Transnet deals fall into Gupta man's lap

A close Gupta associate is set to profit from lucrative mystery-shrouded Transnet contracts that are under investigation by the National Treasury.

Salim Essa, who recently benefited from a multibillion-rand partnership with state arms contractor Denel that Finance Minister Pravin Gordhan wants reversed, could now be in line to score millions more.

This follows a decision by the board of Transnet last week to approve the cession of major advisory contracts from Regiments Capital to Trillian Capital Partners, a company registered last year in which Essa holds a 60% stake.

Trillian director Eric Wood and Transnet say the company was initially a subcontractor to Regiments, but Regiments executive chairman Litha Nyhonyha denies this.

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The transfer of the contracts effectively means Essa inherits them without lifting a finger.

Treasury spokeswoman Phumza Macanda confirmed the investigation but declined to divulge details.

All parties involved, citing confidentiality agreements, refused to give the value of the contracts.

But documents seen by the Sunday Times show that Transnet paid Regiments at least R800-million in fees between April 2014 and May 2015.

Contracts the Sunday Times was able to identify include:

"GSM/14/04/1255 to provide support to Transnet to increase freight business"; and

"GSM/14/04/1038 to provide professional services to Transnet in the renegotiation of the Kumba Iron Ore contract for a year".

This was disputed by Nyhonhya, who said: "Ordinarily, this flattery would be welcomed - reports of our success being greatly exaggerated. In fact, we would have been delighted if the total income earned by Regiments from all its clients in any year was anywhere in the region of R800-million."

Within days of the registration of Trillian in April last year, Essa was introduced to Transnet as a subcontractor to Regiments.

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Regiments itself had been brought to Transnet in 2012 by McKinsey & Company, a global advisory firm, as its subcontractor, before Regiments obtained its own work.

Transnet sources said the decision to allow cession of the contracts was taken during a special board meeting on Wednesday last week.

Wood was an executive director of Regiments for nearly 12 years until February this year before joining Trillian as CEO.

Wood, who has a 25% stake in Trillian, headed up Regiments' contract with Transnet.

block_quotes_start They knew I was moving. I certainly don't understand why they would deny facts                                 block_quotes_end

Nyhonyha said Regiments had undergone a restructuring process that resulted in Wood taking the Regiments Advisory Business Unit into his new independent company.

"We do not have control [over] what he did with the stake and Regiments has no association with Trillian whatsoever," said Nyhonyha.

"Subsequently, Mr Wood consummated a transaction with Trillian without the involvement of Regiments."

But Wood denied this version and internal Transnet documents seen by the Sunday Times indicate that Regiments knew it was ceding the contracts to Trillian.

"Before the end of February they already knew that I was moving to Trillian," Wood told the Sunday Times this week.

"It's always been clear, and they always knew and understood, that I was moving to Trillian. I certainly don't understand why they would deny facts," he said.

Transnet, through its spokesman, Mboniso Sigonyela, confirmed that it had appointed McKinsey, which in turn appointed Regiments as subcontractor. Regiments appointed Trillian as subcontractor, Sigonyela said. He added the request for a cession involved only one transaction.

Nyhonyha said Regiments did not introduce Trillian to Transnet.

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Essa has been the subject of numerous reports over his links and partnerships with the Gupta family, who have been accused of using their proximity to President Jacob Zuma to score government deals.

In January this year, government defence contractor Denel formed a joint venture with VR Laser Asia in a R10-billion deal to build and supply combat vehicles for the defence force.

Gordhan flagged the deal and ordered that it be scrapped because it had been concluded without Treasury permission.

VR Laser South Africa, the parent firm, is owned by Essa, the Gupta family and Zuma's son Duduzane.

Essa also has links to the Transnet board through having once been a business partner of board chairwoman Linda Mabaso's son Malcolm - an adviser to Mineral Resources Minister Mosebenzi Zwane.

Essa was also a business partner of Iqbal Sharma, chairman of Transnet's tender committee, until December 2014.

sub_head_start What services were provided is a mystery sub_head_end

Contracts between Transnet, McKinsey&Co, Regiments Capital and Trillian Capital Partners remain a mystery as all parties refuse to release details of the deals, which are being investigated by the National Treasury.

Although the Treasury refuses to talk about an ongoing investigation, the Sunday Times understands it wants to know why and how Transnet appointed McKinsey & Company, Regiments and Trillian as suppliers and what they do or did at Transnet.

Regiments executive chairman Litha Nyhonyha said it had never been told it was being investigated by any party. "We have never been informed that National Treasury is conducting a review of any of our contracts," he said.

Regiments and Trillian have subsequently been appointed as leads in independent contracts by Transnet.

Three independent sources informed the Sunday Times that those appointments, including McKinsey's, were done via a confined process - they were made without going out on open tender.

Transnet's internal policies provide for confinement but under strict circumstances, which internal sources insist are absent.

Transnet, over two weeks, refused to divulge details of the contracts or make available documents related to them. Thus it is not clear what work the companies did for Transnet, how much they may have been paid, or the duration of the contracts.

block_quotes_start These companies have already been paid hundreds of millions by Transnet                                              block_quotes_end

"These entities do a lot of activities within the organisation. They enjoy superior status due to their proximity," a Transnet source said. "In other instances, they provide services that the organisation is fully equipped in. When they have to be paid, they are paid immediately on submission of invoice."

Transnet spokesman Mboniso Sigonyela said Transnet awarded contracts to McKinsey and Regiments for various professional support services. "The contracts were awarded in line with Transnet's procurement policies and procedures for a period of between one and two years."

Nyhonyha said Regiments had an enviable 12-year track record and ensured it was procured in compliance with governance regulation. "We pride ourselves on our track record of delivering exceptional service to our array of clients - both in the public and private sector - that translates ultimately into value added equal to many multiples of the cost of the service."

A senior government official with intimate knowledge of the Transnet deals said they were highly irregular. "What is clear is that no procurement process was followed, there was no bid advertised so that there can be [a] competitive bidding process followed to appoint those companies. The contracts are obviously irregular," he said.

"These companies together have already been paid hundreds of millions by Transnet. They are appointed as general consultants and given different tasks because there was no competitive bidding ... No specific task to justify payments."

Rachel Grant, McKinsey's director for global media relations, said it held itself to the highest ethical standards. "We have supported clients in South Africa for 21 years and worked with many different supplier development partners, though neither Regiments nor Trillian are currently supplier development partners to McKinsey."

Essa has not responded to requests for comment.

skitis@sundaytimes.co.za, jikat@sundaytimes.co.za