These pages and offshore banking data tell the story of how Transnet\u2019s ambitious plan a decade ago to renew its locomotive fleet was repurposed to extract loot systematically and on an unprecedented scale.<\/p>\n\n\n\n
Today we publish those pages<\/a> \u2013 eight kickback agreements, most of them made public for the first time \u2013 and an analysis of the bank data to show that by late 2016, Gupta front companies had received at least R3.7-billion, two fifths of the promised R9-billion.<\/p>\n\n\n\n After 2016 the bank data goes dark but the pillage likely continued.<\/p>\n\n\n\n The kickbacks were paid by two locomotive manufacturers now merged to form CRRC Corporation, the Beijing-based conglomerate that boasts of being the world\u2019s largest supplier of rail equipment.<\/p>\n\n\n\n But the money came from ordinary South Africans via Transnet, a state-owned company. It followed a simple formula: whatever Transnet paid the CRRC companies, they paid the Guptas a cut of, usually 21%.<\/p>\n\n\n\n The Gupta-CRRC heist spans distinct Transnet orders for 95, 100, 359 and 232 locomotives, plus relocation and maintenance add-ons, with an aggregate value of about R42-billion \u2013 a twisted monument to the extent of their capture of the rail utility and the collusion of its executives, board members and politicians.<\/p>\n\n\n <\/p>\n\n\n\n The kickback agreements reveal the complicity of CRRC officials at the highest level; not surprising considering that more than a fifth of their Transnet revenue was pledged to the Guptas. This does China no favours as it battles to establish itself as a champion of the developing world and to overcome the perception its firms bribe more readily than their Western counterparts.<\/p>\n\n\n\n Attempts over the course of weeks to reach CRRC for comment by email, phone and via the Chinese embassy have drawn no substantive response. CRRC is listed in Hong Kong and Shanghai but the Chinese state is its controlling shareholder.<\/p>\n\n\n\n In June 2017, after amaBhungane and its #GuptaLeaks partners published the first evidence<\/a> of kickbacks having been paid on the locomotive contracts, Transnet wrote to a local CRRC subsidiary seeking \u201cclarification\u201d.<\/p>\n\n\n\n It wrote back<\/a>, stating categorically: \u201cWe have never had any engagement and\/or dealings with the Gupta Family and\/or its associates in relation to the agreement Project 359.\u201d<\/p>\n\n\n\n The Guptas, whose whereabouts are not clear, did not respond to emails sent to known addresses for a member of the family and their lieutenant Salim Essa.<\/p>\n\n\n\n \u201cThe 1st batch of Chinese E-loco landed at Africa!\u201d shouts a November 2013 news item<\/a> on CRRC\u2019s website.<\/p>\n\n\n\n Accompanying photographs show Zhou Qhinghe<\/a>, then chief executive of CSR Zhuzhou Electric Locomotive Co, celebrating the delivery in Tshwane of the first locomotives from an order of 95 that Transnet had placed with his company\u2019s South African subsidiary.<\/p>\n\n\n\n Zhou now straddles corporate, party and parliamentary politics. He is board chair-cum-Communist Party secretary of the now-renamed CRRC Zhuzhou and a member of the National People\u2019s Congress, China\u2019s highest organ of state power. <\/span><\/p>\n\n\n\n In March 2014 Zhou, who is wont to expound on his company and country\u2019s \u201cgo out\u201d or \u201cgo global\u201d strategy, was in South Africa again.<\/p>\n\n\n\n This time he had come for the signing ceremony of new Transnet orders for 100 and 359 electric locomotives from his company and 232 diesel locomotives from a subsidiary of a second Chinese rail group, CNR.<\/p>\n\n\n\n This was reportedly the single biggest order of Chinese high-end rail equipment globally, making a not-insignificant contribution to the soaring fortunes of CRRC Corporation (2019 revenue: R567-billion), which arose from the subsequent merger of the CSR and CNR groups.<\/p>\n\n\n\n A news report<\/a> reproduced on CRRC\u2019s website recounts a \u201cvery interesting moment\u201d when Transnet wanted a representative of the local CSR Zhuzhou subsidiary to sign their contract, while \u201cChinese regulation\u201d dictated that Zhou as head of the parent company should sign.<\/p>\n\n\n\n The impasse was broken, according to the report, when a lawyer suggested the local representative issue a power-of-attorney delegating Zhou to sign for him. \u201cThe story of \u2018the employee authorised his boss to sign contract\u2019 is still a joke between colleagues.\u201d<\/p>\n\n\n\n But Zhou was not done going global or signing.