The African Development Bank Group said on Friday that two General Electric Co subsidiaries would be temporarily barred from bidding on power contracts as part of a settlement of misconduct cases.
The agreement bars GE Power units in Egypt and Germany from bidding for up to 76 months, the bank said. The units, former parts of Alstom that GE acquired in 2015, were found to have engaged in bribery and fraud in 2006 and 2011, the bank said.
“This conduct happened long before GE acquired Alstom’s power business and we cooperated fully with the investigation,” GE said in a statement. “Ethical behavior and compliance are foundational to GE’s ability to successfully operate in more than 180 markets around the world.”
Other development banks may also enforce the bans, the bank said. “We have no reason whatsoever to doubt that the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the World Bank Group will follow the African Development Bank’s lead,” Johann Benohr, a senior advisor to the director of the office of integrity and anti-corruption at the African Development Bank Group, said in an email to Reuters.
The barred entities are Alstom Egypt for Power Projects S.A.E., based in Cairo, and GE Power Systems GmbH, based in Mannheim, Germany, the bank said.
GE is trying to restore profits at its money-losing power business as the conglomerate slims down to three main product lines: power plants, jet engines, and wind turbines.
African Development Bank turns to a hedge fund to offset the risk
The pioneering deal comes as supranational face pressure to expand lending capacity
The African Development Bank is paying a New York hedge fund to take on some of the risks of losses on its loans in a pioneering deal which illustrates the growing financial sophistication of supranational institutions. The AfDB has bought insurance on a $1bn portfolio of loans from a group of investors led by Mariner Investment Group through a so-called synthetic securitization, in which the hedge fund does not acquire the assets but will take on $152m of default risk in exchange for returns in the low double digits.
Supranational organizations, which are backed by groups of nations and so enjoy the world’s highest credit ratings, are under pressure from the governments that fund them to seek new ways of bolstering their lending capacity. By turning to Wall Street to take on some of its lending risks, the AfDB has reduced the amount of capital it has to hold against the loans and thereby freed up more lending capacity. While this financing structure has already been used by banks — Mariner signed a similar deal last year with Crédit Agricole — it is the first time that a supranational development bank has engaged in this kind of financial engineering.
The deal will “super-charge our ability to invest in urgently needed projects across Africa”, according to AfDB president Akinwumi Adesina. “It leverages our financial resources so we can have more impact, and it creates new pathways that enable long-term investors to support Africa’s development while getting excellent financial returns.” In the decade since the financial crisis supranationals have significantly stepped up their capital markets activity, with their low cost of capital making them a cost-efficient way of financing development and infrastructure projects. However, they are still small by comparison to sovereign states’ finance-raising volumes — the assets of the world’s multilateral development banks are approximately equivalent to those of a medium-sized international investment bank.
Given governments’ reluctance to boost supranationals’ capitalization through additional financial contributions, the AfDB-Mariner deal has attracted political attention. Canada helped advise on its structure, the European Commission has insured a $100m tranche of the loans and Africa50, an investment platform backed by 27 African nations, also invested in the deal. Bill Morneau, Canadian minister of finance, said: “Attracting more private capital into global development efforts is critical to building economies that work for more and more people around the world. “That is why Canada and our G20 partners have been calling on multilateral development banks to use their existing resources as efficiently as possible and to look for new ways to attract more private capital.”
A report by thinktank ODI earlier this year concluded that synthetic securitizations were the best mechanism by which multilateral development banks could increase the amount of financial firepower they had available to lend. The AfDB’s deal covers approximately 40 loans to power, transport, finance and manufacturing projects across more than 15 African countries.
The bank has promised to lend the freed-up funds to projects which meet sustainable and social impact targets. The AfDB will take the first $20m of losses on the portfolio. Mariner portfolio manager Andrew Hohns said the deal “may well provide a template for unlocking significant private sector and impact capital into urgently needed projects in developing economies”. Mariner now hopes to sign similar deals with other multilateral institutions. Mizuho structured the transaction.
AfDB imposes debarments to restore integrity in project development.
March 25, 2019
Following years of investigation into alleged bribery and fraud, the African Development Bank (AfDB) and GE Power have reached a settlement on legacy Alstom misconduct.
The AfDB imposed debarments of 76 months and 12 months on former Alstom companies after it was found to have engaged in bribery and fraud in 2006 and 2011 in relation to two bank-financed Egyptian power generation projects. GE Power acquired the companies in 2015.
Last week, the bank announced a conclusion of a settlement agreement with GE Power, thus resolving sanctionable practices committed by former Alstom companies.
“Corrupt practices in the power generation sector directly undermine the African Development Bank’s operational priority to light up and power Africa. This can never be accepted by the Bank”, said Bubacarr Sankareh, manager of the investigations division within the Office of Integrity and Anti-Corruption.
Sankareh added: “We are very pleased that GE Power is joining us today in our efforts to fight corruption and to ensure the delivery of value for money to the bank’s regional member countries.”
Corrupt practices
An investigation conducted by the bank’s office of Integrity and Anti-Corruption established that in 2006 and 2011 the companies, then named Alstom Power Generation AG, Alstom Power GmbH, and Alstom Egypt for Power & Transport Projects, engaged in two instances of corrupt practices and in one instance of a fraudulent practice in the context of the bank-financed Suez Thermal Power Plant Project and the El Kureimat III Power Project, both in Egypt.
