Hitachi Power Africa (HPA) would "gladly" entertain an offer from Chancellor House to sell its 25% interest in the company, but no such offer had been made to date, CEO Johannes Musel reported on Tuesday.

The company also indicated that it had not been aware that Chancellor House was an African National Congress (ANC) "front company" when it entered into a shareholders agreement with the entity in October 2005. Chancellor House has since been shown to have direct associations with the governing ANC, and has also been described as the party's investment arm.

However, CFO Robin Duff stressed that HPA, which is part of the global Hitachi Group, which reported sales of $102-billion in 2009, had subsequently done what it could, from a governance perspective, to ensure that no funding flowed to a political party. Efforts had been made, for instance, to seek guarantees that the beneficiaries were indeed previously disadvantaged South Africans, in line with South Africa's black economic-empowerment (BEE) rules.

A due diligence conducted by Hitachi found there to be two classes of beneficiaries of the Chancellor House Trust, which owns Chancellor House Holdings, the shareholder in HPA. These beneficiaries had been identified as including: black "natural" persons, as well as black "natural" persons, classified into groups such as youth, women, rural citizens and the disabled.

Duff also stressed that Chancellor House Holdings had paid "more than R1-million" for it position in HPA, which at that stage was still a start-up company in South Africa, and had, as yet, not received any dividend payments.

But when pressed on the precise identity of the beneficiaries, Musel indicated that it would be up to Chancellor House to confirm this, acknowledging legitimate public concern about the fact that benefits might flow to the ANC.

"All we can do, is to ensure that the legal conditions are correct in terms of what the trust deed states," Musel said, indicating, though, that there might be a disconnect between what was legally allowable and what was proper from a moral standpoint.

R50M NOT R1BN

It was stressed, however, that the profit margin on the Eskom boiler contracts would be less than 3% and the flow through to shareholders, including Chancellor House, was, thus expected to be "in the millions, not the billions" of rands.

The maximum that Chancellor House could earn over eight years was R50-million, HPA asserted.

The Democratic Alliance, in opposing the recently approved $3,75-billion World Bank loan to Eskom on the basis that the proceeds might benefit the ANC, suggested that the earnings could be closer to R1-billion.

"Contract value, in this case R38,5-billion for both the Medupi and Kusile boiler contracts, does not equal profit," Musel highlighted.

Speaking at a briefing convened specifically to deal with the political and social fallout created by Chancellor House's holding in HPA, which was awarded Eskom boiler contracts in 2007, it was also stressed that the contracts had been won through fair processes, as confirmed by a Deloitte & Touche audit report. He also noted that some 40% of the contract value was attributable directly to Hitachi Power Europe and that HPA's order book, thus, stood at R24,3-billion.

ANC SPLIT

There is currently division within the ANC over the future of the company, with treasury-general Mathews Phosa having indicated that the company will be liquidated, while secretary-general Gwede Mantashe has stated that it could not dictate to an independent entity, which is structured as a trust, without shareholders.

Chancellor House MD Mamatho Netsianda, meanwhile, has indicated that the ANC has no jurisdiction over its business interests and that he was not going to follow the instructions to liquidate the shareholding in HPA.

While noting the division within the ANC over the liquidation of Chancellor House's shareholding in HPA, HPA indicated publicly for the first time that the company would be more than open to such an offer.

In response to a question posed by Engineering News Online as to why, given the reputational damage being caused, neither HPA, not the bigger Hitachi group, had been more proactive in ensuring the liquidation of the shareholding, Musel said that such a transaction requires "all parties involved to agree".

"If the opportunity comes up, we will gladly deal with it," Musel added, indicating that, while numerous discussions had been entertained on the matter, no sale offer had been forthcoming.

HPA would, however, seek to safeguard its BEE status should such an eventuality arise, with Musel indicating, too, that the other shareholders - which included Hitachi Power Europe and Makotulo Investments, a black women-owned entity - had preemptive rights.

"We can confirm that we have had no direct approach from our shareholders [regarding the sale of the Chancellor House stake]," Duff said.

"But if there is a sale, it will be governed by the provisions of our shareholders agreement . . . but importantly, we cannot lose our empowerment status. So, if we buy the shares back, they would have to be on sold to another empowerment partner to ensure that we comply with our contractual obligations," Duff explained.