The Joint Standing Committee on Defence was joined by the Department of Defence and the South African National Defence Force, who provided the Committee with an overview of their level of satisfaction with services rendered by Denel and efforts to improve cooperation between the entities. The Department’s presentation focused on Denel’s operating contracts and active capital & technology contracts allocated and the level of satisfaction in this regard. Members were concerned by the return on investment the South African National Defence Force gets for the money it invests in ensuring prime mission equipment is serviceable and ready for deployment. Members were unhappy about the Department providing information that did not align with the critical condition of Denel that the Committee saw during their oversight visit to Denel. The Committee was in doubt about their funding model for Denel.
Members were concerned about the number of aircraft that were not in flight despite spending so much money on the aircraft. The Committee is working towards trying to assist the Department, Denel, and Armscor to find a way out of this issues, but the Committee was happy that there is now closer cooperation between Armscor and Denel. The Committee expressed genuine concern about the relationship between the South African Defence Force (SANDF) and Denel. It emphasised the importance of a good relationship between the parties that ensures value for money for the investment that Denel makes in Denel.
Members were alarmed by the fact that most of the contracts given to Denel Aeronautics were unsatisfactory and that the majority of the aircraft were grounded. Members believed that the methods that the entities apply have many inefficiencies that cost the Department a lot of money. The Committee also considered the extent it is prepared to pay more just to keep Denel and not support defence industry companies. The Committee believed that something needs to be done differently so that the SANDF is relieved of pressures relating to its relationship with the other entities.
The Committee was joined by Deputy Minister of Defence, Mr Thabang Makwetla, who expressed the importance of the Department of Defence receiving the requisite resources. The Committee was also joined by the joint operations division of the SANDF, who presented to the Committee on the extension of operation prosper. The Committee expressed its support for this deployment and viewed it as important for the security of the nation’s energy grid.
The Chairperson began the meeting by welcoming all Members who were present in the meeting and took note of an apology from Minister Thandi Modise.
The Chairperson introduced the day’s briefing by stating that there will be an improvement in performances when the Department of Defence, the South African National Defence Force (SANDF) and Denel work together in sustaining prime mission equipment and in providing support systems to the SANDF. He can attest to the fact that there has been a visible change.
The Chairperson acknowledged Deputy Minister Thabang Makwetla’s presence in the meeting.
Mr S Marais (DA) requested confirmation of the status of the day’s presentation from the Department’s delegation.
The Chairperson clarified the status of the presentation for Mr Marais by explaining that an error was made.
Mr D Ryder (DA, Gauteng) also found the error in the presentation irregular. The idea that this presentation was previously given to a different group sounds irregular.
The Chairperson clarified this error for Mr Ryder. The presentation that was on the screen was one for his own preview. It is an opportunity for him to intervene and ask the Department to improve. They are not eliminating anything that has been given before. Once more information is available, it will be elaborated on in the previous presentation.
Briefing on the level of satisfaction with services rendered by Denel and efforts to improve cooperation
Brig General Andre Barends, Director: Technology Development, SANDF, greeted all Members present in the meeting.
General Rudzani Maphwanya, Chief of the SANDF, took the Committee through the introduction of the presentation.
Mr Marais requested clarity on what “others” and “general” mean in the context of slide eight of the presentation, given that there is a significant number under the “unsatisfactory” category.
The Chairperson asked that this question be answered during the discussion section of the meeting.
The Department reported a high level of dissatisfaction with Denel for maintenance and repairs, maintenance and support, spares, others, and general. A total outstanding amount of R564 144 568.09 on operating contracts, which included maintenance and repair contracts, maintenance and support (M&S), spares contracts, other contracts, and general contracts, was reported and a total outstanding amount of R9 675 086 338.57 on capital and technology active contracts. This included capital acquisition projects contracts and technology projects contracts.
In an effort to improve cooperation, DoD, Armscor, and Denel steering committee was established and is operational to monitor progress. The DoD and Armscor are part of the monthly monitoring and reporting meeting, during which Denel provides feedback reporting on all matters to the Department of Public Enterprises and National Treasury.
