Monday, November 24, 2014

Facts on IPTL deal ahead of the tabling of escrow scam report

The 100-megawatt electricity generating plant

The 100-megawatt electricity generating plant built by Independent Power Tanzania Limited in Tegeta, Dar es Salaam, in the 1990s. PHOTO | FILE 

By The Citizen Reporter

Dar es Salaam.  As the nation awaits what will transpire this week in Parliament with the tabling of the probe report on the escrow account, The Citizen brings you a chronology of key events since Independent Power Tanzania Limited (IPTL) signed a memorandum of understanding with Tanzania Electric Supply Company (Tanesco)  20 years ago:

1994 – Drought leads to power shortages as hydro catchment areas run dry.   Tanesco invites emergency solutions, eventually settling for two turbines financed by foreign aid.  A joint venture known as Independent Power Tanzania Ltd is set up between Mechmar Corporation of Malaysia (70 per cent) and VIPEM of Tanzania (30 per cent).

August 1994 – IPTL signs an MoU to provide electricity under an independent power project arrangement as a “fast track” measure, but a “medium to long-term solution” is proposed in November.

November 1994-June 1995 –  IPTL starts negotiations with Tanesco through KTA Tenaga Sdn Bhd (Malaysia-engineering), Fieldstone Private Capital Group (USA-finance), Long and Co. and Clyde and Co. (UK-legal affairs).

May-June 1995 – IPTL and Tanesco sign a 20-year power purchasing agreement to build and run a 100 megawatt slow-speed diesel (SSD) power plant in Tegeta, Dar es Salaam, at the cost of $163.5 million, including an engineering procurement and construction contract (EPC) worth $126.39 million, and with a “reference tariff” of $4.2 million per month plus 3.25 US cents per kWh of electricity actually produced.   The final tariff will depend on actual costs incurred.

February 1995-January 1996 – Without informing Tanesco, IPTL negotiates with Wärtsila to build a cheaper medium-speed diesel (MSD) plant.

Wärtsilä’s EPC bid increases by 33 per cent, from $85.7 million to $114.2 million, even though the scope of the project falls considerably.

February 1997 – EPC contract signed.

May 1997 – Mechmar/IPTL obtain a $105 million loan from Sime Bank and Bank Bumiputra. In September 1997, Tanesco requests full documentation on actual costs incurred in order to negotiate final power purchase tariffs.

IPTL produces the EPC at the end of February 1998.

April 1998 – Tanesco issues notice of default to IPTL for unilateral substitution of MSD facility.

April-October 1998 –  Tanesco attempts unsuccessfully to negotiate a lower tariff reflecting the “actual, verifiable and prudently incurred cost” to IPTL of building an MSD plant — as opposed to the contracted SSD plant.

November 1998 – Tanesco requests arbitration before the International Centre for the Settlement of Investment Disputes (ICSID) after IPTL fails to justify the cost structure and payments, including $6.4 million payments to Omni Technical Management Establishment and Prime Consolidated Establishment.

November 1999 – IPTL takes Tanesco to court, claiming interim payments of $3.6 million a month.

IPTL wins the case in March 2000, but execution of the ruling is stayed pending Tanesco’s appeal.

May 2000 – Two Tanzanian officials sign affidavits claiming they were offered bribes by IPTL director James Rugemalira. A third admits accepting a bribe.

February 2001 – ISCID finds that IPTL was overpriced by $23.5 million, but that the contract still stands since Tanesco was aware of the switch from SSD to MSD.

July 2001 – The Minister for Energy and Minerals announces that IPTL will start generating 100MW of electricity in October 2001, and that the Songas natural gas project will start in September.

January 15, 2002 – IPTL starts supplying power to the national grid for 13 US cents per unit.

March 1, 2002 – VIPEM petitions the High Court of Tanzania to wind up IPTL.

2006 – Tanesco disputes the capacity charges charged by IPTL, forcing the two sides to seek arbitration at the ICSID. Following the dispute, both IPTL and Tanesco agree to open an escrow account at the Bank of Tanzania (BoT), pending the determination of the arbitration.

2008 – Mechmar, a Malaysia-based company, which owns 70 per cent of IPTL, is placed under receivership because it defaulted on a loan it borrowed to buy the Tegeta power plants. Standard Chartered Bank Hong Kong gets an order from the High Court of Malaysia, which gives the bank the power to take over the management and operations of Mechmar, including IPTL.

2009 – The High Court of Tanzania places IPTL under a receiver manager (RITA) following the 2002 winding up petition filed by Mr Rugemalira.

2010 – The Malaysian High Court and later on British Virgin Islands High court revoke an attempt to sell Mechmar’s 70 per cent stake in IPTL to a company called Piper Link. The company, registered in the British Virgin Islands, is forced to surrender the share certificates by a British Virgin Islands court. Interestingly, Piper Link was represented by Mr Harbinder Singh Sethi, according to a report compiled by former Tanesco Chief Legal Counsel Godwin Ngwilimi.

2010 – Mr Sethi comes to Tanzania, and claims that he had bought 70 per cent of IPTL from the Malaysian company.  He attempts to take over the management of the company, but fails because of the winding up petition filed by Mr Rugemalira, the minority shareholder, who owns 30 per cent of IPTL.

 September 2013 –  Mr Rugemalira finally agrees to sell his 30 per cent stake to Mr Sethi’s company called PAP for $75 million. He is paid an advance of $7 million on the condition that he withdraws his winding up petition filed at the High Court of Tanzania. Mr Rugemalira withdraw the petition, which paves the way for the consent judgment issued by Mr Justice John Utamwa in September.

October 2013 – PAP’s lays claim to the escrow monies start, but faces legal hurdles. BoT raises concerns, including the allegation that PAP had not registered the purported sale of the 70 per cent stake with the Business Regulatory and Licencing Authority (Brela). BoT also demands proof that PAP lawfully acquired 70 per cent of IPTL as it claims.

October 2013 – PAP presents documents to Tanzania Revenue Authority (TRA) that show that Mechmar sold its 70 per cent stake to Piper Link  for Sh6 million ($3,663). The documents further show that two weeks after the purported transfer of shares, the British Virgin Island company sold those share to PAP at the price for $300,000 (Sh500 million).

November/December 2013 – BoT transfers escrow funds to PAP’s accounts at Stanbic Bank after clearance from the Attorney General’s office as well as the Ministry of Energy and Minerals.

February, 2014 – ICSID rules that Tanesco was indeed overcharged by IPTL. The arbitrator orders the two parties to re-calculate the tariff and report back to the court in May 2014 so that a decision is made. At that time, the escrow account had already been emptied and officially closed.

March 2104 – Parliament’s Public Accounts Committee, directs the Controller and Auditor General to launch an investigation into the process leading to the irregular withdrawal of money from the escrow account.

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