Look at how goons and betes noirs are eating Tanzania!

Tanzania :Power fraud unravels

How the government handles the latest power sector scam could have a major impact on President Kikwete’s political legacy

Heads may be about to roll after revelations about the contested transfer of 200 billion Tanzania shillings (US$124 million) from an escrow account in the central bank, the Bank of Tanzania, to Harbinder Singh Sethi’s Pan Africa Power Solutions Tanzania Limited (PAP, AC Vol 55 No 13). The complex details of how Sethi acquired Independent Power Tanzania Ltd. (IPTL) and then raided the BoT account have now been pieced together by two opposition members of parliament, Zitto Kabwe and David Zacharia Kafulila, with the help of The Citizen and Mwananchi newspapers.

As Chairman of Parliament’s Public Accounts Committee, Kabwe is awaiting the results of investigations of the IPTL deal by the Controller and Auditor General (CAG), Ludovick Utouh, and the Prevention and Combating of Corruption Bureau (PCCB) under Edward Hosea. Delays in finalising the two reports have led some to suspect that their findings may yet be tampered with.If Sethi’s critics are proved right, this is the country’s biggest corruption scandal to date. Based in South Africa, Sethi is a Tanzanian-born businessman with a reputation for dubious past dealings in Tanzania, Kenya, South Africa and the United States. Sethi claims to have bought 70% of IPTL’s shares from Malaysia’s Mechmar Corporation, now in receivership. Yet Standard Chartered Bank Hong Kong (SCB-HK) claims to have purchased IPTL’s debt for $76 mn. in August 2005 and says Mechmar was already in liquidation when Sethi claimed to have acquired the shares.The Tanzanian behind IPTL, former BoT employee and self-styled international consultant James Rugemalira, is also under investigation over the $75 mn. that he was paid by Sethi for his company’s 30% share in IPTL. According to press reports last week, the Tanzanian government requested a bank in the Netherlands to freeze the account into which Rugemalira had deposited $65 mn., from which various officials had received payments. It was not revealed how much money remained in the account.Although Prime Minister Mizengo Pinda endorsed Kabwe’s request for the investigations, the opposition has not so far taken up the issue whole-heartedly, even though it is gift-wrapped for delivering huge political capital at the expense of the governing Chama cha Mapinduzi (CCM). This reflects Kabwe’s virtual isolation in the opposition since he fell out with the leadership of Chama cha Demokrasia na Maendeleo (Chadema) and set up his own Alliance for Change and Transparency.The IPTL affair has been widely commented upon in blogs and websites such as JamiiForums but few non-governmental organisations working on good governance, transparency or budget analysis have taken it up, despite its potential magnitude. Among the main development partners, only British High Commissioner Dianna Melrose has had the temerity to comment. Donors are following developments closely, of course, but have not so far been prepared to intervene to protect their aid programmes or taxpayers’ money. The increasingly aggressive government has made donors reluctant to rock the boat, say some.The senior politicians and officials who have been rash enough to defend the IPTL deal from the outset are now in the spotlight. Those who may live to regret their premature public support for Sethi’s takeover of IPTL include the Attorney General, Justice Frederick Werema; the Minister of Energy and Minerals, Professor Sospeter Muhongo; his Deputy, Stephen Masele; and their Permanent Secretary, Eliakim Maswi. All have adopted aggressive stances against Sethi’s and Rugemalira’s detractors.