<\/p>\n\n\n\n Think of a car salesman offering the proud owner of a new vehicle a service plan for \u201cguaranteed peace of mind\u201d. In this case the salesman brought in help to convince the customer.<\/p>\n\n\n\n Zhou\u2019s signature appears alongside that of Essa, the Gupta lieutenant, on a \u201cbusiness development services\u201d agreement dated 10 June 2015, Sandton. It provided that CSR Zhuzhou would kick back 21% to a Gupta front in Hong Kong should the latter convince Transnet to agree to a 12-year maintenance plan.<\/p>\n\n\n\n Transnet awarded the R6.2-billion deal to CRRC Zhuzhou, as it was by then called, the following year. Transnet eventually pulled out, but not before paying CRRC a 10%, R618-million advance. Of this, according to our analysis, 21% went to the Guptas.<\/p>\n\n\n\n Other senior CRRC executives\u2019 names also litter the kickback contracts with the Guptas. They include Zhou\u2019s colleagues Guo Bingqiang and Hu Yuewen from CSR, and Ma Zhan and Zhu Zhiyong from CNR.<\/p>\n\n\n\n The R9-billion total value of the locomotive kickback agreements \u2013 against the R5.3-billion estimated before \u2013 includes a previously unknown 21% kickback agreement between the Guptas and CNR.<\/p>\n\n\n\n A CNR Hong Kong subsidiary entered into an \u201cexclusive agency agreement\u201d with a second Gupta Hong Kong front represented by Essa, pledging it 21% of the R9.9-billion total contract price of the 232 diesel locomotives CNR would supply Transnet.<\/p>\n\n\n\n Our analysis shows that CNR honoured the kickback commitment up to the point where our bank data ends.<\/p>\n\n\n\n Like CSR, CNR and the Guptas also found a post-sale mechanism to relieve Transnet of more money. In this case it was under the pretext of Transnet\u2019s decision to move the local assembly facility from Gauteng to Durban \u201cto stimulate development in other parts of SA\u201d.<\/p>\n\n\n\n We have previously reported<\/a> how Gupta-linked consultants were roped in to convince Transnet of a R647-million payment to \u201ccompensate\u201d CNR for the move. CNR paid the consultants R67-million, much of which flowed to local accounts controlled by Essa.<\/p>\n\n\n\n Now our analysis of the bank data concludes that the Guptas got their cake and ate it. Over and above the local kickback, CNR transferred R116-million to one of the fronts Essa had set up in Hong Kong.<\/p>\n\n\n\n The day of the last nationwide municipal elections, 3 August 2016, stands out like a sore thumb in the Gupta kickbacks timeline.<\/p>\n\n\n\n Effective that day, CRRC signed off on two addenda with the Gupta Hong Kong fronts amending their earlier kickback agreements in relation to the 95, 100 and 359 locomotive orders. The purpose was to put a quarter of a billion rands in Gupta pockets \u2013 fast.<\/p>\n\n\n\n By that time the maintenance plan kickback agreement which Zhou, the CSR Zhuzhou boss, had signed with Essa was covered in 14 months\u2019 dust. Though Transnet had asked locomotive manufacturers to submit maintenance plan proposals a year earlier, it had yet to make an award.<\/p>\n\n\n\n Now there was urgency. The addenda specified that \u201cwithin 10 days\u201d of CRRC Zhuzhou receiving a letter of award from Transnet for the maintenance plan, CRRC companies would release the dollar-equivalent of R250-million that they had previously withheld from kickbacks paid to the Guptas.<\/p>\n\n\n\n To explain: Under the earlier kickback agreements, the CRRC companies were entitled to retain 15% of each kickback until Transnet had fully paid for the locomotives. This was to cover them against potential claims by money launderers who previously fronted for the Guptas at a 15% fee but got sidelined.<\/p>\n\n\n\n The release of these retained amounts was to be over and above the 21% promised to the Guptas on the maintenance contract itself.<\/p>\n\n\n\n Nine days after the addenda effective date, Transnet\u2019s letter of award was in the post.<\/p>\n\n\n\n And another three weeks later, our bank data analysis shows, CRRC released the R67-million retained in respect of the 100 locomotives to the Guptas. Although our data is not conclusive, it likely released the 95 and 359 locomotive retentions of R53-million and R130-million too.<\/p>\n\n\n\n Why the urgency? It was not as if bringing the retention releases forward was all in favour of the Guptas, as the addenda entitled CRRC to offset the risk by withholding parts of future payments again.<\/p>\n\n\n\n A theory, enticing because the addenda effective dates coincided with the date of the municipal elections, is that the Guptas had party funding obligations to fulfil; after all, political cover for a looting spree of this magnitude does not come for free. The Guptas are known to have made party contributions.