Why those behind Tegeta escrow scandal could be on the radar again

Friday October 18 2019

 

By Alawi Masare @AMasare malawi@tz.nationmedia.com

Dar es Salaam. Individuals behind the infamous Tegeta escrow account scandal could be on the radar afresh as the government stares at the burden of forking out $185 million (about Sh426 billion) to pay a foreign bank which has won an international tribunal compensation over the infamy.

The World Bank arbitration court ordered Tanzania to pay the money to Standard Chartered Bank Hong Kong for breaching an energy generation contract.

International Centre for Settlement of Investment Disputes (ICSID) said on Tuesday that the government breached the agreement it signed with the independent power producer (IPTL) in 1995.

The case at the tribunal arose following the 2014 siphoning of $122 million (about Sh306 billion) from an escrow account between IPTL and Tanesco held at the Bank of Tanzania (BoT). Standard Chartered Bank of Hong Kong argued its investment interests were jeopardised by the action.

IPTL borrowed from a consortium of Malaysian banks to finance IPTL – a debt that was later acquired by the Standard Chartered Bank of Hong Kong. Tanesco was roped in to provide security and guarantee loan repayment backed by the government.

Following the ruling, government spokesman Hassan Abbasi distanced the government from the debt saying it did not borrow the money. However, he assured that the government would follow due procedure to ensure that IPTL, which secured the loan facility, repays.

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Dr Abbasi did not say who exactly would be targeted but his stance means those who could be targeted to recover the money may include individuals mentioned by Parliament’s Public Accounts Committee (PAC) which investigated the scandal. Kigoma Urban MP Zitto Kabwe then chaired the committee.

The committee report, which was tabled in Parliament, resulted in resignation of Prof Sospeter Muhongo and Prof Anna Tibaijuka as ministers and other top officials who were implicated in the scandal, including Attorney General Frederick Werema.

The Committee recommended the immediate arrest and prosecution of Mr Harbinger Singh Sethi and James Rugemalira and freezing of all accounts related to the transactions to do with the escrow account.

The two who were mentioned as architects of IPTL were accused by the team of fraudulently withdrawing the money from the Tegeta escrow account held at the Bank of Tanzania. Parliament also asked that banks involved in the deal be probed and that IPTL be seized and nationalised.

Mr Sethi and Rugemalira are currently in remand facing criminal charges of occasioning the government a loss of Sh358 billion through the firm. They have been in remand since June 2017.

On October 10, Mr Sethi said he had written to the Director of Public Prosecutions (DPP) to negotiate his release under the plea bargaining arrangement, but the DPP was yet to respond to his request. Unlike his co-accused, Mr Rugemalira requested the DPP to be set free so that he would enable the government recover the money swindled through the Tegeta Escrow account.

According to his letter, the money swindled was much more than what he and Mr Sethi were being accused of stealing. He says he is ready to help identify individuals who shared the billions of shillings.

Mr Rugemalira claims that he is owed by Standard Chartered Bank a total of Sh37 trillion, from which the government can get Sh6 trillion in taxes.

Dubious deal?

IPTL was founded by two companies, namely VIP Engineering - owned by Rugemalira who had 30 per cent stake in IPTL - and Mechmar of Malysia.

However, before the withdrawal of the Tegeta escrow funds from BoT, Pan Africa Power Solutions Ltd (PAP) - under Mr Sethi - purportedly acquired 70 per cent of IPTL from Mechmar, in what seemed to be a dubious deal.

At the time of the purported sale, IPTL had cash totaling $250m (Sh575bn), including $122m (Sh306bn) that was sitting idle in the Tegeta escrow account.

The billions were paid to Mr Sethi from the escrow account - apparently after he convinced the relevant officials that he had acquired 70 per cent stake in IPTL from Mechmar, and which enabled him to reach out-of-court settlements with Rugemalira’s VIP Engineering and Marketing.

Mr Sethi paid $75m (Sh172.5bn) to Rugemalira, assuming full control of the Tegeta escrow billions, as well as the IPTL power plants. The money paid to Rugemalira were paid to influential people including ministers, judges, some clergy, and government officials. Some of the escrow money in Stanbic and Mkombozi banks were taken by people who have not been disclosed to date.

Mr Zitto Kabwe said yesterday that the current government should respect the ICSID decision but has a chance to solve the case permanently.

“The government should go through PAC report and recommendations of 2014. It should hand the debt to PAP against Standard Chartered Bank. As a patriotic Tanzanian, I’m ready to share knowledge on how we can settle this forever and save the government,” he said.

According to him, Tanzania should not ignore the decision of the tribunal of the World Bank – an institution which is key for financing development projects in the country.