General Barends concluded by stating that Denel is a strategic asset of the state for all intents and purposes. Denel's survival is important for national security, ensuring a sovereign state. The country can no longer afford to lose the remainder of the skillsets vested within the employees at Denel. As far as possible, employees with scarce skills that form part of the arms manufacturing for the SANDF should be retained.
See attached for full presentation
Mr Marais asked what “others and general” meant in the presentation. Is the next slide after the pie charts reflect what was in the actual pie charts? The slide shows the actual figures and the previous one gives percentages. He wanted to merge the information on the two slides to understand where the problem lies and where “others and general” fit in. Which companies of Denel are implied in there? It appears that nothing is happening at Denel Dynamics, but it seems like they are still contracts for it. How is there still work going on there? I have heard that there's basically nobody left at Denel Dynamics, but money is being paid to it.
Regarding Mr Marais’ first question of what ‘others’ and ‘general’ is, Brig Gen Barends replied that it is very sensitive information regarding others. It deals with ammunition and the quantity and high level thereof. The information is not for public consumption. The Department is willing to share that information but it will have to be done in a very confidential manner seeing that the information covers quantities, and contracts that Armscor itself manages.
On Mr Marais’ second question, he confirmed that the two slides are linked. The excel sheet gives a summary of the contracts that have been contracted by Denel. The database shows that each of these entities has its own satisfaction levels. The database also shows where there is maintenance and support, maintenance and repairs, spares, other ammunition and weapons systems, and, in general, those that could not be classified. The services being rendered that could not be classified as maintenance and support are classified under general.
The Chairperson turned to the aeronautics spreadsheet as an example. The total bill is R1.9 billion.
Mr Marais stated that there is a difference between the information sheets that speak about operating contracts and the ones that talk about capital and technology. To what extent are these the obligations that we have to Denel to make sure that they can operate because the real confidentiality is not with operating costs, others, and general, but it is actually capital and technology contracts. The big money is with capital and technology contracts. Why is the state paying for its operating contracts? Why are there operating contracts with all those companies if we order products from them? It should fund it from the business money that it generates.
The Chairperson asked the Department to deal with this question as this has also been his pet subject.
Brig Gen Barends handed these questions over to Mr Kopano Lebelo, Acting Chief Director: Defence Material, Department of Defence, to provide answers.
Mr Lebelo stated that the operating costs and the capital is defined from the Department’s perspective. He explained that it is operation funding that the Department uses to buy spares, for maintenance, and for support. The funds are not for Denel’s operations. The term must not be wrongly interpreted.
The Chairperson stated that the total value of Denel’s serial number one is R1.9 billion. R1.7 billion has been paid. R 281 million is outstanding. That gives a 14.11% outstanding amount. What is the contracting period of this R1.9 billion? Is this the contract value?
Brig Gen Barends presented a slide that gives the Committee an understanding of the contract order number, the categories in terms of maintenance and support, spares, M&R, the order dates that were placed, and then the planned delivery dates as indicated. The statistics are colour coded. As explained with the criteria using green, means that it has been delivered. In serial number one under Denel Aeronautics, it was maintenance and support. The contract started in 2019 and ended in 2023 and is still valid until September. Hence there is still and outstanding amount of R78 million, giving us an indication that it is still outstanding but it is green because the contract only expired in September 2019. So it will continue with all of the contracts as indicated in the order number.
The Chairperson asked how this relates to what the Committee saw when they visited Denel, where so many aircraft are standing instead of gracing the skies. And when the Committee asked why the aircraft were not flying, the Committee was told that the aircraft were standing because there were no spares. The Committee was also told that it would be taken to a section where aircraft have been stripped beyond imagination. How does this relate to the three contracts that Denel has with Armscor in relation to the aircraft?
