(Bloomberg) -- Top officials of Transnet SOC Ltd. should be liable for losses suffered from allegedly irregular and unlawful contracts the South African port and freight-rail operator entered into when it agreed to buy 1,064 locomotives, an investigation ordered by the state-owned company concluded.
Transnet’s board -- which has since been replaced -- approved the deal in 2014 to buy locomotives from China South Rail, China North Rail, General Electric Co. and Bombadier Inc. Costs spiraled to 54.5 billion rand ($4 billion) from 38.6 billion rand after the seven-year delivery period was accelerated.
A probe by law firm Mncedisi Ndlovu & Sedumedi Attorneys found that Transnet didn’t follow proper bidding and evaluation procedures and obtain required approval for the extra expense, and some executives were “negligent” or took “unlawful decisions”.
The procurement failed “to adhere to the applicable legal framework,” rendering the contracts susceptible to judicial review, the law firm said in a preliminary report dated June 5 that was seen by Bloomberg. “There were lapses in the corporate governance framework that was put in place for the transaction.”
Transnet’s former board ordered the Mncedisi investigation this year, saying that a probe it commissioned in 2017 from law firm Werksmans Attorneys was inconclusive and didn’t uncover wrongdoing by any of its officials -- an assertion Werksmans disputed.
Werksmans said Transnet should take immediate steps to recover misspent funds and discipline those responsible, and that law-enforcement agencies should conduct further investigations.
The report by the Mncedisi probe said several executives, including Siyabonga Gama, Transnet’s chief executive officer, and his predecessor, Brian Molefe, should be held personally liable. It alleges that they misled the board about savings that could be achieved by accelerating delivery of the locomotives and their decisions resulted in wasteful expenditure.
The board should also be held responsible for failing to exercise proper oversight and hold Molefe to account for signing the revised deal without proper approval, the law firm said.
Transnet’s board has been replaced since Cyril Ramaphosa took over as president in February from Jacob Zuma, whose almost nine-year tender was marred by scandal and whose allies have been accused of stealing billions of rand from state companies. A judicial commission of inquiry, headed by Deputy Chief Justice Raymond Zondo, is investigating the alleged looting.
Popo Molefe, the company’s new chairman, said the board had received the two law firms’ reports and been briefed by them, and would take any necessary action once it studied them.
“The issues raised in these two reports are of a serious nature and warrant that the board applies its mind fully to ensure that good corporate governance is upheld,” he said in an emailed statement on Wednesday. “The board will follow processes and avoid acting impulsively.”
Molatwane Likhethe, Gama’s spokesman, referred queries to the board.
Calls to mobile phone numbers previously used by Molefe, the ex-CEO who has previously denied wrongdoing, didn’t connect. Barry Farber, his lawyer, said by phone on Wednesday that he didn’t know if his client had seen the Mncedisi report.
The Sunday Times, a Johannesburg-based newspaper, reported on the Mncedisi findings earlier.
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