/ 3 July 2014

Transnet tender boss’s R50-billion double game

Chairperson of Transnet's board tender committee Iqbal Sharma.
Chairperson of Transnet's board tender committee Iqbal Sharma.

The man who presided over Transnet’s R50-billion tender for locomotives has joined forces with the Gupta family and President Jacob Zuma’s son, Duduzane, in a move that potentially puts them in pole position to benefit from key subcontracts.

Iqbal Sharma, chairperson of Transnet’s board tender committee, entered into negotiations in December to buy a Gauteng engineering firm, VR Laser Services, that produces steel plate components for heavy vehicle bodies.

In February, a company in which Rajesh Gupta and Duduzane Zuma are partners acquired their stake in VR Laser – an interest they have endeavoured to keep hidden.

Throughout this period, Sharma was overseeing the locomotive tender process. He tied up his acquisition of his part of VR Laser a matter of weeks before Transnet announced the main tender winners in March.

This week, Sharma denied owing his position at Transnet to Gupta string-pulling. He also denied any conflict of interest, claiming that VR Laser did not do – and had no intention of doing ‐ business with Transnet. He said he had bought the property company that owns VR Laser’s premises, but not VR Laser itself.

Key visit
However, amaBhungane has established that, as Sharma was putting the finishing touches to both the tender and his acquisition of the property holding company linked to VR Laser, each of the four multinational train manufacturing companies that would later win a slice of the locomotive supply contract visited the engineering company’s premises to assess the possibility of subcontracting work to VR Laser.

The winning bidders are required by state procurement policy to source up to 60% of their locomotive components from South African subcontractors, placing VR Laser in a highly advantageous position.

The company bills itself as “a complete one-stop fabrication facility for the manufacture of all types of vehicle hulls for any original equipment manufacturer”.

Sharma is a director of the Transnet board and chairs the board subcommittee that oversees the company’s tender processes and approves tender recommendations.

Transnet announced the main tender award on March 17. Unusually, they split the contract between four major train builders – China South Rail, Bombardier, General Electric and China North Rail.

The parastatal declared the R50-billion transaction to be “South Africa’s single biggest infrastructure investment initiative by a corporate”.

Concerns over tender
The Mail & Guardian reported three weeks ago that the National Union of Metalworkers of SA (Numsa) had submitted a report to the public protector, raising concerns about the way Transnet structured, adjudicated and awarded the locomotive tender.

The report states that government’s policy of localisation and job creation had, in the case of the Transnet locomotive tender, been abused by “the implementation of opaque and underhand business dealings to line the pockets of a selected minority business and political elite”.

Before his appointment to the Transnet board in December 2010, Sharma headed a unit at the department of trade and industry set up to boost imports and exports.

It was in this role that he reportedly first met the Guptas, who had positioned themselves as increasingly important conduits for Indian investment in South Africa.

Far from being a grey cog in the government machine, Sharma’s marriage to a Bollywood actress has on occasion landed him in the gossip pages of the Indian tabloid press.

He was later appointed to the Transnet board, and Business Day and the M&G reported that then public enterprises minister Malusi Gigaba tried, but failed, to have him appointed board chairperson in June 2011.

It was reported that the Cabinet had vetoed Sharma’s appointment on the grounds that he was too close to the Guptas.

This reflected growing concern about the Guptas’ perceived influence over appointments to key positions in state-owned companies, stemming in part from reports about the family’s business partnership with Duduzane Zuma.

Quiet appointment
Sharma admitted to the M&G at the time that he was a friend of the Gupta family, but said he had no business associations with them.

Transnet would later create a new structure, formally called the board acquisitions and disposals committee, to supervise the planned pipeline of future large-scale infrastructure spending.

Sharma was quietly appointed to chair this committee.

Previously, Transnet’s individual subsidiaries had supervised their own procurement processes. The newly created board oversight committee, which Sharma chaired, took over the supervision of all tenders worth more than R2.5-billion.

Transnet invited proposals for the R50-billion locomotive tender in October last year.

While it was being decided, Sharma and his business associate Salim Essa approached VR Laser and offered to purchase the company.

The sale was agreed on in December for an undisclosed sum. Share registers show that it was finalised in the weeks immediately before the tender award in March.

Distancing themselves
In a move possibly designed to create distance between Sharma and the day-to-day operations of VR Laser – perhaps to ward off accusations of a direct conflict with his Transnet role – a company owned by Essa purchased VR Laser.

Through his investment company Sharma bought a related company, VRLS Properties, which owns the two factory premises where VR Laser operates.

Both Sharma and Essa sought to distance themselves from one another this week – but the facts suggest real proximity (see “Facts tell a story” below).

Essa and Sharma were also both evasive when asked who owns VR Laser, the operational side of the business. Both claimed it was solely owned by Essa, but then Essa conceded he had inherited the previous owner’s empowerment partner, Benny Jiyane, as a minority shareholder.