GE Power assumed control over these three companies in 2015 after the misconduct had occurred when it acquired Alstom’s thermal power generation business. As part of the settlement, the bank imposes on former Alstom Egypt for Power & Transport Projects S.A.E. (now known as Alstom Egypt for Power Projects S.A.E.), based in Cairo, Egypt, and on former Alstom Power Generation AG (now known as GE Power Systems GmbH), headquartered in Mannheim, Germany, a debarment of 76 months.
Debarment period
The debarment period may be reduced to 48 months if the companies comply with all conditions of the agreement early.
This debarment may be enforced by other multilateral development banks under the Agreement for Mutual Enforcement of Debarment Decisions, including the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the World Bank Group.
Further, pursuant to the settlement, former Alstom Power GmbH (now known as GE Power GmbH), equally based in Mannheim, Germany, is debarred for a period of 12 months.
Among other conditions for release from debarment, GE Power commits to collaborate with the Office of Integrity and Anti-Corruption in the fight against corruption in the power generation and transmission sector.
Tender processing
In 2006, Alstom Egypt for Power & Transport Projects S.A.E. and Alstom Power Generation AG participated in a tender for steam turbine generators in the context of the Bank-financed El Kureimat III Power Project.
The companies indirectly paid an amount of €963,477 to their local agent.
The Office of Integrity and Anti-Corruption has concluded that one purpose of the payment was to ensure the support of public officials involved in the procurement process in order to gain an unfair competitive advantage in the tender.
Further, the Office of Integrity and Anti-Corruption established that the companies had erroneously only declared €50,000 in fees paid to its local agent.
In 2011, Alstom Egypt for Power & Transport Projects S.A.E., Alstom Power GmbH, and Alstom Power Generation AG, by then renamed Alstom Power Systems GmbH, participated in a tender for a steam turbine generator and condensers for the Bank-financed Suez Thermal Power Plant.
In the context of this tender, the companies indirectly offered €1.7 million to their local agent.
The Office of Integrity and Anti-Corruption has concluded that one objective of the offer was to ensure that public officials would assert undue influence on the procurement process in favor of the companies’ bid.
In reaching this settlement, the African Development Bank took into account General Electric’s substantial cooperation with the investigation of the legacy cases as well as the high quality of the company’s comprehensive compliance programme, which now applies to the Alstom entities acquired by GE Power.
African Development Bank debars CHINT Electric for 36 months for fraudulent practices
The African Development Bank Group has announced the conclusion of a settlement agreement with CHINT Electric Co., Ltd., a power transmission and distribution equipment manufacturer and EPC contractor.
An investigation conducted by the Bank’s Office of Integrity and Anti-Corruption established that CHINT Electric engaged in a multitude of fraudulent practices: In bidding for contracts in the context of numerous Bank-financed power projects, the company misrepresented its experience with similar assignments in order to meet qualification requirements.
As part of the settlement, in consideration of the company’s cooperation with the investigation, the African Development Bank imposes a debarment on CHINT Electric for a period of three years, subject to the company enhancing its corporate compliance program within that period to the institution’s full satisfaction.
During the debarment period, the company is ineligible to be awarded contracts under any African Development Bank-financed project or to be a subcontractor, consultant, supplier, or service provider of an otherwise eligible firm in the context of a Bank-financed project.
The debarment qualifies for cross-debarment by other multilateral development banks under the Agreement for Mutual Enforcement of Debarment Decisions, including the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the World Bank Group.
The African Development Bank will verify the adequacy of CHINT Electric’s compliance framework and the robustness of its implementation prior to any release decision. In addition, CHINT Electric commits to cooperate with the Office of Integrity and Anti-Corruption in its investigations of unrelated cases of misconduct in African Development Bank-financed projects.
The period of debarment may be reduced to 24 months if CHINT Electric complies with all conditions of the agreement early.
“Procurement under the Bank’s rules aims at ensuring optimal value for money for the Bank’s Regional Member Countries,” said Bubacarr Sankareh, Acting Director of the Office of Integrity and Anti-Corruption of the African Development Bank. “The misrepresentation of a bidder’s qualifications materially undermines this objective and is therefore taken very seriously by the institution.”
Between 2012 and 2017, CHINT Electric participated in the tenders for: the supply of 132-kV and 66-kV substation equipment for the Mendi substation and others in the context of the Bank-financed Rural Electrification II Project in Ethiopia, the supply of substation equipment in the context of the Bank-financed Emergency Power Infrastructure Rehabilitation Project in Zimbabwe; the design and supply of 132-kV equipment for the Yabello and Buee substations in the context of the African Development Bank-financed Rural Electrification II Project in Ethiopia.
It also participated in the design and supply of a total of four substations at Iringa, Dodoma, Singida and Shinyanga in the context of the Bank-financed Electricity Transmission System Improvement Project in Tanzania; the transmission rehabilitation of the Marvel and Chertsey substations equipment in the context of the African Development Bank-financed Emergency Power Infrastructure Rehabilitation Project – Phase II in Zimbabwe; works and equipment for the Prince Edward Dam substation and others in the context of the Bank-financed Emergency Power Infrastructure Rehabilitation Project – Phase II in Zimbabwe; and the transmission rehabilitation of the Sherwood and Orange substations in the context of the African Development Bank-financed Emergency Power Infrastructure Rehabilitation Project – Phase II in Zimbabwe.
In the context of the above tenders, CHINT Electric misrepresented the technical specifications, the value, the execution period and/or the degree of completion of contracts used as credentials in order to qualify for the tenders.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.