Advance payments for locomotives forced Transnet to borrow more – inquiry hears

Transnet was forced to increase its foreign borrowings, to fund advanced payments of R7.37bn for 1 064 locomotives, the state capture commission of inquiry heard.

According to the testimony of former Transnet engineer Francis Callard, who appeared before the commission for the second day on Monday, Transnet’s foreign borrowing requirements increased from R15bn to R21bn in the 2014/15 financial year as a result of the advance payments.

“The contract payment schedules, negatively and unnecessarily impacted Transnet,” Callard told the commission. The commission, led by Deputy Chief Justice Raymond Zondo has been investigating allegations of fraud and corruption at state entities since August 2018.

Callard previously told the commission that advanced payments for locomotives were usually set at R300m, but this was not the practice for the awarding of the 1 064 locomotive contracts.

Three bidders had increased their advanced payment requirements between the tender stage and the finalisation of contracts, Callard highlighted.

Bombadier’s requirements increased by 3% to 27% and China North Rail’s bid increased from 1.08% to 15%. While China South Rail, which was awarded 359 of the 1 064 locomotive contracts increased the most from 1.62% to 30%.

According to Callard’s understanding, no reasons were given for the increase in the advanced payments.

“As a consequence of the agreed advanced payments, Transnet had to pay R7.37bn before April 1. 2014,” Callard said. This is so it could be reflected in the annual financial statements of 2013/14, Callard explained.

“Transnet had to increase its foreign borrowings,” he said. As a result, Transnet had to apply to the Department of Public Enterprises to increase its foreign funding limit. The limit had to be increased by R6bn to R21bn, he told the commission.

The inquiry will resume on Thursday, when Callard will continue his testimony.