The R30-million Bombshell That Points Fingers at Both Mbeki and His Former Deputy : Special Investigation [Sunday Times, 2008-08-03]

Publication: Sunday Times Issued: Date: 2008-08-03 Reporter: Megan Power Reporter: Jocelyn Maker

The R30-million Bombshell That Points Fingers at Both Mbeki and His Former Deputy : Special Investigation

Publication	Sunday Times
Date	2008-08-03
Reporter	Megan Power, Jocelyn Maker
Web Link	www.thetimes.co.za

Shocking extract from the secret report

Sensational claims, broken promises

A German shipbuilding giant paid President Thabo Mbeki R30-million to guarantee it won the submarine contract in South Africa's multibillion-rand arms deal.

Mbeki gave R2-million of this to Jacob Zuma and the rest to the ANC.

This staggering new allegation has surfaced for the first time in a secret report compiled in 2007 by a UK specialist risk consultancy.

The consultancy was commissioned by a leading Central European manufacturer to investigate the worldwide activities and "questionable business practices" of the shipbuilder, MAN Ferrostaal, which had launched a hostile takeover bid against it.

The suspected shady practices included bribery, corruption, money laundering and a failure to deliver on its investment commitments to the countries to which it sold weapons.

Other than South Africa, the probe involved arms deals in Libya, Nigeria, Angola, the Democratic Republic of the Congo and Zimbabwe.

The Sunday Times has also established that the report which makes the Mbeki-Zuma allegation is in the possession of the office of the director-general of the European Commission's External Relations in Brussels, and the Munich state attorney in Germany.

MAN Ferrostaal, which led the German Submarine Consortium (GSC), won the contract to sell three submarines to the SA Navy, for more than R6-billion.

In return, it promised to build a R6-billion stainless steel mill at Coega in the Eastern Cape, which it promised would provide 1 000 direct jobs and 3 000 indirect jobs.

The project, which promised billions of rands in export and local sales, has not happened.

On page eight of the report under the South African section of the probe, it alleges:

"A former South African official who had access to such information informed us in confidence that Ferrostaal paid R30-million to current President Thabo Mbeki to gain the arms contract in the first place.

"When questioned by investigators in South Africa, Mbeki claimed that R2-million was given to his former deputy president Jacob Zuma and the rest went to the ANC."

The report says it was "unlikely that this information will be leaked in the near future because Mbeki maintains a tight (rein) on the National Prosecuting Authority where this matter would be dealt with".

Mbeki's presidential spokesman, Mukoni Ratshitanga, said: "These allegations have been in the public domain for some time, which gives lie to the assertion that they are, for whatever reason, 'unlikely (to) ... be leaked in the near future'. They are of such fantastical proportions as not to warrant any response."

The Sunday Times pointed out to Ratshitanga that this was in fact a new allegation. He failed to respond.

ANC spokesman Jesse Duarte said: "Any person anywhere in the world who has evidence of corruption should take it to the police *1. Anyone can write a document and claim it is authentic."

The report also states that South African intelligence services have proof that MAN Ferrostaal paid the bribe to Mbeki.

MAN Ferrostaal dismissed the allegations as a "fishing expedition" intended to damage its reputation and that of the South African government.

A number of arms dealers who were involved in bidding for the contracts told the Sunday Times that they knew Zuma acted as Mbeki's front man during the arms deal negotiations.

They said some of them were summoned to meet Zuma a number of times, and that at least once the four Shaik brothers, Chippy, Mo, Yunis and Schabir, were present.

At these meetings the dealers were told that if they wanted to do business, it had to be through the Shaiks. Yesterday Yunis Shaik said this was "all just lies".

Others involved in the negotiations told the Sunday Times that bribes had been solicited from them.

They said that during the deal many of the high-ranking politicians and officials involved were so greedy they even asked for money, jewellery and perfume for their wives and girlfriends.

Tipp-Ex and Some Dodgy Deeds

In another twist in the arms deal saga, the Sunday Times has come into possession of a draft report into the submarine contract, drawn up by the attorney-general (sic) in May 2001. This draft, which has never been made public, was diluted and sanitised before being included in the final report of the Joint Investigation Team, set up to probe the arms deal.

It has emerged from the document that the process of evaluating bidders for the submarines was skewed and highly suspect. The draft says it is apparent that "deviations from the approval process occurred" and that "good procurement practices were lacking", including:

* The changing of the overall evaluation formula to favour the preferred bidder, eventually Ferrostaal/GSC;

* That Tipp-Ex was used on the evaluation working papers, contrary to instructions. These corrections were not initialled by anyone. The attorney-general questioned what impact this would have had on the evaluation process. He said someone else could possibly have purposely altered an assessment ; and

* There were questions raised about the high score given to Ferrostaal's Coega stainless steel offset project.

What the President Brushed Aside

The Sunday Times has established that Mbeki, when presented with the August 1999 affordability study which assessed the economic and financial impact of the arms deal, chose to ignore it and two vital independent steel reports attached to it.

These warned that Ferrostaal's stainless steel offset project the local investment pledge on which it won the submarine deal was high risk and likely to fail. The studies were conducted by two of the world's top steel experts, London's Warburg Dillon Read and New York's Locker Associates.

The affordability study and its annexures, presented to Mbeki almost a year after he announced who would get the submarine contract, have never been released to the public.

Circulation of this document has, over the past nine years, been strictly controlled.

Locker Associates warned that the mill, with an annual capacity of 800 000 ton stainless flat-rolled steel, was highly risky.

Warburg Dillon Read said that South Africa did not need another steel plant in addition to the many in the country.

Paul Dunne, a professor of economics at the University of the West of England, who specialises in the economics of peace, security and military spending, described the affordability study as "a very thorough piece of work".

"I think ignoring these warnings was most definitely reckless," he said.

The Story So Far

In 1995 the ministry of defence highlighted the need to restructure the new South African National Defence Force.

The defence review of 1998 said the SANDF needed to be re-equipped to meet the national security needs of the new democracy. The review aimed to provide credible and convincing reasons for investing large amounts of money in defence.

The result was the proposal of a multibillion-rand strategic arms procurement package, now widely known as "the arms deal" .

By the end of 1999, the South African government had signed contracts totalling (US Dollars) 4.8-billion (R30-billion in 1999 rands) to modernise its defence equipment, which included the purchase of corvettes, submarines, light utility helicopters, lead-in fighter trainers and advanced light fighter aircraft.

Since then taxpayers have forked out billions of rands to pay for the massive loans that the government took out from banking institutions around the world.

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

*1 But that's what we did.