Hitachi now in AfDB's sights

Controversy over kickbacks paid to Chancellor House by the engineering multinational surfaced this week. (Madelene Cronjé)

Controversy over kickbacks paid to Chancellor House by the engineering multinational surfaced this week. (Madelene Cronjé)

Hitachi, the engineering multinational fined a quarter of a billion rand for kickbacks to ANC funding front Chancellor House, now faces being fined by the African Development Bank (AfDB) and may be barred from tenders.

On Monday the United States Securities and Exchange Commission (SEC) charged Hitachi for violating the Foreign Corrupt Practices Act regarding large dividend and “success fee” payments to Chancellor House.

The Mail & Guardian first exposed Chancellor House’s funding relationship with the ANC in 2006 in a joint study with the Institute of Security Studies and Idasa.

The article said the ANC became “both player and referee” when Chancellor House tendered for state opportunities, and highlighted its 25% shareholding in Hitachi Power Africa, a local Hitachi subsidiary.

A year later, the M&G revealed that Chancellor House would benefit from Eskom’s R20-billion contract for boilers at Medupi power station awarded to a Hitachi consortium. A follow-up exposed how Valli Moosa, then chair of Eskom, had presided over the Medupi tender award and its subsequent doubling up to Kusile power station while also serving on the ANC’s national executive and its finance committee.

Lawrence Mushwana, then the public protector, confirmed Moosa’s conflict of interests, but reported he could find no improper influence in the tender process. This insistence was undermined by Monday’s SEC charges, which Hitachi agreed to settle by paying a $19-million fine.

Although Hitachi did not admit guilt when it instantly settled the SEC charge by paying a $19-million (R263-million) fine, the evidence is damning.

‘Success fees’
Apart from $5-million in dividend payments, the SEC showed Hitachi paid Chancellor House disguised “success fees” of $1.1-million in 2008 for helping land the Medupi and Kusile contracts.

The SEC said its investigation was done with the AfDB, which loaned Eskom $2.6-billion to fund contracts, such as Hitachi’s at Medupi.

An AfDB official, who asked not to be named, told amaBhungane that the bank was “pursuing proceedings separate from the SEC” against Hitachi, but did not say when an outcome may be expected.

The bank is contractually empowered to investigate and sanction contractors in the projects it finances.
It can impose fines and bar offenders from further tenders it finances. It also has a “cross-debarment” agreement with the World Bank and other development financiers, which may lead them to bar Hitachi too.

The official said the joint investigation with the SEC signalled “hopefully a growing trend of co-operation” between national enforcement agencies and development financiers, because it increased chances of success. With Hitachi, the SEC did not have jurisdiction to investigate in South Africa, but the AfDB did.

The SEC fine and AfDB’s potential sanctions against Hitachi are likely to send a strong signal to international contractors that giving stakes to party funding vehicles when they seek state tenders will be regarded as corrupt under increasingly tough international anti-bribery laws.

‘Balance of political power’
Last month, amaBhungane unveiled Chancellor House’s stake in Colenso Power, a private power producer mounting an R18-billion bid to supply electricity to Eskom.

The SEC said Hitachi was aware that Chancellor House was a funding vehicle for the ANC during the bidding process. “Hitachi nevertheless continued to partner with Chancellor and encourage Chancellor’s use of its political influence to help obtain the government contracts.”

The SEC alleged Chancellor House “networked to help schedule meetings with government officials and lobbied on behalf of” Hitachi during the bid. A Hitachi memorandum weeks before Eskom awarded the Medupi boiler contract to it in October 2007 was optimistic because the “balance of political power” in the Eskom board was “ANC driven” and “currently in our favour”.

ANC treasurer general Zweli Mkhize said in a statement this week that the ANC was “not involved in the transaction between Hitachi and Chancellor House, nor do we have any information on any impropriety relating to the award of the Medupi or Kusile contracts to Hitachi”.

This week Moosa said he’d “left no stone unturned” to ensure fair tenders for the power stations by commissioning Deloitte to review procurement processes. “At that time I was chairman of Eskom but at the same time in the leadership of the ANC and I had to be absolutely certain there was no political influence.”

Deloitte’s remit included whether Eskom officials were conflicted. Although its reports have never been made public, it appears the consulting firm failed to see the elephant in the room – that Moosa did not recuse himself despite his conflict.

Moosa said the “real question” was lack of transparency in political funding – “an unfinished part … of our otherwise great Constitution”.

See “Hitachi fine won’t lighten the darkness”

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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.

Stefaans Brümmer

Stefaans Brümmer

Stefaans is an old hand at investigations. A politics and journalism graduate, he cut his reporting teeth at the Cape Argus in the tumultuous early 1990s; then joined the Mail & Guardian as democracy dawned in April 1994. For the next 16 years (a late-1990s diversion into television and freelancing apart), the M&G was his journalistic home and launch pad for award-winning investigations focusing on the nexus between politics and money. Stefaans has co-authored exposés including Oilgate, the Selebi affair, Chancellor House and significant breaks in the arms deal scandal. Stefaans and Sam Sole co-founded amaBhungane in 2010. He divides his time between the demands of media bureaucracy (which he detests), coaching members of the amaBhungane team, and his first love, digging for dung.
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