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Echoes of 1990s debt-swap in new scandal at Tanzania central bank
By JOSEPH MWAMUNYANGE
The scope of the probe into the looting of billions of dollars from the Bank Tanzania that was recently announced by Finance Minister Zakia Megji may be expanded to include the abuses of the controversial Debt Conversion Programme of the 1990s.
In that programme — which involved investors buying the country’s foreign currency debt at a discount and accepting payment in local currency that was then supposed to be invested in projects in priority areas — it is suspected that unscrupulous businessmen incorporated fake companies to access the facility and beat the guidelines that were set by the Central Bank.
Last month, Mrs Meghji told The EastAfrican that the government would float an international tender for auditors of repute to investigate the curRent fraud at the central bank involving the management of the Commercial Debt Account.
In another inquiry, carried out in September last year, a reputable international audit firm wrote to the BoT governor questioning the over $120 million that was paid to several companies in Tanzania under the Commercial Debt Programme. One company was paid about $40 million. The claims and payments were made between May 2005 and March 2006.
The audit firm advised the BoT governor to hire a forensic expert to assist in investigations into the alleged forgery. Instead, the BoT disputed the report and terminated the services of the audit firm.
For two weeks, efforts to get the names of directors or shareholders of the companies from the Business Registration and Licensing Authority (BRELA) proved fruitless because the files couldn’t be traced.
A source from the Treasury told The EastAfrican, “If the auditors expected to be engaged by the government do not move in fast enough, there is a possibility that they will find some important documents missing.”
The 1990s scam involving the Debt Conversion Programme (DCP, 1990-94) had dramatic repercussions. Augustine Mrema, (then minister for Labour and Youth) was fired for “spilling the beans” in parliament over the DCP money, while a Treasury Permanent Secretary also lost his job “in the public interest” over the scandal.
Mr Mrema was sacked by the then president Ali Hassan Mwinyi for what was described as “collective responsibility” following his revelations in parliament that he was blocked from investigating the DCP funds.
The DCP was created by Tanzania to sell government debt at a discounted rate. One objective was to encourage investments in priority areas chosen by the government. They included agriculture, tourism, industry, commerce and transportation and would have involved local and foreign investors creating jobs. The other reason was for the government to reduce its local and foreign debt stocks, which had reached alarming proportions. In summary, the DCP enabled an investor to purchase foreign debts at a discounted rate. The Bank of Tanzania would then make available to the investor local currency to the full amount of the debt redeemed.
But some of the funds were repatriated abroad instead of being invested.
The Debt Conversion Programme (DCP) was established in 1990 but only became operational in January 1991; by 1993, the government had halted the whole programme after discovering that it was “distorting the economy” instead of bringing about economic development, as the government had expected.
In the two and half years that the programme was operational, some 82 companies were given permits to buy debt. The government paid the firms Tsh50.877 billion in local currency, equivalent to 18.02 per cent of the government’s recurrent budget for 1992/93.
“The government was forced to print money worth Tsh 48 billion to cover the deficit. A simple analysis showed that 15 companies were given Tsh 1 billion each, while 13 others were allocated between Tsh500 million and Tsh1 billion each; and 54 companies got Tsh500 million,” said the 1994 Parliamentary Report.
A quick analysis showed that 45 per cent of the money was paid to just 4 companies. These were Deco Arts (Tsh3.054 billion), Hotel Sea Cliff (Tsh1.786 billion), M.M. Motors (Tsh1.619 billion) and M.M. Garage (Tsh522.128 million), totalling some Tsh6.982 billion. All four were associated with one businessman.
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by Joseph Mwamunyange
The Tanzania Government Has Decided To Contract International Forensic Auditors To Investigate The Mysterious Disappearance Of Millions Of Dollars From The Bank Of Tanzania (bot), The Country’s Central Bank.
The Saga Started In December When Finance Minister Zakia Meghji, In A Surprise Move, Put A Notice In The Daily News Announcing That, “the Government Had Been Informed Of Alleged Impropriety In The Management Of External Commercial Debt Accounts At The Bot.”
The Minister Described The Allegations As “serious” And Announced That The Government Had Directed The Office Of The Controller And Auditor General To Conduct A Special Audit And To Report To The Government Urgently.
Curiously, Mrs Meghji’s Statement Did Not Disclose Who Reported The Matter To The Government Or How It Came To Know Of The Missing Millions.
