zuma's dilemma as cost of latest arms deal soars:

Political Bureau

South Africa could lose almost R11 billion should it cancel its contract for eight Airbus aircraft - the price of which has ballooned to about R47bn.

The R11bn includes R8bn already invested in the European consortium behind the A400M Airbus aircraft ordered for the Defence Force, and possibly South Africa's R2.9bn downpayment for the planes.

Parliament heard yesterday that the original price tag for eight of the new generation military transport aircraft ordered in 2006 had rocketed from R17bn to R47bn, a tally rivalling that of the controversial arms deal, which has so far cost the country about R60bn.

Irate MPs from both the ANC and opposition benches have now demanded that Defence and Military Veterans Minister Lindiwe Sisulu and Armscor appear before Parliament's defence committee to provide full answers.

The R8bn investment is not included in the cost of the planes.

It will now be up to the cabinet to decide whether to continue pouring money into the deal and risk the political costs of another arms deal scandal, or pull out of the contract and sacrifice the R8bn.

The cost escalation came to light after MPs on the committee posed questions over a red flag raised by the auditor-general about R2.9bn paid out of the Special Defence Account towards the planes. The auditor-general indicated the money spent could have been irregular expenditure as proper procurement processes were not followed when former president Thabo Mbeki's cabinet agreed to the deal in 2005.

Armscor has since confirmed that there was no tendering process. The R2.9bn represents the first downpayment on the planes, which it is understood could also be lost if the deal falls through.

Armscor chief executive Sipho Thomo told the defence committee yesterday the state arms procurement body was informed about the price escalation by the Airbus consortium last week. Production problems will see a four-year delay until 2016 in the delivery of the planes.

Thomo said this meant the cabinet had a small "window of opportunity" to pull out of the deal in the next month. The government has since withheld a further pre-payment of R1.1bn, pending a decision by cabinet.

Asked whether the R8bn invested in the project could be at risk if South Africa withdrew from the deal, Thomo told the Cape Argus this was one of a number of uncertainties, but said he would not rule out the investment being put at risk.

The Armscor chief confirmed that the R8bn investment was made through not only the Department of Defence, but also the departments of Science and Technology, Trade and Industry and Public Enterprises.

Thomo later told the committee the accounting officers of these departments should also be present later this month, when Armscor chairman Popo Molefe and Sisulu meet the parliamentary committee on October 28 to ensure a "comprehensive briefing" on all aspects of the deal.

The European consortium developing the new Airbus includes the European Aeronautic Defence and Space Company (EADS), with participation from British Aerospace (BAe), French armament electronics company Thales and South African aerospace companies, Aerosud and Denel Saab Aerostructures.

EADS, Thales, Saab and BAe were beneficiaries of South Africa's R60bn Strategic Defence Procurement Package.

Two other local companies are also involved, but are not regarded as "risk-sharing" partners.

Several European countries have tried to cancel their orders of the aircraft since word got out of production delays and rising costs.

Defence committee chairman Nyami Booi indicated that the committee would "put its foot down".

He repeated several times at yesterday's meeting that the strategic value of the deal should be weighed against the plight of badly paid soldiers.

"People's houses are being taken from them. Families are losing their jobs because of the recession, but others say it is a constitutional obligation of the defence force to protect the country *1."

With acknowledgements to Christelle Terreblanche and Cape Argus.