Aerospace Maritime & Defence, Armscor, Defence Department Annual Reports; DRC Arrests of SA Citizens; Military Veteran Special P

DEFENCE PORTFOLIO COMMITTEE
12 September 2006
AEROSPACE MARITIME AND DEFENCE, ARMSCOR, DEFENCE DEPARTMENT ANNUAL REPORTS; DRC ARRESTS OF SA CITIZENS; MILITARY VETERAN SPECIAL PENSIONS: BRIEFING

Chairperson: Ms T Tobias (ANC)

Documents handed out:
Aerospace Maritime and Defence (AMD) presentation
Department of Defence presentation
Armscor presentation
Department of Defence Annual Report 2004/5 (available at www.dod.gov.za)
Armscor Annual Report 2004/05

Relevant Websites
AMD
Department of Defence
Armsor

SUMMARY
Aerospace Maritime and Defence (AMD) provided an account of the state of the defence industry. Proper alignment with all stakeholders was required. Research and Development expenditure would be expanded in future. A Defence Industry strategy had been devised.

Ambassador Mambolo presented detail on the recent incident in the Democratic Republic of Congo where 19 South Africans were arrested on charges of military espionage and subsequently released. The detainees claimed that they had been mistreated during their incarceration.

The Department of Defence presented its Annual Report. Detail was provided on qualifications and emphasis of matter received from the Auditor-General.

Armscor also presented its Annual Report. Acquisition programmes were outlined. A transformation charter had been formulated.

Various military veterans associations were provided with an opportunity to provide input on the envisaged amendments to the Special Pensions Act. The South African Cape Coloured Corps, MK Veterans Association, APLA and the Khoisan Royal House provided an account of their particular problems related to special pensions Registration had to occur before the 31 December 2006 to ensure access to the special pensions. A follow-up meeting would be arranged involving all stakeholders to discuss key issues in greater detail.

MINUTES
Aerospace Maritime and Defence presentation
Ms Khapametsi Maleke (AMD Board Chairperson) provided a state of the industry report based on a recent study commissioned by AMD. A strategy to drive development in the industry was also presented. The local industry had to be positioned within the international environment and the industry was presently sustainable but not profitable. Proper alignment with the Department of Defence and key government stakeholders was vital.

Mr Simphiwe Hamilton (AMD Board Member) stated that AMD was divided into various classes of companies based on operational size. The defence sector currently consisted of 74 companies. The companies mainly served as suppliers to the South African National Defence Force. AMD represented 92% of turnover of defence-related companies. South Africa had to have the capacity to produce certain systems and avoid dependence on other producer countries. Equipment had to be compatible with local geographic conditions. Research and development expenditure would be expanded in future. Key statistics were outlined. Product and service categories were outlined. An industry Charter would be produced in due course to drive transformation. Detail was provided on foreign ownership trends. Exports were key to sustainability and had to reverse the decline in the research and development budget. Product development would focus on electronics. Major platforms and sub-assemblies had to be produced in South Africa. The industry had to contribute towards Nepad initiatives and peace-keeping operations in Africa. Expenditure should be directed towards expanding the local industry.

Mr Lorris Duncker (AMD Board Member) stated that a pro-active approach to sustaining the industry was required. The local defence industry was competitive. An inter-departmental approach to growing the local industry was necessary for optimal results. South African Defence Related Industries had to devise an appropriate defence industry strategy. The nature of the local industry had to be clarified. A Defence Council was needed to perform long-term planning. Various short-term projects such as maritime logistics and surveillance had to be highlighted to generate growth. All relevant government departments had to be involved in devising an effective strategy. Local products should be supplied to meet local demands.

Ms Maleke stated that smaller projects to ensure local supply were vital. She asked that Members support AMD in its quest for additional funding from the Department of Trade and Industry to drive the defence-sector strategy.

Discussion
[Note: The Chairperson emphasised time constraints and asked the Committee to avoid making political statements and keep the questions to the point due to the lengthy agenda of the meeting]

Mr M Booi (ANC) sought clarity on the vision of AMD in attempting to localise the industry. He asked whether AMD had a strategy to support poverty-alleviation and job creation initiatives.

Mr R Jankielson (DA) asked whether state patronage of certain companies at the expense of others affected the relationship between competing companies. He asked whether discussions had been held with government regarding border surveillance initiatives. Additional requests for state support implied that government was neglecting peace-keeping operations.

