The Telegraph
Since 1st March, 1999
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George arms deal under scrutiny

April 19: Defence minister Pranab Mukherjee has sought information on a deal struck under his predecessor George Fernandes with the South African firm, Denel, after investigators in Johannesburg began a probe into whether the company paid a British agent to influence a decision to buy weapons for Indian infantry units.

Mukherjee said he had sought details of the contract and the negotiations to buy anti-materiel guns from Denel even as the National Democratic Alliance rallied to Fernandes's defence in Parliament on an affidavit filed by the government on Kargil purchases.

'I am aware of reports that there is an investigation. I have asked for more information. We will decide what action to take after receiving that information,' he said.

The Indian defence establishment has had warm ties with Denel, which rushed supplies of 155mm shells for the army's Bofors guns during the Kargil war. It is also in the race to bag a multi-million dollar contract to transfer knowhow and jointly produce artillery shells at an ordnance factory Fernandes was keen on establishing at Nalanda.

In September 2003, the cabinet committee on security cleared a nearly Rs 3,500-crore infantry modernisation programme. Among the equipment cleared were 1,500 anti-materiel guns with more than four lakh rounds of ammunition worth Rs 300 crore. The government was also negotiating anti-materiel guns ' to be used for busting bunkers in which militants in Kashmir took shelter ' with Israel.

Mukherjee said he had sought information on the deal after a South African anti-corruption unit, nicknamed the Scorpions, began an investigation into why the weapons company had paid a British firm of agents, Varas Associates Inc, registered on the Isle of Man, $ 36,59,395.

A source speaking to the Scorpions alleged that Varas traded on its influence with the Indian price negotiating committee that was recommending the contract.

The Saturday Star newspaper in South Africa was given a document purporting to be the secret minutes of a price negotiation committee meeting on May 23, 2003 'to procure 200 anti-materiel rifles & 1 lakh (100,000) rounds of ammunition with TOT (transfer of technology)'.

The minutes, the Denel source claimed, had been provided by Varas to Denel, as part of its 'consulting and technical services' for Denel's rifle project.

The source claimed that the provision of the minutes by Varas to Denel in exchange for payment was corrupt because it enabled Denel to know what deal the committee would settle for and gave the South Africans an unfair advantage.

The minutes could not have passed into Varas's hands had someone on the committee not leaked them.

The representative of Denel in India, John Peltz, dismissed the allegation that Denel hired an agent to win the Indian deal. 'Why would we deal with Varas' That is not how the system works. It is ridiculous. The Indian procurement system is very clear. It was a government-to-government deal.'

Peltz also said that since the panel had met the Denel representative, the company was aware of the contract.

But signed documents from the Denel treasury purport to show that Denel paid Varas $2,408,373 and $1,099,672 on January 27 in 2003 and $151,350 on June 19 of the same year.

One of the invoices dated December 8, 2002, allegedly relates to the arms deal with India, giving as a reference 'project - AM2 & AM3', which an insider said was the contract for the Denel-produced rifle.

This source alleged that Varas was paid a 12.75 per cent commission on all deals it secured for Denel.

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