17 June 2024 | 01:13 PM

The great train robbery Part 2 – The choo-choo switcheroo

Key Takeaways

There is a classic con-move called the “bait-and-switch”, in which one product is advertised but another is substituted that is inferior, more expensive or both.

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At Transnet the Guptas and their fellow-travellers pulled off a R4,8-billion bait-and-switch that was so impressive that it must have convinced their Chinese clients that the family held the keys to Transnet’s coffers – and to the huge 1064 locomotive tender that was on the cards.

In Part 1 we revealed allegations of how the family’s agents boasted of their ability to control government decision-making – and how they were paid a 20% commission by China South Rail (CSR) on a deal to buy 95 electric locomotives that Transnet signed in October 2012.

But the evidence suggests that the Guptas cemented their claims to be Transnet tender kings a year later. Between October 2013 and January 2014 they were able to redirect a new deal for 100 “heavy-haul” locomotives that seemed to be in the bag for one manufacturer – Mitsui – across to their friends at CSR.

For that service, CSR agreed to pay a 21% commission, promising the great manipulators more than R900-million in kickbacks.

The 100 loco deal

The chain of events around the 100 locomotive procurement seemed tailor-made to demonstrate the family’s remarkable audacity and influence.

The Guptas were able to reverse a clear preference by railway management for the Japanese manufacturer Mitsui, which had made a major investment in a South African fabrication facility and had a modern heavy-haul locomotive that was already performing on Transnet’s coal export line.

Instead, without an open tender, the Guptas were able to substitute CSR despite the fact the procurement was deemed urgent and the Chinese company did not have an off-the-shelf heavy haul locomotive suitable for South African conditions.

The role of Iqbal Sharma – then the chair of Transnet’s Board Aquisition and Disposal Committee – appears to have been central.

Sharma, who readily admits a previous friendship with Gupta lieutenant Salim Essa and a range of business ties with the Guptas before they fell out, has denied wrongdoing. See his full response here.

Also key was then Transnet chief executive Brian Molefe.

Molefe was presented with a detailed outline of his role, but responded only briefly, claiming he had no knowledge of any kickbacks or manipulation of adjudication processes.

You be the judge.

The documented sequence of events is as follows.

Friday, 11 October

On 11 October 2013, the then chief executive of the Transnet Freight Rail division, Siyabonga Gama, circulated a document calling for the procurement of 100 heavy haul electric locomotives from Mitsui via a “confinement” – which meant the direct negotiation of the purchase with Mitsui without going out on competitive tender.

Such confined procurement procedures are allowed in an emergency or where there is a “single source” supplier – or where a public entity seeks to extend an existing procurement contract.

Gama’s motivation for the confinement was the delay in the procurement of 1064 locomotives for Transnet’s general freight business, creating, he argued, a temporary gap in the fleet.

The motivation noted: “The heavy haul 100 Class 19E locomotives will be deployed in the Coal Export Line and will release 125 locomotives that will be used on [general freight] pending delivery from the 1064 program. ”

In other words, drafting in 100 new high-powered coal line locos would release 125 older models closer to their retirement age to be used in general freight while the new locos were still coming on stream.

Gama pointed out that the 100 coal-line locomotives formed part of an already approved “fleet plan”. In other words, they were already budgeted for.

Motivating for the confinement to one supplier, Mitsui, Gama argued Transnet would not be able to meet its aggressive freight targets without this emergency procurement.

He noted the Mitsui locomotives would in effect be an extension of an earlier supply contract of the same design. They were already “operating optimally and have exceeded their design parameters”.

He argued that re-starting Mitsui’s local production lines would be quick; jobs would be retained, delivery times would be minimised and set up costs reduced.

Gama said Transnet would demand 60% local content and set a target price of R34,3-million per loco.

Gama’s document was addressed to Sharma’s Board Acquisition and Disposal Committee.

Monday, 14 October

Sharma was not impressed. On the contrary, evidence from the #GuptaLeaks shows he sought to derail the proposal by raising doubt about the justification for the confinement.

He portrayed this as a matter of principle, but later events suggest it was a pretext – he raised no objections when the Chinese were chosen by a confinement that was far more arbitrary than the Mitsui proposal.

Sharma went over the board’s head, drafting a letter dated 14 October 2013 to then director general of public enterprises, Tshediso Matona.