Mr O Monareng (ANC) sought clarity on the standard of the local supplier industry. Transformation efforts had to be supported by meaningful budget allocations.

Dr G Koornhof (ANC) asked for further detail on the stated position that the industry was sustainable but not profitable. Research and development expenditure had to be explained. Further clarity was requested on the defence sector strategy. AMD should furnish Members with proposals on how the Committee could assist them.

The Chairperson declared that legislators were not responsible for deciding whether a defence sector strategy was necessary and the detail thereof. The Department had to determine whether AMD should be a profit-making institution. Members had to bear government spending priorities in mind. AMD should in future approach the Department first to discuss their presentation and determine whether certain issues should be excluded from the Committee meeting. The state was responsible for the defence of the country.

Ms Maleke responded that AMD regarded itself as an organisation of private companies within the defence-related industry. Engagement with government was necessary due to the strategic nature of the issues.

Mr Hamilton stated that AMD wanted a strong local defence industry in line with the political objectives of the government. AMD would serve as a partner of the Department in meeting common objectives. Poverty alleviation initiatives were not disregarded. However, the sustainability of the defence industry had to be maintained.

The Chairperson retorted that the defence industry could not seek to defend the poor without tangible efforts to address poverty levels. The need for state of the art equipment at the expense of the poor was highly questionable.

Mr Hamilton stated that adequate defence capability was needed in Africa. Current capabilities within the industry had to be sustained and enhanced. AMD had initiated the process to draft an industry transformation Charter. A sector level skills development programme would be installed.

Mr Duncker stated that AMD could play a greater role in planning of peace-keeping operations. No consolidated approach to the issue of border surveillance had occurred. The South African Police Service needed more time to devise suitable solutions to border control. The SAPS and the Department of Correctional Services were two potential major customers for AMD. Logistics support focused on customisation of equipment and adjustment of acquired systems. A higher level of product knowledge was necessary to achieve desired results. Denel subcontracted to a great extent within the local defence industry. The role of Denel was respected by industry roleplayers. An agreement was in place involving all stakeholders.

Mr January Masimela (Secretary for Defence) advocated vigorous engagement with the defence-related industry including Denel. Denel accounted for 60% of the local industry. Formal defence acquisition master plans were in place. Preferential contracting was provided to local industry. The White Paper on Defence was under review. Further engagement on African peace missions would occur.

Department of Foreign Affairs briefing on DRC arrests
Ambassador Kingsley Mamabolo (Special Envoy to the Great Lakes region) apologised for the delay in delivering the briefing as attention had been focused on the elections in the Democratic Republic of the Congo (DRC). The briefing focused on the arrest of 19 South Africans in the DRC in May 2006. A South African observer team had been present in the DRC to monitor the General Elections. The Independent Electoral Commission also sent information technology specialists and advisors to assist. The referendum proceeded as planned although political tensions remained. The second round of Presidential elections were underway. The arrests were linked to one of the Presidential candidates, Mr Oscar Kashana. Omega provided security to the candidate in question. The arrests took place on the 19 May 2006. Nineteen South Africans, three Americans and four Nigerians were involved. Diplomats only gained access to the arrested individuals on the 22 May 2006. Sixteen individuals had been working for the Omega security company. Training to local security personnel had been provided.

The detainees claimed to have been assaulted and robbed of their possessions. The individuals were forced to sign declarations outlining their intention to assassinate President Kabila which they denied. A collective statement was issued by all diplomats  requesting political tolerance and free and fair elections. Political manipulation had to be avoided. The detainees were released on the 28 May 2006 and returned to South Africa. The DRC government claimed insufficient time to conduct a trial before the July Presidential elections. The issue would be dealt with by the detainees’ respective governments. No concrete evidence of wrongdoing existed. The DRC government had not furnished the South African government with any tangible evidence. The South African government had consequently not pursued the matter further.

Discussion
Dr Koornhof sought clarity on the discrepancy between the South African government’s statement as opposed to the DRC government statement.

Mr Booi asked for further detail on the current mission in the DRC.

Ambassador Mamabolo stated that the DRC government had made claims of an attempted coup against President Kabila. However, the detainees declared that they had been forced to sign the statement of intent to carry out a coup and denied any involvement. The mission had little opportunity to carry out further investigation and possible recourse. The elections had been characterised by certain violent incidents. The bilateral commission in the DRC was the only vehicle capable of preventing further similar incidents. Future political stability in the DRC would serve to prevent recurrences.

