Regiments. We found that the quality of Regiments work had declined and the ability of them to meet commitments declined. It got to the point where McKinsey was having weekly meetings with the Regiments leadership, particularly Eric Wood, to talk about this underperformance. In one case McKinsey had to put resources on the ground in order to deliver what had been committed, and so by the end of 2015, the McKinsey partners on the project met and decided that we would have to look at other partners because we were uncomfortable with the performance of Regiments at that point in time, the end of 2015. Of course, and I want state this, the concerns grew in 2016 when there was a newspaper article, or media article, by Africa Confidential, which alleged that Mr Bobat was somehow connected to the Guptas and that concerned us enormously. We did not give Regiments a second chance and so on 23 February 2016, we wrote to Transnet and that letter is in Annexure C. We wrote to Mr Garry Pita and Mr Siyabonga Gama to say that we were ending our relationship with Regiments. You will see in that letter that we would not consider Trillian as an alternative unless there had been a detailed due diligence of their ownership and, in addition, that we had comfort in terms of the demographics of their leadership. One of the big concerns we had towards the end of the relationship with Regiments was that we felt that we were interacting with a leadership team from Regiments, Eric Wood and others, that was not representative of the demographics of this country and it concerned us that if this was a supply and development partner, it should have that representation.

We wrote to Regiments and we met with Regiments and terminated our relationship with Regiments. I want to draw people’s attention on page 9 of the statement to some information that I became aware of as I was conducting the preparation for this Committee, and there are a couple of points that are explicit. Firstly, there have been media reports alleging that Regiments paid a portion of their fees to companies, Albatime, Forsure and Fortime, companies that had alleged links to the Gupta family. At no time was I aware of those payments, firstly, and, in fact, McKinsey had a policy with Transnet that Transnet would pay McKinsey and McKinsey would check that Regiments had done the work but that Transnet would pay Regiments directly. This was explicitly done so that McKinsey did not receive the credit for procurement from black-owned companies. That was for Transnet’s benefit. So, if those payments happened, I think the Committee needs to ask Transnet about them.

Secondly, I am aware also of reports that Mr Pillay has said that there was a relationship in some way, that Kuben Moodley’s company, Albatime, was in a relationship with McKinsey. First of all, I have no evidence of that and, in fact, there is a press article which I have referenced on page 9 where Mr Moodley said, “I don’t know McKinsey,” and there were some expletives after that. The third thing that I want to make you aware of, is that, as I was preparing, I looked through the documents going back all the way to 2014 and I found in our responses to Transnet, there were proposals from McKinsey to Transnet and included in the documentation provided by Regiments, were references to Albatime, Homix and another company called A Company Consulting. I am convinced that they were copied and pasted into the supply and development section of Regiments. They had obligations to Transnet. At the time of these submissions, Albatime and Homix were not names that we would have seen as familiar. The third thing was that Regiments had to deliver on their capabilities. How they decided to do it, was their choice. I did also check with colleagues over the past week if we had ever seen or worked with or seen people from Albatime or Homix or A Company, and I confirm that the only people that were on projects with Regiments or McKinsey that we saw were Accompany Advisory, which was a company started by an ex-McKinsey employee that we know well and the work was good work.

Adv Vanara: Just clarity. In the three paragraphs, you speak in your personal capacity. There is reference to “I”.

Dr Fine: Correct. This is my testimony. I talk about “we” but it is in my personal capacity based on what I know, what I have been told and the conversations that I have had. This is the testimony before you.

Adv Vanara: And that you are not speaking on behalf of McKinsey, at least in these three areas. Is that correct?

Dr Fine: Yes, that is correct.

Adv Vanara: McKinsey’s due diligence on Trillian. Can you take the Committee through that process?

Dr Fine: Yes, and I am going to take a little bit of time because I think that it is probably not entirely clear to everyone how Trillian was formed and its connection to Regiments, and these are obviously based on my understanding of what happened at the time. In late 2015 when we raised our concerns about the partnership with Regiments, Mr Vikas Sagar said that they were splitting. The Regiments partnership was splitting and that the investment banking and property business, as I understood it at the time, was going to stay with Regiments and the consulting business was actually going to come out of Regiments and be formed into a company called Trillian. My understanding at the time from the explanation given by Mr Eric Wood who was going with Trillian, was that the partners were not all convinced that the consulting business was a priority. The Regiments people did not want to invest further in the consultancy business and therefore by taking it out of Regiments and starting a new company, Mr Wood would have access to the investment resources and investors to start a truly large and significant black-owned consulting firm in South Africa. At the time, that did also sound like an attractive proposition because we had worked well up until that point in time and we want to build strong black-owned consultancies in South Africa. We think that is important. And so, we did consider Trillian. I cannot speak on all the events in the press as I was never involved in work at Eskom but I can talk about my interactions with Mr Wood and the time until the end of the potential relationship with Trillian. But I just want to confirm that Trillian was a company being formed, being split up out of Regiments. So, you need to think about this. It was Regiments which included consulting and it was going to be Regiments which did not have consulting and Trillian which took the consulting business of Regiments.

In early 2016, I became aware that there was a substantial working relationship between McKinsey and Trillian and when I enquired about this externally with some of my contacts, “Who was Trillian? What was Trillian? What was going on here?” they raised concerns. You could say, “Why did I have concerns in the first place?” Well, the first question was that we had Eric Wood, a white South African starting a black advisory firm, and the only person that I could see that was part of this consulting firm in its inception, was Mr Wood. It wasn’t clear to me who were these other owners. Who were they going to be? Were they going to be reputable people? I think those are normal questions that somebody would have at the time. I enquired externally. I never heard the name, Salim Essa, at the time in any way associated with Trillian or any other of the names that we have heard: Mark Chipkin, Clive Angel, Mark Pamensky and others. I enquired at the time. There was nothing that I saw but others had concerns and I immediately raised concerns within McKinsey, strongly. Other colleagues of mine also did and we then instituted an external due diligence of Trillian which was then fed into a risk review. At that risk review, in which I participated, we terminated the relationship with Trillian.

Perhaps though, if it is useful, I can join the dots, as I have heard before. The first thing that I would say is that I did meet with Mr Wood, twice in March. The first time that I met with Mr Wood, I asked, “Who are these owners? Who are these people?” The answer is: He said, “I’m talking to people, but one of the investors is somebody called Max Yusef.” I went onto LinkedIn; I went onto Facebook; I tried to find Max Yusef but I did not find on Google a Max Yusef. I found a Max Yusefs but I did not find anyone that I would associate with a serious (and perhaps, I don’t know Max Yusefs, and if I don’t I apologise) but a serious investor with a kind of stature that we were imagining was going to build this firm.

The second time I met with Mr Wood, with Mr Sagar, at the Melrose Arch Hotel at Tasha’s for breakfast, I said to him again, “Who are these investors?” By then he said, “Well, it’s going to be Linda Makatini, it’s going to be Jimmy Manyi, it’s going to be Max Yusef.” He talked about Clive Angel. At that moment, I got concerned as, when I googled them, I found that they are people that we call potentially politically exposed people. The second thing was that it did not give me any comfort that we were going to build a pre-eminent, black-owned consulting firm. I fed that information into the external due diligence process. I also went personally and spent an entire weekend going through the CIPC database for all the Trillian companies. I googled every single director of those Trillian companies. There were multiple of these companies and in one of them, I did find the directorship, S Essa, which I fed into the external due diligence process, which was the basis for my very strong conviction that we could not be associated with Trillian and it was the basis by which we terminated. We terminated our discussions with Trillian.

I also want to say that at no time during this process, and in the conversations, that I had with Mr Vikas Sagar, and there were many, was any connection made between either his relationship with Salim Essa, which we know from the Gupta-leaked email or the potential relationship he may have had, which is suggested by Ms Goodson in her public testimony. That was not disclosed to me and it was not disclosed to McKinsey. It would have been an immediate red flag. I also just want to confirm that the relationship with Trillian, was always subject to a review of this ownership issue, and if you read the letter to Mr Pita and Mr Gama in Annexure C, you will see that we are very explicit that we have not yet got comfort and that we will not work with Trillian, unless the ownership issue is raised.

The last element that I want to draw your attention to is related to the letters that you see in the final Annexure G. In Annexure G, you see that there was another issue that arose with Trillian that gave us grave concern, which is that they were supposedly part of a consortium bidding for the Duvha Boiler and, at the same time, were working alongside us in Eskom, advising Eskom on procurement. We wrote to them twice, expressing our very deepest concern and asking them to respond, and they never did, which was also the basis on which we terminated our potential relationship with Trillian. Those are the facts that I know as David Fine and communicate to the Committee.

Adv Vanara: The last aspect relating to Duvha and the work that you guys were doing with Trillian. Why did you guys find that troubling?

Dr Fine: Well, I was not part of the Eskom situation, but the troubling part was that there was a clear conflict of interest, and an undisclosed conflict of interest between the Hubei consortium, that included Trillian, bidding for the Duvha Boiler while at the same time, they were advising Eskom how to engage with various procurement processes and that, for me, was a clear conflict of interest, and of great concern to many of my colleagues.

Adv Vanara: Why was it so important for your company to do all the due diligence with Regiments and Trillian? Do you do all this due diligence with all companies that you will be associated with, or where there is a potential association?

Dr Fine: In fact, we did one more diligence and then I shall come to your question. When we ended our work with Regiments, we instituted, at our discretion and with caution, a full external review of all our contracts at Transnet and with Regiments to give us comfort that there were no concerns. The question you ask is a very good question. I would say that McKinsey, which would sound surprising to the Committee, has historically not done many partnerships. So, if you went back five years in McKinsey’s history, you would find that the number of partnerships we had were very few and most of them were based in South Africa because of the requirement that we had to partner and develop people like Letsema.

Over the last five years, McKinsey’s philosophy has changed to we don’t have all the skills in house and we have many partnerships all round the world. But what you will see is that the due diligence that we did on Regiments at the time was reading their documents, speaking to a few external contacts and actually doing google searches and getting some comfort. That philosophy has changed within McKinsey and we now have very clear guidelines about how we should deal with those relationships, particularly in the public sector. In this particular case, if you read the testimony, you would say why was due diligence not done upfront.

Why did you not do due diligence before you started to work with these Trillian people? And that is a reasonable question to ask. And the answer to that is two-fold. At the time, state-owned enterprises were not part of our public sector risk policies. That has changed but at the time they were not part of our public sector risk policies and therefore, the relationship began in good faith that these issues would be resolved. At the time that concerns came to light about the potential relationship, it was pure speculation of a potential relationship and it was based on the word “S Essa” in the CIPC database. At the time that we became aware of those concerns, we acted very quickly and very aggressively to do the external due diligence. Was it pre-emptive and should it have happened earlier? “Yes.” At this time, in the public sector, we would certainly do a detailed due diligence of any external provider.

Adv Vanara: I want to tap into your skills as business leader. Let me rephrase. Would you agree with me, for the reputation of your company, it is very important to know who you would be associated with?

Dr Fine: I would agree.

Adv Vanara: Amongst the lessons learnt, the Budlender Report is scathing about McKinsey’s uncooperative behaviour. What is your view?

Dr Fine: First of all, we have apologised to Adv Budlender about the way in which we engaged with him, and I got the initial call which I passed onto our internal legal team. The investigation that Adv Budlender was doing was on behalf of Trillian. The questions that he had related to information which was confidential between McKinsey and our clients and that I understand caused severe consternation internally about how we should cooperate with an investigation without our clients’ consent. Having said that, we should have met with Adv Budlender and we should have had a conversation with him to explain these matters. And I am embarrassed that we did not do that and I have apologised to Adv Budlender for the way in which we worked with him.

