Siyabonga Gama claims Anglo American guilty of ‘the real state capture’

Former Transnet boss Siyabonga Gama is continuing his testimony at the Commission of Inquiry into Allegations of State Capture on Monday, where he began by reading parts of a prepared statement hitting out at his accusers, saying they were lying or otherwise driving a false narrative about him.

“A lot has been said to you without evidence,” he told the commission chairperson, Deputy Chief Justice Raymond Zondo.

In addition, he cast himself as having been targeted because he had sought to “normalise” tariffs that big, established mining companies were paying for rail freight and that these companies had in fact captured the state long before he worked for Transnet.

Gama was previously implicated at the inquiry when commission chairperson Deputy Chief Justice Raymond Zondo heard how taxpayers paid out R13 million for Gama’s settlement agreement despite his having been found guilty of three charges of misconduct levelled against him in 2009.

Despite this, years later he became Transnet’s CEO and was subsequently accused of assisting the Gupta family to attempt to capture and control some of the operations of Transnet.

He was also accused of accepting regular, large payments in cash facilitated through Gupta lieutenant Salim Essa. On Monday, he rejected all accusations that he had ever laundered money for the Guptas.

Zondo heard that Gama’s full salary and benefits were restored after his initial dismissal because then Transnet chairperson Mafika Mkhwanazi believed there was some doubt that Transnet could lose the litigation if his dismissal was found to have been wanting or unfair. Transnet even paid most of his legal costs despite not being forced to do so. The Transnet board further let Gama off the hook for a high court cost order amounting to almost R426,000.

The commission has heard previously that not long after he became president, Jacob Zuma was allegedly adamant that Gama should take the reins at Transnet.

In a long statement delivered ahead of renewed questioning on Monday, Gama stated that in his view the “real” state capture that had occurred at Transnet was driven by major iron ore mining companies such as Kumba Iron Ore, owned by Anglo American, as well as the major coal companies. He accused established companies of muscling out emerging mining companies by controlling access to rail and port networks.

“By way of example, the most significant of these contracts is the Kumba contract [with Transnet], which is for the haulage of iron ore from Sishen to Saldanha [by rail]. This evergreen contract arose hastily out of the desire to eliminate an embedded derivative, which arose from an ad valorem base pricing regime on the contract which was entered into in the late Seventies.

“Transnet therefore in 2005 had entered into a new 23-year contract that would expire in 2028 at rates that are even the lowest in the world at rates per ton/kilometre. They amount to less than one US cent per ton/km, or 12.8 South African cents per ton/km to haul iron ore for Kumba from Sishen to Saldanha.

“So for the 861km trip, Kumba pays R111 per ton, while Assmang, which is its competitor, is charged at a rate of 17.3 cents per ton/km for the same iron ore product from their Khumani mine in the Northern Cape, which amounts to R149 per ton.

“This represents a difference of R38 for every ton hauled, demonstrating a tariff that will not pass muster with our competition laws.

“So in 2013, Kumba had initially agreed that its rate needed to be normalised in line with Assmang’s rate, in accordance with fair business practices. However, in negotiations that we had restarted in 2018, it reported Transnet and its management, under my leadership to [Public Enterprises] Minister Pravin Gordhan for attempting to level playing fields with Assmang and trying to get out of an anti-competitive contract.

“To this day, Kumba pays Transnet approximately R1 billion less per annum than what they ought to pay had its tariff been normalised in line with Assmang’s in 2013.

“This anti-competitive behaviour and the super-profits being earned by Kumba is set to be condoned until 2028.

“So any Transnet official who seeks to normalise this earns the wrath of the Anglo American PLC-owned Kumba Resources. All efforts to renegotiate these tariffs are stonewalled by Kumba. This is an environment where Kumba earns in excess of R20 billion net profit per annum at the expense of a state-owned entity and to the detriment of the oligopoly of iron ore in the country.

“As an example, Kumba earnings before interest, tax, depreciation and amortisation (Ebitda) for the year ended 31 December 2020 increased to a record R45.8 billion, resulting in an Ebitda margin of 57% against 52% the previous year, which is a remarkable feat indeed.

“Chairperson, this is the real state capture. The Transnet-Kumba agreement is anti-competitive and exclusionary in that Anglo-Kumba has captured the rail and port capacity on the iron ore line and ket out black junior iron ore miners. In fact, all black iron ore miners sell their iron ore to Kumba because they have no rail and port capacity, all of which has ben allocated to those who were in mining prior to 1994.

“Even though iron ore licences have been issued in the rich iron ore mining area of the Northern Cape, the miners do not have allocation to export manganese or iron ore in their own names.”

Gama went on to say that when a new board was inducted at Transnet in 2018, his attempts to “educate” the board about Transnet’s operations after it accused him of “malfeasance” were met with “resistance”.

He accused them of knowing almost nothing – “no operational knowledge or adequate expertise” – about the company they were expected to direct.

“Then they set out to achieve their mandate of rooting out corruption at Transnet by removing, by way of nothing less than a purge, the entire top layer of executive management, starting with the group chief executive [Gama] in 2018.

“They also failed to appreciate the strategy of Transnet, which sought to enhance the market demand strategy and future-proof Transnet’s existence. Instead, they abandoned and dismantled it without attempting to understand it.

“The board completed its mandate of management upheavals in June 202o. The result is that the corporate memory at Transnet has been completely erased, with every executive of long tenure having been falsely accused, charged or exited in an attempt to bring sweeping changes by what I believe is an ill-equipped board.

“The ‘Prasa-risation’ of Transnet is complete and all that South Africa needs to do is to follow very closely Transnet’s future financial and operational performance, observe its decline and the erosion of its contribution to the developmental state.

“So the real collapse of Transnet has not yet happened, it is just ahead of us.”

Gama also defended a payment of more than R600 million to China South Rail during his tenure. He said that reversing this deal had led to numerous locomotives being left to gather dust in rail yards, with numerous industries now facing challenges due to reduced capacity on the rail network.

He accused the Popo Molefe-led board of trying to gain praise for reversing corruption while actually just plunging the state-owned entity into an operational crisis.