The Chairperson stressed that the diplomatic corp had to ensure that South African citizens were not mistreated in other countries.

Mr M Moatshe (ANC) asked whether Omega had made any statements regarding the incident.

Ambassador Mamabolo replied that the company had defended their personnel and denied any involvement in an attempted coup. The company’s mission had been to defend and protect certain individuals. The detainees had claimed mistreatment on the part of the DRC authorities.

Department of Defence Annual Report presentation
Mr January Masilela (Secretary for Defence) stated that approximately 3000 South African peacekeepers were deployed internationally and had received high praise from the United Nations. The South African National Defence Force structure had been reviewed in accordance with its political mandate. Policy and allocated resources would be realigned. A new reward system had been introduced for personnel. The Defence Force had changed from a cash-based accounting system to an accrual system. The Department would link with the Integrated Finance Management System.

Mr T Motumi (Deputy Director General: Policy and Planning) stated that the Military Skills Development System would increase the personnel skills level. Two companies had been provided for deployment in the DRC. The operational budget would be re-evaluated during 2006. Additional financial allocations would be requested. Priority needs in terms of military equipment would be determined. Various challenges in the Defence Force were outlined. Detail was provided on landward defence, the airforce and maritime support structures. A naval reaction force would be implemented. Facilities would be upgraded. Military health services had met its employment requirements. The Defence Intelligence Estimate had been published. Joint Support programmes would be removed in future due to restructuring. 600 tons of expired ammunition had been destroyed. Human resource training occurred at various military institutions. Challenges of the Service Corps were outlined.

Mr J Groener (DOD Chief Finance Officer) stated that the Auditor-General’s Report had indicated a deficiency in the financial management system that had to be improved. Qualification and emphasis of matter had been received. The root causes of the qualifications were outlined. Cases of financial misconduct would be prosecuted. Four qualifications on the General Defence Account had been received. Detail was presented on the Emphasis of Matter that focused on personnel expenditure and asset control. Measures were explained that sought to address the qualifications.

Mr S Fakie (Auditor-General) declared that the Department had provided a comprehensive financial report. The root causes for deficiencies had been identified. Incidents of non-compliance were related to internal control mechanisms. Adequate Information Technology systems were crucial. Department internal controls had to be enhanced. Additional human resource capacity would contribute towards an improved system. A sound relationship prevailed between the Department and the Auditor-General’s office.

Mr Barry Wheeler (Auditor-General’s office) noted that the financial reporting system had been adjusted in line with National treasury regulations. A concerted effort had been initiated to improve human resource capacity. An adequate financial control system was required. Policy documents had been formulated that had to implemented competently. Accountability had to be entrenched to reduce the Emphasis of Matter and the Qualifications.

The Chairperson stated that asset management remained a priority.

Mr Monareng asked how the poaching of defence intelligence staff by the department could be reduced. He asked whether the Defence Intelligence Head Quarters would be relocated. The number of potential applicants for military pensions had to be made known.

Mr Jankielson asked how management skills in the officer corps would be improved.

Mr Booi sought clarity on the nature of the envisaged disposal plant. Subsidiaries had to be supported through tender allocations.

Mr Diale asked whether the standard of food provision in peace-keeping missions was adequate. Living standards also had to be of a sufficient level. Morale in foreign missions had to be high.

Dr Koornhof noted that financial systems still had to be further improved despite clear positive developments. He asked whether additional funding requests were appropriate. Health services were hamstrung by skills shortages. He asked where health-related advertisements were placed. Clarity was sought on the temporary withdrawal of the Hawk aircraft. Absent without leave was a major discipline problem. The commando phase-out would result in additional funds of R 72 million. He asked whether the resource would accrue to the Department.

Mr G Madikiza (UDM) asked whether procurement plans would include the veterans. He asked whether the recruitment programme would include combat requirements. One industry strategy was needed to drive development.

Mr Booi asked what steps would be introduced to address landward defence challenges. The Saldanha Military College required a strategic plan to improve output and enhance skills levels.

The Chairperson asked whether the Department was sufficiently concerned with the plight of veterans and the hindrance in special pension payouts. The issue had to be addressed as a matter of urgency. Equipment and staff uniforms had to be of a certain standard to contribute to adequate levels of morale. Internal financial controls had to be enhanced. Policies on intellectual property had to be clear. A competent staff complement would facilitate compliance with regulations.