<\/p>\n\n\n\n A plausible alternative is that the Guptas had overextended themselves when their Tegeta Exploration and Resources controversially bought Optimum Coal Holdings from Glencore a few months earlier for R2.15-billion.<\/p>\n\n\n\n A former Gupta acquaintance said on condition of anonymity: \u201cThey always had cashflow issues, so [it] comes as no surprise. If you offered Tony [Gupta] $10-million today or $30-million in 18 months he would always have taken the today money.<\/p>\n\n\n\n \u201cThey had only just scraped the purchase money for [Optimum] together and a lot of \u2018loans\u2019 which were used to cover the purchase price needed to be unravelled around that time period.\u201d<\/p>\n\n\n\n When public money is stolen, two things are expected to follow: prosecution and recovery.<\/p>\n\n\n\n The National Prosecuting Authority\u2019s investigative directorate was set up a year ago to unravel state capture crimes. To date it has little to show for its efforts.<\/p>\n\n\n\n Directorate head Adv Hermione Cronj\u00e9 was quoted<\/a> in January as saying she was \u201cgobsmacked at the scope and extent of the devastation\u201d wrought by state capture.<\/p>\n\n\n\n Putting together successful prosecutions were hampered by the pervasiveness of corrupt practice. “In some institutions, it’s hard to pick out people who can credibly give evidence in a criminal trial about what happened because they were either complicit or will struggle to answer questions about what they did to stop what was happening.”<\/p>\n\n\n\n On the recovery front Transnet has achieved little. It pulled out of the 12-year maintenance plan and convinced CRRC to reimburse the R618-million advance.<\/p>\n\n\n\n But that is a drop in the ocean of the R42-billion in procurement from CRRC companies tainted by the Gupta kickback agreements.<\/p>\n\n\n\n Last December Transnet said in a statement<\/a> that it planned to go to court to declare unlawful and set aside the CSR 359 and CNR 232 locomotive contracts. Transnet wanted a mixture of reimbursement and no further deliveries.<\/p>\n\n\n\n Six months later, Transnet has yet to go to court. After Portia Derby\u2019s appointment as Transnet chief executive in January, she brought in new top managers including new chief legal counsel, Adv Sandra Coetzee. They went back to the drawing board.<\/p>\n\n\n\n Transnet said in response to questions that Coetzee \u201cis reviewing all transactions and, based on legal and commercial grounds, will identify actions to be taken in relation to cancellation, negotiation, recovery, and any criminal proceedings to be instituted\u201d.<\/p>\n\n\n\n Should Transnet pluck up the courage and go for CRRC \u2013 and Derby pass the test of raking through the ashes left by Molefe, her ex-husband \u2013 it faces a booby trap left by the conspirators.<\/p>\n\n\n\n While partial prepayment for large equipment orders is not unusual, Transnet took it to new levels for the CRRC companies. It paid advances of 10% on the 95 locomotives contract, 60% on the 100 contract, 30% on the 359 contract, 15% on the 232 contract, 50% on the 232 relocation and 10% on the maintenance plan.<\/p>\n\n\n\n About R10.8-billion left Transnet coffers before it saw its first locomotives. Putting aside the fact that part of each advance went straight to the Guptas, it also exposed Transnet to great risk.<\/p>\n\n\n\n For a substantial part of each contract\u2019s duration, Transnet would have paid the supplier more than the total price of the locomotives it had received up to that point. Cancelling the contract would have left Transnet, and not the CRRC company, out of pocket. Boom.<\/p>\n\n\n\n Like this story? Be an amaB Supporter<\/a> <\/span>to help us do more. Sign up for our newsletter<\/a><\/span> to get more.<\/em><\/p>\n\n\n\n This still applies to the CNR contract, where only about 60 of the 232 locomotives have been delivered after six years, and to a lesser extent the CSR 359 locomotives contract, where about 100 locomotives remain outstanding.<\/p>\n\n\n\n Advance payment guarantees were in place, but getting them honoured may be like pulling hens\u2019 teeth. Trying to get the CRRC companies to make restitution beyond that \u2013 for the billions overcharged and paid to the Guptas \u2013 may be as futile as amaBhungane\u2019s attempts to get answers from CRRC.<\/p>\n\n\n\n![\"\"\/](\"https:\/\/amabhungane.org\/wp-content\/uploads\/2020\/05\/All-contracts-1-scaled.jpg\")
<\/a><\/figure>\n<\/div>\n\n\nConglomerate corruption<\/h5>\n\n\n\n
Et tu, 232<\/h5>\n\n\n\n
Cash for cover\/coal<\/h5>\n\n\n\n
Recovery railroaded<\/h5>\n\n\n\n