Hitachi, Mitsubishi Heavy Industries negotiating to settle to South Africa dispute

Japan’s Hitachi Ltd and Mitsubishi Heavy Industries Ltd (MHI) announced on Wednesday an arbitration over losses related to their coal-fired power plants in South Africa was in process.

Hitachi is expected to pay a compensation of about $4 billion to settle the dispute, Nikkei reported earlier, adding that the decision could likely be approved by the boards of both companies by the end of the day.

The firms are still in the process of looking for a resolution and nothing has been decided yet, they said in separate statements.

“This implies a potential settlement of one ongoing risk factor, but we would expect only a moderate impact on the earnings of Mitsubishi Heavy Industries,” Jefferies analyst Sho Fukuhara said in a note.

The losses come from Hitachi-Mitsubishi joint venture’s involvement in a South African power plant project.

The venture, Mitsubishi Hitachi Power Systems Ltd, is majority owned by MHI and was established in February 2014 by combining the two companies’ thermal power generation businesses.

Hitachi won a mandate to set up 12 boilers for the Medupi and Kusile power plants of South African utility Eskom in 2007. It later transferred the contract to the joint venture.

MHI sought over 89.7 billion rand ($6.10 billion) from Hitachi to cover the project costs three years ago, nearly double the initial amount it had demanded at the beginning of the dispute over who should bear the costs of the power plant project.

Source: Reuters