Tanzanian taxpayers are set to pay a Lebanese aviation company a total of Sh22.64billion ($12.58 million) for service that wasnt delivered, The Guardian on Sunday can reveal today.
The amount, which is more than what the government gave Air Tanzania two months ago, is another instance of poor contracting signed by the national airline when former Chief Executive Officer David Mattaka was at the helm, and a Lebanese aviation firm, Wallis Trading Company Inc.
While Mattaka was the CEO of ATCL, Andrew Chenge, a former Attorney General and now Bariadi East MP was the Minister for Infrastructure, during 2007 when the bogus contract was signed.
Ironically, those responsible for the costly and dubious contracts walk freely as taxpayers feel the pinch, amid skyrocketing prices of basic commodities. In September this year, the government gave Sh16 billion as a bailout package for the troubled national airline, ATCL. The allocated money however, is yet to be released by the Treasury.
The $12.5 million which is due to be paid is the leasing cost for Airbus 320 -214 for the past 34 months where the plane was grounded, The Guardian on Sunday has established.
Reliable sources from ATCL and within the Treasury confirmed to The Guardian on Sunday about the hefty payments to be paid to a Lebanese company anytime soon.
They told The Guardian on Sunday at different moments this week that there was a push to have the payments made soon, though there was opposition on the legitimacy of the massive payments.
The said aircraft, A320-214 was leased from Wallis Trading in October 2007 but in a questionable set of circumstances it was immediately grounded for major technical maintenance in France, where it remained there for seven months until May 2008, when it was deployed to fly the Dar- Johannesburg route.
Officials of the Ministry of Communications and Transport as well as the Treasury disclosed to this paper: This aircraft operated for seven months from May to December 2008 but as per agreement the lease bill of $370,000 a month begun to accumulate right away from the date of signing that agreement and no difference on that bill regarding the period the aircraft was operational or grounded for maintenance.
Thus the government is compelled to cater for $15.17 million for lease fee of non-operational aircraft, used for seven months out of 48 months of the lease period from 9th October 2007 to 27th October 2011, when the aircraft was officially released by ATCL to the leaser - Wallis Trading.
The contract lease agreement was for a duration of six years and since the aircraft has been released before completion of the agreed period, the government is also responsible for paying compensation in view of that early termination of the agreement, bringing the total amount of money to be paid to Wallis to more than $32million (Sh57 billion).
The Gurdian on Sunday has established that the exact amount due to be paid is $32,659,316.12.
It has also been established that although there are some government officials posing serious questions on the authenticity of the accumulated debt, several senior officials at the Ministry of Transport and Finance were ready to see the payment effected soon.
An independent expert in the airline business told this paper that the market value of leasing aircraft like the one leased by ATCL could not go higher than $250,000 a month and wondered as to why the operational and non-operation leasing bill remained the same.
During maintenance period the aircraft is entirely rested therefore there is no operational cost, how comes then the charges remain the same. This is a straight forward point; what I know is that the cost could have been renegotiated and brought down to about $30,000 a month when the plane was on the ground. A contract like this is a poor one, the expert intoned.
Due to the fact that ATCL was once partly privatised to South African Airways which had bought 49 percent of ATCL shares back in 2002, negotiations for the debt payment also included the Consolidated Holding Corporation (CHC), which oversees all state owned firms earmarked for divestiture. As it stands it is a matter of time before the staggering amount of money could be fully paid to the leaser-Lebanese Company as it only awaits the signature of the Permanent Secretary at the Ministry of Finance.
One the key paragraphs in aircraft (Airbus 320-214) release agreement reads: Additionally a lump-sum of compensation is payable to the leasing firm for early termination and for failure by the lessee to deliver the aircraft in the condition required under schedule 3 paragraph 6 and (10-13) of the lease agreement.
The Other Cost remain outstanding (OA) and TA amount and the period of other terms for payment have been agreed today between us, you, the Ministry of finance and Technical Committee, appointed by the government-CHC subject to the letter signed by the Permanent Secretary of Finance as per the discussion between him and Wallis at the ministry on October 27th 2011 at 9.30.
And as the government prepares to pay $32.6 million accrued from leasing the aircraft, The Guardian on Sunday has been reliably informed that the same plane was sold by Wallis Trading to Zimbabwe at $16 million, less than 50 percent of lease bill payable by Tanzania.
