The first offset project linked to the multibillion-rand arms deal to be announced by German steel group Ferrostaal will be a condom factory in East London.

The factory will begin with the processing and testing of 100- million condoms a year from eastern Germany in a joint venture with German manufacturer Condomi, Ferrostaal and an empowerment grouping involving the Women's Development Bank and Khula Industrial Investments.

News of the planned condom plant was announced by Condomi, based in Cologne, Germany.

A Ferrostaal spokesman said that the East London location was chosen with the encouragement of Ferrostaal and the Eastern Cape government. He said the Coega industrial development zone in Port Elizabeth was never considered

Ferrostaal has the task of putting together investments worth several billion rand on behalf of a German consortium selling submarines to SA as part of the controversial armsfor-investment deal.

In another development, the Coega Development Corporation said yesterday that it had had no firm indication from Ferrostaal that it had scrapped plans to build a R1,2bn stainless steel cold-rolling plant at Coega.

But the corporation confirmed that it was talking to other potential anchor tenants.

A corporation spokesman, Raymond Hartle, was responding to the news that a Spanish acquisition of Columbus Stainless threatened to stop plans by Ferrostaal to build the cold-rolling mill at Coega.

He said: "We have had no formal indication (from Ferrostaal). As far as we are aware, the company is still considering it."

Hartle said the corporation was still promoting Coega to potential local and international investors.

Many companies have said that they would prefer to wait until the project had all the necessary approval before making any formal commitments.

There is growing scepticism about the economic viability of Coega in the absence of strong local and international tenants.

The cost of building a deep- water port at Coega, called the Port of Ngqura, has also risen with the depreciation of the rand against other currencies; from last year's R1,65bn to R2,7bn now.

Ferrostaal planned to build the cold-rolling mill either at Coega or next to the Columbus plant in Middelburg, Mpumalanga, with Columbus earmarked as its local operating partner.

But with Spanish stainless steel group Acerinox taking up 64% of Columbus from January, this looks unlikely to happen.

However, Trade and Industry Minister Alec Erwin is understood to be on the verge of proclaiming the industrial development zone adjacent to the Coega port.

This move should enable the development corporation to step up its efforts in promoting and selling Coega to investors.