Vossloh: The German railway giant that derailed Prasa

The Passenger Rail Agency of South Africa (Prasa) and Swifambo’s liquidators have all but abandoned any attempt to get the R1.87-billion lost to Europe from the tall-trains contract, according to a recent Sunday Times article.  The report revealed that Prasa and the liquidators of Swifambo are seeking a commercial settlement agreement with Stadler Rail for the locomotives that were never delivered. Stadler Rail is the Swiss railway company that took over Vossloh España in late 2015. 

A settlement takes us no closer to accountability for Vossloh, like so many of the corporations implicated in State Capture. The failure to pursue full accountability will only maintain the environment of corporate impunity which allowed State Capture to flourish.    

The economic and social cost of corruption and maladministration at Prasa cannot be overstated. The past 10 years have seen the state-owned enterprise (SOE) dig itself into near complete financial collapse. This was reflected in the Auditor-General’s (AG’s) recent report on Prasa tabled to Parliament at the end of last year, which noted that there were serious failures “across the breadth” of Prasa. The AG’s report also gave the flailing SOE a disclaimer for the second year in a row – the worst possible audit outcome.

A significant reason for this dramatic decline is the abuse of the procurement contracts at Prasa since its formation in 2009. The vital mission to modernise Prasa – and the budget to do so – was captured by a group of corrupt businessmen, greedy executives and multinational companies that blatantly flouted the procurement process to receive grossly inflated contracts. These corrupt contracts failed to address Prasa’s pressing infrastructural and technical needs, including a shortage of rolling stock, outdated locomotives and ramshackle rail infrastructure. The result has been the breakdown of one of the most affordable forms of public transport in South Africa.

The Swifambo Leasing Contract – signed in 2013 – was supposed to provide Prasa’s long-distance locomotive fleet with a much-needed injection of 70 state-of-the-art Afro 4000 locomotives, as detailed in Unaccountable 00024. These high-powered diesel-electric locomotives were purchased for Shosholoza Meyl – Prasa’s long-distance service – which was relying on a few dilapidated locomotives for the functioning of its service. The locomotives were to be manufactured by Vossloh España, a Spanish subsidiary of Vossloh, the German railway company. Vossloh España had entered into a subcontract with Swifambo Rail Leasing, a South African company that won the R3.5-billion locomotive contract with Prasa in 2013. The flashy Afro 4000s were set to symbolise the much-hyped modernisation of Prasa’s aged train fleet.

However, the contract between Prasa, Swifambo, and Vossloh España was blown wide open in 2015 with the discovery that the locomotives which Vossloh manufactured for Swifambo and Prasa were – inexplicably – too tall for South African railways. Subsequent court cases, forensic investigations and the Zondo Commission have placed the German railway company and its Spanish subsidiary at the centre of a dodgy web of corrupt businessmen, middlemen and greedy civil servants who treated Prasa’s coffers as their personal piggy bank.

A very European history

Vossloh AG is one of Europe’s leading railway technology and infrastructure companies in what has become a highly competitive global industry. It was established in 1883, after blacksmith Eduard Vossloh received the first contract from the Royal Prussian Railway Company for the manufacturing of rail fasteners, according to its website. What the history section on Vossloh’s website does not touch on is that during World War Two Vossloh is alleged to have produced railroad tracks to help the Nazis transport supplies from occupied Soviet territories, and manufactured light sockets for the countless underground German bunkers, according to The Directory of Company Histories, Vol 53.

Vossloh expanded rapidly after World War Two, with rail infrastructure becoming central to the reconstruction and development of Europe after the destruction of the war. In 1990 the shares of Vossloh were listed on the Dusseldorf Stock Exchange. This period of globalisation saw the privatisation of many railway companies, and the rise in competition to access burgeoning global markets.

In recent times, Vossloh has shifted its attention from Europe towards developing economies. In a 2011 presentation to investors, Vossloh stated that accessing new markets such as China, Russia, South Africa and Libya was central to the railway company’s growth. Vossloh boasted of “a strong market presence and operations in 100+ countries worldwide” and added that “ongoing internationalisation, especially in regions with high growth potential, remains an important driving force of its business”.

South Africa was again named as one of eight countries “of relevance” to Vossloh in Africa and the Middle East in a 2012 investors’ report. It was clear that the German railway company had its eyes on the South African market, just as Prasa was announcing its intent on undertaking a major modernisation drive of the country’s railway infrastructure and systems. 