Adv Vanara: On the turnaround programme, I see that you have personal points that you want to clarify to the Committee. Can we deal with those?

Dr Fine: Of course. First of all, I want to state that the letter of 9 February that Adv Budlender sent through was not a letter that I was aware of nor my colleagues were aware of, when it was released. The at-risk arrangement, and these are my own personal views, based on what I have seen around the world, and also my personal views of what has been put in the press. I think, first of all, I was not party to negotiation of the at-risk arrangement on the turnaround programme, but in order to prepare myself for this parliamentary inquiry, I did go in and see if McKinsey offered value and based on the information I was given, I felt that value was added on this turnaround programme and that it was audited by Oliver Wyman. However, in my view, we should have had a fee structure that was capped. The total fees in absolute terms are a high number and when I reflect on what’s in the media on the capacity of Eskom’s management, in terms of the breadth and depth of its management, the idea that Eskom could absorb that much change that quickly is obviously a question for me. The third thing that I would say is that, as a South Africa citizen I ask if those benefits were there, why then has the price of electricity gone up and the liquidity position of Eskom deteriorated? And that is something I reflect on. And that is also a question to Eskom. If all these benefits were delivered, was McKinsey working on the wrong problem? And that is a question that we debated internally. If the issues were liquidity and balance sheet and we were working on operations, were we working on the right issue is a question that I am reflecting on a lot. And as a public sector person, working with my colleagues globally, we are spending quite a lot of time, reflecting on how to think about these arrangements because, the other factor that is not clear to the public, is exactly how were these benefits measured and how do citizens in South Africa have comfort that benefits were derived, and the way the contract is structured is not clear to South Africans. And so, with the benefit of hindsight, of course, we would structure the contract differently with clear gates so that it would give to South African citizens, for a contract of this size, the comfort that the benefits were actually delivered. That the change was actually absorbed and embedded by the organisation would be one of the other reflections that I would have on that large contract. It is a large contract and it would be viewed in McKinsey as a large contract. I do have questions about whether Eskom would have had the capacity to absorb that much change.

Adv Vanara: We know that Eskom paid McKinsey in excess of R1 billion for the turnaround programme. What is McKinsey’s position in the light of the recent development, in the light of the issues you raised, in the light of the price of electricity having gone up?

Dr Fine: So, the first thing is that McKinsey does not want any tainted money and McKinsey may be vague but we do not want tainted money. Our understanding is that we went into a relationship with Eskom in good faith. We entered that relationship. They gave us verbal confirmation that they had National Treasury approval. That is in Steering Committee Minutes, which we have in our possession. They did not get that approval. They have obviously written to us to ask for the money back. McKinsey does not want tainted money so if the court decides that the McKinsey contract was valid, and McKinsey is entitled to that payment, McKinsey will still give the money back to South Africa. And it doesn’t matter whether or not the contract was valid, we will give that money back to South Africa and not because there is guilt associated with anything that we have done. I am not aware of anything that we should be guilty of. The reason we will give the money back, even if the court rules that the contract was valid, is that it still didn’t have National Treasury approval. It still didn’t have the requisite approvals in place and therefore we don’t feel that we should keep that money.

Adv Vanara: In South Africa, you would know that people are very poor. Waiting for a court ruling to determine whether or not, you should pay back or not, may be too late. What is stopping you now from returning the money to the state’s coffers?

Dr Fine: What we want is to avoid paying the money twice. So, at the moment, we have received a letter saying that the contract was invalid and we should pay the money. So, do we pay the money to Eskom, or do we pay the money to the South African citizens? Well, that depends on whether the contract is invalid or valid. And one of the appeals that I have to this Committee is to help McKinsey to resolve this impasse. Because we want to pay the money back, we have reserved the money as McKinsey. It is completely separate and we have accounted for it internally, we have discussed it with the global partners, and the only question is who should receive the money and how that money should be delivered? We would certainly find it extremely useful to have the requisite authorities, including Parliament, help us give the money back to South Africa in a way that is lawful and will benefit those citizens that you talk about.

Adv Vanara: Let’s go back to how you … the transitions between Regiments and Trillian where there was a break up and you went with the consultancy services of Trillian. And I’m asking this question because I’m concerned about Eskom. Did you get any resolution passed by the Boards of the two entities and, indeed, this particular component Regiments had foregone to Trillian, and that you could work with Trillian and get paid the fee? The reason for my question is: How did you make sure that Eskom, later on, does not sit with a bill from Trillian, which it pays. Then later on, Regiments comes and says, “But why did you pay Trillian?”

Dr Fine: We did not get a resolution from the board of Regiments. We understood, or perhaps I understood, in my conversations with Vikas Sagar that the separation of the Trillian business out of Regiments was amicable. We did not do that, and it was an omission.

Adv Vanara: You appear to go into associations with individuals not knowing who they are. But there was this relationship, working relationship of Trillian, McKinsey, and there is a letter from McKinsey to Eskom, saying pay Trillian directly on condition that we confirm value for money. I know that the payments made were not consistent with that letter. The question that I am having is: Why did you proceed against your company’s way of doing business, or vetting people that you work with, when you had this relationship?

Dr Fine: Well, there was quite a lot in what you said so, if you don’t mind, I am just going to rewind a little bit, so that the statements are explained. I think that the first is that there was no information at the time that conversations were happening with Mr Wood (that I was aware of, or that I believe McKinsey was aware of) and that there was a relationship between Eric Wood and Salim Essa. The experience that we had had working with Eric Wood, was that he was a straight guy that when we gave him feedback, he resolved issues. So, at least the assumption at the time, was that we were dealing with a bone fide person who had access to investment resources that was going to build this large consulting firm. I did not know, at the time, that Vikas Sagar had a relationship with Salim Essa or that Eric Wood was going to be in partnership with Salim Essa and, from what you see in my statement, it is very clear that as soon as I had any intuition that there was an issue, I acted very forcibly and that McKinsey acted forcibly.

Now, the question is, which was your question, why did you enter into this relationship on the basis that you hadn’t done any due diligence? I would argue that there had been some diligence as there had been a history with this person, Eric Wood, and it had not been a bad history. At the time, because state-owned entities were not part of the risk processes of the public sector, which we have changed now, they didn’t follow the same requirements in vetting Trillian as a supply development partner. The focus of the risk process early on, were the commercial risks of the risk-based contract with Eskom, and not on the partnership risk, which we normally would have picked up through our public sector processes. So, I think that it was one of these policies within McKinsey where this was not subject to the kind of rigour that we would have done in the public sector.

Adv Vanara: I am aware that McKinsey and Co, subsequent to these developments, had instituted an internal investigation. What did that investigation find, and were there any individuals fingered internally for the lapses you alluded to earlier?

Dr Fine: Thank you. I just want to clarify one other point from the previous question, if you wouldn’t mind. I just want to clarify our relationship with Trillian, one has to reflect on that. If you look at the letter which is in Annexure C where we write to Garry Pita and Siyabonga Gama and we express our concerns about issues that would need to be resolved in order for us to partner with Trillian. So, there was no doubt, certainly in my mind that Trillian still had to go through that process, and it was very clear because we told Mr Wood they would have to go through that process. So, it was not done… there was no bad faith. I think McKinsey was very clear on that.

Now to your question on the internal investigation, McKinsey has conducted and is continuing to conduct investigations. We conducted the Norton Rose investigation, which is in the public domain. We, and I initiated and then handed to our Africa colleagues and our general counsel, the external review of all our contracts with Transnet with Regiments, to make sure that they were properly procured, that we delivered value, etc. Both those investigations have been led by our general counsel. I understand that they are attorney privilege, client privilege, and I haven’t seen those reports. We do have a professional conduct committee within McKinsey which met, which reviewed that information, and which took some decisions, two of which you would be aware of. One was the fact that Mr Vikas Sagar left McKinsey, and the second is that one of our partners was sanctioned. That doesn’t mean, by the way, that our investigations have stopped. Of course, we are aware of the concerns that have been raised in the public domain, also by people like Corruption Watch and we have external counsel in the US also reviewing all of the investigations that we have done to make sure that there is no stone left unturned. And, if there is something that needs to be reported, it will be reported to the relevant authorities.

Adv Vanara: I accept that you were not too heavily involved operationally at Eskom. At Transnet, who were the executives that you worked closely with?

Dr Fine: So, the executives at Transnet that I would have worked closely with included Anoj Singh, Garry Pita, Mohamed Mahomedy who at the time was the Head of Group Capital. The four finance people would have been the primary people that I would have interacted with. My colleagues would have interacted with Mr Gama and various executives with Transnet FreightRail and the Port Authority. That would be in the recent time. Of course, historically, I worked extensively with other executives in the previous years when we were doing the project Vulindlela.

Adv Vanara: In Eskom, who were your colleagues who were charged with servicing Eskom?

Dr Fine: There were five colleagues. Mr Vikas Sagar, Dr Alexander Weiss, Mr George Desvaux, Mr Michael Clos, Mr Henri Cavedi.

Adv Vanara: In your interactions with your colleagues at McKinsey, who were they working with at Eskom?

Dr Fine: I know that Dr Weiss and Mr Clos, and a previous colleague, Mr Dawe, have been working with a number of executives. It would have included people in the various capital projects that existed. I don’t know the names because I wasn’t there; but with all the capital projects, they would have worked with previous leaders of Eskom, including Brian Dames, and others. In the more recent time, my understanding is that they worked with Anoj Singh and I don’t know to what extent with Brian Molefe.

Adv Vanara: Who is Vikas Sagar?

Dr Fine: Vikas is an Indian national who came to South Africa first to work with McKinsey in 1997 for two years. He left the firm and came back two years later and has been living in South Africa ever since. At the time that he left McKinsey, he was a senior partner at McKinsey.

Adv Vanara: In all that you have told the Committee of your relationship between McKinsey and Trillian, are there any observations, or things that you know that you did not approve of, that relates to the conduct of Mr Sagar?

Dr Fine: Well, part of the challenge with Mr Sagar is his operating model was to have meetings alone with Anoj Singh and Eric Wood without any McKinsey colleagues present. This was an issue that I raised with him and my other colleague, Dawes, had raised with him. We even had a dinner to discuss this matter and he felt that we were not trusting enough. So, it was very hard for me to know what he was doing in those meetings, and I think that other colleagues of mine had a similar experience because I know that the initial meetings that he had with Mr Molefe at Eskom, were also alone. So, I am not aware of what would have absolutely transpired in that context. I certainly did not know that he had a relationship with, or connection, to Salim Essa. The Gupta-leaks email which relates to 2014 was not known to anyone that I am aware of in McKinsey. The relationship with Salim Essa and the meetings that supposedly happened according to the sworn testimony of Ms Goodson, were never discussed with me, nor were available for anyone to know. And, as you notice in those diary entries in her affidavit, there is nobody else from McKinsey who is present in those meetings, which is consistent with the operating model, so I am not aware of… It is hard for me to answer that there were things that Mr Sagar did while employed with McKinsey that could have been done. It would be pure speculation.

Adv Vanara: You are referring to an email. What was this email? What is its significance?

Dr Fine: The significance of the email is that in August 2014 – it was published in the Gupta Leaks recently – and email was sent by Vikas Sagar from his McKinsey email to his home email and then onto Mr Essa. It had two McKinsey documents attached, one relating to mining of coal and coal-related matters and the second one related to uranium. I have not seen the documents; I have no idea what the basis of those documents was; I haven’t had a conversation with Vikas Sagar for quite some time, and I am not sure that anyone has any understanding as to what the basis of those might be. I have no information as to why he would have sent that email. The reason that it is significant, which is part of your question, is because, by August 2015, Salim Essa was already in the newspaper related to the VR Laser transaction and the locomotive transaction. So, by that time already he was in the newspaper and I would certainly have been concerned if we were working, or had a close relationship, with him at that point in time. So, the significance is that already in 2014, Salim Essa was in the newspaper related to the locomotive transaction and VR Laser. I think it is July 2014 if my recollection is right.

