MITSY Mitsui and Company Ltd (PK)

JAKARTA—General Electric Co. has declined to renew contracts with a subsidiary of a power company in Indonesia controlled by Standard Chartered PLC, which is being investigated by U.S. authorities over bribery allegations.

GE told The Wall Street Journal it hasn't renewed contracts with Navigat Energy, a subsidiary of power-plant builder Maxpower Group Pte. Ltd., in three Southeast Asian countries. A spokesman for GE said the decisions were "based on a number of factors." A deal in a fourth country, major market Indonesia, is due to expire next year, GE said.

Navigat, a distributor, has been in the vanguard of the U.S. industrial giant's drive into distributed power in Southeast Asia, where energy is a significant growth industry and fast-growing nations such as Indonesia are struggling to keep up with commercial and residential demand for electricity.

GE contracted with Indonesia-based Navigat more than a decade ago to sell gas engines used for electricity production. GE launched its distributed-power division, with a $1.4 billion investment to be made over four years, in 2014 in Jakarta.

Navigat was at one point the leading seller globally of GE's Austrian-made Jenbacher gas engines, according to the distributor, with parent company Maxpower often buying the engines for use in its own small-scale power plants as far away as Papua province, some 2,700 kilometers from the Indonesian capital.

Standard Chartered is under investigation by U.S. authorities related to possible bribery and other misconduct at Maxpower, with the U.S. Justice Department looking into whether the London-based bank is culpable for not stopping the alleged misconduct, The Wall Street Journal has reported. Standard Chartered's private-equity unit bought into Maxpower in 2012, and became its majority shareholder in 2015.

Standard Chartered said it has carried out an investigation into the matter, and that it "proactively" referred it to authorities. Maxpower, which flagged findings of possible wrongdoing in 2015, according to an internal audit seen by the Journal, said it has been conducting an investigation and taken remediation steps, including shaking up management and improving internal controls. The Justice Department declined to comment.

"We are aware of the investigation into questions about Maxpower and are closely monitoring the situation," a spokesman for GE said. "GE has strict compliance practices and we expect our employees and business partners to comply with our policies and laws of the countries we operate in."

The internal audit and a subsequent legal review by lawyers working for Maxpower don't suggest GE played a role in the alleged misconduct, according to copies of those documents seen by the Journal. The legal review, by law firm Sidley Austin LLP, stated that it wasn't aware of any circumstances suggesting that GE was involved in "any inappropriate conduct relating to this investigation."

The legal review found what it describes as strong indications that Maxpower employees had bribed officials of state electricity company PLN to get contracts and to get paid on time for services, and made inappropriate payments to others such as security forces, according to a copy of the report seen by the Journal.

A spokesman for PLN told the Journal Thursday that it supported an investigation by U.S. authorities and would await the results.

The head of Indonesia's antigraft agency, the Corruption Eradication Commission, told the Journal Thursday that the agency isn't currently investigating Maxpower, but said his team will make inquiries to the U.S. Federal Bureau of Investigation as well as authorities in Singapore, where Maxpower is incorporated.

Maxpower disclosed some of the findings of possible wrongdoing to GE and others in January, according to documents seen by the Journal.

GE said it didn't renew contracts with the Maxpower subsidiary in Thailand, Singapore and Myanmar.

"These decisions were based on a number of factors, including…[the] go-to-market strategy" of GE's distributed-power business, the spokesman for GE said.

GE didn't say whether it is looking for a new distributor for its gas engines in Southeast Asia. On Monday, GE announced a deal with U.K.-based Clarke Energy, a dealer of its gas and diesel engines in 19 countries, to distribute engines in Papua New Guinea.

Maxpower also has a joint power venture in nearby Myanmar with Mitsui & Co. of Japan. Mitsui declined to comment on whether the continuing investigations will affect that investment.

Maxpower suffered heavy losses in recent years as it sought to expand into the power-generation business. Contracts fell short of expectations amid an economic downturn in Indonesia, and a plummeting rupiah exacerbated the shortfall. The company reported almost $76 million in losses for 2014.

Maxpower is seeking to restructure more than $180 million in loans just 15 months after its last refinancing, people with knowledge of the matter said. The loan was co-arranged by Standard Chartered, and includes more than a dozen Indonesian, Taiwanese and Singaporean lenders.

Write to Ben Otto at ben.otto@wsj.com

(END) Dow Jones Newswires

September 29, 2016 10:35 ET (14:35 GMT)

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