The Chancellor House/Hitachi scandal represents the clearest documented case of a ruling political party directly profiting from government procurement -- a conflict of interest so brazen it attracted the attention of the U.S. Securities and Exchange Commission.
Chancellor House Holdings (Pty) Ltd is the ANC's investment arm -- a company whose sole purpose is generating income for the governing party. During the bidding process for Eskom's massive new-build programme, Chancellor House purchased a 25% stake in Hitachi Power Africa, one of the companies bidding for boiler contracts at the Medupi and Kusile power stations.
The contracts were enormous: $2.91 billion for Medupi (awarded 30 October 2007) and $2.71 billion for Kusile (awarded 14 December 2007) -- a combined $5.6 billion. The ANC's investment arm held a direct financial interest in one of the bidders while the ANC governed the country and appointed the Eskom board that made the procurement decision.
The SEC's 2015 investigation found that Hitachi was fully aware Chancellor House was an ANC front company. More damning, the SEC found that Hitachi "encouraged Chancellor House to use its political influence to assist in obtaining the contracts from Eskom." Hitachi paid Chancellor House "success fees" -- $965,222 in April 2008 based on the Medupi/Kusile contracts and $158,160 in July 2008 for the Kusile expansion option.
Chancellor House's total return was approximately $10.5 million on an investment of approximately $200,000 -- a 5,000% return. This was not a return on engineering expertise, manufacturing capacity, or business acumen. It was a return on political access.
Hitachi paid $19 million to the SEC to settle FCPA charges, neither admitting nor denying the allegations. No South African official or entity was prosecuted. The ANC kept the money. Both Medupi and Kusile subsequently suffered catastrophic cost overruns and delays -- Medupi's final cost exceeded R230 billion against an original estimate of R69 billion -- raising questions about whether the corrupted procurement process contributed to poor contractor selection and performance.
The Public Protector investigated and found a conflict of interest but recommended no action. The ANC's response was that Chancellor House's investments were legitimate business activities.