Adv Vanara: Let’s move to the 1 064 locomotives. What do you want to tell the Committee about this strategy?

Dr Fine: Well, I just want to make the Committee aware as I have been requested, in the subpoena, to share the 1 064 locomotives business case that McKinsey helped to prepare with Transnet executives for the procurement of locomotives. The recommendation inside that business case was to spend R38.6 billion and not the R54 billion that I have seen in the press. On the basis of that request, I want to take you through, quickly, the process by which the consortium was created, the work that was done, and the specific recommendations we made, which seemed to be different to the recommendations that were followed. I think that the Committee, should, after they have read the document, and have read the submission, then they should have a conversation with Transnet to get clarity.

So, the first thing that I wanted to say is that it started off as a consortium where McKinsey was the prime contractor in the tender that we submitted. It included Letsema Consulting as a supply and development partner but also because they had been involved in various procurement processes at Transnet related to locomotive components, like couplings etc. It included ART and Nedbank because some work was going to be done about how the funding and structuring was going to be done for these locomotive transactions. A company called Advanced Railways Technology (ART), run by David Potter from the UK. He is an ex-British Rail executive. He has worked extensively in the rail industry and had worked in South Africa and we needed someone with the technical expertise to debate with and challenge the relevant managers.

There were four workstreams. The first workstream was the business case, which you see in the attachment in Annexure D. It is an extensive document. It is the culmination of many discussions, a lot of work. It projected the potential scenarios of demand in South Africa. It looked at the locomotives that you would need to move that freight around. It looked at a variety of things. It financially modelled what the implications would be and whether it was actually a good thing to do, what the benefit of efficiencies might be if Transnet implemented efficiencies etc. The second was obviously a very complicated process that would have to be managed and that was the Programme Management which Letsema was supposed to do. Nedbank and WeberWentzel were involved with McKinsey in a workstream called the Transaction Advisory part, which was going to be the final procurement part of the transaction. And, as I said ART and McKinsey were going to make sure that the technical assessment and challenges were in place.

As I said earlier, the first thing that happened was a conflict of interest was raised, and there were a few. The first one was with Letsema working with GE and potentially a bidder, and so we considered working with Regiments. The second thing was that Nedbank, as I understand it, wanted to participate in the fundraising part after the contract was completed and therefore wanted to withdraw from the consortium, and Regiments had all their modelling skills and derivatives experience – which I’ll get to in a moment. And so, the consortium changed to be McKinsey with Regiments and ART which was the consortium that actually did the work.

The work proceeded according to the timelines for the business case. It worked very well and the executives were engaged in the case and debated discussions and gave inputs, which were taken into account. There was a proper governance structure in place with a regular steering committee which was chaired by Brian Molefe, if I recall correctly, and also included Siyabonga Gama and Anoj Singh. That led to a business casebeing concluded and submitted to the Board. The document in the annexure is the document as it left McKinsey and our understanding was that it was the document that went to the Transnet Board and was signed off on and went into the subsequent approvals that would have to been sought from the Department of Public Enterprises, amongst others. The timelines thereafter drifted. The internal Transnet timelines drifted so that the work was supposed to be started in early 2013. It was supposed to be concluded by October 2013 when the tender would have been awarded to the successful bidders. The internal processes were delayed. There were delays in getting the relevant Board approvals and technical approvals. There was a process which Transnet had to vet and look at the potential suppliers in terms of their technical competence and their ability to deliver, their BBBEE etc. McKinsey was not part of that and there were other approvals that had to be sourced from the Ministers involved, which I assume would have involved the Department of Public Enterprise and National Treasury, given the size of the transaction.

Given that historically we had had experience where Transnet took time to wrap up and provide the necessary information in time, and given that they wanted to accelerate the procurement to January 2014, we wrote a letter, which isn’t attached in our annexure, on 31 January expressing our concerns and we wanted some information otherwise we couldn’t do the work. On 4 February 2014, we withdrew from that part of the work as we were not getting the data and we felt that the timeline was too short in order for us to add value and discuss a transaction of this size. It was a very heated discussion in McKinsey but we felt that we should withdraw from that part of the work as there was not sufficient time to apply our minds. The work was handed over to Regiments.

I want to be very explicit about the recommendations that are in that business casewhich seems to be different from what was concluded at the end of the negotiation with the four locomotive suppliers, CSR, CNR, GE and I can’t remember the fourth at the moment. The first thing was, when we assessed this, it was absolutely necessary for Transnet to buy locomotives. That was not under debate and when you looked at the age of the locomotives and you projected out to 2022, there was going to be, in our view, a 59% shortfall between the locomotives that were needed and the freight volume. Now you could say that the volumes went down in 2015, etc but there still would have been a substantial shortfall of locomotives, and we confirmed that.

The second thing is we were very explicit that the most sensitive variable in the volume, so in terms of our standard McKinsey practice, as I have said before, our advice was contracting with the supplier had to include flexibility so if the volumes dropped, or if the volumes went up, the arrangement with the suppliers could be adjusted. We were very explicit about that. The third thing was that we looked at the supplier and local content part, and we said, for an increase of 2%, you could do 50% of the work in South Africa and there would be a substantial benefit of about R68 billion to the economy. Whether that is high or low, we could argue, but the fact is that it would be beneficial. In our view, this transaction should cost R38.6 billion, including inflation of 2.2% in the US, 5% in South Africa and it also included the Rand-Dollar adjustments that you see in Annexure D, page 38, and that would be over a seven-year timeframe.

It was over a seven-year timeframe and the transaction was concluded at R54 billion over a three-year timeframe. So, different timeframe, different amount; it was not in line with our recommendations and I think that the Committee should understand those details. Now that you have the details and the documents, you can compare those details against some of the judgements that people made.

We also looked at efficiency and said that you may not need 1 064 locomotives. Or, what we state in my submission, keep the 1 064 locomotives but our estimation in that seven-year timeframe is, you might need only 784 locomotives if you implemented efficiency improvements and other things that are in the business case. Having said that, we also projected forward that Transnet would need between 60 and 80 locomotives per year and on the basis of that, they should still continue with the transaction but have the flexibility on when they actually got to the 1 064. Lastly, we gave very detailed recommendations on the security and governance issues for it to happen and that it was not subject to any issues.

When we heard about the R54 billion price change, we did ask questions as to why the number and timeframe was different and the answer we got back from Mr Singh and Mr Pita, I think it was Mr Pita, at the time, was that they had a different view on the inflation and on the hedging and on the contractual terms and therefore they negotiated a different arrangement. McKinsey was paid R8.4 million, excluding VAT. There is an article by amaBhungane called “How to eat a parastatal chunk by chunk”. The project ballooned from R34 billion to R54 billion and I can’t explain how that happened. We handed over the work on 4 February 2014 and we don’t know how these allegations in the media happened or not. Lastly, it is about something we saw in the press. The OCCRP (Organized Crime and Corruption Reporting Project) article was published on 3 November and is referenced in point 21 on page 15 of my submission, that talks about the complicated investment bank swops and derivatives that were related to inflation on this locomotive transaction. I don’t understand them but there is some press speculation as to whether or not, and how those derivative contracts were structured and what’s embedded in them. The Committee should explore those and see if they have comfort on what was done.

Adv Vanara: As a parting shot, you worked with Regiments very closely. What was their business model in your understanding? How do they go about doing the work?

Dr Fine: How do they go about doing the work? Regiments? Well, it is hard for me to speculate about how they do their work. I can say that they were a supply and development partner of McKinsey. They did credible, real, hard work over the time that they worked with us. This was not what I would call a sham. This was not just, “We give you the 30% and you walk away.” This was hard work with people on the ground. They worked with McKinsey. Of course, they had the benefit of McKinsey brand, expertise and capabilities to draw on. They were comfortable to talk about that. I am told that when Mohamed Bobat left Regiments and went to National Treasury, he talked extensively about the work with McKinsey at Transnet, I am told. I also understand that because they have these other parts to their business, a property portfolio, they have investment banking skills and understand how to do the currency swops. Am I answering your question? I assume that is how one would have to think about it.

Adv Vanara: No further questions

Questions from the Committee
Dr Luyenge: Thank you for your input to the Portfolio Committee on a number of aspects taking place in the SoEs and the information that is in the public domain is that there is deliberate looting by the SoEs of the country. So, these SoEs are actually the sources of such. In what you have presented to use, what would be your say around that?

Dr Fine: Are we going to go one-by-one, or do you want … OK. One by one. I think that that would be speculation. I think that the quality of journalism that we have seen in the last couple of years, particularly from the likes of amaBhungane and Daily Maverick, has been excellent. It has been detailed. I think that it lays out quite clearly a hypothesis, a possibility and there are three parts to this, and this is in the media so, this is what the media said, I think this is what the Committee needs to get comfort on, that first of all, there is a governance structure that may or may not have been compromised and that includes from the Boards all the way down into the various executives; that there are in some cases, companies that get set up with very complicated structures that look legitimate but behind are moving money, legitimate money out into other locations. They partner then with a legitimate company that has a brand, a strong brand, and they do potentially real work but the benefits of that work then move outwards. And on top of that, as I mentioned in my submission, the recent article on 3 November in the OCCRP around derivatives and Treasury-related matters. These are all in the press. I think the model has been laid out in the press and I would encourage the Committee to probe those four areas and confirm whether or not that hypothetical model is the model or not.

Dr Luyenge: The ballooning of figures from R38.6 billion to R54 billion, and another one from R36 billion to R200 billion, how then do you present a case where such is happening? You as a representative of McKinsey, as a company with all the expertise, how do you view that in the operation of an SoE, whose responsibility (and in your belief, there is a common view between you two) to the developmental state of South Africa, will be best achieved through that?

Dr Fine: I can’t answer the question of how the R38.6 billion goes to R54 billion or how R35 billion goes to R200 billion. I can say that I am surprised and concerned about that because the basis of the locomotive business case was thorough and conservative. It looked at a number of factors in great detail. I stand by that work as good work that McKinsey did on the business case. How it goes from R38.6 billion to R54 billion, and instead of over seven years, over three years, is exactly the question that I think needs to be asked. When we asked the question, we were told by management, first of all, it was a confidential process because these procurement things are, but that’s fine, so I haven’t seen all the details, but we were told that based on a set of considerations, they got a different outcome. When I read the press articles, it does make me ask questions, but these are the questions best put to Transnet.

Dr Luyenge: The role of Transnet working with McKinsey and Letsema, would you think that you did achieve your goal as McKinsey in how financial management and decision-making was taking place? There is a Moodley that you spoke about. Do you remember the name of Moodley’s company or the first name of the Moodley because I believe this is a Sammy? Were you ever invited to the Gupta wedding, which I believe, if the emails are anything to go by? Did you receive an invitation? Did you attend? If you did not, what was the reason? Do you smell any rat behind all these as they relate to the Gupta family? What actually made you  suspicious? And do you believe the decision by McKinsey to pay back the money is justified? And let me advise and appreciate that view that you want to pay back, that it must not, and I will lobby this Committee, that it must not be paid to consultancies. These consulting companies have done damage, and damaging the whole name of consulting work, which is an expertise that is highly needed. Now, in the rural areas, in my place there as a rural boy from Gxididi, you know that people are hungry there and that single billion, if this Committee says take that billion to Gxididi so that it can benefit the poorest of the poor, what would you say?

