New queries have emerged about industrial offset promises linked to South Africa’s multibillion-rand arms procurement package.
A response to a parliamentary question by Democratic Party MP Raenette Taaljard shows that of 15 proposed offset projects that have been withdrawn, 12 were proposals by BAe/Saab. It was BAe/Saab’s industrial offset proposals that resulted in the selection of the more expensive British Hawk trainer over its cheaper Italian rival — the MB339 that was favoured by the air force.
The withdrawal of such a high proportion of BAe/Saab offset proposals calls into question the quality of the initial adjudication process, particularly in relation to BAe/Saab.
Although the Department of Trade and Industry claimed the withdrawal of the projects and their substitution with new proposals was necessitated by changed market conditions, the department failed to respond to questions about how these had affected specific projects.
The reply to Taaljard’s question also revealed that the department is claiming the proposed new aluminium smelter at Coega (the controversial port complex being developed near Port Elizabeth) as a new industrial offset project.
Questions from the Mail&Guardian to the department about how this project could qualify as part of the arms offset obligations have gone unanswered.
The aluminium smelter is as yet only under consideration by French Aluminium giant Pechiney, which is demanding further “incentives” from the government before making a final decision on whether to site the plant at Coega or in Australia.
Pechiney has already indicated it will expect large electricity discounts from Eskom and will likely also be offered bulk water discounts.
Pechiney has also demanded that local investors — such as the Industrial Development Corporation — carry 50% of the $1,6-billion investment costs.
As reported previously in the M&G, even a small investment in the smelter by one of the foreign companies involved in the arms deal will allow them to claim the full value of the investment against their investment obligations, provided they can argue that they “facilitated” the investment.
Likewise, the arms company will be able to claim the value of aluminium exports against their export obligations, should the project go ahead.
According to University of Port Elizabeth Professor of economics Stephen Hosking, the department’s rules even allow investors to trade their offset credits. Thus Pechiney, which has nothing to do with the arms deal, can sell the investment and export credits the smelter would generate.
The rules even allow double-dipping. For example, Saab is claiming arms offset export credits based on motor vehicle components it is now sourcing in South Africa. It is also claiming the same export credits under the Motor Industry Development Programme rules, which then allows it to import fully built cars from Sweden without attracting import tariffs.
It even appears possible there will be a range of takers for the Pechiney “offsets”, not only arising from the arms deal obligations.
Airbus has already indicated it will want a piece of the Pechiney pie, to help make up its own offset obligation, which arose from the purchase of South African Airways’s new multibillion-dollar Airbus fleet.
Given the low worldwide price of aluminium, the viability of the smelter itself has been called into question — without huge subsidies by South African taxpayers, including tax holidays and subsidised infrastructure, energy and financing.
In a new book, Hosking and colleague Patrick Bond warn that Coega — and specifically an aluminium smelter — will carry heavy environmental costs.
“Environmentally, the costs of the Coega projects in water consumption, air pollution, electricity usage and marine impacts are potentially immense. The scale of the pro-corporate infrastructure to be constructed by the state from scratch is nearly unprecedented in Africa. Many other long-standing environmental concerns remain unaddressed. At a time global warming is under investigation, the proposed aluminium smelter would be a brutal attack on the world’s environment.”