The Arms Deal Scandal

THE ARMS DEAL: MORE UNANSWERED QUESTIONS

PART1: SCOPA MUST EVALUATE NEW EVIDENCE

Summary

The Democratic Alliance has written to the chairperson of parliament's Standing Committee on Public Accounts (Scopa), Francois Beukman MP requesting him to place on Scopa's agenda the allegations that there was executive interference which resulted in substantive changes to the draft joint investigation team (JIT) report.

This follows a request to the President last December to set up a judicial commission of inquiry into the matter, to which the Democratic Alliance has had no response, and the deferment of the matter by the Ad-hoc Committee on the Auditor General due to the committee's temporary nature.

The DA has in its possession several key pieces of evidence which support the notion that, under the direction of the executive, a number of material changes were made to the draft JIT report and that a number of critical pieces of evidence outlining irregularities in the acquisition process were deliberately omitted. This includes:

Draft copies of the JIT report, including handwritten notes requesting additions and omissions.
The full transcript of an interview with the former Secretary of Defence, Pierre Steyn.
A set of disputed minutes relating to the decision to choose BAe/SAAB as the preferred bidder for the LIFT and ALFA projects.

SCOPA needs to investigate fully the following evidence and allegations:

The fact that the conclusion of the draft JIT report was changed under the apparent direction of the executive to reflect that government's contracting position was not flawed.
The exclusion of many of Lt. Gen (Retd.) Pierre Steyn's damning criticisms. In his interview Steyn:

Questions the legal basis for embarking on the arms acquisition process.
Argues that the procurement process was riddled with large-scale irregularities.
States that he was appalled by an investigation that was designed to give legitimacy to "political manipulation".
Argues that the decision was taken in advance to select BAe/SAAb as a preferred bidder for the LIFT and ALFA projects

SCOPA also needs to consider the following questions concerning the conduct of the Auditor General (A-G):

If the A-G is compelled to refer reports with a direct correlation to the Special Defence Fund, why was the Special Review of the Selection Process of the Strategic Packages not referred to the Presidency?
Why were the numerous objections raised by Pierre Steyn to the acquisition process downplayed in the final version of the report?
Why was the existence of 2 sets of minutes relating to the decision to choose BAe/SAAB as a preferred bidder at a special MINCOM
Why did the JIT report fail to interrogate the bizarre logic that expenditure of R30 billion on arms would bring over R100 billion in investments?
In the interests of transparency why did the explanations/and or comments contained in the management letters between the Presidency, MINCOM and the Department of Defence not form part of the report?
If it was entirely regular to make such changes why did the A-G tell Parliament that no such changes of this nature were made?

The situation as it stands is untenable. For as long as questions of this nature continue to linger, the reputation of parliament and the executive, and indeed the credibility of the A-G, will continue to be undermined.

The controversy surrounding the arms deal is still very much alive and it will not go away until these and many other questions are properly answered. The challenge now is for parliament to exert its oversight role and ensure that both the executive and the A-G are made to account for their conduct in the arms deal and in so doing lift the cloud of suspicion that continues to hang over them.

Download full report (ARMS DEAL PART 1. doc)

Download supporting documents (supporting documents.doc)

PART 2: ARMS DEAL OFFSETS - R5bn WORTH OF BROKEN PROMISES

Summary

The Department of Trade and Industry's (DTI) Industrial Participation Secretariat, in conjunction with the inter-departmental Industrial Participation Control Committee, should take all necessary steps to impose the appropriate penalties on contractors defaulting on their offset commitments. The imposition of such penalties will serve to show that South Africa is serious about enforcing offset agreements.

The 1999 Arms Deal was signed on the condition that the international contractors benefiting from the arms procurement would direct specified amounts of investment to South Africa as part of the National Industrial Participation (NIP) Programme. All of the contractors also agreed to specific sales commitments that would form part of their offset contracts.

Altogether, the government claimed, these offsets would create in excess of 65 000 jobs and bring in R110bn of investment. The Joint Investigating Team Report into the Strategic Defence Procurement Packages (JIT) showed that the Industrial Participation promises associated with the Arms Deal very often swayed the procurement decisions in specific bidders' direction.

At the first milestone deadline, over R5 billion of offset commitments have not been met. This represents 22% of all commitments required by the first milestone.

Three contractors, the German Submarine Consortium (represented by Ferrostaal), BAE/SAAB and Thales have defaulted on their offset obligations. Ferrostaal's shortfall is a massive R4 billion, a 69% shortfall on its first milestone commitment. The estimated penalty imposable for this shortfall is R136 million. BAE/SAAB's shortfall is R845 million (6%), with an estimated penalty of R315m. Thales' shortfall is R263m (15%), with an estimated penalty of R93m.

These shortfalls are not estimated - they are taken directly from official reports and correspondence. While we have established the overall shortfall in offset commitments, we have no idea how the existing investment, sales, projects and jobs figures are constituted. The DTI's reporting on the programme is woeful: there is no comprehensive list of projects initiated, which makes it impossible to verify the Department's claims.

The DTI must therefore also significantly enhance its reporting on the NIP. It must begin by initiating a comprehensive, independent audit of the offset program to confirm the economic benefits of the programme and enhance the accountability of the international Arms contractors to our country.

Download full document (offsets.doc)