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Arms maker Denel thrown R2bn lifeline International Affairs Editor FINANCE Minister Trevor Manuel said yesterday that the government would bale out state-owned arms manufacturer Denel with a R2bn rescue package in the next few weeks. Denel, which made of a loss of R1,6bn last financial year and is coming out of technical insolvency, has asked government for a R5bn re-capitalisation package over the next five years. The remaining amount will have to be approved by cabinet on an annual basis and will depend on the parastatal meeting certain goals.

Denel's CEO Sean Liebenberg said yesterday the R2bn would help restructure the company's balance sheet, sort out loan facilities and pay for restructuring costs. It also would go towards investment in new plant and equipment, and new product development.

In its estimates of national expenditure document released yesterday the treasury said government will still have to consider various options for a long-term solution. The treasury said in its budget review document released yesterday that looking ahead, Denel still faces considerable challenges and opportunities, but is beginning to benefit from strategies started in previous years.

Significant new provision is made in the defence budget for upgrading the army's truck and fighting vehicle fleet and investment in new electronic intelligence gathering systems.

The budget includes a rise of more than 65% or R121m in an allocation for electronic intelligence collection capability intended to detect movement at sea and in the air. The budget document does not specify how the allocation for upgrading army vehicles will be spent, but the army has been considering upgrades, new trucks and a new infantry fighting vehicle to replace the Ratel.

Provision has also been made for a large scale continuation of recruitment to the defence force under the military skills development programme.

The aim of the programme is to introduce healthier and fitter youngsters to overcome the defence force's health problems associated with ageing and the high prevalence of HIV/AIDS.

More than 4300 school leavers entered the programme last month. That will bring the total strength of recruits brought into the SANDF under this programme to 11930 and increases pressure for exit packages for those whom the programme will displace.

Overall defence spending trends continue to be heavily influenced by the payment schedule for the controversial multibillion-rand arms package. However, if allocations to the arms packages are excluded, the defence department's budget will grow at an annual average rate of 7,8% from 2002-03 to 2008-09. The strengthening rand and, to a lesser extent, a rescheduling in payments due to programme delays have seen the treasury estimating that the total cost of the controversial package for corvettes, submarines, fighters and helicopters will decline to R44,8bn compared with last year's budget estimate of R45,6bn.