Johannesburg - South Africa's industrial offset programme relating to the country's multi-billion rand arm deal has come under fire from the official opposition - with the focus falling on Ferrostaal for allegedly not achieving nearly 70% of its commitment.

The Democratic Alliance is calling for the Minister of Trade and Industry, Mandisi Mphalwa, to impose penalties on 3 of 5 corporations involved in the arms deal.

Included in the arms deal is the purchase of 4 corvettes from the German Frigate Consortium, 3 submarines from Ferrostaal, 28 Gripen fighters from BAE/SAAB, 24 Hawk jet trainers from BAE and 25 light utility helicopters from Agusta. Thales is involved in the provision of the weapons system for the corvettes.

Ferrostaal, which represents the German Submarine Consortium, has not provided R4bn in investments in terms of its offset commitments, claims shadow trade and industry minister Enyinna Nkem-Abonta, a Democratic Alliance MP.

He told a news conference at parliament that BAE/SAAB and Thales were also defaulting on their offset obligations - to a combined value of some R5bn.

"The 1999 arms deal was signed on the condition that the international contractors benefiting from the procurement would direct specified amounts of investment to South Africa as part of the National Industrial Participation programme. All of the contractors also agreed to specific sales commitments that would form part of their offset contracts.

Penalties

"The estimated penalty that can be imposed for this shortfall is R136m (for Ferrostaal)," said Nkem-Abonta. In addition BAE/SAAB's shortfall was R845m or 6% of its obligation "with an estimated penalty of R315m. Thales' shortfall is R263m or 15% "with an estimated penalty of R93m".

Drawn from official documents Ferrostaal has invested just €220m (about R1.7bn) in offsets compared to the €720m (about R5.8bn) pledged by the end of 2004. It had created just 297 jobs.

Its total obligation is about R24bn by 2007 with a contract value of R8.2bn for the provision of submarines.

BAE/SAAB had meant to invest and be involved in procurement sales to South African companies to the tune of $2.3bn (about R14bn) - including $300m in investment and $2bn in procurement sales.

In fact by April 2004 this had reached US$2.16 billion (about R13.4bn), including $300 million in investments and $18.6 billion in sales. This was a shortfall of about $134m or about R840m - or about 6% of offset obligation as at April last year.

Thales was down 15% on obligations by the first milestone or by about R260m (US$41.7m) by April 2003 - the latest figures available.

However, Agusta had achieved its first offset milestone in April 2004 of $42.6 million (R265m) and Thyssen Krupp (German Frigate Consortium) had achieved its first milestone of $56.5 million (R352m) while for procurement sales but the assessment for $147 million (R916m) for its offset investments is to be carried out this year.

The total offset obligation so far was R23.5bn of which ... R17.5bn has been forthcoming, say DA researcher Tim Harris. These figures do not include the offset investments of Thyssen Krupp.

With acknowledgements to I-Net Bridge and Finance24.com.