Mitsubishi Heavy Industries seeks compensation from Hitachi for Eskom project

TOKYO — Mitsubishi Heavy Industries said on Monday it was demanding a payment of ¥379bn (about $3.5bn) from Hitachi, its partner in a power-systems joint venture, in a dispute over a power plant project in SA.

The disclosure came as a surprise and pointed to a rift between two of Japan’s biggest industrial companies.

A unit of Hitachi won contracts in 2007 and 2008 totalling ¥570bn to install boilers for Eskom’s two coal-fired power plants, Medupi and Kusile, Hitachi said at the time.

The South African business was inherited in 2014 by a joint venture between Mitsubishi Heavy and Hitachi that integrated the two companies’ thermal power-generation businesses.

The two sides said they had never reached a final agreement on how to value the South African business and had been negotiating for the past two years.

The power plant construction has long been troubled by construction delays and other problems.

Mitsubishi Heavy’s president, Shunichi Miyanaga, said his company already was worried about the South African contracts before concluding the joint-venture deal with Hitachi and left the final value open for that reason.

“We were concerned that the progress of the project was slow,” he said.

It would still take another four years before completion, he said.

A Hitachi spokesman said Hitachi would not accept Mitsubishi Heavy’s demand and negotiations were continuing.

Mr Miyanaga said he did not have a “hostile” intent towards Hitachi in disclosing the dispute.

Mitsubishi Heavy wanted to be responsible to its shareholders, he said.

Mitsubishi Heavy said part of the payment it expected to receive from Hitachi was recorded on its balance sheet as a liquid asset.

It did not give the specific amount.

The two companies have swung between alliance and acrimony in the past.

They discussed a full merger in 2011 but settled for the venture in thermal power after they could not agree on final terms of deal.

The South African project has already caused Hitachi trouble.

Last September, it agreed to pay $19m to settle US Securities and Exchange Commission charges that it violated a US antibribery law through allegedly improper payments tied to South African government contracts to build the plants.

The company neither confirmed nor denied the allegations, according to an SEC statement at the time.

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