Call to reveal LOC issuer

Tuesday February 12 2019

 

By Josephine Christopher @JocfineQ jchristopher@tz.nationmedia.com

Dar es Salaam. Kigoma Urban Member of Parliament Zitto Kabwe now wants the Bank of Tanzania (BoT) to publicly reveal the bank behind the $180m (Sh418bn) cashew nuts deal with a Kenyan company.

The MP said BoT Governor, Prof Florens Luoga, should tell the public which bank issued Indo Power Solutions the Letter of Credit (LOC) to secure the contract for purchase of cashews from Tanzania.

According to Mr Kabwe, revealing the bank would lift the veil of secrecy surrounding the deal, following reports that the Kenyan company was shadowy and likely a shell entity fronting for a hidden hand.

An LOC is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

The cereals and other produce board on January 30 signed a contract with Indo Power Solutions of Kenya to buy 100,000 tonnes of cashew nuts at a cost of $180 million. The two entities signed the agreement on the sidelines of the East Africa Heads of State Ordinary Summit in Arusha.

Prof Luoga, Tanzania ministers Prof Palamagamba Kabudi (Justice and Constitution Affairs) and Joseph Kakunda (Trade and Industries) as well as Kenya’s High Commissioner to Tanzania Mr Dan Kazungu attended the signing ceremony.

Serious questions have however arisen over the ability of Indo Power Solutions following an investigation by The EastAfrican newspaper which revealed the Kenyan company had no credible track record and may be fronting interests of a hidden third party.

The company was registered in 2016 by two women and according to The EastAfrican, had not transacted any business worth $10million and did not have lawyers, auditors, bankers or a known office. Its chief executive Mr Brian Mutembei was known in Kenyan circles as more of a political wheeler dealer than a suave businessman.

Mr Mutembei’s defence of the deal added more questions than answers as he suggested Indo Power would act as a go-between in the deal and revealed a foreign bank, and not a Kenyan one issued them with the LOC.

Mr Kabwe issued the call on Prof Luoga to reveal the name of the said bank for credibility and transparency purposes.

His appeal came only a day after Trade and Prof Joseph Bichweishaija, defended the government’s role in the deal, saying the company’s track record was not the criterion used to award it the lucrative deal.

“What you are looking at is the ability of the buyer to pay for the asking price, the rest is left between them (seller and buyer),” Prof Bichweishaija said on Sunday.

But Mr Kabwe told The Citizen it was surprising and suspicious that the government could engage and sign such a hefty deal without looking at the track record of the company.

“But even a crucial and fundamental question should be the Letter of Credit. Bank of Tanzania shall tell the public from which Bank Indo Power got the LOC it issued if really there is one,” said Mr Kabwe. He said BoT should confirm if the payment has been received under one week and promised and whether the consignment has been shipped. “It is intriguing that three ministers and the governor were paraded at the signing ceremony with a dodgy company,” he said.

Meanwhile economic experts reached by The Citizen to explain why due diligence is critical in business involving two entities said it was best practice to evaluate the commercial potential of business entities, especially in international trade.

Prof Amon Mbelle an economist from the University of Dar es Salaam said a comprehensive appraisal of a business to a prospective buyer is a must, especially to establish its assets and liabilities in order to reduce the associated business risks.

He said businesses deal with risks associated with money, legal issues and trade ethics.

“If due diligence is not well conducted it may led to loss of money; legal disputes and business reputation of the first entity may go down.”

A tax consultant from PKF Advisory which is an accounting and auditing firm Mustafa Mohamed said even if one was dealing with a potentially loyal client, due diligence is still a must to know whom you are dealing with.

“Even if the other party has the fund needed to finance the investment, there are important regulations to be followed such as the anti-money laundering rules which also applies in Tanzania,” he said.

According to him, the crosschecking process in terms of background information on directors and shareholders, registration and company status can be done digitally through online platforms readily available.

On his part, academic in the field of accounts and finance from University of Dar es Salaam Prof Ernest Kitindi said to make such a huge transaction the government must have done an appraising process to the respective company.

“Doing such as big business deal, am sure the government must have assured itself that it will go through. Because when they decided to enter in the cashew nut trading there must been plants to find buyers,” he said.

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