Dr Fine: OK. There were quite a few questions so I’ll go one by one. I am very proud of the work done by McKinsey at Transnet. I am very proud of the fact that we took a small consultancy firm, Letsema, and invested in them. We gave them resources, we gave them training, we gave them access to resumes of people that perhaps did not fit with McKinsey’s profile that they should consider. We had… I personally engaged many times in robust discussions with the leadership there and at the end it was a high performing, substantially larger firm and it could compete with McKinsey. Was it painful when it competed with McKinsey? Yes, it was painful, but, for me, that was the test of supply development. It passed the test of supply development and I am proud of it, personally.

Kuben Moodley is the Moodley that I am referring to and Albatime is the company as I understand it in the press. By the way, I just want to say that that is based on my recollection, so if it is incorrect, you must just tell me.

I was invited to the Gupta wedding. I was invited to the Gupta wedding, as I understand it, but this is pure speculation, because I led the South African office at the time. I received a big box. It was a big thing with lots of jars inside but I did not go to the wedding. I do not know the Guptas and I have never met them. I did not go to the wedding.

Smelling a rat, and what makes you so suspicious? What made me so suspicious? McKinsey is a firm, in my view, and I don’t want this to come across as glib or trite, McKinsey is a firm that doesn’t make decisions based only on commercial decisions. I have been involved in situations where McKinsey has walked away from contracts, substantial contracts because they were not aligned with our values. The fact that we would be associated in any way whatsoever, with what was being reported in the press at the time, that the Guptas were benefitting from contracts. This is what was reported in the press, that in some way they had undue influence as reported in the press. That they had a relationship with Salim Essa was reported in the press. The fact that McKinsey would be within a mile of anything that could affect our reputation which had been hard earned in South Africa and I have been responsible for building the company in South Africa, and it has been hard earned, and that is why I get emotional about these things, very emotional. That is the basis by which got anxious and the basis by which I got emotional, and the basis on which I went into my super investigation mode.

Why pay back the money? We are not paying back the money because we think that we have done anything wrong. I just want to be quite explicit. We went into a relationship with Eskom in good faith. They said that they had the requisite approvals, all those sorts of things. We invested in good faith, upfront. At one point in time, as I say in the document, we had 108 consultants on the ground and another group of people which took it up to almost 138 people, before we even had a contract in place. So, you can therefore say, “Did you know that you were going to get a contract?” and I can tell you that in McKinsey there was concern that we would not. So, we went in with good faith and they told us that they had the National Treasury approvals for the risk arrangement. The fact that they didn’t is why we don’t want the money. Now to the question of how to apply the money, I think that that is where we as McKinsey need help and this is where I appeal to Parliament: i) To get resolution with Eskom and we can also try and trigger that to resolve whether or not the money has to go back to Eskom because the contract was invalid. As I state now, I think that the contract is valid because we did real work and something was done. But we will give back the money. Now the question is how Parliament can help us resolve that impasse and find a productive way to deploy that money. If, and the requisite authorities say give the money to your constituency, if that is the decision of Parliament, then that is the decision that we will abide by.

Dr Luyenge: I am running out of my time. The Market Demand Strategy at Transnet and during the era of Mr Brian Molefe. How long was the duration of the contract that McKinsey had, and within that period, what would you say in pursuance of his duties, Mr Molefe, as a CEO, at the time – how did he manage the processes? Do you believe that he is Mr Fix-it because on his arrival at Transnet, there was commendable improvement and the Market Demand strategy was actually one of the methods that was used and also, on his arrival, there was some improvement? Was it real or was it a fake?

Dr Fine: I met Brian Molefe very few times. Once we were sitting on a joint panel in Tokyo. We were at one social event where I said, “Hello,” but I didn’t get involved with Brian and watch him in executive meetings. I do understand that he was an active participant in the Locomotive Steering Committee and colleagues who were thee told me that he took those discussions very seriously and pushed the relevant executives hard to get to the business case that you see in the document. But I certainly think if I look at the work that we were doing with Transnet, they were highly committed managers at Transnet where real impact happened and that this is an organisation that has done good work. If I take, for example, the coal line, the coal line improved its throughput by almost 1.5 million tons a week, which is about R8 billion to Transnet’s bottom line when I was there. I have talked about the capitalisation to optimise the portfolio where the executive team did make decisions to either remove projects, or defer projects. And those were not easy decisions. If you take the Durban Dig-out decision – that was not an easy decision to take, and political debate to have, but they were prepared to take that decision to defer that project for a period of time because there were other operational improvements that would happen. So, if you said to me, did I feel that the organisation had clear numbers, had a management system in place that they were managing themselves to those numbers, that they took these performance objectives seriously, and tried to deliver on them, I think that the answer is, yes.

Ms N Mazzone (DA): Chair, South Africa operates under the Prevention and Combating of Corrupt Activities Act and it is an Act specifically in place so that South African money is kept safe and that illicit transactions don’t happen. To our witness, Mr Fine, I find it disturbing that you yourself find that the money that you have is tainted and that McKinsey would pay the money back, regardless of what a court finds, because you don’t want any association with anything tainted. Would you, as McKinsey, be laying charges against anyone according to the Prevention and Combating of Corrupt Activities Act?

Dr Fine: I want to be clear on what I mean by tainted. This is money that South Africa is uncomfortable with because we received the money, whether we did the right work or not, without National Treasury approval. I am not aware that this money was, in any way, involved in corruption, that any payments were made to get this work or do this work in any way whatsoever. I have a high bar for what I mean is tainted. However, in answer to your second question, those investigations are ongoing. I have not heard anything at this point in time that would make me concerned or that I have been made aware of an illegality that has to be reported. But I have, before coming to this Committee, written to my colleagues, I have written to my legal counsel and I spoke to them again yesterday and I said that I was going into this Committee and I want to have comfort that if anything comes out of these investigations, that we will report them to the relevant authorities and they have given me the assurance that they would do that. There is nothing at this moment that would give me a concern that that won’t happen.

Ms Mazzone: In the Geoff Budlender Report, now colloquially known as the Budlender Report, I am sure that you will agree that his finding against McKinsey is damning and he classifies many of the deals as scams, which you yourself have spoken against. Then there was a leaked document from an ex-employee, someone who was suspended by McKinsey, in which they noted McKinsey’s risk of being criticised for exorbitant fees and that McKinsey’s mistake was short-lived, and less blatant, but wrong nevertheless because nine months’ work resulted in $73 million and there was an anticipated $370 million income over a period of four years. Now, here’s where my problems come in. Eskom accounted, and accounts for at least, half of McKinsey’s income in South Africa, your South African revenue. Now McKinsey instructed Eskom to pay Gupta-linked companies described by McKinsey as sub-contractors for work never performed. But I find it almost disingenuous that you say that you had no idea that Salim Essa was involved, and that when you were dealing with Clive (Eric) Wood that you did not know that he had involvements in all of these companies because you yourself have told us that you googled, and that you google quite frequently. Now I just happened to google Clive, sorry Eric, Wood and the first things that came up are his associations with Homix, which is a letterbox company which could possibly have laundered millions of Rand for companies doing business with Gupta companies, so I find it strange that a company the size and importance of McKinsey would not have done this kind of due diligence immediately. While I accept the fact that you say when it came to your attention, you started this investigation, but surely your colleagues should have done this before there was a leaked letter which is now known as the Sagar leaked letter. I find it a very difficult pill to swallow that this kind of due diligence isn’t done as I say. Salim Essa has a 60% stake in Trillian. It is not a small stake. It is a huge stake. And I find it hard to understand that a department of McKinsey would not have seen this and how the London office is now stepping in and doing the investigation. In the Gupta Leaks, there is documentation that as far back as 2015, in fact, some of the documentation suggests as far back as 2013, your South African offices wrote to your America offices and said that there were problems here. What is your take on that?

Dr Fine: There is quite a lot of ground to cover so I’ll start with the question of Budlender and I have not seen a scam or a sham. I can tell you that in the supply and development relationships that I have been involved in and worked on, those have been serious efforts. There were serious projects done with serious work. The fact that we actually wrote to Regiments with our concerns about Niven Pillay at the time, the fact that there were external attempts to come and help fix up our relationship, the fact that we had regular meetings with them to manage their people, is not a sham. A sham is where you say to people, “Take your 30% and go but don’t bother me and don’t make any effort.” McKinsey made an effort. I made an effort, my colleagues made an effort in these relationships. They were not a sham. I am also aware of the statement of Mr Jüngling, and I referred to it, that talks about Trillian, saying “Take your 30% and go.” I don’t know if he made that statement or not. All I can tell you is that is not a statement that is coherent with McKinsey’s values. It is an unacceptable statement. It is a statement that made South Africans angry, and you can hear by the pace of my tone, that it makes me really, really angry, and I think if I was sitting with Mr Jüngling today, and if he was still in McKinsey, we would be having a very difficult discussion. So, there is absolutely no doubt in my mind that it was not a sham, this was not a scam and that his comments were completely out of any realm in what McKinsey would do, and that I have confidence in.

On the letter that instructed. That is being reviewed by McKinsey Legal, it is being reviewed by Eskom’s legal. That letter did not instruct. That letter said, “Subject to certain things that you confirm yourself, Eskom, you should consider payment.” We did not know about that letter until Adv Budlender’s review. That the letter was not disclosed. And just to explain to you the level of disclosure that I would have expected. I sat in a meeting at National Treasury on 31 May where McKinsey, myself, Head of the Africa Office, and one other colleague went to talk to National Treasury about our history with Regiments and why we terminated this. We went and had that meeting. Mr Sagar went to that meeting. Even in that process that letter was not disclosed and I can’t explain to you why someone would not have disclosed it. Even at that point in time, there was no information that Regiments was in any way linked, in my mind, to Salim Essa.

If you googled Eric Wood today, you may find that. If you had googled Eric Wood in late 2015, you would not have found that. I can tell you that I personally dug into this thing with a very, very sharp shovel. And I’ll give you an example, because if you look at Ms Goodson’s testimony and her affidavit, in the tender is a corporate structure and in that corporate structure is the Yusef Family Trust 60%. So, the only question I have is that if Salim Essa is 60% and the Yusef Family Trust 60% - well, you can’t have 120% shareholding so the one must be equal to the other, but at no time when I was in discussions was it clear that the Yusef Family Trust or Salim Essa was linked to this entity, from my own personal perspective, and I promise you I applied my mind very, very hard to this matter.

This is not a London-based initiative. I was requested to come and testify as I used to lead the public sector in South Africa and that was the basis. The Africa Office was very involved in looking into these matters, as are others. Of course, McKinsey is taking this very, very seriously. Of course, a number of people are spending a great deal of time looking at this and making sure that we are 100% clear on the facts, and being transparent, and I hope that the submission that I made today is detailed, thorough and gives you comfort that we are not trying to hide something here, and I am not trying to hide something.

On exorbitant fees, a few things, everyone talks about nine months. I am not saying that helps, but for the record, it was not nine months, but 11 months. I just want record that. And, by the way, I made an error earlier on, Mr Arwedi was not involved in Eskom. I apologise for that. That was my recollection. But on exorbitant fees issue, I said that, in retrospect… So, first of all, I did not know about the size of that number. The number is large. I am not going to deny that it is large. What worries me more in retrospect, and I look at the performance of Eskom, firstly, were we working on the right issues? Was Eskom using us in the right way and on the right topics because liquidity is compromised and the numbers have gone up? Number 2, I think that resources on the ground, I don’t think that Eskom could absorb that amount of change. I am not going to sit here and defend that number. I think that number is large. It was a number that if it had come into the public domain was concerning. I think, and this is the last thing, that if we had much stronger governance in place to give the South African citizens comfort, that the way we could been paid, could have been directly linked to value for money, delivered initiatives in the bottom line and that we would have governed that process in a different way in retrospect.

