R647m price tag for relocation of train assembly point ‘unjustifiable’

The R647m price tag attached to the cost of relocating an assembly point for Transnet locomotives was simply unjustifiable, the judicial commission of inquiry into state capture heard on Thursday. The estimated initial cost for the move was only R9.7m.  

Roberto Gonsalves, who represents one of the minority shareholders in a consortium which benefited from Transnet contracts for 1064 locomotives, was presenting evidence to the commission on Thursday afternoon. The multi-billion rand contracts have been beset by cost inflation and allegations of corruption and kickbacks.

The commission, chaired by Deputy Chief Justice Raymond Zondo, is investigating allegations of corruption, fraud and maladministration at several state entities.

Gonsalves, a qualified chartered accountant, is now a director at Mergence Corporate Solutions. Mergence is part of a consortium including China North Rail (CNR) which was awarded a contract by Transnet to manufacture 232 diesel locomotives in March 2014.

The agreement with the consortium was signed by Transnet’s former CEO Brian Molefe and the head of CNR Jeff Wang. 

Gonsalves said that during the tender process prices for the bid were developed based on the knowledge that the locomotives would be assembled in Koedoespoort, Pretoria. But when the contract was eventually signed, the consortium learnt it would have to deliver locomotives to Bayhead, Durban, to be assembled. A cost analysis of the relocation, conducted by the consortium, determined that the additional cost would amount to R9.7m.

Advisory company

In late April 2015 CNR entered into an agreement with an advisory firm called Bex to investigate the relocation to Durban and inform a relocation claim which could be made against Transnet.

Prior to this, on April 8 2015, CNR executives had emailed minority shareholders – including Gonsalves – to approve a resolution for the agreement with Bex. But the minority shareholders were not in agreement. “We could not see any basis for a relocation claim from Transnet, as the amount (R9.7m) was calculated,” Gonsalves told the commission. 

“We expressed we were dissenting directors and did not approve the resolution to appoint Bex as an agent,” he said. CNR went ahead with the agreement, but the minority shareholders let it be noted they did not sign.

Bex, which Gonsalves described as a dormant company, had arrived at a figure of R647m. The amount included a hefty service fee. He told the commission that CNR had “graciously” awarded Transnet a 10% discount on the initial amount of R719m. 

Wang and Anoj Singh, Transnet’s then CFO, signed the agreement. 

Neither the majority shareholders of the consortium nor Transnet could justify the cost, Gonsalves said. “Hence we sent the report to the Hawks.”

The inquiry resumes at 10:00 on Friday when Gonsalves will continue his testimony.