Denel is unable to complete Project Hoefyster for new Badger infantry combat vehicles for the South African Army due to insufficient capability, and consequently Armscor has recommended the contract be cancelled and the money be spent on Ratel upgrades.
This emerged during a presentation to the Portfolio Committee on Defence and Military Veterans by defence materiel agency Armscor on Wednesday. Armscor recalled that Project Hoefyster was supposed to acquire 264 Badger vehicles to partially replace the Ratel fleet, in five main variants: Command, Missile, Section, Fire Support, and Mortar. However, Hoefyster is over a decade late, with no vehicles delivered to the SA Army.
To date, R7.6 billion has been spent on Project Hoefyster, and factoring in VAT, escalation and other costs, Armscor values the project at R16.2 billion. R1.5 billion has been spent on the first phase, which is design and development, and R5 billion on the second phase, which is industrialisation. Denel did not receive all the payments for the project as other companies are also involved – for example, Reutech received R600 million for communications equipment.
Due to mounting delays, Denel and Armscor re-examined the project in 2018 and presented several scenarios. This included Denel extending deliveries to 2026 and waiving R500 million in penalties; the Department of Defence (DoD) reducing the number of vehicles and variants acquired; the DoD seeking an alternative contractor to work with Denel or replacing it; and completing the Section variant and considering terminating the project after that.
Following further engagement, it was decided that Denel Land Systems would be allowed to complete Phase 1 Development up to Production Baseline stage, that the SA Army would defer Phase 2, and funds for Phase 2 would be ring-fenced for South African Army operational requirements.
Armscor noted that Denel made it clear it is not in a position to complete remaining work on Phase 1 due to insufficient capability (including a lack of staff), financial challenges, and obsolescence of critical subsystems. The project would also be loss making to Denel.
Armscor therefore recommends the contract with Denel be cancelled and consideration needs to be given to bank guarantees being called up. R1.4 billion in guarantees is held by banks, including Absa, Nedbank and FNB as well as Guardrisk. Denel guarantees amount to another R550 million, but the amounts covered by Denel guarantees are at risk, Armscor warned.
However, recalling the guarantees may lead to the banks going after Denel and there is a real possibility of Denel being liquidated, which would essentially destroy South Africa’s sovereign capability to produce arms for the South African National Defence Force, Armscor said.
If the contract is cancelled, funds from the Hoefyster contract could feasibly be re-channelled for the upgrading of Ratel vehicles. These funds would be constituted of the bank guarantees and the current year allocation of R1.9 billion.
Armscor states there is the possibility of selling off Hoefyster items worth R1.2 billion, including 28 CamGuns, 15 Badger vehicles delivered by Patria, 58 training simulators, and stocks of 30×173 mm CamGun ammunition.