Publication: Business Day Issued: Date: 2003-05-21 Reporter: Richard Young

Parliament Should Query Defence Spending



Business Day

Date 2003-05-21


Richard Young

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Sir - Between 1995 and 1997, SA conducted its "inclusive and consultative" defence review under the leadership of Joe Modise, as defence minister, and Tony Yengeni, as chairman of the parliamentary joint committee on defence.

During October 1996, in the middle of this period, Cdre Theo Honiball, the former chief of naval staff planning, presented a paper entitled "An Alternative to the SA Navy's Corvettes" to the institute for Defence Policy, a section of the institute for Security Studies.

An interesting observation made by Honiball in his paper was that "SA simply cannot afford to spend more than R2bn on four new ships, with helicopters and weapons adding an extra burden to the cost".

This was not long after a R2,4bn tender (1995 : the rand to the US dollar was R3,50) for four patrol corvettes (read light frigates) was cancelled after being awarded, to all intents and purposes to Bazan of Spain.

This was after a three-year acquisition process, which had been approved all the way up to and including the Armaments Acquisition Council.

This included locally built combat suites, the development of which had commenced in 1993 at the initiation of the SA Navy through Armscor.

I believe that the acquisition from Bazan was so far advanced that a considerable number of SA Navy and Armscor personnel had already been transferred to Spain in order to oversea the design, development and construction of the vessels.

There had already been considerable expenditure of public funds on the project.

However, just two years after the publication of Honiball's paper, in November 1998, the cabinet approved in principle the purchase of four Meko 200AS-class frigates (the second-most expensive of the five options shortlisted) from Blohm & Voss of Germany at a cost of R6,001bn (1998 : the rand versus the dollar was at R6,25; and against the euro it was R6,40). This included the same locally built combat suites with a stipulated "ceiling budget" (1,47bn).

Less than a year later, in September 1999, the cabinet finally approved the purchase of the four Meko frigates at a cost of R6,875bn (at 1999 rands, but still at R6,25 to the dollar and R6,40 to the euro).

This included the locally built combat suites at R2,59bn, but with considerably reduced functionality and number of weapons, including half the number of anti-ship missiles, anti-aircraft missiles and chaff rocket launchers, and no torpedo launchers.

Honiball also said that, "in addition to this budget, the navy has planned an additional R800m to purchase helicopters, which will be carried by the proposed corvettes".

At this stage, the navy's requirement was for five maritime helicopters (having been reduced from the six of the approved force design) and I presumed that the R800m was for five aircraft.

The SA navy's response was a sniping reply, a paper entitled SA Navy Response to an Alternative to the SA Navy's Corvettes, with no author identified.

This paper concluded : "it is disappointing that Cdre Honiball (ret) wrote a paper that contained so many inaccuracies and without consulting the SA Navy beforehand."

But more specifically the paper said : "The SA National Defence Force never had R800m allocated on its planned budget to purchase helicopters to be carried by the proposed corvettes. This figure is hundreds of millions of rands in excess of what such helicopters will cost the SA Navy, and the actual amount that has been budgeted for."

Four Super Lynx 3000 maritime helicopters were indeed included in the cabinet's 1998 arms deal allocation at a cost of R787,5m, out of a total package cost of R29,773bn (1998 rands at R6,25 to the dollar; and R6,40 to the euro).

However, in September 1999, the maritime helicopters were excluded from the cabinet's 1999 authorised total contract cost of R30,285bn (again at 1998 rands) as well as there being a reduction in the number of light utility helicopters from 40 to 30.

I do not think that the joint investigation team's report covered any of these highly pertinent issues and certainly made no findings in this regard.

But lo and behold, on February 26, Finance Minister Trevor Manual, in his budget speech, announced that "additional allocations to the SA National Defence Force provide for the acquisitions of four maritime helicopters".

The expenditure of these four maritime helicopters will now be a shade over R1bn (at an exchange rate of R8 to the dollar).

I think Honiball was about spot-on with his figures.

Further, the treasury's estimates of national expenditure for defence this year included the following statement : "Additional spending is projected for outfitting the first corvette, which includes ammunition, cryptographic equipment and other specialised technical equipment. This shows in the increase of 26,1% between 2002-03 and 2005-06 in Maritime Logistic Support Capability, as well as in the increase of 38,1% in the provision for equipment."

While it is not clear from the national treasury's published documents what these percentages entail in absolute terms, nor for precisely what equipment, the package deals were specified to be inclusive of all costs. These costs include all ammunition, fuel for vessel delivery and trials, taxes and duties and programme management costs.

This begs the question : just what requirement or capability shortfalls are giving rise to the SA Navy's request for increased funding on the corvette programme?

In conclusion, I think Parliament's standing committee on public accounts - on behalf of the tax-paying public, its primary stakeholder - had better keep an eye on these and all future defence acquisitions and expenditure.

With acknowledgements to Richard Young ( MD of CI) and the Business Day.