A company headed by Joe Modise, the former defence minister, has been contracted to work on the Coega industrial development zone in Eastern Cape, which is strongly tied to the R4,5 billion submarine purchase that is part of the controversial R43 billion arms deal.  

Modise signed the submarine contract before the government completed its study on whether South Africa could afford it.

The Coega Development Corporation (CDC) outside Port Elizabeth has contracted Khutele Projects to conduct the integrated transportation study for the Coega industrial development zone.

BKS established Khutele Projects as a joint venture. BKS, a company which had contracts with the pre-1994 government, now has Modise as its chairperson.

Modise is a significant shareholder and chairperson of Harrambee Investments, which has a 30 percent shareholding in BKS.

Modise's role in the arms deal is part of the extensive probe into the deal, according to sources involved in the investigation.

Sipho Ngwema, a spokesperson for the directorate of public prosecutions, declined to comment on a series of questions about its investigation into Modise.

This week there were media reports that finance department officials were extremely angry when they discovered that the submarine deal had been signed before the affordability study had been completed.

It was tied up with the future of Coega because in return for the contract, the German submarine consortium was to bring in a crucial anchor tenant, the steel company Ferrostaal.

After the Ferrostaal proposal fell through, Coega continued to be linked to the arms deal through other industrial participation or offset proposals that successful arms deal bidders would locate at Coega.

"By June 1999 the Coega project had effectively collapsed due to the withdrawal of its anchor tenant, Billiton," said Colm Allan, the director of the public service accountability monitor at Rhodes University.

"Modise's agreement with the German submarine consortium on June 13 1999 to purchase three submarines at a cost of R4,5 billion in return for Ferrostaal's promise to construct a steel mill worth R6 billion at Coega resurrected Coega from the dead."

"Modise signed the deal two months before the affordability team had briefed the cabinet on its likely fiscal and economic impact. After his intense involvement in the policymaking process, Modise ends up as chairperson of a company which has been awarded contracts to implement the Coega project," Allan said.

"For Modise to benefit financially as a businessman from decisions that he made whilst he was a cabinet minister is an astounding conflict of interests. You don't need a degree in ethics to recognise that."

Modise was also in the news this week because of work done on his private house by a subsidiary of the arms parastatal company Denel while Modise was defence minister.

Denel has disputed some facts contained in media reports that its subsidiary Denel Properties (Denprop) had done work on Modise's private residence in Midrand, Gauteng, during 1995.

The statement said Denprop is a commercially focused construction company that does work on "residential projects" in the private sector.

It said Denprop had tendered for work on Modise's house in 1995, signed a formal contract and was paid in full after the work was completed, and "no loan of any nature or form was granted to him."

However, Ngwema said on Friday night that its investigation into the matter had ended after a loan had been paid back.

Modise was unavailable for comment this week. A member of his family who answered the phone at his house said he had been sick with pneumonia, and referred enquiries to his lawyer, Steve Friedland.

Friedland, contacted on his cellphone yesterday morning, said he was unable to comment as he was in Tanzania and needed more notice.

He was not willing to listen to the details of the report that was being prepared for publication. 

With acknowledgement to John Matisonn and The Sunday Independent.