Last Week: We revealed allegations of a R30-million bribe paid to Mbeki by a German arms company

This Week: We expose how the company broke many of the promises it made to win the R6-billion arms contract

Shocking Truth Behind the Spin

Mbeki justified the arms deal's exorbitant price tag with the promise of large investments ­ known as offsets ­ undertaken by successful bidders. In return for winning the contracts, these offsets would create and sustain thousands of jobs, kick-start projects, boost exports and provide new technology to reshape the local economy. But a Sunday Times investigation into the offsets linked to at least one controversial deal tells a damning tale of collapsed projects, dubious benefactors and missed deadlines

Shockingly, the government had been warned ­ before it signed the deal ­ that this offset wouldn't work. The Sunday Times reported last week that, as early as August 1999, two independent steel reports attached to the government's affordability study had clearly warned that the Coega mill was high-risk and likely to fail

A Condom factory which was never built; a training project which went bust; an economic empowerment deal which benefited only arms-deal players.

All of these were included in German company MAN Ferrostaal's investment promises offered in exchange for South Africa's R6-billion submarine contract.

It has been established that, instead of helping to boost South Africa's economy and create thousands of jobs, Ferrostaal's offsets have left a trail of broken promises, court battles and dashed expectations.

The newspaper has, over months, visited project sites and scrutinised pages of company records, Department of Trade and Industry annual reviews, due diligence reports and archived files.

A report drawn up by an international risk consultancy claims that Ferrostaal has a tendency worldwide not to deliver on its offsets.

It also claims that Ferrostaal and its parent company, MAN AG, are involved in questionable activities around the world, including Libya and Burma.

Ferrostaal has been accused of sponsoring the education of the children of a former Libyan ambassador to Berlin in connection with an arms deal in Libya. One of the children, it is claimed, is studying for a master's degree in Vienna. It is also alleged that the company helped to pay for the hospitalisation of the ambassador's wife in Munich in 2005.

And it is said to have obtained a residential property near the Libyan embassy in Berlin, which it allowed to be used by Libyan diplomats who travel to Germany.

Another allegation is that a company linked to Ferrostaal in Germany is supplying weapons to the military junta in Burma.

In South Africa, Ferrostaal has, in several cases, been credited by the government with fulfilling its commitment, even though a project failed.

This contract loophole, which makes allowances if a local supplier defaults, was red-flagged as risky and open to abuse in a 2001 auditor-general's draft report ­ which was never made public.

Information on offsets has long been a closely guarded secret, with annual DTI reviews lacking in detail. Not one review so far published has recorded that none of Ferrostaal's original Coega offset projects ­ put forward in 1999 and changed in 2000 ­ ever materialised, or that it repeatedly substituted its project list. Its latest offset project, an investment vehicle known as Hasso Plattner Ventures Africa, was launched in Cape Town just six months ago.

In response to a detailed list of questions from the Sunday Times, Teresa de Risi from the DTI's Industrial Participation Secretariat remained vague. She said some of the queries related to "operational matters" for which details could not be provided.

"We focus on implemented projects, with the understanding that some may fail, some perform to expectation, while others may prosper beyond expectation. Added to this, new projects may be submitted to replace others that have proven not to be viable.

"The number of projects thus is not a meaningful indicator of performance," said De Risi.

She said Ferrostaal's original obligation, the stainless steel flat cold-rolled mill at Coega, had been withdrawn when market conditions "proved it not to be viable".

It had been replaced with alternative projects.

Shockingly, the government had been warned ­ before it signed the deal ­ that this offset wouldn't work.

The Sunday Times reported last week that, as early as August 1999, two independent steel reports attached to the government's affordability study had clearly warned that the Coega mill was high-risk and likely to fail.

With acknowledgements to Megan Power, Jocelyn Maker and Sunday Times.