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  • ANC front bids for power station

    Despite party policy and an investigation, Chancellor House is again trying to cash in on state contracts.

    Despite party policy and an investigation, Chancellor House is again trying to cash in on state contracts.

Chancellor House, the ANC investment company, is poised for another bite of the Eskom cherry – at a time when corruption investigations into its previous energy play, a stake in contracts for the Medupi and Kusile power stations, are coming to a head.

AmaBhungane has confirmed that Chancellor House is a shareholder in a proposed R18-billion power project – a 1 050 megawatt (MW) coal-fired power-station project slated to be built at Colenso in the economically depressed KwaZulu-Natal Midlands.

Planning is at an advanced stage and the project is due to be submitted to the department of energy as one of the bids for a total of 2 500MW of new coal generation capacity mandated by Energy Minister Tina Joemat-Pettersson.

The first bid window closes on November 2 and the second on March 8 next year. Successful bidders will obtain a long-term power purchase agreement with Eskom, similar to the way in which the renewable independent power producer programme works.

The proposed power station, fuelled by a nearby anthracite mine, which is part of the project, would eventually consist of three 350MW units, together delivering an output of just under a quarter of Eskom’s giant but long-delayed Medupi power station.

The ANC's investment vehicle, Chancellor House, owned a 25% stake in Hitachi Power Africa, which won contracts worth more than R40-billion for work at Medupi (above) and Kusile. (Madelene Cronje)

Boiler contracts
In 2007, Hitachi Power Africa, in which Chancellor House held a 25% stake, was controversially awarded the boiler contracts for Medupi and its sister station, Kusile, each worth more than R20-billion.

Opposition parties and nongovernmental organisations regarded the contract as tainted by a conflict of interest, because the ANC, the party in government, was both a player and referee. The perception was all the more acute because Eskom’s then chairperson, Mohammed Valli Moosa, also sat on the ANC finance committee.

In 2009, the then public protector, Lawrence Mushwana, found that Moosa ought to have declared a conflict of interest arising from Chancellor House’s stake in Hitachi and ought to have recused himself from the Eskom board’s deliberations.

But Mushwana said he found no evidence of any improper influence in the awarding of the contract.

Chancellor House Holdings, named after the Johannesburg building once occupied by the law firm of Nelson Mandela and Oliver Tambo, is wholly owned by the Chancellor House Trust, whose founding trustees were senior ANC figures.

Although the trust’s objective is to promote historically disadvantaged “persons and entities”, ANC treasurer Zweli Mkhize has previously confirmed that the organisation has received donations from Chancellor House and former deputy president Kgalema Motlanthe has made no bones about it being “an investment wing” of the party.

'Unable to answer'
In March last year, at a conference on accountability in party funding, Mkhize is reported to have said that Chancellor House should not hold direct government contracts and should avoid all conflicts of interest in future.

Mkhize’s predecessor as treasurer general, Mathews Phosa, had previously also expressed similar sentiments, but the ANC appears never to have acted on their advice.

Responding to questions about the project, ANC spokesperson Zizi Kodwa said: “The ANC doesn’t run Chancellor House and is therefore unable to answer on its behalf about its commercial interest. We suggest that you contact Chancellor House directly.”

However, he said, the party wished to reaffirm the resolution of the Mangaung national conference, which recommended that “regulation of party-linked investment vehicles should be introduced to avoid conflict of interests”.

He did not explain why it had not been done.

Chancellor House managing director Mamatho Netsianda did not respond to questions, although his personal assistant confirmed he had received them.

But the man behind the Colenso project, John James, confirmed that Chancellor House was indeed a shareholder, although it was only a small stake.

'An industry of death'
James is an ebullient graduate of the University of the Witwatersrand, who quotes Scientology founder L Ron Hubbard on his website and is registered as a director of the South African chapter of the Citizens’ Commission on Human Rights, a Scientology-linked lobby group that purports to expose abuses in psychiatry, which it dubs “an industry of death”.

In the 1990s, James served as a marketing manager for Gold Fields, and later Bateman, which also has a link with Chancellor House. Chancellor House has a 10% shareholding in the engineering company Bateman Africa, now renamed Tenova.

James later went on his own into resource exploration through his Dunrose Group and says he discovered, acquired and drilled the Colenso anthracite resource, about 20km from the proposed power station.

Originally conceived as a small coal mine for export, the rolling Eskom blackouts in 2008 persuaded James to explore the possibility that its anthracite would be suitable for use in an independent coal-fired power station.

The company has pursued the idea in earnest since about 2010 and appears to have garnered some heavy­weight support.

Though James was reluctant to disclose the full shareholding and structure of the project, he confirmed that a major Chinese power-station builder, the Shandong Electric Power Construction Corporation, was on board, as was a South African bank, and that his financial advisers were Eaglestone.

Funny business
Asked about the potential political risk of having Chancellor House involved, James said they had “gone into a lot of detail” with a number of financial institutions before making the decision.

“We were concerned in the beginning, but they have been superb … They are simply a minority shareholder ... it’s absolutely impossible for there to be any funny business.”

