Tanzania Railways -vs- Rites (of India): Acquisition to divorce

[Steve Dii]

The East African (Nairobi)
January 30, 2007
Posted to the web January 30, 2007
Wilfred Edwin, Special Correspondent
Nairobi

The concenssioning of the ill-fated Tanzania Railways Corporation (TRC) hangs in balance two months before the signing of the agreement between the government and Rites Consortium of India to operate the largest utility in the country.

It has emerged here that one of the members in the consortium is facing immediate receivership by the two international banks that are now moving the High Court of Tanzania.
The move will be another stumbling block in the concession of the 2,715 km line that serves an important link between the Dar es Salaam port and the landlocked countries of Rwanda, Burundi and Uganda.
Mauritius-based company Gulf Africa Petroleum Company (Gapco), subsidiary Gapco Tanzania Ltd, that teamed up with Rites Ltd of India for 51 per cent share ownership in the operation of TRC, which involves rehabilitation of the line and run its for a period of 25 years.

Leon Hooper, managing director of Gapco Tanzania Ltd and Gapoil Tanzania Ltd told The EastAfrican last week, "I have nothing to do with the consortium. My job is to run Gapco and Gapoil Tanzania only."
GAPCO is a wholly owned subsidiary of Gapco Mauritius, a key player in the industry in East Africa. It took over the subsidiaries of Esso and Caltex in the region in the 1990s. It now has a network of 2,000 petrol stations across Uganda, Tanzania, Zambia, Malawi, Sudan, Mauritius, Kenya, Rwanda and Burundi.

But last week, the leading oil firm in East Africa, valued at around $300 million, was on the defensive as it sought to counter a plea by the two international banks to the oil firm under receivership over a $43 million debt.
A fortnight ago, Barclays Bank plc and Standard Chartered Bank Tanzania Ltd filed an application at the High Court of Tanzania in Dar es Salaam, seeking detention and preservation of Gapco Tanzania Ltd and Gapoil Tanzania Ltd assets charged in their favour.
The banks had asked the court to grant such orders until final trial of a suit in which Gapco and Gapoil want a declaration that the formers' intention to commence receivership of their assets was premature.
The applicants are seeking interim orders following an order issued on December 20, last year by Judge Laurian Kalegeya, restraining receivers appointed by Barclays Bank from taking possession of Gapco and Gapoil assets.

The banks fear that if the court fails to restrain the firm, the respondents mortgaged assets could be used to pay off debts as Gapco Group of companies is in receivership in Mauritius and Uganda.
It is alleged further that Gapco Uganda Ltd owes Standard Chartered Bank Uganda $4,273,156, while Gapco Mauritius owes Barclays Bank $29,760,769.
But GAPCO Tanzania and Gapoil Tanzania have asked the High Court to reject the application lodged by Barclays and Standard Chartered Bank, seeking the detention and preservation of their assets.
Dr Wilberd Kapinga, defence lawyer of GAPCO Tanzania Ltd told Judge Laurian Kalegeya that the submissions presented by counsel for the banks to support the application "lacked legal merits."
Dr Kapinga submitted that his clients were entitled to carry on with their business after the court granted the interim order on December 20, last year, preventing receivers appointed by Barclays Bank from taking possession of the charged assets.

Vinai Agarwal, the Managing Director of Rites Ltd declined to comment on the status quo of the consortium and on the ongoing legal battle between Gapco and the banks as far as its financial woes are concerned. "We would suggest that the authentic status would be better provided by the government of Tanzania," Mr Agarwal told The EastAfrican from India mid last week.
As per terms of TRC concession, total infrastructure comprising track, rolling stock etc. will be handed over to the concessionaire for rehabilitation, maintenance, operation and management for a period of 25 years from the date of its takeover.

In turn, concessionaire will be generating revenues through providing services and will be paying fees to the Government of Tanzania out of the income generated by it.

Joseph Mapunda, acting co-ordinator of the Presidential Parastatal Sector Reform Commission (PSRC), which is currently handling the concession process of TRC, was also was non-committal on the issue.

Mr Mapunda said that the consortium leaders themselves could better explain the status quo of the consortium members, as PSRC knows nothing. "So far, the further progress of the concession awaits the consortium sorting out certain issues," he said

According to Rites, the total estimated capital cost of the project is $305 million over the entire concession period.
This will be met through equity capital of about $ 15 million, debt of $153 million and internal accruals of $137 million.
After the Tanzanian government announced on March 6, 2006 that the Indian firm's bid was the most competitive, it was scheduled that the infrastructure be handed over to the investors on September 2, 2006.
This development prom pted the Union Cabinet of India later on to approve to equity investment by Rites Ltd. of a sum not exceeding $8 million, representing Rites equity participation of 51% in the strategic shareholding of the TRC.

However, down the road, a hitch surfaced, as the Dar government stopped the process pending further talks with the investors.
"We have put on hold the conclusion of TRC privatisation pending further talks to thrash out the finer details," the then Minister for Infrastructure Development Basil Mramba said mid last year.
However, he said he was optimistic that the agreement will be signed between September and October to allow the investors to start operations, and that "signing of the agreement had taken a long time because the government wanted to protect the public interest."

