Members of the South African Parliament have heard that the total cost of the country's strategic rearmament programme would shoot up by at least 50%. The controversial purchases, originally billed at R30.3-billion and then at R32-billion, are now expected to cost the country well over R43 billion, Parliament's watchdog public accounts committee was told on Wednesday.

The head of the Department of Defence's (DoD) Acquisition and Procurement Division, Shamin "Chippy" Shaik, told MP's that if inflation and exchange rate costs were included, the deal would now cost about R43.8 billion over 12 years. This figure was expected to rise even further once bank loan costs were factored in. Shaik said it was very difficult to give a final figure as the finance department and the Treasury still had to negotiate financing costs with international bankers. Increases in the price of raw materials and labour would also have an effect.

African National Congress committee member Laloo Chiba said it was unacceptable the DoD could not provide the final estimates, and demanded a detailed projection of all costs be provided to the committee. He said the deal's cost could escalate to as much as R60-billion, or double the initial announced amount. He wanted the projections no later than this coming Monday, he said. Committee chairman Dr Gavin Woods told the SA Press Association the figures would be tested against those submitted to Cabinet for approval last year. "We would have to ask whether Cabinet was aware of this [increase in costs]," he said. Questions could be raised as to how well Cabinet "put its mind around" the deal should the figures be the same.

As it stands the contracts will see South Africa purchase four Meko A200SAN patrol corvettes from the German Frigate Consortium, three Type 209 1400MOD submarines from the German Submarine Consortium, 30 Agusta A109M light utility helicopters (with an option for ten more), 24 BAE Systems Hawk lead-in fighter trainers (in two "tranches" of 12), and 28 Saab/BAE Systems JAS39 Gripen advanced light fighter aircraft. (The latter will also be in two "tranches": first nine two-seaters and then 19 single seaters.)

The seven-hour grilling of Shaik and other officials associated with the arms deal, including the government's former chief negotiator Jayendra Naidoo and top Armscor personnel followed Auditor-General Shauket Fakie's special report to Parliament, released last month, which found that generally accepted procurement practises had not not followed. Fakie recommended a special forensic audit into the deal's subcontracts, some of which have been the subject of corruption claims. Among those sitting in the public gallery were Judge Willem Heath, who earlier this week formally applied for a presidential proclamation allowing his investigative unit to probe the deal. The Investigating Directorate: Serious Economic Offences, and Public Protector Selby Baqwa have also launched investigations into the deal.

The Star newspaper also reported that another ANC committee member, Andrew Feinstein, said the deal was the most complex issue that had come before the committee. "The deal has been characterised by an enormous amount of rumour and conjecture. "The committee needed all information on the deal so it can once and for all deal with any irregularities". There were still areas that remained "murky" and required clarity. These, he said, included the lack of a formal conflict of interest declaration, the relationships between contractors and sub- contractors, and the actual benefits accruing to the country.

Shaik told the committee he had declared his conflict of interest in relation to the procurement of four corvettes - as part of the arms package - for the South African navy. His brother, Shabir, is the director of African Defence Systems, which also employs Chippy Shaik's wife, Zarina, and was involved in the corvette deal. Shaik said he had declared the conflict of interest and recused himself from the awarding of that contract. "It was presented to the ministers and also recorded that a conflict of interest does exist," he said. Feinstein requested documentary proof of this, and asked for an unequivocal statement that conflicts of interest could not in any way impact on the ultimate decision taken about the awarding of the contracts. "I can unequivocally state that the process does not allow for any individual to influence the process of this magnitude," Shaik said.

Committee members also repeatedly sought clarity about the guarantees in relation to the deal's national industrial participation (NIP) commitments. In his report Fakie said he was of the opinion that the guarantees, in case of non- performance, "may be inadequate to ensure delivery of the NIP commitments." That would undermine one of the major public relations objectives of the strategic defence package, namely foreign economic investment and the creation of more than 65,000 new jobs. 

The committee expressed concern that the financial guarantees amounted to only R3 billion - ten percent of the R30 billion contract - when the NIP totalled more than R100 billion. Although the DTI said there were regular reviews of the commitments made under the industrial participation programme to ensure performance, Woods requested the defence department submit written proof of all commitments undertaken. "Early indications suggest the deal we thought we had in rands and cents terms has turned out for the worse. It appears we are paying more than we thought we would have to and could be getting less," Woods said afterwards. Woods also said the committee would release a report on its findings on October 30, and would at that stage decide whether to pursue a forensic investigation and a cost-benefit analysis into the matter.

With acknowledgement to Leon Engelbrecht and Defence Systems Daily.