Richmond, Lowassa and the race to Ikulu

Saturday May 30 2015



Edward Lowassa

Edward Lowassa 

Dar es Salaam. On Monday this week, former Prime Minister Edward Lowassa opened what some analysts were quick to nickname “Pandora’s Box” after the Monduli lawmaker offered a well-crafted, rare version of his side of the story of the Richmond power scandal.

In his much-publicised speech announcing his bid to succeed President Jakaya Kikwete today, Mr Lowassa is expected to offer even more details about Richmond—the scandal that rocked this administration for seven years, leaving the ruling party wounded and divided.

From Mr Lowassa’s viewpoint, there was nothing wrong with the much-debated scandal. He is convinced that his resignation was set off by the politics of revenge and betrayal that dominated the post-nomination period and eventually ended with the election of President Kikwete as the fourth head of state in November 2005.

In his first meeting with editors in Dodoma this week after he resigned in February 2008, Mr Lowassa maintained that he did not resign because of his perceived role in the Richmond saga.

Asked whether he believes Richmond was a clean deal, Mr Lowassa said it took a former US Secretary of State and US President Barack Obama to come to Tanzania to confirm that the power generating plant was okay. He says it was unfortunate that, at the end of the day, the government lost a whopping $120 million (Sh240 billion) that was paid to Dowans after a ruling by the International Chamber of Commerce (ICC) in November 2011. “US Secretary of State Hillary Clinton and President Obama came here to praise the very power plant that were installed by Richmond,” Mr Lowassa said. “Today it is generating power in this country.”

The ICC ruling that granted Dowans a $120 million award is confirmation that the contract was clean and was terminated unlawfully, according to him. Asked why he resigned if the deal was clean, Mr Lowassa responded that he did not resign because of the Richmond contract but due to the fact that there were people who wanted his position.

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“The problem was the premiership…they wanted the premiership,” Mr Lowassa said shortly before he resigned in February 2008. “Richmond wasn’t an issue at all,” he added, echoing his remarks shortly before resigning in February 2008.

Mr Lowassa’s version of the Richmond story has come under criticism from his political opponents, who insist that the deal was unlawful and dubious.

Taking advantage of social media, Mr Lowassa’s critics maintain that Richmond was a dubious deal aimed at stealing billions of shillings from the nation, contrary to his claims that not a shilling of taxpayers’ money was lost.

There’s no doubt that Mr Lowassa’s political opponents within the ruling party will lean heavily on the Richmond scandal and claims that the man was once rejected by Mwalimu Nyerere to thwart his bid to succeed his former political ally, President Kikwete.

But there are pressing questions that beg answers: Whose version of the scandal is right? How much did President Kikwete know about it? Was the public told the whole truth about Richmond? Was Mr Lowassa a victim of politics of revenge and betrayal as he claims? Did the taxpayers lose any money?

What was Richmond deal?

Soon after the 2005 election, the nation faced serious power shortages that threatened to mar President Kikwete’s landslide victory at over 80 percent.

But within 100 days of his regime, the power rationing crisis worsened. The previous regimes’ failure to invest heavily in the power sector, along with the prolonged drought in 2005 severely affected power production.

In a country where 90 per cent of electricity comes from hydro-power, when nature refuses to blossom, thanks to climate change and unpredictable weather, the alternative is Independent Power Producers (IPPs).

And so the Kikwete government announced a tender inviting all eligible investors to apply for the production and supply of over 100 megawatts to Tanesco. Though the process was marred by irregularities, the government awarded Richmond LLC a tender to buy, install and generate electricity that it would then sell to Tanesco.

Richmond was to use its own sources to raise over $100 million to buy and install power generating plants. In return, Richmond expected to recover its massive investments through energy charges and capacity charges, which are paid to independent power producers based on their total investment in the power generating plants. These charges are paid regardless of whether electricity is consumed or not. Energy charge is the cost at which the power producer sells the electricity to the buyer—in this case, Tanesco.

All major power projects in Tanzania and elsewhere in East Africa work on the basis of capacity and energy charges. But this government pays Pan African Power Solutions Tanzania Limited (PAP), a company that claims to have legally acquired Independent Power Tanzania Limited (IPTL), a total of Sh5 billion every month as capacity charges whether or not Tanesco buys electricity.

This works out at roughly Sh165 million a day to be paid for the next decade to Mr Harbinder Singh Sethi, who in reality invested nothing in acquiring IPTL plants plus the cash bounty amounting to Sh306 billion($200 million) from the Tegeta escrow account in November, 2013.

When Richmond was awarded this tender, it took the company more than the period agreed in the contract to import and install the power generating plants—a situation that raised serious concern about the credibility of the Texas-based company.

According to Mr Lowassa, when things didn’t work as agreed, he finally decided to sack the Richmond, the very same way he did for another foreign company City Water in 2005, but, he claims, he was stopped to do so by his boss—the President—who advised him to give the company another chance.

