Zondo at your Fingertips: The Definitive Guide to the Zondo Commission

This extract is taken from the chapter setting out the extensive evidence of State Capture and corruption at Transnet. It gives an overview of perhaps the most notorious State Capture contract of all — the 1,064 locos deal — and sets out the extraordinary kickbacks that were paid to the Gupta enterprise on the 1,064 transaction and other dodgy locomotive contracts.

*****

This deal is perhaps the most notorious — and certainly the biggest — contract subject to State Capture. Its roots lay in Transnet’s adoption of what it called a Market Demand Strategy (MDS) in 2011. The innocuous name somewhat downplayed an enormous capital investment and expansion programme worth R300-billion that would massively increase Transnet’s capacity. 

A good portion of this spend would be focused on expanding the locomotive fleet operated by Transnet Freight Rail (TFR) — Siyabonga Gama’s patch.

Between 2011 and 2012, Francis Callard, the TFR engineer, worked on producing and developing a business case for the purchase of 1,064 locomotives at an estimated cost of R38.6-billion. The plan was to purchase 599 electric locomotives and 465 diesel locos. 

Ultimately the electric and diesel loco contracts were split so that two suppliers would be selected in each category, giving a total of four suppliers. 

The result was that, when the final contracts were signed in March 2014, China South Rail (CSR) was contracted to provide 359 electric locos, Bombardier to supply 240 electric locos, China North Rail (CNR) 232 diesel locos and General Electric 233 diesel locos.

The board approved the issuing of a request for proposal in July 2012. This was somewhat strange as the board only approved the business case on 25 April 2013. It was only on 3 August 2013 that the shareholder minister — Malusi Gigaba — granted his approval for the whole contract to proceed.

The commission’s investigations found at least 15 different issues or profound irregularities with the way the 1,064 procurements were concluded. In the interests of brevity, readability and everyone’s sanity, I focus on perhaps the most extraordinary of all problems — the unjustified increase in the price of the contracts.

When the board approved the business case for the 1,064 deal, the estimated total cost (ETC) was R38.6-billion, without so-called hedging costs, forex escalations and “other price escalations”. Hedging refers to the practice of trying to protect against unfavourable exchange rate developments, although, for our purposes, this is not really important. 

When the hedging and other costs were included, the price, as eventually approved by the board in May 2014, leapt to R54.5-billion.

But this was a fabrication — and an audacious one at that. 

The original business case, dated 7 March 2012 and approved by various Transnet committees in March and May the same year, stipulated a total ETC of R38.146-billion, including hedging costs. 

Callard and a number of other witnesses before the commission testified that the ETC figure of R38.6-billion was already priced in hedging and escalations. Correspondence from McKinsey — which acted as transaction advisors — also showed that the R38-billion cost included hedging and escalations.

Strikingly, the commission’s investigations found multiple versions of the business case. A version dated 29 April 2013 — after the board had already approved the business case — stated that the ETC only excluded borrowing costs. A final version dated 30 April deleted this, and instead inserted the line that the R38.6-billion excluded “the potential effects from forex hedging, forex escalations and other price escalations”.

The metadata on the document (a sort of digital fingerprint) showed that the final version had been edited on the computer of Yusuf Mohamed, a Transnet employee, on the morning of the 30th. Mohamed admitted that he amended the business case on the instruction of Anoj Singh. He said that Singh had told him to do so in order to bring the business case in line with the board resolution on 25 April. 

The commission speculated that, in order for any of this to make sense, there was a possibility that the board resolution had also been changed, after the fact, to show that the board had approved a version of the business case that didn’t actually exist at the time.

Further evidence was presented that made a highly compelling case that the R54-billion cost was bogus. 

In 2018, Fundudzi, a law firm hired by Transnet to review the transactions, used calculations by Callard to confirm that the R38-billion cost included hedging. Another calculation was performed by Alister Chabi, an actuary appointed by another law firm, MNS, which had also been asked to review and audit the 1,064 purchases. 

Chabi performed an extensive recalculation using all the available data. His calculations showed that the R38.6-billion must have included hedging costs. Indeed, the commission found that Chabi’s calculations “leave no doubt” that the ETC of R38.6-billion did include hedging costs.

In essence, what happened was that key people at Transnet misstated and inflated the cost of the transaction. The result was that in May 2014, the board approved an increase in the ETC from R38.6-billion to R54.5-billion — for no good reason. The commission speculated that this massive increase in price may have been implemented in order to finance the extraordinary kickbacks that were paid to the Gupta enterprise.

The 1,064 deal led the commission to make a whole range of recommendations that individuals be investigated for wrongdoing, including fraud and corruption. The details are given in the “recommendations” section at the end of this chapter.

