My take
Kama kuna jambo mwenda zake aliinusuru nchi hii ni kuitoa kwenye makucha ya mataperi wa nishati, tulikuwa tumetizamishwa kibra na wala hatukuwa na nguvu za kujinasua kupitia mahakama za kimataifa, maana tayari tulikuwa tumejinyonga kwa kamba yetu wenyewe kupitia mikataba ya kimangungo ambayo watoto wetu wa taifa hili walikuwa wameingia kichwakicha,kwa maana nyingine ukichaa wa mwenda zake uliliponya taifa kutoka kwenye makucha ya matapeli wa kimataifa. pitia hii makala hii na ripoti iliyopo hapo chini PDF halafu umsamehe bure habinder sio makosa yake bali yetu kama taifa.
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How PAP acquired IPTL for almost nothing and looted US$124m from the BoT
escrowtgt /
August 24, 2014
“The impact of Independent Power Tanzania Limited (IPTL) on Tanzanian power policy and performance since 2004 has been almost wholly negative. IPTL undermined government attempts to reduce dependence on hydro-power and diesel to generate electricity by exploiting the country’s plentiful natural gas deposits. IPTL originated in high-level discussions between Tanzanian and Malaysian politicians in the early 1990s. Prime Minister Mahathir Mohamed promoted Malaysian business in Africa, including Tanzania, as a means of furthering ‘South-South Cooperation’ and overcoming the economic dominance of the West. Thus, IPTL was originally ‘fast-tracked’ by the GoT, in the process sidelining the development of gas-fired power….” Continue to read the Briefing Paper by Zitto Kabwe (MP), Chair of PAC.
- Summary
For twenty years, senior politicians and government officials, foreign companies and commission agents have manipulated Tanzanian energy policy and have profited hugely from the Public-Private-Partnerships (PPPs) they set up. In this regard, two PPPs stand out: Independent Power Tanzania Ltd (IPTL) and Richmond/Dowans. But whereas the Richmond scandal forced the resignation of Prime Minister Edward Lowassa (in February 2008), nobody has been taken to task in the same way over the much more costly IPTL, which has been generating ridiculously expensive power for over a decade. This briefing paper explains the origins of IPTL and its recent illegal acquisition by Pan Africa Power Tanzania Ltd (PAP). It is a cautionary tale of how state-private relations can be manipulated to the advantage of the few at the expense of the many, with serious micro- and macro-economic consequences.
Two key protagonists of IPTL are James Rugemalira of VIP Engineering and Management (VIPEM) and Harbinder Singh Sethi, of Pan African Power (PAP) and a string of other companies with dubious track records in Kenya. As a result of the scam, Harbinder Singh Sethi ‘owns’ a functioning 100 MW power plant in which he has invested little or nothing, and James Rugemalira has pocketed US$75m from his 30 percent stake in a company in which he has not invested a single shilling. This paper examines how between them, and with the collusion of Tanzanian courts and senior government officials, these two gentlemen looted the Bank of Tanzania of well over one hundred million US dollars.
This briefing paper elaborates themes that I raised in a recent article, published by
the Citizen.
[2] In that article, I challenged the extraordinary claim by the Attorney General, Frederick Warema, and repeated by others, that the Tegeta Escrow Account is ‘not public money’. Since Tanesco’s books show the escrow money as reserves, it is obviously public money. I further argued that there was no High Court order to the effect that the escrow money should be paid to the claimants, another lie repeated by numerous senior officials, as detailed below. Third, I claimed that the acquisition of Mechmar’s 70 percent share of IPTL by PAP, a deal involving the mysterious Piperlink company and the British Virgin Islands, was also fraudulent. These and other points I raised in the article are explored in greater detail below.
In 2009, the Public Organisations Accounts Committee, which I chaired at the time, issued a directive to the BoT not to release funds in the escrow account. In my capacity as Chair of the Public Accounts Committee, on 20th March this year I instructed the Controller and Auditor General to undertake a detailed special audit of the Tegeta Escrow Account with a view to unearthing the details of just how the owners of IPTL and PAP managed to access it and capture more than half of its contents. The audit will include an examination of the legality of PAP’s acquisition of the shares of IPTL from Mechmar and VIP Engineering.
This paper is in three parts.
Part 1 provides a summary of IPTL’s origins and activities from the 1990s to date. We try to show how the recent looting of the escrow account has its roots in the liberalisation of the power sector during the 1990s, with at least one key actor (Rugemalira) prominent throughout.
Part 2 narrates the Tegeta Escrow Account story and the strategies of the main actors involved. We try to show how certain politicians, officials and judges were complicit in the daylight robbery of the Bank of Tanzania.
