No Profits and Power

… Namibian military construction company in N$1,2 billion power station dispute with Israeli partner

A state-owned military construction company and its Israeli partners are embroiled in a N$1,2 billion power station tender dispute, specifically over how they should share the profits of the project.

Government-owned August 26 Construction wants N$36 million from the project in profits, a demand that has been shot down by its Israeli partners, who claim they have been the only ones pumping money into the project.

This stand-off includes a warning from the national power company (NamPower) for the partnership to get its house in order or face a N$33-million monthly ‘punishment’ for delaying the national project to provide back-up power.

In March 2022, NamPower awarded the contract to a joint venture that includes August 26 Construction, Phim Investments CC, and Israeli company FK Generators & Equipment Limited as lead contractor.

The partnership was tasked to set up a diesel power station nicknamed ‘Anixas II’ at Walvis Bay near the National Fuel Storage facility.

However, communications between the two partners and NamPower about the project show the partnership has been rocked by disagreements over money since last year.

August 26 Construction’s managing director, colonel Martha Endjala, wrote to NamPower’s managing director, Simson Haulofu, on 22 May 2023, asking for intervention in the dispute.

Endjala asked why the company has not been copied in on correspondence from NamPower.

Although the dispute started last year, it is still ongoing. The military company has accused NamPower of agreeing to its removal from the partnership, which has prompted it to take legal action.

Through its lawyer Sisa Namandje, August 26 Construction wrote to Haulofu, demanding the withdrawal of NamPower’s consent of changes to be made to the joint venture agreement.

“We object to the alternation of the joint venture between the parties. In fact, your new position is inconsistent with your position in correspondence to the parties during the period June 2023 to October 2023,” Namandje wrote to Haulofu on 25 January this year.

Namandje asked why the changes were not discussed with his client.

“The procurement award was made to the joint venture (JV) of which our client is a material part, condition and element.
To the extent, in law, and the right to make alterations, you would in any event not have been able to do that without giving our client an opportunity to make representations.

“In view of the aforesaid, we demand that you withdraw your consent within the next five days, failing which an urgent application will be filed in the High Court,” Namandje’s letter reads.

The project has over 120 workers on site.

Last month, Endjala told The Namibian that the state company was removed as a signatory to the joint venture account.

“The partners have also removed our company as a signatory on the account, which is contrary to the agreement in place. With two partners being only signatories to accounts, they have transacted money between themselves, claiming it’s for work done, without any resolution or agreement from the JV authorising as such,” she said.

Endjala said the power station’s funding from a local bank was based on its creditworthiness.

“Our company is not in agreement with AUA Energy that they are solely carrying the costs of the project. It has to be made clear that a facility was provided by Bank Windhoek to the JV to run the project, and this facility was given based on the status of the credit worthiness of our company’s books,” she said.

The company is demanding N$36 million of its profit share from the joint venture project.

“Our company is demanding to receive its profit share before extending the performance guarantee for the project.

We will not entertain their reasoning of the project not being profitable, considering that they transacted money to their accounts without resolutions from the JV or proof of work done . . .

“Our company is therefore not going to sign the extension of the guarantee until the disputes are resolved.

“We have been raising our grievance to NamPower . . . since last year, and NamPower has been refusing to intervene with a reason that it is an internal dispute,” she said.

ISRAELI STANCE

FK Generators & Equipment is a subsidiary of AUA Energy Ltd.

Last month, its chief executive officer, Amir Kurz, said matters between business partners are confidential.

“My company is obliged to confidentiality with regards to the project and also to the members of the FK Namibia Joint Venture …” he said.

However, The Namibian has seen a letter Kurz wrote to August 26 Construction on 27 March 2023, explaining the profitability and allocation of risks of the power station project.

According to him, FK Generators & Equipment cannot give August 26 Construction profits, as the project is not profitable.
“… even though we view this project, in its current state, as highly challenging from a financial perspective, we still agreed, at your request, to improve the conditions and remuneration to which our partners shall be entitled in a material manner …

“Currently, the project is simply not profitable. Profits stand at 1,56%,” Kurz said in the letter.

He said the investment his company has made in the project amounts to millions.

“AUA has put N$51 million in a deposit account as part of the financing required for the project.

“Taking the above-mentioned sums, the funds that are blocked for usage, stands at approximately N$114 million.

“AUA has already directly transferred a cash fund of N$35 million to allow the financing of project-specific activities,” Kurz wrote.

The company said it has carried the financial burden of the project alone.

“AUA has issued a N$122-million autonomous bank guarantee from Israeli banks to procure the performance securities and the working capital facility required for the project, all at its own cost and by locking a portion of its personal funds,” the letter reads.

Kurz said the project has faced risks such as material price increases.

He said this is due to the Russia-Ukraine war.

At the time, the Israeli company also blamed challenges of the project on a series of earthquakes in Turkey.

Due to the negative cash flow of the project, AUA is anticipated to transfer amounts of an additional N$101 million to finance the said negative cash flow and allow the project to move forward.

“As such, the aggregate ‘out of pocket’ amount . . . is approximately N$326 million,” he said.

N$33M FINE

In October last year, Haulofu wrote to the partners, informing them to pay a penalty of N$1 million per day should the project be delayed.

“It is with respect that the partners are hereby again cautioned that the impact of delaying the completion date translates into a penalty of 0,0833% of the contract price per day – N$1 million per day, or N$33 million per month – with partners being jointly and severally liable for the delayed liquidated damages as quantified herein,” Haulofu said.

He warned that equipment on site should not be exposed to corrosion.

According to Haulofu, the joint venture’s bank accounts and that of the Israeli company have been frozen.

Last month, NamPower spokesperson Tangeni Kambangula said the matter is confidential.

“NamPower is subject to the confidentiality provisions contained in the engineering, procurement and construction contract for the Anixas II project, and can thus not disclose any information pertaining to this matter.”

Questions sent to Phim Investments CC went unanswered.

PROJECT DELAYED

The development of Anixas II power station started in May 2022 and was expected to be completed in December 2023.

Almost two years since the signing of the joint venture agreement in March 2022, the project is far from being completed.

Haulofu warned both partners last September that the project delay may impact the security of electricity supply to Namibia.

“The joint venture members are reminded that the Anixas II project . . . is of national importance, and any delay may impact the security of electricity supply to Namibia,” he said.