Dar es Salaam/Dodoma. Pan African Power Solutions (T) Limited (PAP) did not legally acquire 70 per cent of Independent Power Tanzania Limited (IPTL) from Malaysia-based company Merchmar Berhad, an investigation by the Controller and Auditor General (CAG) has established.
PAP is owned by Kenyan tycoon Harbinder Singh Sethi, who claims that he did not come to Tanzania to make money but to help end chronic electricity problems in the country.
The CAG has also established that all money in the Tegeta escrow account was supposed to be paid back to Tanzania Electric Supply Company (Tanesco) because the state-owned power utility had been overcharged a total of Sh321 billion by IPTL between 2002 and 2012.
According to two senior officials from the CAG’s office, who were among investigators who probed the multibillion-shilling scandal, Mr Sethi presented forged documents to the Tanzania Revenue Authority (TRA) and Business Registration and Licencing Authority (Brela) in an attempt to hide the dubious nature of the transactions.
The Citizen exclusively reported last month that documents submitted by PAP to TRA show that Mechmar purportedly sold its 70 per cent stake in IPTL in September 2013 for a paltry Sh6 million.
Mr Sethi and his son own 50 per cent of PAP, while the rest is owned by a company called Simba Trust that is said to be incorporated in Australia, according to investigations conducted by The Citizen.
What brings the transaction into question is the fact that at the time of the purported sale of shares, IPTL had power plants located in Tegeta, Dar es Salaam, worth millions of dollars plus cash totalling $250 million—including $122 million sitting idle in an escrow account that was under the custody of the Bank of Tanzania (BoT).
Billions of shillings were paid to Mr Sethi from the account after he convinced the relevant officials he had acquired the 70 per cent stake in IPTL from Mechmar, which enabled him to reach out-of-court settlements with VIP Engineering and Marketing, a local firm that owned 30 per cent of IPTL.
To reach a deal with VIP, Mr Sethi had to pay a whopping $75 million to acquire 30 per cent of IPTL in order to have full control of the Tegeta escrow billions as well as the power plants.
What does not add up, however, is 70 per cent of IPTL being acquired for only $3,750 (Sh6 million) and, a few weeks later, 30 per cent of the same company being bought for $75 million (Sh120 billion).
The documents show that Piperlink, a British Virgin Island offshore company, bought the 70 per cent IPTL stake for Sh6 million before transferring it to Mr Sethi for $300,000 (Sh480 million).
Investigators who spoke to The Citizen yesterday on condition of anonymity said a section of the media was waging a relentless propaganda war in support of a questionable transaction. “The CAG’s office acted professionally, and we established that PAP didn’t buy 70 per cent of IPTL as it claims…we were not tasked with taking anyone to court but to conduct a forensic audit to establish whether the deal was aboveboard or shady. We concluded that it was shady,” one of the officials said.
The CAG investigation has also established that Attorney General Frederick Werema erred by granting a tax exemption to PAP, which was paid $122 million (Sh207 billion) from the escrow account.
Details gathered by The Citizen show that the AG’s role is bigger than just unlawfully granting a tax waiver to PAP because he also acted as the lead legal counsel and facilitated payment of billions of shillings to Mr Sethi. For instance, in September, last year, the AG wrote to Tanesco’s former chief legal counsel, Mr Godwin Ngwilimi, instructing him to travel to Malaysia on a fact-finding mission related to the PAP’s purported acquisition of the 70 per cent stake in IPTL.
Mr Ngwilimi, who was later forced to resign by the Tanesco board, travelled to Malaysia and established that the purported acquisition did not take place, but the AG overruled him and advised that the escrow billions be paid to PAP.
PAP was supposed to pay tax as directed by TRA, but Mr Werema wrote a letter instructing that the company should not pay value added tax (VAT). The AG has no legal mandate to grant tax exemption as this is the preserve of the Finance minister.
The CAG team has also established that the Ministry of Energy and Minerals failed to obtain proof that PAP had actually acquired the IPTL stake.
Energy and Minerals Permanent Secretary Eliakim Maswi facilitated the release of the escrow billions to PAP without having concrete proof of the purported acquisition.
As a result, Tanesco incurred a loss of Sh306 billion in inflated charges by IPTL between 2002 and 2012.
In fact, according to the CAG team, IPTL still owes Tanesco an extra Sh15 billion because the total amount the state-owned utility has been overcharged is Sh321 billion.
The Tanesco board of directors rescinded its earlier decisions, allowing PAP to be paid billions of shillings as well as being granted a contract extension despite the fact that all the money in the escrow account was supposed to returned to the state utility.
Earlier, the Tanesco board raised queries about the deal, but the very same board later rescinded its decisions and endorsed the deal in a questionable move, according to details gathered by the CAG team.
Contacted yesterday, Public Accounts Committee chairman Zitto Kabwe did not deny or confirm the details, only saying, “The public shouldn’t worry because everything is under control.”