 

[Steve Dii]

Court action looms as Tanzania keeps delaying sale of railways
BY WILFRED EDWIN (THE EAST aFRICAN)

Delays in completing the restructuring and sale of major utilities are slowing privatisation in Tanzania, with questions now being raised about the government's failure to meet its contractual obligations.

The preparations for the sale of the utilities, which include the Tanzania Railways Corporation (TRC), the Tanzania Telecommunications Company Ltd (TTCL), and a service provider, the National Insurance Corporation of Tanzania (NIC), have become bogged down in bureaucracy and indecision.

The concessioning of TRC, and the hiring of a foreign management firm to run the TTCL as part of restructuring the two utilities, have been moving at a snail's pace, with policy being revised at every turn.

Officials who spoke off the record to The EastAfrican last week gave the example of TRC, which was scheduled to be handed over to Rites Ltd (Rail India Technical and Economic Services) of India in August last year, after the Tanzanian government released a letter of agreement (LOA) in April giving the concession the green light.


But before Rites could move in and start the takeover process, the government abruptly stopped the exercise, citing Tanzania's need to secure its "interests" in the railway firm.


Minister for Infrastructure Development Andrew Chenge, who recently said talks between the government and Rites Ltd were complete, last week told The EastAfrican that "final decisions have yet to be made."

"Various government levels have been scrutinising these contracts before the final decision is made," he said.


At one point last year, Mr Chenge had declared that TRC was in a pathetic condition and to continue discussing its privatisation indefinitely would see the firm collapse.

"We need investors to come in as soon as possible to repair the lines and the facility as a whole to ease transportation of cargo to other countries," he said at the time.

The stopping of the handover has derailed the process, raising fears that Rites may resort to court action to protect its interests.

The giant Indian rail firm had offered $100.519 million to the Railway Asset Holding Company (RAHCO) over the period of the concession, during which it would be responsible for rehabilitation of the railway system, fixing and collecting tariffs and running the utility for 25 years on behalf of the government.

None of the officials attached to either PSRC or the infrastructure ministry were willing to reveal the current status of the transaction when approached by The EastAfrican.

A similar impasse seems to have hit an agreement reached last October between Canadian firm SaskTel International and the Tanzanian Parastatal Sector Reform Commission (PSRC) over the provision of management services for TTCL. By the beginning of this year, nothing was in place.
Some of these high-priced utilities are remnants of firms whose privatisation started 15 years ago.

The contract had even received the blessing of the Union Cabinet of India, which in July 2006 allowed Rites Ltd to invest $8 million in the project.
The acting co-ordinator of PSRC, Joseph Mapunda, however, sought to play down the issue, saying the restructuring of the firm "is almost complete, and decisions will be made soon."

A SaskTel International official, Don Prokopetz, is expected in Dar es Salaam this week to "check on the status of the approvals process."
Speaking to The EastAfrican from Canada, he said his organisation and PSRC had reached agreement last October on the terms under which it would manage TTCL. The contract was then sent to the Tanzania government for Cabinet approval.

"We were hopeful that approval would be obtained before Christmas, but that did not take place. We are optimistic that the approvals will come early in 2007," he said.

But the transaction is yet to overcome strong opposition from the Telecommunication Worker's Union of Tanzania (Tewuta).
The union has insisted that the government support the current management instead of looking for foreigners to run the utility.
However, it is not known how much the Canadians will be paid for their services.

Mr Prokopetz recently said that his company's management fees will be based on its ability to meet or exceed "well defined and measurable performance indicators."
He noted, "Our management contract must result in a significant improvement in TTCL's ability to reliably provide a wide range of telecommunications service, coupled with a return to good health on the financial side of the business."

But the government's apparent loss of faith in foreign management firms has partly been the reason behind the slowing down in the privatisation process.
This follow the failure by a South African company - NetGroup Solutions - whose contract was terminated two weeks ago, to turn around the Tanzania Electricity Supply Company (Tanesco).

Although a Tanzanian national, Idrissa Rashid, has replaced Adriaan van der Merwe as NetGroup Solutions managing director, the workers union and industry analysts say TTCL too would have faced a similar fate.

In the case of the National Insurance Corporation (NIC), the government decided to privatise the firm in 1998. The strategy involved selling its life and non-life businesses separately or jointly. Some of its assets were to be sold to meet its liabilities.

After a lull in the sale plans, the government last year loaned the firm $4 million, to be used to pay off outstanding life assurance claims.
The loan was to be repaid with money raised through the firm's normal operations and the sale of some of its assets and shares.
However, criticism has since been directed at the decision to sell off the firm, particularly the fact that PSRC intends to sell 16 NIC properties along with its life business for a total of Tsh23.65 billion ($22.5 million), which analysts say is too low a price.


There are also concerns over how workers' terminal benefits will be paid.
Although the PSRC says a golden handshake - a key point of contention - will be paid to the 561 employees of NIC if funds are available, workers say this offers PSRC the option of refusing to pay even if it is understood that NIC has been doing profitable business.

