ARMAMENTS CORPORATION OF SOUTH AFRICA, LIMITED BILL

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ARMAMENTS CORPORATION OF SOUTH AFRICA, LIMITED
BILL
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SELECT COMMITTEE ON SECURITY AND CONSTITUTIONAL
AFFAIRS

• WEDNESDAY,
• 08 OCTOBER 2003

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Scope of Presentation

• Changes to the strategic environment
  necessitating a review of the existing Act.
• Process to draft the proposed Bill.
• Summary of Object and Functions of the existing
  Act.
• Summary of pronouncements envisaged in the
  proposed Bill.

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CHANGES TO THE STRATEGIC ENVIRONMENT

• (ISSUES NECESSITATING A REVIEW OF THE EXISTING
  ACT)

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Changes to the Environment

• The shift of the production capabilities of
  Armscor to the new public entity Denel in 1992.
• The shift in Arms Control responsibility to the
  National Conventional Arms Control Committee in
  1995.

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• The establishment of the Defence Secretariat in
  1995 with a dedicated Division to deal with
  defence acquisition.
• The call in 1999 as contained in the White Paper
  on the Defence-Related Industry for a review of
  the Armaments Development a Production Act.

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PROCESS TO DRAFT THE PROPOSED BILL
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Committee Members

• Armscor
• Department of Defence (various divisions)
• Department of Public Enterprises (represented by
  Denel Legal Division)
• Department of Foreign Affairs
• Department of Trade and Industry
• The National Treasury
• South African Aerospace, Maritime Defence
  Industries Association
• Conventional Arms Control
• CCR (UCT)

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Specialist Consultation

• The Auditor-General
• The Accountant-General
• The State Tender Board
• The Institute of Government Auditors
• National Treasury (State Assets Public Entities)

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Scheduling of Armscor within the Context of the
PFMA

• Armscor currently listed as a Schedule 2 National
  Public Entity.
• Study jointly commissioned by the Ministers of
  Defence and Finance to investigate and verify the
  scheduling of Armscor.
• Ministers accepted recommendation to re-schedule
  Armscor as a Schedule 3 Part B National
  Government Business Enterprise.
• PFMA Amendment Bill to include re-scheduling of
  Armscor.

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THE PRONOUNCEMENTS OF THE EXISTING ACT

• (ARMAMENTS DEVELOPMENT AND PRODUCTION ACT)
• (Act No. 57 of 1968)

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Current Objective of Armscor

• To meet the armaments
• requirements of the
• Republic, including
• armaments required
• for export

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Current Powers Functions

• To take over and expand any undertaking of the
  Armaments Board for the manufacture of armaments.
• To promote or assist in the promotion of
  companies.
• To lend or advance money to a person or company.
• To provide or underwrite or otherwise to assist
  in the subscription of capital for such company.
• To acquire an interest in any company.
• To obtain or establish facilities.
• To investigate or research the manufacture,
  maintenance, testing, inspection or development
  of armaments.

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• To promote and co-ordinate the development,
  manufacture, standardization, maintenance,
  acquisition or supply of armaments.
• To collaborate with, assist, render services to,
  or utilize the services of, any person, body or
  institution or any Department of State.
• To acquire, modify, test, inspect, lease, dispose
  of, lend or let armaments.
• To enter into contracts for the manufacture,
  modification, maintenance, testing or inspection
  of armaments.

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• To enter into contracts with persons in the
  Republic or elsewhere for the supply or rendering
  of armaments and/or services.
• To advise the Minister on any matter relating to
  armaments.
• To stock-pile strategic raw matériels, matériels
  and components for the manufacture of armaments.
• To collaborate with any educational, scientific
  or other body or institution in connection with
  training of persons for professional or technical
  services.

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• On its own account, or as a representative of
  another person
• To develop, manufacture, service, repair and
  maintain armament.
• To buy, sell, import or export and, to promote
  the sale of, armaments.
• To export armaments.
• To exercise control over Armaments with respect
  to
• Development.
• Manufacture.
• Acquisition.
• Supply.
• Export.
• Marketing.

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SUMMARY OF THE PROPOSED ARMSCOR BILL(Synopsis
of Key Policy Tenets)
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Continued Existence of the Corporation

• The Armaments Corporation of South Africa,
  Limited (Armscor) continues to exist under that
  name despite the repeal of the Armaments
  Development and Production Act.
• State remains sole shareholder of the
  Corporation.
• The Minister shall exercise the powers of
  ownership control over the Corporation on behalf
  of the State.

