Parliament's public accounts committee reacted with shock on Wednesday after learning that costs in the arms procurement deal had escalated from R30-billion to R43,83-billion.

In a marathon session, the standing committee on public accounts grilled military top brass and the head of acquisitions in the defence department, Chippy Shaikh, for details about the deal and refused to accept prepared responses and presentations on the multibillion-rand package.

The government signed the deal last December with countries including Germany, Italy, Sweden, Britain and France to buy corvettes, submarines, light utility helicopters, fighter trainers and advanced light fighter aircraft.

Laloo Chiba, of the ANC, demanded an explanation for the escalating costs in the deal pegged at R30,3-billion when it was signed. He was told by Right-Admiral Kek Verster that by April costs had escalated to R43,8- billion and that this figure took into account inflation and projected foreign exchange rates, but not finance costs.

"Shocking"

The defence deal, staggered over 15 years, could cost R60-billion or more in a few years once finance costs had been added, Chiba said. The committee demanded a breakdown of projected costs for the life of the contract and documents detailing various phases of the package, as well as the actual contracts signed.

Increases in the price of raw materials and labour had caused the cost hike, said Shaikh. This was aside from inflation and increases in the exchange rate.

The committee heard that the defence department had failed to adhere to the most minimum state standards concerning conflict of interest in the deal, which has been plagued by allegations of corruption and irregularities. The department's failure to adhere to minimum standards was described as "shocking".

Shaikh, who has also been accused of a conflict of interest, was questioned at length on the manner in which contracts and subcontracts had been awarded.

The committee's investigation follows a special report from auditor-general Shauket Fakie, who has recommended a forensic audit of processes in the arms acquisition package deal after saying there were material deviations from generally accepted practices.

Fakie said that although role players in the acquisition had been subject to security clearance, the potential "conflict of interest that could have existed was not adequately addressed by this process".

Andrew Feinstein said it was the committee's assumption that those who had decided on the contracts had been asked to sign a document stating they had no conflict of interest.

Shaikh said "this part" was "lacking" since the contracts had been negotiated under Armscor procedures, which did not require declarations of conflict of interest.

Feinstein said that in normal procurement processes, officials had to declare conflicts of interest and he would have thought that in a multibillion-rand deal the parties would have gone "beyond the norm". Shaikh, who has denied any irregularity, said he had verbally declared a conflict of interest and recused himself from proceedings over the choice of supplier for the corvette combat suites when his brother had joined the successful South African bidder, African Defence Systems.

Judge Willem Heath, of the special investigation unit, is waiting for government approval to investigate the deal together with the auditor-general, the Office of Serious Economic Offences and the public prosecutor.

In another development, committee members reacted with disbelief after questioning defence department staff about the industrial participation commitments in the deal. The government said industrial offsets worth R104-billion would create more than 65 000 jobs.

Military bosses were also criticised for holding about R100-billion in defence stocks when this money could have been spent on schools or hospitals. In 1994, stocks stood at R35-billion. By 1997/98, they were R44-billion and in the 1999/2000 financial year were R98-billion.

With acknowledgement to Andre Koopman and the Mercury.