A logo of Hitachi Ltd. is pictured at the CEATEC JAPAN 2017 at the Makuhari Messe in Chiba, Japan, October 2, 2017. REUTERS/Toru Hanai/File Photo
(Reuters) – Japan’s Hitachi Ltd and Mitsubishi Heavy Industries Ltd (MHI) said on Wednesday an arbitration over losses related to their coal-fired power plants in South Africa was in process.
Hitachi will likely pay a compensation of about $4 billion to settle the dispute, Nikkei reported earlier, adding that the decision was expected to be approved by the boards of both companies by the end of the day.
The companies 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 their 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 formed in February 2014 by combining the two companies’ thermal power generation businesses.
Hitachi won a contract to build 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 had 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.
($1 = 14.7075 rand)
Reporting by Nivedita Balu in Bengaluru; Editing by Subhranshu Sahu