The Naval Dockyard in Simons Town is expected to make a loss of R30.6 million for the 2018/19 financial year – the only division in the Armscor stable to lose money.
According to a report of the Portfolio Committee on Defence and Military Veterans on the defence budget vote in May,
For 2017/18, R283 million was budgeted for the Dockyard, increasing to R302 million in 2018/19, but in spite of the increase, a loss is still expected.
The Committee urged the Armscor Dockyard to “exert dedicated efforts to move towards profitability. As such, the Committee requests a mid-year report from the new Dockyard director on progress made to establish new partnerships, services rendered to the SA Navy and means of returning the Dockyard to profitability. This report should be submitted to the Committee no later than 30 September 2018.”
The Dockyard has for many years been struggling with profitability and performance and has experienced numerous problems and challenges, including insufficient capacity and manpower, capabilities and insufficient funding.
For example, in November 2017, Southern African Shipyards (SAS) in Durban was requested to refit the SAS Isandlwana as the Armscor Dockyard did not have the capability to execute the refit, but the move was not approved by Treasury and did not proceed, according to a presentation to parliament on Department of Defence deviations and expansions for 2017/18.
In September 2016 Denel Integrated Systems and Maritime (Denel ISM) was announced as being selected to take over the management of the dockyard, with Armscor to act as the procurement agency interfacing between the Navy and Denel ISM. The actual transfer of management and control of the dockyard to Denel ISM was to take place six months after certain conditions were met.
According to the Portfolio Committee on Defence and Military Veterans (PCDMV), “Denel believed that they would be able to do the work and find credible partners who could provide the necessary financial injection to pull it onto its feet. This did not happen so there was no Denel Maritime at the moment until the issues were resolved.
“Minister Mapisa-Nqakula said that when the decision was taken to transfer the dockyard from Armscor to Denel, Denel believed that they would be able to do the work and find credible partners who could provide the necessary financial injection to pull Denel onto its feet. They were given about two years, but unfortunately this did not happen.”
After Denel did not meet the 28 February 2018 deadline on the Dockyard transfer, Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula announced that the Dockyard would remain with Armscor.
Aside from running the Dockyard, Armscor is also running the acquisition of three inshore patrol vessels (IPVs) and a hydrographic survey vessel for the SA Navy. The PCDMV has requested it submit a progress report every six months, commencing 30 September 2018.
“The Committee urges the prioritisation of the contracting for the SA Navy’s Offshore Patrol Vessels. Information on progress in this regard should also be provided in the progress reports on the IPV and Hydrographic vessel to be submitted to Parliament,” the Committee stated.
The SA Navy was due to receive three inshore and three offshore patrol vessels but only the IPV contract is going forward. A presentation to parliament on Department of Defence deviations and expansions for 2017/18 noted that a single source contract to Denel for the construction of the three offshore patrol vessels and associated logistics support was requested in October 2017 but not approved by National Treasury.