THE younger brother of President Thabo Mbeki is hoping to make millions out of arms sales by buying into a weapons company tied up in South Africa's R50-billion arms deal.

The way the company Moeletsi Mbeki hopes to buy into came to be so profitable is a fascinating tale involving the controversial government arms procurement chief Chippy Shaik.

The company, Vickers OMC, formerly Reumech OMC, was originally part of privately owned South African Reunert group of defence-related industries. With its research financed by millions of tax rands, the firm developed some of the world's most sophisticated military vehicles. Best known for producing vehicles such as the Nyala and Rooikat - and the chassis for the world-beating G6 cannon - it also built tanks.

The OMC in Reumech's name stands for the Olifant Manufacturing Corporation. The Olifant was South Africa's indigenous main battle tank, based on the obsolete British Centurion Tank chassis. Reumech OMC was the only South African firm capable of constructing and maintaining heavy armour such as tanks. In addition to this construction line, Reumech also had two operating units: a research and design facility called Ermetek; and a gearbox construction unit for giant vehicles, Reumech Gear Ratio.

Despite lucrative contracts - including supplying Casspirs to India - and strong interest in the company's G6 cannon chassis, Reumech was sold for little more than R120-million in mid-1999 by its parent company, Reunert, to Vickers plc, a British company owned by Rolls Royce, itself a component of BAe Systems. It then became Vickers OMC.

Business Day last week reported how Mbeki joined Diliza Mji, former ANC treasurer in KwaZulu-Natal and BAe Systems' South African chairperson, to bid for a stake in Vickers OMC.

Using funds that Mji sourced from the Industrial Development Corporation (IDC), the duo, the only two directors of Dynamic Global Defence Technologies, plan to buy a R22-million stake in the newly formed Vickers OMC. The Registrar of Companies simply calls Mbeki's company by its initials, DGD Technologies. Mji's directorship of the IDC raised some eyebrows and prompted Minister of Trade and Industry Alec Erwin to order that a list of loan and business transactions between the IDC and its directors be published by the end of this week.

Business Day reported that Vickers OMC failed to win a stake in the recent arms deal. But the Mail & Guardian has established that the company is set to make a tidy sum of money from the deal - possibly thanks to the interference of Shaik in the tender process relating to the supply of ships to the navy.

The minutes of the Procurement Committee on Defence discussing "Project Citron" - code for the naval element of the arms deal - and Armscor correspondence throw Shaik's role in awarding contracts into sharp focus.

Minutes of the meeting on August 23 rubbish claims by the government that the state played no role in the awarding of sub-contracts. In this instance, the procurement committee intervenes on behalf of - and Chippy Shaik personally goes out to bat for - a subcontractor connected to the company Mbeki hopes to buy into.

Item 12 on the minutes reads: "Gearboxes. Acting project officer, Project Citron, informed the board that there was some deliberation around use of either the Maag or Renk gearboxes ... The dilemma being that, whereas the Maag [a European manufactured] gearbox is the preferred option, the Renk gearbox will provide much-needed work for [Reumech] Gear Ratio."

Shaik then interjects that, provided the technical aspects are identical, the extent of industrial participation the companies are offering must be the final arbiter of who wins.

The Maag gearbox was clearly technically preferable to the Renk. An earlier letter from Lew Swann, CEO of Armscor, dated June 29 1999 and addressed to the German Frigate Consortium, says the project control board had decided on Maag as the supplier of gearboxes. The board had the exclusive task of evaluating technical aspects of various bids.

Swann's letter notwithstanding, the day after the Project Citron meeting of August 23, Shaik tasked a senior Armscor official to write to the German Frigate Consortium informing it of the importance of Reumech Gear Ratio to both Armscor and the Department of Defence. The letter, dated August 24, was written after Shaik sent a memo to the official concerned informing him of the decisions taken at the committee meeting the day before. Almost overnight the Maag product was dropped and Renk was chosen instead. "Much needed work" as the minutes call it, was about to be sent Gear Ratio's way. The minutes have a footnote that this recommendation comes into effect after August 30 1999.

The price of R120-million that Vickers plc paid for Reumech OMC was based on the value Reumech OMC had at August 30 1999 - in other words before Reumech could boast the contract for gearboxes for the German Frigate Consortium.

The fact that the soon-to-be-signed Corvette gearbox contract appears not to have been factored into the price is either incredible coincidence or worse. Soon thereafter, the value of the Corvette gearboxes would have had to be factored into the price.

But the Corvette contracts are not the only factors that stood to increase Reumech OMC's value. Vickers OMC stands to make big profits from a number of new arms contracts to re-equip the army.

Originally the defence department had hoped to buy nearly 150 main battle tanks. This project - code named Project Aorta - has been put on ice but may be revived.

If Project Aorta is revived, Vickers OMC could make big profits from the R6-billion deal. As the only local company capable of delivering main battle tanks, it is likely to be favoured above foreign-based suppliers. Also likely to throw millions the way of Vickers OMC are Projects Ambition and Hoofyster, both of which aim to allow the South African National Defence Force to field new armoured cars. The exact value of these projects is unknown.

Contacted for comment Mji stressed that his company had not yet bought into Vickers OMC. Mji said: "It is out of our hands really. We have put in a bid and we will have to wait for approval from Britain."

Mbeki's office this week said he would stand by Mji's comments.

With acknowledgement to Paul Kirk and the Mail & Guardian.