Tanzania is struggling to end a troubled-multi-billion-dollar partnership with a German firm brokered in the mid-1990s over the General Tyres East Africa (GTEA), located in northern Tanzania.
Continental AG of Germany, with 38 per cent shares in the once giant tyremaker in East and Central Africa, has since 2006 been feuding with the state.
The stand-off, partly due to a poor supply chain and production level, resulted in the indefinite closure of GTEA in 2007, locking out nearly 400 helpless workers.
The dispute started in 2007 after Continental AGs contract expired.
In July 2008, the firm engaged the Tanzania government, which owns 62 per cent of GTEA, for renewal of the contract. But reports say it failed to outline a concrete business plan on how to make GTEA profitable.
Investigations have revealed that Continental AG was to explain in detail how General Tyres debts amounting to $20 million by December 2008 would be settled.
Instead of presenting ideas on this, Continental AG demanded to be paid an outstanding debt of $3.321 million. But the Tanzania government flatly refused, saying the factory was supposed to settle the debts.
Cyril Chami, Deputy Minister for Industry, Trade and Marketing, said last week that the talks between Continental AG and the government on termination of the contract are complex as the Germany firm has made certain demands.
Dr Chami said all the preconditions put in place by Continental AG indicate that the Germany firm is not keen on reviving the tyre factory.
Currently, the government is battling with Continental AG to end the existing deal and seek a new partner investor, he said.
Continental AG and the government have since the mid-1990s been running the firm under a management contract, with express agreement that the company would use the formers trademark and benefit from technological support and services.
Investigations also reveal that Continental AG has imposed another condition that if production resumes, the tyres are to be sold only in Uganda, Burundi and Tanzania.
Antje Lewe, spokeswoman for Continental AG told The East African from Hanover, Germany, that soon after the agreement expired, the company proposed to the government ways to make the technical assistance more robust and environment-friendly to enable technology transfer.
She said General Tyres, as an international brand, belonged to Continental AG, adding that Continental AG had made its position clear: That it will not be able to inject fresh money in GTEA.
A litany of mega deals gone sour
The Tanzania-German firm deal is just one of many that have gone bad.
Recently, Tanzania agreed to establish a new airline to replace the Air Tanzania after bowing to pressure from Chinese investors who refused to take over debts incurred over the past four decades.
The investors almost pulled out of the deal after some government officials allegedly solicited bribes.
Early in the year, Artumas Group and Partners (Power) asked the government to provide them with funding, saying the Mtwara Energy Project (MEP) was in a temporary financial distress.
Artumas further said the project had managed to survive over the past two years through the financial support of equity shareholders.
The company entered into an Interim Power Purchase Agreement (IPPA) with Tanesco in August 2006 to sell power to the latter.
Early in the year, Rail India Technical and Economic Services (Rites) moved to terminate a 25-year lease of Tanzania Railways. They asked the government, the co-shareholder, to buy their 51 per cent stake in the consortium, citing financial problems.
But purchase of the shares is subject to an International Finance Corporation greenlight, upon assurances by the government on who will take up the debt, amounting to $7 million with interest.
The Indian firms 51 per cent share was used as a loan guarantee to secure $44 million from IFC as working capital but the World Bank finance body disbursed only $7 million.
Meanwhile, The East African has further learnt that for General Tyres East Africa to resume production, it requires more than $28.984 million with $20.016 million covering debts and $2.615 million going to refurbishment of factory machinery, and $6.353 million into factory operations and management.
In early 2000s, GTEA had to borrow $4.85 million from foreign banks, including HSBS and City Bank. The banks are threatening to liquidate the plant as a result of its failure to pay back the debt.
And in 2005, the National Social Security Fund (NSSF) issued a loan amounting to $10 million (see sidebar above).
General Tyres was once the largest industrial plant in East Africa. It started production in 1971 and used to make 1,000 tyres a day at its peak.
