Chancellor House cloud over $3.75bn Eskom loan

Say it with a sting.....

Storm Brewing: World Bank raises concerns over political links but sale could spark fresh row

Apr 10, 2010 11:46 AM | By Rob Rose

Front company unaware of imminent sale by ANC, writes Rob Rose. ANC treasurer Mathews Phosa says Chancellor House, a front company for the ruling party, is expected to announce the sale of its 25% stake in Hitachi Power Africa in the next six weeks

SHORT CIRCUIT: ANC treasurer Mathews Phosa says the ruling party will sell its stake in a power company, apparently contradicting secretary-general Gwede Mantashe Picture: KEVIN SUTHERLAND
We're definitely not interested in getting involved in shady deals and taking advantage of the taxpayer to raise money


This surprise news came hours after the World Bank granted a $3.75-billion loan to Eskom, despite the fact that the parastatal awarded a R38.5-billion contract in 2008 to Hitachi to build boilers at its new coal-fired 4800MW Medupi power station.

Political parties - led vocally by the Independent Democrats (ID) and Democratic Alliance (DA) - had lobbied the World Bank unsuccessfully this week to refuse the loan unless Chancellor House sold its Hitachi investment.

But Phosa told the Sunday Times on Friday: "We have advised Chancellor House of our desire to exit from Hitachi as quickly as possible, and they are in the process of doing so. My expectation is that this will be done in the next six weeks."

Phosa's commitment seems to contradict ANC secretary-general Gwede Mantashe, who said this week that the party would exit its Hitachi investment only if the rules on political funding were changed for all parties.

There will also be scepticism, as Phosa first said in 2008 that Chancellor House would sell its share in Hitachi - and this has yet to happen.

But, putting a deadline to it for the first time, Phosa emphasised that "this is not a loose deadline, we want this done quickly".

"(The ANC) took a decision to disinvest. Initially, there were different views, but we now have agreed to disinvest, and Chancellor House has accepted that. But as a shareholder, we can only give advice to Chancellor House," he said.

He admitted the Hitachi investment was "always a borderline case" of a conflict of interest, given that government awarded the R38.5-billion tender to Hitachi, in which the ruling party has an interest.

"We're definitely not interested in getting involved in shady deals and taking advantage of the taxpayer to raise money. We want to set a proper example and be accountable," Phosa said.

As part of the shareholders' agreement, Chancellor House must first offer its 25% shareholding in Hitachi Power Africa back to Hitachi.

But Robin Duff, chief financial officer at Hitachi Power Africa, said on Friday that "we haven't had an approach" from Chancellor House about repurchasing the shares.

However, he did say the company would make an announcement in the next few weeks "to set the record straight".

Whether any sale will happen as Phosa intends remains to be seen.

Professor Taole Mokoena, who chairs Chancellor House, said: "We are an independent company and nobody tells the directors what to do".

He added that Phosa "certainly hasn't told me" of the desire to sell the shares.

What complicates matters is that Chancellor House is owned a Trust, with no beneficiaries specified. This allows the board of trustees - chaired by Popo Molefe - to "donate" cash where they want.

This new assurance of an imminent sale are likely to spur talk that some form of back-room pressure was applied to the ANC, before the World Bank agreed to provide the $3.75-billion loan.

The loan - $3-billion of which is for Medupi, $260-million for wind and solar projects, and $485-million for low-carbon energy projects - was granted despite the US, the UK and the Netherlands abstaining for "environmental reasons".

The problem is that Medupi will burn coal, creating "significant greenhouse gas emissions", as the US Treasury noted.

But Eskom chief financial officer Paul O'Flaherty said on Friday that a number of World Bank member countries had also expressed concerns about the ruling party's involvement in Hitachi.

O'Flaherty said the World Bank had raised concerns about the Hitachi investment "and were quite adamant that this was something they would not fund".

If Chancellor House sold its shares in Hitachi, "that would take a lot of pressure off us", he said.

However, Eskom argued successfully that none of the World Bank cash would be used to pay for the Hitachi contract, as this was a separate "package" for which it had already obtained finance.

World Bank spokesman Sarwat Hussain said: "All along, we've said that the Hitachi component (of Medupi) is not part of what we're financing."

Hussain added that "we have done our own due diligence, which included looking at our fiduciary responsibilities".

But critics have ridiculed the view that the Hitachi contract was somehow separate from the rest of the Medupi project.

ID MP Lance Greyling said it was an "artificial divide, to say the cash will not be used for the Hitachi part of the project".

Greyling added that the World Bank loan would "inadvertently be funding a massive conflict of interest where the ruling party is able to benefit handsomely from a government tender".

He said he hoped "unofficial pressure" would be brought to bear on the ANC to ensure that Chancellor House got rid of its Hitachi investment.

But while the outcome of the World Bank vote was never really in doubt, Eskom will breathe easier now that it has raised enough cash to pay the entire R125-billion it needs to build Medupi.

However, it still needs R45-billion for another power station, Kusile.

O' Flaherty said the World Bank loan was also granted at a relatively low interest rate, which should help (marginally) to keep a lid on the electricity hikes for consumers.

The interest rate floats according to the London Interbank Offered Rate, meaning that right now, hypothetically, Eskom would pay an interest rate of 9.6% on the World Bank loan - less than the 9.8% it pays bondholders and more than 10% which it pays banks for loans.

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Comments by Sonny

This is what the ANC is doing with borrowed money from the World Bank!

The lights will go out in SA!

The 'fat catz' just get fatter!

The ANC is here to deceive with their greed for power!