Part 3 discusses the consequences of the heist, and general corruption in the power sector, for the economy, power consumers, the GoT and donors. We conclude by reviewing unresolved issues that will need to be addressed for the IPTL saga to be closed once and for all.
Annex 1 provides most of the annotated sources on which the paper is based.
Annex 2 lists press and internet references.
Part 1: Background to IPTL and Pan Africa Power (See Annex 1: 1994-)[3]
‘If this is an example of South-South cooperation, then colonialism was better.’ – Julius Nyerere
The impact of Independent Power Tanzania Limited (IPTL) on Tanzanian power policy and performance since 2004 has been almost wholly negative. IPTL undermined government attempts to reduce dependence on hydro-power and diesel to generate electricity by exploiting the country’s plentiful natural gas deposits. IPTL originated in high-level discussions between Tanzanian and Malaysian politicians in the early 1990s. Prime Minister Mahathir Mohamed promoted Malaysian business in Africa, including Tanzania, as a means of furthering ‘South-South Cooperation’ and overcoming the economic dominance of the West. Thus, IPTL was originally ‘fast-tracked’ by the GoT, in the process sidelining the development of gas-fired power.
In May 1997, Bank Bumiputra and Sime Bank (Singapore) loaned Malaysian company Mechmar over USD 100 million to build the IPTL plant in Tegeta, on the outskirts of Dar es Salaam. Subsequently, Bank Bumiputra declared the loan a non-performing liability. In August 2005, Standard Chartered Bank, Hong Kong (SCB-HK) bought the debt, valued at US$125m, for US$ 74 million.
[4]
Finnish company Wärtsilä built and managed the Independent Power Tanzania Ltd (IPTL) plant, which consists of 10 medium-speed, diesel-fuelled units generating 100 MW of power. For a single medium-sized plant (see side
Box) generating less than a tenth of Tanzania’s total power, IPTL has attracted more than its fair share of controversy and litigation over the last two decades.
A protracted stand-off over the cost of constructing the plant–and therefore the price that the Tanzanian Electricity Company (Tanesco) should pay for its power–seriously delayed IPTL’s commissioning. Instead of generating electricity to ease Tanzania’s growing power deficit, IPTL spent the years 1997-2001 at loggerheads with Tanesco, including international arbitration in 1998. In February 2001, the International Centre for the Settlement of Investment Disputes (ICSID) found that IPTL was overpriced by US$23.5 million, forcing a downward revision of the capacity charge Tanesco was contracted to pay for IPTL power.
IPTL was finally commissioned in January 2002, nearly eight years after the company was set up. But less than a month later IPTL’s minority partner VIP Engineering and Management (VIPEM) filed for the company to be wound up, on the grounds that VIP had not received its 30 percent of IPTL’s equity. Until 2013, VIP tried repeatedly to wind up IPTL against the opposition of Mechmar Bhd, IPTL’s Malaysian majority (70 percent) ‘partner’.
James Rugemalira, IPTL’s ‘Mr Fixit’, has a habit of making absurd claims against both his commercial allies and rivals. Given his key role in the IPTL fiasco over the last 20 years, he is fortunate to have escaped the critical attention of the independent media, normally keen to expose high-level corruption involving foreign investors.
Criticism of IPTL during the last decade has focused on the high cost of IPTL electricity, the sidelining of the Songas power project when IPTL emerged, and the role of high-level politicians in pushing the deal through against expert opinion and opposition by Tanesco and senior government officials. The World Bank—the main financier of Songas—also criticised IPTL, as did the IMF, the EU and certain bilateral donors.
According to Gratwick and Eberhard (2006:46), in 2005, payments to IPTL and Songas accounted for a staggering
two-thirds of Tanesco’s revenues.
[5] To make matters even worse, the following year:
‘…high-level government figures, including Prime Minister Edward Lowassa, staged a farcical repetition of IPTL. They awarded an emergency power contract to a fake “briefcase company,” Richmond Ltd, leaving the country “in the dark” for over three months and costing the country millions of dollars in stolen funds and economic paralysis (Brewin 2011).’
[6]
In 2005, Standard Chartered Bank (Hong Kong) Bank (SCB) bought IPTL’s debt for USD 74m from the Malaysian secondary debt agency known as Donaharta, where Bank Bumiputra had placed it as a non-performing asset. From 2005 to date, SCB-HK has tried in vain to find a way of resolving IPTL’s legal wrangles so as to maintain the plant intact and service their debt. They were undermined by VIP and PAP, who devised a way of acquiring the plant
for nothing while it was still officially in receivership.
