Cape Town — German industrial group MAN Ferrostaal will make two major investments in SA worth about R1,8bn in fulfillment of its offset obligations under the strategic defence procurement package.

The projects — a stainless steel precision strip mill at Coega and an oil rig manufacturing plant at Saldanha Bay — will rectify Ferrostaal’s much-criticised failure to meet its investment milestones in terms of the offset programme.

So far $1,5bn has been committed and invested by the major arms contractors of the $4bn in investments required over the lifetime of the offset programme, which ends in 2007 for four contractors and in 2011 for the BAE Systems-SAAB consortium.

However, exports and sales have lagged milestones, with only $2,3bn of the required total of $14bn having been achieved.

But trade and industry deputy director-general Lionel October said on Friday that all the arms contractors were well on track with their commitments except for Italian helicopter supplier Agusta and ThyssenKrupp.

There was concern that these two might not be able to meet their commitments within the agreed time frame.

“The programme has definitely delivered,” October told Parliament’s trade and industry committee during a briefing on the 2005 report on the programme, noting that less than 1% of the projects had failed.

The BAE Systems-SAAB consortium has achieved more than 100% of its investment target and nearly 95% of its investment and export sales contractual milestone for 2005. Ferrostaal has achieved 82%, Thales 93%, Agusta 68% and ThyssenKrupp 65%.

Agusta’s difficulty arose from the Italian prohibition on government-owned enterprises making direct foreign investments, director of the programme Sipho Zikode said.

Ferrostaal, after failing to get its stainless steel mill project at Coega off the ground, has approved a €80m (R640m) investment for the first phase of a stainless steel precision strip mill at the zone, with €120m (R960m) envisaged in a second phase. The project needs the approval of its 26% partner, the Industrial Development Corporation, but no obstacles are expected.

Last Thursday, Ferrostaal presented Trade and Industry Minister Mandisi Mpahlwa with the details of a R200m oil rig manufacturing plant in Saldanha Bay and a repair facility in Cape Town harbour. A Singaporean oil rig maker will be its technology partner in the project, which also involves a consortium of about 30 South African engineering firms that has undertaken a feasibility study over the past year.

October said the projects would have huge spin-off effects for the economy. Mittal Steel would have to extend its Vanderbijlpark plant to produce marine steel for the rigs, which it could then export. There is a massive global demand for oil rigs in light of the high oil price and intensive exploration efforts with a waiting period of up to six years. The project will also tie in with west African oil exploration.

Both projects are expected to get under way in March.

October briefed the committee on this year’s report of the national industrial participation programme, which covers the offsets of both the arms manufacturers and all contractors to government and parastatals supplying goods with a foreign content of more than $10m.

Obligations of $15bn have been made by defence and nondefence contractors since 1997 to be fulfilled by 2013, with projects so far having generated $3,5bn in both investments ($1bn) and sales ($2,5bn) and creating 8000 jobs. Between March last year and August this year, 134 projects were approved.

Armscor senior manager Brenzia Potgieter said arms contractors had performed 101% against plan and 51% against their total defence industrial participation obligations.

With acknowledgements to Linda Ensor and the Business Day.