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How Denel stand-off with Treasury started amid NeneGate

Jun 15 2017 07:51
Lameez Omarjee, Matthew le Cordeur, Carin Smith

Johannesburg – Treasury has provided a detailed timeline of its correspondence with state-arms company Denel regarding its Asia venture with Gupta-linked VR Lazer, which shows the development of their stand-off amid NeneGate, when Nhlanhla Nene was replaced by Des van Rooyen as finance minister for a few days.

This is in response to a Parliamentary question posed by Democratic Alliance (DA) Member of Parliament Natasha Mazzone in May. Mazzone enquired about how Treasury viewed Denel’s court bid to have the institution approve the Denel Asia and VR Laser Asia joint venture.

She also asked that Treasury provide details of the correspondence between Treasury and Denel regarding the matter.

READ: Court must dismiss Denel bid with costs, says Treasury

In a written response to Mazzone’s questions, Treasury called Denel’s court bid “regrettable”.

“The National Treasury encourages constructive dialogue on PFMA (Public Finance Management Act) related matters … to avoid a situation where the matters are to be resolved with the intervention of the court.”

As a result, Treasury had filed a responding affidavit to have Denel’s application dismissed with costs, Fin24 reported. The affidavit was filed a week after Finance Minister Malusi Gigaba, who opposed the deal, met with Denel board chairperson Daniel Mantsha.

Denel later announced it would engage with Treasury to avoid misunderstandings about its proposed joint venture in Asia.

Further, in the written response to the DA, Treasury confirmed that it had not approached the courts to intervene as was widely reported in August 2016.

The timeline

The timeline provided by Treasury shows that in October 2015 - when Nhlanhla Nene was still finance minister - Denel had submitted a letter proposing the venture under the PFMA.

“The intention of the letter was to inform the Department of Public Enterprises (DPE) of Denel’s intention to establish an incorporated joint venture company in Hong Kong for purposes of exploiting opportunities in the Asia Defense market,” said Treasury.

When an official submission was made to Treasury in December 2015, Des Van Rooyen was in his temporary role as finance minister. Days later, after President Jacob Zuma was forced to change his decision, Pravin Gordhan replaced him.

By February 2016, the Chief Procurement Officer wrote to Denel enquiring whether government requirements were complied with. Denel responded indicating it would provide the requested information.

In April 2016, Denel responded to the Chief Procurement Officer with a letter dated 5 February 2016, indicating that it assumed approval from Treasury, which led to it establishing the joint venture. This further led to another correspondence where Treasury requested more information, and Denel asking for clarity on the information sought.

By May 2016 Denel had not provided Treasury with the requested information. “The director-general (DG) [Lungisa Fuzile] wrote to Denel enquiring about the delay and offered his assistance in resolving any unanticipated obstacles,” said Treasury.

Fuzile also stressed the importance of having the additional information, for Treasury to assess all the aspects of the application before a decision could be reached. “However, there was no response from Denel and the information was still not forthcoming,” said Treasury.

In June, Gordhan wrote another letter to Denel requesting the information. He also warned that the board would be in breach of its fiduciary duty under the PFMA if it failed to do so. A deadline of June 28, 2016 was set.

On June 28, Denel acting CEO Zwelakhe Ntshepe requested an extension of the deadline to July 4, 2016.

Further, the chairperson of the board wrote to the finance minister indicating that Denel was of the view that it had received the necessary approvals for the deal, but would still provide the needed information. On June 29, Treasury agreed to extend the deadline.

But in September 2016, following a report in the Sunday Times that Treasury planned to take Denel to court to halt the deal, Treasury wrote to Denel requesting clarity on the matter that led them to “react the way they did” in the media. Denel responded by saying they do not have access to the information quoted in the media.

Finally in November 24, 2016, Denel wrote to Treasury, indicating its venture with Denel Asia would remain “dormant” until it received instruction to proceed from the Department of Public Enterprises.

Gordhan was removed as finance minister on 31 March 2017, just as Denel was taking Treasury to court.

READ: Brown: Corruption allegations at SOEs must be probed

During an address to the National Council of Provinces on Wednesday, Public Enterprises Minister Lynne Brown said she requested Denel to mothball Denel Asia until the matter was decided on by Gigaba.

Brown said she requested a meeting with Gigaba to discuss the proposal, Fin24 reported.  

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