In August 2007, the government suspended capacity charge payments to IPTL over the amount of equity used to finance the project. Tanesco claim to have discovered belatedly that VIP had put only a notional amount of equity (share capital) into the project (equity is part of the formula used to calculate capacity charges). Thus Tanesco considered they had been paying more than they should have.
More power crises came and went as IPTL stood idle. But IPTL was seen in a more positive light when, on President Kikwete’s insistence, it came back on stream in November 2009 to help address yet another avoidable power crisis (see
Timeline).
Though proposed from the outset, the conversion of IPTL from oil to cheaper gas fuel has never taken place, imposing unnecessary costs on the economy for imported diesel fuel and on consumers for expensive power (see Timeline December 28, 2009). Songas claims to have saved the country hundreds of millions of USDs in imported fuel. Although investment in gas conversion would reduce costs and increase profits to IPTL, importing fuel creates rent-making opportunities for public and private actors (see Timeline, August 8, 2012). Estimates of how much it would cost to convert IPTL from diesel to gas fuel vary, but the figure of USD 20 million is frequently quoted. The conversion could save Tanesco an estimated US$840 million in fuel costs over 20 years.
Of the main PPPs in the power sector, IPTL and Richmond stand out as costly mistakes that the country could well have done without. But whereas Richmond claimed the head of Prime Minister Edward Lowassa, nobody has been held responsible for the losses incurred as a result of the long drawn out IPTL scam.
Part 2 examines how between them Harbinder and Rugemalira conned the nation out of over US$ 120m (and counting).
Part 2: The ‘purchase’ of IPTL and the theft of the Tegeta Escrow Account
The Tegeta escrow account was created after Tanesco stopped paying IPTL’s capacity charges in 2006. As the money in the Tegeta escrow account increased, so did interest among a certain class of businessmen in acquiring the troubled company, including Mr Harbinder Singh Sethy. Described as a Kenyan ‘tycoon’ or ‘businessman’ in the press, Mr Sethy was in fact born in Iringa, Tanzania, in 1958 (See
Textbox 1). Here we narrate how Sethi acquired, first, Mechmar’s shares and then those of VIP engineering.
Mechmar’s 70 percent. The transfer of shares from Mechmar to Piperlink to PAP was utterly fraudulent. How did PAP acquire Mechmar’s shares in IPTL in 2010 when Mechmar was in receivership? Did, as some believe, the Mechmar directors outsmart the Malaysian authorities, including the High Court, and manage to sell their shares? Harbinder’s story is that Mechmar first sold their IPTL shares to a mysterious entity known as ‘Piper Link’, who kept them, for some reason, in the British Virgin Islands. Mechmar’s receivers claimed that Mechmar Director Datuk Baharuden bin Abdul Majid was ‘in contempt of the Court Order of 4.10.2010 for misleading the Court by entering into a share purchase agreement [for US$6million] with one Piper Link Investments Limited on 9.9.2010.
The receivers successfully petitioned the BVI High Court to recall the share certificates on the grounds that the transfer was illegal. The share certificates were duly delivered by the seller to the BVI High Court.
[7] So how did Piper Link manage to sell its shares to PAP while the evidence shows that the company directors were restrained from completing the transaction in April 2011?’ ‘Which documents did PAP’s owners present to the Ministry of energy and minerals’ confirming’ ownership of IPTL? According to Finance Act 2012, s.29 the latter is obliged to approve the sale after receiving certificate of tax compliance from Tanzania Revenue Authority. Documents show that Piper Link bought Mechmar shares at Shillings six millions and later sold same shares to PAP at USD 300,000. Both Mechmar and Piperlink paid their capital gains tax the same day at CRDB Bank Azikiwe Branch on the 5th December 2013, a day after Bank of Tanzania released escrow money to PAP.
VIPEM’s 30%. The final solution to the IPTL winding-up saga was orchestrated by Harbinder and Rugemalira, with PAP purchasing VIP’s 30% of IPTL for US$75 millions after VIP had withdrawn its 2002 petition to wind up the company (
Annex 1).
Looting the escrow account. In a letter dated 28 November 2013
(bearing no reference no.), IPTL requests the BoT to transfer USD 22m and TShs 8 billion from the escrow account to PAP accounts ‘as per the High Court of Tanzania ruling of 5th September 2013.’
Both government officials and PAP claim that the September 2013 judgement by Judge Utamwa included an order to empty the escrow account. For once,
a Daily News reporter reported events objectively:
‘On September 5, 2013, High Court Judge John Utamwa ordered Administrator General [provisional liquidator of IPTL] to hand over the company’s affairs, including the power plant…to PAP.”
