Denel tears into Gordhan, defends Guptas

Cape Town - Denel has strongly criticised Finance Minister Pravin Gordhan and National Treasury's bid to halt its joint venture with Gupta-linked VR Laser Asia.

It said on Tuesday that threats of court action by the National Treasury amounts to "sheer opportunism and grandstanding".

Denel has been embroiled in controversy, following claims that it did not secure a Section 54 application of the Public Finance Management Act (PFMA), which allows state-owned companies to launch partnerships and joint ventures. It was reported that Denel formed the VR Laser Asia partnership in December, without Treasury’s permission as required by the PFMA.

The Sunday Times reported that Treasury allegedly issued legal letters to the Denel to halt the deal.

"Such litigation will be a violation of Chapter 3 of the Constitution and Denel will vigorously oppose it."

Denel claimed that it has always followed the PFMA processes and have not transgressed any laws. Instead it accused Treasury of "gross negligence" and of having a "hidden agenda".

"A progressive National treasury and Minister of Finance will not waste taxpayers money by engaging in fruitless and unconstitutional litigation against another organ of state to hide their failure to respond timeously to business challenges of state-owned companies and gross negligence in dealing with PFMA application from state-owned companies."

How the matters transpired, according to Denel:

- National Treasury was served with a pre-notification by Denel on 29 October 2015, in which Denel indicated that it intended to establish Denel Asia.

- Treasury did not respond so Denel convened a meeting with both the National Treasury and the Department of Public Enterprises (DPE) on 9 December 2015.

- In this meeting, Denel said it indicated to Treasury and the DPE that it was going to submit the PFMA application.

- Denel said it also raised concerns with regards to the National Treasury’s silence since the submission of the pre-notification and stressed the urgency with which the application needed to be dealt with.

- It said National Treasury was represented by more than two officials at that meeting and neither the Treasury nor the DPE raised any objections to either the pre-notification, or the PFMA application.

- No concerns were also raised with regards to the urgency of the matter nor the ability to speedily attend to the application.

"The importance of this meeting with National Treasury and DPE on 9 December 2015, was to ensure that the urgency of the PFMA application was well understood and adhered to."
However, Denel said that both National Treasury and DPE failed to reply to the PFMA application as submitted.

"Neither National Treasury nor DPE, as allowed by the Treasury guidelines, requested an extension of the 30 days period or reasonable time to consider. No concerns or objections were ever received from National Treasury in this regard," it said.

"It was only when the name of Gupta was mischievously linked to Denel Asia, that National Treasury sent a letter [on 5 February 2016] to request further information from Denel.

"National Treasury’s engagement with Denel in this regard has always been political, 'grandstanding' and making malicious utterances against Denel in the media. The Denel board was called 'arrogant and belligerent' by the Minister of the National Treasury who is unable to back such allegations."  

Denel said National Treasury claims to be concerned about the financial well-being of state-owned entities, yet it does not respond to a PFMA Application to enable Denel to grow its business and generate revenue for the state.

"It is strange that the National Treasury is frustrating the Denel Asia joint venture when Denel is not putting up a capital investment. Only VR Asia is putting up R100m to fund the business with Denel to share 51% of the profit. However, in 2014 National Treasury approved that Denel borrow R855m from the commercial banks to acquire business from the commercial banks while fully knowing that such debt will burden Denel."

Denel further said that allegations of it being “captured by the Guptas” are unfounded and politically motivated.

"The Gupta family has no business joint venture with Denel and none of the Gupta family members or relatives are shareholders in Denel Asia."
In a statement, the DA said it welcomed the move by Treasury to take legal action against Denel

“I will be writing to the chairperson of the portfolio committee on public enterprises to request a combined meeting between Treasury, Denel and the Department of Public Enterprises to get to bottom of this joint venture once and for all,” said DA MP Natasha Mazzone MP.

In its statement the DA highlighted that VR Lazer SA is 64.9% owned by a Gupta business partner, Salim Essa. It is partially owned by a company, Westdawn Investments, whose majority shareholders are Duduzane Zuma and Rajesh Gupta. VR Lazer Asia is 100% owned by Salim Essa.

“This joint venture therefore makes no strategic sense,” Mazzone added.

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