HTHIY Hitachi Ltd (PK)

TOKYO—Mitsubishi Heavy Industries Ltd. said Monday it was demanding a payment of ¥ 379 billion (about $3.5 billion) from Hitachi Ltd., its partner in a power-systems joint venture, in a dispute over a power-plant project in South Africa.

The disclosure came as a surprise and pointed to a rift between two of Japan's biggest industrial companies.

A unit of Hitachi won contracts in 2007 and 2008 totaling ¥ 570 billion to install boilers for two coal-fired power plants, Medupi and Kusile, in South Africa, Hitachi said at the time. The South African business was inherited in 2014 by a joint venture between Mitsubishi Heavy and Hitachi that integrated the two companies' thermal power-generation businesses.

The two sides said they never reached a final agreement on how to value the South African business and have been negotiating for the past two years.

The power-plant construction has long been troubled by construction delays and other problems. Mitsubishi Heavy's president, Shunichi Miyanaga, said his company already was worried about the South African contracts before concluding the joint-venture deal with Hitachi and left the final value open for that reason.

"We were concerned that the progress of the project was slow," he said. It will still take another four years before completion, he said.

A Hitachi spokesman said Hitachi wouldn't accept Mitsubishi Heavy's demand and negotiations were continuing.

Mr. Miyanaga said he didn't have a "hostile" intent toward Hitachi in disclosing the dispute. Mitsubishi Heavy wanted to be responsible to its shareholders, he said.

Mitsubishi Heavy said part of the payment it expects to receive from Hitachi is recorded on its balance sheet as a liquid asset. It didn't give the specific amount.

The two companies have swung between alliance and acrimony in the past. They discussed a full merger in 2011, but settled for the venture in thermal power after they couldn't agree on final terms of deal.

The South Africa project has already caused Hitachi trouble. Last September, it agreed to pay $19 million to settle U.S. Securities and Exchange Commission charges that it violated a U.S. antibribery law through allegedly improper payments tied to South African government contracts to build the plants. The company neither confirmed nor denied the allegations, according to an SEC statement at the time.

Write to Yuka Koshino at yuko.koshino@wsj.com

(END) Dow Jones Newswires

May 09, 2016 10:15 ET (14:15 GMT)

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