RE-POSTED NEWS!
The $122 million (Sh201 billion), which was at
the escrow account held at Bank of Tanzania (BoT), was transferred to Pan
Africa Power Solutions (Tanzania) Ltd (PAP) account between November 28 and
December 8, last year (2013).
This revelation comes at a time when Standard
Chartered Bank, Hong Kong (SCB – HK), through its lawyers, has given Tanzania
Electric Supply Company (Tanesco) a 30-day ultimatum to re-deposit the money
into the account or else face legal consequences.
An escrow account is a financial instrument held
by a third party on behalf of other two parties in a transaction. The funds are
held by this kind of account until it receives the appropriate written or oral
instructions or until obligations have been fulfilled.
Contrary to claims by the ministry of Energy and
Minerals that the escrow monies were paid to Independent Power Tanzania Ltd
(IPTL), The Sources have reliably established that the $122 million was
actually paid to PAP.
PAP is the company that has acquired IPTL by
using the escrow funds in a deal that has been queried by some legal experts,
who are wondering how a once liquidated company became the assignee, and
assigned its shares to a new investor.
According to details gathered by The Sources,
which are also corroborated by official correspondence from the BoT to the
Treasury, the agreement to release the escrow billions was signed on October
27, 2013.
In a letter dated December 19, 2013, BoT deputy
governor responsible for administration and internal controls, Mr Juma Reli, wrote: “Invoking the
provisions of Articles 7.7 of the Agreement, GOT and IPTL executed an agreement
for delivery of the escrow funds to IPTL…the agreement for delivery was signed
on October 27, 2013, pursuant to which the bank was instructed to release the
escrow fund.
In a letter directed to the permanent secretary
of the ministry of Finance, Dr Servacius
Likwelile, Mr Reli, further writes: “The funds together with un-matured
investments in treasury bills were dully transferred to IPTL on November 28,
2013 and December 5, 2013.”
“In view of the foregoing, we hereby request you
to order the closure of the escrow account…simultaneously we wish to kindly
inform you that with effect from December 5, 2013 when the last transfer was
effected, the Bank has been duly discharged from its role and obligations as an
escrow agent with respect to Power Purchase Agreement between IPTL and
Tanesco.”
Though the BoT says it transferred the escrow
funds to IPTL, the affidavit sworn by James
Rugemalira, managing director of VIP Engineering and Marketing Ltd, served
at the High Court on January 8, year 2014, state that the money was paid to
PAP.
VIP Engineering and Marketing Ltd was a Tanzania
company that owned 30 per cent shares in IPTL until it allegedly sold its
stakes to PAP at the cost of $65 million (Sh129 billion)—the income he
described last week as “just few cents for tobacco.”
Just a day after the BoT letter, the government
chief legal counsel, Attorney General Justice Frederick Werema, wrote to Hunton and Williams LLP, a US law firm
representing Tanesco, stating: “This letter (BoT letter) is instructive…it may
be helpful to any measures that you may wish to pursue on behalf of your
client.”
Ministry’s contradictory versionIn another
development, the ministry of Energy and Minerals issued two conflicting
communications last week, in a bid to defend what transpired between IPTL,
Tanesco and Pan Africa Power Solutions (PAP).
In the advert, the ministry says following the
order by ICSID tribunal, Tanesco was in the process of initiating discussions
with Standard Chartered Bank, Hong Kong (SCB-HK) to find an applicable formula
to recalculate capacity charges as well as power tariff.
It is hence obvious that the government and
Tanesco understand the involvement of SCB-HK in the multi-billion power deal
that has made the headlines in the country for 19 years. The advert confirms
that the government fully understands the jurisdiction of the ICSID tribunal.
But, on followed Friday, the minister for Energy
and Minerals, Prof Sospeter Muhongo,
posed a question to Mwananchi newspaper: “Are we governed by US laws?