Mr Marais added to the Chairperson’s statement that with that, this is only the operating. He wants to see how much they are buying from them and then that cost can be divided into an operating portion and capital of what is actually being bought and what the returns are. Now the Committee is only looking at the operating side, which, even if we pay that, even if it is part of how we break down the costing, but there must still be a direct correlation between operating payment of operating because why would we pay more operating proportionately, than what we get from capital and technology. He does not understand that because it might imply that they are actually financing Denel for its salaries, but in the meantime, it does not deliver for the operating money that is spent, and because it does not deliver on the capital, we do not pay them for the capital, but in the meantime, we pay it for operating. He finds it incredibly difficult to understand from an ordinary business perspective.
Brig Gen Barends explained that this is the services requirement in terms of the General Defence Account (GDA) funding Denel receives to ensure that it has published equipment, spares or consumables procured during the financial year to maintain the transmission equipment. If DoD looks at how much it is paying for and buying, this is basically from the GA and rightly said by Mr Marais, there are two; the one is operating cost by the services and the other is the capital and technology which the DoD already presented the service in terms of the projects. Those are projects and acquisitions. The Department is not paying for salaries, but is paying for services that are supposed to be rendered against the colour coding that will state that this has satisfaction in terms of those servicing contracts that either have lapsed and have not been taken forward. The main question that the DoD might want to ask is whether focusing on the red codes on the planned delivery dates in the excel spreadsheet will show the delivery dates. Therefore, if something has lapsed already and does not continue, meaning that the outstanding amount of spares that could be procured were not procured because of Denel force majeure during that time. Hence there is a situation where Denel has not been able to deliver on its payment commitments, hence the payments did not reflect and there was a huge outstanding amount in certain of these contracts as indicated in the previous slides.
Denel’s force majeure situation has been a challenge. They are trying to come back online to provide the Department with services. As indicated, funding is required. This funding that you see here is not in their position; the funding is outstanding amounts that are due to Denel once it has delivered its services.
The Chairperson and Mr Marais felt that what the Committee saw during its oversight visit to Denel Aeronautics does not correlate with what has been presented. The presentation makes the situation appear as though there is a fantastic working arrangement with Denel and that there are a few problematic areas, whereas the Committee saw aircraft that have been stripped beyond imagination.
Mr Lebelo explained what the Department means by operating and capital. Operating is for the sustainment of the defence’s operations and not for the company to operate. Every amount that is out there that is paid is because of the Armscor contract periods where something was delivered. There may be incomplete systems, but a system of the nature of the aircraft has many subsystems. If the defence force has paid for a subsystem and is waiting for another, the aircraft will not fly because everything must work together. All of the systems have different time scales to deliver to make the whole system functional. The Department’s ducks have to be in a row in order for a system to start running, but not everything can be done at the same time. What should be worrying is what Denel has not yet executed. It is rare because then it has delayed, and the systems cannot be operational nor can the defence force operate because there is not a complete system.
The Chairperson asked Mr Lebelo whether, as far as he is concerned, the Department has derived value for money.
Mr Lebelo replied that it has not completely derived value for money for what it has paid for. The engine of the vehicle it has cannot run on its own. Some of the subsystems are there but what is needed is to ensure that Denel delivers everything. The Department wants the complete product because these are specialised items and Denel produces those things.
Mr Marais stated that when the Committee visited aeronautics, nothing was able to start. Some aircraft were already there for four years. How does the Department ensure it will eventually get the final product if the aircrafts cannot even fly? It means nothing and money has been wasted. You cannot go to war and say that only two of the tires can work therefore, we might go with two tires. You cannot do anything if you do not have all of them. His concern is that many payments have been made to Denel, but the defence force is under-resourced. The chief of staff has reported to the Committee on many occasions about how big the problems are with aircraft that are landward aircraft, and now the Department is telling the Committee that this is wonderful and that there is value for money. It was reported to the Committee last week that we have moved backwards from milestone one in defence review to milestone zero.
Mr T Mmutle (ANC) stated that there seems to be a misunderstanding between the Department and the Committee’s understanding of the situation at hand. There are “on service demands’’ where platforms that are in a mission or platforms that are operational, as and when it needs certain parts, or it goes to the very same platforms that are grounded and takes those parts so that the operational ones continue to be operational. How is it recording both out of the resources it is making available in that regard?