Besides Chancellor House, Eagle­stone too appears to come with some baggage.

It is an investment bank that trades in South Africa as Eaglestone Capital Advisory and was founded in 2011 by Pedro Manuel de Castro Simões Ferreira Neto, who was a named suspect in a Portuguese arms deal scandal.

The ensuing investigation into tax fraud, money laundering and corruption associated with the controversial purchase of German submarines, supplied by Ferrostaal, was controversially abandoned in 2013, much like the South African investigation of a similar deal with Ferrostaal.

According to its website, Eagle­stone has “rapidly built a significant role in providing financial advisory services to the South African renewable energy procurement programme”.

Perhaps unsurprisingly, the Colenso power project has garnered strong support from local municipal and provincial officials and the community.

Supported development
According to the draft environ­mental impact assessment (EIA) report prepared for Colenso Power by Ecopartners, a local survey showed 96% of the respondents supported the development.

The main reasons cited were the perceived creation of business for local enterprises, jobs and infrastructure development.

Other groups are less enthusiastic about it, notably the environmental nongovernmental organisation Groundwork, which has raised several concerns about a new fossil-fuel project – and the speed with which regulatory approvals are being pushed through.

In a statement issued in response to a preliminary environmental impact study in May this year, Groundwork said: “This new plant cannot be reconciled with the national policy on climate change. Any additional energy needs should rather be supplied by renewable resources. The case for any new coal plants is increasingly tenuous, particularly when considering the external costs, such as environmental destruction.”

Groundwork said it was of critical concern that the Colenso Power project would be just 500m from the Tugela River, one of the province’s major water resources, and that it was proposing to use water from the river.

Groundwork noted that “coal-fired power stations are notoriously water intensive”.

Although the draft EIA states that an air-cooling system would be used to condense the steam used to generate electricity, it says that, when fully operational, the plant would still consume at least a million litres of water a day, mostly for ash treatment.

Unaddressed issues?
According to Groundwork, neither the quantity of water nor issues of the impact on its quality were properly addressed in the preliminary study.

“There is no evidence [provided] to support the assumption that there is any additional capacity available in the Tugela system to provide the power plant with water,” it says.

Groundwork also raises concern about the potential pollution of water resources by the mine, which would be open-cast, and from run-off from the coal stockpiling area and from the ash storage and evaporation dam.

“Acid mine drainage from mines has already reached crisis proportions in certain areas in South Africa. More water is polluted at every point in the industrial life cycle of coal. Therefore, it is not only an issue of access to water for people but also contamination of what little water there is.”

The draft EIA, which suggests such concerns can be managed, is open for comment until September 28.

Conflict of interest
Meanwhile, concern over Chan­cellor House involvement in another bid adjudicated by a state entity – the department of energy – may grow as a long-running investigation into the Medupi and Kusile projects is expected to reach a conclusion later this year.

Following the revelation that Hitachi Power Africa was part-owned by Chancellor House, opposition parties raised formal concerns with international financial institutions about the conflict of interest.

Then Democratic Alliance leader Helen Zille wrote a letter to the World Bank urging it to refuse Eskom’s application for a $3.25-billion loan for power projects, including the Medupi power station.

In the end, the World Bank and Eskom agreed that the loan would not be used for the work from which Chancellor House would benefit, but the African Development Bank stepped in with a loan for the boiler contract awarded to Hitachi Power Africa.

Following a formal complaint from the Independent Democrats, the bank launched an investigation, apparently premised on the possibility that foreign anti-corruption laws may have been breached because of the inclusion of a political funding vehicle in a government tender.

The outcome of that investigation is not known, but amaBhungane has established that a parallel investigation by the United States Securities and Exchange Commission (SEC) is at an advanced stage.

The SEC declined to comment, but a source close to the investigation said the undue use of influence to favour Hitachi was at the centre of the claims against the firm.

'Success fee'
The source confirmed that Hitachi had paid a “success fee” to Chancellor House following the awarding of the boiler contact, a sign that Chancellor House was not a passive investor and could have used its links to the party to help land the contract.

More recently, Hitachi paid a reported R50-million to buy back the 25% stake from Chancellor House shortly before the May 2014 elections.

Chancellor House paid R1.5-million for its stake. The company also drew undisclosed dividends from the shareholding, estimated at about another R50-million.

According to one source, the SEC is nearing a settlement that would involve an admission of impropriety on behalf of Hitachi, which is now part of a merged entity, Mitsubishi Hitachi Power Systems.

The spokesperson of Mitsubishi Hitachi Power Systems Africa, David Milner, said: “We are not in a position to comment on individual activities or rumours.”

Concerns have been raised by opposition parties that Hitachi’s relationship with Chancellor House also provided some protection in relation to substandard work.

In 2013, it was revealed that faulty work affecting about 9 000 high-pressure welds, which had to be repaired, was partly responsible for delays at Medupi.

Eskom’s spokesperson, Khulu Phasiwe, said the utility had “deducted R499-million from Mitsubishi Hitachi Power Systems Africa for delay damages to date”.

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