Cape Town - The national treasury has provided "no caution" to the defence ministry about any of the contracted tranches in the defence procurement deal being placed in jeopardy, says Defence Minister Mosiuoa Lekota.

Lekota was replying to a query from Roy Jankielsohn, a Democratic Party MP, about whether the SA National Defence Force had proposals to curb growing costs of the package to re-equip the navy and air force. Opposition estimates now put costs at almost R70bn 70-billion rand including buying 12 Hawk and 19 Gripen aircraft.

Lekota said: "Owing to the potential (effect) impact of the strategic defence package (SDP) programmes on the national fiscus, the national treasury commissioned an affordability study during the final negotiations process.

"This study took account of factors that could (have an effect) impact on the RSA's balance of payments, rand performance against major currencies, economic growth based on poor, medium and high performance, national revenue collection, international interest rate trends and inflation rates versus inflation targets over a time span of 20 years."

From this, a set of "most likely, positive and optimistic" economic performances were established to determine the viability of package the SDP programmes, he said.

"Overseas banks were also convinced to offer the most lucrative interest rates, backed by respective government guarantees," Lekota said.

Repayments were delayed by five years to further reduce the risk of negative cash flow.

"This (was) to allow the projected inflow from countertrade obligations to take effect. Banks were further convinced to accept repayments in any of a number of nominated currency denominations to favour SA in the selection of the most suitable currency selection for each milestone."

"This, in essence, has created an effective rate of exchange hedge for the national treasury, who will only be obliged to authorise a first payment five years after the contract effective date."

The contract was signed in 1999 taking the first payment to 2004.

"To date," Lekota said, "the national economy has performed better than predicted, with the rand exceeding all expectations against the euro consistently. Countertrade targets are also being surpassed continuously."

The minister said the defence partment of department could not was not in a position to curb growing costs to do with exchange rate fluctuations as at present it makes no foreign payments.

The national treasury "will pay in a few years' time in terms of the financing agreement between it and the foreign banks". Any exchange rate profit or loss would only be realised "as and when the national treasury makes these payments". (9.33 rand U.S. $1)

With acknowledgment to Donwald Pressly and Business Day.