Jiyane confirmed this, saying he had opted not to sell his 25% stake in the business.

Enter the Guptas and Duduzane
But amaBhungane has obtained a share register for VR Laser showing that Jiyane ceded his stake to Craysure Investments in February this year. Further share registers show that Craysure is 100% owned by Westdawn Investments, the Gupta-owned company that trades as JIC Mining.

Duduzane Zuma partners the Guptas in Westdawn. He did not respond to questions.

Like Essa and Sharma before him, Jiyane first played dumb about the Gupta-Duduzane stake.

When challenged by the evidence, Jiyane changed his tune, saying he “intended to sell” to Craysure subject to “certain confidential conditions”, which would only be realised within a year.

Only then did Jiyane concede that he had in fact been dealing with the Guptas, saying: “I think Craysure has something to do with Sahara.”

Sahara, a computer supplier, is one of the better-known Gupta-owned companies.

After attempts to maintain the secrecy surrounding the Gupta-Duduzane stake in VR Laser failed, Sharma lashed out at amaBhungane.

Without mentioning the Guptas by name, he said: “Your continued targeting of a single family is frankly boring and tiresome.”

Westdawn chief executive Jacques Roux echoed Sharma: “We have become accustomed to the continuous and unfounded attacks by your newspaper on our shareholders and our business.”

Sharma was explicit on one point, however: neither VR Laser nor the investment company that owns VRLS Properties “has done or is doing or contemplating doing business with Transnet”. On both counts, he was contradicted by the testimony of sources in the know, who include VR Laser people, both past and present.

VR Laser’s original owners foresaw the potential of the upcoming government infrastructure spend, including locomotive procurement by Transnet, to grow the company’s revenue.

In a 2008 interview with Engineering News, VR Laser’s then empowerment partner Jiyane was quoted as saying that VR Laser was “expecting a significant amount of business from Transnet off the back of the company’s [Transnet’s] refurbishment programme, which would run into a significant cash flow over the next 15 years”.

Jiyane, who still works at VR Laser, told amaBhungane this week that the company was a registered supplier to Transnet of precision laser-cut steel components for the upkeep of the existing locomotive fleet.

Transnet later confirmed that VR Laser “has performed services” worth a total of R1-million for Transnet Engineering since 2006.

Circling the subcontracts
Jiyane also revealed that all four companies that would later win a slice of Transnet’s new locomotive tender had visited VR Laser’s factory between December 2013 and January, to evaluate them as potential local suppliers.

The tenderers’ bids were at that time under consideration by Transnet, presided over at the apex of the tender process by Sharma himself. Sharma had conducted sale negotiations with VR Laser’s former owner in December.

His close associate, Essa, finalised his purchase of the operational part of VR Laser in February, and Sharma tied up his acquisition of the property-owning side of the company in March.

Two weeks later, Transnet announced the four companies that had won the R50-billion main tender.

Transnet spokesperson Mboniso Sigonyela said that Sharma “has declared all his interests for the current year as required”.

Sigonyela later clarified that the company Sharma declared was in fact his investment company, and not VRLS Properties.

Pressed for clarity on Transnet’s disclosure policy, Sigonyela said: “Transnet requires that a director declares the legal entity which owns assets. The director only needs to declare those assets when they deal directly with Transnet.

“We believe that there is no conflict of interest as Mr Sharma does not own shares in VR Laser.”

Facts tell a story of documented proximity

Iqbal Sharma claimed this week that “I have no direct or indirect relationship with VR Laser Services” – Salim Essa’s company.

The facts suggest otherwise:

• John van Reenen, one of VR Laser’s founding co-owners, confirmed that Sharma had bought VRLS Properties and that Essa had bought the operational side, VR Laser Services. However, Van Reenen recalled that during initial purchase negotiations Sharma represented both companies. “It was always made quite clear to me that he [Sharma] had this associate [Essa], who would be taking over the steel company, and that Sharma was negotiating on Essa’s behalf.”  

• Essa has previously been profiled as one of the “leaders” of Sharma’s investment company, Issar Capital, which owns VRLS Properties. A screen grab of the Issar Capital website, taken in May last year, shows that Essa was then directly involved with Sharma in Issar Capital. Essa no longer appears on this website. Given this back story, Essa was strangely evasive about his connection with Sharma, claiming not to know who owned VRLS Properties. On being told that Issar Capital owns the property company, Essa said he had “heard of the name” and then hurriedly excused himself from the call. He did not respond to further written questions. 

• Sharma and Essa are co-directors in another business, solar panel manufacturing company Daqo South Africa, since November 2012. Daqo is headquartered in Issar Capital’s Sandton office. 

• They are also co-directors in a third company, National Agricultural Development Project, since December 2012. This company is not located at Issar Capital. Incidentally, the company’s share register shows that Sharma and Essa each acquired a shareholding in National Agricultural Development Project from Gupta-owned companies on the same day in November last year. – amaBhungane reporters