Denel’s Hoefyster Project Near Cancellation
The acting group had announced in Summer 2021 that the company is technically insolvent and is running on an R360 million budget deficit stating that Denel had been unable to trade efficiently since Covid-19 started.
This was revealed during a presentation by Armscor to the Portfolio Committee on Defence and Military Veterans on Wednesday. Armscor noted that Project Hoefyster was scheduled to acquire 264 Badger vehicles in five primary varieties to replace the Ratel fleet: Command, Missile, Section, Fire Support, and Mortar. Hoefyster, on the other hand, is over a decade late, with no vehicles delivered to the SA Army.
But this was coming and was seen before. Back in October 2020, Denel board chairperson Monhla Hlahla had said that the Hoefyster project is the biggest threat to Denel’s financial stability. Hlahla made this remark at the Portfolio Committee on Public Enterprises on Denel’s Funding and Governance Challenges.
The Hoefyster Project originally consisted of five combat variations, including logistic support and ammunition. Four further variants were added when the Armaments Acquisition Council (AAC) approved an acquisition plan on February 13, 2013. The following clearance to enhance advance payments, the number of combat vehicles was increased from 238 to 244. Patria brought 21 vehicle platforms from Finland, while the remaining vehicle platforms were planned to be manufactured locally by Denel Land Systems (DLS) and its sub-contractors.
To date, R7.6 billion has been spent on the Project, and Armscor values it at R16.2 billion after accounting for VAT, escalation, and other expenditures. The first phase, design and development, has cost R1.5 billion, while the second phase, industrialisation, has cost R5 billion. Denel did not get all of the project money since other firms, such as Reutech, received R600 million for communications equipment.
Denel and Armscor have negotiated several scenarios, including extending deliveries to 2026 and waiving R500 million in penalties, but the DoD is seeking an alternative contractor to work with Denel or replace it to complete the Section variant. Denel has not specified its position to complete the remaining work. Armscor recommends the contract with Denel be cancelled.
If the contract is cancelled, funds from the Hoefyster contract could be redirected to Ratel vehicles. These funds would be made up of bank guarantees and R1.9 billion commitments for the current fiscal year.
According to Armscor, Hoefyster items worth R1.2 billion could be sold, including 28 CamGuns, 15 Badger vehicles delivered by Patria, 58 training simulators, and supplies of 30173 mm CamGun ammunition.