$270m deal: Story of IPTL, PAP and High Court

The acquisition of the Independent Power Tanzania Ltd (IPTL) facilities has caused anxiety and raised questions in legal and government circles—with some analysts likening it with the $131 million External Payments Arrears (EPA) mind-boggling scam.

 The deal took place at the time when two different court battles in Dar es Salaam and Washington— about Tanesco’s $270million— involving the liquidated IPTL, the company that has dominated the country’s energy sector for 19 years.

The deal, which has been financed in part by $270 million from Escrow account, opened at the Bank of Tanzania (BoT) some years ago and is being queried and some legal experts punching holes in the manner it was sealed.

IPTL claimed that it invested about $165 million to establish power generating plants located at Tegeta in the 1990s.

At the centre of the debate is how IPTL, a once-liquidated company, become the assignee, and assigned its shares to Pan Africa Power (PAP), The Citizen has established.

Senior legal experts who spoke to The Citizen questioned how a liquidated company was able to transfer its shares to third party, PAP. One asked: “How could a dead person (IPTL) assign another company to undertake its business?”

According to the two-month investigation conducted by this paper, another issue that has confounds legal fraternity and some quarters in government is how the money deposited into the Escrow account at the BoT was withdrawn and used in the IPTL-PAP transaction.

Escrow account is a financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.

Background

 In 1995, Tanesco and IPTL entered into the Power Purchase Agreement (PPA) in which the latter agreed to design, construct, own, operate and maintain an electricity generating facility in Tanzania.

An original dispute in 1998 between Tanesco and IPTL was settled by an International Centre for Settlement of Investment Disputes (ICSID) tribunal in the case of Tanesco vs IPTL— ICSID Case No. ARB/98/8, which rendered an award on July 12, 2001 whereby the parties to that arbitration had further agreed on a financial model to be applied to calculate tariffs under the PAP.  Following the award, Tanesco continues to pay capacity charges and other levies until January 2007, when it discovered that it has been overcharged by IPTL—a move that forced the State-owned power utility to open a court battle.

Tanesco questioned the legality of the calculation of the capacity payments in June, 2004 and since then it has been a one step forward, but two steps back for the state power utility in its bid to fight the battle with IPTL.

 As the two parties continue with the legal tussle in Washington and Dar es Salaam, it was then agreed that an Escrow account be opened at the BoT—and Tanesco deposited all payments mean for IPTL pending the determination of the main civil cause in USA.

Some of the key conditions for this Escrow account were that if Tanesco wins the case, it would be refunded the extra payments it has made, after an appropriate calculation agreed by both parties under the auspices of the ICSID tribunal.

  If Tanesco lost the case, then the monies banked at BoT’s Escrow account would go to IPTL.

 On February 14, this year, ICSID—the Washington based tribunal agreed with Tanesco’s claims about over-priced capacity charges and tariff, ordering the two parties to come up with a proper formula to calculate the tariff within next three months.

What transpired?

 Reliable details obtained by The Citizen during our investigation show that by the end of last year, the account had about $270million as per the prevailing exchange rate because all payments made by Tanesco were in local currencies.

However, The Citizen couldn’t independently verify the actual figure of what was in the Escrow account because there was another report that the money had reached $250 million by the end of 2013.

The PAP purchased IPTL plants located at Tegeta by acquiring 70 per cent shares, which were previously held by Malaysian investors and 30 per cent stakes that belonged to a local company, VIP Engineering and Marketing.

The money used in this deal came from the very same amount banked at the BoT Escrow account, according to reliable sources.

This took place at the time when there was still another pending case between Tanesco, IPTL and Standard Chartered Bank—Hong Kong (SCB HK) at the ICSID tribunal in Washington.

 In establishing an Escrow account, there are certain conditions that are agreed upon by both parties including accessibility to the funds, which requires consent from key concerned parties.

 In this case, the two key parties to access the funds at BoT were supposed to be IPTL and Tanesco. But, since IPTL was under provisional liquidator, it is not clear who represented it in the deal to acquire the Tegeta power plants.

 Another burning issue was the SCB HK, which sued Tanesco at ICSID, Washington, in its bid to recover the loan it advanced to IPTL during the purchase of the power plants.

 On February 14, this year, ICSID ruled: “The present case, SCB HK is entitled to recover the tariff payments due during the period when the plant was being operated by the provisional liquidator, which will include capacity charges and bonus payments, less the amount that covered the operation and maintenance of the plant that comprised expenses that were not incurred by IPTL. Contacted for comments, a senior Dar es Salaam lawyer  who is familiar with the case since he has been representing one of the parties, said the whole transaction involving transfer of IPTL shares to PAP has serious legal ramifications that raise many questions.

 “To best of my knowledge,” he said, “the IPTL was under a provisional liquidator, Registration Insolvency and Trusteeship Agency(RITA), so, how can another firm buy all its assets using the very same revenues which were in escrow account under the court order?” 

