The joint venture involving Denel that has apparently given the politically connected Gupta family an in to particularly Far Eastern defence markets has apparently not been approved by either Public Enterprises Minister Lynne Brown or the National Treasury.
The joint venture under the name Denel Asia was announced late last month. It will be based in Hong Kong and is a partnership between the State-owned defence industry conglomerate and VR Laser, an Ekurhuleni-based company serving the mining, transport and defence sectors, in which the Gupta family has a shareholding.
This has seen the Democratic Alliance (DA), in the form of its shadow public enterprises minister Natasha Mazzone, calling for National Treasury to reject the deal saying it “is likely in contravention of the Public Finance Management Act (PFMA)”.
If this does not happen, Mazzone plans to call the National Treasury to Parliament to explain “how the deal was allowed to go ahead despite it being born of a fatal error in due process”.
The “fatal error” is apparently that a PFMA section 54 application was not completed and neither was the consent of the “executive authority” obtained.
It was reported earlier this week that Denel had taken the preceding step, under section 51 of the PFMA, and requested pre-qualification to explore the arrangement but permission was not secured to form the Denel Asia joint venture.
Minister Brown is reported as having asked for an explanation in view of a number of conditions being set prior to her giving her approval. These included a cost-benefit analysis and due diligence investigation.
A quarter of the VR Laser shareholding is reported as belonging to the Gupta family and President Jacob Zuma’s son, Duduzane.
Mazzone said in a statement the politicisation of state entities by the deployment of cadres has become a growing trend “afflicting” State-owned entities (SOEs).
“This only serves to further compound the financial pressures experienced by these sectors for self-interest,” she said adding the Denel board “appears to have acted outside its authority by announcing this deal prior to approval”.
Minister Brown is reportedly also awaiting a report from the Denel board explaining the rationale and reasons for the suspension of chief executive, Riaz Saloojee; chief financial officer, Fikile Mhlonto, and Denel Group company secretary, Elizabeth Africa.
They were put on “special leave” following the first meeting of the then newly reconstituted Denel board late in September. Brown told a December meeting of the Johannesburg Chamber of Commerce and Industry she was expecting a report from the Denel board. Her spokesman Colin Cruywagen earlier this month said Brown was waiting for “a suitable opportunity” to be briefed by the Denel board on the investigation following the suspension.