But It Is Suspected That The Information The Government Is Acting On Came From A Report By A Mission Of The International Monetary Fund (imf) That Conducted An Audit On The Bot Last Year — Which Explains Why The Government Has Wasted No Time In Bringing In Investigators.
Whichever Way One Looks At It, The Development Is Significant Because It Is The First Time The Country Will Be Conducting A Thorough And Independent Investigation In The Sensitive Area Of The Commercial External Debt Account — The Same Account That Has Proved To Be So Prone To Abuse By Corrupt Regimes In Developing Countries.
For Instance, The So-called Anglo Leasing Scam That Has Dogged The Regime Of President Mwai Kibaki In Kenya For The Past Two Years Basically Involves Abuse Of The Country’s Commercial Debt Account By Well-connected Government Contractors And Cronies Of The Regime.
The Case Must Also Ring A Bell With Indonesia Where, In 2002, The Governor Of The Central Bank, My Syahrill Jabril, Was Indicted After He Being Accused Of Having Surreptitiously Channelled Millions Of Dollars To Foreign Commercial Banks By Disguising The Money As Payments For Servicing The External Commercial Debt Account.
When The Payments Were Audited, It Turned Out That Part Of The Money Was Paid In Commissions To Companies Linked To Key Leaders Of The Of The Ruling Golkar Party.
The Suspicion Was That The Money Was Used To Finance President B.j Habibie’s Election Campaign.
In An Exclusive Interview With The Eastafrican, Tanzania’s Controller And Auditor General, Ludovick Utouh, Revealed That His Office Had Already Prepared The Terms Of Reference For The Investigations And That These Had Been Submitted To The Imf.
The Special Audit Is Expected To Start Within The Next Six Months. Mr Utouh Said That The Investigation Would Establish The Actual Amount Of Money Missing From The Central Bank And If There Was Any Impropriety.
Insiders Estimate The Amounts Involved Run Into Millions Of Dollars And That Some Of The Firms Used In The Fraud Were Off-the-shelf Companies Registered In A Very Short Period Of Time Specifically To Facilitate The Channelling Of Monies.
Speaking To The Eastafrican, Mrs Meghji Said The Government Was Keen To Determine Whether There Was Any The Truth In The Allegations, Adding That The Findings By The Reputable External Auditors And Investigators Would Be Made Public Because The Government Wanted To Be Transparent On This Issue As Well As On Other Sensitive Matters.
It Remains To Be Seen How Quickly The International Investigators Will Move And How Much Co-operation Will Be Given To Them By Government Officials.
In 2001, The Government Of Former President Daniel Arap Moi Of Kenya Gave In To Pressure From The Imf To Appoint International Investigators To Audit The Country’s External Debt Account At The Central Bank Of Kenya.
The French Finance House Lazard Brothers, Who Were Engaged To Conduct The Inquiry, However Failed Make Any Progress Because Some Ministers Refused To Provide The Auditors The Original Documents And Contracts For Which Payments Were Being Released From The External Debt Accounts.
Since Most Of The Contracts Belonged To Suppliers Of Security Equipment And Services, The Government Argued That Secrecy Laws Prohibited The Handing Over Of Such Documents To Foreign Consultants.
For President Jakaya Kiwete, The Investigations Are Thus A Litmus Test Of His Commitment To Transparent Government. Kikwete’s Government Came To Power Promising To Give More Powers To The Prevention Of Corruption Bureau (pcb) To Go After The Big Fish.
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In Line With This “new Vigour,” A Former Tanzanian Envoy To Italy, Prof Costa Mahalu And Two Others Last Week Become The First Envoys In Tanzanian History To Be Brought To The Court To Answer Charges Of Misappropriation Of Funds Whilst Serving Tanzania Abroad.
Another Prominent Businessman Is Likely To Be Taken To Court By The Corruption Watchdog When Investigations Into His Activities Are Completed.
On His Recent Visit To The United Kingdom, President Kikwete Said That Tanzania Government Would Like The Ongoing Investigations By The Uk’s Serious Fraud Office Into The Purchase Of The Bae Watchman Radar System To Go On An Interrupted, Promising That His Government Would Not Interfere.
