Iqbal Sharma, chairperson of the Transnet board's acquisitions and disposals committee (BADC), had a conflict of interest in the approval procedure for a tender to build 1 064 locomotives.
This is according to a report by Alister Chabi and Robert Oketch of Mncedisi Ndlovu & Sedumedi (MNS) Attorneys.
The report further recommends that Transnet lay criminal charges against Sharma with the SA Police Service (SAPS) and report him as a delinquent director in terms of the Companies Act.
City Press previously reported that the report recommended Transnet should lay corruption charges against former group chief executive Brian Molefe, former chief financial officer Anoj Singh, and Gupta associate Salim Essa.
The BADC approved all the submissions related to the 1 064-locomotive procurement before final approval by the board.
However, Sharma's failure to declare his business interests and business relationships with Salim Essa "might have compromised the fairness of the procurement process", the report argues.
Essa is often referred to in the media as a "Gupta lieutenant".
The MNS report points out that Sharma and Essa were business associates through, among others, the business interests they had in VR Laser – one of eight Gupta companies put under business rescue this year.
All the bidders in the 1 064 locomotive request for proposals (RFP) process actively considered VR Laser, a steel company, as a potential subcontractor.
Fin24 reported last week that Essa had launched a "desperate bid" to keep VR Laser afloat, with an offer for a R70m cash injection months after the company first ran into financial trouble. The offer came shortly before creditors were about to vote for liquidation.
On Sunday, City Press reported that VR Laser had "been running on borrowed money for years, and employing unconventional accounting to downplay losses".
The Sunday paper also reported that VR Laser's financial statements for the year ending February 2017 were "so dominated by this practice" that the company's auditors, SizweNtsalubaGobodo, refused to give an opinion on them.
According to the MNS report, Essa, on behalf of one of his companies – Tequesta – concluded a business development services agreement with China South Rail (CSR) Hong Kong. The salient terms of the agreement state that Tequesta was appointed to provide advisory services, in particular to assist CSR Hong Kong to secure the electric locomotive tender.
In return, Essa would get paid 21% of the contract value concluded with Transnet.
"CSR was indeed awarded the contract to supply the 359 electric locomotives... the date the business development services agreement was signed reasonably leads to an inference that Sharma would have used his position as the chairperson of the BADC and his business relationship with Essa to unduly advantage CSR during the procurement of the 1 064 locomotives procurement," states the report.
Sharma was appointed as a director of the Transnet board and chair of the BADC in 2010 by then Minister of Public Enterprises Malusi Gigaba. The report points out that during his (Sharma's) tenure, various allegations arose relating to his possible conflict of interest.
During 2013, Sharma approached a former majority shareholder of VR Laser with an intention to purchase VR Laser. According to the report, Sharma also approached Essa as potential investor in VR Laser as he (Sharma) did not have the required capital to buy shares in VR Laser.
Sharma and Essa agreed that Essa would acquire the operational side of VR Laser, while Sharma acquired the property side of the business (VLRS Properties).
VR Laser was listed as an active vendor of Transnet. All active bidders to the 1 064 locomotive tender actively considered VR Laser as a potential subcontractor. Sharma, however, failed to declare his interest in VR Laser Properties as part of his annual declaration of interest.
The report states that he has admitted that this was an oversight on his part.
"Mr Sharma acquired personal financial interests in various companies which Transnet had a material interest in during the transaction. He failed to promptly disclose this interest to the board," states the report.
"There is a reasonable suspicion that Mr Sharma could have used his position as the chair of the BADC during the negotiations of the transaction to gain advantage for VR Laser."
The report regards Sharma's failure to declare his indirect interests in VR Laser as a breach of the fiduciary duties he owed to Transnet, because it cannot be said that he exercised his powers and functions as chair of the BADC with the degree of care and skill required of a person carrying out the same functions.
On top of that, according to the Transnet Code of Ethics, Sharma was required to refrain from using his position as BADC chair to further his interests or that of Essa and he was further required to disclose any potential conflict, states the report.
"Mr Sharma's indirect interest in VR Laser creates the perception that his decisions in the performance of his duties was unduly influenced. He was, therefore, in terms of the Transnet Code of Ethics, required not to invest in or acquire any financial interests whether directly or indirectly in VR Laser," reads the report.
"Mr Sharma had an affiliation with Essa, who was his friend and business associate in the various business entities. This affiliation is one that may be perceived to have affected his judgement as the chair of the BADC during the transaction."
The report finds that Sharma fails the conflict of interest test in all relevant measures. It finds that he failed to act in the best interests of Transnet and to avoid conflict of interest as chair of the BADC. He also failed to declare his interests in VR Laser to the board of Transnet.
Based on information provided, the report finds that there is a reasonable suspicion that Sharma unduly benefited in the process as a result of corruption.
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