Tanzania: Economist Intelligence Report

[BAK]

IPTL:The forgotten scandal

-HOW A DUBIOUS DEAL SIGNED MORE THAN 10 YEARS AGO IS STILL HAUNTING THE NATION

THISDAY REPORTER
Dar es Salaam

THE ripple effects of the infamous Independent Power Tanzania Limited (IPTL) contract are still being felt today, more than a decade after the hugely controversial energy deal was sealed, THISDAY can now reveal.

According to our new findings, the latest energy crisis in Tanzania has highlighted the fact that the country is still suffering from the knock-on effects of the IPTL quagmire.

Insiders say the subsequent energy contracts signed between the government and other independent power producers after the 2006 national energy shortage, including Richmond Development Corp., bear a striking similarity to the IPTL scandal.

In 1994, a severe drought caused power shortages as hydro catchments areas ran dry. The same year, IPTL signed a Memorandum of Understanding (MoU) with the government to build a power plant at the Tegeta area on the outskirts of Dar es Salaam.

However, a damning report by Decision Strategies Fairfax International (DSFX), a Washington DC-based investigative consulting firm, which has previously not been released, has catalogued high-level corruption and interference of senior government officials in the IPTL deal.

In 1999, the Ministry of Energy and Minerals had engaged Acres International, a Toronto-based engineering consulting firm, to carry out a research aimed at establishing the actual cost of the IPTL project.

On its part, Acres International hired DSFX to assist in the work and gather the relevant facts about the project.

''It's as if the IPTL contract offered a blueprint for other power generation contracts that came after it on how to bleed the poor people of Tanzania of hundreds of millions of dollars in blown up payments for electricity,'' said a well-placed industry source.

More than 90 pages of a report by DSFX concluded in January 1999 but never made public by the government show that there was extraordinary corruption and abuse of power by senior public officials in approving the IPTL deal.

A team of US investigators, who worked with the former Prevention of Corruption Bureau (currently known as the Prevention and Combating of Corruption Bureau) in their assessment of the IPTL concluded that there were clear indications that ''widespread bribery'' or promises of bribes played a significant role in the matter.

In the course of the investigation, at least nine high-level government leaders and senior officials of the Tanzania Electricity Supply Company Limited (TANESCO) were interviewed jointly by DSFX and the then PCB.

''Those officials (questioned by investigators) have reason to believe that in 1994 and 1995 agents or representatives of IPTL offered and/or paid bribes to officials of TANESCO and government of Tanzania to induce approval of the Tegeta power project as proposed by IPTL and the execution of the power purchase agreement by TANESCO and the implementation agreement by the (then) Ministry of Water, Energy and Minerals on behalf of the government,'' says part of the report.

The investigation findings showed that normal decision-making processes were not followed, including irregularities in the IPTL tender process much similar to the present-day Richmond/Dowans Holdings scandal.

TANESCO officials also complained they were ''cut out of the negotiation loop'' and the execution of the IPTL power purchase agreement was in violation of the government Cabinet decision.

''Such (circumstantial) evidence, some of which has already been uncovered, particularly if linked with direct evidence of bribes, well supports the conclusion that the (IPTL) process was improperly influenced by corruption,'' says part of the DSFX report.

Tanzania's first major private power plant was set up as a joint venture between Mechmar Corporation of Malaysia (70%) and VIP Engineering and Marketing Limited of Tanzania (30%) owned by businessman James Rugemalira.

In 1995 IPTL and TANESCO signed a 20-year Power Purchasing Agreement (PPA) to build and run a 100 megawatt slow-speed diesel (SSD) power plant at Tegeta at a cost of $163.5m.

Under the agreement, it was concluded that the final tariff would depend on actual costs incurred.

However, due to a dispute over the actual cost of the project, TANESCO issued a notice of default to IPTL in 1998 for unilateral substitution of medium-speed diesel (MSD) facility.

The matter later ended up before the International Centre for the Settlement of Investment Disputes (ICSID) after IPTL failed to justify cost structure and payments.

In February 2001, ISCID ruled that IPTL was overpriced by $23.5m but that the contract still stands since TANESCO was aware of the switch from SSD to MSD.