Transnet Group Acting Chief Executive Officer Mohammed Mahomedy at the state capture inquiry. Picture: Karen Sandison/African News Agency(ANA).
Transnet Group Acting Chief Executive Officer Mohammed Mahomedy at the state capture inquiry. Picture: Karen Sandison/African News Agency(ANA).

Supplier paid R5.4bn deposit fee before locomotives were delivered, Zondo hears

By Zintle Mahlati Time of article published May 15, 2019

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Johannesburg - The Zondo commission has heard that a company contracted to supply Transnet with locomotives was paid an R5,4 billion deposit even before they had delivered on the service. 

Acting Transnet acting chief executive officer Mohammed Mahomedy appeared at the inquiry on Wednesday and told the commission that the relationship between certain Transnet officials and China South Rail (CSR), a Chinese company, was suspicious. 

He detailed a series of behaviour which signalled an unusual relationship between a supplier and a bidder. 

Mahomedy said CSR was contracted to supply Transnet with locomotives and as part of the protocol, suppliers would be paid a 10% deposit, this was standard with all contracts. 

However, when CSR was awarded a tender Mahomedy said red-flags were raised when he heard that the negotiating team was considering paying a higher deposit fee. 

He said he immediately raised his concerns with the former group chief financial officer Anoj Singh. Singh assured him that he would consider his concerns around processes. 

Mahomedy said after signalling warnings he heard that Transnet had negotiated with CSR and would ensure the company received a higher deposit. 

“Despite the concerns we raised, we then heard that they had negotiated with China South Rail that they would pay a deposit on the date of signing of 10% and then within six months they would pay a further 20%.  The CR contract is R18 billion deposit is R5,4 billion. To pay R5.4 billion upfront with no locomotive being delivered, and the first locomotive will likely be delivered in a year away, is not warranted in my opinion. With other locomotive suppliers it was not near that much,” Mahomedy said. 

“So there is a clear disparity when China South Rail is paid 30% within 6 months.”

Mahomedy also revealed that the 20% which was due in six months, in September 2014, was delayed and resulted in Transnet paying CSR R229 million in interest for late payment. He said what was bizarre about the delayed payment was that Transnet had the facilities available to make the payment on time and avoid a late deposit fee. 

“The penalties refer to the late payment of the deposit. 10% was paid on the signing and a further 20% was due within 6 months in September 2014. 20% amounts to R3,6 billion. Then in September, there were arrangements between CSR about a delay in the payment. There seems to have been a correspondence between CSR and Transnet with Transnet saying we do not have the cash now and they requested a deferment in the payment,” he said. 

“What does not make sense is that Transnet had credit facilities available that we could have utilized and the interest rate on those facilities was 6,4% and 7% while the locomotive agreement called interest to be paid at a prime rate, which was 9.25%. We paid CSR R229 million for interest,” Mahomedy said.

Mahomedy also detailed how former Transnet CEO Brian Molefe had been in contact with executives from CSR before the company was awarded a contract he said was unusual. 

The inquiry continues. 

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