South Africa offers to waive arbitration penalties to remove Denel off blacklist

South African defence manufacturer Denel has offered to waive off close to $100 million it won from arbitration against India if New Delhi were to remove it from the defence ministry’s blacklist.

State-run Denel’s offer has come after the Central Bureau of Investigation filed a closure report on corruption cases against the company. The company has also received favourable court orders in other related matters. A Denel team was in India recently for discussions after South African President Cyril Ramaphosa raised the matter with the government in the run-up to PM Modi’s visit to South Africa for the BRICS Summit.

ET has gathered that the conversations have progressed well and details are being worked for a mutually acceptable solution. When contacted, Denel said it was not in a position to comment until bilateral discussions were completed.

The South African firm was stopped from doing business with India in 2005 on alleged corruption practices and has been unable to restart work in the lucrative arms market here, despite being cleared of all charges.

Contrary to reports that the firm has been taken off the blacklist after it was cleared of all charges by CBI, the defence ministry still lists it under the ‘put on hold/suspended firms’ category.

In fact, Denel is listed first among 14 companies in this official list that was last updated in February this year.

Sources said the company, which manufactures diverse products from artillery guns to ammunition and unmanned aerial vehicles, continues to be suspended due to legal cases that date back from the time it was put on the blacklist. After the suspension of operations, all ongoing contracts with Indian defence ministry entities had been cancelled, leading to litigation and arbitration that has gone on.

The company’s flailing fortunes became a political controversy in the South African elections against former president Thabo Mbeki.

President Ramaphosa is keen to recast and revive the company.

The South African entity, which also has joint ventures with debarred firm Rheinmetall, has been keen for a return to the Indian market after the government opened doors for partnerships with private sector companies for major manufacturing projects. Several rounds of meetings have been held with the private sector over the past two years and Denel even participated in the 2016 Defence Expo in Goa. Of particular interest to the company have been major upcoming orders for ammunition supplies to the armed forces for a 10-year fixed-term contract in which Indian companies have responded.

The company’s troubles in India started in 2005, after the defence ministry put all contracts with it on hold.

The official notification said that the order was passed ‘in view of news reports in some sections of electronic and print media regarding alleged payment of commission by the vendor’.

It named two contracts that the firm had signed in India, a Rs 78-crore deal for procurement of 400 anti-material rifles and a Rs 66-crore transfer of technology contract for the same with the Ordnance Factory Board.

Manu Pubby

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