Ms Mazzone: I am pushed for time as we only have a limited time in which we can ask you questions. In March 2016, Salim Essa was the majority shareholder of Trillian. What concerns me, is that only after the Sagar letter was leaked in July 2016, did an investigation start. That is four months after. Is there an explanation for the four months delay before the investigation started because employees who have now been suspended are leaking documents to the media, especially in Europe, saying that they were specifically suspended because they have now come out openly and said that they had alerted that there had been Gupta-linked ties and it took a four-month period for the investigation to start?

Dr Fine: First of all, I have heard about the allegations that that information had been leaked by a colleague and I can’t answer that question. I certainly can say the following: that over the course of 2016, I did raise concerns as the situation was unfolding in South Africa, as the press articles came to light, as the Thuli Madonsela Report was released about our association, not only with Trillian, but with some of the people that were named in that Report. I know, and I have evidence, that my colleagues did write, did engage and did apparently have discussions about this last year. I can’t explain why the pace of that investigation was so slow. I have said in my submission that we should have started the investigation much earlier. I certainly wish we had because we would have been able to answer Budlender’s requests or statements in a few days instead of a few months. I don’t think that there was any mal-intent but I think that in McKinsey, it is a partnership, and we have robust and difficult debates that go back and forth and are messy before they get resolved.

Ms Mazzone: Brian Molefe and Anoj Singh were at Transnet together and then they left together and went to Eskom together. McKinsey had done work with Transnet and Molefe; McKinsey then does work with Brian Molefe and Anoj Singh at Eskom. Do you see a pattern that I am seeing?

Dr Fine: I don’t see the pattern that you are seeing because McKinsey had been working at Transnet from 2005 until today, and we have before been working at Eskom from 2005 until today. We worked before Molefe arrived at Eskom. We worked with multiple executives on multiple topics. We worked at Transnet with multiple executives on multiple topics. The fact that Brian moved across there – I don’t think there is a pattern. Certainly, Vikas Sagar had a close working relationship with Anoj Singh at Transnet and a close working relationship with Anoj Singh at Eskom and that is all I can say. It is not like there is a pattern. It is not like McKinsey moved around with Anoj Singh and Brian Molefe because as I said before that, we didn’t work with Brian Molefe.

I want to talk a little about Anoj for a second because I can tell you that I met Anoj at Vulindlela. He worked for a very, very capable CFO, Chris Wells, some of the Committee Members here may have met him. He was hired as a competent guy from a competent and well-regarded auditing firm. I think it was either Deloitte or KPMG. He never struck me when I worked with him, when he worked with Chris Wells, he never struck me as a person who had any nefarious or concerning objectives to me, at the time. How that may have evolved and what perspective you get, that is up to you. But there was no pattern between McKinsey and Anoj Singh and Brian Molefe.

Ms Mazzone: My last question. I want to say that I find it deeply disturbing, deeply disturbing, and I am on record as saying it, that you were invited to the Gupta wedding. Now while I understand that Sun City is a big place and accommodates a lot of people, I wasn’t invited to the Gupta wedding. Plenty of people here were not invited to the Gupta wedding. Why were you invited to the Gupta wedding?

Dr Fine: I have no idea why I was invited to the Gupta wedding and I want to state categorically that I have never met the Guptas. I’ve never met Salim Essa; I’ve never met Clive Angel, Mark Pamensky or any of these people, Moodley, etc and the people referred to in the press. I have no idea why I was invited and the only rationale, and it is the reason that I could imagine, and that was because, at the time, I led the McKinsey practice in South Africa. I have no idea why I received the invite and I did not go to the wedding. That is the truth and there is nothing else I can say. I have no idea why I was invited to the Gupta wedding, but if you apply that approach to the entire spreadsheet, which I have seen, which is an extensive spreadsheet, there were lots of people who were invited to the Gupta wedding. I have no idea why I was invited to the wedding.

Mr E Marais (DA): I have only two short questions, Mr Fine. For the record purposes, I would like you to state the amount that you categorically stated previously that McKinsey is willing to pay back if needed. For the record, what is the amount that we are talking about in this whole conversation, either to Eskom, although I would prefer it must go back to the Treasury? What is the amount that we are talking about here?

Dr Fine: The amount we are talking about is the R1 billion that McKinsey was paid by Eskom, for as I understand it, the MSA contract. The amount is R1 billion.

Mr Marais: I just want to have it on record. That is why I am asking you. The second question that I want to ask you: Now, currently, do you have any outstanding business with one, Transnet or two, Eskom. And what is it for?

Dr Fine: My understanding is that the last project we did for Transnet was in April 2016. I cannot answer the question on Eskom. I don’t think we’re doing any work. In fact, I know that we are not doing any work at Eskom because McKinsey has taken a decision in principle not to work with Eskom for a period of time until we have comfort that the governance processes are in place that allow us to do that, if I recall correctly, but this is coming from the deep recesses of my brain.

Chairperson: Thank you for saving time, Mr Marais.

Mr P Gordhan (ANC): Thank you, Dr Fine, for your testimony and your frankness. Tell us a little more about Mr Sagar. Why did Sagar leave McKinsey? If everything that had been done, and McKinsey had done, was honourable, so to speak, why did he leave?

Dr Fine: We have a professional conduct committee that does a review, so I don’t know what goes into that review and on what basis decisions are made. I do think that the material issue with Mr Sagar is that he did not disclose any connection or relationship with Mr Essa, going back to 2014. It is unclear, to me, and he denied to me, and he denied to others, that he had a relationship with Salim Essa. But I was not part of that professional conduct review. I understand that they looked at all the testimony that had been provided as part of our legal review; they looked at all the letters and emails; they interviewed all the members of both the McKinsey Transnet leadership team and the McKinsey Eskom leadership team. On the basis of that and other considerations they took the decision.

Mr Gordhan: Let me link that to my second question. Firms like McKinsey, KPMG, some legal firms more recently in other matters that are relevant as well, tend to, and these are international firms, treat the South African situation scantily and poorly. Secondly, they duck behind legalese and obfuscation. Thirdly, they show no leadership at all in terms of telling us who is behind a statement which says ‘we are very sorry’ - but there is no face behind that. They tend to hide themselves. Is this because they are particularly shy, or particularly arrogant, South Africa being a small contributor to the international revenue that they might well be gathering. And it is an observation that a number of people are making about the way in which these big firms behave. Even the McKinsey statement, at the outset, did not have any leadership figure who was mentioned, to say that, “I take responsibility,”

Dr Fine: There were a lot of statements and I was wondering what the question was, and maybe if you could just clarify that.

Mr Gordhan: Why is there this tendency for your international senior people not being prepared to come to the country, be seen as the face of the company, and face the South African public and tell us what is truthful and what is not, what they are apologising for, and what they stand for?

Dr Fine: Firstly, I hope that you are getting some confidence from the fact that I am standing in front of the South African public.

Mr Gordhan interjected: But you are a South African.

Dr Fine: I will also say there have been many of my international colleagues who have been spending an enormous amount of time in South Africa and were taking the matter very seriously. I’ll come to answer your question.

Mr Gordhan interjected: That is in the best tradition that we used to have in the underground in South Africa.

Dr Fine: I think that this is not a situation that McKinsey is used to and deals with frequently. This is, obviously, also part of a political debate, or a political narrative, which is not that the firm is not comfortable to do. We are not a firm that is in the press, and we are not a firm that is comfortable in the press. And I think part of the situation that you are having, is inexperience in a situation like this. It is a very difficult situation. I can tell you internally the extent of the discussion and the debate is very deep, very wide. We had our senior partner meeting a few weeks ago. This was a topic of open discussion and it was not hidden behind an obfuscated wall. It was a very open discussion with deep reflection happening by McKinsey. We do not see South Africa as irrelevant or small or any of those things. We see South Africa as important and important to the firm. We’ve had a commitment to Africa and a commitment to South Africa. We committed globally our personal reputation as McKinsey that Africa is a place we are actually excited about.

Mr Gordhan: I understand all that.

Dr Fine: And so, South Africa is a key, the anchor point of that. But I don’t want to undermine, South Africa is not irrelevant, it is highly relevant and important. I don’t think that we had all the facts at hand, and I think we should have. It comes back to the question earlier: why didn’t you investigate this in more detail earlier, and I think that is a valid question, and as a consequence, we were caught up in a situation where we were trying to gather information and be transparent at the same time to the South African public without the right information, and, as a conservative firm, that does not want to make statements that are incorrect. I think that is the experience that you would have received. I will also say, though, that we get mixed together with other companies, McKinsey, KPMG and all. We have never worked with a Gupta company, we have never served a Gupta company. The closest connection here is Trillian that may have a connection, that may have an ownership, that we did not know at the time because we did not have disclosed information. I am not saying, therefore, that I am proud, I am not saying, therefore, that I am comfortable, I am not saying that we should be as an institution. What I am saying is we were not involved in auditing weddings and moving money and all these kind of things, but we are associated with this and it is terribly embarrassing.

Mr Gordhan: Sorry, because of shortage of time, if you don’t mind I am going to interrupt you. The third is related to what you have just said. You very cautiously say “may be” but if you sit back and now have the opportunity to connect the dots, it is fascinating, is it not, that the names, Wood, Bobat, Essa, Gupta etc., arise in this context so there is no doubt Trillian, the 60% ownership by Mr Essa, his role in the Gupta empire and schemes and the idea that we are, in fact, subject to state capture in South Africa. But yet you are very cautious about how you approach this.

Dr Fine: I am cautious because there is what I know, fact-based, and what I see and read. What I see and read sounds plausible. I am not trying to be cute or obfuscate. It is true that Wood and Essa and Gupta come up in multiple places, and you see that in the newspaper and you see that in Transnet, Eskom and other entities. There was nothing that I have read that made me say that it did not sound right, but is purely based on the reading and investigation that we have done. I really can’t… If you said to me that is the work of the Committee important to get to the bottom of this, to confirm the various component, and if the testimony of David Fine is part of that, giving you information that adds extra dots so that the dots get closer and you can draw the lines, and that is good, then I say fine, that is good, but that is what I am hoping the Committee is going to do.

Mr Gordhan: Well, you are the consultant. We’ll come back to that.

Chairperson: I can see that Members are rushing. You will observe that I have given the first two speakers beyond 10 minutes to 13 something, and Mr Marais has saved me some, thank you for that. It is because there is an indication that we can continue as long as we report to the House that we are continuing. We have been given the green light, so Members I will allow you, unless you are having other commitments. Shall we proceed? Whoever has a commitment can just sneak out and come back when it is possible. You can proceed, Mr Gordhan.

Mr Gordhan: In the documentation, Mr Bobat’s name appears, as you correctly point out, in the Regiments context and then as a so-called advisor to Mr van Rooyen. What else do you know about Mr Bobat that might be relevant to our inquiry?

Dr Fine: Mohamed Bobat worked with Regiments at Transnet. He was one of the leaders who was on the project we were on. He was a capable person who worked hard. The feedback that I had from other colleagues was that he was a serious person who had deep expertise. He was also ex-Investec, as I understand it, as was Mr Wood ex-Investec, and I assumed that that was how he ended up at Regiments. What I found curious was, and I remember the day very well. We used to have a regular Friday meeting with all the group executives at Transnet to review the work that we were doing, which Mohamed Bobat used to attend on behalf of Regiments, with Eric Wood, as I would and other colleagues of mine from McKinsey, including Mr Sagar and others. It was always a robust discussion to see if there had been progress. I remember arriving at one of these and saying, “Where is Mohamed Bobat?” and Eric Wood said that he was Mr van Rooyen’s advisor. This must have been, I guess, after 12 December 2015. It was in that sort of timeframe.

