The Israel Electric Corporation’s tender to acquire new turbines for its Hadera power plant mean that the winner has to be Siemens, and Mitsubishi doesn’t have a chance, say industry insiders.
This comes a year and a half after five senior IEC executives were convicted of taking bribes from Siemens officials in Israel, allegedly in exchange for advancing Siemens’ interests at the IEC between 1999 and 2005.
Under Israel’s electricity sector reform, the IEC can build two power plants with a total capacity of 1,200 megawatts, in place of four coal power plants, which are supposed to be shut down in 2021 due to the pollution they create. The tender, to build the natural-gas based power plants, is worth an estimated $650 million.
Siemens, GE and Mitsubishi have all stated that they are interested in bidding in the tender process. Mitsubishi manufactures 730-megawatt turbines, while Siemens and GE manufacture 630-megawatt turbines. Sector sources say the Japanese company is more efficient. Meanwhile, the media has reported issues at some of GE’s U.S. power plants, and the sources say that the IEC could take advantage of this to reject GE’s bid, arguing that GE’s product is not safe in the long term.
Mitsubishi applied for the tender, under the impression that the IEC would seek to replace the 1,400 megawatts currently being produced by the coal-powered plants with two new, efficient units. But in practice, the state limited the two new power plants to producing 1,200 megawatts, as part of its plan to reduce the proportion of the country’s electricity produced by the IEC.
A government source told TheMarker on Wednesday that the state does not intend to increase the planned capacity of the plants, even if this means Mitsubishi cannot participate in the tender process.
Shiro Guto, Mitsubishi’s manager for marketing and sales in the Middle East and North Africa, wrote to IEC Chairman Yiftach Ron Tal and CEO Ofer Bloch in September, stating that the limiting the tender to 630-megawatt turbines would prevent the company from participating, even though its turbines are highly efficient and technologically advanced.
Guto stated that both Mitsubishi and the Japanese embassy in Israel had asked the IEC to raise the capacity of the turbines listed in the tender, and had been told in response that the figure had been set by the government.
The electricity sector reform, approved in July, states that the IEC will produce 40% of the country’s electricity, down from 60%, and allowed it to replace the coal-burning plants in Hadera with two new plants creating a total of 1,200 megawatts. This means 600 megawatts per plant, plus a 5% excess capacity for times of extreme demand - meaning 630 megawatts per turbine. This is exactly the product manufactured by Siemens and GE.
Guto stated that given that there isn’t a technical reason to limit the turbines’ capacity, such as the electricity network’s capacity, the only thing that reducing the plants’ current 1,400-megawatt production would do is eliminate Mitsubishi from the tender, and cost the IEC $400 to $600 million over 25 years. Reducing the plants’ capacity does not serve the IEC or Israel’s citizens, he added.
Guto asked Ron Tal to explain the motivation; without an explanation, there’s no saying that the tender is fair or transparent, he said.
Sector sources said that given problems at some of GE’s American power plants, the IEC may choose Siemens without there being any real competition in the tender process. The IEC has said that it is not committed to choosing the cheapest offer.
However, other sources say that GE is still considered a serious contender.
A year and a half ago, five IEC executives were given prison sentences for their role in the so-called “Siemens affair” for accepting bribes from Siemens representatives in Israel. In exchange, the executives allegedly advanced Siemens’ interests in terms of acquisitions and contracts at the IEC between 1999 and 2005.
The Energy Ministry stated in response: “The maximum size of the power plants was dictated by the government. We were not in contact with the company over the matter.”
The IEC stated in response: “In one of the two responses we sent to Mitsubishi we explained specifically the details of the tender in keeping with the government’s decision. The IEC is acting with transparency and honesty, and fully rejects any claims that there was an attempt to eliminate Mitsubishi from the tender.”
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