| Zondo Inquiry hears key reason for rise in locomotive costs doesn‘t hold up

There was no need to increase the costs of a multi-billion rand to procure new locomotives for Transnet, because of forex hedging, the Zondo Commission of Inquiry into state capture heard on Wednesday.

The original business case already made provision for currency risk protection.  

The inquiry has been investigating allegations of state capture, corruption and fraud at state entities since August 2018.

On Wednesday it returned to a controversial contract to acquire 1 064 new locomotives for the state-run freight rail and port company. It again heard evidence from Alister Chabi, an actuary and founder of the All5 Holding Company, who investigated the validity of a 41% increase in the total price of the contract.

The original business case for the locomotives, approved in April 2013, was for R38.6bn. The following year this had ballooned to R54.5bn.

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Chabi on Wednesday said that part of the reason given by Transnet in 2014 for the increase in the estimated cost was the allegation that forex hedging – a risk reduction strategy against fluctuations in the value currency – was not included in the original business case.

According to Chabi, however, forex hedging had already been included in the original price of R38.6bn.

The inquiry‘s chairperson, Deputy Chief Justice Raymond Zondo, asked Chabi what if he would like to offer an opinion on why forex hedging was listed as an additional expense on the adjusted R54.5bn price, it if had already been included in the original approved business case.

“It could be negligence, it could be a lack of competence, or it could be a willful desire to mislead,” said Chabi.    

The inquiry continues. 

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