Businessman allegedly had unfair advantage over competitors

Businessman Shabir Shaik was privy to the minutes of a top-secret meeting which mapped out the specifications of helicopters, fighter planes and ships which the government wanted to buy as part of its R30.3-billion defence procurement.

Shaik, who was arrested on Friday for being in possession of the minutes and other classified government documents, allegedly enjoyed a substantial advantage over his competitors when bidding for a contract because of his access to the information.

African Defence Systems, a company partly owned by Shaik, was subsequently awarded a contract to produce combat systems for the SA Navy's four corvettes. This was after ADS twice reduced its bid price, eventually to less than half its original tender.

The minutes of the meeting, at then Deputy President Thabo Mbeki's Pretoria residence in May 1999, were written by Shaik's brother, Shamin "Chippy" Shaik, who is in charge of the government's arms acquisitions.

The meeting was attended by then Defence Minister Joe Modise, Trade and Industry Minister Alec Erwin, former Public Enterprises Minister Stella Sigcau and the government's chief negotiator on the arms deal, Jayendra Naidoo.

Sensitive information around the arms acquisition, such as the specifications of the Hawk fighter trainers, submarines, corvettes and utility helicopters, was discussed and detailed in the minutes.

The document also spells out the Cabinet's recommendations regarding the Gripen fighter jets and submarines.

Shaik appeared in court on Friday facing charges of theft under the Protection of Information Act.

He was also charged, under the Act, with possessing a letter from his brother to Secretary of Defence January Masilela.

The letter, dated February 11 2000, addressed "irregularities in the corvette combat system adjudication process".

This letter included details relating to the selection of the combat system including specific allegations around the granting of particular contracts.

Shaik's company, Nkobi Holdings, owns shares in Thales International, the company that won a contract, said to be worth R400million, to provide the systems for the SA Navy's four new corvettes now being built in Germany.

The documents were found among piles of papers seized by the Scorpions unit last month when they raided companies linked to Shaik in South Africa, France and Mauritius. His palatial house in Westville, Durban, was also raided.

The report of the multi-agency investigation into irregularities around the arms deal found that "there was a conflict of interest with regard to the position held and the role played by . . . Shamin Shaik by virtue of his brother's interests in the Thomson Group and ADS, which he held through Nkobi Holdings".

"Mr Shaik, in his capacity as chief of acquisitions, declared this conflict of interest in December 1998 to the project control board , but continued to participate in the process that led ultimately to the awarding of contracts to the said companies. He did not recuse himself properly," the report stated.

Defence Ministry spokesman Sam Mkhwanazi said Minister Mosiuoa Lekota was expected to make an announcement tomorrow on possible action against Chippy Shaik.

Scorpions spokesman Sipho Ngwema said further arrests could not be ruled out.

The investigation is now focusing on conflicts of interest by government officials, the shareholdings of stakeholders in companies involved in the deal, the receipt of gifts and undue payments made to successful contractors.

Ngwema said the Scorpions were "pulling [out] all stops".

Shabir Shaik said after being released on R1 000 bail on Friday that investigators had made him into a scapegoat.

Magistrate Mervyn Maistry said "it would make little difference" whether Shaik, a man of great wealth, was released on bail of R50 000 or R1 000.

"I'm rather surprised that I'm the first to be arrested," said Shaik. "It came to me as a total shock. I was not directly involved in the arms deal, yet I'm the first to appear in court. I think I'm caught in the crossfire of certain political interests."

Shaik also accused some foreign intelligence agencies involved in the probe of using the investigation to further their own interests.

"What I've been accused of represents less than 2% of the total deal," he said. "So much taxpayers' money is being used for this. What happens to the other 98%? I'd like the attorney-general to probe those interests."

It would be "grossly unfair", he added, to arrest his brother.

Shaik will appear in court again on January 21

With acknowledgement to Ranjeni Munusamy, Ronnie Govender and The Sunday Times.