Also according to an official document at the Ministry of Transport and CHC the airbus debt forms more than half of the total ATCL debt which by end of October 2011 stood at Sh90 billion. Total Airbus 320 214 lease debt is Sh57 billion.
The said aircraft was leased in 2007 in the preparation for a second divestiture of ATCL, to be partly sold to the Chinese company Sonangol, which never signed a formal contractual agreement with the Government but had pledged to buy ATCL not less than five Airbus aircraft by 2012.
In line with the then eagerly awaited ATCL take-over by Sonangol, the ATCL management rushed to obtain lease of the A320-214 from Wallis Trading, a company said to have a close working relationship with Sonangol.
The plane operated in Liberia on a lease basis and then leased to South American state of El Salvador, the sources indicated.
By the time Tanzania entered into lease agreement in October 2007 the aircraft was due to go for a major technical maintenance, known as Check C plus 12 years but that fact was only established after the agreement was penned leading to the aircraft be grounded in France for seven months.
Experts inside the troubled airline had earlier advised ATCL management to instead acquire a Boeing 737-300, which consumes 15 percent less fuel than an A320 but it carries 128 passengers unlike A320 which has a 150 seat capacity.
To start with, the 737-300 would have been suitable to operate regional and domestic routes, considering the current business outlook for ATCL, in the view of an ATCL official.
The two aircraft have similar types of engines but the 737-300 has less power than the A320.
Since ATCL has already been operating the Boeing 737-200, it would have been cheaper and easy for the latter to adjust to the 737-300 in terms of training and developing the same calibre of pilots and engineers familiar with Boeing technology.
Air Tanzania Company Limited (ATCL), a limited liability company, was established under the Companies Act to take over the operating assets, and specified rights and liabilities of ATC, as well as the creation of a new company, Air Tanzania Holding Company (ATHCO), to take over the non-operating assets and all other liabilities of ATC.
South African Airways was the winning bidder and in December 2002, after signing an agreement with the government, it bought a 49 per cent stake in ATC for $20m, of which $10m was the value of the shares and the remaining $10m for the capital and training account for financing its proposed business plan.
The amount, which is more than what the government gave Air Tanzania two months ago, is another instance of poor contracting signed by the national airline when former Chief Executive Officer David Mattaka was at the helm, and a Lebanese aviation firm, Wallis Trading Company Inc.
While Mattaka was the CEO of ATCL, Andrew Chenge, a former Attorney General and now Bariadi East MP was the Minister for Infrastructure, during 2007 when the bogus contract was signed.
Ironically, those responsible for the costly and dubious contracts walk freely as taxpayers feel the pinch, amid skyrocketing prices of basic commodities. In September this year, the government gave Sh16 billion as a bailout package for the troubled national airline, ATCL. The allocated money however, is yet to be released by the Treasury.
The $12.5 million which is due to be paid is the leasing cost for Airbus 320 -214 for the past 34 months where the plane was grounded, The Guardian on Sunday has established.
Reliable sources from ATCL and within the Treasury confirmed to The Guardian on Sunday about the hefty payments to be paid to a Lebanese company anytime soon.
They told The Guardian on Sunday at different moments this week that there was a push to have the payments made soon, though there was opposition on the legitimacy of the massive payments.
The said aircraft, A320-214 was leased from Wallis Trading in October 2007 but in a questionable set of circumstances it was immediately grounded for major technical maintenance in France, where it remained there for seven months until May 2008, when it was deployed to fly the Dar- Johannesburg route.
Officials of the Ministry of Communications and Transport as well as the Treasury disclosed to this paper: This aircraft operated for seven months from May to December 2008 but as per agreement the lease bill of $370,000 a month begun to accumulate right away from the date of signing that agreement and no difference on that bill regarding the period the aircraft was operational or grounded for maintenance.
Thus the government is compelled to cater for $15.17 million for lease fee of non-operational aircraft, used for seven months out of 48 months of the lease period from 9th October 2007 to 27th October 2011, when the aircraft was officially released by ATCL to the leaser - Wallis Trading.
