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- Feb 27, 2006
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Bandugu, Nimesoma kwenye gazeti la This day nikaona ni share na nyinyi:
Pata habari,
Pata habari,
SERIOUS questions are being raised about the contract signed between the government and Cotecna for the scanning and destination inspection of all containerized cargo imported into the country.
Experts say the contract between the Tanzania Revenue Authority and Cotecna Inspection S.A is lopsided in favour of the foreign investor.
Under the terms of the contract, any dispute arising between the Swiss company and the government cannot be resolved in Tanzanian courts of law. Like the infamous IPTL contract between the government and private investors once upon a time, such disputes would have to be automatically referred to international arbitrators.
Specifically, the International Centre for the Settlement of Investment Disputes (ICSID) has been singled out as the would-be arbitrator.
The same London-based ICSID was used for the arbitration of the quagmire between the Tanzania Electric Supply Company Limited (TANESCO) and IPTL that cost the government hundreds of millions of shillings in legal costs and travel expenses to and from London.
Furthermore, under the contract, Cotecna has been exempted from paying Value Added Tax (VAT) in the delivery of services. Surprisingly, the main contract, which came into effect on January 1, 2004, was not signed by the principal officers of TRA and Cotecna.
Instead, the document was signed by the Commissioner for Customs and Excise, Mr George Lauwo, on behalf of TRA, and Mr Verne Kulyk, General Manager of Cotecna Inspection S.A Tanzania branch.
Among other lucrative emoluments which the Swiss company is entitled to for the destination inspection services rendered by its local subsidiary, Tiscan Limited, include free office space, salary to its employees, paid-up residence permits and work documents and free space at the port for the $4.5 million (over 5.4bn/-) special scanning truck.
According to the contract, the company also gets paid a Destination Inspection Services (DIS) at 0.82 per cent tax inclusive fee of the assessed FOB (free on board) value of goods subject to the DIS as per reports of findings (ROFs) issued.
However, importers are charged 1.2 per cent, raising questions over the difference in the remaining 0.4 per cent.
The scanner system started working on July 1, 2004 but the company started charging importers the DIS fees in January of the same year -- which means that the $4.5m scanning truck was actually bought from money charged to Tanzanian importers, said one source close to the import and export business.
The company was until last year charging $11 (approx. 13,200/-) per single bill of entry (SBE) issued, but complaints from importers forced authorities to reduce the rate to $5 (approx. 6,000/-).
Industry sources allege that the Swiss company is earning a whopping $60 million (approx. 72bn/- ) per annum from its activities in the country.
According to the contract, which legal experts describe as lopsided in favour of the foreign investor, the payments, which are made monthly in US dollars, are remitted by TRA to Cotecna?s Swiss bank account in Geneva.
Section 5.3 of the contract states: The Company will present a monthly invoice to the Authority on the 5th working day of each month. After review by the Authority, the invoices are settled promptly, latest 30 days after submission of the invoice, through normal banking channels and payments made to the account of the Company. All payments under this contract shall be made in US Dollars to the account of the Company: Union Bank of Switzerland/Geneva/Account No. 0240-257.556.60Q.
The contract has conflicting dates of expiry, which include seven years as indicated in Section 2.3, while in Appendix 5 the contract expires in five years? time from the commencement date.
THERE is no easy exit clause for the Tanzania Revenue Authority, now mired in its contract with Cotecna for the scanning and inspection of containerized cargo in the country.
Under the terms of the contract, any request by TRA to opt out of the deal would have to wait until the failure of arbitration procedures by the London-based International Centre for the Settlement of Investment Disputes (ICSID).
If TRA and Cotecna fail to reach an amicable settlement of disputes, the contract expressly dictates that the arbitration shall be conducted in London, England.
In effect, the contract renders Tanzanian courts of law devoid of jurisdiction to deal with any contractual dispute that might arise between the two sides.
However, the decision of ICSID shall be final and binding and shall be enforceable in any court of competent jurisdiction.
In the deal, both TRA and Cotecna agreed to waive any objections or claims of immunity in the enforcement of the decision of the arbitrator.
This means that, despite TRA officially complaining about alleged inefficiency of Cotecnas subcontractor -- Tiscan Limited -- its real options are limited.
TRA is required to give the company a 30 or 60-day written notice on its intention to terminate the contract based on specific reasons of breach of contract.
But the exit clause would require the authority to pay a hefty price for premature termination of the seven-year contract signed in January 2004.
Experts say TRA can try to go around the cumbersome exit clause by demanding compensation from Cotecna for poor services.
The contract allows the Authority to seek compensation not exceeding 10 times the sum paid to Cotecna monthly as destination inspection fees.
Under clause 3.7 on liability of the company, it is stated that the company shall be liable to the Authority for any loss suffered as a result of a proven default due to its performance.
The clause states thus: "The company shall immediately attempt to remedy any damage caused to the Authority that results from the performance and the execution of its duties herein, provided however that the amount payable as liquidated damages or otherwise by the company shall at no time in respect of one event exceed an aggregate of 10 times of the fees paid by the Authority to the company with respect to the activity carried out by the company which is the subject of the claim."
The contract also offers the Authority compensation if: "It demands, in writing, compensatory payment from the company (Cotecna) in cases where it is proved, from the auditing or verification of services, that import duties or other charges for a given shipment inspected by the company were under-charged due to mistakes or negligence on the part of the company in the carrying out of the services."
TRA has written to local managers of Cotecna, as well as its bosses in the Swiss headquarters of the company, to complain against alleged unsatisfactory performance of the firm.
In one such letter, the TRA Commissioner-General, Mr Harry Kitillya, officially informed the Senior Vice-President of Cotecna?s Africa Division, Mr Didier Reymond, about the alleged shoddy work.
He listed a catalogue of shortcomings in the firm?s work uncovered by TRA auditors.
Some of the weaknesses identified in Tiscan's performance included its failure to develop and keep an up-to-date transaction price database (TPD).
"Using this database, you are required to verify all relevant import transactions for price, customs value and classification before clearance. This has not been done and you are relying on outside prices to verify imports," he charged.
Mr Kitillya also raised concern that Tiscan was not performing destination inspection it was hired to carry out.
He explained in the letter that TRA auditors had found out that there were notable delays in finalizing the valuation process caused by Tiscan, particularly at the Tanga port.
"The delay is mainly caused by the fact that Tiscan is not actually performing destination inspection, but their main approach is, among other things, communicating with the manufacturers and experts from the exporting countries to verify the declared value and tariff classification," the letter says in part.