Publication: Sunday Times Issued: Date: 2008-08-10 Reporter: Megan Power Reporter: Jocelyn Maker

The Big Con



Sunday Times



Reporter Megan Power, Jocelyn Maker

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Exclusive: Our arms deal probe uncovers more dodgy dealings

The government has allowed the German industrial giant accused of paying a R30-million bribe to President Thabo Mbeki to break a raft of promises attached to the arms deal.

MAN Ferrostaal won the R6-billion submarine contract in the arms deal partly on the strength of a R20-billion investment pledged to the economy. But an investigation into Ferrostaal's offsets has uncovered a trail of abandoned and collapsed projects, dubious benefactors and missed deadlines.

Of a list of Ferrostaal offset projects provided by the Department of Trade and Industry, only four are considered complete. And of these, three no longer exist.

But the most damning finding is that despite stringent breach-of-contract clauses and claims of tight government monitoring, Ferrostaal has never been penalised.

Mbeki, through senior ministers, has threatened to sue the Sunday Times for the allegation it reported last week that he took R30-million from Ferrostaal, gave R2-million to Jacob Zuma and the rest to the ANC.

Late on Thursday the Office of the Presidency sent a letter to the Sunday Times asking for a copy of the international report which contained the allegation. The newspaper declined.

On Friday, the Mail & Guardian named former spy Mhleli "Paul" Madaka as a source of the bribery allegation claimed in the report.

The former NIA senior manager was killed in a car accident in August last year. Ironically, he crashed into the premises of the German group he had accused of bribery.

Today we reveal that the Department of Trade and Industry's Industrial Participation Secretariat had, in the past, written to Ferrostaal to address its shortcomings, but had never imposed any penalties.

The secretariat's Teresa de Risi, said review meetings between Ferrostaal and the department were held every six months and site visits were an "ongoing activity".

But she did not provide details on how many Ferrostaal projects since 1999 had failed or been withdrawn, or how often projects were substituted. She also could not say how Ferrostaal's offset record compared with other arms suppliers and why so few of its projects were completed.

Offsets are investments that arms dealers typically commit to when they win contracts, and it was the benefit of these offsets ≠ billed as creating thousands of jobs, boosting exports, providing new technology and reshaping the economy ≠ that government touted as justification for spending billions of rands on weapons.

But the list of Ferrostaal's projects sent by the company to the Sunday Times and that sent by the department differs.

After investigating, the newspaper found that:

Despite claims in 2006 that customers would pour in, it stands empty and is now seen as a white elephant.

In the Department of Trade and Industry's 2005/06 review, it boasted that most companies involved in offsets in SA had "exceeded expectations", but when asked which particular arms deal companies had done so, De Risi answered, "none to date".

Information on offsets has long been a closely guarded secret, with annual reviews vague. Ferrostaal claims to have created and saved more than 20 000 jobs, but the department is unable to confirm this.

It could not explain why, eight months after the seven-year offset deadline of 2007, many of the projects are not finalised.

At the Union Buildings in Pretoria on Wednesday, public enterprises minister Alec Erwin ≠ who was trade and industry minister at the time of the arms deal ≠ and minister in the presidency Essop Pahad repeated Mbeki's denial that he received money from Ferrostaal.

They again rejected a call for an independent commission into the arms deal, and Erwin claimed that the offset promises were "very much on track".

Ferrostaal's failure to meet its obligations was first raised in 2004. In the Department of Trade and Industry's 2004 review of offsets, it said it was "concerned that Ferrostaal is running out of time" to meet its first milestone.

In February 2005, Ferrostaal admitted it had been "a little slow out of the starting blocks" and announced a R1.2-billion precision strip-mill for Coega, which never happened.

Ferrostaal managing director Christian-Max Pietsch explained that with the high quantity of projects undertaken, Ferrostaal had to accept "setbacks".

When Ferrostaal was approached again with the Sunday Times investigation findings, Pietsch refused to comment.

Don't put up with dud subs, sailors told

In the wake of the Sunday Times exposť of the shocking state of the SA Navy's submarines bought from Ferrostaal, the South African National Defence Union sent out a warning to its 18 000 members.

The circular said the Department of Defence was, in many cases, not complying with health and safety regulations.

The union advised members who believed that any arms, ammunition, vessel, aircraft or other military equipment was unsafe to report it to the union immediately.

The circular told members to expect "intimidating tactics" such as warnings that reporting such matters was illegal.

"Expect further to be threatened with prosecution in military courts," it said.

National secretary Pikkie Greeff said yesterday that, following last week's submarine exposť, members had reported to the union that:

Navy authorities had gone on a "witch-hunt" to find out who had spoken to the newspaper. They had threatened to court-martial the whistle-blowers because they disclosed classified information on strategic military capabilities;

When crew training in Germany were found not to be coping, an instruction was issued by the SA Navy to let them pass regardless;

At least half the navy's submariners are now not up to the job;

The other half are afraid to go to sea with them
; and

The navy has only one qualified mechanical engineering officer to operate four frigates and is training warrant officers to do the job.

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