[8]
No mention of the famous escrow account. In the wake of Judge Utamwa’s judgement of 5th September, in early October, 2013, officials of Tanesco and IPTL met at Kunduchi Beach Hotel.
[9] The minutes of the meeting read in part:
‘The High Court … ordered the Provisional Liquidator to hand over all IPTL properties including the IPTL power plant
and the receivables in the Tegeta Escrow Account to Pan Africa Power Solutions (T) Limited.
[10]
But a careful reading shows there was no order in the judgement to hand over such ‘receivables.’ This anomaly was missed or ignored by the lawyers at the BOT and the AG Chambers. Had such an important order been made, isn’t it likely that reporter Faustine Kapama, who invariably reports the VIPEM version of the IPTL narrative, would have reported it in his article quoted above? The incorrect argument that the escrow account was ordered closed by the High Court was taken up by the AG and the Governor of the BoT, Benno Ndulu. In a letter from the Attorney General, Frederick Werema, dated 2nd October 2013, to the PS in the Ministry of Finance, Dr Servacius Likwelile, the AG sees no reason for the BoT not to transfer the escrow money to PAP and that ‘the Government should not be seen to be waffling
in implementing what the court decided.’
[11]
On 20th September, 2013, E S Maswi, the PS in the Ministry of Energy and Minerals wrote to Mr Sethi in his capacity of Chairman and CEO of IPTL, that, ‘following consultation with Tanesco and yourselves’ he had ‘no objection to sign an agreement for the release of funds in the Tegeta Escrow Account to IPTL.’ (See
Timeline,
Annex 1). Yet the meeting in question was an informal affair between relatively junior Tanesco officials with neither of the VIP or PAP principals in attendance.
Below we present pen portraits of the two principles of VIP and PAP. The backgrounds of both suggest that they were quite capable of hatching a strategy to ease IPTL out of the hands of its official receiver in Malaysia, buy Mechmar’s shares via a fictitious intermediary, obtain full control of IPTL through legal trickery, and finally to spring the Escrow money with the assistance of compliant government officials.
Textbox 1: Who is Harbinder Singh Sethi?
Harbinder Singh Sethi is one of the young Asian fixers who made fortunes during the 1980’s when President Moi created his own business and real estate empire. Described in the press as a ‘Kenyan businessman’ or ‘tycoon’, Harbinder Singh Sethi was born and raised in Iringa, a small town in Tanzania’s Southern Highlands. In his early 20s, Sethi and his two elder brothers Nota Singh and Manjit Singh registered Ruaha Concrete Co Ltd, (November 1977), all three giving P. O. Box 498, Iringa as their address. In the 1980s, Harbinder moved to Nairobi, where he became a bagman for President Daniel arap Moi’s eldest son Gideon.
He is also reported to be a close friend of Nicholas Biwott, an immensely rich politician/businessman crony of Moi’s, with whom he is said to part-own the controversial 47 MW Westmont power plant in Mombasa, along with Mukesh Gohil, KamleshPattni, Mr Gichuru, the Managing Director, KPLC, Mr Mutitu, the PS, Ministry of Energy, and Gideon Moi (October 1997). Investigations by Kroll found that: ‘…Gideon owns a number of properties in South Africa. His frontman, Harbinder Singh Sethi, has 74 properties listed under “closed corporations”, all of which are registered in Mr Sethi’s name. The Report of the Kenya Auditor General (Corporations) (1997) cites a contract awarded irregularly by the state corporation (parastatal) Kenya Pipeline Company to Ruaha Concrete Ltd to build a 9 km access road, involving delays, large cost overruns, and poor workmanship.
According to the AG’s report, Ruaha is registered ‘under the category of painters and builders of access roads in estates.’ Supervising Engineer A. S. Kitololo resigned after refusing to sign off on shoddy work. The total project cost rose from KShs 197 million in February 1995 to over KShs 510 million in June 1998, when the project was finally completed. On inspection, the road was found to be sub-standard. The report recommended that Ruaha Concrete be blacklisted and investigated. Another Sethi company, Pan Africa Builders and Contractors, (PABCO), entered into a contract with Kenya’s National Social Security Fund (NSSF) to build houses, apartments and a shopping centre on the Fund’s Kitisuru Estate in Nairobi for nearly Kshs 2 billion. The completion date was scheduled for May, 2000.
