Massive upfront payment to China South Rail was ‘unusual’, inquiry hears

It was “unusual” for China South Rail to receive a 60% upfront payment for a locomotive contract with Transnet, the state capture commission of inquiry heard.

Francis Callard a former electrical engineer at the state-run freight rail agency appeared before the commission on Friday. He provided evidence on a contract awarded to China South Rail (CSR) awarded in 2014 to provide Transnet 100 locomotives.

Earlier on Friday Callard told the commission, chaired by Deputy Chief Justice Raymond Zondo, that the procurement process was rigged for CSR to get the contract.

After the lunch adjournment, Callard continued to unpack irregularities of the contract, one of which related to upfront payments made to CSR before any locomotives were received.

“Before a single locomotive was received, we had to pay 60% of the amount of the locomotives,” Callard said.

“This is, I’m not quite sure what phrase to use…Unusual. It is way out of line of what we have done before,” Callard said.

A payment of R2.6bn was made to CSR, within a six-month period, the commission heard. The transactions were tabled in the 2013/2014 annual reports. In total, Transnet paid R7.37bn in upfront payments for all of its locomotive contracts that year.

In his “decades” at Transnet, as Zondo put it, Callard said he was involved in three similar transactions and none of them had required such massive upfront payments. “‘This is way out of line of what we had done before,” he reiterated.

In standard procedure an upfront deposit of R3m is paid for the supplier to set up production. About 90% of the fee is paid upon the acceptance of the locomotive, Callard said.

In a business case he had initially drawn up for Transnet to acquire 1064 locomotives, the proposed upfront payment was R300m, Callard said.

He added that he was not given reasons for why such a significant advanced payment was necessary for the 100 locomotives, when he raised the matter with superiors.

The inquiry resumes on Monday at 09:00. Callard will continue his testimony.