Treasury 'taking Denel to court' to halt Gupta deal

A showdown is looming between the National Treasury and state weapons maker Denel over its dubious partnership with the Gupta-linked arms firm VR Laser Asia.

VR Laser Asia's sole shareholder is Gupta business partner Salim Essa. Its parent firm in South Africa is owned by Essa, the Guptas and President Jacob Zuma's son Duduzane.

Two independent government sources confirmed this week that the Treasury was planning to go to court to halt the deal.

"Treasury's lawyers are going after them - they've already prepared papers," said one source.

block_quotes_start If they didn't deliver they should be replaced. To form a partnership like this with a service provider is outrageous. It could go on indefinitely block_quotes_end

This flies in the face of assurances this week by Denel's acting chief financial officer, Odwa Mhlwana, at the company's annual results presentation that all approvals were in place for the partnership.

Denel formed the partnership last December without the Treasury's permission, as required by the Public Finance Management Act.

Denel said it assumed it had been granted permission for the deal after receiving no response from the Treasury after 30 days.

But government sources said the timing of Denel's application to the Treasury was suspect.

It was submitted on December 10, the day Des van Rooyen was appointed finance minister.

Four days later he was replaced by Pravin Gordhan.

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"They did it just before the holidays, expecting Des van Rooyen to approve it," said one source.

"Treasury objected to the VR Laser partnership because it should have been a contract with defined deliverables and timeframes that went out to tender," he said. "If they didn't deliver they should be replaced. To form a partnership like this with a service provider is outrageous. It could go on indefinitely."

This week Mhlwana said the partnership would be the vehicle Denel used to make inroads into the lucrative Asian arms market.

However, suspended Denel CEO Riaz Saloojee previously told the Sunday Times VR Laser Asia was a "shell company" with "no foothold in the Asian market".

Saloojee, who was suspended shortly before the partnership was formed, said he would never have approved the deal. He said registering a company in Hong Kong to enter the arms market in India did not make sense.

"Logically, you would establish a company in a country where you would operate [and] that has a local footprint and expertise."

Salojee's suspension last September was widely linked to his opposition to the deal.

Neither Denel nor the Treasury responded to questions.

CORRECTION:

Sunday Times apologises to Treasury’s legal head, Rebecca Tee, for incorrectly stating that she had sent letters to Denel demanding that it dissolves a partnership with arms firm VR Laser Asia or face legal action. We retract that statement without reservation.

In a previous version of this article, we quoted a source to this effect. The story reported that Treasury had allegedly been planning to take legal action against Denel over its partnership with the Gupta-linked arms firm.

Tee justifiably complained to the Press Council that there was no truth in the statement that she had sent the letter. The Ombud supported our apology and retraction; he added it was unfortunate that Treasury did not respond to our enquiry, as that may have made a substantial difference to our reporting.