The Special Investigation Unit (SIU) is looking at recovering some of the funds paid by Denel to VR Laser Services following the irregular awarding of contracts to the company.
The SIU on 3 March gave a presentation to the Standing Committee on Public Accounts (SCOPA) on its investigation into Denel.
Denel’s relationship with steel cutting and armoured vehicle fabrication specialists VR Laser Services, and the subsequent establishment of Denel Asia with VR Laser, is one of the most controversial and damaging to Denel. “It was one of the Gupta companies that was involved in Denel at the time,” SIU lead investigator Zodwa Xesibe told SCOPA.
Parliamentarians on Wednesday evening heard that Denel commissioned Ngidi Business Advisory to review the process followed by Denel in the conclusion of a Memorandum of Agreement entered into between itself and VR Laser Services on 19 May 2015. According to the April 2018 report, VR Laser was appointed as the single-source supplier to Denel Land Systems (DLS) for the provision of all fabricated steel services and goods, such as fabricated structures and hulls.
“The process was found to be fraught with irregularities and, accordingly, any spending pursuant thereto constituted irregular expenditure. It was further alleged that some of the executives at Denel were conflicted,” the SIU said.
As background, Xesibe explained that around February 2013, former Denel Business Development Executive Zwelakhe Ntshepe introduced Gupta association Salim Essa to Madoda John Jiyane who was a shareholder of VR Laser Services. The main purpose was the sale of VR Laser shares to Essa and his associates – this was concluded in December 2013 and Essa became a major shareholder of VR Laser Services.
“During the years preceding the aforementioned sale, VR Laser Services traded with Denel, however, the contracts did not exceed R13 million per annum. After the sale, the value of contracts awarded to VR Laser Services exponentially increased from R39 million in 2014 to an average of R75 million every year thereafter.”
When the new Denel board was appointed in 2015, the Group CEO and CFO were replaced and Ntshepe became Group CEO in 2017. Xesibe said Ntshepe had a relationship with Essa stemming from 2013. The SIU found Essa was instrumental in persuading Denel to award it contracts and in November 2014 Denel appointed VR Laser for Hoefyster vehicle work “despite the strategic requisition of [Denel subsidiary] LMT by Denel for the manufacturing of the Hoefysters.”
Xesibe said that for some reason VR Laser was the preferred company to manufacture the vehicle and LMT was ignored. “In late 2014 and early 2015 two Memorandums of Understanding were concluded, appointing VR Laser as a single source supplier for Denel Land Systems and Denel Vehicle Systems for all steel fabrication for ten years. This was done by the group CEO at the time. These two MoAs were approved by the then acting GCEO even though the Group Supply Chief Executive declined the recommendation of the Denel Land Systems executive to appoint VR Laser.”
Xesibe said all processes to appoint VR Laser were irregular and the SIU also identified conflict of interests between some executives and the directors of VR Laser.
The SIU’s legal team is looking at recovering some of the funds paid to VR Laser. “We are composing criminal referrals to a number of people including the former GCEO and CEO of Denel Land Systems and Denel Vehicle Systems. The evidence of corruption is under review. All implicated have left Denel, however, we are seeking means of recovering some money from them and possibly looking at criminal referrals,” Xesibe said.