Government has a contractual link with a sub-contractor in the R60bn arms deal, Business Day has learned, despite repeated assurances that it dealt directly only with the four prime contractors in the weapons programme.

According to a draft report prepared for the public protector's investigation into the arms deal, the state has a foreign loan agreement with Societe Generale (SG), the French banking group, to facilitate the export to SA of the combat suites being built by Thales (formerly Thomson) of France for installation on three corvettes being built in Germany.

And according to the budget reviews prepared by the national treasury, government has paid R746m for equipment through its arrangement with SG over the past three years.

As accusations of corruption in the arms deal have grown over time, government has sought to distance itself from the fray by insisting it dealt only with the four prime contractors (corvettes, helicopters, submarines and jet fighters) and that any impropriety among subcontractors was none of its doing or business.

President Thabo Mbeki said in his most recent African National Congress website newsletter that "the government has no contracts with the companies retained by the GFC (the German Frigate Consortium which is building the corvettes) to supply the various component parts of the corvettes".

Yet the draft report prepared for the public protector, and the budget reviews, list not four but five loan agreements by government. They facilitate export credits for prime contractors.

Two are with the German Ausfuhrkredit Gesellschaft and Commerzbank, for the supply of the corvettes and submarines, one is with Barclays Bank, for the Hawk and Gripen aircraft. Another is with Italy's Mediocredito Centrale for the helicopters.

A fifth agreement entered into directly by the government is with SG , also for the corvettes, and is clearly designed to cover the combat suites on the corvettes, according to the draft seen by Business Day.

The existence of the loan agreements is confirmed in the last three budget reviews produced by the national treasury.

The agreement is of interest to the public because Thomson's (Thales's) SA arm, ADS, has as a major shareholder Schabir Shaik, brother of former chief of defence procurement, Chippy Shaik. Schabir Shaik said yesterday he could not immediately explain the precise nature of SG's involvement.

"All the financial agreements were managed by the French," Shaik said. He did, however, acknowledge that ADS was a "prime contractor".

On the face of it, the existence of official state loans elevates Thomson (Thales) to the rank of prime contractor, or at least a significant direct contractor.

If it remains a subcontractor (to the GFC) it appears nevertheless to be the only subcontractor whose contribution to the defence packages was directly facilitated by government. This appears to jar with, if not directly contradict, the thrust of the assertion by Mbeki last Friday that government had no direct contracting link to Thomson (Thales), though his language is carefully circumscribed.

Meanwhile, Parliament's watchdog public accounts committee (Scopa) wants National Assembly speaker Frene Ginwala to decide the way forward on allegations surrounding the probe into the country's multibillionrand arms deal.

The Democratic Alliance has requested that Scopa the parliamentary committee that initially asked for the probe into allegations of irregularities surrounding the deal put the controversy back on its agenda.

This follows claims the final arms deal report unveiled in Parliament in November 2001 was heavily edited, and left out findings on gifts received by key players in the deal, as well as suggestions that Scopa had been misled.

With acknowledgement to Paul Kirk, Tim Cohen and the Business Day.