Mr Monareng noted that the special pension was distinct from the long-term military pension fund.

Ms Daniels declared that the Department had to deal with issues of the military veterans. Non-service personnel should not be in possession of military uniforms.

Mr Masimela responded that a culture of oversight would be entrenched in the Department. Defence Intelligence was undermined by poaching of staff by private sector companies. A training programme would seek to address capacity shortfalls. Incentive packages would be considered to retain skilled staff. Tactical operational intelligence skills were required.

General D De Wet stated that the special pension fund was for those associations that had integrated into the Defence Force.

Mr Masimela declared that processes and systems within the Department were improving. Line function commanders would be trained to manage appropriately and comply with Public Finance Management Act requirements. A salary increment had been instituted. Additional training ammunition was required to meet current needs. A distinction existed between internal and external deployment. Internal deployment was characterised by high morale and sound living conditions. Living conditions in external operations varied. The vast distances in the DRC resulted in logistical shortfalls. Morale was poor in the Sudan due to constant attacks by warring parties. The mission personnel could not retaliate. The Hawk aircraft had been temporarily halted due to a technical problem with the service provider. The issue had been resolved. Health service vacancies were advertised in professional journals as a cheaper and more effective alternative. The R72 million surplus as a result of the commando phase-out would accrue to the Department.

Mr Motumi noted that commanders would be capacitated to deal with common offences. Leave policies would be implemented correctly. An independent review of command and control systems would be undertaken. More defence-related industries in Africa would promote effective peace missions. Additional resources were needed to improve landward defence capabilities. Attempts would be made to improve the Saldanha College’s academic achievements.

Mr Masimela stated that the policy on intellectual property would be made available to Members. The Deputy-Minister would be involved in a project to level the playing field with regard to the status of veteran associations. Alliances with certain private sector manufacturers could be entered into to promote service corps skills.

Armscor Annual Report presentation
Mr H Thomo (Armscor Chief Executive Officer) presented detail on the general budget situation. Personnel costs totalled R24.7 million. Acquisition activities were explained related to the special defence account. Performance against acquisition objectives were outlined focused on maritime, air and landwards defence systems. 92% of R 1.2 billion had been spent on submarine acquisitions. R 2.5 billion would be spent on acquiring Gripen fighter aircraft. Underspending on the Rooivalk Attack helicopter had occurred due to an impasse in the communication system. A new generation Infantry Combat Vehicle would be acquired to replace the Ratel. A ground based air defence system would be acquired. Background was provided on the Defence Industrial Participation Management system. The system governed all defence-related purchases. Armscor was also responsible for the disposal of Defence Force surplus stock. Military sensitive and hazardous equipment and commodities had to be transported by Armscor. Various strategic facilities were managed by Armscor. Detail on the transformation strategy was provided. The staff profile was recounted. Insufficient funding would result in certain risks to future performance. Armscor assisted the defence industry with international exhibitions and events.

Mr Wheeler stated that a positive relationship existed between Armscor and the Office of the Auditor-General. Most issues had been dealt with adequately in the financial report. However, challenges remained with regard to control policy, database backup systems and the logical access and security policy. The one Emphasis of Matter had revolved around the lack of a formalised control policy. Service level agreements had to be improved.

Dr Koornhof asked what consequences would arise for Armscor following its reclassification. He asked where the strategic capabilities would be located. Detail was sought on the Defence Industrial Participation Programme. Clarity was requested on the loss of R 157 million. The percentage increase in transfer payments between 2004 and 2005 had to be explained.

Mr Ntuli asked how the sustainability of Armscor could be maintained following the reduction in activity of subsidiaries. The slow progress with the Rooivalk could result in fruitless expenditure.

Mr Jankielson sought detail on the moratorium that resulted in a net loss of R7.3 million. He asked whether buyers had been obtained for the surplus items.

Mr Moatshe asked what items would be disposed of on behalf of the SAPS.

Mr Monareng referred to the performance appraisal of Armscor and asked whether the Department was responsible for determining progress. He asked how often such appraisals were conducted.

