Study into affordability of package was short-circuited by draft contract

GOVERNMENT signed a draft contract for the procurement of submarines before the completion of a study to determine whether SA could afford the arms package, a move that incurred the wrath of senior finance department officials in mid-1999.

It also emerged at public hearings into the controversial R43bn arms deal yesterday that government's international offers negotiating team, formed to negotiate arms procurements and loan finance, was divided on the affordability of the arms package.

Former defence minister Joe Modise signed the draft contract for the procurement of three submarines shortly before leaving office in April last year.

Yesterday's hearing was dominated by the video-taped testimony of Roland White, a former senior manager in the finance department who now works for the World Bank in Washington.

White was interviewed at a Johannesburg-Washington video conference on July 3 by investigators from the offices of the auditor-general, the public protector and the national director of public prosecutions.

Evidence that the finance department repeatedly expressed concerns about the affordability of the deal emerged cryptically throughout the hearing, as a reluctant White angrily refused to answer questions about memorandums he wrote to Finance Minister Trevor Manuel in 1999.

White began his testimony by asserting that the memorandums, which were in the possession of the arms deal investigators, were "privileged documents" and that he was reluctant to answer questions about them.

"Were you concerned that the defence ministry signed a draft contract for submarines before your affordability assessment had been completed?" asked Gerda Ferreira, an investigator from the directorate of public prosecutions. "You have read my memorandum to my minister," White said. "I have nothing more to say."

Finance department sources said White "hit the roof" when he found out about the submarine contract in mid-1999, arguing that the contract made a mockery of his work in government's affordability assessment team, which was formed in March of that year.

The team's task was to model the effect of the arms deal on the fiscus and the economy.

Ferreira asked White if Modise signed the contract in order to "sign off on at least one contract before leaving office, given his central role in the whole deal".

Defence ministry spokesman Sam Mkwanazi said last night he did not know if the draft contract Modise signed was binding or if there were differences between the draft and final contracts.

It also emerged through Ferreira's questions that White recommended to Manuel that government not buy Gripen fighters and that "the whole arms package be cut back". White acknowledged that "in this particular case, the finance department had difficulty with the view taken by chief (arms procurement) negotiator (Jayendra Naidoo)".

White also said recent figures suggesting the price of the arms deal had risen to R43bn from R36bn were incorrect. The R43bn reflected nominal increases in the price. The R36bn figure was based on real (1999) rand value and modelled for the depreciation of the rand over seven years.  

With acknowledgement to Business Day.