The Controversial Multibillion Military Radar System, Which Tanzania Purchased From The Uk-based British Aerospace Engineering At $40 Million Was Of The Same Kind That Three Other Countries Bought At 45 Per Cent Less Cost. [FONT=verdana,geneva,lucida,'lucida grande',arial,helvetica,sans-serif]
Hiyo ya WANYARWANDA kupewa nafasi za kazi benki kuu wakati waTanzania hawana kazi na wanaelimu zao imenidepress zaidi nannaona bora ni log offf tu
no wonder Tafiti then Jadili naye haonekani
Jamani tukiingia kwenye maswala ya uraia hapa tutazidi kuchanganya mambo...kuwa watu wizara ya mambo ya ...tena ni wakurugenzi ambao sio wabongo. Hey mimi ushahidi sina, nisije nikasutwa...all in all hili tatizo ni kubwa na kwa kiasi fulani siamini kama wahusika hawajui ila nadhani ni part ya system fulani.
Hebu tajadili hayo mahela yetu yaliyoibiwa pale BoT mchana kweupe...najiuliza ile jitihada ya BM kulipa madeni ilikuwa na ajenda nyeti nini..??
Hapa TZ eti wanajiita "Waangaza", whaaaat!! kuna waangaza wa kweli na kuna waangaza feki, hawa akina Rugumyamheto (Utumishi), Kamazima (Jeshi, Usalama), Ntukamazima(sehemu nyeti mbali mbali), na Ntagazwa (Usalama), na Pale UDSM ni bonge la penetration (ya Rwanda + Burundi) ndani ya system yetu. vijana wengi wa kutoka hizo nchi waliingia ktk system zetu nyingi kupitia hizo nguzo zao kuu.
Kumbuka kilio cha Wazee wa Biharamulo!!
DrWHO usi-logoff, hii nchi yetu inabidi tuikomboe toka mikononi mwa "mamluki" waliomo kwenye idara zetu nyeti kwani wengi wao hawana uchungu kabisa na yanayotokea.
TANZANIANS HOLD THEIR BREATH AWAITING: If the buck stops at Central Bank
THISDAY REPORTER
Dar es Salaam
A respected consultancy firm - PriceWaterhouseCoopers - now holds the key to the future of the financially strapped Kagera Sugar Limited, which has defaulted on a huge bank loan guaranteed by the Central Bank, THISDAY can report.
PriceWaterhouseCoopers (PWC) has been commissioned to carry out an independent assessment of the sugar project financed by a syndicated facility. The fate of Kagera Sugar is highly perilous, and experts have intimated to THISDAY that it may not continue to operate given its precarious financial position.
The worrying question among discerning Tanzanian tax-payers is, who will foot the bill for its botched operations?
The consultancy firm was picked by the parties to the syndicated loan facility agreement as a way of solving the matter amicably following intervention by the Prime Minister, Mr Edward Lowassa.
On the strength of a Bank of Tanzania guarantee, Kagera Sugar Limited borrowed some 72.178bn/- from various local financial institutions three years ago, and was given a two-year grace period to start servicing the principal loan and interest, but has since failed to honour its obligations.
The lenders then decided to recall the syndicated loans due to default on the part of Kagera Sugar. This would mean that Tanzanian tax-payers would have to foot the staggering bill of over 57bn/-.
In 2004, BoT guaranteed payouts of 80 per cent of the 72.178bn/- syndicated loan, which was provided by various financiers, including the lead bank in the deal � Stanbic Bank - which gave out 17.178bn/-. Other financiers included the Barclays Bank (10bn/-), the NSSF (12bn/-) the Public Service Pensions Fund (12bn/-), PPF (12bn/-), CRDB Bank (8.5bn/-) and the Tanzania Investment Bank (5bn/-).
Our investigations show that some time last year Kagera Sugar submitted to the lenders a proposal to reschedule the debt, which was rejected by the lenders on explanation that the borrowers had not put up enough equity as they had promised.
The borrowers even rejected the conditions given by the lenders if they were to reschedule the debt. The lenders wanted to hire a sugar expert for Kagera Sugar and that all sugar produced by the company be controlled by the lenders under collateral agreement. Another condition was that the shareholders put more equity into the business.
After the borrowers rejected the conditions, the lenders were now left with a few options, including calling up the guarantee and putting the company under receivership.
Sensing danger, Kagera Sugar last month instituted a commercial case against the lead bank - Stanbic Bank - seeking that the matter be stayed to give parties a chance to initiate and conduct negotiations for restructuring of the loan and interest repayment.
