As it enters the final negotiating stage for one part of South Africa’s second largest military equipment acquisition since democracy, Armscor is keeping its cards close to the chest and not disclosing costs or details of offsets associated with the acquisition of seven new hulls.
Project Hotel, for the acquisition of a new hydrographic survey capability for the SA Navy, includes a replacement vessel for SAS Protea and ancillary equipment for use both at sea and onshore. This has been approved by National Treasury for the 2017/18 financial year and confirmed by Armscor General Manager: Marketing And Business Development, Lulu Mzili.
“Negotiations with preferred bidders have commenced. The plan is to complete negotiations and contracting before the end of the first quarter of the new financial year,” she said in response to a defenceWeb enquiry.
The preferred bidder for the new hydrographic capability is Durban-based Southern African Shipyards (SAS) while the Cape Town operation of Dutch headquartered Damen has been named preferred bidder for the in- and offshore patrol vessels specified for Project Biro. This project has been deferred to the 2018/19 financial year but mechanisms have been put in place to ensure currency fluctuations and other possible influences on both contracts, particularly as regards price, do not come into play.
National Treasury’s 2017/18 Estimates of National Expenditure (ENE) do not specify the new hydrographic vessel in the maritime defence expenditure trends but it appears funding will come from the maritime combat capability sub-programme. Here an increase of over R350 million is budgeted for in 2017/18.
Similarly, the acquisition of the new in- and offshore patrol vessels are not named but there is an increase in the maritime combat capability for 2018/19 (R1.7 billion for 2016/17; R2 billion for 2017/18; R2 billion for 2018/19; and R1.47 billion for 2019/20). The ENEs point out the increased spend is for the new hull acquisitions.
Asked about offset because of government’s stipulation on 60% local content for both naval projects, Mzili would not be drawn other than to say “national industrial participation (NIP) and/or defence industrial participation (DIP) may apply”.
Projects from $2 million (close to R26 million) up to just below $10 million (R129,5 million) attract DIP while the threshold for NIP is $10 million.
That there will be offsets were confirmed by her statement that “the split between defence related and non-defence related will be determined during negotiations”.