Question to the Minister of Public Enterprises - NW753

11 April 2016 - NW753

McLoughlin, Mr AR to ask the Minister of Public Enterprises

(1) With reference to the cancelled contract with Airbus in respect of eight A400M military transport aircraft, the fact that Airbus agreed to refund the sum of €835 million to the Armaments Corporation of South Africa (ARMSCOR), and that an indemnity was subsequently provided to Denel by the Government – (a) why was an indemnity provided to Denel? (b) what were Denel’s obligations to – (aa) Airbus; (bb) ARMSCOR and (cc) the Government in respect of the specified contract. (2) (a) how many more such claims are outstanding from Denel; and (b) what – (i) are the details of each one of the eleven claims made to date by Denel in terms of the indemnity; and (ii) amount was paid to Denel in respect of each claim; (3) has oversight taken place in respect of each of the eleven claims submitted by Denel; if not, why not; if so, in respect of each claim – (a) (i) when; and (ii) where did such oversight take place, (b) who conducted such oversight; and (c) has such oversight resulted in a reduction of the relevant claim. (4) what is the breakdown of the current R63,1 million claim made by Denel? NW871E

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Reply:

(1)

(a)

Denel SAAB Aerostructures (“DSA”) was a joint venture formed out of an equity partnership between SAAB and Denel Aerostructures (“DAe”) in January 2007.

Prior to the formation of the partnership, DAe entered into two off-set contracts following the eight (8) A400m aircraft order by ARMSCOR. The offset packages with Airbus were to supply airframe structures namely, the Wing-to-Fuselage Fairing (“WFF”) and the Top Shells (“TS”) for the A400M military aircraft.

As a result of the exposures with regard to these contracts, a condition precedent to the joint venture was that the Government indemnifies DSA in order to de risk the contracts. The indemnity is for a maximum amount of R1.6 billion (ONE POINT SIX BILLION RANDS) over a fifteen year period. The Indemnity Agreement was concluded on 21 May 2007.

(b)

(aa)

As a program partner on the A400M, Denel has the obligation of the design, development, manufacture, and sole supply of the WFF and TS structures.

(bb)

Denel has no obligation to ARMSCOR. DAe is directly contracted by Airbus to deliver the WFF and TS structures to their assembly lines.

(cc)

As contracted through the Indemnity Agreement, Denel submits a claim to the Department on an annual basis, supported by an audited financial report, fully governed risk mitigation plan and a program report.

(2)

(a)

From the R1.6 billion (ONE POINT SIX BILLION RANDS) indemnity cover, there is a balance of R359 million (THREE HUNDERED AND FIFTY NINE MILLION RANDS) remaining over the next 5 years.

	Amount
Capped Claim Value	R 1,600,000,000
Claim YTD	R 1,240,676,952
Balance	R 359,323,048

(b)

(i)

To date there has been 10 (TEN) claims submitted by Denel. Details of the claims are on the table below.

(ii)

Amounts paid to Denel are shown on the table below.

Claim Number	Date Claim Submitted (DD/MM/YY)	Period (MM/YY)	Amount of Claim	Amount Paid	Balance of the Full Indemnity (over 15 years) R 1 600 000 000	Date of Payment (MM-YY)	Status
1	31/07007	04/06 –06/07	R 222,290,420	R 220,980,584	R 1,379,019,416	Nov 07	Paid
2	22/08/08	07/07-07/08	R 259,516,131	R 257,639,637	R 1,121,379,779	Dec 08	Paid
3	20/05/09	08/08 – 03/09	R 191,865,684	R 191,865,684	R 929,514,095	Dec 09	Paid
4	28/10/09	04/09 –07/09	R 103,500,000	R 103,501,382	R 826,012,713	Dec 09	Paid
5	30/06/10	08/09 – 0310	R 96,000,000	R 78,155,111	R 747,857,602	Dec 10	Paid
6	13/06/11	04/10 – 03/11	R 116,634,725	R 116,254,986	R 631,602,616	Dec 11	Paid
7	28/05/12	04/11 – 03/12	R 118,782,844	R 118,782,844	R 512,819,772	Dec 12	Paid
8	18/05/13	04/12 – 03/13	R 57,249,797	R 57,249,797	R 455,569,975	Dec 13	Paid
9	29/05/14	04/13 – 03/14	R 63,140,844	R 63,140,844	R 392,429,131	Dec 14	Paid
10	25/05/15	04/14 – 03/15	R 33,106,083	R 33,106,083	R 359,323,048	Mar 16	Paid

(3)

Yes oversight has taken place.

(a)

(i)

As contracted in the Indemnity Agreement, Denel submits a claim to the Department on an annual basis, supported by an audited financial report, fully governed risk mitigation plan and a program report.

When a claim is received, the Department appoints its own independent auditors to authenticate the claim as submitted by Denel.

(ii)

The Department’s auditors physically go and verify relevant documentation and Enterprise Resource Planning (ERP) systems.

(b)

The Department through its independent auditors. The Department conducts DAe plant visits at least twice a year to appraise itself of the A400M programme status.

(c)

In instances where discrepencies were discovered, the claimed amounts were reduced accordingly, as indicated on the table above.

The value of the annual claims over the past 10 years has reduced from R221 million (TWO HUNDRED AND TWENTY TWO MILLION RANDS) to R33.1 million (THIRTY THREE POINT ONE MILLION RANDS). Furthermore, for the past 4 (FOUR) years there has been no errors between the amount claimed by Denel and the audited amounts by the Department.

(4)

The recent 2015 claim amounted to R33.1 million (THIRTY THREE POINT ONE MILLION RANDS). The R63.1 million (SIXTY THREE POINT ONE MILLION RANDS) was claimed and paid during 2014.

	Earned Sales	Cost	Commitments	Claim
Serial Production and Ramp-up	R184,943,445	R210,517,440	(R15,988,815)	(R9,585,180)
Jigs/Tooling	RNIL	R1,726,787	RNIL	(R1,726,787)
ILS & Freight	R NIL	R5,288,869	R NIL	(R5,288,869)
ENG & MODS	R NIL	R16,505,247	R NIL	(R16,505,247)
T O T A L	(R33,106,083)

ACRONYMS:

ILS	:	Integrated Logistics Support
ENG & MODS	:	Engineering and Modifications

Source file

RNW753-160411.docx

11 April 2016 - NW753

McLoughlin, Mr AR to ask the Minister of Public Enterprises

Reply:

Source file

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