But only a few months after the power plants were finally imported and installed, Richmond faced serious cash and operational problems and opted to sell its power supply contract and the power plants to Dowans Tanzania Limited at the end of 2006.

When Dowans inherited the contract, it did indeed produce and supply electricity to Tanesco between 2007 and 2008 before the state-owned power utility terminated the contract after a Parliament resolution in February 2008.

After termination of the contract, Dowans was ordered to remove its power plants from Tanesco’s premises. But, the company opted to sale these plants to Tanesco at the cost of $60 million in 2009, but the move was blocked by anti-Richmond MPs, who claimed that the machines were not worth that amount—insisting that they were fake or dubious plants.

In 2009, Dowans filed a suit before the ICC claiming that the contract was terminated unlawfully. The firm then sought compensation along with a declaration that the government erred in revoking the power supply agreement. Dowans won the case in November 2011 and has since been paid $120 million in compensation despite Tanesco’s chest-thumping.

The truth or lies?

At the centre of the Richmond scandal were allegations that the company that won the tender was dubious and had no track record in mega-electricity projects—and also bought fake power generating plants.

Even as the Harrison Mwakyembe-led committee established that Richmond was a briefcase company with no track record in mega power projects, another version of the story emerged—this time claiming to have proof that the company was indeed registered in Huston, Texas, in United States of America as Richmond Limited Liability Company (LLC). The US confirmed that Richmond LLC was registered in 1994 and this message was sent to the Tanzanian government through the US embassy in late 2008.

But in its final report tabled in Parliament in February 2008, the Mwakyembe-led committee stated categorically that the company was dubious and had no clear registration within the United States. The Committee’s report said it had made inquiries in the US and also among Tanzanians living in America but found no evidence that there was such a company.

But it has never been in dispute that the company did not have a track record in major electricity projects before it clinched the tender in 2006 in Tanzania.

This was the same case with Pan African Power Solutions Tanzania Limited, better known as PAP, which had no track record but was awarded a contract worth billions of dollars by the current regime in a controversial deal known as the Escrow scandal, in 2013.

When did Richmond come to Tanzania?

Richmond LLC had been in Tanzania since 2004, when its promoters claimed they were interested in investing in a multi-million dollar oil pipeline from Dar es Salaam to Mwanza.

This same company was registered by the Tanzania Investment Centre (TIC), where Mr Samuel Sitta was the director general. This was just two years before Mr Sitta became the Speaker of the National Assembly in 2006. It was also two years before the company switched from oil pipeline to power generating in 2006.

While Speaker Sitta claimed he did not know Richmond, it turned out that he had known the company since 2004—when he was the Director of TIC.

Evidence from the Prevention and Combatting of Corruption Bureau (PCCB) shows that Mr Sitta, who was among the officials who accompanied former Prime Minister Frederick Sumaye on a government trip in the USA sometime in 2004, did visit Richmond’s headquarters in Texas.

He had been invited by Richmond, which was already in Tanzania then, to invest in the Dar es Salaam-Mwanza oil pipeline.

PCCB has Closed Circuit Television (CCTV) footage that proves that the Tanzanian delegation, including Mr Sitta, did indeed visit the headquarters of Richmond LLC, in Huston Texas in late 2004.

After returning home from USA, Mr Sitta wrote to the Prime Minister’s office, requesting that the PM facilitate the tax exemption issue for Richmond so the company could proceed with its plan to invest in the oil pipeline.

The letter was received by a Mr Sera, who was the prime minister’s assistant. Mr Sera, who has since retired from the civil service and lives in Changanyikeni suburb, confirmed the authenticity of the letter from TIC, which was written by Mr Sitta.

Was Rostam Aziz involved?

In the beginning, Tanzania’s second richest person, Mr Rostam Aziz, denied any involvement in the Richmond scandal but evidence presented before the ICC confirmed that, by the end of the 2005, the company had granted him power of attorney.

What this means is that Mr Aziz was the legal representative of Richmond from the end of 2005 and was therefore aware of what was really taking place the time it won the tender in 2006.

Besides being among the elite team that planned and funded Mr Kikwete’s election as president in 2005, Mr Aziz was a Member of Parliament and also the CCM’s national treasurer. He was a very close ally of President Kikwete and played a crucial role during CCM’s 2005 nominations and the general election campaign.

Mr Aziz, Mr Lowassa and President Kikwete were very strong allies who carefully planned how the outgoing President would win the presidential nomination within CCM and also the 2005 General Election.

It was also later confirmed that Mr Aziz was among the owners of Dowans Tanzania Limited, the company that inherited the Richmond power supply contract from Tanzania Electricity Company Limited.

Dowans sued Tanesco at the ICC after the latter terminated the contract in 2008 following Parliament’s resolutions after Dr Mwakyembe and his committee tabled the Richmond report.