Mthimkhulu, Mashaba and Vossloh: a grifters’ love triangle

To understand the full extent of Vossloh’s culpability in the Swifambo contract – which ran from 2013-2015 – we must piece together the relationship between Prasa, Vossloh España and Swifambo leading up to the contract. 

The formation of Prasa in 2009 came with a substantial increase in budget for the upgrade of its rolling stock. At the time, Prasa’s long-distance service – Shosholoza Meyl – had a shortfall of about 90 locomotives. Then, in 2011 Vossloh España was invited to inspect Prasa’s locomotive fleet and make recommendations for expansion and modernisation. Following the inspection, Vossloh España prepared a memorandum recommending that Prasa buy 100 locomotives at a cost of about R5-billion. The memo was forwarded to Prasa CEO Lucky Montana by Daniel Mthimkhulu, who was then Prasa’s executive manager of engineering services.

Mthimkhulu was fired from Prasa in 2015, after the new board discovered that he had faked his doctorate, lied about a job offer for a raise and was not a qualified engineer.

The absence of rigorous investigations into elements of the contract and implicated parties – especially Vossloh – has left open some questions as to the nature of Vossloh’s involvement and relationship with Prasa personnel such as Mthimkhulu. However, a 2017 forensic report commissioned by the Hawks in 2015 has shed light on aspects of this relationship.

What we do know is that Vossloh, Mthimkhulu and other Prasa representatives had some form of “pre-existing relationship by virtue of an order placed by Prasa for air conditioning units” in 2011. This is according to the 2017 Horwath forensic report into the Swifambo contract, which was commissioned by the Directorate for Priority Crime Investigations (the Hawks) in late 2015.  

In June 2011 Mthimkhulu authorised payment of more than R25-million for air conditioning units from Vossloh Kiepe, a subsidiary of Vossloh based in Germany. At the time, the air conditioning contract was heavily criticised by the Democratic Alliance on the basis that the units were wholly imported and double the price of locally manufactured systems. The forensic report states that there were “significant irregularities surrounding the supply of these air conditioning units”. 

This was just the beginning of the dodgy relationship between Vossloh and Mthimkhulu. In November 2011, Prasa published a request for proposals (RFP) for the massive locomotive contract. The evidence shows that the entire procurement process was rigged from Day One to favour Vossloh’s Afro 4000 locomotives.

Vossloh España could not bid alone for such a major tender under South African procurement law. This is where Vossloh’s middleman Auswell Mashaba – the focus of Unaccountable 00024 – enters the story. After Prasa published the RFP in late 2011, on 7 February 2012 Mashaba acquired a shelf company called Mafori Finance Vryheid, to respond to the R3.5-billion tender, according to the forensic report. Mashaba’s 20-day-old company submitted the bid on 27 February 2012. A week later, Mafori Finance Vryheid changed its name to Swifambo Rail Leasing.

Vossloh deposited R250 00 over a series of payments into Swifambo’s account in the period between 2011 and 2012 leading up to the contract. It made these payments before Swifambo had entered into a contract with either Prasa or Vossloh. Ryan Sacks, one of the forensic investigators behind the Horwath report, testified at the Zondo Commission that these payments were to “set up Swifambo” before the front company bid for the Prasa contract. But before Vossloh could enter any contract with its front company, Swifambo’s bid – which was based entirely on its own locomotives – needed to be selected.

Tailored to fit

The high court had already set aside the Swifambo contract on Prasa’s request in 2017 on the basis that it was unlawful and corrupt. One of the reasons was that specifications for the contract should have been designed by the cross-functional sourcing committee. Instead, the specifications were prepared by Mthimkhulu alone. The court found that in numerous instances, the technical specifications of the locomotives were designed to match the exact specifications of Vossloh España’s locomotives to ensure Swifambo – Vossloh’s front – was awarded more points during the technical evaluation.

Unsurprisingly, Swifambo Rail Leasing was the only bid to achieve over 70% in the compliance threshold. 

The high court also identified a series of other major irregularities in Swifambo’s bid. Swifambo did not submit a tax clearance for Vossloh España, as required by all joint venture partners, and the bid did not comply with local content requirements as the locomotives were to be designed and manufactured in Spain. Perhaps most tellingly, the bid had no evidence to prove that the three-week-old Swifambo had the required experience in the railway industry to undertake a contract of this size.

Despite this, Prasa’s Board of Control, under the chairmanship of Sfiso Buthelezi, approved Swifambo’s bid on 24 July 2012. Prasa entered into the contract with Swifambo Rail Leasing on 25 March 2013 for the procurement of 88 (later reduced to 70) locomotives at a cost of R3.5-billion. Only in July 2013, 16 months after submitting the bid, did Vossloh España and Swifambo Rail Leasing enter into a subcontracting agreement.