Setting out his objections to Mitsui, Sharma wrote: “I cannot accept the argument [Transnet Freight Rail] makes that the urgent requirement is due to the late tender of the 1064 locomotives as it was well known that the tender was delayed from July 2012, yet for 15 months they did nothing…

“I am further concerned that the confinement relates to the same company that previously was awarded contracts by Transnet by way of a confinement… They will be presenting their case to [the acquisition and disposal committee] again on October 21, 2013, and it is for this reason that I seek your guidance and opinion on the matter.”

Was Sharma acting as a cats paw for the Guptas to derail the Mitsui bid? He denies it, but the leaks show him coordinating his approach with Saxonwold.

On the same day, 14 October, Sharma forwarded to Tony Gupta an email from Eric Wood of Regiments Capital relating to a R5-billion capital raising proposal for Transnet.

And there was more.

Thursday, 17 October

According to the #GuptaLeaks, Sharma sent another email to Tony Gupta three days later, on 17 October 2013, to which he attached his letter to Matona, the DG.

The leaks show he also attached a draft response in Matona’s name in which the DG purported to urge the committee to reject this procurement via a confinement. Metadata show the draft response to have been written on Sharma’s computer.

But Sharma denies sending this email.

He told amaBhungane: “I did not send the purported email to Tony… I can confirm that at least two emails attributed to me were not sent by me. I will substantiate this in an appropriate forum.”

Sharma does not explain why someone would have hacked his email to send his Matona letter to Tony Gupta.

Sharma’s explanation for his decision to write to Matona is that in June 2011, then-minister of public enterprises Malusi Gigaba was upset because he was confronted in parliament with a media report that Transnet had secretly concluded an earlier locomotive deal via confinement with Mitsui. The report also questioned the political connections of Mitsui’s empowerment partners.

Sharma says Transnet chairman Mafika Mkwanazi relayed the minister’s displeasure at a subsequent board meeting.

“Recalling the incident of June 2011, the [acquisition and disposal committee] deliberated on the matter and the ‘urgency’ reason did not seem plausible… Management was sent back to improve their submission…”

Sharma says one member of the board committee disagreed vehemently with his view, so he decided to seek external guidance from the shareholder: “Hence my letter to the DG.”

Sharma and Matona are former colleagues from the department of trade and industry and Sharma describes Matona as a friend.

Matona has confirmed receiving the letter from Sharma, but denied knowing of the draft written in his name.

Friday, 18 October

The evidence shows Sharma tried to drive home the supposed political exposure of Mitsui’s empowerment partners by sending Matona a follow-up email on 18 October 2013 in which he copied the 2011 article that he said had embarrassed Gigaba.

In 2006 Mitsui linked up with, among others, Dr Khulu Mbatha and Zolile Magugu.

In 2013 Mbatha was a special advisor to then deputy president Kgalema Mothlanthe, but in September that year he had resigned his directorship in the company that had a 20% share in Mistui’s local empowerment vehicle.

Magugu had previously been an advisor to deputy president Phumzile Mlambo-Ngcuka, who had left government way back in 2008.

It seems rich that Sharma was concerned about these political links, given that he was in bed with the family that a few months earlier had landed their wedding guests at Waterkloof Airforce base.

And there is more evidence that suggests his real intent was to conspire with Saxonwold to hijack the 100 loco procurement process.

Saturday, 19 October

The #GuptaLeaks show that on Saturday 19 October 2013, Sharma emailed a copy of Gama’s Mitsui procurement motivation to Gupta lieutenant Ashu Chawla with a request: “please print”.

That motivation contained information that was highly sensitive in terms of Transnet’s internal decision-making and pricing.

Sharma admits sending this, but denies that he betrayed his fiduciary duty to Transnet by sharing the 100 loco motivation document with the Guptas via Chawla: “I did send an email to Ashu Chawla to print a document for me, as I was going to see him and wanted to have a hard copy to read.

“I saw no issue in doing so as Ashu’s function was like a PA/Secretary and I knew him. Had my intention been to send it to Tony, I would have done so directly.”

But the #GuptaLeaks show that Chawla was no secretary, but the chief executive of the Gupta’s Sahara Systems as well as a trusted intermediary for many of their more sensitive communications.

Sunday, 20 October

On Sunday 20 October, Matona replied to Sharma’s expression of concern about the confinement.

His response is more nuanced than Sharma’s ghosted letter, but it echoes the negative sentiments, despite Matona having, by his own admission, no access to the relevant facts.

Monday, 21 October

We do not have a copy of the minutes of the acquisition and disposal committee meeting of 21 October, but it is understood that Transnet chief executive Brian Molefe withdrew Gama’s Mitsui memorandum on that date.