The project was subsequently delayed and ‘scaled down’ to Kshs 822 million. On handing over the project in February 2007, the account was not settled, and PABCO sued NSSF for a total of Kshs 1.3 billion. On 31 August, 2010 the High Court found in favour of PABCO to the tune of KShs 668 million, plus costs and accrued interest. PABCO eventually settled for KShs 590m. PAB defaulted in paying the Kenya Revenue Authority tax amounting to 260 million shillings. As a result of his shady business practices, the parliamentary Public Investments Committee (PIC) blacklisted Mr Sethi, recommending that he should not be allowed to undertake construction work anywhere in the country. To complete the picture, as a director of Hydrotanz Ltd, Mr Sethi also has interests in oil and gas exploration in a JV with Adhunik Group. The group has acquired an Oil and Gas Block in “Mnazi Bay”, Songo Songo Island. Hydrotanz is located at Plot No 887 Mrikau Street, Masaki Dar Es Salaam , the same address as PAP.
Recently, Mr Sethi has showcased IPTL/PAP’s Corporate Social Responsibility with the following donations: Shs 11m for a church choir SACCOS for St Rita Wakashia church in Kimara; Shs 10m for the construction of Mbweni-Malindi Police Station; Shs 14.5m in support of the construction of St. Peter’s Church in Dar es Salaam; and Shs 20m for Athletics Tanzania (AT) in support of the national athletics championship (total CSR: Shs 55.5m).
Source: Articles of Association of Ruaha Concrete 1977; Kroll report (extracts); Report of the Auditor-General (Corporations) on the Accounts of Kenya Pipeline Company for the Year ended 30th June 1997 (pp 75-78); ‘Clarification’ by Kenya’s NSSF on Media Stories, 3 April 2012. http://hydrotanz.com/. See References (Annex 2) for links to Sethi’s bogus business deals in Kenya, his role as bagman for Gideon Moi and his business links with Biwott and Pattni, and his Hydrotanz venture into gas exploration. |
President Moi used Kenyan Asians as allies while bringing members of his own Kalenjin community to the centre of economic and political power. The Kalenjin entered into joint ventures with Kenyan Asian business people who often acted as fronts for newly moneyed Kalenjin. Those who were most successful used the state to obtain public sector contracts in association with the Kalenjin elites around Moi. Though a Tanzanian by birth, Harbinder was one of the main beneficiaries of Moi-era official corruption.
Textbox 2: Who is James Rugemalira?
James Bulchard Rugemalira is the central Tanzanian player in the long drawn-out IPTL saga. Describing himself as an ‘Independent, International Consultant’ and a ‘great patriot’, Rugemalira is a former employee of the Bank of Tanzania who took early retirement and entered the University of Dar es Salaam as a mature student, were he obtained a First Class degree (B.Com) even though he was not an outstanding student. In his capacity as director of VIPEM Ltd, he was instrumental in navigating the IPTL deal through the corrupt corridors of power. Although Rugemalira’s job was to fast-track IPTL through Tanzania’s sluggish bureaucracy–after all, it was an emergency project–legal disputes meant that the project was not commissioned until seven years after the MOU was signed. Mr Rugemalira’s JVs (Tritel, IPTL) and distribution franchises (Windhoek, Heineken) sooner or later end up in court.
The Tanzanian judiciary has helped turn Mr Rugemalira into one of Tanzania’s richest men. While Mr Rugemalira files suits mainly in Tanzanian courts against his JV partners or business adversaries, cases are brought against him (as IPTL shareholder) in international tribunals. The 2001 ICSID case resulted from crude attempts by IPTL to inflate the cost of the EPC. His strategy has been to wave the nationalist flag by challenging the legitimacy of all external actors–companies, lawyers, courts–citing the supremacy of Tanzanian law. Though an active contestant in international tribunals in the past, his escrow account coup involved the denial of jurisdiction for the ICSID.
Although recent decisions by the High Court have favoured his interests, for more than a decade he failed to get IPTL wound up so as to claim his 30 percent share. If he has pocketed the US$ 75 million he claims, then the wait has probably been worth it, since a decade ago he would have settled for US$30 million. When ‘interviewed’ on the IPTL deal, Mr Rugemalira is quoted as saying: “Actually, fellow Tanzanians should regard me as a great patriot because the deal was sealed on (sic) national interest. I deserved $600million but I only pocketed $75 million, which is peanuts…”
Source: Cooksey 2003; Citizen Reporter 2014c; allafrica.com/stories/201302181263.html; Daily News Reporter, 17 March 2014. See References (Annex 2). |
Some Tanzanians would not be surprised if ‘
peanuts’ in the English translation of the extraordinary statement quoted above was reported in the original Kiswahili as ‘
vigisenti’.