Mr Gordhan: 9th December.

Dr Fine: 9 December. Apologies. And it must have been the last meeting we had and I remember saying, “Wow! That really strange.” I didn’t, therefore, make any connect to the Guptas at that moment in time. A couple of weeks earlier, I was at a 40th party with an ex-colleague of mine from a company who had been working with Regiments – they were subcontracted to Regiments. I said to him, “Is Regiments okay?” Have you noticed anything that I should be worried about, or concerned about?” So, I did not make the connection between Mr Bobat and that move and the Guptas until January 2016. You may say, “You are a very naïve guy, David Fine,” and I will take that as criticism, but at that moment in time, I did not know and as soon as, let me call it, the January timeframe arrived and the questions arose about Mr Bobat and Mr van Rooyen and then the Africa Confidential piece, then I got very concerned.

I don’t know much about his history but he was a hardworking guy at the time, and it wasn’t obvious to me that he was the networked guy in the network system.

Mr Gordhan: Transnet is a multi-billion entity, as is Eskom, and yet they spend, it would appear, billions of Rand on consultants on what are elementary issues: how do you improve the efficiency of the locomotives; how do you increase their availability. I am sure that you agree that those are bread and butter issues for someone who knows how these sorts of entities work. How does one explain to the South African public that billions of Rand were spent on consultants whereas these are basic operational issues that competent people in the entities should be able to do themselves?

Dr Fine: I can’t speak for all consultants. I can speak for McKinsey. As McKinsey, the work that we did was on projects that were difficult, challenging, and I am comfortable where we had impact. If I use your example on availability and reliability, that sounds like a simple thing, but you have to think about it in the context of the system and railway systems are extremely complicated. They are networked systems. There are inter-relationships that happen between when a train arrives and when it leaves; when a customer has a product, and the product isn’t ready and what that does to the overall schedule; if a locomotive breaks down, what are the implications; rail maintenance is done, so that it is done with the right quality, and at the right speed; and how that locomotive is re-commissioned, whether those checks are done and how it is linked up to the various pieces in a distributed system, where you have a system where lots of people…

Mr Gorhan: That is your business and you should know your business.

Dr Fine: I’m just saying that it is not a trivial problem and I can tell you that you may not have comfort but we work with railways around the world, and they come to us for advice, high performing rail companies that do know their work and do great work and they use our analytical expertise, our problem-solving capabilities to make their systems even better. And I have absolute comfort in that. Are there consultants that some state-owned enterprises may use which may not provide the benefits? I am sure. Do I feel like I have been working on projects, where we have not had benefits? Can I explain those? I can.

Mr Gordhan: Last point. I refer to the point that my colleagues made about the so-called inflation of numbers – R38 billion to R54 billion as you pointed out. I think you mentioned that Mr Pita said that they were linked to a) a different set of indicators and b) a different calculation, if you like, of those indicators. Just tell us a little bit more about the rationale, please, and whether they sound credible, since you had worked on the original numbers.

Dr Fine: Let me start with explaining the complexity. With a project of this size, there are obviously a number of parameters. The first one is the price that you agree with the provider and the local content and where different components will be manufactured and how they will be assembled and all those pieces. I think that is relatively straight forward. The second piece we have, and which we have seen in South Africa with a volatile Rand, and where 50% of the components are being sourced internationally and so depend on currency movements, and also on inflation, and those currencies might also include Chinese, because they had in their portfolio Chinese locomotives. Managing those risks and accounting for those is the work of investment banks, and how they hedge those risks is work that investment banks like Regiments would do and I assume that that is the work that they did. My understanding, at least, is that there were a number of these derivatives that were used. There were interest rate derivatives, there were currency derivatives and then you have to raise the funds for these and the cost of funds depends on what you can get in the market. The explanation that was given to us (because it had to be confidential, and to Transnet’s credit, they ran a very confidential process) was because of all these effects, the currency, the inflation costs, blah, blah, blah and how those were structured that the costs ballooned. That is the explanation given when we asked, “How is it possible?” And these are the questions that I think Parliament needs to put to Transnet and understand in detail because what you will see in that annexure is the detail. The detail is all there. What were the expectations on currency, what were the expectations on inflation, were they reasonable, were they not? And so, you should be able to get a very detailed explanation from Transnet, comparing on one side of the page, what was in the business case, and what was on the other side of the page, what were their assumptions that led to a different number.

Mr Gordhan: One point. So, you actually got paid, whatever your fee was, to make amongst other things, this calculation, taking exactly the same indicators into account and offering the same professionalism that an investment bank might have used. You said there were four work streams. So, when we do get Transnet, if we do, you will have to stand on the other side and argue why your calculation was right at the time and Transnet’s wasn’t.

Dr Fine: So, what we did not have in the calculation, is the exact hedging cost, which, if you look in the annexure, the hedging costs were not included in the R38.6 billion but on page 38 of the business case, we give you what assumptions we used for the Rand-Dollar costs over time. So, while we didn’t factor in the cost of hedging, we certainly reflected a decline in the Rand-Dollar, which was factored into the business case.

Mr Gordhan: At the most, what would those hedging costs involve? R1 billion or R50 billion? R1 billion or R16 billion?

Dr Fine: I could not give you a competent answer. My suggestion to the Committee is to get advice from people who are competent on these matters to come and sit and do that comparison and allow the Committee to ask the necessary questions. That would be my advice to the Committee.

Mr T Rawula (EFF) I hope, Chair, with all due respect to Mr David Fine, we are not going to find ourselves in the situation where we are being patronised in anyway. I see that in your statement on page 10 and 11, you indicate a number of regrets and given the fact that you are a global company, I think some of the regrets are petty, for the lack of a better word. For example, you say that you regret that you partnered with Trillian. You regret that you had not insisted that Eskom receive Treasury approval. You also say that you regret having associated with a company that was led by Essa, given his Gupta links. You make quite a number of regrets, which, I think as a reputable global company, could have been arrested in your vetting process of whomever you engage with. That brings me to the point where you can take us through the vetting process with any company that you engage with, because in my view, if you have a comprehensive vetting process, on the basis of the credibility of the company that you are working with, and also the credibility of its own directors, because part of the evidence that the Committee has received, is that Trillian did not have the necessary capacity. In fact, in terms of personnel provision, it had only two employees, which was the CEO and the COO. I want to check with you, given the regrets that you have, what was your own vetting process to determine whether you could do the work with Trillian, given the regrets that you have.

Dr Fine: I want to start, I am not trying to patronise anyone. I came here alone. I don’t have a bench of lawyers. I’m not here with thousands of McKinsey people. I am here alone to stand before this Committee. So, this is not an exercise in patronising anyone. This is something I truly believe in. In answer to your question, first of all, I did ask my colleagues, in preparation for this. I watched the testimony and Ms Goodson said that there were two employees. The two employees were working on setting up the company. They didn’t do any work. So, I said, “How is it possible, therefore, that any work was being done?” The answer that I was given was that there were obviously all these Regiments people that were moving out of Regiments and moving into Trillian. In addition, there was lots of email traffic with lots of email names. I have ascertained, for myself, that there were at least 38 email addresses that had the word “Trillian” in them, so they were doing work, I understand, and I have checked and investigated that part of those were from Cutting Edge, which we know in retrospect, is a Gupta company, and the other one was eGateway, but those were not known to my colleagues at the time because they had a Trillian email address and were part of the people doing real work. So, I hear you and I had the same question, and I am telling you factually on the basis of Goodson’s testimony and my own questions, what I can answer.

On the vetting process, McKinsey has a very strong vetting process, and the process was applied to Trillian, albeit too late. The vetting process that we followed in March using external providers, and these were not just some general external providers, this was an external due diligence. I fed the information, that I gave the Committee earlier, about my investigations and the information from the database that Salim Essa was potentially a shareholder, into the process. I said to the Committee earlier that when I was with Eric Wood and he gave me the names of Makatini, Jimmy Manyi and Clive Angel and Max Yusef, I fed that information into the external due diligence. They gave us a report and we terminated the discussions with Trillian. I also want to be very clear, if you read the letter in the annexure to Garry Pita and Siyabonga Gama in February 23, 2016, it is very clear the concerns and the expectations that we have from Trillian in terms of 1) their beneficial ownership that they had not provided, and 2) the fact that we still didn’t have comfort that we would be working with a black-owned, black-managed, and black management team with this company. We did not misrepresent ourselves to Trillian in that way, whatsoever.

Mr Rawula: OK. Now moving forward, when the news broke out about McKinsey and Trillian milking out Eskom, both McKinsey and Trillian were quiet. None of you came out into the public and engaged in any investigation into those allegations until the media, together with the Public Protector, began to make a noise about the relationship of McKinsey with Eskom and Trillian. So now, because the news is already out, you are willing to pay back the excessive payment of R1 billion. But how are we supposed to trust McKinsey if that is a genuine gesture because we don’t know, other than what was exposed by the media because R1 billion is what has been exposed to have been the excessive payment. However, we don’t know, before that, how much money was received. Can you confirm, besides the R1 billion, how much excessive money has been paid to McKinsey? The R1 billion is what was exposed. It is what is in the public now. Hence, you will be able to pay back. You want to help, so tell us, besides the R1 billion, how much excessive money has been paid to McKinsey?

Dr Fine: I want to reiterate what I said earlier, which was that McKinsey should have done its investigation earlier. There were concerns raised as the media came up with issues. It was not only with Adv Budlender. It is one of the reflections that I have in my notes that I am quite explicit on. We should have acted and investigated more quickly. I can only apologise for that because if we had done that, the answer to the South African public on the day that the Budlender Report was released, would have been clear and concise and I don’t think I would be sitting here today with you.

Having said that, I want to explain the payment again. First of all, I am not aware of any excessive other payments. I want to be clear though. I am not saying, though, that the R1 billion was excessive payment. I am not saying that it wasn’t a large number, and it may not have been the right project to have been done, but it was not the wrong number. In preparation for this Committee, I sat with my colleagues and they gave me comfort that there was value delivered for the money. Having said that, the reason we want to give the money back, is not because we are guilty, but we want to give back the money because Eskom gave us the assurance that National Treasury had approved the contract. Eskom has that in its minutes. It is minuted that they said to McKinsey that they had approval from National Treasury. They did not. They lied. The fact that they did not have approval from National Treasury is the basis by which we will give the money back to South Africa; not because we have done anything illegal in our view or, let me rephrase that: I am not aware that we have done anything illegal. We will give the money back because we do not want money that in any way is tainted. And tainted means, including did not get the requisite approvals from the right people.

Mr Rawula: McKinsey was expected to build capacity to Trillian and that would have been through what was called a master service agreement, which would have included Trillian, Letsema, and the objective of it was supposed to be one of those leading black economic empowerment programmes, and as a result of that Trillian would employ a CEO which was a competent black lady to fit the profile of black economic empowerment, but the lady has led evidence here that 1) she was never involved in any of the negotiation processes. She further confirmed that there was never a master service agreement that was signed. But she had managed to secure the work from McKinsey. Now my question is: there is no agreement and this supposed to be an initiative of black economic empowerment but the agreement is not signed, yet the work is given. Why did the matter not raise alarms with you if there is no agreement, yet you still give the work? And also, the CEO of the company is supposed to fit the profile of black economic empowerment as per the primary objective to build capacity, but also to ensure that you advance the transformation agenda but McKinsey continued to work, despite those gaps. Can you talk to that. How did they secure the work when there were blurring lines in terms of the primary agenda of the agreement?

