IEC to pay millions to fix defective Siemens turbines

Haifa power plant

The turbines were bought in the early 2000s after the German company bribed an Israel Electric Corp director.

The Siemens bribery scandal is back in the headlines, after Globes was informed some of the turbines procured by Israel Electric Corporation (IEC) (TASE: ELEC.B22) from the company were partly defective. An internal document from IECs Engineering Projects division, circulated at the beginning of the month, was provided to Globes it reveals the company will invest millions of shekels in repairing the turbine installed in Haifa.

The turbine, purchased in the early 2000s, was stored in a warehouse for a decade; when it was finally installed, engineers discovered a significant component was defective, leading to 100-hours of downtime. However, by then the warranty provided by Siemens had expired.

A letter sent two years ago from the storage unit to then-CEO Eli Glickman also provided to Globes showed the company was aware of the defects since at least then.

Global Siemens admitted in 2008 to bribing officials around the world to win tenders from the early 1990s until the early 200s to the tune of $1.4 billion. The company confessed to paying $20 million in bribes to IEC.

In 2013, former judge Dan Cohen who served as an IEC director was convicted of receiving a 1 million bribe from Siemens to help its bid to supply turbines for the Israeli companys power plants. Cohen was sentenced to a six-year prison term; two of the turbines were allocated to the power plant in Haifa.

Following developments in the investigation into Siemens in the US and Germany, the Israel Securities Authority received new information and documents and decided to renew the Israeli investigation in 2009. Last July, the regulator announced it would seek legal action against several former and current IEC executives. Last October, the Tel Aviv District Prosecutors Office said it was considering serving indictments to six executives.

It is alleged the executives received bribes worth millions of shekels from Siemens for helping the company win its bids for IEC tenders between 2000 and 2005.

It never ends with 2 million shekels

Though the turbines were purchased early in the previous decade, at least two of them were stored for nearly a decade at IEC storage facilities. Finally, in 2011, then-Minister of Energy Uzi Landau inaugurated the power plant in Haifa, and the new-old turbine was placed in 2012. At the time, IEC claimed the delay was due to the difficulty of receiving regulatory authorizations for the project.

But now documents suggest the turbines were simply defective. The April 2014 letter sent to then-CEO Glickman explained the defect in the turbine. Since the units were put into operations, there have been repeated problems with the debris filter which limit and even stop its operation at an alarming frequency: some 436 hours between September 2012 and September 2013.

Two years later, the company is preparing to repair the defective parts. An internal document sent to IEC executives at the beginning of March claimed the unit needed to be disassembled and the Siemens equipment replaced. According to the letter, the station required an investment of 3,000 work-hours.

Speaking to Globes on Monday, an IEC source believed the repairs would cost NIS 2 million NIS 750,000-900,000 in work-hours and NIS 1 million for the new equipment. However, a source familiar with the company and the Haifa plant claimed the cost would be significantly higher. Nothing at the IEC ends with NIS 2 million. The company currently plans to halt operation of the unit in May that costs money too. And no one can guarantee there wont be new problems.

Published by Globes [online], Israel business news - - on March 16, 2016

Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Haifa power plant
Haifa power plant
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