In September 2008, the opposition began urging the GoT to buy the Dowans 100MW plant to ease power outages, but the government demurred, saying it did not buy second-hand goods. If the government had bought the Dowans plant, IPTL would have been put out of business by Dowan’s much cheaper natural gas-fired engines–to this day, IPTL runs on imported heavy oil, despite nearly two decades of promises to convert to dual oil/gas fuel. Why the conversion was never made when it was so obviously in the public interest (saving to consumer and government) reveals a serious collective action problem, which has the effect of impeding ‘rational’ policy implementation. Is it too much to argue that IPTL’s extremely expensive power monopoly was being protected at the highest level? If IPTL was so controversial, why did Tanesco continue to put millions of dollars into the Escrow account when it was defaulting on so many other debts? Who should finance the conversion? We will leave this and related issues for further discussion.
To date, VIP has been the main beneficiary of the looting of the BoT. If Rugemalira is paid in full, he will receive US$75 million out of US$ 122 million, or roughly 60 percent of the sum removed from the account to date. But there is still a reputed US$128m left in the escrow account which Harbinder will be hoping to put his hands on sooner rather than later. In addition, PAP, whose devious dealings have availed Harbinder of the IPTL plant
for free, stand to continue reaping rents down the line if IPTL is allowed to remain in business under the current political dispensation. PAP have declared their intention to increase IPTL’s power generation capacity fivefold, to convert to gas firing, and to reduce the price of power to US cents 6-8 per unit. Currently, they claim to be producing power at full capacity, still using expensive diesel fuel, while receiving unknown capacity charges from Tanesco.
- Consequences: capitalism with Tanzanian characteristics
‘Consequently, the citizens were the payers of the ultimate price. No electricity and low production, total darkness at night and high costs of production as people and companies spent on buying generators and fuel for lighting and production.’
[12]
This poor performance of the power sector, including recurrent power crises over the last 20 years and the huge indebtedness of Tanesco, worth a percentage point of GDP, is the direct result of the IPTL and Richmond scandals, and inefficiency and corruption in the way Tanesco manages its affairs.
[13] Here we summarise the implications of the IPTL scam for key stakeholders.
Political parties. The current revelations concerning IPTL will further undermine public confidence in the Kikwete regime in the buildup to the 2015 elections. That confidence may collapse completely if Sethi and Rugemalira are allowed to get away with their daylight robbery. We hope and believe that politicians of all parties will mobilise to help bring the perpetrators of the IPTL/PAP scam to justice once they are in possession of all the relevant facts. For the moment, Rugemalira and Sethi are still behaving arrogantly and aggressively, as witnessed by their actions in taking newspapers and politicians to court (on July 13, 2014, IPTL and PAP sued Kigoma South M.P. David Kafulila for defamation, demanding Shs 310 billion in damages). It is now time for opposition parties and public-spirited members of the ruling party to take a principled stand against the monstrous economic crime perpetrated by IPTL, PAP and their accomplices.
Domestic power consumers. Less than one Tanzanian in 50 has access to mains electricity, and most of these live in urban areas. A total of 7.2 million households are said to be without electricity, most of these living in rural areas.
[14] Without more transparency and accountability in the power sector, domestic consumers can expect more of the same in years to come.
Business and the economy. According to the OECD (2013), economic growth is outstripping the country’s power generating capacity:
‘The annual average growth in power generation (at only 4.2% over the past decade) … contrasts with 7.1% average annual economic growth and 8-13% annual growth in energy demand.’
Unreliable power supply undermines businesses of all sizes. For example, in 2012, Tanga Cement claimed to have lost between Shs 80 million and Shs 400 million per month through power outages.
[15] International surveys regularly identify unpredictable power as a major constraint on business profitability in Tanzania.
Figure 1 reports trends in the views of businesspeople on weaknesses in the Tanzanian business environment.
Figure 1: Weaknesses in Tanzania’s business environment 2008-12
Power supply was the main weakness reported by businesses from 2008 to 2012.
Public finance and the budget. This report has documented the dire consequences of power policy mismanagement to the Tanzanian budget. In its 2013 Tanzania country report, the IMF states:
‘Despite the 40 percent increase in electricity tariffs in January 2012, TANESCO’s arrears to suppliers reached an estimated US$252 million (almost 1 percent of GDP) as of end-October 2012.’ (Page 5). ‘Further deterioration of TANESCO’s finances would ultimately translate into a drain on the budget and could result in power outages, thereby potentially undermining growth prospects.’ (Page 6).
[16]
A major contributing factor to Tanzania’s growing budget deficit and emergency borrowing is mismanagement and corruption in the energy sector.
