Denel could land in hot water over links with tainted Chinese firm

Johannesburg - State-own defence technology company Denel could land itself in hot water for flouting tender regulations if a deal with a tainted Chinese conglomerate goes ahead.

A memorandum of understanding (MoU) signed between Denel and Poly Technologies was allegedly done on condition that this Chinese firm will have a stake in South African naval operations that include Simon's Town and Saldanha Bay and potential involvement in two colossal maritime projects.

Denel could be flouting tender regulation for their involvement with the dubious Chinese company.

Poly Technologies, a brokerage firm and subsidiary of Chinese defence manufacturing company Poly Group Corporation, is shrouded by controversy and is currently under Amnesty Watch for alleged unregulated arms supplies into the rest of Africa and the Middle East. 

Denel is gunning for a stake in two of the country’s largest maritime projects - totaling around R10bn – which since have been put on ice, with Poly Technologies also included in the prospective suppliers list for Denel.

Armscor, the acquisition agency for the Department of Defence (DoD), has confirmed that several companies have entered their bids for Project Hotel and Project Biro, which had been approved by National Treasury for the 2017/18 financial year.

READ: 'Denel is not captured by anyone' - board chair

In February this year, the government-owned arms procurement enterprise announced the appointment of the preferred bidders for Projects Biro and Hotel, which will see the construction of three inshore and three offshore patrol vessels and a hydrographic survey vessel respectively.

Lulu Mzili, general manager of marketing and business development at Armscor, told Fin24 the appointment of the preferred bidders "is subject to the successful negotiation of detailed technical and commercial conditions with the aim of arriving at a contracting position for the execution of the projects".  

Negotiations have since been ongoing and nothing has been concluded as yet.

Despite the contracts not officially having been awarded, Denel - which has no shipbuilding or shipyard experience - has enlisted the services of Poly Technologies, with the latter still in the running for involvement in the projects.

The preferred bidder for Project Hotel is Durban-based Southern African Shipyards (SAS), while Damen Shipyards Cape Town (DSCT) was named preferred bidder for the in and offshore patrol vessels, but this project has been deferred to the 2018/19 financial year.

The DoD preferred to remain silent on the awarding of contracts, but confirmed to the Sunday Times  previously that the awarding of the contracts were dependent on the involvement of Denel and their bidding partner, Poly Technologies.

Denel was quoted by DefenceWeb previously as being “thrilled to partner with Poly Technologies” and saying that there was “a synergy between companies that will lead to a beneficial relationship and add value to our primary client”, the SA Navy.

However, the projects could see further delays if National Treasury find irregularities in awarding of the tenders.  

Finance Minister Malusi Gigaba recently halted the controversial joint venture between Denel and VR Laser Asia, a company liked to the Guptas.

"The matter has been taken to court by Denel and National Treasury has filed its response to Denel’s affidavit," Treasury spokesperson Yolisa Tyantsi told Fin24 via email.

"The minister has expressed his concern about a state-owned entity taking another state entity to court, suggesting ideally that there should be intergovernmental discussions," she added. 

READ: Plans to boost SA's ocean, waterways economy

The move by Poly Technologies forms part of its efforts to expand into Africa. Its involvement in the projects could lead to the company gaining control of the Simon’s Town naval base after a R800m boost for upgrades of the facility. This move is currently being opposed by SA Naval bigwigs. 

Fin24 repeatedly attempted to approach Denel for comment via phone, email and text messages on their involvement and investment by Poly Technologies for their stake in the tenders and rejuvenation of the Simon’s Town base, but they were not available for comment. 

Who is Poly Technologies?

Poly Technologies is a defence manufacturing company and China’s biggest arms exporter with headquarters in Beijing. It supplies arms to numerous countries in Africa, including Zimbabwe and Sudan and is heavily involved in the Nigerian defence.

Most recently, Namibian Defence Force cancelled a N$156m transaction with Poly Technologies after mounting pressure from the US Treasury Department, which blocked the payment citing sanctions against the company, DefenceWeb reported.

In 2013, Poly Technologies was placed under US sanctions for allegedly selling illegal weapons to Iran, North Korea and Syria and considered hostile to US interests.

The Namibian government also seized nearly N$3.6m from former Defence Force chief Lieutenant General Martin Shalli, who received money Poly Technologies as commission over the sale of a warship to the Namibian Navy, DefenceWeb reported.

Amnesty International, a non-governmental organisation focusing on human rights, previously stated that Poly Technologies had been on its radar for a long time because of its shipments of arms to conflict zones, especially in Africa.

“Poly Tech (Inc) has been on Amnesty (International)’s radar for a long time because of their arms shipments to conflict zones, especially Africa. There’s been an effort to shine a spotlight on Poly’s failure to apply any kind of international human rights standards to their exports of weapons,” according to Amnesty International.

“Skepticism about the Chinese to regulate their own arms trade is well founded when you have a company like Poly that is so diversified and has such strong connections, or ‘guangxi,’ with the Chinese leadership,” stated Frank Jannuzi, the head of rights group Amnesty International in Washington DC."

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