McKinsey: Chair, as I put in my submission that because I was not involved with Eskom, I never had business meetings with anyone involved in Eskom or this contract, it is very difficult for me to answer that question. But, let me start off by saying that my understanding, at least by the end of 2015, that the objective of Trillian was to create a serious and significant black-owned management consulting firm in South Africa, that Eric would get access to resources to invest, purchase and get other consulting firms, which I think personally, would be a terrific answer and a terrific thing in South Africa. The reason, that, as I explained earlier, I started to raise concerns about Trillian, was because, before the Essa thing came up, it was the ownership issue because it was unclear to me, how Eric Wood, himself, without credible and serious black industrialist people, was going to build the firm. I wanted to know the names. What were the names of these black people that he was going to build this firm with? Who were they? Where were they? How was this all going to work? I was not involved in the negotiation, and I can’t answer that question.

I understand from McKinsey that we do have a signed contract or an MSA. We did not have a relationship with Trillian. We never consummated that relationship with Trillian. There may have been dating but there was no marriage. The fact that Eskom has paid Trillian, is a question that you need to put to Eskom. Eskom has sat here in Parliament and said that they were a supply and development partner of McKinsey, they were not. They said that they have not paid Trillian, they have. I can’t answer the question for you. And, by the way, McKinsey’s modus operandi with Letsema and with Regiments, was always that the client should pay the supply and development partner directly, and not through McKinsey, otherwise McKinsey would unduly benefit from the BEE credits, and we did not want that, we wanted that for the clients’ benefit. So, how Trillian got paid, what they got paid, for what reason, under what contract structure, you need to ask Eskom.

Mr Rawula: That is exactly what I was going to follow up on and I am glad that you have answered that because, indeed, almost R600 million was paid by Eskom to Trillian, despite the fact that there was no contract. The contract was between Eskom and McKinsey. Now, would you agree with me that money was stolen from Eskom by Trillian because if Trillian did not have a contract with Eskom, but Eskom had a contract with yourselves, and under the guise of that contract, Trillian managed to get about R600 million. Would you then agree with me, as a principal of McKinsey, that Trillian has stolen money from Eskom of that magnitude which is almost R600 million?

Dr Fine: I would agree that Trillian and Eskom should be sitting in this chair and answering that question. That is all I can say as I do not know how much work they had done. And I am not trying to avoid it. I think that that question is for those people.

Mr Rawula: My second last question. As I indicated your responsibility was to build capacity to Trillian. Now I have indicated that there were only these two employees and the witness indicated that all her efforts to make advances to McKinsey were ignored. She tried as a CEO that had just joined the company, Trillian, which was supposed to be capacitated by McKinsey, so all the initiatives that she made to ensure that McKinsey was able to relate with Trillian and expose the plans of McKinsey to build that capacity, they were shot down. Now that did not raise alarms with you guys as McKinsey. Now, would you agree with me, that it means that Trillian used a black lady as window dressing in terms of the transformation agenda of South Africa and therefore flouted the legal framework that South Africa has set up to advance its own transformation agenda through a medium called black economic empowerment. And in that process, they have done it under the guise that they are working with you.

Dr Fine: As I said earlier, I have participated in the development of black supply development partners and I am proud of some of those efforts. I am very proud of the work that I did with Letsema and I am proud of the work that we did with, and the investment we made in, some of Regiments’ people. I have read Ms Goodson’s testimony on the interactions that she had with McKinsey, which were deeply concerning to me, in the Budlender Report and which I say in my document are not reflective of our values at all. At all. I want to be very clear. These are not our values. We are a Level One compliant company. McKinsey did not do it by window dressing. We did it by real initiatives within our supply chain, with real initiatives with our people, with real initiatives in South Africa, with real supply development. McKinsey did not do this with window dressing. McKinsey took it seriously, and I was part of saying: “We are doing this because this matters to South Africa, this is important to South Africa to transform the economy.” So, I want to start with that statement. The fact that one of my colleagues, I have only read of one, Mr Jüngling, the way that he behaved with her does not represent the values of McKinsey and that spirit. Whether Trillian was window dressing, whether they felt that they were dealing with a capable person, that is unclear to me. I can just tell you that, as a firm, McKinsey takes this very seriously. We would not be Level One in South Africa if we were just window dressing. We do not do window dressing. I am deeply embarrassed by the statement of the witness on Mr Jüngling. She stated it on the record, and she might not be correct, I am deeply embarrassed by it.

Mr Rawula: You have denied that you met with the Guptas but we have it on good record that your partners have met with Guptas. You yourself have said in your statement that on hindsight, you would have terminated the relationship if you had known about their relationship with the Guptas. But you were invited to the Gupta’s wedding and you say that you declined but the same person who declined says to the same Committee that you accepted a gift from the Guptas, which was a big box that was a gift. Why did you accept the gift and why would the Guptas have the audacity to invite you if you had never met them? I assume that they don’t know you, there is nothing that links you, but they send you an invite. Why were you invited? And why did they give you the gift, and why did you accept the gift?

Dr Fine: First of all, it was not a gift, it was the actual invitation which came in a box. Inside were some bottles with some dried fruit inside. This is not what I would call a gift. This was the invitation – it came in a box. So, you could say why did I accept the invitation because the invitation arrived? I did not accept the invitation because I declined to go to the wedding. Why would they have the audacity to invite me? I don’t know. I have been to many Indians weddings around the world. They tend to be very large affairs with thousands of people invited. Some people are close relatives, some are just people who are known in the community. I want to state categorically: I do not know the Guptas. I don’t know why they invited me. I didn’t accept a gift from the Guptas. I received an invitation to the wedding. Should I have sent the invitation back? I don’t know. It was an invitation I declined. I don’t see that as abnormal behaviour. There is no connection that I am aware of, between myself and the Guptas. If people have other information, let them come forward. I stated that categorically to the press but no one has provided me with any information. I am absolutely comfortable with my statement on this: that I do not know the Guptas, I have no idea why I was invited to the wedding and I declined to go. So that is all I can say.

Mr S Swart (ACDP): Thank you for coming, Dr Fine, thank you for not bringing a bank of lawyers. Obviously, you can understand our discomfort with McKinsey, particularly when one looks at the Budlender Report and one looks at other issues. One of the points that you made was that why McKinsey did not respond to Budlender was that it was information about clients, and you used the plural, but I’ve looked at the questions and most of it related to Trillian itself. If you could explain to me, because you have got Budlender representing Trillian, and asking you about Trillian, why would there have not been a better cooperation? Yes, you have indicated now that you should have cooperated, but looking at that stage, there was a lot, in hindsight is better, clearly there was a lot of information, and keeping it away from a Trillian investigator?

Dr Fine: The letter that you are referring to, was a letter from McKinsey to Eskom. So, it is not correct to say that this was only between, let me call it, Trillian. I am not going to defend McKinsey because we should have met with Budlender and had a conversation and it would have been a reasonable conversation and he is a highly respected advocate who has the highest ethics in this country and we should have just had a meeting and resolved this. I think that one of the other factors that probably came into this discussion, but I wasn’t part of them, at least, by the time the Budlender matter was happening, there was a lot of information that had been put into the public domain by Regiments and Trillian, as part of some court case that they had and was being litigated, or at least there was certainly a lot of press around this, so I am not sure what the considerations were but Mr Budlender is a well-regarded man and we should have met with him and had a reasonable conversation with a highly regarded man. That is all I can say.

Mr Swart: I appreciate that. But that is now with hindsight. But that was now, 29 June this year, with all the information. There was a very clear lack of cooperation, and you have apologised and said there could have been better cooperation and I accept that. However, if you also look at the response of Ms Goodson, and you have reported that Mr Lorenz Jüngling’s comments about the 30% were unacceptable and against all your values. She says in paragraph 106, in response to Mr Jüngling’s comment. “It doesn’t really matter as long as you get your percentage,” that it was in response to her complaint that McKinsey was not engaging with Trillian in the supply and development programme, with the result that Trillian was not receiving the exposure and experience that it required. She reported that a general theme from the McKinsey leadership down was that Trillian was simply a necessary, but an unwanted, piece of baggage in the contract. That is scathing. That is not just by the way. There are two aspects. Firstly, it was very clear that Trillian was a part of the contract and the deal. Not legally, but it was part of the package. Secondly, of course, it was basically, “Get your 30% and we’ll be happy.” To me, it is not only Mr Jüngling that was involved. You obviously were not involved. You said that, but there seems to be leadership as well at McKinsey that had that view. Are you able to comment on that?

Dr Fine: I’m not but there are two additional pieces of information that I have read, and I can’t remember if it was in the press or part of her affidavit. So, one was that Trillian and Ms Goodson participated in steering committee meetings at the client, that there were extensive discussions and she would have participated in them. Secondly, after those comments were made that she raised her concerns, adjustments were made. I can’t explain. What I would say, and I can’t speak because I was not an observer there but there also inconsistencies in some of her testimony, and I am not saying, therefore that her testimony is not correct, but if you look at the letter which is in the annexure here, Annexure F, where we wrote and asked Eric Wood about Mohamed Bobat and his connection to the Africa Confidential article and there is a letter in Appendix F from Ms Goodson which says that there is no connection between Trillian and Bobat at all whatsoever. Yet at the same time, there is additional information that says that Ms Goodson was meeting with Mr Bobat, and Oliver Wyman with Mr van Rooyen. So, I hear you and I am not trying to defend and I am definitely not trying to undermine her testimony, which I think she stated on the record and I have to take it at face value but, at least in my sense, there is more in that than just a simple statement.

Mr Swart: I appreciate that and part of this process is to engage with all evidence that we have received and test that. It doesn’t mean that we accept everything that is said here and that is why those people who have been implicated will be given the opportunity to come and contest what has already been put before us. So, there is no problem with that, and that is helpful. Ms Mothepu, CEO of Trillian Financial Advisory, in her affidavit speaks about the R600 million that was paid to Trillian by Eskom and she is willing to assist Eskom to recover the fees that it paid to Trillian. Now we are very grateful for the fact that McKinsey has offered to pay that R1 billion, and we hope Eskom and ourselves are able to assist National Treasury to finalise that without the use of any more consultants and further fees. That is a massive concession and it’s not made with any acknowledgement of wrong doing. I appreciate that. However, you have the issue of the payment to Trillian where, and it is nothing to do with you, but it just indicates the relationship of McKinsey, Trillian and Eskom where she says of the payments made to Trillian: “I am of the view that these payments were made in contravention of the PFMA and the Companies Act,” Now that’s criminal action, plus civil action “and are therefore unlawful. I do not think that the fees that Eskom paid Trillian were reasonable to the value created as the work performed could have been performed by the Internal Treasury Division of Eskom.” Now I appreciate that Regiments could have done a lot of work but we see that a lot of the work done by Trillian was either done by Regiments or was not done at all, or could have been done by Eskom. Are you able to comment on that at all?

Dr Fine: I am not able to comment on that because I don’t know what work they were doing. Suffice to say from McKinsey’s perspective, I was on the phone with our global counsel last night and said, “I’m coming into this meeting, I want to have comfort that we will continue our investigation and if we uncover issues, that we will file the relevant submissions to the authorities in this regard.” I also tried to find out from colleagues if there was value in the work that McKinsey did, and one always has to be careful because I can always throw out numbers and everyone will say those are big and maybe it was a tenth or whatever, but I got comfort after those discussions that there were benefits that could be measured that would at least explain the fee. I’m not comfortable that Eskom could make the change but I have comfort from what my colleagues have shown me, and it was audited by Oliver Wyman. Whether or not, Trillian’s R600 million was reviewed for what benefit, I can’t answer that question, unfortunately.