The minutes of the following meeting on 21 November 2013 refer to decisions flowing from the previous meeting concerning the 100 loco proposal, including that certain information was apparently shared only with the committee chair – Sharma.

The minutes do not reveal what this information was, but it seems likely it included Matona’s letter. What we do know is that the minutes recorded that “incumbent parties identified in the confinement process were removed”.

Mitsui was gone.

Sharma has defended his actions, telling amaBhungane: “I have always acted in the best interest of Transnet and stand by my reasons for not supporting the Mitsui confinement… It is false for you to suggest that Mitsui was overlooked so that the tender would go CSR.

“All procurement submissions are generated by the Executives… As non-executive independent Directors who attend one meeting a month we did not have the aptitude to interrogate the technical details of the matter, nor was it our role to do so.”

Transnet told amaBhungane the company “was not made aware of Mr Iqbal Sharma’s alleged conflict of interest” in the 100 loco contract: “The Chairperson of the Board of Transnet at that time launched an investigation on the matter. Before these matters could be extensively dealt with, the term of the Board expired.”

The Great Switcheroo

Just two months later, on 24 January 2014, Molefe submitted a new confinement motivation to a special Transnet board meeting – except this time CSR was substituted for Mitsui.

The document is understood to have been drawn up in a hurry and appears to be largely a cut-and-paste of Gama’s Mitsui motivation.

Molefe’s motivation in favour of CSR artfully echoes Sharma’s concern about supposed political risk, noting: “Reputation risk exists, although subjective and places the company under unnecessary risk if it were to follow a confinement approach with Mitsui.

“This reputation risk involves speculation in the media around Mitsui’s local partners and their political affiliations. Transnet would never entertain awards based on the political prowess of any business partners… but the risk does need to be taken into account…”

A source involved in the Mitsui bid, who asked not to be identified, said Transnet never raised this “risk” issue with the company.

Mitsui in Japan were sent detailed questions but declined to comment, citing a confidentiality agreement with Transnet. The company has since significantly scaled down its office in South Africa.

Mbatha, their one-time empowerment partner, said the Japanese style was to walk away.

“They were in negotiations with Transnet to extend the earlier contract. Then, all of a sudden, Transnet just disappeared.”

It is understood that the concern regarding Mitsui’s supposed political exposure was never raised formally with the company.

Mbatha said: “There were rumours about concerns because people were politically connected. We would have welcomed an investigation… because I never lobbied anyone – at Transnet or in government… Instead of an investigation, we just heard this tender was given to the Chinese. I was very much shocked.”

Mbatha says some in the consortium wanted to fight the decision, but the Japanese business culture meant they would not say anything openly: “Even now with the email leaks – when it’s become quite clear why we lost the tender – they won’t budge.”

In his re-tread version of the Gama’s earlier Mitsui confinement application, Molefe also swept aside Mitsui’s proven design, arguing that “the Mistui consortium did not fare well in the two most recent tenders issued by Transnet”.

These were the 95 and 1064 tenders, the latter which was reaching its conclusion by January 2014. Of course it bears noting that the consortium that did fare well in both cases – CSR – was later shown to have paid massive “commissions” to the Gupta network.

It should also be noted that records show Essa, the Gupta lieutenant and Sharma associate, arriving for a lightning visit in Hong Kong on 9 January 2014 – shortly before Molefe submitted the CSR proposal on 24 January.

It is known that CSR Hong Kong signed a 21% commission contract on the 100 loco deal but it is not known exactly when.

As with the 1064 deal, it is understood that CSR first signed the commission agreement with a company that the Guptas appeared to use as a partner to launder their money – JJ Trading in Dubai – but later updated the deal with Essa as the signatory.

Sharma’s discomfort about a confined tender also did not rear its head again now that CSR was involved.

It may be significant that on 19 December 2012 the Gupta company Aerohaven is reflected in the leaks as having instructed its bankers to transfer R20-million to “Iqbal Meer Sharma”.

It is not known if this occurred, but it seems likely this was a loan to fund his stake in the purchase of VR Laser, a steel cutting business that would have been an ideal subcontractor for locomotive fabrication. Sharma has denied that VR Laser intended to do Transnet-related work, but this is contradicted by other evidence. He did not respond to a later question about the R20-million.

Molefe’s request to the Transnet board to confine the bid to CSR was still based on “urgency”, despite the fact that CSR did not have a proven, ready-to-roll product.