Prof
Muhongo either believes ICSID operates according to US laws or has no
jurisdiction over the government of Tanzania. The minister seemed to contradict
an announcement from his ministry, which confirms and recognises the
jurisdiction of ICSID tribunal.
Investigation by The Sources has also established
that on February 13, 2014, the permanent secretary in the ministry of Energy
and Minerals, Mr Eliakim Maswi’
trashed SCB-HK demands, saying the bank wasn’t party to the long-standing
dispute between IPTL and Tanesco.
In his later dated February 13, this year with
reference number CBD.88/417/01/25, directed to Mr Joseph Casson of SCB-HK, Mr
Maswi writes: “We have carefully studied the contents of the letters…it
surprises to see that the SCB-HK, which neither a party to the Power Purchase
Agreement (PPA) nor to the Implementation Agreement (IA) alleges the breach by
the government of Tanzania or Tanesco.”
Mr Maswi further writes: “The GOT believes that
SCB (HK) is quite aware that it lacks locus standi to claim, pursue, and or
require a part or parties to the said agreement to undertake any associated
requirements as it is not a party to the agreements.”
The letter, which was also copied to AG
concludes: “In view of the above, the GoT does not see a necessity to meet and
discuss any steps in relation to the alleged defaults for mitigation purposes
and its subsequently discourages SCB (HK) from raising any matter against the
GOT in relation to the PPA and IA.”
It is not clear why Mr Maswi chose to respond to
a letter that was directly directed to Tanesco and simply copied to the ministry
of Energy and Minerals.
But as both the minister and permanent secretary
claim that SCB-HK is not an interested party to the IPTL-Tanesco dispute, the
statement from the same ministry and available documents obtained by The
Sources proves the opposite.
Who is scb-hk in this dispute?
To finance its power project in Tanzania in 1995,
IPTL borrowed heavily from Malaysian lenders. Its loan was originally
subscribed with a consortium of Malaysian lenders who in 2005 sold the loan to
SCB HK.
According to details gathered by The Sources, the
financial assumptions were that the projected cost was $163.5 million; the
debt/equity ratio was at 70 per cent senior debt and 30 per cent equity; the
amortisation for the 70 per cent senior debt was at 7 years (later changed to 8
years in 1998) and the internal rate of return on equity was 23 per cent (later
corrected to 22.31 per cent by agreement of the parties after the ICSID 1
award).
Presently, SCB-HK, is the senior debt lender to
IPTL, whereby it is owed $145 million (Sh234.465 billion). SCB-HK subsequently
held a number of settlement and restructuring discussions with Tanesco and its
counsel, Mkono & Co and Hunton & Williams.
The discussions focussed on ways to restructure
the project and facilitate the settlement of creditors’ claims from the Tegeta
escrow account and future operating cash flows.
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 was expenses not incurred by
IPTL in whose shoes the bank stands.”
SCB-HK lawyer warn
Amid claims by the ministry that no breach has
been committed with regard to escrow account, the lawyers representing SCB-HK,
have warned that following the transfer of funds from the BoT to PAP, the
state-owned power utility is indeed in default of its obligation.
In a letter written to Tanesco and copied to the
ministry of Energy and Minerals, SCB-HK lawyer, Mathew Weiniger writes: “We
have seen the affidavit sworn by James Burchard Rugemalira served by VIP on
January 8, 2014 in proceeding in the High Court of Tanzania…If Mr Rugemalira’s
evidence is correct, it would appear that the funds formerly held in escrow
account for Tanesco’s payments obligations under the PPA have been released to
a third party, Pan Africa Power Solutions (T) Ltd.”
Mr Weiniger further writes: “Accordingly, Tanesco
is currently in default of its obligations under articles 6.6 and 6.8 (b) of
the Power Purchase Agreement (PPA)…on behalf of SCB (Hong Kong) Ltd as assignee
of the PPA, we hereby demand that Tanesco provides security for its payments obligations
as soon as possible within 30 days by providing a letter of credit, or making
payment into escrow in an amount equivalent to at least 2 months capacity
charges and energy payments.”
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