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• Status of the Corporation
• The Corporation is a juristic person capable of
  suing and being sued.
• The Corporation may
• Purchase acquire, hold or alienate property,
  moveable or immovable.
• Performs acts as are necessary for the carrying
  out its objects and performing its function.
• It is a punishable offence for other persons to
  conduct business using Armscors name. (Fine or
  imprisonment not exceeding five years or both).

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Objectives of Corporation

• To meet the defence matériel requirements of the
  Department effectively, efficiently and
  economically.
• To meet the defence technology, research,
  development, analysis, test and evaluation
  requirements of the Department effectively,
  efficiently and economically.
• GAAP applies.
• Emphasis is placed on efficiency, effectiveness
  and economy, as well as legality, fairness and
  transparency.

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Functions of the Corporation

• The Corporation Must!
• Acquire defence matériel for the Department.
• Manage technology projects required by the
  Department.
• Establish a programme management system for
  acquisition and technology processes.
• Provide a quality assurance capability in support
  of acquisition and technology processes and any
  other services.
• Establish a system for tender and contract
  management for defence matériel and if so
  required, commercial matériel.
• Dispose of defence matériel in consultation with
  the original manufacturer.

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Functions (cont.)

• Establish a compliance administration system for
  the Department as required by international law
  and domestic legislation.
• Support maintain such strategically and
  essential defence industrial capabilities,
  resources technologies as may be instructed by
  the Department.
• Provide Defence Operational Research.
• Establish a defence industrial participation
  programme management system.
• Provide marketing support to defence-related
  industries in respect of defence matériel in
  consultation with the Department and the
  industry.
• Manage facilities identified as strategic by the
  Department in a service level agreement.

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Functions (cont.)

• Maintain such special capabilities and facilities
  as are regarded by the Corporation to not be
  commercially viable, but which may be required by
  the Department for security or strategic reasons.

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Functions (cont.)

• The Corporation may, with the approval of the
  Minister!
• Exploit such commercial opportunities as may
  arise out of the Corporations duty to acquire
  defence material or manage technology projects.
• Procure commercial material on behalf of any
  organ of State at the request of the organ of
  State in question.
• Subject to domestic arms control legislation,
  perform any function which the Corporation may
  perform for or on behalf of any sovereign State.
• Minister may impose conditions thereto.

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Service Level Agreements

• The Corporation must enter into a service level
  agreement with-
• The Department in respect of any function
  contemplated in section 4.
• Any other organ of State on whose behalf the
  corporation procures commercial material.
• Any foreign State in respect of any function
  contemplated in section 4(3)(a)(iii).
• These are concluded between the Board (Accounting
  Authority) and the Accounting Officer or
  Accounting Authority of that Department, organ of
  State, or foreign State.
• The contents of the agreement are specified.

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Board of Directors

• The Board shall manage and control the affairs of
  the Corporation.
• 9 x Non-executive Directors
• (appointed by the Minister)
• (1 x Chairperson 1 x Deputy Chairperson)
• 2 x Executive directors -
• CEO.
• CFO.
• 2 x Ex Officio members -
• Secretary for Defence.
• Chief of the SANDF.
• The Board is the Accounting Authority of the
  Corporation.

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Board (cont.)

• Non-executive members appointed by Minister on
  grounds of knowledge and experience which, when
  considered collectively, should enable them to
  achieve the objectives of the Corporation.
• Members of National Assembly, NCOP, Provincial
  Legislatures or Municipal Councils are excluded
  from membership.
• Persons appointed ito section 1 or 12A of the PSA
  are excluded from membership.
• A non-executive member holds office 3 years.
• May be re-appointed for 1 further term.
• Resignation period is 1 month.
• A member must vacate office if
• He or she resigns.

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Board (cont.)

• Services are terminated by the Minister on good
  causes shown.
• Becomes a member of the National Assembly, NCOP,
  a Provincial Legislatures or a Municipal Council.
• Non-executive members are paid out of the funds
  of the Corporation such remuneration as the
  Minister after consultation with the Minister of
  Finance, may determine.
• Various matters relating to meetings are
  prescribed.

