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23 Apr 2010 00:00
Chancellor House. (Jacques Nelles)
Engineering multinational Hitachi Power Africa (HPA) fudged key issues this week in a media blitz intended to extricate it from the row over ANC business front Chancellor House.
The controversy around Chancellor House –
first exposed by the Mail & Guardian and the Institute for Security Studies in 2006 – intensified following concerns this year that the ANC would benefit from Eskom’s electricity price hikes through Chancellor, which owns 25% of HPA.
HPA and its parent, Hitachi Power Europe, jointly won contracts worth R38,5-billion in 2007 to supply Eskom with power station boilers.
The ANC stood to gain from state contracts by being both player and referee. Some estimates put the party’s potential profit from the Eskom contracts as high as R1-billion.
This week HPA went on a media campaign, claiming:
amaBhungane investigation raises serious doubts about each claim.
Dividend less than R50m?HPA calculated Chancellor’s post-tax profit based on a total contract price of R38,5-billion, of which 60%, or R23,1-billion, is attributable to HPA rather than its European counterpart.
Of this, HPA said, between 1% and 3% would be profit, of which Chancellor would get 25% in line with its shareholding in HPA.
This should have resulted in a post-tax figure of between R38-million and R113-million – meaning HPA’s “less than R50-million” figure was highly conservative.
But the true figure may be much higher.
AmaBhungane recalculated (see calculations below) Chancellor’s post-tax dividend using a profit range of 1% to 8% and adding 20% for escalation since 2007, when the contracts were signed. This results in a post-tax dividend for Chancellor ranging between R45-million and a whopping R363-million.
In an interview HPA chief executive Johannes Musel confirmed that his company had not factored in escalation, but dismissed the 5% to 8% profit margin as “speculation — absolutely not true”. He said fierce competition during the bidding process and the scale – Eskom ordered 12 boilers for two power stations – meant lower margins.
Critics point out that there were only two bidders. This and an overheated market in 2007 resulted in Eskom contracting at much higher prices than was the case similar projects elsewhere in the world – implying a higher, not lower, profit margin.
Ring-fenced?Chancellor House Holdings, which owns the stake in HPA, is owned in turn by the Chancellor House Trust.
Although the intention - revealed by the
M&G in 2006 - was for the trust to benefit only the ANC, this was not committed to writing. The deed vaguely defined beneficiaries as “any group of or individual black people — and/or any institution, organisation or entity representing the interests of such persons, that promotes and advances the development, research and protection of the heritage of the struggle of black people”.
HPA said this week that it “recently” succeeded in having Chancellor amend the trust deed to add a “category B” of beneficiaries, including black persons but no organisations.
The amendment also specifies that Hitachi dividends can flow to this category of beneficiaries only – a ring-fencing mechanism to exclude the ANC and other organisations.
But asked whether the amendment meant the ANC could not benefit, Chancellor House Holdings board chairperson Hermanus Loots said: “I’m not so sure of the amendment you talk about. I haven’t seen it, I’m not aware of it, but clearly it cannot mean that.”
Loots insisted that the Chancellor House Holdings board and “nobody else” makes decisions about donations. “It may go to some of the institutions, like Aids orphans and so on, it may also go to the ANC, it may also go to Madam Helen Zille.”
Loots’s comments raise the possibility that the company’s practice is to make donations directly, rather than through the trust.
As Hitachi’s amendments appear to apply to the trust only, the Eskom profits may still go to the ANC – which may explain why ANC secretary general Gwede Mantashe has fought bitterly to prevent Chancellor divesting from the HPA.
Musel conceded on Thursday that there may be a loophole, promising to “do an investigation and make sure that we close the loop”.
Who knew when?On Tuesday HPA financial director Robin Duff claimed that when HPA was formed at the end of 2005, with Chancellor as stakeholder, a due diligence did not reveal a link to the ANC because the trust deed specifying “classes of black people and black entities supporting the struggle” did not indicate the ANC’s involvement.
Musel reportedly said: “We did not know it was an ANC front company. We found out only in 2007 from the press when then ANC secretary general [Kgalema Motlanthe] responded to a journalist’s question about Chancellor House.”
Motlanthe confirmed in January 2007, following the
M&G‘s November 2006 exposé, that Chancellor was an “ANC vehicle”.
But Duff’s knowledge may stretch much further back. The
M&G spoke to him at least twice in 2006 - far from denying that he was aware of the link, he simply “preferred not to comment”.
Hitachi Power Africa’s calculation
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