The Chairperson asked whether the question is that out of the R1.9 billion allocation seen, what is for fixed cost and what is for on demand services?
Mr Mmutle stated that he is unsure about the wording, whether it is on demand, but it can fall under on demand. He sees that the process they apply is cannibalising systems in a workshop, intending to finalise them so that it can be operational.
Mr Lebelo stated that the Department agrees with what is said about cannibalisation as sometimes the Department has to wait too long to get spares from other original manufacturers, but at that time, there may be a need for an aircraft to fly so the Department has to use what is functional at that point, to put on the aircraft.
On the question about on demand spares, he replied that on demand spares are those that the Department acquire and test when required. It is not something that is contracted for a longer period of time for continuous supply, but only as and when required. The Department is answering this because they are also concerned. Denel may not have enough funding to pay its suppliers, so the funding model is being evaluated. In this regard, a consideration has been to pay the subcontractors directly so that it can deliver to Denel rather than not finishing the whole product. This would also keep the Department in the know about the processes. Armscor has had some success with the limited resources that it has but it is not 100%. There is a below 50% satisfaction with Denel. Armscor and the Department cannot say that it is happy with where Denel is right now, but it is looking forward to seeing them progress. It is also a part of the Department's monthly monitoring process to see how it uses the funds that it is getting and to ensure that money is being used for what it needs to be used for and there are no delays.
The Chairperson stated that the Committee understands that the satisfaction level is below 50%, but there appears to be a very high rating on the aircraft. Is the Committee’s rating incorrect? Secondly, when the Committee got to Denel Aeronautics, Denel actually said that because it is not placing orders for spares and that it has to cannibalise, it basically takes them more hours to do the job, because even before it fixes, it must replace the parts. If it takes ten hours to replace the part in the aircraft being worked on, it still has to add five hours that it will take to remove the parts from another aircraft. In other words, it would take 15 hours to do work that would ordinarily take ten hours because they use five hours to harvest a part from another aircraft. This therefore says that sometimes the methods that the entities apply have a lot of inefficiencies that end up costing the Department a lot of money because the emphasis is on harvesting as opposed to buying new parts because buying new parts leads to spending fewer hours than when cannibalising or harvesting parts from another aircraft.
Mr Marais explained how he read the situation. He takes these two groups together and looks at Denel Aeronautics, for instance, and considers that there are two components. The one is the operating component which is R1.9 billion. The other one is the capital component, which is R5.6 billion. Now if you compare the two, just that example on the operating side, only 14% is outstanding, but the next one is actually the product that is needed; 80% is outstanding. He interprets that 80% as the delivery of the final product. In other words, that indicates that there was a major problem on the capital side because it seems like more has been proportionally paid for operating than for capital. The situations at hand are not coming up just now or in small doses over months and weeks. This has been the case for a number of years. It comes from the previous Parliament. The Committee is interested in having prime mission equipment serviceable in the air, water, or battlefield. South Africa cannot be protected if it is not there. In terms of the money the state pays, it has funded an enormous lot of Denel dynamics but what does it deliver? He requested clarity on the statement from the Minister of Defence that she is busy talking to the South African defence industry companies, and right at the end of the presentation, she said that we must use the help of Denel to protect our sovereignty. Is Denel so important that the Committee cannot use the defence industry companies to perform these deals? To what extent is the state prepared to pay more just to keep Denel and not support defence industry companies? Maybe we should move forward. Denel is the Original Equipment Manufacturer (OEM) of major platforms, especially when it comes to electronics. It has the skill sets that need to be maintained in order to keep the Defence Gorce’s capabilities in order.
