Hitachi Buys ANC Stake in S. Africa Unit After Criticism

Hitachi Ltd. (6501) agreed to buy the stake in Hitachi Power Africa Ltd. held by the investment arm of South Africa’s ruling party after criticism that the shareholding constituted a conflict of interest as the unit has won business from state companies.

Hitachi Power Europe Ltd. will buy the 25 percent stake from Chancellor House Holdings Ltd., the investment arm of the African National Congress, for an undisclosed amount, the South African unit of the Tokyo-based company said in a statement e-mailed to Bloomberg News yesterday. It will also buy the 5 percent held in the unit by Makotulo Investments & Services to become the sole shareholder.

“All parties have agreed strict confidentiality about the terms and conditions of the contract,” Hitachi Power Africa said in the statement.

Hitachi Power Africa won 38.5 billion rand ($3.6 billion) of contracts from state power utility Eskom Holdings SOC Ltd. to install boilers at the Medupi and Kusile power plant projects. In 2010 executives of Hitachi’s South African unit said the Chancellor House stake was a conflict of interest and ideally should be sold, following criticism from opposition parties and labor unions.

Mathews Phosa, the ANC treasurer general at the time, ordered Chancellor House to sell the stake within six weeks. That order wasn’t effected. ANC spokesman Jackson Mthembu declined to comment today, referring queries to Chancellor. Chancellor declined to comment immediately.

Power Emergency

Delays and errors by contractors including Hitachi have held up the start up of the 105 billion rand Medupi plant, Africa’s biggest power facility, by at least two years, stifling economic growth in electricity-constrained South Africa.

Eskom on Feb. 20 declared a power emergency and asked large industrial customers including ArcelorMittal, BHP Billiton Ltd. (BHP) and Glencore Xstrata Plc (GLEN) to temporarily cut usage by at least 10 percent to ease supply pressures. Domestic consumers were also asked to reduce usage.

Eskom said it found about 9,000 faulty welds in the plant’s first boiler, which will heat water into steam to drive power-generating turbines. Hitachi has completed 98 percent of its work on the boiler at the plant, the company said in November.

“This will be the first boiler of this type manufactured in South Africa in 25 years and these issues are all part of the learning curve involved in re-establishing the skill base,” Hitachi’s Chief Operating Officer Tom Brown said. “Rectification of the weld defects noted earlier in the year is now nearly finished.”

Disabled, Aged

Chancellor House stood to make 50 million rand in profit over eight years from its interest in the Hitachi unit, though this money has been “ring-fenced” for redistribution to disadvantaged black citizens such as women, youth, the disabled and the aged, Hitachi said in 2010. The company also said it couldn’t guarantee that the ANC itself will not benefit from the funds.

Hitachi allied with Chancellor House to meet requirements to boost black participation in the economy to help redress discrimination during the apartheid era.

Hitachi’s contract with Eskom was probed by the Public Protector, South Africa’s graft ombudsman, because Eskom’s chairman at the time, Valli Moosa, was a senior ANC member. While Moosa “failed to manage the conflict of interests,” Hitachi’s contract award “was not in any way affected,” the Public Protector found in an August 2008 report.

Moosa, who is now the chairman of Anglo American Platinum Ltd., said Hitachi was picked by company executives and the decision was reviewed several times before it reached him. He further requested an independent review be carried out by auditors Deloitte, who gave it the “green light”, he said in a Feb. 26 phone interview.

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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