Transnet says it can’t afford to pay employees more
Picture: Transnet. (Delwyn Verasamy, M&G)
A Gupta-linked company is poised to score the lion’s share of a Transnet contract worth R800-million, without a competitive tender. Documents obtained by amaBhungane and the Mail & Guardian show that, last November, the rail division of the parastatal issued the tender for an information technology (IT) solution, but controversially “confined” it to one bidder only, the business software giant SAP.
A condition of the tender was that an unusually high 60% of the value was to be spent on “supplier development”, normally aimed at black economic empowerment (BEE). This contravenes the treasury’s 25% limit on subcontracting and dwarfs Transnet’s planned target of not less than 20%.
When SAP submitted its bid in December, it committed itself to placing the entire 60% with just one company: Global Softech Solutions (GSS).
At that time, GSS was half-owned by the Guptas’ Sahara Systems and the remainder by an associate of theirs.
In its bid documentation, SAP told Transnet that the price it had quoted was pushed up by the “risk” of subcontracting so much to GSS, a company it had not used before. In response to questions this week, Transnet said that “suppliers appoint subcontractors at their discretion”.
But in the bid documentation, SAP suggested the choice lay with Transnet, saying: “Should Transnet have a preference of an additional specific partner to engage with, SAP will be happy to review their skills and their resource matrix.”
The bizarre tender process adds to concern about Gupta family influence at parastatal companies. Several sources, some known to amaBhungane and the M&G and some anonymous but clearly with inside knowledge, have alleged that Transnet executives have favoured Gupta-linked companies, including for consulting and IT services.
“Preposterous”
In an emailed response to questions, the corporate communications office of the Gupta holding company Oakbay Investments said: “The notion that a global multi-national such as SAP, which has almost 300 000 customers in 190 countries and reports over €20-billion in annual revenues, could be pressured, is quite preposterous.”
The SAP tender is for a high-risk, four-year deal to re-engineer all Transnet Freight Rail’s commercial business processes and retire all its old software in favour of an “end-to- end” system supplied by SAP.
The freight division forwarded a letter of award to the Transnet group executive to sign off in February this year, but the tender was stalled and suddenly withdrawn on June 1.
The withdrawal was based on a technical concern raised by Transnet’s internal auditors that chief executive Siyabonga Gama had not signed off on the tender.
Five days later, Gama signed approval for the tender to be re-issued — again confined to SAP, the documents show.
Transnet says the contract has not been awarded yet, but the tender was reissued with very tight deadlines — providing for a mere 11 working days to receive the new bid, evaluate it and recommend the award — which suggests that a nod to SAP and their Gupta-linked partner is a foregone conclusion.
Responding to detailed questions, SAP would only say the company had, to date, received no notification of the award of the tender.
“SAP is unable to respond to questions that fall outside of SAP’s sphere or which infringe upon any confidentiality obligations SAP has in place with its customers and partners. As such, we are unable to comment on any aspect of the tender process which is currently in progress.”
The company did not explain why it had selected GSS, despite never having previously awarded it any subcontracts.
It also did not respond to questions about whether “SAP’s rigorous global forensic procedure” had raised concerns about the Gupta connection, nor would they answer an allegation that GSS botched a contract with Durban-based Blendcor, while using SAP software, that has resulted in a R4-million court action.
“Why only one entity?”
Transnet’s technical team appeared puzzled by the choice of GSS. Minutes of a January 2016 meeting between Transnet and SAP representatives to discuss SAP’s bid noted: “SAP to use GSS for local supplier development. Why only one entity? Where [is] GSS track record? Not provided.”
The minutes proposed a meeting to discuss supplier development between Transnet’s BEE manager, Abdool Lutchka, and “Sunil” from SAP, understood to be Sunil Geness, SAP Africa’s flamboyant and well-connected “director of government relations”. SAP declined to answer questions about Geness’s role.
GSS is led by Leela Yemineni, who, according to his LinkedIn profile, was educated in India and worked for Transnet as an SAP consultant for two years before striking out on his own in 2010, using a close corporation called Global Softech Solutions.