In recent years, the state-owned plant has changed ownership several times, in tandem with the divestiture of public corporations.
Continental AG of Germany, with 38 per cent shares in the once giant tyremaker in East and Central Africa, has since 2006 been feuding with the state.
The stand-off, partly due to a poor supply chain and production level, resulted in the indefinite closure of GTEA in 2007, locking out nearly 400 helpless workers.
The dispute started in 2007 after Continental AGs contract expired.
In July 2008, the firm engaged the Tanzania government, which owns 62 per cent of GTEA, for renewal of the contract. But reports say it failed to outline a concrete business plan on how to make GTEA profitable.
Investigations have revealed that Continental AG was to explain in detail how General Tyres debts amounting to $20 million by December 2008 would be settled.
Instead of presenting ideas on this, Continental AG demanded to be paid an outstanding debt of $3.321 million. But the Tanzania government flatly refused, saying the factory was supposed to settle the debts.
Cyril Chami, Deputy Minister for Industry, Trade and Marketing, said last week that the talks between Continental AG and the government on termination of the contract are complex as the Germany firm has made certain demands.
Dr Chami said all the preconditions put in place by Continental AG indicate that the Germany firm is not keen on reviving the tyre factory.
Currently, the government is battling with Continental AG to end the existing deal and seek a new partner investor, he said.
Continental AG and the government have since the mid-1990s been running the firm under a management contract, with express agreement that the company would use the formers trademark and benefit from technological support and services.
Investigations also reveal that Continental AG has imposed another condition that if production resumes, the tyres are to be sold only in Uganda, Burundi and Tanzania.
Antje Lewe, spokeswoman for Continental AG told The East African from Hanover, Germany, that soon after the agreement expired, the company proposed to the government ways to make the technical assistance more robust and environment-friendly to enable technology transfer.
She said General Tyres, as an international brand, belonged to Continental AG, adding that Continental AG had made its position clear: That it will not be able to inject fresh money in GTEA.
A litany of mega deals gone sour
The Tanzania-German firm deal is just one of many that have gone bad.
Recently, Tanzania agreed to establish a new airline to replace the Air Tanzania after bowing to pressure from Chinese investors who refused to take over debts incurred over the past four decades.
The investors almost pulled out of the deal after some government officials allegedly solicited bribes.
Early in the year, Artumas Group and Partners (Power) asked the government to provide them with funding, saying the Mtwara Energy Project (MEP) was in a temporary financial distress.
Artumas further said the project had managed to survive over the past two years through the financial support of equity shareholders.
The company entered into an Interim Power Purchase Agreement (IPPA) with Tanesco in August 2006 to sell power to the latter.
Early in the year, Rail India Technical and Economic Services (Rites) moved to terminate a 25-year lease of Tanzania Railways. They asked the government, the co-shareholder, to buy their 51 per cent stake in the consortium, citing financial problems.
But purchase of the shares is subject to an International Finance Corporation greenlight, upon assurances by the government on who will take up the debt, amounting to $7 million with interest.
The Indian firms 51 per cent share was used as a loan guarantee to secure $44 million from IFC as working capital but the World Bank finance body disbursed only $7 million.
Meanwhile, The East African has further learnt that for General Tyres East Africa to resume production, it requires more than $28.984 million with $20.016 million covering debts and $2.615 million going to refurbishment of factory machinery, and $6.353 million into factory operations and management.
In early 2000s, GTEA had to borrow $4.85 million from foreign banks, including HSBS and City Bank. The banks are threatening to liquidate the plant as a result of its failure to pay back the debt.
And in 2005, the National Social Security Fund (NSSF) issued a loan amounting to $10 million (see sidebar above).
General Tyres was once the largest industrial plant in East Africa. It started production in 1971 and used to make 1,000 tyres a day at its peak.
In recent years, the state-owned plant has changed ownership several times, in tandem with the divestiture of public corporations.