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Employees

• The CEO is appointed by the Board, after
  consultation with the Minister, for
• The day-to-day management of the Corporation.
• Administrative control over employees.
• The CFO is appointed by the CEO, after
  consultation with the Board.
• Subject to written policies and procedures of the
  Corporation, the CEO may appoint employees as are
  required to perform the functions of the
  Corporation.
• Conditions of service, including remuneration,
  allowances, subsidies and other service benefits
  must be determined by the Board.

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Committees

• An Audit Committee must be established.
• Any other committee may be established.

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Conflict of Interest

• Members of the Board and Employees are required
  to disclose any direct or indirect interest that
  they, their spouse, partner, or family member may
  have in relation to any acquisition or
  procurement activity of the Corporation.
• Member of the Board or Employee is required to
  withdraw from that activity, unless the Board/CEO
  decides the interest is trivial or irrelevant.
• Persons found guilty of an offence may be liable
  to a fine or to imprisonment not exceeding 15
  years or to both a fine and such imprisonment.

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Financial Matters

• Funds of the Corporation. The funds of the
  Corporation shall, subject to the PFMA, consist
  of
• Share capital of Armscor as determined by the
  Minister in consultation with the Minister of
  Finance.
• Money appropriated by Parliament.
• Revenue, including interest derived from
  investments.
• Moneys raised or borrowed by the Corporation.
• Moneys obtained from such other sources as may be
  consistent with the objectives and functions of
  the Corporation.
• The Corporation may establish reserves and may
  invest money to the advantage of the Corporation.
• Income or revenue derived from the Corporations
  assets, interest on moneys and services rendered
  by it must be included in the projected annual
  budget and corporate plan.

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Audit Matters

• The annual financial statements of the
  Corporation must be audited annually by external
  auditors appointed in terms of the PFMA.
• The Corporation must allow any internal auditor
  of the Department access to all documentation
  pertaining to a service level agreement between
  the Corporation and the Department.

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System for Evaluating Acquisitions

• Corporation must provide the Secretary for
  Defence with a system to evaluate all defence
  material acquisitions, prior to a decision being
  made on such an acquisition PFMA 38(1)(a)(iii).
• The system must
• be fair, equitable, transparent, competitive and
  cost-effective comply with national
  legislation, and,
• And be supported by a tender and contract
  management system.

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Regulations Delegations

• Regulations.
• The Minister may make regulations or issue
  instructions regarding any matter in order to
  give effect to the Act.
• Regulations resulting in state expenditure must
  be made with the concurrence of the Minister of
  Finance.
• Delegations.
• The Board may delegate any of its powers (in
  writing) to an official of the Corporation or a
  committee established in terms of the Act.
• The Board may assign any employee or committee to
  perform any of its duties.
• Delegations are subject to limitations which the
  Board may impose
• Delegations do not divest the Board of its
  responsibility.
• Board may confirm, vary or revoke any decision
  taken by a delegatee.

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Miscellaneous Provisions

• Safeguarding of Information, Records, Property
  and Premises.
• The Corporation may take such measures necessary
  for the effective protection or safeguarding of
  information,records and property belonging to the
  Corporation or any premises upon which any
  activity of the Corporation is being performed.
• Subsidiaries.
• The Corporation may, subject to the PFMA, and
  with the approval of the Minister, form wholly
  owned subsidiaries.
• The Corporation may only dispose of a subsidiary
  with the approval of the Minister.

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• Intellectual Property.
• Intellectual property owned by the Department
  shall be held in the custody of the Corporation.
• The Corporation must manage and utilise such
  intellectual property acquired for and on behalf
  of the Department as directed by the Secretary
  for Defence in a service level agreement.
• Transitional Provisions.
• The existing Board of Directors remains in
  Office, and the Chairperson and Deputy
  Chairperson retain these positions.
• Employees remain in employ of the Corporation
  under their existing employment agreements.

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• Repeal of Laws.
• The Armaments Development and Production Act ,
  1968 (Act No 57 of 1968) is repealed.
• Detail is contained in the Schedule to the Act.
• Short Title Commencement.
• Armaments Corporation of South Africa, Limited,
  Act, 2003.
• Comes onto operation on a date fixed by the
  President by proclamation in the Government
  Gazette.

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Thank You! Any Questions?