The contract lease agreement was for a duration of six years and since the aircraft has been released before completion of the agreed period, the government is also responsible for paying compensation in view of that early termination of the agreement, bringing the total amount of money to be paid to Wallis to more than $32million (Sh57 billion).
The Gurdian on Sunday has established that the exact amount due to be paid is $32,659,316.12.
It has also been established that although there are some government officials posing serious questions on the authenticity of the accumulated debt, several senior officials at the Ministry of Transport and Finance were ready to see the payment effected soon.
An independent expert in the airline business told this paper that the market value of leasing aircraft like the one leased by ATCL could not go higher than $250,000 a month and wondered as to why the operational and non-operation leasing bill remained the same.
During maintenance period the aircraft is entirely rested therefore there is no operational cost, how comes then the charges remain the same. This is a straight forward point; what I know is that the cost could have been renegotiated and brought down to about $30,000 a month when the plane was on the ground. A contract like this is a poor one, the expert intoned.
Due to the fact that ATCL was once partly privatised to South African Airways which had bought 49 percent of ATCL shares back in 2002, negotiations for the debt payment also included the Consolidated Holding Corporation (CHC), which oversees all state owned firms earmarked for divestiture. As it stands it is a matter of time before the staggering amount of money could be fully paid to the leaser-Lebanese Company as it only awaits the signature of the Permanent Secretary at the Ministry of Finance.
One the key paragraphs in aircraft (Airbus 320-214) release agreement reads: Additionally a lump-sum of compensation is payable to the leasing firm for early termination and for failure by the lessee to deliver the aircraft in the condition required under schedule 3 paragraph 6 and (10-13) of the lease agreement.
The Other Cost remain outstanding (OA) and TA amount and the period of other terms for payment have been agreed today between us, you, the Ministry of finance and Technical Committee, appointed by the government-CHC subject to the letter signed by the Permanent Secretary of Finance as per the discussion between him and Wallis at the ministry on October 27th 2011 at 9.30.
And as the government prepares to pay $32.6 million accrued from leasing the aircraft, The Guardian on Sunday has been reliably informed that the same plane was sold by Wallis Trading to Zimbabwe at $16 million, less than 50 percent of lease bill payable by Tanzania.
Also according to an official document at the Ministry of Transport and CHC the airbus debt forms more than half of the total ATCL debt which by end of October 2011 stood at Sh90 billion. Total Airbus 320 214 lease debt is Sh57 billion.
The said aircraft was leased in 2007 in the preparation for a second divestiture of ATCL, to be partly sold to the Chinese company Sonangol, which never signed a formal contractual agreement with the Government but had pledged to buy ATCL not less than five Airbus aircraft by 2012.
In line with the then eagerly awaited ATCL take-over by Sonangol, the ATCL management rushed to obtain lease of the A320-214 from Wallis Trading, a company said to have a close working relationship with Sonangol.
The plane operated in Liberia on a lease basis and then leased to South American state of El Salvador, the sources indicated.
By the time Tanzania entered into lease agreement in October 2007 the aircraft was due to go for a major technical maintenance, known as Check C plus 12 years but that fact was only established after the agreement was penned leading to the aircraft be grounded in France for seven months.
Experts inside the troubled airline had earlier advised ATCL management to instead acquire a Boeing 737-300, which consumes 15 percent less fuel than an A320 but it carries 128 passengers unlike A320 which has a 150 seat capacity.
To start with, the 737-300 would have been suitable to operate regional and domestic routes, considering the current business outlook for ATCL, in the view of an ATCL official.
The two aircraft have similar types of engines but the 737-300 has less power than the A320.
Since ATCL has already been operating the Boeing 737-200, it would have been cheaper and easy for the latter to adjust to the 737-300 in terms of training and developing the same calibre of pilots and engineers familiar with Boeing technology.
Air Tanzania Company Limited (ATCL), a limited liability company, was established under the Companies Act to take over the operating assets, and specified rights and liabilities of ATC, as well as the creation of a new company, Air Tanzania Holding Company (ATHCO), to take over the non-operating assets and all other liabilities of ATC.
South African Airways was the winning bidder and in December 2002, after signing an agreement with the government, it bought a 49 per cent stake in ATC for $20m, of which $10m was the value of the shares and the remaining $10m for the capital and training account for financing its proposed business plan.
