Denel lost R30bn in deals due to Gupta bribes

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Denel offices in Pretoria. Picture: Reuters
Denel offices in Pretoria. Picture: Reuters

Insiders allege arms deals were cancelled after an executive insisted that kickbacks be made to Gupta lackey Salim Essa

State arms company Denel lost more than R30 billion in contracts to supply weapons because a former executive insisted that kickback contracts be signed with the Gupta family.

Two deals – one concluded with Saudi Arabia in 2013 and the other with India in 2015 – fell through when the foreign arms companies could not agree on the terms of kickbacks to be signed with Gupta associate Salim Essa.

The allegations of kickbacks are contained in documents that the Special Investigating Unit (SIU) submitted to President Cyril Ramaphosa last year, when seeking his approval for a proclamation to probe wide-ranging claims.

The claims include allegations that Denel failed to conclude deals in Saudi Arabia, India, Chad, Kuwait and Turkey, as well as about general corruption and theft of Denel’s intellectual property.

Last Sunday, City Press reported that Ramaphosa authorised the SIU to probe claims of how current and former executives allegedly stole Denel’s intellectual property for some of its highly sought after missiles and gave it to arms company Saudi Arabian Military Industries (Sami).

Read: How SA’s weapons tech was ‘stolen’ and given to Saudi arms company

Some of Denel’s former executives are now employed by Sami.

The SIU is already investigating how a R71 million tender was awarded to VR Laser, a company previously owned by the Guptas, to supply fabricated steel.

It is also probing the following cases: the appointment of companies that rendered legal services to Denel; the R1.1 million pilot bursary awarded by Denel to Oarabile Mahumapelo, the son of former North West premier Supra Mahumapelo; and a R6.6 million security assessment contract.

The two Denel executives who spoke to City Press said that they, along with their colleagues, were concerned that the SIU was not investigating the allegations about artillery in Saudi Arabia and India, and the contracts in Chad, Kuwait and Turkey.

Last week, two executives told City Press that they were concerned that the SIU was not investigating the R30 billion in lost opportunities or the claims against the former Denel executive for demanding that kickback deals be signed before the contracts were signed.

In 2013, Denel lost an R8.4 billion deal to supply the Royal Saudi Land Forces with G6 artillery because the same former executive had insisted that a kickback agreement be signed with Essa, the two insiders said.

And, again in 2015, the same executive allegedly insisted on a kickback agreement being signed with Essa for a deal worth R22 billion which Denel was expecting to sign in order to supply T5 artillery to India’s Ministry of Defence, through Pipavav Defence, an Indian arms manufacturing company.

Denel has also failed to deliver on a R250 million contract to supply the Chadian government with Casspirs. Chad had already made a R100 million advance payment.

SIU spokesperson Kaizer Kganyago confirmed that the unit had received these claims. However, he said, it was not probing the allegations about Pipavav because Denel’s loss of business in Asia does not fall under the jurisdiction of the SIU.

Based on available information, an investigation by the SIU would not have any effect, Kganyago added.

But, he said: “Should the whistle-blower provide further information, the SIU will consider it.”

Regarding Chad, Kganyago said the matter was a contractual dispute which did not need the SIU’s intervention.

“It appears from the information provided to the SIU that discussions were under way in 2018 regarding a resolution to the matter. In light of the above, an SIU investigation would not make any significant impact or yield tangible outcomes.”

Denel spokesperson Pamela Malinda said it was difficult to quantify the value of the contracts that the company has lost as a result of state capture.

“Denel pursues a number of opportunities globally. Some of those opportunities result in contracts and some do not materialise,” she said.

THE SAUDI KICKBACK ALLEGATIONS

In the letter written by the SIU to Ramaphosa, motivating for him to sign the proclamation authorising the probe, it is claimed that by 2013, Denel was in advanced talks with the Royal Saudi Land Forces, which wanted to buy artillery from South Africa.

But the deal fell through because the former Denel executive had insisted that the Saudi company, which would have partnered with the arms manufacturer, sign a kickback agreement with Essa.

The document shows that one of the reasons the deal collapsed was that the former Denel executive had insisted that the deal be signed with Denel Asia. But this could not happen at the time as Treasury had not approved the establishment of Denel Asia.

According to the letter, leaked by sources at Denel, the former executive requested a subordinate – who later approached the SIU with information on this matter – to accompany him to Dubai to meet the president of the company that would have partnered with Denel.

During this visit, which took place in July 2013, the former executive “informed Company X that they needed to sign a commission kickback agreement with Mr Salim in order to secure the South African government’s political support”.

The letter continues: “This agreement was eventually signed, albeit reluctantly, by Company X. According to the whistle-blower, he never saw the agreement or the percentage of the kickback, but Company X informed him that the purported agreement was signed with ... Essa, and that Essa insisted on an unreasonably high percentage.

“Due to the abovementioned loss of commission for Company X, they eventually lost interest in the deal. This had the consequence of putting the project in limbo.”

THE PIPAVAV KICKBACK ALLEGATION

The SIU’s motivation letter further shows that in 2015, Denel was looking for an Indian company to partner with in order to supply India’s Ministry of Defence with T5 artillery.

After an extensive search, Denel settled on a partnership with Pipavav Defence, which was later taken over by Reliance Defence.

But the letter shows the company’s management would not approve the partnership until a kickback agreement had been signed with Essa: “Denel management did not approve the partnership until such time as a ‘kickback agreement’ with VR Laser and Essa was established.

According to the whistle-blower, and in the words of Pipavav Defence, he (Essa) authorised the partnership. According to the whistle-blower, he was informed that the demands were unreasonably high.”

The document shows that one of the reasons the deal collapsed was that the former Denel executive had insisted that the deal be signed with Denel Asia.

But this could not happen at the time as Treasury had not approved the establishment of Denel Asia.

Denel Asia was a joint venture between Denel and VR Laser, which was controlled by Essa.

Denel Asia was established as a vehicle to sell Denel’s arms to Asian countries, including India.

However, the whistle-blower told the SIU that establishing Denel Asia was unnecessary because the mother company, based in Centurion, had a wide network of connections in India.

This is stated in the letter: “In summary, Denel did have a footprint and connections in India and other countries before December 2015. VR Laser had no knowledge about the defence markets in Asia.

The SIU is already investigating how a R71 million tender was awarded to VR Laser, a company previously owned by the Guptas, to supply fabricated steel

“The Denel Asia venture prevented Denel from doing business in a normal fashion. Business opportunities in India have been lost due to the Denel Asia venture. Revenue lost is ... estimated at $1.5 billion (R22 billion).”

The two Denel executives who spoke to City Press said that they, along with their colleagues, were concerned that the SIU was not investigating the allegations about artillery in Saudi Arabia and India, and the contracts in Chad, Kuwait and Turkey.

“It is concerning that our whistle-blower gave the information to Denel, but it appears that it is not doing anything about it. We want to know if the SIU requested the president to authorise it to investigate these particular cases. Information about them was handed over to the SIU, together with the information on which Ramaphosa based his decision to approve the Denel proclamation.”


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