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Armscor’s Sipho Mkwanazi, Acting Group Executive for Procurement and Supply Chain Management at the State Military Procurement Company since 2015 (Photo: Gallo Images / Papi Morake)
Denel should have completed the development phase of Project Hoefyster in 2012 and started delivering infantry vehicles in 2015. More than eight years later, after Denel contracted the VR laser linked to Gupta, it is still in the development phase and not there is a reliable delivery date in sight. a surprised Supreme Court Vice President Raymond Zondo listened in on Monday.
It is “unthinkable” and “unacceptable” that state arms manufacturer Denel is more than eight years behind on key deliverables of Project Hoefyster, a multi-million dollar deal to make infantry fighting vehicles for Armscor, said the chairman of the State Commission. Investigation Officer, Raymond Zondo, on Monday.
Zondo expressed surprise during testimony from Armscor’s Sipho Mkwanazi, the group’s acting executive for procurement and supply chain management at the state military procurement company since 2015.
“These kinds of delays reflect nothing more than just a disaster, do they?” Zondo asked Monday.
“It is completely unacceptable. How is it possible that something that was required in 2012 and promised to deliver in 2012, eight years later, has not been delivered? “
The vice president of the Supreme Court referred to the testimony of Denel’s president, Monhla Hlahla, who has described Project Hoefyster as the most significant threat to the company’s finances.
“Why is this situation allowed to continue? Has anyone been fired for not doing their job? Something has happened? It’s just unthinkable, ”Zondo said.
“It is as if there is no one to supervise that the ministers do their job, the CEOs do their job, the heads of the state companies do their job, the people under the command of the CEOs do their job, the boards of the state companies do their job. How can this type of situation be allowed to happen? “
After focusing on SAA last week, the State Capture Commission turned its focus back to Denel on Monday. Advocate for evidence leader Paul Kennedy said the commission will spend the week delving into Denel’s deals with the Gupta-linked VR laser and the suspension of top executives.
Mkwanazi explained how Armscor awarded Denel the Hoefyster Project contract in 2007. He was not involved in the process.
Denel was the only bidder, apparently because it was the only company that knew the specifications required by Armscor.
Armscor wanted to consider multiple bids to design and build more than 200 Badger infantry fighting vehicles, but other potential bidders complained that Denel, who had helped develop the technical specifications, had not released the information required for others to compile their bids. .
Denel said it had developed the intellectual property under an exclusive agreement with the European Aviation Defense and Space Company.
Armscor’s board contested that and directed Denel to forward the technical details to other potential bidders. There is no evidence that Armscor ever followed his instructions.
Wasn’t this a predetermined process? Wasn’t this a sham or a facade intended to guarantee that Denel would get the business? Kennedy asked.
Mkwanazi struggled for an answer from the information he had retrospectively collected.
I mean eight years and five years, it seems really intolerable.
Under the contract, Denel was due to finish the development phase in May 2012 so that it could start manufacturing and then start delivering the vehicles in 2015. It has not yet met the 2012 deadline.
“I mean eight years and five years, it just seems really intolerable,” Zondo said.
Denel has proposed new deadlines, but Mkwanazi said they depend on whether the SOE gets a state bailout. Denel reportedly asked the Treasury for R3.8 billion in financial support.
Mkwanazi said Armscor risks losing 1.5 billion rand of the funds it has spent on the project if Denel does not comply.
“If they don’t get a ransom, they are not in a position to buy critical parts, they are not in a position to pay suppliers. So, literally, there is a minimum of what is happening in Denel, ”he said.
“It’s due to DLS’s own financial problems,” he explained regarding the ongoing delays of the Hoefyster Project.
Denel Land Systems (DLS) is the Denel subsidiary that is dedicated to developing and manufacturing the vehicles. Against the advice of some members of its procurement team, DLS contracted VR Laser to do some of the work for the Hoefyster Project.
VR Laser won the deals after Gupta associate Salim Essa acquired a majority stake in the company in 2013, with the minority owned by the Gupta family and Duduzane Zuma. The VR Laser liquidation further disrupted delivery.
DLS contracted VR Laser to build the vehicle hulls in 2014, a deal worth 200 million rand, despite having acquired a company, Land Mobility Technologies (LMT) with similar capabilities, albeit on a smaller scale.
Pieter Knoetze, a former DLS CFO, testified about the LMT acquisition on Monday. Denel became the majority shareholder of LMT, which was experiencing a liquidity crisis, after making an advance payment of R12.7 million on an order.
The deal included a clause that ended up giving Denel 51% ownership of LMT. Knoetze said the deal would ensure Denel could meet Project Hoefyster deadlines in the event LMT collapsed and avoid heavy penalties.
But LMT continued to fight as DLS hired VR Laser to do its work, and even struck a single source deal with the Gupta-linked company.
Mkwanazi estimated that Armscor imposed R200 million in fines on Denel for late delivery of the Hoefyster Project.
“If South Africa were, God forbid, at war, presumably this would have a material impact on their ability to defend the nation, the defense force, correct?” Kennedy asked.
Mkwanazi said: “In the sense that the capacity that is supposed to be delivered is not delivered.”
Former Denel CFO Fikile Mhlontlo, who left the SOE in 2016 after being suspended for a year, began his testimony Monday afternoon. He will continue to testify on Tuesday and is expected to be followed by former CEO Zwelakhe Ntshepe. DM
