In a case with wide ramifications, it has been ruled that Standard Chartered Bank Hong Kong (SCBHK) was the rightful holder of debts owed by state power utility TANESCO to controversial private power provider Independent Power Tanzania Limited (IPTL). The judgement comes from the International Centre for the Settlement of Investment Disputes (ICSID), which has ordered TANESCO to pay Standard Chartered Bank US$148 million, plus interest.
The ruling in effect recognises that the sale of IPTL to Pan African Power Ltd (PAP) in 2013 was not legitimate. It also implies that the transfer of over US$100 million from an escrow account to PAP was also illegitimate. The escrow account had held payments from TANESCO for capacity and energy charges that TANESCO had been challenging in a separate arbitration case. SCBHK had bought distressed IPTL debt from a Malaysian bank in 2005. The debt was worth US$101 million, which Standard Chartered Bank bought at a 25% discount. The bank has ever since then been seeking a way to recover the debt and, presumably, operate the power plant which it effectively controls, at least in the ICSID’s eyes.
The consequences of the case are considerable. The sale of IPTL to PAP in 2013 was hugely controversial, and for good reason. In effect, PAP got the firm for free through the almost simultaneous release of the escrow account money. PAP used that money to buy out VIP Engineering Ltd, the Tanzanian entity which was a minority shareholder. Once VIP was paid off, its owner, James Rugemalira made a series of payments – some as big as US$1 million – to a cross-section of Tanzania’s elite in business, politics, public service, and the Catholic Church.
The IPTL plant was originally proposed in 1995, and eventually came on stream in 2002 amidst allegations of the bribery of officials, overpricing, and non-delivery of agreed turbines, which all delayed the start of the Songas project considerably. The venture was driven by Rugemalira, with the critical assistance of the then Attorney General, Andrew Chenge – the latter is still a member of parliament, and hugely influential figure (see East Africa Politics & Security – 09.02.16 for a background to Chenge).
The current proprietor of PAP, Harbinder Sethi Singh, is also a controversial figure. He was identified in an investigation as a bag man for former Kenyan President Daniel Arap Moi, managing his assets in Kenya and South Africa. In 2008, the Tanzania Petroleum Development Corporation (TPDC) gave the Mnazi North Block to a firm sharing a physical address with PAP, in a direct award.
The ICSID ruling exposes the sale of IPTL to PAP as being fraudulent. In the first instance, TANESCO, having seen the escrow account funds handed over to IPTL, will now have to find an even greater sum to satisfy its debts to SCBHK. This has huge implications for the development of new gas to power projects given that the ruling will further burden an already indebted TANESCO, and increase sovereign risk across the power sector.
The political implications are also considerable. President John Magufuli has so far avoided addressing the IPTL case in his anti-corruption campaign, despite the widespread coverage the case and its investigation received from Parliament and the media in 2014 and 2015. To do so, he would have to tackle interests at the heart of the state and the ruling party.
**Editorial Change: since date of publish we have corrected the company name, originally incorrectly stated as Standard Bank Honk Kong, to rightfully say Standard Chartered Bank Honk Kong. We sincerely apologise for any misunderstanding.
