4 December 2018

South Africa: Appeal Court Strikes Down Infamous Locomotive Contract

Photo: Ashraf Hendricks/GroundUp
The Supreme Court of Appeal has struck down Siwafambo’s locomotive contract with PRASA.

The Supreme Court of Appeal (SCA) has delivered a scathing judgment about the shenanigans at PRASA under its former CEO Lucky Montana.

In 2011, the Passenger Rail Agency of South Africa (PRASA) published a call for tenders for the supply of locomotives to pull passenger trains on national routes. PRASA, an organ of state, at the time thought that it needed at least 85 new locomotives.

In 2011, PRASA sought advice from a Spanish locomotive company, Vossloh, as to what PRASA needed in the short, medium and long term to keep its fleet moving. A memo of the needs identified by Vossloh was sent to Lucky Montana, CEO of PRASA, in July 2011. The memo recommended that PRASA buy 100 locomotives. This, together with other activities needed to update PRASA's trains, would cost about R5 billion over a period of six years.

PRASA decided it would buy about 88 locomotives. It announced a tender process in November 2011. But it appears that PRASA did very little homework before going out on tender. The company didn't know, for example, what type of locomotive it required, nor did it follow any of the financial procedures that its own procurement policies and National Treasury require.

Instead, Montana instructed a Mr D Mtimkulu, a man with no qualifications, to draw up the specifications for the locomotives needed by PRASA. Mtimkulu was first appointed at PRASA by Montana in 2010 and enjoyed an extraordinary rise through the ranks at the parastatal.

The Gauteng High Court found in July 2017 that the specifications drawn up by Mtimkulu contravened PRASA's procurement policy, but were perfectly consistent with locomotives produced in Spain by Vossloh, the very company that had provided advice to PRASA on what it needed. While Mtimkulu made absolutely sure that the tender would be awarded to Vossloh, he spent less time ensuring that the locomotives would actually fit South African railway lines. When the locomotives were eventually delivered, they were famously too high for South African railway lines and could not be used.

PRASA's board discovered Mtimkulu's fraud in 2014 and first he and then Montana resigned in 2015. But the tender that had been awarded based on those fraudulent specifications back in 2011 remains the subject of court proceedings.

The company that won the tender to supply Vossloh's locomotives was Swifambo Rail Leasing. Swifambo maintains that, while officials at PRASA were clearly acting fraudulently in putting together this tender, it had no idea of the corruption and irregularities that accompanied the tender and therefore should not be punished. So when PRASA asked the Johannesburg High Court in 2017 to set the tender contract, worth about R3.5 billion, aside, Swifambo opposed the application.

The high court set the contract aside. And on Friday last week, the SCA handed down judgment in the appeal of Swifambo against the high court's ruling.

Judge Carole Lewis, writing for a unanimous court, emphasised that it was not merely the tender specifications themselves that were fraudulent. Swifambo's bid was defective in many important respects, including that it had no required broad-based black employment equity plan for the procurement of goods and services and that none of the locomotives would be designed or manufactured in South Africa. Indeed, Swifambo's tender showed that the company had no previous experience in supplying locomotives or in the rail industry whatsoever. Despite this, the PRASA bid committee awarded the tender to Swifambo in March 2012 to provide dual electric diesel locomotives.

In the High Court, the former chair of the PRASA board, Popo Molefe, provided evidence of internal irregularities based on facts arising from an investigation that the board conducted into PRASA's business prior to his involvement. The investigation was not easy, Molefe told the High Court. This was in part because PRASA's business was complicated and because of the departure of many employees at the time. But it was also because of "a generally un-cooperative attitude from certain employees within the organisation. In some instances PRASA's records were concealed, spirited away or destroyed" and facts were only discovered by investigators based on documents that were provided to the court, he said.

Swifambo wanted the SCA to dismiss this evidence as 'hearsay'. The court disagreed, in part because Swifambo itself admitted that the practices at PRASA in awarding this tender were clearly irregular (but claimed it knew nothing about it at the time).

Swifambo also took issue with PRASA's allegation that it was a front company for Vossloh, which could not tender for the production of locomotives as it is not based in South Africa. The practice of fronting is defined in the Broad-Based Black Economic Empowerment Act as the "conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of broad-based black economic empowerment compliance without granting that black person the economic benefit that would reasonably be expected to be associated with the status or position held by that black person". Fronting is a criminal offence.

The SCA held that the evidence stacks up against Swifambo. The company was created a mere 20 days before putting in its tender; its contract with Vossloh provided that Vossloh supply the locomotives, with Swifambo's only obligation to "accept delivery of locomotives" and hand these to PRASA. Swifambo added no further value. Also, there was no skills transfer or change of asset holding from Vossloh to Swifambo that could justify the arrangement as "transformative". "Swifambo's real role was undoubtedly to enable Vossloh to become the real bidder for the tender," Lewis concluded.

After the SCA judgment came out, Montana launched a curious attack on the court, calling it a "travesty of justice", apparently because he was not allowed to participate in proceedings. "So the SCA judges decided to make a judgment on a person who was not before them", he said.

But this case was not about him.

The mention of him comes in PRASA's explanation of why it should be allowed to have a contract set aside more than three years after the deadline for doing so. In explaining the delay, Molefe told the court that when the PRASA board was reconstituted, "Montana, who had controlled PRASA and its staff, was obstructive, and attempted to cover up his role in various corrupt transactions, including the award of the tender to Swifambo." The court continues:

"Furthermore, Montana misled the new board as to the nature of the complaint made to the Public Protector, saying it was a trivial matter. And then, despite several requests by Molefe to Montana to provide a response, he had not done so before he left PRASA."

It is unclear why a man so desperate to have his side of the story heard, declined to do so when explicitly asked to respond to the Public Protector's report. But an application from PRASA and civil society organisation OUTA to force the National Prosecuting Authority (NPA) to prosecute Montana is pending in the Gauteng High Court. Should they be successful, or should the NPA decide to prosecute him on their own accord, Montana will have ample opportunity to state his side of the story.

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