Anti-Personnel Mines Prohibition Bill: NCOP Amendments & Armscor Bill: deliberations

Meeting report

DEFENCE PORTFOLIO COMMITTEE
20 June 2003
ANTI-PERSONNEL MINES PROHIBITION BILL: CONSIDERATION OF NCOP AMENDMENTS; ARMSCOR BILL: DELIBERATIONS

Chairperson: Ms T Modise (ANC)

Relevant documents
Anti-Personnel Mines Prohibition Bill [B44-2002]
Anti-Personnel Mines Prohibition Bill [B44B-2002]
Armaments Corporation of South Africa, Limited Bill [B18-2003]
AMD submission on Armscor Bill - circulated at meeting on 15 April 2003
NCOP Amendments to Anti-Personnel Mines Prohibition Bill (Appendix)

SUMMARY
The Committee adopted two technical amendments to the Anti-Personnel Mines Prohibition Bill proposed by the National Council of Provinces (NCOP). The following matters were discussed on the Armscor Bill: the splitting of Armscor functions in Clause 4(2)(c) and whether Armscor should be involved in production activities at all; the "commercial opportunities" referred to in Clause 4(3)(a)(i); the name of the Board's accounting authority in Clause 6; whether public servants could be included as Board members in Clause 7(3); and whether the Minister of Finance should approve the salaries of Board members and the appointment and accountability structures in place for Armscor's CFO.

MINUTES
Anti-Personnel Mines Prohibition Bill
The Chair read out the NCOP's Proposed Amendments to the Bill (see Appendix), with which the Committee agreed.

Adv Gideon Hoon, State Law Advisor, said that the proposed amendments were acceptable.

Armscor Bill
Clause 4: Functions of Corporation
Sub clause 1
The Chair noted that the Committee was satisfied with the use of "required" in Sub clause 1(a).

Sub clause 2(c)
Mr S Thomo, Armscor Chairman, said that he had discussed provisions allowing Armscor to use its facilities to generate income with the Department's Mr Ramfolo, Chief: Acquisitions and Procurement. Armscor could either be funded by a transfer payment from the Department or by generating income internally. The Department was concerned that Armscor might seek to operate at a profit. Agreement had been reached that Armscor would use its facilities on a break-even basis.

The Chair asked whether Mr Ramfolo was suggesting that Armscor no longer needed to limit its activities to maintenance.

Mr Thomo replied that Armscor was not confined to maintenance only, and Mr Ramfolo recognised this. The problem lay with the phrase "and commercial matériel" in Sub clause 2(c), and the proper wording had to be found to capture the essence of this provision and avoid any confusion.

The Chair asked when the re-formulation of the sub clause would be finalised.

Mr Nick Sendall, Chief Director: Defence Policy, replied that the essence of the sub clause should relate to refurbishing, fixing or maintaining equipment after it has been bought. He proposed that Sub clause 2(c) be replaced with "establish a system for tender management and contracting in respect of the acquisition of defence matériel for and the acquisition or procurement of defence or commercial matériel in service with the SANDF". This would make the initial purpose of the provision clear: to capture both the initial buying of the equipment and its lifecycle downstream. The current clause did not do this.

The Chair observed that no agreement appeared to have been reached between Mr Thomo and Mr Ramfolo. The Committee would meet again the following week to discuss any progress made.

Sub clause 2(k)
The Chair said that, during public hearings on the Bill, it had been proposed that the word "facilitate" be replaced because its meaning was too broad.

Mr Thomo said that Armscor's function was actually to provide marketing support on defence matters to defence-related industries.

The Chair asked how "facilitate the marketing of defence matériel" could be worded to reflect the function of providing marketing support. How could the clause be clarified?

Adv Hoon replied that, in the context of the sub clause, "facilitate" simply meant to assist, whereas "provide support" went further. He said that he would have to look into this matter further.

Sub clause 2(l)
The Chair expressed concern about the use of "strategic" in this provision, because strategic matter would surely change from year to year. Perhaps it should be replaced with "current".

Mr Sendall replied that this would all be spelt out in the service level agreement. Perhaps the phrase "in the service level agreement" should be inserted after "identified".

The Chair agreed.

Mr Thomo said that it was actually the Department that decided what was strategic, not Armscor.

