The State Capture Commission has recommended law enforcement investigate and prosecute several IT firms involved in suspected corrupt activities with state-owned company Transnet.
This emerged yesterday when the Presidency received the second part of the report of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector.
President Cyril Ramaphosa received the first part of the report from acting chief justice and commission chairperson judge Raymond Zondo on 4 January. The commission has until the end of February to submit its full report.
The second part of the report, which looks into state-owned companies Transnet and Denel, shows IT companies such as Neotel and T-Systems allegedly played pivotal roles in aiding state capture by the Gupta enterprise.
Neotel, the second national operator for fixed-line telecommunication services in SA, has since been absorbed by Liquid Intelligent Technologies, while T-Systems South Africa, which was a subsidiary of German-based Deutsche Telekom, was bought by its former rival Gijima.
The first part of the report reveals ICT firms such as EOH were also allegedly involved in several corrupt activities with public sector organisations.
According to the report, the evidence establishes convincingly that state capture occurred at Transnet between 2009 and 2018.
This was accomplished primarily through the Gupta racketeering enterprise and those associated with it, who engaged in a pattern of racketeering activity, it says.
Undue influence
The evidence from the report shows Neotel and T-Systems exuded irregular conduct in their dealings with Transnet and sought to extract money from the state-owned company for the benefit of the Gupta enterprise, in particular by Homix, an entity related to Salim Essa, whom the media dubs the ‘Gupta lieutenant’.
It notes that during January 2007 to December 2014, Transnet concluded three key contracts with Neotel – the 2007 Master Network Services Agreement (MSA), the procurement of Cisco equipment and the 2014 Master Network Services and Asset Buyback Agreement.
The report reveals that prior to 2009, two entities existed within Transnet that supplied IT services to Transnet. The first was Arivia, which owned Transnet's data centre, including all of the servers, information and data assets.
The second entity was Transtel, a subsidiary of Transnet, the network services provider that controlled the information communications network.
The commission says a decision was made in 2007 by Transnet to dispose of both businesses on the basis that they were not core to its operations.
It adds that a competitive procurement process resulted in T-Systems and Neotel, respectively, being the successful bidders for the data centre and the network.
The network services (telecommunications business) previously provided by Transtel were sold by Transtel to Neotel as a going concern in terms of a sale and purchase agreement prior to the conclusion of the 2007 MSA in December 2007.
The commission believes this sale had significant strategic repercussions, as it transferred control of Transnet’s network assets to an outside service provider, making it difficult (and prohibitively expensive) for Transnet to contract with any other service provider to take over the network at a later date.
It says in 2012, Transnet opted not to extend the 2007 MSA with Neotel, but to put the IT network contract out to open tender. The time-consuming procurement process led to the extension of the 2007 MSA until late 2013, says the report.
In June 2012, nine months before the due expiry of the 2007 MSA, Transnet issued a request for proposal (RFP) for a service provider to conduct a comprehensive due diligence exercise on its network assets and develop a network sourcing strategy.
The due diligence bid was awarded to Detecon, a company associated with T-Systems. Transnet further procured the services of another consulting firm, Gartner, to assist with the development of an RFP for the IT network services.
At a special meeting of the Board Acquisitions and Disposals Committee (BADC) held on 29 May 2013, the BADC resolved to authorise the then Transnet CEO “to approve the network services RFP, advertise, negotiate, award, contract and sign all relevant documentation in line with the approved strategy”.
On the same day, former Transnet finance heads Anoj Singh and Garry Pita addressed a memorandum to then CEO Brian Molefe requesting him to approve the network services sourcing strategy and grant authority to advertise an RFP to the open market for the provision of network services from August 2013 for three years with an option to extend for two years.
The estimated spend for the network services contract was R1.5 billion over a period of three years, or R2.5 billion over five years, based on an estimate of R500 million per year.
Molefe approved the request and granted the necessary authority on 9 June 2013.
Blatant favouritism
According to the report, Molefe favoured T-Systems (a company linked to the Gupta enterprise) and attempted (in the end unsuccessfully) to award the network services contract to it, in addition to the data contract it already had.
“For that to have happened, the assets underlying the network business (the cables, the switches and the router sold to Neotel by Transtel) needed to be transferred from Neotel. T-Systems, or for that matter, any other bidder for the 2014 MSA, required the network assets in order to provide the service to Transnet,” it says.
However, after the sale and purchase agreement, those assets were owned by Neotel and had been securitised by it after it concluded the 2007 MSA. Neotel had borrowed money and put up the assets as security for its loans.
The arrangement under the 2007 MSA had exposed Transnet to significant risk, says the report.
Neotel, as owner of the network assets, had it in its power to switch off Transnet's network, preventing it from using the network infrastructure, rendering it a “captive client”.
In addition, the report says, there was an exclusivity clause in the 2007 MSA which obliged Transnet to purchase all network equipment from Neotel.
“So it was impossible for any other service provider (such as T-Systems) to provide the services unless it leased or bought the assets from Neotel, or Transnet replaced the assets at a significant cost.
“This led to the procurement of new equipment from Cisco, the supplier of the equipment, and efforts to buy back some of the assets from Neotel during the negotiations of the 2014 MSA.
“Once it seemed likely T-Systems would get the contract, and considering that much of the equipment was near the end of its life, Transnet officials entered into proactive discussions with Cisco to acquire the equipment through Neotel (due to the exclusivity clause) in order to start installing it and to transition the network from Neotel to T-Systems.”
Transnet at that point wanted to re-acquire ownership of the equipment but had to buy any new Cisco equipment via Neotel.
The presidency says once all of the three parts of the report have been handed over to the president, Ramaphosa is expected to submit the completed report to Parliament by 30 June with “an indication of his intentions with regards to implementation” of the report’s recommendations.
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