Publication	Independent Newspapers
Date	2011-10-30
Reporter	Ivor Powell, Gcina Ntsaluba
Web Link	www.iol.co.za

Minister for Justice and Constitutional Development Jeff Radebe. Photo: Sizwe Ndingane

 

The mysterious mathematical formulas whereby arms deal offset projects that never got off the ground were adjudged to have benefited the South African economy to the tune of hundreds of millions of rand, may finally be explained in the next two years.

In announcing President Jacob Zuma’s Seriti Commission of Inquiry into the controversial Defence Procurement Packages, Justice Minister Jeff Radebe highlighted arms deal offsets as one of the key areas to be probed in the two years of the commission’s existence.

Weekend Argus last week exposed a series of puzzling escalations – in some cases on a factor of 100 to one – in the value of actual investments as the Department of Trade and Industry (DTI) calculated offset credits awarded to German weapons manufacturer Ferrostaal, lead contractor in the consortium that won the contract to provide three submarines for the South African Navy.

But the Ferrostaal offsets are just the tip of the iceberg.

The DTI appears to have been as generous in offset investments registered against the defence contracts awarded to the BAE/Saab consortium. BAE/Saab was selected to provide 26 Gripen fighters and 24 Hawk lead-in fighter trainer aircraft at a cost to South Africa of more than R15 billion in 1999.

Against this, the British- Swedish consortium guaranteed investments in the South African economy totalling $7.2bn in today’s figures: a commitment the DTI computes has all but been met with nearly $7bn in offset credits awarded.

But scrutiny of some of the actual investments sits uncomfortably with the DTI’s upbeat accounting.

One of these was a project styled as South African Royal Manufacturers (SARM), a joint project with mining giant Harmony Gold. Started up on the basis of a $5m loan from BAE, together with a R10m injection from parastatal the Industrial Development Corporation, SARM was established as part of a drive by the DTI to create facilities for the beneficiation of South African minerals.

The project was to have taken gold made available by Harmony – on the understanding it would be paid back from returns on sales of the manufactured product – and turned it into jewellery chains, creating work for 700 rural women.

Triumphantly announced in March 2003, the project – initiated in partnership with two South American businessmen – was insolvent three months later, but continued operating until late 2004. By this time, evidence was mounting of massive fraud and outright theft of gold. It was later alleged that Harmony’s gold was being exported to Miami under cover of SARM, then melted down into ingots for onsale.

Within 12 months of the initiation of the project, the labour force had been laid off and the infrastructure was in tatters, though by early 2010 SARM had yet to be liquidated.

The goings on at SARM were under investigation by the now defunct Directorate of Special Operations, at the time when former national director of public prosecutions Vusi Pikoli was, controversially, suspended in September 2007.

Despite this inglorious history, the DTI has seen fit to credit BAE/Saab with $17 483 058 in offset credits in respect of the SARM adventure. The DTI also credits the “obligor” (BAE/Saab) as having been responsible for the creation of 400 jobs.

An additional $92 950 991 is credited against investment in Harmony Gold, and specified as being for “metal fabrication” and narrowed down to “Investments in plant and machinery – gold beneficiation – Virginia”. It is unclear whether this relates to the same investment.

The case of BAE/Saab’s investment in the Durban-based Diesel Management Systems (DMS) is equally puzzling. The manufacturer of machinery that would increase the efficiency of diesel engines, while at the same time reducing harmful emissions, DMS was projected, in business plans drawn up by BAE itself, as an enterprise capable of generating multibillion-rand business for South Africa.

But, for reasons that remain unclear, BAE – represented by offset management company Sanip (fingered by Saab earlier this year in the payment of allegedly irregular “consultancy fees” to arms deal entrepreneur Fana Hlongwane) – pulled the plug on the project before it got off the ground.

This has led to nearly a decade of ongoing litigation with DMS’s South African directors claiming a whopping R22bn (based on BAE’s projections in the business plan) in breach of contract.

But, though it never did any business at all, the investment in DMS is credited with generating a putative $4 386 042 benefit to the South African economy.

Another curious offset award was made in respect of the health-care company Hivex – an entity that listed Fana Hlongwane as one of its directors. The offset credit award was made on the avowed basis of “investment into Hivex for trials and then commercialisation”.

The Russian-designed patented device on which the company was founded claims to use “electro magnetism to target specific proteins in the HI-virus, with the aim of disabling the virus and rendering it ineffective, so that cells stop dying and the immune system can regenerate”.

The results of BAE/Saab-sponsored scientific trials into the efficacy of the Hivex treatment have never been published, and the company withdrew claims of proven efficacy from its website when the Treatment Action Campaign lodged a complaint with the Advertising Standards Authority. The treatment is widely dismissed by scientists as quackery, and remains unaccredited.

This has not, however, stopped the DTI from crediting BAE/Saab with offset benefits to the tune of $9 034 564.

* Due to confusion around e-mail addresses, a set of queries sent on Friday morning did not reach the DTI that day, meaning the department requires more time to respond to queries about its “Progress Report on Implementation of the Industrial Policy Action Plan (IPAP2) for the Financial Year April 2010 to March 2011”.

These queries relate to how offset credits were calculated on: Harmony Gold, Diesel Management Systems, Hivex Ltd, SARM, Silmar, Platinum jewellery manufacture, Ferrochrome, URI project, Ferrisa Investment Fund, Magwa Tea, Atlantis Training Centre, LWTF – The Movie and Filk Gold. - Weekend Argus

With acknowledgements to Ivor Powell, Gcina Ntsaluba and Independent Newspapers.

This isn't fool's gold.

This is the real thing.

It's the way the politically clothed and the politically connected transfer gold out of taxpayers' pockets into their pockets.

Legally.

It's we taxpayers who are the fools.

Skermunkels' gold maybe (after transfer).