Johannesburg- State-owned freight and rail transport company Transnet paid more than R647million to relocate a key project from Gauteng to KwaZulu-Natal when it had initially been billed R9.7m.
The commission of inquiry into state capture on Friday heard how Transnet offered no justification for the ballooning of the relocation costs.
A shocked commission chairperson Deputy Chief Justice Raymond Zondo asked Mncedisi Ndlovu and Sedumedi (MNS) Attorneys’ managing director Thobani Mnyandu if during the law firm’s investigation into dodgy deals it found evidence of the initial R9.7m offer being considered.
“We have not been able to see anything that either speaks to either a critique of the final proposal or final amount or justifies or details support the final amount which is being requested,” Mnyandu responded.
Justice Zondo persisted: “The fact that there is a budget for an item is no justification for paying a certain amount for it. You must still check whether that amount is justifiable. I haven’t seen that here on this memorandum.”
Mnyandu said no other document spoke to the budgeted amount.
According to Justice Zondo, nothing shows that the R647m was a reasonable amount to spend on relocation costs.
He said the “so-called relocation” was approved by very senior people without any of them asking the very critical question: would it be justified to spend so much money on this?
“Why is it R647m and not R100m or R50m?”
The China North Rail relocation of manufacturing of locomotives to Durban was approved by former Transnet chief executive Siyabonga Gama in July 2015 following recommendation by another former executive Lindiwe Mdletshe.
Justice Zondo also took issue with the fact that nowhere in the memorandum is the first amount R9.7m quotation mentioned.
Transnet received the R9.7m offer through former chief financial officer Garry Pita and Mdletshe, Mnyandu testified.
The commission has previously heard evidence from Roberto Gonsalves, a minority shareholder in China North Rail South Africa - the black economic empowerment partner of the Chinese firm, on the decision to relocate the manufacturing of 232 locomotives from Koedoespoort in Gauteng to Durban.
The move was done under the guise of transferring skills to Transnet’s staff in Durban.
Dr Jonathan Bloom, who was part of the MNS Attorneys team investigating the bogus transaction advisory services, testified on the contracts for which Transnet paid over R316m to Gupta-linked companies McKinsey and Regiments Capital.
The contract awarded to McKinsey in 2012 was to advise Transnet on the financing of its R54.5billion purchase of 1064 electric and diesel locomotives. However, the company unlawfully ceded the contract to Regiments in 2014, MNS Attorneys’ probe found.
The McKinsey-led consortium initially included Letsema Consulting as its co-bidder and had subcontractors Nedbank Capital, law firm Edward Nathan Sonnenbergs, Advanced Rail Technologies and Utho Capital.
Letsema Consulting was later replaced by Regiments in a deal MNS Attorneys found to have been irregular after Transnet claimed there was a conflict of interest between Letsema Consulting and Barloworld.
Bloom said Regiments became responsible for the entire transaction advisory services contract.
He said Transnet concluded irregular transactions based on the advice it received from transaction advisers.