 

[Steve Dii]

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 AG's 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 Tyre's 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 former's 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 firm's 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.

 

[Steve Dii]

By Samuel Kamndaya, Dodoma

Nearly Sh10 billion has vanished from the bank account of Tanzania Railway Limited (TRL), as the foreign concessioner, Rites of India, threatens to abandon the troubled company, Parliament was told yesterday.

The MP for Igalula, Ms Tatu Ntimizi, said she had been informed about the "mysterious disappearance" of at least Sh10 billion from TRL's bank account.

Ms Ntimizi, a former Lands minister, and member of the ruling Chama Cha Mapinduzi, added: "I'm told that some Sh10 billion belonging to TRL has been stolen. Employees have not been paid their overtime allowances under the pretext that the company does not have money.

Who has stolen the money? Who else is capable of accessing TRL's accounts?� The revelation of the suspected massive theft is bound to intensify the public's concern over the company's performance and raise fresh questions on the capability of the Indian investor to manage the once prestigious railway firm.

Before the MP spoke in Parliament about the suspected TRL theft, The Citizen had been tipped off about the alleged "disappearance of a huge amount of money" from the company's bank account following the "sudden departure of some of key Indian managers".

However, efforts by The Citizen to get a comment from the TRL management on the alleged theft failed.

But sources at the TRL headquarters said that at least four Indians, who held senior positions at TRL, had left the country in recent months.

The last to leave is the Finance and Administrative Director. The sources said that the Indian managers had been replaced with their juniors in acting capacities.

"It's true that some of our bosses have left and their juniors appointed to act in those positions. But most of us are in the dark as to what is really going on here,"said an employee, on condition of anonymity.

Contacted for comment, the Dar es Salaam Special Police Zone Commander, Mr Suleiman Kova, said that as of yesterday, he had not received any report on theft at the TRL.

But in a separate interview in Dar es Salaam yesterday, on the frustrations and difficulties being experienced by the company, whose performance has remained below par, the TRL Chief Executive Officer, Mr Hundi Lal Chaudhary, indicated that they were ready to terminate the contract with the Government.

He said the contract could easily be annulled as there were provisions for that.

Rites was granted a concession to run the beleaguered railway company almost two years ago. The contract gives the Indian company 51 per cent of the shares in TRL, with complete autonomy to pick the management team.

Yesterday, the MPs said the alleged theft was further confirmation that Rites of India was taking the Tanzania Government for a ride. The MPs were commenting on the claims that a senior company official may have swindled the money.

Speaking in Parliament, the lawmakers called for a review of the Rites contract to allow the Tanzania Government, which owns a 49 per cent stake in TRL, to participate in the company�s management.

The Nzega MP, Mr Lucas Selelii, said the railway company was better off when it was under local management. "These are not investors.

They are here only to sabotage our economy," said Mr Selelii. The MPs urged the Government to overhaul the company's management before the situation gets worse. Ms Ntimizi said:

"It's normal these days to see the train run out of fuel while on a journey. The engines are faulty. Everything is in a bad state. They will just kill those of us who use the railway. This is serious, indeed." Her constituency takes up almost 75 per cent of the Central Corridor.

But TRL boss Chaudhary said that terminating the contract would be easy. He said his company was ready to leave.

"There is no need for Parliament to debate this contract. If the Government decides to terminate it, it's fine with us. However, the provisions on contract termination must be observed," he said.

Mr Chaudhary said the Government would have to give a three-month notice, stating its intention to end the contract.

However, it must also pay the foreign investor Sh54.37 billion in compensation for the various costs and expenditure by the company during the investment period and a further Sh56 million owed to a private security firm, Ultimate Security.

Mr Chaudhary said the ongoing public and parliamentary debate on TRL�s performance was giving the company a bad name.

"TRL has not failed to run the railways. The problem is here is lack of capital. TRL is being run by shares only from a single party to the contract and yet there are two."Rites of India, he added, owns 51 per cent of TRL and the Government of Tanzania, 49 per cent.

"Since the signing of the contract in 2007, TRL has been run with capital from Rites alone, but it appears that MPs and ordinary citizens are not aware of this," he said. When the company started operations, Mr Chaudhary recalled, the railways firm was in a very bad condition.

"There was no train plying between Dar es Salaam and Tanga or Kigoma and the central railway passenger train operated up to Dodoma only."

The then Tanzania Railways Corporation (TRC) had neither engines nor enough coaches for passenger trains.

He said that after Rites took the 51 per cent stake, TRL acquired 25, 73-class engines, and 23 coaches were leased from India to improve operations.

He challenged the MPs to ask the Government why it had failed to honour its part of the bargain instead of pointing a finger at Rites as the alleged cause of the problems afflicting TRL.

"The Government has not clearly informed the public about the contract. This is why we are being blamed. But the fact remains that the company was in a really bad condition before its privatisation,"he said.

He said Rites had shelved plans to pay the terminal benefits of the retired employees until the Government remits its share capital.

Additional reporting by Jackson Odoyo

source: TheCitizen Newspaper