The question always is whether the manner in which Denel is being funded is appropriate. Right now, everything is together because as the state contracts with Denel, it also pays to maintain it as well. The Department should actually be giving Denel the money for fixed cost upfront. From the budget, the money that is distinct for Denel, then Denel should be held accountable for the money that has been allocated to it. The two aspects have been conflated. Denel gives the Committee a situation where it cannot see what in the budget is for fixed costs and the Committee cannot see what is for fixed costs because it is like a retainer of some kind. It is known that it provides a service. But what was the use of having it when there is no money to buy spares to keep it in? Lack of money to buy space to keep Denel engaged leads to it being encouraged to go and cannibalise. When it cannibalises, it adds more hours to its work and ends up taking a lot more time and possibly charging even more. Is the approach being proposed and applied by Armscor the best way to support Denel? Until the Committee has reached that point, this matter will remain like this forever.
Mr Lebelo requested to explain what obsolescence is. Obsolescence is when equipment is so old that spares are hard to find. That is then the reason that Denel cannibalises. It does not cannibalise for the purposes of replacing spares that can be acquired. For the spares that it cannot acquire elsewhere, the company must wait and get those. It only cannibalises when it knows a certain spare part is no longer available. The company that made it does not produce it and there will not be any reason to wait for something that will never come. That is the only reason that is.
The Chairperson and Mr Marais replied to Mr Lebelo by disagreeing with his statement and telling him that what he was saying did not correlate with the information the Committee received from its visit to Denel. Aircraft that have been harvested are still being kept in the balance sheet because there is hope that spares would be obtained at some point and then bring the aircraft back up. It was indicated that because these aircraft are so old, it would take a lead time of between 12 to 26 months. It was explained to the Committee that it is difficult to obtain spares if an entity does not belong to a global pool of certain spares. Denel Dynamics is strategically important, and many of those divisions have the potential to be viable, but Denel could not deliver us on its product. This is very concerning.
The Chairperson stated that Mr Lebelo’s information is wrong and that he must devise a model that would assist the Committee in monitoring the allocation that it gives to Denel because Denel has not had credible financial statements for five years and even the Auditor-General expressed frustration with Denel; however, money is still being poured out into Denel.
He is not quite certain whether the Committee is able to ascertain that there is value for money with the model that is being used for Denel to support Denel. It is being conflated with the allocation meant to prop up to buy spares and service aircraft. Yes, the Department needs Denel, but is this the right and appropriate way to fund it? That question needs to be answered, but that was not for today. So much money has been spent. If you look at the aircraft in last year, it was said that only 17 Orynx aircraft were serviceable. That amount has since lowered drastically in the space of a year. The situation is deteriorating drastically, but it still being said that there was value for money.
Mr Lebelo replied that he does accept that there is an element of cannibalising because of the operational requirements that Denel must support everyone. The Chairperson and Mr Marais are correct; obsolescence is not the only issue; there are other elements too.
The Chairperson asked Mr Lebelo, regarding his reference to roll overs, why do roll overs occur when it says that it does not have the money. R8.1 million is being rolled over between 2022 and 2023. Is the money being surrendered to National Treasury? What is meant by this rollover? The Committee needs every single cent of this money to be applied to aircraft.
Mr Lebelo replied that the roll overs are due to the nature of the defence operations. Some equipment is not delivered immediately but in one or two years. The funds would still be there, but delivery is not yet done. He thanked the Committee for all the engaging questions and its support. There is no maintenance of Denel. It is paying for services delivered in products that are delivered. The Department does not pay its overheads nor does it pay Denel.
Mr Marais stated that the Committee might come over very harsh, but the General must not take this personally. The Committee is passionate and wants a stronger defence force.
The Chairperson stated that the Committee has been concerned about why so many aircraft are not in the air yet so much money is spent on them. This meeting is trying to assist in finding a way out, but the Committee is happy that there is now closer cooperation between Armscor and Denel. The Committee is not trying to be hard on anybody but is just concerned about the situation it sees on the ground.
General Ramantswana stated that he has been disadvantaged from participating in the discussion throughout [due to poor connection], but he could hear the snippets here and there. He will consult with his colleagues on what the Chairperson has said in his conclusion. He stated that his colleagues from joint operations are ready to do the presentation on the presidential minutes.