Sub clause 2(m)
Mr A Blaas (NNP) asked whether the Department itself would be responsible for providing the finance concerned in this type of situation.

The Chair replied that it would.

Mr Sendall explained that this sub clause was not based on a futuristic view. It is just one of those things that the Department had to have, even though it was not commercially viable. Currently, this was not the practice although it could be in future, especially domestically, in the context of global markets.

The Chair agreed with Mr Sendall.

Sub clause 2(n)
Mr Blaas asked whether this could be beyond the scope of the Department's matériel.

Mr Sendall replied that Mr Thomo and Mr Ramfolo had not yet reached agreement on the substance of this provision. It had been proposed that this sub clause be placed under Sub clause 5 instead, which would allow all service level agreement matters to be dealt with in one clause.

Adv Hoon agreed with Mr Sendall. This would also address the problem in Sub clause 1.

The Chair agreed.

Sub clause 3(a)(i)
Mr Blaas sought clarity on "commercial opportunities", asking whether this also included production.

Mr Thomo replied that the commercial opportunities concerned were spelt out in the South African Aerospace Maritime and Defence Industries Association (AMD) submission (document attached). This allowed Armscor to explore its capacity for generating income through the use of its facilities, so that it could offset any budget shortfall. The leasing of facilities to international parties was a commercial activity but could not be termed 'production' in this context.

Mr D Dlali (ANC) suggested that the provision might need to be clarified to rid it of all ambiguity, spelling out what could and what could not be done.

Mr Thomo reiterated that Armscor had no intention of competing with defence industry manufacturers. The enabling legislation clearly stipulated that Armscor would need permission from the Ministers of Defence and Finance before exploring any commercial opportunity.

Mr T Radebe, Director: Legal Support, proposed that the phrase "with the approval of the Minister" be inserted in the sub clause.

Mr Blaas suggested that the phrase "after exhausting the commercial defence industry" be added to Mr Radebe's amendment.

The Chair agreed. She asked Mr Thomo whether Armscor was involved in production at all.

Mr Thomo replied that Armscor was involved in producing prototypes. However, this was not Armsor's core business. Neither did it require ministerial consent.

The Chair observed that this contradicted what Mr Thomo himself had said earlier. He had said then that Armscor was not involved in production, and now he was saying that it produced prototypes.

Mr Thomo said that he agreed with Mr Blaas, proposing that the phrase "not locally available" be inserted in the provision.

Mr Sendall commented that this related to the Cameron Commission of Inquiry into Armscor, and especially to the issue of competition between adjudicators and players in the industry. However, the sub clause dealt with a specific, and not an everyday, function.

Adv Hoon said that he could draft a clause that would cover all these concerns.

Mr Ntuli (ANC) asked whether Armscor would retain the intellectual property rights to a prototype.

Mr Thomo replied that this depended on the structure of each deal concerned. Usually, when a particular technology was sold the rights to it were transferred as well. The rights to the name could also be sold and royalties would then be paid. This depended on the parties to the contract.

Adv Hoon added that this was addressed in Clause 22, but he was not sure whether that clause was sufficient.

The Chair noted that the Committee had agreed to Sub clauses (a) and (b).

Clause 5: Service level agreements
Mr Sendall reminded the Committee that Sub clause 2(n) would have to be added.

The Chair noted that the Committee had agreed to this sub clause, as amended.

Chapter 2: Board of directors and employees of corporation
Clause 6: Corporation managed by Board of Directors
Mr Sendall stated that the name of Armscor's accounting authority would need to be included.

The Chair asked for clarity.

Mr Thomo replied that Armscor had sought a legal opinion on this matter and had been informed that the accounting authority would be the Board, which would delegate powers to the Chief Executive Officer (CEO). This had to be provided for in the clause.

The Chair agreed that this should be done. During public hearings on the Bill, it had been pointed out that the South African National Defence Force (SANDF) was no longer represented on the Board. Why was this?

Mr Sendall replied that a conflict of interests could arise.

Mr Blaas proposed that the SANDF be included because there was no conflict of interest.

The Chair agreed. They would have specialised knowledge and experience in defence matters and would be able to provide practical advice. She asked whether there had been any cases to date in which a conflict of interests had arisen.