On July 5, 2006, a tripartite agreement was entered between the government through the Ministry of Energy and Minerals, IPTL and BoT in respect to the Tegeta electricity power generating plant in Dar es Salaam.
Dar es Salaam/Dodoma. The Attorney General’s office and Ministry of Energy and Minerals overruled queries raised by the Bank of Tanzania (BoT) on the legality of transferring $122 million (Sh207 billion) to the account of Pan Africa Power Solutions at Stanbic Bank, The Citizen can reveal today.
BoT also demanded evidence that IPTL and Tanesco had resolved the dispute on capacity charge—which ended up with the two parties going for arbitration in Washington, DC.
The revelation comes as the nation waits with bated breath to see what action will be taken against the key escrow billions masterminds by Parliament when the report is finally tabled for debate next week.
In an eight-page letter to Attorney General Frederick Werema and copied to the permanent secretary in the Ministry of Energy and Minerals, BoT Governor Benno Ndulu demanded proof that PAP lawfully acquired 70 per cent of IPTL.
But, according to documents seen by The Citizen, neither Mr Werema nor Mr Maswi provided any concrete evidence that PAP did legally buy a 70 per cent stake in IPTL from the Malaysian firm Merchmar Berhard.
Instead, the AG wrote a legal opinion advising that failing to release the escrow cash—which belonged to PAP in the estimation of the government’s chief legal counsel, would be interpreted as contempt of court.
Demanding more evidence
The Citizen understands that there was a dispute to do with capacity charge between the state-owned power utility and IPTL, which was the basis for the establishment of the escrow account at the BoT, pending the outcome of arbitration by the International Centre for Settlement of Investment Disputes in Washington (ICSID) .
On July 5, 2006, a tripartite agreement was entered between the government through the Ministry of Energy and Minerals, IPTL and BoT in respect to the Tegeta electricity power generating plant in Dar es Salaam.
BoT was appointed an escrow agent and was charged with the responsibility of establishing and maintaining the Tegeta account. It was agreed that all Tanesco payments would go to IPTL and be deposited at the escrow account pending the outcome of the arbitration.
Standard Chartered Bank Hong Kong Limited, acting on behalf of IPTL, filed for arbitration after Tanesco disputed the high capacity monthly charges. On February 12 this year, ICSID ruled that IPTL overcharged Tanesco and instructed both parties to recalculate the tariff to determine who got what so that the escrow money could be withdrawn from the BoT.
By the time the ruling was announced, though, all the money in the escrow account had been transferred to PAP’s account between November and December, last year.
The Citizen has learnt that no resolution of disagreements on capacity charge between IPTL and Tanesco was presented to the BoT as requested by the governor.
Prof Ndulu further questioned the legality of the transfer of 70 per cent of IPTL’s shares from Merchmar to PAP, given that there was no record at the Business Regulatory and Licencing Authority (Brela) showing that the acquisition was approved and registered as required by the law.
The BoT letter read: “Amidst allegations that Merchamar was placed under liquidation in Malaysia and that the liquidator is opposed to the alleged transfer (from IPTL to PAP), ignoring this issue serves no interests to the GoT (Government of Tanzania).
“Release of funds to a company whose ownership of IPTL has not been regularised, notwithstanding the court’s decision, places the bank or GOT in a precarious position.”
PAP rushes to register the acquisition
Responding to this concern, PAP launched a registration process in October last year and submitted questionable documents that, according to the Controller and Auditor General, were falsified.
The documents submitted by PAP to Tanzania Revenue Authority (TRA) show that Merchmar purportedly sold its 70 per cent shares IPTL in September 2013 at a mere Sh6 million.
The sale allegedly took place in September, last year, when BoT raised concern that the acquisition was not registered by Brela as required by the law.
At the time of the purported sale of shares, IPTL had power plants located in Tegeta in Dar es Salaam worth millions of dollars plus cash totalling $250 million—including $122 million sitting idle in an escrow account at Bank of Tanzania (BoT).
According to the TRA’s letter dated November 15, 2013, and directed to Mechmar Corporation, the Malaysian firm allegedly sold its 70 per cent share at Sh6 million ($3,750), going by the prevailing exchange rate on that day.
The letter signed by the regional manager of Ilala Tax region, Mr Paschal Kabunduguru, shows that tax amounting to Sh776,000 was then paid by the Malaysian firm at CRDB’s Water Front Branch on December 6, 2013.
The escrow payments were paid to Mr Sethi after he convinced the officials he had legally acquired 70 per cent of Merchmar’s shares in IPTL—a claim which enabled him to reach out-of-court settlements with VIP Engineering and Marketing, a local firm that owned 30 per cent of IPTL.
To settle the deal with VIP, Mr Sethi had to pay a whopping $75 million to acquire 30 per cent of IPTL in order to gain full control of the Tegeta escrow billions as well as power plants. What does not add up here is how it was that 70 per cent of IPTL attracted only $3,750 (Sh6 million) when, a few weeks later, 30 per cent of the same company was bought at $75 million (Sh120 billion).
Prof Ndulu also warned that any rush to pay the $122 million to PAP would cost the government Sh8.04 billion it would have earned in March this year—when the Treasury bills that were part of escrow would have matured.
Neither the ministry nor the AG heeded BoT warning and, by December 8, 2013, all the escrow billions were in PAP’s account at Stanbic Bank.