Mr Thomo acknowledged sound relations with the Auditor-General’s office. The moratorium had been imposed by the Department and not by the National Conventional Arms Control Committee. Armscor conducted regular performance appraisals. The Chief of Acquisition managed the acquisition programme. A service level agreement was in place with the Department. Armscor did not normally dispose of equipment for the SAPS. However, military hardware was purchased when required for the SAPS. The moratorium was put in place regarding an investigation on sales to Jordan. Various irregularities were suspected with regard to the Ratels to be sold. 700 vehicles had been sold to Jordan and half had been delivered. The CFO and two other officials had been suspended during the investigation. Armscor had been instructed by the Minister to focus on acquisitions. Strategic defence capabilities would be removed from Armscor and placed under one co-ordinated position within the Department. The restructuring would not unduly prejudice Armscor. 12 Rooivalk helicopters would be delivered from Denel by 2013. ARMSCOR Business related to the management of the strategic defence capabilities that would be removed. Defence Industrial Participation had exceeded the targets. The loss of revenue had arisen due to the storage costs of equipment that could not be sold. An increase in transfer payment of 11% had been recorded from 2005 to 2006.

Mr Motumi stated that the Department welcomed the information reflected in the Annual Report. Defence research institutes would be established to enhance performance. The service level agreement between Armscor and the Department was currently under review.

Mr Jankielson sought clarity on the nature of the loss that arose from the moratorium imposed by the Department.

Mr B Ramfolo (Department Chief Director: Acquisitions) responded that the claim against the Department had not been quantified as yet. An investigation was currently underway to determine who was responsible for the loss. Armscor served as an agent of the Department. The sale to Jordan had been halted to allow for an investigation of suspected irregularities. Security issues had to be weighed against profit-seeking initiatives.

Mr Thomo declared that two issues were involved. The one was the claim related to the loss incurred due to the moratorium. The Department would return to Armscor on that matter. The second issue was that the Department had lost much future sales to Jordan.

The Chairperson asked that the Department would inform the Committee of the outcome of the investigation in writing.

Military Veterans Associations
The Chairperson stated that the Committee wanted to acquire an understanding of the problems experienced by the veterans with regard to special pensions. Common issues had been expressed in the past. Not all associations had been invited for practical reasons. Follow-up meetings would be held in other provinces. Payout problems for pensions had been experienced.

The South African Cape Corps, MK Veterans Association, APLA and the Khoisan Royal House provided an account of their particular problems related to special pensions. In summary, certain groups requested to be registered before the cut-off date of 31 December 2006 to qualify for the special pensions. Registration would also allow for participation in skills development programmes. The current absence of under-35s from pension payouts had to be addressed. The delay in the processing of applications resulted in a delay in payment. The process had to be expedited. The responsible parties had to be clearly identified so that interaction with associations could occur. The spouses and children of veterans also had to be addressed in the legislation. The government had to review the integration process. The relevant associations should meet with all stakeholders including the Department to discuss issues as soon as possible. Veterans had to be part of the decision-making process.

The following specific comments were made:
▪ The Cape Corps provided an account of their history that dated back to the First World War. The Corps had not formed part of the integration process in 1994. Various splinter groups had sprung up in the 1990s thereby contributing to some confusion. The Corps requested that they be included in the registration process to qualify for special pensions and the skills development programme. A proposal was made that resources be provided to the Corps to assist in the registration of all members.

▪ APLA noted that the Special Pensions Act had been in place for ten years. The opportunity to make representations now was welcomed. Under-35s should be included in the ambit of the Act. The current delay in the approval process was not perceived as a deliberate act. Shortage in staff capacity was the likely reason. Application forms still had to be distributed and the envisaged closing date was problematic. More time was requested. Rural areas could be marginalised in the process.

▪ MK Veterans Association also stressed that the under-35 issue and spouses and families of former militants had to be addressed. The current special pension payout was inadequate to support a family. However, efforts on the part of the state to improve the process were appreciated. A model had to be devised to assist all military veterans in enhancing their lives. The model would focus on fostering entrepreneurial skills amongst veterans. A self-sustainable incubation fund should be established to advance veteran’s socio-economic development initiatives.

▪ Khoisan Royal House declared that the integration process had been flawed. However, it was hoped that a review of the process would ameliorate the situation.

The Chairperson stated that written submissions providing greater detail and sent to the Committee would be welcomed. Certain issues such as integration would require further interaction to do justice to the problem. Further meetings would be arranged in due course including National Treasury. The deadlines for application forms would be distributed to the various provinces.

The meeting was adjourned.