 According to the senior counsel who declined to be named since the matter at ICSID, in Washington, was ruled in favour of Tanesco in February, this year, then whoever has assumed the rights of IPTL without notifying the ICSID is likely to lose the money in Escrow account.

Dillydallying, brief response from key players

To get the inside story of what really transpired at the corridors of justice in between September 2013 and January, 2014 that led to monies being withdrawn from Escrow account, The Citizen contacted some key players in this deal. However, besides dillydallying, their responses were brief.

On Thursday, January 30, 2014, the BoT Governor, Prof Benno Ndulu, said: “I think it is better to talk to authorities concerned —Tanesco and the ministry (of Energy and Minerals). I don’t want to be accused of speaking beyond my authority. I think you are aware about a court case on the issue.”

On Friday, January 31, 2014, the Tanesco managing director, Mr Felschemi Mramba, said: “I cannot comment anything about it. The court has made a ruling that I cannot talk about.”

On Friday, February 07, 2014, the Attorney General, Judge (rtd) Frederick Werema, sent this paper an sms saying: “You can make an appointment so that you get to know the whole issue. I hope you have talked to IPTL shareholders and the new proprietors or their lawyers. This could help you.”

After asking for an appointment, Judge Werema sent another sms saying: “Come to see me after you have talked to shareholders, especially a Tanzanian, Mr James Rugemalira, who has sold his VIP shares.”

On Sunday, February 9, 2014, Mr James Rugemalira sent an sms saying: “Lucas, since 24th January 14 VIP transferred its 30% shares in IPTL to PAP (Pan Africa Power Solutions (Tanzania) Ltd. I advise you to contact Mr Singh (+255767xxxx) on all questions concerning IPTL. James. Cc. Dr Singh.” (Lucas is a reporter with The Citizen.)

On Tuesday, February 11, 2014, Mr Singh (PAP CEO) sent an sms to this reporter, saying: “Sir. Please contact Mr Joseph Makandege who is our company secretary. And spokesman for PAP +255767xxxx…I have travelled and will be away for 2 weeks for religious function. Thanks.”

On Friday, February 14, 2014, the PAP company secretary, Mr Makandege, promised to talk to The Citizen on February 15, 2014 but when the day came he could not pick this reporter’s several phone calls.

And on Tuesday, February 18, 2014, Mr Makandege availed his email address to this reporter saying all questions regarding this issue should be emailed to him, promising to answer them.

However, Mr Makandege cautioned that he would not hesitate taking legal action if there was any misreporting of the issue. He asked this reporter to get a copy of a court judgement delivered on September 5, 2013.

On Tuesday, February 18, 2014, Mr Makandege acknowledged receipt of the questions sent to him by email and promised to answer all the questions when time allowed as his schedule was tight.

However, until we went to press late yesterday, there hadn’t been any written response from Mr Makandege.

 How high court blessed the deal

 In Miscellaneous Civil Cause No 254 of 2003 between VIP Engineering and Marketing, IPTL (first and second applicants) versus PAP, BoT, Stanbic Bank Tanzania Ltd and Standard Chartered Bank Tanzania Ltd (as first, second, third and fourth respondents) ruled on January 8 that the first applicant and the first respondent have agreed to mediate this matter through the court’s assistance and upon mediation been conducted, the following were ordered by the court:

• The first applicant in this chamber application filed on January 8, this year, VIP Ltd and PAP, who are key parties in this matter have agreed to mediate the matter and that, this consent settlement order shall dispose of the whole application without involving the rest of the parties.

• That VIP hereby waives all claims related to contractual interests in respect of the contract (the contract) made between it and PAP on the August 15, 2013 and executed on August 19, the same year on sale and purchase of 30 percent VIP’s shares in IPTL to PAP.

• That PAP shall pay the balance of the contractual amount as purchase price of $67.5 million (109.14billion) to VIP Ltd before the end of January 20, 2014—twelve days after the order was issued.

• That PAP shall pay VIP the contractual amount by discounting the government of Tanzania Treasury Bills at the BoT payable to PAP or any other legal sources before January 24, this year.

• That VIP shall withdraw Wartsila Netherlands B. V. and Wartsila Tanzania Limited from Civil Case No. 229 of 2013 it filed before the High Court against the two companies and others so that the latter can assist PAP in converting IPTL into gas firing and expanding the IPTL plants into gas operated power generating plants with the capacity to produce 500 megawatts.

 The Citizen has reliably established that the money used to pay VIP Ltd to wholly acquire IPTL plants came from the Escrow account established at the BoT.

 “I have never seen something as controversial as this deal in my entire 25 years of legal practice…first of all the consent order was issued without involving other key parties.” Another lawyer who represent one of the parties told The Citizen under the conditions of anonymity last week.