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Thai graft case shows the lure of bustling Asian market

Under the gun, executives at Mitsubishi Hitachi Power allegedly took a risk

Pressure to complete a Thai power plant project on time likely made Mitsubishi Hitachi Power Systems vulnerable to bribe seekers.
Pressure to complete a Thai power plant project on time likely made Mitsubishi Hitachi Power Systems vulnerable to bribe seekers.

TOKYO -- Intense pressure to deliver on a key project in Thailand likely drove former executives at Mitsubishi Hitachi Power Systems to pay off a local official in a case that resulted in Japan's first plea deal. 

The individuals apparently took the risk despite the prospect of heavy penalties. The episode also highlights growing ingenuity on the part of officials seeking bribes and fierce competition in the booming Southeast Asian market for power plant construction.

Tokyo prosecutors on July 20 indicted three former executives from plant builder MHPS, a subsidiary of Mitsubishi Heavy Industries -- on bribery charges. In February 2015, the three allegedly paid a Thai port official 11 million baht ($329,000 at current rates) to allow the use of a dock to unload construction materials even though proper permissions were not obtained.

Satoshi Uchida, one of the ex-executives, was known as a talented engineer, and acquaintances were surprised to learn of this alleged involvement in the bribery incident.

He "showed his worth at getting stalled projects back on their feet," said a person who knew Uchida well. He "had a gentle character, and was once considered a candidate for president" at the parent, said the person.

MHPS acknowledged that payment was made to a local courier but said it was not able to confirm whether the money was delivered to public officials.

International scrutiny of corrupt dealings overseas has grown stricter of late. The U.S. Justice Department has laid out relevant guidelines and worked with authorities in other countries, with violators facing large fines and other penalties.

The reason the former MHPS executives allegedly went through with a risky cash bribe was likely that the company felt it could not afford to lose in the Thai market. MHPS is suffering a decline in orders as the world moves away from fossil-fuel energy. Order values for Mitsubishi Heavy's power systems segment shrank 17% year on year in the 12 months through March to 1.44 trillion yen ($12.9 billion). But in Southeast Asia, order values in the fiscal year ending March 2021 are expected to double from present levels.

Coal and gas power account for nearly 80% of Southeast Asia's total power generation by volume. Plenty of countries export fossil fuels, and even with carbon dioxide emissions regulations having gained momentum, demand for conventional power -- which is relatively inexpensive to generate -- has seen relatively narrow declines.

Thailand in particular has been host to a number of large-scale projects. In February, MHPS announced it had received an order expected to total over 400 billion yen for a natural gas plant project on the outskirts of Bangkok, involving two state-of-the-art facilities with a combined output capacity of 5.3 gigawatts -- roughly equivalent to five nuclear reactors. In fiscal 2015, the company began exploring the feasibility of another order for a plant using low-grade coal, likely worth around 300 billion yen.

For MHPS, Thailand is a key market where it maintains an edge over such international rivals as General Electric and Siemens. With projects in the offing worth about 700 billion yen -- roughly 70% of its annual order values -- "a mistake would have wrought incalculable damage on the company," said a source affiliated with MHPS, adding that "there was probably insurmountable pressure."

Officials seeking bribes are increasingly "waiting for construction projects to reach a point where they cannot afford to be pulled back or suspended and using their approval authorities to demand cash," said Toshiaki Yamaguchi, a lawyer familiar with corporate risk management.

Such bribe seekers will typically, as in the MHPS case, involve third parties such as couriers, consultants or sales agents "to create circumstances where the company is more likely to make payment," Yamaguchi continued. The more urgent the project, the harder it is to turn down a request.

MHPS' plea bargain, which let it avoid charges in return for cooperating with the investigation, averted a major setback. But though the company likely will not have to revise the project's schedule, the blow to its reputation will not be insignificant.

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