The Coega stainless steel mill, on which MAN Ferrostaal won its bid to sell three submarines to South Africa, was abandoned less than six months after the arms deal was signed in December 1999.

But not before the government sent a letter to the industrial giant in April 2000 asking it for written proof of its R6-billion commitment.

Details of MAN Ferrostaal's reneging on its original agreement are contained in the auditor-general's May 2001 draft report, which was never made public.

The draft report states that the Department of Trade and Industry, the Department of Defence and Armscor asked MAN Ferrostaal for proof of "adequate equity contributions" related to its offset project ­ or to provide substitute projects to the same value.

It replied in an unsigned letter on May 29 2000, with details of a new offset deal ­ the "Algossa Development and Investment Holding Company" with authorised share capital of not less than 60 million deutsche marks (R357.3-million at the rand's current exchange rate) ".

The Sunday Times could not confirm whether this company was ever formed.

In the letter, MAN Ferrostaal committed to :

Establish a venture capital fund which would operate as a subsidiary of Algossa.

Build, operate and implement a stainless flat steel production plant; and

At least two stainless steel downstream projects, possibly including a precision strip-mill.

The draft report notes that the revised mill project listed was "significantly different to the Coega project originally evaluated and which substantially contributed to the German Submarine Consortium (MAN Ferrostaal) being selected as the preferred bidder".

Mill output changed from 800 000 tons a year to 240 000 tons, the technology to be used seemed different and the project appeared to have moved from Coega to Middelburg.

On June 23 2000, MAN Ferrostaal sent another letter summarising its substitute projects, including condom manufacturing plants and two projects in Mozambique.

The draft report concluded that:

• Cabinet's decision may have been based on inflated information;
• Unsuccessful bidders were prejudiced; and
• A different bidder may have been selected.

With acknowledgements to Sunday Times.