"'We have been blacklisted, not officially, but the behaviour shows’ ‘They don’t invite us to tender, they cancel existing contracts’"

Arms parastatal says relations frosty since questions arose over procedure during contract procurement

South Africa’s state-owned arms manufacturer, Denel, has lost R2-billion in revenue after it was “blacklisted” from selling weapons to India *1. The company plans to seek diplomatic assistance from the SA government to recapture the Indian market.

On Wednesday, the para-statal’s group executive for business development, Zwelakhe Ntshepe, told the parliamentary portfolio committee on public enterprises: “We have been blacklisted, not officially, but the behaviour shows. They don’t invite us to tender, they cancel existing contracts. It’s been going on for the past four years.”

Denel has not received invitations to tender for any Indian government armament contracts since 2005, after allegations surfaced that it had earlier paid “commissions” for a deal to supply rifles *2.

The struggling arms manufacturer, which survives mainly on government bailouts, disclosed the losses to parliament this week when it appeared alongside other state-owned enterprises that had been called to explain their financial standing and strategies.

But Ntshepe and group financial director Fikile Mhlontlo did not tell parliament ­ nor were they asked ­ about the allegations that Denel had paid “commissions” to Indian officials to secure arms deals.

Mhlontlo told the Sunday Times later that the dispute arose after queries were raised by Indian authorities about “procedure in the procurement process”. This related to a certain question in a questionnaire Denel had to complete during the procurement process in 1999 to which the company was expected to give a “yes” or “no” answer. He said Denel provided an answer that was queried by the Indian authorities in 2004, but declined to reveal the nature of the dispute.

It is understood it was about whether or not Denel had used agents and paid “commissions” to secure a contract that included the supply of rifles. Denel has previously declined to comment on the allegations, citing confidentiality clauses in the contract *3.

A document submitted to the portfolio committee, mapping Denel’s market share, pointed to India as a “no-go market”. Among other things, Denel attributed its losses between 2005 and 2008 to a shrinkage of export markets, including India.

Ntshepe told the committee that the company was undergoing arbitration with the Indian authorities in a bid to resolve the dispute. He said that the Indian authorities had investigated Denel and had not charged the company with wrongdoing *4.

Diplomatic efforts by the government had failed to resolve the matter. Ntshepe said there had been “an attempt at some point” by the South African government to talk to its Indian counterpart, who had responded that it was an issue between the state and Denel. He said Denel was considering to again call for a diplomatic solution between the South African and the Indian governments.

Asked by the committee’s chairman, Mabel Mentor, whether the government’s relations with India through the India-Brazil-South Africa tri-nation diplomatic platform have not helped the situation, Ntshepe replied that relations with India were “difficult”.

The admission about India’s shunning of Denel has come in the same week that minister of international relations and co-operation Maite Nkoana-Mashabane spoke of strong bilateral relations between the two countries. “With India, we share strong historical relations spanning through the 20th century. Ours has been a relationship steeped in politics and struggle,” she said during her department’s budget vote debate.

Denel has posted losses every year since 1998 *5. In 2006 ­ during which it lost R1.3-billion ­ the government injected R2-billion into Denel, in addition to R1.5-billion in loan guarantees.

The company’s losses have since been declining. In 2007 and 2008 it lost R549-million and R347-million respectively. ­ mkhabelam@sundaytimes.co.za

With acknowledgements to Mpumelelo Mkhabela and Sunday Times.