JOHANNESBURG - In a suprise twist, Cenpower Generation Company has given listed Group Five notice of the termination of its troublesome $410million (R5.68billion) Kpone power plant contract in Ghana.
Group Five on Friday denied that Cenpower was entitled to terminate the contract, adding it believed “the purported notice of termination is wrongful and constitutes a repudiation of the contract”.
The group said it had, therefore, notified Cenpower that it had accepted its repudiation of the contract and had accordingly issued a notice of termination to Cenpower that effectively terminated the contract with immediate effect.
Group Five said one of the reasons it considered Cenpower’s notice of termination as a repudiation of the contract related to the fuel Cenpower provided for the testing and commissioning of the plant being “contaminated and unfit for its purpose”, and Cenpower’s failure to resolve the contamination.
It added that in terms of the contractual process it would continue to progress its contractual rights and entitlements for the payment of all amounts due and owing under the contract, including the recovery of delay damages paid in terms of the guarantees amounting to $62.7m and claims against the client.
The group said this included a submission to the International Chamber of Commerce in Paris for the resolution of a dispute through expert proceedings, which was a considerably quicker process for the resolution of disputes than arbitration.
“Good progress has been made in this regard, with the first disputes expected to be completed in early 2019,” it said.
Group Five said the termination of the contract also enabled the group to proceed to dispute resolution, in accordance with the contract, for the payment of all amounts due and owing to the group under the contract.
“The group’s legal counsel and senior legal counsel, with experience in local and international dispute resolution, remain of the considered view that the claims have merit and that the group has a reasonable prospect of recovering payment from the client,” it said. Group Five has declined to quantify the value of these contract claims.
The contract dispute came to a head when Cenpower demanded $62.7m in delay damages from the Johannesburg branch of HSBC Bank and Standard Chartered Bank, Group Five’s two bank guarantee providers on the project.
This led to Group Five last month launching an unsuccessful urgent interdict application to stop Cenpower from demanding the payment of the guarantees.
Group Five confirmed on Friday the Cenpower had received the maximum amount of $62.7m in delay damages, but continued to challenge the liability for delay damages.
It said this liability was to be independently determined through the dispute resolution mechanism set out in the contract.
Group Five said the remaining value of on-demand bonds in issue from financial institutions to Cenpower after the settlement of this $62.7m was $43.8m.
The group said it had continued to engage with its financial partners and lenders, which had confirmed, and continued to confirm, their support in managing any potential liquidity event, including abiding by the creditors’ standstill agreement established when it entered into its senior bridging facilities agreement.
“Further terms and conditions of this support, including the terms of repayment of any debt, are being finalised with the lenders, thus supporting the group's liquidity and therefore its going concern status,” it said.
Group Five’s announcement about the contract termination was released after trading on the JSE had closed on Friday. Group Five’s shares closed unchanged at 39cents on the day.