An inquiry by "Globes" found that Israel Electric Corporation (IEC) (TASE: ELEC.B22) will buy critical systems after signing a contract with a Korean vendor, Seong Wha Ltd. for installation of the primary pipes system at three new power stations that are under construction. The contract was signed without first holding a tender, due to "time and budget constraints". The IEC board of directors' supreme tenders committee approved the contract.
IEC signed the contract even though the vendor told it that the special raw materials for the pipes would not be supplied by Japan's Sumitomo Metal Industries Ltd. as first promised, but by an unknown Chinese steelmaker.
The additional steam generators will boost electricity output at IEC's Eshkol Power Station in Ashdod, Hagit Power station in Yokne'am, and at Ramat Hovav. The NIS 3.6 billion project is IEC's largest project at this time. In the face of a projected electricity shortage from the summer of 2013, the government agreed, in an extraordinary measure, for consumers to partly finance the project, while IEC agreed in exchange to a record timetable to complete it. The steam generators are due to come on line in July-December 2013.
All the installation of the main pipes system is financially small-scale, at $1.4 million per unit, and it is critical for a plant's operations and safety because it must withstand high pressures and extreme temperatures, and a breakdown is liable to cause catastrophe.
IEC originally chose a world-known European firm for the project, but switched to Seong Wha, without a tender and without approaching alternative vendors, using a repeat order procedure. Last year, Seong Wha won the tender to install a similar project at IEC's Tzafit Power Station. The current project is at the same price as the Tzafit project, even though each new project is unique, with its specification.
The contract with Seong Wha raises other questions as well. The Tzafit project has not been completed, so IEC still has no operational experience with the vendor if something goes wrong, such a crack in a pipe. The "Globes" inquiry also found that Seong Wha promised that the special steel for the pipes would be manufactured by Sumitomo Metal Industries, but that in the wake of February's great earthquake, it notified Seong Wha that it could not make the delivery, so Seong Wha switched to a Chinese steelmaker Chengde.
Sources inform ''Globes'' that IEC's professional echelon sharply criticized the agreement with Seong Wha.
IEC confirmed that the tight timetable for building the additional steam generators was the primary consideration for not publishing a tender for the main pipe systems project. An IEC spokeswoman said, "It should be pointed out that a tender process would prevent us from meeting the timetable for the project, raising concerns about the company's ability to supply the necessary amount of electricity in 2013."
The spokeswoman added that Seong Wha promised to carry out the additional projects at the same price as the Tzafit project, "which was much less than previous procurements". As for questions about Chengde, she said that an IEC team would go to its foundry for a meticulous technical certification, and that an international consultancy firm would check that Chengde met international quality standards.
Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2011
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