An Air Tanzania Company Limited plane at the Julius Nyerere International Airport in Dar es Salaam. PHOTO | FILE
What you need to know:
The FYDP II, which was passed by the National Assembly last week. earmarks Mchuchuma coal mine and Liganga iron ore, construction of the central railway line in standard gauge and revival of the national airline carrier as its leading projects.
Dodoma. The execution of three key flagship projects under the Second Five-Year Development Plan (FYDP II) 2016/17-2020/21 is at stake, if the 2014/2015 Controller and Auditor General’s (CAG) report is anything to go by.
The FYDP II, which was passed by the National Assembly last week. earmarks Mchuchuma coal mine and Liganga iron ore, construction of the central railway line in standard gauge and revival of the national airline carrier as its leading projects.
However, a strategic and operational efficiency audit conducted by CAG Prof Mussa Assad on three public entities that are charged with the execution of the projects, the National Development Corporation (NDC), Reli Assets Holding Company (Rahco) and Air Tanzania Company Limited (ATCL), indicates that, they are beset by either bad performance or poor financial arrangements.
Last week, deputy minister for Energy and Minerals Dr Medrard Kalemani, told Parliament that coal and iron ore mining at Mchuchuma and Liganga would begin in March next year under the supervision of the ministry of Trade, Industries and Investment through NDC.
Irregularities
In 2011, NDC signed a joint venture agreement with a Chinese company, Sichuan Hongda Group, to form the Tanzania China International Mineral Resources Ltd (TCIMRL) so as to develop the project. NDC owns 20 per cent of TCIMRL while Hongda owns the remaining 80 per cent stake.
The CAG has however revealed that there are irregularities in project financing. In his report, Prof Assad notes that, under the agreement, Hongda agreed to contribute $600 million of equity to TCIMRL, to be applied in accordance with the progress of the implementation of the project.
“Review of NDC operational processes and controls revealed that there was no mechanism in place to verify and approve the amount injected by Hongda to-date as part of its agreed equity of $600 million towards the implementation of the project,” reads the report in part.
In addition, Hongda will seek debt financing of up to an aggregate of $ 2.4 billion, to be secured by the assets of TCIMRL, including its own mining rights instead of Hongda resources.
“We are of the opinion that, share distribution comes with financial responsibilities; thus, if a loan is to be secured against Tanzania resources, NDC on behalf of the government should have become the majority shareholder of TCIMRL as the value of unexploited resources is worth more than what Hongda has promised to inject $600 million,” reads the CAG report.
The CAG has advised the government to negotiate with Hongda to seek other means of securing the debt financing, and if the mining rights will be seen as the only way out, then the percentage of ownership of TCIMRL should be changed.
Strategic plan
On reviving the national aircraft carrier, President John Magufuli has vowed to provide ATCL with two aircrafts before the end of this year and two others by 2018.
According to CAG, his review of ATCL’s strategic plan 2015/2020, its 2015/16 Budget plan and the company’s financial forecast document, indicated that there is inconsistency on the strategic direction that the company intends to embark upon, which might ultimately culminate in failure to achieve the intended goals.
The ATCL’s strategic plan stipulates that the company was prepared to obtain funds to buy four new aircrafts, including one Bombardier DHC8Q400 for $24.5 million and one Boeing B737NG for $80 million. In contrast, CAG’s inquiry from management and review of the financial forecast document revealed that ATCL intended to buy four used aircrafts; two Boeings 737-500B each costing $4 million and two CRJ200 each costing $3 million, and to finance the procurements. Funds would be derived from a $20 million loan expected to be obtained from Tanzania Investment Bank (TIB).
“There was no evidence that ATCL prepared any detailed business case which carried comprehensive sensitivity analysis to determine the implications of the change between two business assumptions,” reads the CAG report in part.
Business expansion
Prof Assad also said he was concerned with the financial constraints experienced by ATCL since 2007, including losses totaling Sh1366.88 billion, “This suggests that ATCL is unable to confidently plan for strategic business expansion to enable the company to revamp and revive from the current downfall,” reads the report.
Another major project earmarked in the FYDP II is the construction of the central railway line in standard gauge. The government already pegged Sh1 trillion in the coming budget and is currently looking for foreign investment, with Chinese government showing interest.
This project is locally entrusted to RAHCO and according to the CAG, the in 2014/15 it had three economic development projects to execute, including the central railway project, but they had not prepared an action plan to address the challenges it faced, and as a result, it failed to achieve all of them.
“We are concerned with the performance of RAHCO as this impedes the operational efficiency to attain its strategic objectives… the management should develop a comprehensive, attainable and time bound action plan with targets which link with objectives,” reads the report.
