This amid debate about whether the rail agency's annual results deserve a qualified audit.
On Monday, 30 September, Transnet chairman Popo Molefe told Moneyweb that the company is waiting to interview candidates for the position of CFO – a process that has been prolonged due to the legal battles between Transnet and its former group CEO Siyabonga Gama.
Gama was axed for misconduct and maladministration in November 2018, after which Tau Morwe took over.
Read more: Transnet appoints Tau Morwe as acting group CEO from 1 November
After Morwe had been CEO for six months, Transnet appointed then acting CFO Mohammed Mahomedy (pictured) as acting CEO and Mark Gregg-Macdonald took over as acting CFO.
Read more:
- Mohammed Mahomedy takes up acting CEO role at Transnet
- Mark Gregg-Macdonald steps in as Transnet acting CFO
Molefe said that Transnet has recently concluded interviews for group CEO, chief treasurer and chief internal audit officer.
He said that the appointment of a new CEO has taken so long because of Gama’s opposition to his dismissal.
“We couldn’t advertise his position because it would have appeared like we premeditated his dismissal – so that was the reason the appointment was delayed.”
He added that Transnet is now at a point where it should be able to move rapidly.
However, after concluding the interviews, the recommendation for the executive role will be placed before the relevant cabinet committee.
“In terms of our memorandum of incorporation and the shareholder compact, as well as the legal succession [in terms of] the Transport Act, we are required to consult with the shareholder representative regarding the [filling of the] position of group CEO and CFO,” he said.
He concluded that it is because the positions are executive, they are appointed by the shareholder and not by the board.
Transnet also expressed that it was unhappy with the qualified audit opinion received from its external auditors SNG Grant Thornton that was published on Monday.
Mahomedy said that Transnet had a robust and difficult debate on the issue and had hoped that the matter would have been finalised before the release of its results.
“We don’t agree with their audit opinion,” he added. “We even have the support of National Treasury to dispute our case with the external auditors. However, we did not come to a resolution and had to go ahead with publishing Transnet’s latest results with the qualified audit opinion. Rules dictate that we have to publish our results within six months of our year-end.”
Mahomedy explained that the issue relates to a tender pre-qualification process in 2017 for contracts worth around R1.9 billion. He said that while the pre-qualification was in line with government’s preferential procurement regulations, the auditors believed it was nonetheless inconsistent with the legislation.
Gregg-Macdonald said that the dispute came up “very late” in the external audit process.
“Essentially, they [the external auditors] say that the pre-qualification makes the tender irregular. We have divergent views on this and have the support of Treasury, who also believe that it is not irregular.”
The results showed that Transnet had R49 billion irregular expenditure, which Mahomedy noted relates to locomotive contracts going back to 2012.
“Around R41 billion of the irregular expenditure is related to locomotive contracts entered into between 2012 and 2015, so most of the reported irregular expenditure is not related to Transnet’s 2018/19 financial year,” he said.
Mahomedy said that as the company goes through the state capture clean-up process, it is expected that irregular expenditure will increase as a result of “the additional scrutiny”.
“It is also important to note that irregular expenditure is not the same as fruitless and wasteful expenditure,” he said. “In many cases the contracts are being delivered but may not have followed the correct processes.”
He added:
“The issue of irregular expenditure is peculiar to state-owned companies and organisations due to the PFMA. The private sector is not required to report on possible irregular expenditure.”
Transnet reported a 1.6 percent increase in revenue to R74.1 billion and its after-tax profit was up 24.7 percent to just over R6 billion.
Mahomedy said that while “top-line growth was marginal” due to tough conditions in the local economy affecting freight volumes, Transnet delivered stronger operational performance.
“Operating expenditure was contained. In fact, it decreased slightly by 0.1 percent, which is worth noting in the context of significantly higher electricity and fuel costs,” he said.