In July 2014, he was joined by an Indian citizen, Mukul Teckchandani. According to his LinkedIn profile, he has been the general manager of the Guptas’ Sahara Systems since March 2014. The evidence suggests Teckchandani was simply a placeholder for his employer.
On September 8 2015, when the close corporation was converted to a company, Sahara Systems was allotted half the shares, with Yemineni retaining the other half. More recently, on May 26 this year, Sahara Systems transferred its shares to a company called Futureteq.
This was the same day Transnet’s internal audit called a halt to the initial contract award process. Futureteq appears to operate from Gupta company premises in Midrand. When amaBhungane phoned the Futureteq number this week, it was linked to the Sahara Computers switchboard.
Two prominent figures from the new company are former Sahara stalwarts: Fehmeda Jeena, who owns 50% of Fututreteq, is the ex-head of new business development for Sahara Systems, and Himanshu Tanwar, their digital transformation consultant, is a former marketing manager for Sahara Systems.
The emailed statement of Oakbay said: “There is no Sahara or Oakbay shareholding whatsoever in Futureteq. As such, we consider your other questions irrelevant.”
“Suitable for appointment”
The decision to confine the tender to SAP was placed before the Transnet board’s acquisitions and disposals committee, chaired by Stanley Shane. In May this year, Public Enterprises Minister Lynne Brown was asked in Parliament whether Shane’s “connection to the Gupta family played any part in the appointment”.
Brown replied: “It is not known what connection Mr Shane has to the Gupta family, nor was this the reason for his appointment to the Transnet board … His academic qualifications and experience in economics and investment banking made him suitable for appointment.”
Also on that committee is the Transnet chairperson, Linda Mabaso, whose son at one time had a business connection with the Gupta associate Salim Essa.
At the time of the decision to confine the tender, another member of the committee was Richard Seleke, a Free State provincial director, who resigned from the Transnet board in November 2015 after being appointed director general of the department of public enterprises.
The final member of the committee was the little-known Zainul Nagdee.
All four directors were asked, through Transnet, to clarify their relationship, if any, with the Gupta family. In its response, Transnet merely affirmed: “Transnet has a rigorous regime of policies governing conflict of interest. All transactions that require board approval are subject to assessment by the board committee members as a collective and not as individuals.”
The decision to issue a tender request to SAP alone was itself controversial.
“In line with our governance processes”
Among the documents amaBhungane and the M&G obtained is the memo presented to the board committee setting out the case for confinement and award of the contract. The motivation reads as though it was largely cut and pasted from SAP promotional material.
Glaring weaknesses include the fact that Transnet Freight Rail had not analysed its existing business processes to define how best to re-engineer them.
This first step was entrusted to the same people, SAP, who are trying to sell their own off-the-shelf solution.
The benefits of software integration were not compared with the risks of relying on a single supplier, and the stated annual savings of R18-million in respect of retired soft- ware applications were not balanced against the cost of new software requirements set out by SAP.
Commercial arguments were based on data and projections that appear to be highly speculative.
It also appears that this committee decided to insert the 60% supplier development (SD) precondition. The presentation to the committee spoke of a desire to “negotiate a minimum of 20% SD commitment on contract value” — a more realistic target.
The risks the committee appears to have ignored are illustrated by the way in which SAP later refused to accept Transnet’s terms and conditions, especially regarding penalties. And comments by Transnet’s own negotiation team highlight concerns about the way in which SAP transferred risk to Transnet.
Transnet did not answer questions about the process and only gave broad assurances: “The company has processes and procedures regarding the preparation and approval of business cases.
“Our sourcing strategies are informed by the company’s business requirements. These are assessed in line with our governance processes and relevant legislation.
“On the use of subcontractors, Transnet’s agreements are with prime contractors. Suppliers appoint subcontractors at their discretion and information regarding subcontractors should be directed to their contractors.”
The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help us do more. Know more? Send us a tip-off.