Mr Swart: I want to just ask you about a point in your statement, where you talk about the R1 billion fee and you indicate there that you didn’t think that Eskom had the management capacity for the 11-month work. Please check on that page because I don’t want to misunderstand you. In other words, 100-odd consultants were doing work, plus work that would go forward if Eskom management implemented that. And is that what you say under c) “Even though the fees were an agreed percentage of saving, the benefits to Eskom were large.” Are those the benefits in the long-term? Or are you saying that the fee of R1 billion for only 11 months’ work, or was it benefit to Eskom as well? I am misunderstanding you slightly there, because to me, it’s a very exorbitant fee and that’s why you said, “We should have capped the fees structure”. So, I am not so sure that there was value, although an external auditor, Wyman, says it was. But you are saying here, in hindsight, that you should have capped the fee. The benefit going forward, is that captured in that R1 billion or not?

Dr Fine: Well, let me give one example of some of the information that was given to me. The fact that we worked on generation facilities and improved availability meant that R8.4 billion worth of diesel costs which we were burning in 2015, if everyone remembers 2015, were reverted. Now if you ask if I can stand behind it because I have seen it and done the calculations, I haven’t. Half of that or quarter of that, it doesn’t matter, if you compare that to the fee. I can stand here and say that that was benefit and that was one example, and there were others. And I don’t want to go through that because I don’t have comfort at this moment in time. One of the challenges that McKinsey was going through was that because, of the significant resources on the ground, and you can say that was your own choice McKinsey, the way in which we came into the commercial negotiation, was from a very conservative perspective, meaning that we wanted to make sure that we got paid because we had already invested in substantial resources on the ground. The consequence is that the way in which those benefits are measured, as compared to how I would like to see them measured, it is harder to explain to the South African public that one-to-one relationship. So, I would have had, and that is one of my reflections, a much more detailed gate process, where we would have been paid on the flow, from idea to proven, to plan, to income statement. And that was not in place at the time.

Mr Swart: I’d like, in my remaining time, a quick comment on the locomotive action and where you were involved in the process as McKinsey with Transnet, up to a certain point, the calculation was R25 million for a diesel locomotive and R34 million for an electric locomotive. And then you got to that figure of R38.6 billion over a seven year period, and now it is R54 billion over a three year period at the 17 March 2014. We have almost a R15 billion difference from what was quoted there. You spoke about hedging and how there could have been a bit of a difference there, you spoke to Mr Gordhan about that. But when you engaged with Mr Anoj Singh who said that Eskom had done funding costs and, looking at exchange rates, had come to the conclusion that it was better to secure the deal that they did. We also know, from the OUTA documents, that Tequesta entered the Chinese deal for the fifth and suddenly the locomotive is R50 million per locomotive, of which R10 million … We also see a contract. Have you had sight of this document from amaBhungane and OUTA, the contract with the locomotives, Tequesta and China South Rail? Have you had sight of that and does that explain at least a R5.3 billion increase in the contract fee that you initially thought was viable and that was for 300-odd locomotives.

Dr Fine: I have read those articles, and I had not seen those numbers before I read the articles and that could explain the difference. I think that that is exactly what the Committee needs to do, is to take those facts and you need to understand. I can tell you how locomotive costs were determined and that is in the business case. 1. It was based on the price that Transnet had paid for a locomotive in the 18 months prior to when we were doing the project. So, it wasn’t just a number. It was based on actual procurement that had been done. It was adjusted for what inflation would be and we also had David Potter’s expertise. The question you need to ask Transnet is how do you get from 25 and 34 to 50 and how does this data change. I think they need to come and explain to you the differences.

Mr Swart: We will and that will be the second part of this inquiry but what is astounding to me is this contract, and of course those implicated can come and explain the contract, but it basically sets out a clause that allows for that R5.6 billion for the pure introduction of the parties of Transnet and South China Rail by Tequesta, which is Salim Essa’s company. And it says on this contract: “It is noted and agreed between the parties that the services are provided as a pre-contract service and will conclude on the signing of the contract.” That clause is worth R5.4 billion. No services thereafter. Introduce two parties and get R5.4 billion. And I can promise you that that is something we will be engaging when we look at the Transnet issue.

Chairperson: I want to make sure that Members do have all the annexures. You talked about Annexure F. Is that about termination of interactions between Trillian and McKinsey when you were responding to Mr Swart?

Dr Fine: I am referring to the letter in Annexure F: Letter from Trillian concerning involvement of Mohamed Bobat. It’s addressed to Vikas Sagar and signed by Bianca Smith.

Mr R Tseli (ANC): From my side, I have a few issues that I want you to clarify. I want to ask about the locomotive contract that my colleagues spoke about earlier, the tender that you won with five other partners. The testimony says all these parties had specific functions to perform with the tender and in the process. Nedbank no longer wanted to participate in the finance transactions and therefore no longer wanted to participate in the advisory part of the process. Ultimately that happens. Could it happen that a company had been awarded a tender, certain functions are now shifted along the way when it was already certain what each of the parties would be doing? From what you were, Nedbank shifting the responsibility.

I want to go back to the turnaround program. I understand you are saying that Eskom now says, because there was no National Treasury approval, you are supposed to pay the money back. Is there a dispute about that money because of the lack of Treasury approval?

There is a letter at the end written on 30 March 2016 that you wrote to Group CFO of Eskom, where you were indicating certain criteria that had to be met and you were not going to work with Trillian until certain criteria had been met – shareholding of holding company, beneficiary shares, ultimate beneficiary shares, related parties and a whole lot of other things and you ultimately pull out of Trillian in terms of partnership. Did you get any response from Eskom on this particular letter?

Dr Fine: If I don’t address them correctly, please let me know. The tender that we won, we started with, if I recall McKinsey, Nedbank, Letsema and Automotive Rail Transport. There were four parties. A conflict of interest was identified to us by the client with Letsema and General Electric and they said we needed to consider an alternative supplier. We said that we needed to have an approved supplier and they suggested Regiments. You can see in my document that we did due diligence and they accepted Regiments as a replacement for Letsema. Nedbank came to McKinsey and said that they would like to change their participation. That was Nedbank’s decision because Nedbank wanted to participate in the downstream funding and they would be conflicted. We engaged with Transnet and it was accepted that Regiments could do the work of Nedbank. In addition, Transnet asked us to use WeberWentzel as legal advisors because they needed legal input on this contract. They had as I recall run a separate tender. We were very happy to use them as they are a widely known, well recognised law firm and there would be legal technicalities involved in this process. And so, on the basis of that, the final consortium was McKinsey, Regiments, WeberWentzel and ART. That was the consortium on the locomotive business case.

The turnaround strategy, is there a dispute? Well, I think there is a dispute because McKinsey entered into contract with Eskom and it has it in the minutes that they had National Treasury approval but we now know that they did not get National Treasury approval. But, at the time we did not know and we continued the work. We got payment for the work. The work was reviewed by Oliver Wyman and that was the basis for payment. More recently, Eskom has written to McKinsey and said that because they did not get Treasury approval, the contract is invalid and therefore McKinsey has to pay back the money. There is a dispute. So, if you ask me what is a dispute, I’m not a lawyer. We need to get resolution on this quickly because we want to give the money back and we are going to need the right authorities to sit down with McKinsey and Eskom and National Treasury and relevant parties and that is my appeal to Parliament, to sit down and say, “Does the money go there or does it go somewhere else, and if it goes somewhere else, what do we believe as South Africa is the best allocation of those funds? Is it going to the fiscus? Is it back to a project?” That is the debate that we need guidance on.

On the letter of 30 March at the end of the annexure, what was the response from Eskom? I am not aware of the response from Eskom. I don’t know. I know absolutely that I was involved in a McKinsey risk meeting on 23 March where we absolutely decided definitively that we would not work with Trillian. At the end, I said, “Therefore we are not proceeding?” and the answer was that we were not proceeding.

Mr Tseli: Just for the record, so, you speak with authority on behalf of McKinsey about this repayment of the money?

Dr Fine: Yes. I speak on behalf of McKinsey on the commitment because I debated that before I came and, in the public statement it sounds like, well, we’re not going to keep the money. That is not the spirit in how it was made. I have the absolute commitment of McKinsey and Company partners, globally, to pay the money back to South Africa.

The Chairperson: You requested to say something, Dr Fine?

Dr Fine: I just want to say a few things in a closing statement. I joined McKinsey in 1995. I was a South African. I stood against apartheid and I did not do as much as many of you did but I stood against apartheid and I stood for a democratic South Africa, a non-racial, non-sexist South Africa that would benefit all people. I joined McKinsey because I was really inspired by the capabilities that we could bring to this country and I was also proud at the time that McKinsey did not enter South Africa until after we had had a free democratic election. I was very proud to join McKinsey and I have been proud to be part of building McKinsey in South Africa and we have done some things that I am really excited about and I have talked about a few but Iscor Iron and Steel was an amazing story. I was proud to be part of that, helping companies like SAB Miller expand globally, and how they have shown the world, and the publications describing Africa as an investment destination, showing the world our 2015 Report, showing what is possible in South Africa and having confidence in South Africa. And helping with the turnaround, which I have talked about.

But I want to reiterate a few points. For the record, we were not required or forced to work with Regiments. We did a thorough due diligence process with Trillian with external people. I was part of the investigation. You heard my testimony about how passionate I was to get to the bottom of it and to terminate this relationship because there were concerns. We found the concerns and we terminated the relationship. This was not a sham with Regiments. It was difficult, we applied ourselves, we had arguments, we did work. I was part of that. I have no doubt that that was not a sham. Regiments only got one bite of the apple. There was the Niven Pillay matter in the press. The second time, Bobat was in the press, we terminated this.

I was not involved in any bribery or corruption. I have not seen this. I have not personally seen this. I do not know the Guptas. I do not know the Gupta family. I don’t know Salim Essa. I don’t know Kuben Moodley. I don’t know Mark Pamensky. I don’t know Stanley Shane, Mark Chipkin or Clive Angel or any of the people named in the press reports. And I can’t answer your questions on them or what they are stated in the press as doing. That is for you. As soon as I had a speculative smell that Essa was involved with Trillian, we terminated. I personally think that I acted with great strength and fortitude. I took great risk internally myself to raise these concerns and McKinsey listened and we acted. Mr Vikas Sagar did not disclose the information about Salim Essa, he did not disclose the relationship with Salim Essa as a result, it took too long for McKinsey to act.

The last few months had been difficult and I have felt ashamed to be associated, and for my firm to be associated, with state capture and I have seen the anger and disappointment in people’s eyes, I have seen the anger and disappointment in my clients’ eyes. I have experienced rejection from people that I really love and trust, and that has been hard. And I have seen the fear in the eyes of our young consultants. 80% are black, historically disadvantaged South Africans. They are amazing people and want to do amazing things for South Africa and for the world.

I hope that you feel that I have been transparent, that my submission is detailed. I have answered all your questions, which I have tried to do to the best of my ability. The firm that I work for is a force for good in the world. I have seen this firm say no to big contracts because they are the right decisions to be made, and I have seen them make those decisions. But it is also a firm that makes mistakes, and in this case, we made mistakes. For the sake of the young South Africans, if you want to punish people, punish people like myself, punish leaders like myself, but do not punish young South Africans who are so talented and can bring amazing skills to this country and make it a better place.

Lastly, I just want to say again, please accept that we will pay the money back to South Africa. We do not want any tainted money, even if the court finds the contract with Eskom was valid, we will pay back the money. And we really need your help as a Committee to find a mechanism to resolve this issue and to pay the money back to South Africa. And thank you very much for your time.

The Chairperson: Adv Vanara, do you want to say something?

Adv Vanara: No, thank you.

The Chairperson: Thank you, Mr Fine, for coming to the inquiry and having an interaction with the Committee. Your contribution had assisted us to understand what was happening.

[Committee meeting to receive legal advice about what had been going on in the media – PMG report awaited].