Alstom Bid Draws Scrutiny

9 May 2012, Wall Street Journal

Two of Europe’s largest development banks are probing allegations that Slovene officials helped French engineering giant Alstom SA scuttle a rival bid by Siemens AG involving work on a €700 million ($927.8 million) power plant in Slovenia.

The European Investment Bank and the European Bank for Reconstruction and Development launched the investigations in recent weeks after a Slovene government commission disclosed earlier this year details of a local probe into whether the officials leaked to Alstom details of Siemens’s bid to construct the coal-powered electric power plant, according to the banks.

No charges have been filed in the criminal investigation. Alstom denied it obtained business secrets about its competitor.

Alstom edged out Siemens in bidding for work at the Sostanj power plant in Slovenia. A Slovene report cited evidence of bias in the process.

The investigations underscore the stepped up role regional development banks have played in recent years in trying to combat potential corruption in large-scale infrastructure projects after a history of ceding such efforts to local and national authorities. It also marks a potential setback for Alstom just months after the World Bank temporarily blacklisted and fined two of the French company’s units after they allegedly offered bribes to gain a Zambian power-plant contract a decade ago.

The World Bank and its regional partner banks have a long record of excluding smaller firms from projects because of corruption allegations. But in recent years, they’ve taken action against larger companies. In 2010, the World Bank debarred Macmillan Publishers Ltd. for six years over allegations the U.K. publisher paid bribes tied to an education project in southern Sudan. In 2009, the World Bank debarred a Siemens unit in Russia for four years in connection to a widespread bribery scandal that triggered U.S. and German settlements. The parent company didn’t admit guilt in connection with the settlements. As part of a World Bank agreement, Siemens pledged €100 million to support anticorruption activities.

A European Investment Bank spokesman said the EIB requested information from the World Bank on its probe concluded in February to determine whether Alstom engaged in any prohibited activities. EIB, which has pledged €550 million in loans for the Slovenian project, has forwarded the Slovenia allegations to the European Commission’s antifraud office, OLAF, to help ensure the project is in line with its rules and procedures, it said.

The European Bank for Reconstruction and Development, which has pledged an additional €200 million in loans to the project, has said that despite spotting signs of potential corruption in the Slovenian power-plant plans in 2010, it got involved in the hopes of preventing further wrongdoing. The EBRD insisted the plant operator, Termoelektrarna Sostanj d.o.o., appoint independent directors to its supervisory board and take steps to improve corporate governance. The bank also required that Termoelektrarna’s parent company, Holding Slovenske elektrarne d.o.o., create an audit committee within its supervisory board, according to bank documents.

A spokeswoman for the development bank said EBRD “remains committed” to its support for the Sostanj thermal power plant, but payments are on hold until the bank verifies the conditions for disbursements are met.

Mark Pieth, chairman of the OECD working group on corruption, said that development banks have a critical role in pressuring companies to avoid corruption “because unlike governmental organizations, they wield great financial power that is largely independent of political influence.” The banks, though, haven’t been as tough in pushing national governments to provide good governance in the development projects they oversee, he added.

EIB and EBRD have played roles in European development projects. As the European Union’s financing institution, the EIB taps capital markets to provide long-term funding for EU goals. In 2010, it provided €72 billion in financing, mostly for projects within the EU. The smaller EBRD was founded in 1991 to assist former Communist states in central and Eastern Europe to develop market-oriented economies. Its shareholders encompass 63 countries, including the U.S., as well as the EU and the EIB.

In a report presented in February, the Slovenia Commission for the Prevention of Corruption cited evidence that the 2007 bidding process for the plant construction was biased and that at least one of the government officials in charge had failed to disclose business links to the winning bidder, Alstom. Alstom declined to discuss specifics of the report, but said it generally focused on the activities of Slovene officials, not itself.

The report added that “in the process of collecting offers for the main technological equipment, [officials] enabled business secrets of the Siemens AG consortium to be available to the competitive and finally selected company, t.i. Alstom.”

Alstom won the Sostanj power plant tender in 2007 after submitting a bid of €654 million, below the Siemens bid of between €711 million and €786 million, according to an EBRD report. Despite the development bank’s efforts to keep the project from going over budget, the cost of Alstom’s contribution to the project rose to roughly €800 million within a year, the report said.

Spokesmen for the Slovenian Ministry of Infrastructure and Spatial Planning, which oversees the Sostanj plant project, and Termoelektrarna, the utility which operates the plant, declined to comment.

A spokesman for Siemens said the German engineering firm is monitoring the investigation and will decide on possible action once the investigation is complete.