Molefe and the R78m ‘success fee’ paid to Regiments

Former Transnet Group CEO Brian Molefe appeared before the Zondo Commission of Inquiry into state capture on Tuesday to continue with his Transnet-related evidence. Anton Myburgh SC was the evidence leader.

Molefe’s evidence was peppered with business homilies and analogies, and provided a window into the CEO’s decision-making process.

For example, in explaining why it was necessary to approve a generous payment of R78.4 million to Regiments Capital when doing so wouldn’t be in accordance with any agreement – there being nothing in law compelling Transnet to make such a payment, as Myburgh put it – Molefe said: “This was a decision that would typically be taken by a CEO in my position.”

The R78.4 million payment

On April 16, 2014 McKinsey addressed a letter to Transnet advising that it had ceded its transaction advisory rights and obligations to Regiments on February 5, 2014.

On April 16, 2014, Vikas Sagar of McKinsey advised Transnet chief financial officer at the time Anoj Singh that McKinsey would, with effect from February 5, 2014, cede its rights and obligations to Regiments.

On the same day, Singh wrote a memorandum to the CEO, Molefe, to request approval of a R78.4 million “success fee” payment to Regiments.

The memorandum claimed that Regiments had saved Transnet R2.8 billion, and that they should therefore be paid R78.4 million.

Molefe approved the request on April 17, 2014.

Molefe said that Regiments initially wanted to be remunerated on a different basis, but now they requested a change in the remuneration model: “Regiment[s] was coming back and saying, guys, I have already saved you R2.8 billion. So please, can you reconsider the remuneration model that would effectively allow me to be paid another R78 million and what I simply did, I looked at the situation, I thought R2.8 billion is not bad for R78 million, and I approved it, that is in English, that is what happened.”

Shedding further light on his reasons: “It is a well-known principle in business, that remuneration should be linked to the benefits to the company.”

Molefe did however, after further questioning, concede that it was quite generous and that Transnet didn’t have to make the payment.

Myburgh questioned Molefe on whether he knew that half of the R78.4 million had gone to Salim Essa, a businessman with links to the Gupta family.

He didn’t know that.

Myburgh said Molefe should understand why this contract is being placed under scrutiny, and went on to make the point that Essa was the Guptas’ money-laundering lieutenant.

Anger, interrogation, harassment

At this point Molefe got really angry, and accused Myburgh of saying that he knew Essa, whereas he had categorically stated that he does not.

Molefe turned to commission chair Deputy Chief Justice Raymond Zondo, and said he hoped “we aren’t here for Myburgh’s preconceived theories but to listen to objective evidence that is not tainted by what Myburgh has read … I am not here to answer to what is in Myburgh’s head”.

Zondo explained that Myburgh must probe whether it is possible that Molefe did know Essa, on the basis that he was friendly with the Gupta family.

Zondo said at the end of the day, Myburgh will have to make a submission to the inquiry, based on the evidence before the commission, on whether Molefe knew Essa or not.

Molefe’s attorney interrupted and said they would like to put it on the record that Molefe did not know Essa. The attorney further made a complaint that Molefe was patronised the previous day, and is now being “interrogated and harassed”.

Zondo referred the attorney to the rules, which provide that the evidence leader is entitled to ask questions to get to the truth.

MNS forensic report

Myburgh then turned to the Mncedisi Ndlovu & Sedumedi Attorneys (MNS) forensic report.

The report concluded that the cession of McKinsey’s rights and obligations to Regiments was invalid because, at the time McKinsey purported to cede the contract, McKinsey’s rights in respect of the transaction advisory services had lapsed.

MNS was of the opinion that the approval of the R78.4 million was irregular because the alleged cost saving was part of the letter of intent/master services agreement deliverable and budgeted for at R13.5 million.

In other words, Regiments had not secured any savings for Transnet.

This was surprising to Molefe, as he had trusted the bona fides of his colleagues (there was only one, Singh).

Were savings affected? Molefe doesn’t know

Myburgh referred to a memorandum dated April 23, 2014, written by Transnet chief procurement officer Edward Thomas, in which he disagrees with the change in the remuneration model.

Thomas explained that the benefits Transnet obtained resulted from the deliverables provided for in terms of the fixed fee agreement that was in place. And that it was irrelevant that Regiments Capital accepted the rights and obligations of the fixed fee contract.

Molefe claimed that Thomas’s memorandum never reached him or Singh.

Molefe had to concede that he didn’t know if any savings were affected.

Molefe, in regard to Singh’s memorandum, said he trusted that Transnet had quite a robust internal audit and a robust legal department, and it was not possible for something like this to end up on his desk without being correct.

Myburgh noted that there were no levels of authority on the memorandum, it had come directly from Singh.

Molefe: “I trusted Singh”.

He elaborated: “As group CEO you have to trust your colleagues and subordinates … if they tell you that it is raining outside you do not take out your hands through the window and check if it is raining.”