Cape Town – The African Development Bank Group (AfDB) on Wednesday announced that it had concluded a settlement agreement with Japanese power company Hitachi over the awarding of the Medupi contract.
The AfDB, one of Medupi's funders, said the deal follows a three-year investigation into allegations of sanctionable practices by Hitachi subsidiaries Hitachi Power Europe and Hitachi Power Africa on the Medupi power station boiler works contract.
Eskom awarded the Medupi contract to the consortium of HPE and HPA in October 2007. The contract was for the design, manufacture, supply, erection and commissioning of six coal-fired steam generator units at its Medupi plant at Lephalale in Limpopo Province.
In terms of the settlement Hitachi voluntarily agreed to make a “substantial” financial contribution to the AfDB, which will be used to fund worthy anti-corruption causes on the African continent.
This follows a report on September 28 that, without admitting or denying the allegations, Hitachi agreed to pay the US Securities and Exchange Commission (SEC) $19m (R272m at the current exchange rate) to settle its case into the matter.
Following its probe, the SEC made damning allegations against HPA and the ANC's investment arm Chancellor House, which include Hitachi’s efforts to get favours during the adjudication of Eskom tenders.
The SEC alleged that Hitachi sold a 25% interest to Chancellor House in the late 2000s to land the lucrative contracts at Eskom’s Medupi and Kusile power stations. Hitachi was awarded tenders worth approximately US$5.6m (R80.5m), earning Chancellor House $1m (R14.37m) in “success fees”.
In addition to the "success fees", Chancellor House also received $5m in dividends on the project profits.
Under public pressure, in 2014 Hitachi bought back the 25% stake in HPA from Chancellor House.
On Wednesday, the AfDB’s Integrity and Anti-Corruption Department (IACD) alleged that HPE, based in Germany, and its South African subsidiary HPA had engaged in sanctionable practices in order to be awarded the Medupi boiler works contract.
The IACD said that because of the high level of assistance provided by Hitachi, the AfDB has agreed to impose the sanction of debarment for 12 months with conditional release upon HPE and HPA.
“The sanctions imposed under the settlement agreement reflect the level of cooperation provided by Hitachi in the investigation of the Medupi matter, for which the IACD is grateful,” said Anna Bossman, director of the IACD.
Debarment will be terminated as soon as Hitachi enhances its integrity compliance programme to the standard set by the AfDB’s Integrity Compliance Guidelines, the bank said.
Hitachi will also co-operate with the IACD on a variety of matters, including enhancing where necessary its existing integrity compliance programme referenced above.
In October, the World Bank said its own investigation into the matter has found that none of its funds were put at risk by the Hitachi contract for Eskom's Medupi project.