Cheap loans saved taxpayers millions of rands in South Africa's defence package but there were probably flaws in cost escalation estimates, the commission into the multibillion-rand arms deal has heard.

Former finance ministry official Roland White on Monday told the hearing in a pre-recorded video linkup to Washington, where he now works for the World Bank, that the R29,7-billion figure mentioned in early reports relating to arms procurement deal was before negotiations.

A later figure of R36,4-billion, given in 1999, didn't take into account inflation and rand depreciation figures.

White said he could not comment on the "R43-billion number doing rounds" because he was unaware of how Treasury officials had arrived at that figure.

'But in my view, your opinion is probably a fair one'

White, who was a member of the negotiating team, conceded that formulas to assess the possible cost increases in the deal were probably not researched sufficiently.

Economist Claud van der Merwe told White on behalf of the auditor-general's office: "It seems that no research was done on the cost escalation formulas."

White responded that those who dealt with the economic models used in this regard were better equipped to reply to the question. "But in my view, your opinion is probably a fair one."

Asked whether an affordability study had found the deal affordable, White said affordability was relative. He conceded that, with the high cost of arms, it was inevitable that some social spending would have to be curbed.

White testified earlier that low-risk loans were obtained at very favourable rates to finance the arms contract.

"This eliminated the need for South Africa to borrow any hard currency. That is unprecedented," said White.

"We have saved the taxpayer about R600-million in terms of 1999 values. In today's values the amount would be more than R800-million."

The public protector, the National Directorate of Public Prosecutions and the auditor-general's office are investigating allegations of wrongdoing in the arms deal at the request of parliament's watchdog public accounts committee.

Four corvettes, three submarines, 30 light utility helicopters, 24 Hawk lead-in fighter trainers and 28 Gripen advanced light fighter aircraft are expected to be delivered as part of the deal over the next few years.

Lawyers representing the defence department's arms procurement chief Shamin "Chippy" Shaik and for Armscor voiced concerns after the hearing, saying that because of the pre-recording of White's testimony, their clients were not given an opportunity to clarify misrepresentations, if they occurred.

Terry Mahon, for Shaik, and Puke Maserumule, for Armscor, said, however, that their clients were not put in bad light.

Defence Minister Mosiuoa Lekota was expected to testify at the hearing on Tuesday morning. 

With acknowledgement to Fikile-Ntsikelelo Moya and The Star.