Donors. The last time similar amounts of money were looted from the BoT was the External Payments Account scam perpetrated prior to the 2005 elections that brought the current regime to power. The donor response to that blatant theft was clear and insistent: the GoT should hire a private accounting firm to investigate the case and bring the culprits to court. The first was achieved, if not the latter. This time around, only the British High Commissioner has publicly commented on the emerging scam–which is in fact more serious than the EPA in its down-stream implications–and she was bad-mouthed in parliament as a result, as described in
Annex 1 (May 7, 2014). By far the most exposed donor is the World Bank, which has financed multiple bale-outs of Tanesco up to the present, and is now financing the ‘unbundling’ of the power provider into three semi-autonomous units. In March this year, the World Bank board approved an:
‘IDA credit of US$ 100m for the second power and gas sector development policy operation, which will help Tanzania improve financial sustainability of the power sector, and promote public-private partnerships for increasing generation capacity.’
[17]
This credit continues the tradition of donors baling out Tanesco rather than demanding a complete overhaul of the PPP mechanisms in place in exchange for future aid. If development agencies ignore the implications of this scam for their aid programmes, then they will lose credibility as champions of anti-corruption and good governance in the eyes of the public and add support to those who see development agencies as
part of the problem.
Media, civil society. We would not be discussing the details of this complex scam now if the
Nation Media Group’s newspapers
The Citizen and
Mwananchi had not broken the story in March. Soon after the stories appeared, PAP and IPTL took the newspapers to court claiming that the articles were intended to depict IPTL and PAP as ‘fraudsters, criminals, involved in dubious transactions with intent to defraud and were individuals of moral turpitude.’ We suggest that this is a reasonable description.
That Rugemalira and Sethi can present themselves unchallenged as patriots and genuine investors, motivated solely by the public good, when they are among the architects of our current power malaise, shows just how weak Tanzania media and civil society are in reporting on grand corruption. Did none of our journalists bother to ‘Google’ Harbinder Singh Sethi to establish that his reputation in Kenya is that of a hustler, a proven
tapeli? One searches in vain for an article or editorial in one of our newspapers that is the least bit critical of Mr Rugemalira and his central role in all this trickery? For many years,
the Daily News, a government-owned newspaper, has served as a loyal mouthpiece for the Rugemalira version of the IPTL story. And where are the civil society groups taking up the issue from an ‘anti corruption’ or ‘good governance’ angle?
Going forward: To succeed, the convoluted and risky strategies of Sethi and Rugemalira require the active or passive compliance of senior politicians, government officials, judges and the media.
[18] The chief immediate suspects must include those who, since the
Citizen and
Mwananchi started telling the IPTL/PAP story, have defended the deal or bad-mouthed its detractors most stoutly. Apart from Rugemalira and Sethi, the list includes:
- The Attorney General, Frederick Warema, who claims the escrow account is not public money, and urged the Treasury not to ‘dilly-dally’ over the emptying of the escrow account. Accused of instructing TRA to waive VAT on capacity payments.
- The Minister of Energy and Minerals, Prof. Sospeter Muhongo, who claimed in parliament that opposition MPs were bribed to raise the IPTL issue. (Why would they have to be bribed to run with such a juicy story?)
- The Deputy Minister of Energy and Minerals, Stephen Masele, who accused the British High Commissioner of urging donors and NGOs to take a stand against the emerging scam.
- The PS in the MEM, Eliachim Maswi, who said the documents that opposition MPs were citing to challenge the legality of the emptying of the escrow account ‘were fake.’ Claimed that SCB-HK wasn’t a party to the dispute between IPTL and Tanesco. He was the prime mover to ensure that that escrow money is withdrawn from BoT.
- The management of Tanesco, who to date have raised no objections to the overruling of the ICSID ruling in its favour and the looting of the escrow account, some of which was supposed to be returned to cash-strapped Tanesco.
- The Governor of the Bank of Tanzania, Professor Benno Ndulu, who took great care to indemnify the BoT from any further claims on IPTL after closure of the escrow account but failed to explain why he did not challenge the emptying of the account by referring to the ICSID process and decision (February 2014) supporting Tanesco’s claim that they overpaid capacity charges to IPTL.
- The judicial system. Tanzania’s judiciary comes out of the IPTL saga with a very mixed reputation. Though resisting for years repeated attempts to wind up the company, since the appointment of the Provisional Liquidator, Rugemalira seems to have manipulated the high court at will. What does Judge Utamwa have to say on PAP’s misuse of his September judgement to loot the escrow account?
As well as the CAG, the
Prevention and Combating of Corruption Bureau (PCCB) is currently investigating PAP/IPTL on the request of the Prime Minister, with a view to assessing whether the transactions described in this paper were corrupt. In the past, PCCB has exonerated senior politicians accused of corruption, even though there was massive incriminating evidence against them.