The Gupta kickbacks

The systematic and repeated irregularities in all the contracts awarded to CSR and CNR (which amalgamated in 2014 to become a new single entity called CRRC) have to be understood in the light of the overwhelming evidence that the Gupta enterprise earned billions in kickbacks from these deals. 

In my evidence before the commission, I presented extensive evidence about how these kickbacks were paid; this evidence was accepted, in full, by the commission. In support of these claims, I included four key sets of documents.

The first set was a series of “business development agreements” (BDAs) that were entered into between CNR, CSR and CRRC (when the two amalgamated) and companies either connected to the Guptas or controlled directly by Salim Essa. 

The BDAs set out how these companies would be paid a jaw-dropping 20% to 21% of the total price paid to CNR/CSR/CRRC by Transnet. This amounted to more than R7-billion, against a total amount of R26.237-billion paid to CNR/CSR and CRRC for the contracts they won.

The second document was discovered in the GuptaLeaks emails: an Excel spreadsheet that was saved with the name “Final CSR 2015 Workings”. 

The spreadsheet was sent to Ashu Chawla in 2015 from the email address [email protected]. The commission’s investigations concluded that this address was controlled by Salim Essa. Essa’s email to Chawla forwarded an email written by Rupesh Bansal (a director of the Worlds Window Group) to an address controlled by Zhang Minyu, a CSR employee who directed CSR’s Indian subsidiary. 

The Excel spreadsheet set out, in quite extensive detail, the amount of the kickbacks that CSR and CNR were due to pay on the loco contracts, and how much had already been paid.

The third set of documents comprised HSBC bank transaction records for four companies: JJ Trading (JJT), Century General Trading (CGT), Tequesta Group and Regiments Asia. Both Tequesta Group and Regiments Asia were formed in Hong Kong in 2015; both listed Salim Essa as their sole director. 

The HSBC transaction records, which were initially leaked to the media but then confirmed by the commission by subpoena, showed that CRRC paid over $150-million to the two companies.

The final set of documents consisted of a small selection of Habib Bank statements for Tequesta and Regiments. Together, these documents painted a lurid picture of extraordinary corruption. This took place in two rough phases. In the initial phase, CNR and CSR signed their “business development agreements” with either JJT or CGT. JJT was to receive the kickbacks paid on the 359 and 100 loco contracts, which were equal to 21% of the total contract value. CGT was to receive 20% of the value of the 95 locos contract.

JJT and CGT were both controlled by the Worlds Window Group, a metal trader based in India. In my submissions to the commission, I provided a raft of evidence emanating from the GuptaLeaks that the Guptas and the Worlds Window Group had been in business since at least 2010 and that WWG helped the Guptas launder funds. 

The 2015 Workings Excel document indicated that, while the BDAs were signed with CGT and JJT, and the kickbacks paid to them, they were only supposed to retain 15%; the remaining 85% was to be paid to the Guptas. 

In essence, CGT and JJT were paid a 15% fee to act as the primary money launderers. Notably, HSBC bank records secured by the commission for CGT and JJT showed that they had received payments from the Chinese manufacturers and that they had also made onward payments to companies controlled by the Guptas in Dubai.

But by 2014 the Guptas and the Worlds Window Group had fallen out. As a result, CGT and JJT were kicked to the kerb and replaced by Tequesta Group and Regiments Asia. Tequesta and Regiments Asia were paid directly by CRRC.

Using all this evidence, which I considered in the light of a stellar audit performed by amaBhungane, I calculated that CNR/CSR/CRRC had paid $275,608,209.23 in kickbacks on these contracts, equal to R3,400,558.015 (I give a much more detailed accounting in the later chapter on money flows). I further calculated that, based on the BDA agreements, the Guptas were due to receive a further R3,768,046,193.40.

It was not possible to confirm definitively that the kickbacks were made — we simply didn’t have the bank records — but I argued that it was highly likely they were paid, not least because CRRC was paid in full by Transnet. 

When all was added together, I thus calculated that a total of R7,168,604,208.40 in kickbacks was likely to have been paid on the 95, 100 and 359 loco deals. DM

Upcoming book launches with Paul Holden:

Tuesday, 13 June: 5.30pm for 6pm – Exclusive Books, Cavendish Square, Claremont, in conversation with Lester Kiewit. 

Wednesday, 14 June: 6pm for 6.30pm – Bertha House, 67/69 Main Road, Mowbray, in conversation with Hennie van Vuuren.

Paul Holden has spent the last 15 years exposing grand corruption, beginning with the Arms Deal, and has written five bestselling books on South African and global politics and corruption. He is Director of Investigations at Shadow World Investigations, which he co-founded with his long-time colleague Andrew Feinstein.