The controversial Gupta-linked deal by state-owned arms manufacturer Denel is close to collapse because due processes were not followed, Finance Minister Pravin Gordhan said on Wednesday, thus making the transaction illegal.
Denel and VR Laser Services – a company in which the Gupta family and President Jacob Zuma’s son Duduzane Zuma hold a 25 percent stake – formed a joint venture known as Denel Asia which would sell Denel products to the Asian market.
The deal is believed to be at the centre of the suspension of three Denel executives, who insiders allege were moved to make way for the controversial transaction after a new board was appointed by Public Enterprises Minister Lynne Brown last year.
Denel announced the joint venture in January this year, but Gordhan said on Wednesday the establishment of the company was not approved by him or Brown.
“State-owned entities are required to obtain approval from the minister of finance and/or minister of public enterprises before establishing companies, in terms of the PFMA (Public Finance Management Act),” said Gordhan in a statement.
He added that in terms of the conditions attached to the R1.85 billion in guarantees that have been provided by the government to Denel, any significant transaction that Denel enters into requires the approval of both the ministers of finance and of public enterprises.
This is the third potentially Gupta-enriching deal Gordhan is putting the brakes on since his return in December.
He has stalled any movement on the state’s R1 trillion nuclear power plans, making the family’s acquisition of a uranium mine look like an expensive gamble that might well not pay off. Gordhan also forced SA Airways to honour an existing aircraft leasing deal with French company Airbus.
This latest move will do nothing to ease simmering tensions between him and Zuma, whose government appears obliged to help the family’s businesses using state-owned enterprises, presumably because of Duduzane’s involvement with them.
Gordhan’s statement on Wednesday hinted at the motives and timing of December’s axing of Nhlanhla Nene from the Finance Ministry.
“Denel submitted its application in terms of section 54(2) on December 10, 2015. However, prior to Denel submitting its application, National Treasury had outlined the information that would be required to comprehensively assess the application. The minister of finance is still considering this application, and further information has been requested from Denel,” it said.
Zuma removed Nene on the night of December 9, by means of an after-hours media statement. He was replaced by little-known back-bencher, and alleged Gupta pick, Des van Rooyen.
Denel submitted its application for approval the very next morning, seemingly expecting quick acquiescence from the new minister.
A political backlash coupled with a financial markets meltdown brought a quick end to Van Rooyen’s tenure. He was replaced by Gordhan four days later. Given what the National Treasury is now saying about the status of the deal, this was before he could sign off on the Gupta deal.
But this didn’t stop Denel, now under the control of a new board and with its top executive management suspended, from announcing the establishment of Denel Asia as a done deal in January.
The controversial transaction is said to be behind the suspension of Denel’s top three executives – chief executive Riaz Salojee, chief financial officer Fikile Mhlonto and company secretary Elizabeth Africa.
Independent Media has learnt that the board has made several offers of settlement to the three executives, which have so far all been rejected.
It is understood the three executives are demanding that they be reinstated to their positions and that Denel issue an apology.
Denel has refused to divulge details of the charges faced by the three executives and the status of disciplinary processes against them.
The company has also not answered questions posed by Independent Media about whether it has made settlement offers to the executives.
“The investigation of the three senior officials has not been finalised yet. No other details can be provided as that might compromise the process,” said company spokeswoman Vuyelwa Qinga.