Through their lawyers - FK Law Chambers - Kagera Sugar wrote to the Registrar of the High Court, Commercial Division, stating in part: ’’It has come to the knowledge of the plaintiff that the defendant (and other lenders as defined in the syndicated facility agreement, have, vide a letter dated December 5, 2006 sent to the plaintiff through an e-mail dated December 12, 2006, unilaterally concluded that the entailed negotiations between the parties have failed’’
It has now surfaced that Premier Lowassa chaired a meeting towards the end of last month, during which the parties agreed on an amicable way of solving the outstanding issues, which have led to the unsatisfactory performance of the formerly state-owned company.
It was agreed that PWC carry out an independent business review of Kagera Sugar project to assist the lenders in considering the borrower�s request that the lenders restructure the syndicated facility agreement. The parties also agreed to explore the possibility of restructuring the Syndicated Facility Agreement during the period between the date of this agreement and April 30, 2007.
According to an agreement reached by the parties ’’while some of the lenders may be prepared to swap the borrowers debt or parts of it for equity on terms to be negotiated, Barclays Bank records that it would not.’’
It was also agreed that PWC be allowed to enter and conduct a business review of the Kagera Sugar project and to assist the consultants in all respects as they may reasonably require to perform the lenders� instructions, including providing access to the borrower’s accounting and other business paper and electronic records and computer systems, and to the borrower�s employees.
The parties also agreed not to proceed with commercial Case 51 of 2006 instituted by Kagera Sugar against Stanbic Bank until April 30, 2007.
Our sources say PWC shall work under instructions of the lenders, at their (lenders) cost, to undertake the business review of the borrower and the Kagera Sugar project.
The review, according to the instructions, shall include assessment of the current status of the project.
Additionally, the consultancy firm shall assess the borrower’s ability to repay its debt to the lenders in the context of its present position and of the additional capital investment required (assuming the investment was made).
In carrying out the assessments, PWC shall also review the original feasibility study report, previous PWC business review report, field data review and various operational reports by the borrower and the lenders that will be provided to PWC.
In the earlier business review report, PWC noted that: ’’Although the company has initiated discussions on restructuring of the loan and interest, the company is technically in default and (subject to the terms and securities) the lenders could exercise enforcement rights.’’
In the report, the consultancy firm has advised that the lenders should seek to regularize the loan documentation and security position, particularly by applying pressure to the company to obtain the necessary title deeds and charging these to the lenders.
The syndicated loan facility agreement dated May 18, 2004 and related contracts and deeds were signed between the seven financial institutions and BoT as government guarantors, three corporate guarantors - Kagera Sugar Limited, Super Doll, Superstar Forwarders Company Limited and Mr Nassir Ally Seif and Mr Saif Ally Seif as individual guarantors.
Sources in the financial institutions say KSL has been making huge losses since it started operations in October 2004. It is evident that the shareholders do not have the capability to manage the large scale investment.
There are fears among experts in the financial institutions that the funds meant for development of the company’s sugar cane estates, were grossly mismanaged.
’’It is our considered opinion that the funds were grossly mismanaged,’’ said a source close to the financial institutions.
Increased sugar exports were expected to contribute to economic growth and strengthen the value of the shilling, which has been taking a beating due to increased imports, which is why the government established an Export Credit Guarantee Scheme and budgeted 130bn/- to be administered by BoT.
But now there are questions as to why the BoT granted such a huge guarantee to just one private company. ’’This implies that Kagera Sugar was initially given 65 per cent of the total budgeted amount, which is quite an unusually risky undertaking. We would have expected the loan guarantee to be spread to among different companies,’’ said a source close to the Ministry of Finance.
He added: ’’There was obviously some political influence in the deal how can just one company be given 65 per cent of the loan guarantee budget?’’
Analysts say it’s wrong for BoT to be the regulatory authority of the banks on one hand and guarantor on the other as that may lead to conflict of interests.
They are of the opinion that the guarantee scheme should be transferred to the Tanzania Investment Bank (TIB), which recently got government approval to become a development bank.
Members of the Parliamentary Finance and Economic Affairs Committee have been questioning key aspects of the loan agreement. The MPs have decided to probe the BoT loan agreement, funding gaps and economic viability of the expansion of the sugar factory.
