Part 1: How recent disclosures fit in with the history of the arms deal.

The Office of the Public Prosecutor in Dusseldorf, Germany, is currently investigating various members of the German Frigate Consortium (GFC) for fraud, corruption, and tax evasion. These relate to the contract the consortium won to supply the South African navy with four Meko A200 corvettes in 1998/1999.

The German investigators claimed in a letter for assistance to Swiss authorities last year that the consortium had "paid considerable bribes to achieve the conclusion of the agreement." A total of $25m was paid out in kickbacks by Thyssen Rheinstahl Technik GmbH. $22m of this was paid to a letterbox company in Liberia called Mallar Inc., most of which "directly flowed to South African officials and members of cabinet." Another $3m, the investigators allege, was paid to the former chief of arms acquisition, Shamin "Chippy" Shaik, through another letterbox company, Merian Ltd in London.

The corvette deal had two interlinked components. The first involved the contract to build and supply the ship platforms, and the second involved their equipping with a combat suite. The primary focus of this article will be on the ship platform component. These bribery allegations raise a number of obvious questions: How was the existing procurement process suborned to ensure that the GFC got the contract? And what were the costs to the country of that particular result?

The navy launched Project Sitron in 1993 with the aim of replacing its clapped out fleet of ageing Israeli strike-craft with four patrol corvettes. The procurement process passed through the various normal stages. The deadline for tenders for the four corvettes closed on August 30 1994. There were five bidders - from Denmark, France, Britain, Spain, and Germany. The German consortium, which had been established earlier that year, was made up of Blohm+Voss and Thyssen of Hamburg. On December 23 Armscor announced that only "two of the five listed contenders for the naval patrol corvettes will progress to the next round of proposal refinement." These were Yarrow shipbuilders of Scotland, and Bazan of Spain.

Bazan had presented by far the best offer. The idea was that they would supply the ship platforms while the combat suite, which had been under development by the navy for some time, would be built and installed locally. The Spanish had also offered a substantial counter-trade agreement. African Armed Forces reported that, "The entire combat suite, helicopter avionics and tactical systems, all structural steel, piping hydraulic and electric machinery and switchgear, electric motors and fans will be South African sourced. The remainder will be traded against local products." (June 1995)

There were two cost estimates given for the purchase of the ships and their equipment with helicopters and a combat suite. The Mail & Guardian reported in January 1995 that "an Armscor official close to the negotiations with the overseas suppliers said the maximum cost would be R2,5bn for the whole programme including buying the ships, fitting them with armaments and electronics (done locally) and supplying them with helicopters." (Factoring in inflation and currency depreciation, this translates into about R4,7bn in 1999 rand values.)

However, in February Tielman de Waal, the managing director of Armscor, set out the approximate cost breakdown as R1bn for the ship platforms, R500m for the combat suite, and R200m for the helicopters - for a total of R1,7bn.[1] The reason for the differential was that, in the latter case, the combat suite element was limited to a transfer of weaponry from the strike craft to the corvettes.

The last phase of the procurement process required the government of national unity cabinet to sign off on the contract with Bazan. In early May the chief of the armed forces, General Georg Meiring, and the chief of the navy, Vice-Admiral Robert Simpson-Anderson, briefed cabinet on the need for the corvettes, and on why Bazan had the best bid.

However, there was an orchestrated effort by the ANC component of cabinet to scupper the deal. The front page lead of the Sunday Times on May 14 1995 was headlined "Navy corvettes sail into a cabinet storm." The article was based on extensive briefings by ANC cabinet ministers against the purchase. Unnamed ministers had complained they had not been consulted. Minister of Trade and Industry, Trevor Manuel, had apparently told cabinet that he would "not tolerate being bypassed" on the counter-trade aspects of the deal.

Meiring and Simpson-Anderson were ridiculed for conducting their presentation like "encyclopaedia salesman" and for being unable to tell Transport Minister Mac Maharaj "who South Africa needed protection from." They had also, apparently, raised hackles "by saying that unless they were given the corvettes, the navy would not survive. This was felt to be a threat."

The Sunday Times also reported that as soon as the losing bidders had been informed of their rejection they had stepped outside the existing procurement process and begun aggressively lobbying the new ANC government.

In mid-January 1995 Deputy President Thabo Mbeki had visited Germany on an official state visit. The article reported that Jurgen Koopmann, the managing director of the German consortium, had expressed his dissatisfaction that "despite two assurances" from Mbeki "that the Germans were still in the race, Armscor had maintained Blohm and Voss's disqualification."

On May 17 The Citizen quoted a ministerial source as saying that the existing bid had been shelved and that "The tenders have been reopened. We are going to give the others another chance." Piet Groenewald MP had said that a representative of the German consortium had told parliament's defence committee that Mbeki had promised during his visit to Germany to reopen the tender process. "They said they had a letter from Mr Mbeki inviting them to apply again."

Shortly after that it was reported that a director of Thyssen, Christoff Hoenings, had telephoned a newspaper from Germany to say that Mbeki had told him and his directors in January that "the race is still open to all contenders." Mbeki had repeated this during a conversation with German Foreign Minister Klaus Kinkel.[2]

(Both Hoenings and Koopmann are currently under investigation by the German public prosecutor in relation to the corvette contract.)

Joaquin Coello, vice president of Bazan, said that the bidding process had been very rigorous. "We played by the rules. We need to know that South Africa is a serious when it invites us to compete internationally for its business. We were extremely surprised to hear, after the competitors had been cut to a choice between us and Britain, that the process was open again. South Africa should stick to the rules."[3]

President Nelson Mandela spoke on this issue in parliament on June 1 1995. He stated that the issue of defence procurement, and the purchase of the corvettes, would first have to be addressed in a White Paper. He also suggested that "originally it does not appear that the matter was well handled. I have letters from the presidents and premiers of the Nordic countries. Prime Minister John Major has been bombarding me with letters on this matter. The French and German Chancellor Kohl also want this contract. We have to handle this in a way that would satisfy everybody *1, and that would show that these tenders have been properly examined."

When Mbeki was questioned about his apparent interference in the tender process in parliament on June 13 1995 he suggested that the Spanish may have secured the contract through underhanded means:

"What happened in regard to this matter was that a number of countries that had tendered and not appeared on the final shortlist, raised various concerns about this process. I was personally very worried because a suggestion was being made that it may very well be that even as a new Government, we might have acted in a way that was not even handed. I communicated this to Armscor and to the leadership of the Navy and told them that under no circumstances could we allow a situation where anybody in the world carried the notion that we acted in a manner which was not even handed. *2"

The navy learnt a very important lesson from the whole debacle. This was that henceforth decisions on procurement would be made primarily at the political, rather than the military-technical, level. If they wanted their equipment they would have to defer to political leadership on these matters. Captain JEG Kamerman, the head of naval procurement, told arms deal investigators in an interview in June 2001 that it was "clearly apparent to us" after 1995 that "we were only a bit player in this exercise. There were far more important political issues at stake of strategy and building a national consensus of defence and whether to acquire the ships in the first place and so on."

With acknowledgements to James Myburgh and politicsweb.