The ICC ruled in favour of Dowans Tanzania Limited, and the Tanzanian government ended up paying compensation to the tune of $120million (Sh240billion) for unlawful termination of the power supply contract.

From Richmond to Symbion

Alarmed by growing criticism of the Richmond deal, Dowans Tanzania Limited sold its power generating plants to the US-based firm Symbion Power. The offer was initially made to Tanesco, in 2009.

After the termination of the contract between Tanesco and Dowans, the latter had precious little option but to remove its power generating plants from the state utility premises at Ubungo. Dowans, then facing pressure from lawmakers and the general public, opted to sell the plants to Tanesco instead of exporting the very same machines abroad.

But before buying the power plants, Tanesco decided to invite an international firm to inspect the plants in order to establish whether they had value. The international firm conducted due diligence and concluded that both machines could generate power for the next 30 years without any problem provided Tanesco engineers kept to the maintenance schedule.

At a price of about $38 million, according to electricity generation experts, this was the best deal considering the capacity charges Tanesco was paying independent power producers.

But, knowing what the Richmond and later on Dowans scandals had cost the regime politically, Tanesco approached the then Minister for Energy and Minerals, Mr William Ngeleja about the proposal to buy the plants.

According to numerous communications from the Ministry and Tanesco, the former minister—having been briefed about the deal and accepted it, decided to consult his boss, Prime Minister Mizengo Pinda. Mr Ngeleja has confirmed the entire process several times.

When Mr Pinda was approached, he also accepted the idea, but asked Mr Ngeleja to first seek advice from the former Speaker, Mr Sitta. Mr Ngeleja did brief Mr Sitta on the planand the former Speaker endorsed it, saying it was a brilliant idea.

But before Mr Ngeleja could officially authorise Tanesco to proceed with the deal, Mr Sitta was in the media the very next day, warning the government not to buy the Dowans plants.

It was a dramatic U-turn from the former Speaker who had warned the government not to buy Dowans power plants on the grounds that t any such move would attract the wrath of Parliament.

Former Minerals and Energy Committee Chairman William Shelukindo also joined the fray, saying any attempt to acquire the plants was not welcome, power crisis or not.

Then there was Dr Mwakyembe, the man who chaired the famous Richmond Probe Committee, who also stated publicly that it was better for the country to be in total darkness rather than buy Dowans plants.

The government, knowing what Richmond had already cost in terms of political casualties, backed off. But an angry Dr Idriss Rashidi, former Tanesco managing director, warned that the country would be plunged into total darkness if politics continued to drive the energy sector.

To build their case, the group accused Mr Zitto Kabwe, former chairman of the Public Accounts Committee (PAC), of having taken a $300,000 bribe to support Tanesco’s bid to buy the Dowans plants.

Mr Kabwe responded decisively, saying he was acting in the best interest of the country. By publicly supporting this deal, Mr Kabwe was seemingly committing political suicide within and outside his party. But he went to prove his accusers hopelessly wrong in the long run.

Two years later, the once rejected power plants that were dismissed as dubious became the golden goose that lays the golden eggs after it was purchased by an American investor.

The power plants that Mr Sitta and his political allies barred Tanesco from buying were in 2011 purchased by the American-based company, Symbion Corporation, at $100m—three times what Tanesco would have paid.

In 2011, when Dowans finally sold its plants to a US-based firm, neither Mr Sitta nor Dr Mwakyembe and their allies dared question the deal.

Two years later, Symbion bought the power plants at around $100million and entered into a Power Purchase Agreement (PPA) with Tanesco. Symbion has used those same plants to generate electricity, which it sells to Tanesco plus daily capacity charges of $150,000 (Sh246 million), since November 2011.

These are the same plants US President Barack Obama visited early this week. He then showered praise on the US utility firm for its efforts to light up Tanzania.

Former US Secretary of State Condoleeza Rice was the first to inaugurate the plants in Dar es Salaam and described the project as evidence of America’s commitment to end the energy crisis in Africa. Her endorsement was finally concluded in August 2013, when President Obama, accompanied by President Kikwete, officially launched the once-rejected plant at Tanesco headquarters in Dar es Salaam.

Virtually everyone stopped “demonising” the Dowans plants the moment they were sold to the Americans and the famous anti-Dowans crusaders do not have the nerve to raise objections as they did in 2009,—perhaps for fear of possible defeat.

Was it a wise idea to stop Tanesco from buying the Dowans power plants? Only history will tell.

For Mr Lowassa, who was forced to resign, the dramatic turn of events from Richmond to Dowans and, finally, Symbion—is political capital he intends to capitalise on as he seeks to succeed President Kikwete.

To his opponents, though, any such attempt will be anathema and they will be reminding the public what really transpired after the tabling of the Richmond Report in February 2008.

Next week: How much did Kikwete know about Richmond? How much did Richmond cost taxpayers? How much did Lowassa know? Was Richmond a dirty deal or a political revenge?