Please read the article below with this correction issued Sepetmeber 3rd by Business Day in mind:
Getting it right
Correction. In the report Transnet suspends the CEO of its rail freight division (September 2), Business Day reported incorrectly that Ernst and Young decided to suspend Transnet Freight Rail CEO Siyabonga Gama. Ernst and Young was not party to the decision. In the same article, Business Day spelt the name of Ernst and Young incorrectly. We regret the errors.
From Business Day, 2nd September 2009:
Transnet suspends the CEO of its rail freight division
ARTWELL DLAMINI, Transport Correspondent
TRANSNET yesterday suspended Siyabonga Gama, CEO of its rail freight division and contender for the post of group CEO, a week after instituting disciplinary action against him for alleged irregularities.
Business Day was informed reliably last night of the suspension, and told an impromptu executive committee meeting would be held today at which senior managers would be informed of the Earnst & Young decision and who was likely to act in Gama’s place.
Transnet spokesman John Dludlu declined to comment last night.
The move comes a day after Gama’s lawyer threatened legal action if he was suspended. The timing of the disciplinary action has been questioned. The suspension brings the matter to a head, and is likely to result in a messy legal fight.
Gama’s suspension could spark a political fracas as the African National Congress (ANC) has already backed him for the CEO post, and thrown its weight behind him even after the disciplinary action. It could also set off a showdown between the ANC and the Transnet board.
Gama’s lawyer, Themba Langa, warned on Monday that legal action would be considered against Transnet if Gama were suspended. Last night, Langa said he had not heard anything about Gama’s suspension.
In a letter sent to Ernst & Young , the parastatal’s auditors, and copied to Transnet executives, the acting board chairman and Public Enterprises Minister Barbara Hogan, Langa accused the auditing firm of being a “conspiratorâ€. Langa claimed Earnst & Young was part of a “witch-hunt†against Gama by Transnet acting CEO Chris Wells.
Philip Hourquebie, CEO of Earnst & Young Africa, said last night Langa’s letter contained factual errors and raised questions that were “clearly based upon a complete misconception of the role and function of internal auditorsâ€.
Gama was said to be one of at least three short-listed candidates for Transnet CEO. It is understood the disciplinary action relates to Gama’s handling of a locomotive contract and the awarding of another contract to a company that reportedly has links to Communications Minister Siphiwe Nyanda.
The Sunday Times reported Justice Minister Jeff Radebe denounced the Transnet board, and said the decision to take disciplinary action against Gama was a “gross injusticeâ€. Asked earlier yesterday what the ANC would do if the board suspended Gama, the ruling party’s spokesman, Brian Sokutu, said: “We don’t speculate on the outcome of an appointment process.†Sokutu said the ANC was not going to tell the Transnet board what to do. “We hope the matter at hand between Gama and the board will be resolved speedily and amicably in line with the country’s labour laws.â€
The Department of Public Enterprises said last week Transnet’s board would run the disciplinary process.
Ramifications of Gama saga spread.
Bond market appears to be affected as Transnet seeks to raise funds, writes Artwell Dlamini.
The ramifications of the debacle involving Transnet Freight Rail CEO Siyabonga Gama are being felt on political playing fields, in the boardroom and, apparently, the bond market as well. It is not clear yet what the disciplinary action against Gama means for the succession process at Transnet, which is trying to raise funds for its multibillion-rand capital investment.
Playing down concerns over political meddling, Gwede Mantashe, secretary-general of the African National Congress (ANC), said yesterday the party did not appoint CEOs to state-owned enterprises.
He would not be drawn on whether the party shared the view expressed by some that the timing of disciplinary action against Gama was odd. It came on the eve of the Cabinet’s decision about Transnet’s new CEO, to succeed Maria Ramos.
Gama’s lawyer Themba Langa has accused Ernst & Young, Transnet’s internal auditors, of being a “conspiratorâ€, suggesting that acting Transnet CEO Chris Wells was on a “witch-hunt†against his client.