Vossloh: fronting to bypass B-BBEE

At the time that Swifambo and Prasa signed the contract in 2013, Swifambo Rail Leasing had virtually no employees, customers or suppliers. Yet it was entering into a multibillion-rand contract with an SOE.

The high court concluded that, “Swifambo under the agreement with Vossloh was merely a token participant that received monetary compensation in exchange for the use of its B-BBEE [broad-based black economic empowerment] rating.”

Swifambo was essentially used to rubber-stamp the German company and its Spanish subsidiary’s operations in South Africa, where legislation prioritises local companies for government contracts. All Swifambo had to do was accept delivery, and make sure the locomotives were delivered to Prasa from Cape Town’s port, while Vossloh had “complete control over every aspect of the contract”, according to the high court judgment. 

The high court and the Supreme Court of Appeal concluded that the “contractual agreement between Swifambo and Vossloh amounts to fronting practice and is a criminal offence under the B-BBEE Act”. The implication is that Vossloh most likely also knowingly engaged in a fronting practice, which is a criminal offence in terms of the B-BBEE Act. However, no criminal trial has considered Swifambo’s or Vossloh’s criminal liability in this regard.

Too tall to care

The 2011 RFP for the locomotive contract clearly stipulated that the locomotives could not be taller than 3,965mm, according to the forensic report. Despite this, the 13 locomotives delivered by Vossloh España were Afro 4000’s, which had a height of 4,140mm. That fact that Vossloh España’s Afro 4000 locomotives were too tall for South Africa’s long-distance railway, and thus effectively useless, was only revealed to the public in 2015. This came after the Railway Safety Regulator tested them and declared them unfit for use.

In late 2015, Prasa’s new board took the contract to the high court to set it aside. They succeeded, but R2.65-billion had already been paid to Swifambo, with R1.87-billion of that going to Vossloh. In total, Prasa received 13 oversized locomotives after paying the R2.65-billion. Each locomotive – though unusable – effectively cost the taxpayer around R203-million. Vossloh received about R145-million for each locomotive.

At various stages throughout the contract, a number of qualified Prasa employees, including Senior Engineer Peter Stow, raised concerns with Mthimkhulu about the technical specifications of Vossloh’s locomotives. Transnet Freight Rail also advised Prasa as far back as October 2013 that the Afro 4000 locomotives exceeded the allowed height for South African railways. They were all ignored. 

Vossloh España had inspected Prasa’s fleet in 2011 and was responding to an RFP that stipulated the maximum height of the trains. Its legal and engineering teams working on the contract would have been aware of the feedback of numerous Prasa engineers, who had advised that the Afro 4000s were too tall. Therefore, Vossloh should have reasonably known that it was manufacturing and delivering locomotives that could not operate on parts of South African railway lines. It nevertheless decided to proceed with the lucrative contract.

Makehnsa Mabunda and Vossloh: pulling the strings behind the scenes? 

In Unaccountable 00024, we revealed that more than R450-million from the R2.65-billion paid to Swifambo was paid to a web of shelf companies, property, trusts, and businessmen with little or no links to the contract. 

One of these was a businessman named Makhensa Mabunda, who received about R56.6-million from the Swifambo contract, according to the Horwath report. In papers from the high court judgment which set aside the Swifambo contract, Mashaba is alleged to have been approached by Mabunda to get involved in the locomotive contract. Mabunda allegedly told him that he was friends with Prasa CEO Montana and could set up the contract.  

Mabunda and his companies, including Siyaya Rail Solutions, have secured more than R5-billion worth of Prasa contracts since 2009, according to BusinessLive. The relatively unknown businessman is allegedly behind a network of companies which fall under the “S Group”, which had extensive involvement and influence in the operations of Prasa, according to the Horwath report.

Mabunda did not only receive payments from Swifambo. Vossloh also made 10 payments totalling R88,991,191.39 to Mabunda, according to the Horwath report. These payments were made to his companies Siyaya Rail Infrastructure Solutions Technology (Pty) and S-Investments (Pty) Ltd. The suspicious payments were identified in the 2017 report by the Compliance and Enforcement Division of the Financial Surveillance Department in the SA Reserve Bank, cited in the Horwath report.

The first six payments were made between December 2011 and September 2013 by Vossloh Kiepe to Siyaya Rail Instructure, which totalled to R13.6-million. The timeframe and source of these payments suggest that they could have been related to setting up the 2011 much criticised air conditioning deal between Vossloh Kiepe and Prasa.