As one industry insider explained: “Because of our narrow gauge, there’s no such thing as off-the-shelf. Everything has to be rebalanced.”

Part of the motivation for selecting Mitsui in the first place was that Transnet could simply order a new batch of Mitsui’s 19E locomotives which were already operating on Transnet’s lines.

“Mitsui was a known design you could just continue with production; there would be very little delay. CSR did not have a heavy-haul loco. You had to add months’ delay to design one,” a second industry expert explained.

Somehow this was not a problem. No one objected to CSR being substituted for the same kind of contract where Mitsui had been rejected, despite the fact there was a much stronger case for Mitsui.

Transnet’s board approved the uncontested award for 100 Electric Locomotives to CSR the same day, 24 January 2013, at an estimated cost of R3.87-billion.

Note that price.

As anticipated, the new locomotive had to be redesigned as an upgrade from the 22-ton axle-load engine that CSR had developed for the 95 loco contract.

The first prototype CSR loco delivered as part of the 100 loco contract only rolled off the Chinese assembly line on 16 September 2014 and these locomotives were accepted into operation only by November 2015.

The second industry expert said: “Why was it confined when it was not an off the shelf product? It basically put Mitsui out of business here, losing that contract…”

The Mitsui operation, which had manufactured the 19E at Union Carriage & Wagon in Nigel since 2009, was largely wound down. Contractors like Dorbyl and were also hard hit.

“It was devastating,” former managing director of Union Carriage Louis Taljaard told us.

“They [Union Carriage] were without work for quite a long period of time. Especially if that could follow on after they’ve had the other locomotives you would have retained more skills, you would have had a company that was making more profit. But the effect on Dorbyl was equally bad. Because supplying [locomotive] bogies [to Mitsui] was a big part of their business.”

By contrast, according to Transnet’s own figures, 40 of the 100 CSR locomotives were produced in China and only the remaining 60 locomotives were “assembled” at Transnet’s Koedoespoort yard, suggesting CSR came nowhere near the 60% local content requirement.

But Transnet’s questionable decision to substitute Mistui with CSR also came with a heavy price tag.

While 10% upfront payments are standard in the rail industry, Transnet paid an exceptionally high 30% advance to CSR on 1 April 2014, shortly after the contract was signed – amounting to a staggering R1,32-billion.

AmaBhangane has established that another 30% was due on 1 October 2014 when the design for CSR’s new locomotive would be approved, with only 37% of the price being withheld for formal acceptance of the physical locomotives and 3% for retention – a scenario that the first industry expert described as “crazy”.

What that means that by the time the first prototype was delivered, the Guptas and their associates were due to have received more than R554-million in terms of their 21% commission.

“Escalation” – or kickback?

On 10 April 2014, Mkwanazi, the then Transnet chairperson, directed a memorandum to Gigaba, copied to Matona, in which he sought so-called “section 54 approval” under the Public Finance Management Act for the confinement to CSR.

Just three months after a price of R3,87-billion was approved by the board, the price had now risen to R4,84-billion.

Mkwanazi claimed this was because of: “Entering into a fixed price contract thereby shielding the Company against any potential deterioration of the Rand against the US Dollar”; an escalation in labour and material costs; and something mysteriously labelled “forward looking trends”.

Mkwanazi declined to respond to queries for this article.

He said: “I suggest you publish what you have and I will respond through Transnet after the publication. The so called allegations against me will be responded to by Transnet.”

But Transnet would only say: “Transnet cannot comment on alleged activities that took place outside of working parameters of the individuals mentioned in your query.”

Gigaba recently told parliament that ministers were not involved in procurement at all. He claimed section 54 approvals were based on “in principle approval” of projects above a certain size, but the minister was not privy to who the bidders were.

On the 100 loco deal he said: “I did not know who was involved in the bidding process, and therefore interfered in no way.”

But the section 54 documents show Gigaba was informed that the bid was via a confinement, that CSR was nominated – and that the cost had inexplicably risen from R3,87-billion to R4,84-billion.

He gave his approval.

In fact the R970-million increase motivated by Mkwanazi neatly provided for the R924-million “commission” that CSR had agreed to pay the Guptas and their associates.

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The Chinese paid – and the Guptas delivered.

There would be no argument about their ability to swing the 1064 contract.

Part 3 will show how.


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Before joining the amaBhungane team in 2017, Micah was the national coordinator for media freedom and diversity at the Right2Know Campaign. He holds a Masters in African Studies from Oxford University and a BA Honours in History from Wits University.

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