Business News of Tuesday, 27 November 2018
Cenpower, a Ghanaian power company, has won a $62.7 million against a South African company, Group Five, for causing delays in the completion of a combined cycle thermal power project at Kpone in Tema.
After delaying for a year in the completion of the 350 megawatt (MW) power project, Cenpower decided to invoke a clause in the agreement, which allows it to call a $62.7 million posted as bond by Group Five, the contractor.
To call a bond is to demand payment from the bank that issued the guarantee on behalf of a contractor for his performance under the related contract.
In this matter, Group Five, the Engineering Procurement and Construction (EPC) Contractors, issued a $62.7 million bond as a guarantee that it would not delay the project.
However, the project which took off in 2015 was delayed, thereby causing Cenpower to call the bond as damages for the delay.
Group Five sued
Following the call of bonds, Group Five sued Cenpower at the South African High Court.
In a ruling, a copy of which the Daily Graphic has obtained, Group Five blamed the delay on Cenpower’s failure to supply natural gas, one of the three fuels the group said it needed to test the power plant in order to complete the project.
It further alleged that Cenpower supplied contaminated light crude oil, one of the other fuels used in the testing which led to further delays.
Group Five, therefore, argued that it was entitled to a time extension, accusing Cenpower of acting in bad faith and fraudulently, by calling on the bonds when it was aware of those challenges.
Case of Cenpower
Cenpower, on the other hand, argued that the failure to supply natural gas was irrelevant with regard to the delay.
It said Group Five was in fact relieved of its obligation to execute the tests with natural gas and could just have proceeded with the other two fuels.
The power company further submitted that it was not to blame for the contaminated fuel.
The court, presided over by Judge Willem van der Linde, held that “the very point about such bonds is that they should serve as immediate unclouded cash despite the underlying real dispute between an owner and a contractor.”
He stated that, “the underlying dispute is required to be resolved in the manner provided for in the contract between them, and its determination may even come to a conclusion wholly different from that which the owner asserted to the bank.”
It said the contract provided that the underlying dispute about the extension of time should be settled by arbitration.
The court also found that the relationship between Cenpower and the banks that provided the guarantees was unrelated and unaffected by the relationship between it and Group Five.
It added that: “the banks must pay since the underlying dispute was, barring fraud, none of their business.”
Group Five has indicated its intention to pursue arbitration process to ask for extension of time.
HSBC Bank and Standard Chartered Bank were listed as second and third respondents in the matter but they did not present arguments and indicated that they would abide by the ruling.
Status of Plant
A source close to Cenpower told the Daily Graphic that the construction works were complete and commissioning far advanced.
“Commissioning of the Simple Cycle Gas Turbine systems is complete and the plant is operational on light crude oil in simple cycle mode.”
The source added that the outstanding commissioning activities was related to the steam turbine system.