The Tanzania Electric Supply Company deposited money in a BoT escrow account while a dispute over capacity payments due to IPTL was being resolved through international arbitration. Werema claimed that this was ‘not public money’, a claim shot down by Kabwe who pointed out that the escrow money appeared on Tanesco’s balance sheet. The Attorney General also urged the Treasury not to ‘dilly-dally’ over endorsing the emptying of the escrow account. In a heated parliamentary debate, Kafulila called Werema ‘a liar’ and then Werema called Kafulila ‘a monkey’.Muhongo claimed that opposition members of parliament had been bribed to raise the IPTL question, while Masele accused Melrose of inciting donors and NGOs to take a stand on the emerging scandal. He even demanded her expulsion from Tanzania, a request quickly quashed by the Foreign Affairs Ministry. Although not directly implicated in the deal, the BoT Governor, Prof. Benno Ndulu, has been criticised for allowing the transfer when there were strong grounds for challenging it. Kabwe revealed that the court judgement used by PAP and its supporters as the basis for raiding the BoT didn’t mention the escrow account but did conclude that PAP was the rightful owner of the IPTL plant. Rumours said a judge had ordered BoT to pay PAP: no one had.Sethi and Rugemalira have relied on high-level political support to sustain their initiatives. One person not afraid to reveal her links with IPTL is Prof. Anna Tibaijuka, former head of the United Nations Human Settlements Programme, Habitat, and Minister for Lands and Human Settlements (AC Vol 46 No 15). She admitted accepting $1 mn. from Rugemalira, whom she described as her ‘brother’. Both the Minister and Rugemalira are Catholic, and Rugemalira is a financier of church causes. The Catholic Church runs the relatively small Mkombozi Commercial Bank PLC, where Rugemalira deposited the local currency equivalent of the $75 mn. Sethi paid him. Most of the money was converted into foreign exchange in a single day, flooding the market with shillings and depressing the value of the national currency.IPTL is still producing expensive power at close to the plant’s full capacity of 100 megawatts. Sethi says he intends to invest in a further 400 MW of gas-fired power production and claims to be in negotiation with the Tanzanian and Kenyan governments over a massive cross-border power project. This is most unlikely to happen but Sethi is keen to boost his public image. He is unpopular in Kenya, where he is a citizen, as a result of multiple scams he was involved in during Daniel arap Moi’s presidency. In 2010, Kenya’s Public Investments Committee recommended that his companies, including Ruaha Concrete, should not be allowed to undertake building work in the country. Consultancy firm Kroll’s leaked report on corruption during Moi’s 24 years in power links Sethi with 74 properties owned by Moi’s son Gideon Moi in South Africa but held in Sethi’s name, as well as with Moi’s close long-term collaborator Nicholas Biwott (AC Vol 48 No 18).Sethi’s business interests also include a gas exploration joint venture in Tanzania’s Mnazi Bay exploration block. Though he has not undertaken any exploration to date, he has retained his block, despite efforts by the sector regulator to take it away from him. Both his exploration company Hydrotanz and PAP have the same Dar es Salaam address.Sethi’s version of the complex process by which he came to own the 70% of IPTL shares that originally belonged to Malaysia’s Mechmar does not stand up to close examination. A briefing paper by Kabwe setting all this out in some detail has been widely circulated in social media (http://escrowscandaltz.wordpress.com).Both Sethi and Rugemalira have lived up to Kabwe’s description as ‘aggressive litigators’. Their strategy has been to steer the acquisition of IPTL away from non-Tanzanian jurisdictions (Malaysia and Britain), from other interested parties (SCB-HK) and lawyers, receivers and liquidators in Malaysia and Hong-Kong. In this way, SCB-HK’s property rights in IPTL have been summarily dismissed and attempts by SCB-HK’s lawyers to negotiate a compromise with Tanesco have all been blocked. Furthermore, the findings of the International Centre for Settlement of Investment Disputes over IPTL’s overcharging Tanesco for power supplied and the proposal for a solution involving SCB-HK claims have been ignored. Tanzanian courts have been complicit in rubber-stamping IPTL’s transfer to Sethi’s PAP. None of this helps improve the country’s image abroad.

Kikwete wants closure

If President Jakaya Kikwete prevaricates over the CAG and PCCB reports, the public will draw its own conclusions. Though his CCM is unlikely to lose the 2015 elections, Kikwete does not want his legacy to include undermining his party’s already ragged public image or a reputation for abusing his office by protecting the corrupt. Closure on IPTL would allow him to look forward to a quieter retirement than that of his predecessor, Benjamin Mkapa, who had lost his reputation for probity by the end of his presidency in 2005 and was widely maligned after Kikwete came to power.In his last year in power, Kikwete will also want to maintain his positive image among Western donors and development agencies as a progressive, transparent, pro-business leader. In particular, he would like to stay close to US President Barack Obama, whose multi-billion Power Africa programme is another legacy for both of them. There have been suggestions that the US warned Kikwete at the recent Africa Summit that he had better sort out Tanzania’s power sector to benefit from Power Africa investment. So far, the Millennium Challenge Corporation has invested $900 mn. in Tanzania, and US power company Symbion has announced a $900 mn. investment in a gas-fired power plant.

Unbundling Tanesco

Embassies and aid missions in Dar es Salaam are monitoring the IPTL saga closely. According to Muhongo, the World Bank has committed $300 mn. to finance power sector reform, including the ambitious unbundling of Tanesco, at a cost of $100mn. At least half of the previous $100 mn. power sector loan is said to have been used for non-project purposes. Critics see the Bank’s and other agencies’ loans, as well as budget support, as effectively underwriting Tanesco’s burgeoning debts. The company owes hundreds of billions of shillings to private power suppliers, including IPTL, as well as to its suppliers and lawyers.To allow the investigations to run their course and to resolve the IPTL question would give Kikwete immense kudos. Tanzania power sector monitor Brian Cooksey told Africa Confidential that the current IPTL investigation could be a turning point in the way the government pursues its energy policy. ‘For two decades, power policy has been undermined by private power producers buying political support for their projects. One result is that Tanesco is still paying for diesel-fuelled power from IPTL 20 years after the government decided that natural gas was the rational choice. The losses incurred by Tanesco, tax payers and donors are huge, as are the costs incurred by businesses and private power consumers resulting from recurrent power crises,’ he said.While projected power demand increasingly outstrips supply, surveys show that local and foreign companies consider power shortages and corruption major drawbacks to investing in Tanzania. Fewer than 15% of Tanzanians have access to electricity, ranging from 59% in Dar es Salaam to only 2% in rural areas. A recent survey by the local pollster Twaweza showed that a majority of Tanzanians had never heard of IPTL. That could be about to change. 

Source: African Confidential vol. 55- No 19, Sept 2014.