(ends)
Is there anything to add hapo jamani....acha mimi niendelee na kilio...
DrWHO umeamua ku-log OFF..!! Huu ni MSIBA WA MAENDELEO kwa taifa.
Last edited by Yebo Yebo; 30th January 2007 at 04:41 AM..
kaka who ,hili la wanyarwanda benki kuu ni kweli,yaani ni kama kupe,taumke wengi pale utasikia wanajifanya mara wahaya ,wanyambo,au waha nk..tena nashauri hili la wanywarwanda kujikita kwenye nafasi nyeti tuliundie mada maalum..hatukatai wapwa tatizo ni kuwapa wajomba zetu hawa hata nguo zetu za urithi.
we have serious problem to allow them in these serious posts,uhamiaji wanafanya nini?huko jeshini na usalama wafanye upya raking ,watakaogundulika wafuatiliwe popote walipo hata kama tayari wamerudi kwao baada ya kukamilisha malengo yao,na wapewe stahili yao.
Haya mambo ya Unyamulenge ndio kero kubwa katika sehemu nyeti Tanzania.Ni ukweli usiopingika kwamba BOT kumejaa hawa ndugu zetu wanaojiita Wahangaza!.Tukifukua zaidi tutaupata ukweli wa kutaka kumvua Uraia Bwana Ulimwengu na Mh. Bandora!,Sijui kama wakubwa wanalifahamu hili la kuingiliwa na wanyarwanda,kwani wameingia kwa nguvu na wapo kwa wingi kwenye High Institution na hata Jeshini.Tuwe macho,na hii mnayoiita EAC tutakwisha!.Kuna mtu kawazungumza akina Rugunyamheto na Kamazima nataka kukwambia hata kampeni Meneja wa JK kwenye uchaguzi wa 2005 ni mtu wa huko!wenyewe mnawaita Wahangaza au wanyambo,mie nawaita wanyamulenge!
ndugu zangu mnawasema hawa waafrika wenzetu mbona wahindi ndio watu wabaya kuliko wote, wanawatumia wazawa wachache wenye njaa ili kuliibia taifa na sisi wadanganyika tunabaki kila siku tunapiga miayo hatujui mlo wa siku hiyo utakuwaje, wanaogopa kujitokeza mbele ili msiwanyooshee vidole.
saafi sana wazalendo mlio usalama,jeshini,hapo mahakama kuu ets tunawaomba mmwage huku majina ya hao wanaojiita wanyambo kumbe ni banyamulenge ,sisi hatuna ubaya kama wanataka kukaa hapa wafanye kazi nyingine kama biashara,ukulima ,uwalimu private schools,ets lakini hili la kuingia hadi jikoni no no ..tuwaanike..
sasa bot pakiwa na wageni ndio mwanzo wa kuwa na mtandao wa kutuibia ...leteni majina please.....tatizo la hawa jamaa wakiingia mahali mkijisahau badaye watataka hadi urais...wakati walipokuja na mabegi tunawaona.si mnakumbuka kule congo wale wa mpakani ilifikia mahali walianzisha vita ya banyamulenge kutaka kujitenga wajiunge na rwanda na rwanda nao wakaja na ramani kuonyesha ile milima inayokaliwa na banyamulenge ilikuwa chini ya mfalme wao zamani,,hapo ijue banyamulenge walishajipenyeza kwa mzee kabila kwa kumtumia BIZIMANA KARAHAMTANO,waziri wa mambo ya nje aliyekuwa na nguvu kubwa, sasa tukiwaacha na huko mipakani miaka 30 ijayo wakisema biharamulo ni sehemu yao tutakataa..kwanza wengi itakuwa hawapo...na tatizo la watoto siku hizi hawajui historia wala hawana uzalendo...na hii ni hatari kwa uzembe wetu tunao mabalozi hadi wafanyakazi wa huko,na si ajabu kama tumewahi kuwa na waziri msomali,ngazija ets...
Hatari ni kubwa sana . Kuna Kinana anaitwa Think Tank wa CCM ni Msomali yule yuko juu sana hata anafikia kenda uwanjani kupokea mwekezaji sijui kwa nafasi gani .Leo Tanzania kufundisha Somalia kwa pesa zipi ? Kodi yetu ? Kwa faida ip baadaye ?
29th January 2007, 02:11 PM
Uraia..??
29th January 2007, 02:11 PM
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