Briefing to the JSCDMV on the Presidential Force Employment Authority – Extension of Operation Prosper (Eskom Power Stations)
Major General Siphiwe Lucky Sangweni, Chief Joint Operations, SANDF, thanked the Committee for the opportunity to present and handed over the platform to a Major General from the joint operations.
He stated that the President had authorised the extension of the employment of the SANDF for service in cooperation with the South African Police Service (SAPS) for the prevention and combating of crime and the maintenance and preservation of law and order in the Republic of South Africa under Operation Prosper (Op Prosper). A complement of 880 members of the SANDF will be employed to support and assist the SAPS in the protection and safeguarding of identified Eskom power stations across the country. The estimated expenditure expected to be incurred amounts to R146 718 427.
See attached for full presentation
Mr Marais stated that the Committee is on record saying that it is not the job of the SANDF to do what they are doing. The Committee just hopes that not too many of the Defence Force’s resources regarding its core responsibilities are being drained. Hopefully, it will either invoice the Department of Police or the Department of Public Enterprises. The Committee can support our country to stabilise electricity if that is being done. He showed his appreciation for the Defence Force’s work.
Mr Ryder asked about the funding component and reminded everyone that there was a comment from the Minister of Finance that the contingency reserve was in place and would be tapped into if there was a substantial need. Noting what the General told the Committee, there should be a discussion between the Department and National Treasury to ensure that there is suitable compensation if it must come from the contingency reserve, and that was where it must come from. He does not believe that the financial burden should be placed at the feet of the Defence Force alone. National Treasury should come to the party as well. It is understood already that the Defence Force’s budget is insufficient for these needs as they stand already without facing additional burdens. He encouraged the Department to have that discussion with National Treasury.
The Committee will meet with National Treasury very soon to discuss the different allocations to the Department because it has to spend its allocation from the mere resources that it has and only be compensated much later in the year. Yet, if it has had some allocation in its account, it would be able to tap into it without disrupting the operating budget or the baseline of other programs or activities within the department.
Mr Mmutle stated that the Committee welcomes this deployment and wishes the joint operations well in its operation. In the spirit of ensuring that the Defence Force is not found wanting in terms of financial prudence, he suggested that things be done differently. When the Commander In Chief employs the Defence Force to undertake any other mission or function that is not set for, that undertaking must be accompanied by a letter to National Treasury or an instruction to Treasury to make funds available for that particular deployment. In that way, it will make life of the Defence Force easier. There would at least be a turnaround time as to when those resources will be made available to the Defence Force. Further, to a larger extent, the Auditor-General of South Africa (AG) must be notified because the AG will scrutinise what was allocated to whom. Going into the future this is not what the Committee wants because the Defence Force will be always be found wanting out of these deployments that it has no option but to undertake even when the funds are not made available, but it has to. Something needs to be done differently so that the Defence Force is relieved of those pressures that they will have at end to account when nobody else is there to vouch for them.
Dr Wilhem Janse van Rensburg, Committee Researcher, raised an administrative point that an upcoming meeting between the Committee and National Treasury is taking place this coming Wednesday. He suggested that it might be of value for the National Council of Provinces (NCOP) Members of the Committee to join that meeting[of the Portfolio Committee] to hear what National Treasury has to say, as the issue being discussed in the current meeting was identified as one of the specific topics to be discussed with National Treasury on Wednesday.
The Chairperson thanked the Department for its presentation and assured it that Parliament is fully behind it and will drop anything to respond to its calls.
Deputy Minister’s Remarks
Deputy Minister Makwetla thanked the Members of the Committee for the opportunity to comment. He stated that seeking, where possible, reasonable reimbursement for the operational budget for every service the Defence Force provides is a very problematic arrangement. However, it is a desperate approach to meeting the Defence Force’s needs. This is because the money that the Defence Force needs to provide the services it renders includes the preparation and the means that the Force utilises. When the Defence Force is being reimbursed because of deployments to improve the security around the country’s power plants, that money does not assist us in preparing the soldiers. He is raising this because the increased demand by the SAPS for support from the South African National Defence Force means that the SANDF must have troops that are almost prepared for some of the domestic situations that now entertain that the defence force gets involved in.
