This story was first Published in Business Times Friday, 14 March 2014, and
is written by JOHN KIMBUTE:
CHANCES are that the Government of Tanzania will have to part with hundreds
of billions of shillings in favour of the Standard Chartered Bank of Hong
Hong (SCB-HK) following a judgment and demand note delivered by the
International Centre for Settlement of Investment Disputes (ICSID), a world
renowned tribunal based in the US capital of Washington, DC!
While the formal debtor in the case is the state power monopoly TanESCo
(Tanzania Electric Supply Co. Ltd), the matter has all along been handled
by top organs of the central government, namely the Ministry of Energy &
Minerals, the Ministry of Finance, the Bank of Tanzania (BoT) and the
Attorney-General’s Chambers.
As it happens, all of these institutions were involved in one way or
another in sanctioning the transfer of funds held in escrow at BoT – the
central bank and banker to the Government – in respect of a highly
controversial power purchase deal involving the now liquidated Independent
Power Tanzania Ltd (IPTL).
The funds, amounting to US$122m (roughly Tsh201bn), were transfered to the
account of another power firm, Pan-Africa Power Solutions (PAP), which
purchased IPTL following the latter’s liquidation!
Unlike IPTL, PAP has no links whatsoever with the Standard Chartered Bank
of Hong Kong. On the other hand, the escrow account was being managed by
BoT to meet payment obligations (loan, etc) by TanESCo/Tanzania Government
as due to the Hong Kong bank under the IPTL power purchase agreement (PPA).
obligations to the HK bank, after it acquired the loan for setting up IPTL
power facility from its original Malaysian debtors.
Reports are that the HK bank acquired 70 per cent of the debt as such
(named ‘senior debtor’ in the trade). The remaining 30 per cent of the debt
was converted into equity. In that case, it does not feature in the claims
in relation to managing the escrow account – and, thus, in transferring the
funds to what the HK bank says is a third party, while the debt obligations
still stand, and the escrow account was supposed to contain the capacity
charge and power tariff proceedings for IPTL, to be paid to its lender by
BoT as a third party trusted by the two.
What has been somewhat strange in the manner the issue has been handled is
the contradictory statements made on the matter. There especially has been
an attempt to ignore the responsibilities of local decision-makers to
SCB-HK.
At one point, faced with questions from a local business reporter, Energy
Minister Sospeter Muhongo wondered aloud if Tanzania is governed by US laws.
“Prof. Muhongo either believes ICSID operates according to US laws, or it
has no jurisdiction over Tanzania,†the reporter in questioned observed.
“The minister seemed to contradict an announcement from his ministry
confirming and recognizing the jurisdiction of the ICSID Tribunal!”
If nothing else, this shows that TanESCo and the Energy ministry are bent
upon repeating the Dowans breach of contract saga, doing so at a higher
level: the amount involved in the ICSID case is much higher than in the
Dowans dispute!
The critical element in the plan to divert the escrow account funds to the
IPTL purchaser – and then having to settle claims by the debt holder under
the IPTL power purchase agreement by direct government financing under
duress from execution of the ICSID judgment – is its intricacy.
Considerable wrangling is likely to arise on the status of third parties,
for instance the Hong Kong bank that government officials blatantly say is
not a party to agreements relating to the setting up the BoT escrow
account, or seek to divert the issue to the purchaser of IPTL as operator
either of that account or any new IPTL account from which its debts or
other obligations would be settled.
Pinning down the government could be difficult, as it requires utmost
clarity as to the flow of obligations, contracts, etc.
As a point of departure, following the ICSID Tribunal’s ruling which more
or less states that TanESCo was on the verge of bankruptcy when it is faced
with claims from SCB-HK to be either settled or provided a firm schedule
of payment attached with security in 30 days from the date of ruling, is
chicanery: time-wasting tactics whose reasoning is to create a vacuum of
what is to be settled and in what manner… Which means that one seeks
leave of the High Court of Tanzania to set aside the ICSID ruling and start
a local process on the terms of indebtedness and particulars of payment!
This trajectory of action was vivid in an advertisement placed by the
Ministry of Energy (& Minerals) to clarify the ICSID-based report that
TanESCo was on the verge of bankruptcy.
Badra Masoud, the company’s director of communications, issued an advert
saying that, following the order by the ICSID Tribunal, “TanESCo was in the
process of initiating discussions with Standard Chartered Bank-Hong Kong to
find an applicable formula to recalculate capacity charges as well as power
tariffs.”
That would have been meaningful if it were a new contract being initiated
with PAP, the purchasers of IPTL, but not with the Hong Kong bank!
Chances are, therefore, that this idea of sitting with SCB-HK to discuss
the obvious and after a judgment has been issued, which TANESCO and the
other stakeholders can’t challenge in court as there is a previous ICSID
ruling which led to the opening of the BoT escrow account to serve as
go-between with TanESCo as operating company, the government as sole
shareholder and the IPTL debt holders.
For the ministry and its associates to issue terse statements indicating
lack of knowledge that SCB-HK was a party to the opening and operation of
the escrow account at the central bank sounded a bit disingenuous; but it
fits the bill of intent!
That is precisely what the legal mechanism to be intimated especially in
local (municipal) courts is likely to feature, but not before the payment
starts; that is, placing security while the litigation proceeds!
By the time all avenues of defence and the establishment of
responsibilities are sorted out, that could be well beyond the term of
office of the current administration, with a few of the key players happily
retired, and business reporting still seeking to make head or tail of
whether the Hong Kong bank is a party to the escrow account or a third
party as is being asserted – or has no locus standi as the ministry dared
to flatly declare.
What is clear is that no one will get to the bottom of this issue – as to
what decisions. For instance, were issued and why; in what manner it was
forgotten that the escrow account was being held for and on behalf of the
Hong Kong bank, and not to the debtor in the first place as the ministry
and other agencies decided it was the case!