McKinsey interfered in multibillion metal deal, pocketing R300m for oversight #Zondo

Globally, McKinsey and Co has a glowing profile and is considered the top three of consulting firms in the US. It rakes in revenues of $10bn and operates in 66 countries. On its South African website, the company has cited its work for the public sector, namely Transnet and Eskom. However, its unscrupulous desire to secure business despite the massive cost to the taxpayer has come under scrutiny since Gupta Leaks exposed how it partnered with Gupta companies Trillian and Regiments Capital. For Transnet, McKinsey was roped in first on a locomotives deal and received R35m in 2012. It then began work on the business case for Transnet’s manganese project in 2013, effectively handling all aspects of commercial execution on the deal. SA holds 80% of the world’s manganese reserves and Transnet had planned to extend its rail operation to the port cities of Eastern Cape for exportation – Bernice Maune

By Bernice Maune 

A network comprising McKinsey, Regiments Capital and Transnet executives inflated costs on a manganese deal with McKinsey pocketing R300m for its consulting services.

These details have been laid bare at the Zondo commission which is hearing testimony from witnesses privy to the inner workings of the deal. According to Deidre Strydom, executive manager at Transnet she became the programme director of the manganese project which would transport the metal from the Northern Cape to the Eastern Cape for global exportation to China and other countries.

Deidre has been with Transnet since 1991, moving up the ranks to her current position. In November 2014, she became the team lead at Transnet, reporting to Anoj Singh who was the chief financial officer at the time. Strydom says she was under the impression her team would provide oversight, working on the business case for the manganese deal, structuring costs, implementing feasibility studies with appointed agencies and seeing the project through to completion.

But once McKinsey came on board, selected by Singh they took over the programme and worked to discredit Strydom’s work and her team. Strydom says this was done by contradicting all the reports she had prepared with her team, sending separate reports which made recommendations that were not in line with her authority and vetoing all her suggestions.

Read also: Eskom State Capture Inquiry: Curious case of Salim Essa aka Lynne Brown advisor #Zondo

In addition, Singh supported McKinsey’s actions, says Strydom which made her working environment tough. The business case in the meanwhile was completed and submitted to Malusi Gigaba who was the minister of public enterprises. Gigaba allegedly approved the business case submitted by McKinsey and Strydom’s team within two months.

“This was strange and because another project on the same scale had taken two years to get approval. For the approval of that value, in such a short time was suspicious,” said Strydom.

Comments about how the elections were nearing and the need to approve the business case quickly were bandied about, said Strydom. This would ensure that if there was a change of administration or a new minister, the business case would be already in motion.

Also strange, alleges Strydom is a platinum standard recommended by McKinsey to centralise all authority. This would mean they were in charge of the deal and all divisions in Transnet would have to run their financial objectives and expenditures by them. This was eventually resisted although Strydom lost control of the capital budget.

By May 2014, Transnet had received approval to go ahead with the project and concluded plans to expand to the city of Port Elizabeth. At that point, the project had begun to be inflated with costs, all approved by McKinsey as part of their oversight role. Gupta aligned company, Regiments Capital was then brought in to partner with McKinsey.

Strydom notes that McKinsey had also set up a back office at Transnet and was heavily involved with the scope of the project. Singh justified their involvement by saying it was to ensure the business case would be successfully implemented. It became clear to Strydom that McKinsey was in charge and acting on the mandate of Singh.

According to Henk Bester of Hatch Global, the company that had won the tender for the rail part of the manganese project, a meeting between him, Singh and Gupta associate Salim Essa took place.

Read also: Zondo: How ‘number one’ wanted Gupta associates to partner on R25bn Transnet manganese deal

In that meeting, Essa had knowledge of all Transnet tenders and deals. Strydom had also interacted with Essa, describing how his associates, Nilan Padayachee and Dave Reddy stated they would put up an R80m bribe to secure their stake in the lucrative manganese deal which was worth R27bn.

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