The second tranche of payments were made by Vossloh España to Mabunda’s S-Investments between February 2014 and September 2015, and totalled R75.3-million. These payments were defined vaguely as “proceeds for Management Consulting Services”.

The payments – which were first publicised by News24 in 2018 – only added fuel to the suspicions that the R3.5-billion locomotive contract had been accompanied by kickbacks. Shortly after the expose, Vossloh AG confirmed that Mabunda and his company S-Investments were paid around R90-million as an “independent sales representative” for bringing “Vossloh España, the supplier, together with its customer Swifambo”. Vossloh’s defence of these payments is dubious if you consider the evidence from the Horwath report, which states Vossloh was paying Swifambo’s – its “customer’s” – startup costs in 2011 and 2012, which is three years before the payments to Mabunda, and more than a year before Swifambo signed the contract with Prasa or Vossloh España. 

This means that Mabunda seems to have pocketed more than R144-million for “setting up” the dodgy contract between the German multinational, its South African front company and Prasa. 

Covering their tracks: nearly a decade on and still no accountability

The failed Swifambo contract has thrown Prasa’s long-distance service into turmoil, according to the Department of Transport. Without the new locomotives, Prasa has had to rent old dilapidated locomotives, which frequently break down for prolonged periods. The failure to upgrade the fleet has resulted in a 90% drop in long-distance passengers over the last 10 years, and a stream of horror stories detailing locomotives breaking down for days in the Karoo without water or food.

In 2019, a group of activists belonging to the commuter activist group #UniteBehind protested outside the German consulate in Cape Town, calling for the prosecution of international companies that have benefited from State Capture. UniteBehind singled out Vossloh and called on the consulate to take action against the German multinational railway company for its role in the unlawful contract.

In December 2019, Deputy German Ambassador Dr Rüdiger Lotz replied to UniteBehind that the embassy “fully shares your concern about state capture” and had “forwarded your complaints to the Foreign Ministry in Berlin”. However, Lotz said it was up to South Africa’s criminal justice system to take the initiative with the case, which had not been done.

In 2015 and 2016 Prasa’s new board – which was chaired by Popo Molefe – laid more than 50 charges with the Hawks after finding evidence of systemic corruption at the parastatal. However, to date not a single arrest has been made. Vossloh has also been named at the Zondo Commission on a number of occasions for its role in the tall trains scandal, but – like most major corporations involved in State Capture – it has not been called to appear at the commission and explain itself. Vossloh continues to profit from the fruits of corruption undeterred, while Prasa lies in ruins. DM

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Previous articles in the Unaccountable series are:

Unaccountable 00001: Dame Margaret Hodge MP – a very British apartheid profiteer

 Unaccountable 00002: Liberty – Profit over Pensioners; 

Unaccountable 00003: Dube Tshidi & The FSCA: Captured Regulator?; 

Unaccountable 00004: Rheinmetall Denel Munition: Murder and mayhem in Yemen; 

Unaccountable 00005:National Conventional Arms Control Committee: handmaiden to human rights abuse?; 

Unaccountable 00006: Nedbank and the Bank of Baroda: Banking on State Capture.

Unaccountable 00007: HSBC – The World’s Oldest Cartel

Unaccountable 00008: FNB and Standard Bank- Estina’s Banks

Unaccountable 00009: McKinsey – Profit over Principle

Unaccountable 00010: Jacob Zuma – Comrade in Arms

Unaccountable 00011: Thales – How to buy a country

Unaccountable 00012: John Bredenkamp – Agent of BAE Systems

Unaccountable 00013: Fana Hlongwane – Agent of BAE Systems

Unaccountable 00014: BAE Systems: (Profit) Before Anything Else

Unaccountable 00015: The BAE Corruption Bombshell

Unaccountable 00016: Deloot- How Deloitte gets away with it.

Unaccountable 00017: EY- Incompetent, Negligent or Criminal?

Unaccountable 00018: KPMG at the heart of State Capture 

Unaccountable 00019: IRBA – soft-touch audit regulator in turmoil

Unaccountable 00020: Credit Suisse – An enabler of mega-looting in Mozambique

Unaccountable 00021: Bain & Company – The KGB of consulting 

Unaccountable 00022: The Chinese Railway Rolling Stock Corporation: China Inc boards the State Capture train

Unaccountable 00023: How Prasa was looted and left for scrap

Unaccountable 00024: Auswell ‘tall-trains’ Mashaba: The middleman who derailed PRASA

Unaccountable 00025: VTB Capital -  The Russian bank that took Mozambique for a ride