Gama faces disciplinary action over alleged irregularities in a locomotive deal and the awarding of a separate contract to General Nyanda Security Advisory Services, which is owned by Communications Minister Simpiwe Nyanda. But Democratic Alliance (DA) MP Pieter van Dalen says the alleged irregularities are not being used to prevent Gama from becoming CEO of Transnet. “If somebody has a dubious past, you can’t appoint him as chief executive of a public enterprise.†Van Dalen says it is payback time as there is alleged corruption involving the security contract. If Gama is found guilty, Nyanda would be implicated as well.
ANC spokesman Brian Sokutu says the DA should stop making dangerous and unsubstantiated claims on the matter. Gama has nothing to pay back to the ANC. “We challenge the DA to come out in the open and substantiate their claim,†Sokutu says, adding Gama is one of the most capable and respected business leaders in SA. The party hopes the matter will be resolved speedily and amicably in line with SA’s labour laws, he says.
The bond market also seems to be feeling the effect of the situation. Marshall Brown, credit portfolio manager at Investec Asset Management, says Transnet had wanted to raise R500m on Monday. However, it ended up scaling back the issue and raised only R290m to artificially defend credit spreads as investor demand for the full R500m was at higher levels. Brown says there is nothing wrong with such a move as it is an issuer’s prerogative how much debt to issue. The market has to realise this wasn’t a true auction and that spreads aren’t necessarily a true reflection of market price.
Brown says corporate governance is one factor that might have influenced investor assessment of the spreads, although it was more likely to have been influenced by the perceived supply of new bond issues from parastatals such as Eskom, Airports Company SA and South African National Roads Agency. If investors believed there were material corporate governance issues, they would have stayed away.
A bond trader confirmed there was under-allotment on the Transnet bond on Monday, saying spreads were not in a range in which Transnet was prepared to issue.
Editorial in Business Day, 2nd September 2009:
Ulterior motives
Transnet board should be left alone to do its job.
The controversy that has arisen over accusations of impropriety on the part of Transnet Freight Rail CEO Siyabonga Gama highlights everything that is wrong with the way people are appointed to senior positions in parastatals, state agencies and government departments in SA.
Gama, who is understood to have been on a short list of three for the position of Transnet CEO following the sudden departure of Maria Ramos in March, appeared before Transnet’s group executive for human resources, Pradeep Maharaj, and the company’s lawyers last week to give his side of the story after he had been served with a letter informing him of Transnet’s intention to suspend him following a board meeting.
The accusations against Gama apparently relate to a cancelled tender for 212 diesel locomotives and a tender awarded to a security firm linked to a senior African National Congress (ANC) official in the government. Gama has denied any wrongdoing, and his lawyer has warned Transnet that he will go to court to defend himself if it acts to suspend him.
Complicating the matter yet further, Gama’s lawyer has accused Transnet internal auditor Ernst & Young of conspiring with acting Transnet CEO Chris Wells to discredit his client and prevent him from taking the top job, by withholding its audit report from him and diverting it for “ulterior purposesâ€.
Add a dose of politics — the Sunday Times quoted senior ANC leader and Justice Minister Jeff Radebe describing the accusations against Gama as a “miscarriage of justice†and vowing to ensure he gets the Transnet job — and the inevitable racial element (the South African Transport and Allied Workers Union has expressed concern about the timing of the allegations, suggesting a “battle between transformation and perpetuation of the status quoâ€) and you have the recipe for yet another prolonged and messy court battle with political undertones.
But SA can’t afford a repeat of the SABC debacle. Apart from the costs of a drawn-out legal dispute, which will ultimately be borne by taxpayers, Transnet is the primary driver of the state’s capital expenditure programme, with projects totalling R80bn in the pipeline. The economic consequences of leaving it rudderless for an extended period because of a political power struggle will be dire.
The Transnet board, which is understood to have included Gama’s name on the short list only after pressure from the ANC when its first choice for the post, Pravin Gordhan, was appointed finance minister, must waste no time in either formally charging him or clearing his name and proceeding with the CEO appointment process. The ANC, meanwhile, needs to come clean on why it was so quick to jump to Gama’s defence, particularly since it cannot possibly know that he is innocent of any transgression.
The Transnet board must be left alone to do the job it was appointed to do, including choosing a new CEO based not only on political criteria but their assessment of who is best suited to this absolutely critical position.
