09/06/2014. Seriti Commission. Chief government negotiator in the arms deal Jayendra Naidoo during the Arms Procurement Commission in Pretoria. Picture: Thobile Mathonsi

Johannesburg - It was a massive project, but there were some gaps in the ministers’ filing.

The government’s chief negotiator for the 1999 arms deal, Jayendra Naidoo, told the Arms Procurement Commission that “the negotiation process was conducted with great intensity and professionalism by the departments and officials participating. The result was a consensus between the government departments and ministers that an improved outcome had been secured and one which was affordable.”

Naidoo was appointed in December 1998 by then-deputy president Thabo Mbeki as the chief negotiator, shortly after the cabinet announced the preferred bidders.

He worked with a team of negotiators, who, in turn, used teams of officials and experts.

The final contracts were signed in December 1999 and the finance contracts in January 2000.

Naidoo reported to the ministers’ committee, which was a sub-committee of the cabinet that oversaw the arms deal.

He listed six meetings of that ministers’ committee and referred to presentations he had made to it.

But on Monday, commission evidence leader attorney Matshego Ramagaga told the hearings that the minutes of four of those ministers’ committee meetings could not be traced.

Naidoo described a complicated negotiating process.

“It was an enormous project, comprising altogether 30 separate major activities, almost all of which had to be conducted in parallel,” said Naidoo.

“The initial scope of the work was as follows – six sets of contract negotiations, each with a separate defence company,” he said.

Each contract had three separate sub-agreements – for equipment supply, defence offsets (DIP) and industrial offsets (NIP) – and each had a separate finance contract with an international bank. There were also negotiations with export credit agencies in the UK, Sweden, Germany and Italy.

“In addition, there was an exercise of investigating ‘affordability’, which included a macro-economic modelling analysis, and analysis of the major NIP project proposals.

“An ‘internal negotiation’ among the participating government departments on the size of the package that was deemed to be affordable also had to be managed,” he said.

They were up against “a separate well-resourced team representing either a preferred bidder or a bank on each of the 24 major contracts”.

To manage this “imbalance of resources”, the negotiators planned “careful sequencing of negotiations”.

The negotiators had to reduce the cost of the package and get “substantial and solid” offset deals after the preferred bidders had been chosen, when those bidders already felt they had won contracts so were reluctant to improve bids.

The negotiators’ bargaining leverage included the possibility of dropping some of the purchases due to affordability. The NIP offsets system was changed.

Naidoo said the initial cabinet decision in 1998 reflected offsets valued “in excess of R100 billion even though the rand value amount committed did not exceed R30 billion for DIP and NIP combined”.

The NIP system was amended, with the Department of Trade and Industry’s consent, to avoid such “exaggeration of benefits”.

The start of Monday’s hearing was delayed, and commission spokesman William Baloyi told those waiting that “there were some certain legal issues that they were trying to close the loopholes of”.

The hearings continue.

[email protected]

The Star