Going back to the earlier discussion, he noted that this discussion was requested to be led by the Minister. The Minister would still want to comment on the discussion when she is available. The Council on Defence had an engagement with Denel on their turnaround strategy which speaks to the main concern of the Committee that the needs of the Defence Force as far as the maintenance of its prime mission equipment is not supported by Denel’s state of readiness. Denel presented its turnaround strategy and a whole host of things were picked up and views were shared in that discussion, including what the oversight committee got exposed to on its oversight visit to Denel. One positive development is that the funding that Denel was expecting from National Treasury, which is around R3.2 or R3.4 billion, which it said was stolen from their turnaround strategy. Apparently, that money has been released to Denel. Denel’s liquidity is important. However, the money replaced only serves to keep the wolf at the gate.
The important question is whether Denel’s capability to support the country’s Defence Force has to do with the capabilities that Denel’s different enterprises have reported to have lost their skills migration and that part in its general strategy is not sufficiently profiled. His observation is that it was downplayed. He is raising this because Mr Marais has made a statement to the effect that there is no one left at Denel Dynamic. That is the kind of information that needs to be received from Denel in a very accountable way, because, at this level, it is difficult to discuss hearsay. We have got to discuss what we are told officially by Denel to be the state of affairs in the different enterprises under Denel. Denel is a parastatal, but he has been asking himself where the subsidy to this parastatal is coming from. Who transfers subsidies to Denel? How is government subsidising Denel? In its origin, Denel is a conglomeration of business and production entities under Armscor. They were cut off and released from the defence portfolio in 1992 to be standalone business entities. How was the arrangement put in place for those entities to continue functioning? The issue about the operating costs appears to be a big concern, but it looks like the information being shared is not user-friendly. The operating cost that the Department is complaining about, which gets deducted from the budgets transferred to Denel for specific goods and services, needs deeper inspection to understand the problem. It will always be difficult to have a full appreciation Denel’s performance without the line of sight to the audit information of the net. Unfortunately, the Department is not responsible for oversight over Denel - the Department of Public Enterprises is responsible for this. It needs to be appreciated that the reason why Denel is the original equipment manufacturer of the prime mission equipment that the South African Defence Force has is because these were systems which Armscor developed on behalf of the South African National Defence Force as the SANDF needed but could not go out to the outward markets because there was an arms embargo. It must be understood that the prime mission equipment of the SANDF is with Denel, who are the original equipment manufacturers. He appreciates that there is a call for more transparency in how Denel functions.
The Chairperson thanked the Deputy Minister and stated that the Committee would continue to monitor the situation and has even suggested at some point that for all the monies paid to Denel that come from the Defence Force to Denel via Armscor or any other agents, Denel must be held accountable on how it is actually spending the money. In other words, starting the process of the Committee overseeing both Denel and Armscor with the view of facilitating the relocation of Denel from where it is now to the Department of Defence. If it is oversighted by the Committee, we are likely to get better results for the defence force. It is better if the Committee does it in conjunction with colleagues on the other side. The Committee is not taking over its responsibility but is holding its colleagues accountable for the money that the Committee is paying. In that context, the Committee requests the Department to make its budget visible to enhance and improve accountability and enhance performance on their side. The Department should understand that the Committee is not trying to be difficult, but is trying to ascertain whether the model at hand is the right model that will take us out of this situation. Things have been going downhill since the Committee Members came into office in 2019. The Committee does not want to hit rock bottom and asks the ministry and the defence force to assist in turning the situation around. National Treasury is putting more money into the Defence Force and there is support from the country’s leadership to turn the situation around. The Chairperson released the Department’s delegation from the meeting and turned to deal with the internal matters of the Committee.
The Committee discussed its study tour scheduled to go ahead successfully as planned.
Consideration of Committee minutes
The Committee considered the minutes of the Committee dated 4 May 2023.
The minutes were adopted.
The Chairperson adjourned the meeting.
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