[19] If PCCB wants to improve its public image it will carry out a thorough and unbiased examination of the facts of the case before drawing any conclusions.
Some unanswered questions It is a sad reflection on Tanzania’s performance in policy making and regulation in the energy sector that a medium-size power plant should have attracted so much litigation and media attention over nearly two decades, and been allowed to undermine the country’s power generation priorities, while contributing significantly to huge public and private financial losses. If the long drawn-out IPTL saga is not concluded soon, the constant drain on public (and donor) resources will continue, further undermining the competitiveness of Tanzania’s economy. We conclude with some unanswered questions:
- Why did Tanesco pay IPTL for so long without challenging the capacity charges?
- How long was the IPTL plant not running, and when did it start again? Who paid for its maintenance while it was lying idle?
- How did the Rugemalira-Harbinder relationship originate?
- What was IPTL doing with its income, how much of its debt was recovered?
- What money/shares changed hands between PAP and Mechmar/Piper Link? Who owns Piper Link if not Harbinder Singh Sethy? Who owns the other shareholder of PAP named Simba Trust?
- How much money remains in the escrow account, if any?
- Is IPTL running? Who is managing it? What are its finances? Is it currently receiving capacity payments? How much? What has been agreed with TANESCO?
July 2014
Acronyms
BOT Bank of Tanzania
DFID Department for International Development (UK)
EPC Engineering Procurement and Construction contract
GOT Government of Tanzania
ICSID International Centre for the Settlement of Investment Disputes
MEM Ministry of Energy and Minerals
PAP Pan Africa Power Solutions (T)
PPA Power Purchase Agreement
PPP Private-Public Partnership
RITA Registration Insolvency and Trusteeship Agency
SCB-HK Standard Chartered Bank Hong Kong
TANESCO Tanzania Electric Supply Company
TRA Tanzania Revenue Authority
VIPEM VIP Engineering and Management
[1] This paper expresses my own views, not those of the PAC.
[2] Zitto Kabwe 2014. ‘Tegeta Escrow Account is public money’,
Citizen, Dar es Salaam, 29 June.
[3] This section summarises Cooksey (2002) ‘The Power and the Vainglory: A $100 million Malaysian IPP in Tanzania
’ in Jomo K S (ed)
Ugly Malaysians?: South-South Investments Abused, Institute for Black Research, Durban.
[4] The US$ 51 million discount reflects the ‘net present value’ of the debt and the risk involved in buying a non-performing asset. To date, SCB-HK have not recovered a cent from IPTL.
[5] Gratwick, Katharine Nawaal and Anton Eberhard 2008. ‘Demise of the standard model for power sector reform and the emergence of hybrid power markets’,
Energy Policy 36(10): 3948–3960.
[6] Degani Michael Emergency ‘Power: Time, Ethics, and Electricity in Postsocialist Tanzania’ and Brewin David 2011. ‘Corruption—the lates,
Tanzania Affairs 99: 15–19.
[7] Letter and attachments from Lim Litt and Andrew Heng, official Mechmar liquidators, to Zitto Kabwe, Chair, Public Accounts Committee, 28th March, 2014.
[8] Faustine Kapama 2014. ‘’PAP embarks on plans to reduce power tariffs’,
Daily News, 5 April.
[9] They were: John Kabadi, Senior Manager, Strategic Planning, Hieromini Shirima, PDEO (?), and Stella Rweikiza, Principal Legal Officer (all of Tanesco) and Joseph Makandege, Company Secretary and XX, (all of IPTL). The exact date of the meeting is unclear from the minutes of the meeting.
[10] Minutes of the meeting between Tanesco and IPTL officials, Kunduchi Beach, October 2013 (page 1-2).
[11] Letter ref. AGCC/E.80/6/65 (emphasis added).
[12] OECD 2013.
Investment Policy Reviews: Tanzania, 6 August, p101.
[13] At the time of writing, a former Tanesco MD is in court, accused of corruptly hiring his wife’s firm in a procurement scam. Tanesco are also implicated in a fuel procurement scam involving IPTL (see text).
[14] Tanesco has about 900,000 customers, 80 percent of whom live in urban areas.
[15] George Sembony 2012. ‘Businessmen fed up with power blackouts’,
Citizen, 28 December.
[16] IMF 2013. Tanzania: Country Report, page 6.
[17] Lazaro 2014 (Annex 1, March 21, 2014).
[18] That these are numerous is attested to by the rapid comings and goings of senior officials when Mr Sethi holds court in the Seacliffe Hotel, where he sometimes stays when he’s in Dar es Salaam.
[19] PCCB cleared Lowassa over Richmond and Chenge over the BAE radar scandal.