Revealed: Who got paid the Sh201bn escrow cash

The $122 million (Sh201 billion), which was at the escrow account held at Bank of Tanzania (BoT), was transferred to Pan Africa Power Solutions (Tanzania) Ltd (PAP) account between November 28 and December 8, last year, The Citizen can reveal today.

This revelation comes at a time when Standard Chartered Bank, Hong Kong (SCB – HK), through its lawyers, has given Tanzania Electric Supply Company (Tanesco) a 30-day ultimatum to re-deposit the money into the account or else face legal consequences.

An escrow account is a financial instrument held by a third party on behalf of other two parties in a transaction. The funds are held by this kind of account until it receives the appropriate written or oral instructions or until obligations have been fulfilled.

Contrary to claims by the ministry of Energy and Minerals that the escrow monies were paid to Independent Power Tanzania Ltd (IPTL), The Citizen has reliably established that the $122 million was actually paid to PAP.

PAP is the company that has acquired IPTL by using the escrow funds in a deal that has been queried by some legal experts, who are wondering how a once liquidated company became the assignee, and assigned its shares to a new investor.

According to details gathered by The Citizen, which are also corroborated by official correspondence from the BoT to the Treasury, the agreement to release the escrow billions was signed on October 27, 2013.

In a letter dated December 19, 2013, BoT deputy governor responsible for administration and internal controls, Mr Juma Reli, wrote: “Invoking the provisions of Articles 7.7 of the Agreement, GOT and IPTL executed an agreement for delivery of the escrow funds to IPTL…the agreement for delivery was signed on October 27, 2013, pursuant to which the bank was instructed to release the escrow fund.

In a letter directed to the permanent secretary of the ministry of Finance, Dr Servacius Likwelile, Mr Reli, further writes: “The funds together with un-matured investments in treasury bills were dully transferred to IPTL on November 28, 2013 and December 5, 2013.”

“In view of the foregoing, we hereby request you to order the closure of the escrow account…simultaneously we wish to kindly inform you that with effect from December 5, 2013 when the last transfer was effected, the Bank has been duly discharged from its role and obligations as an escrow agent with respect to Power Purchase Agreement between IPTL and Tanesco.”

Though the BoT says it transferred the escrow funds to IPTL, the affidavit sworn by James Rugemalira, managing director of VIP Engineering and Marketing Ltd, served at the High Court on January 8, this year, state that the money was paid to PAP.

VIP Engineering and Marketing Ltd was a Tanzania company that owned 30 per cent shares in IPTL until it allegedly sold its stakes to PAP at the cost of $65 million (Sh129 billion)—the income he described last week as “just few cents for tobacco.”

Just a day after the BoT letter, the government chief legal counsel, Attorney General Justice Frederick Werema, wrote to Hunton and Williams LLP, a US law firm representing Tanesco, stating: “This letter (BoT letter) is instructive…it may be helpful to any measures that you may wish to pursue on behalf of your client.”

Ministry’s contradictory versionIn another development, the ministry of Energy and Minerals issued two conflicting communications last week, in a bid to defend what transpired between IPTL, Tanesco and Pan Africa Power Solutions (PAP).

Last week, the director of Communication at the ministry, Ms Badra Masoud, issued a clarification advert after our sister paper, Mwananchi, published a story saying Tanesco was on the brink of bankrupt, following the judgment delivered by the Washington-based tribunal, International Centre for Settlement of Investment Disputes (ICSID) tribunal.

In the advert, the ministry says following the order by ICSID tribunal, Tanesco was in the process of initiating discussions with Standard Chartered Bank, Hong Kong (SCB-HK) to find an applicable formula to recalculate capacity charges as well as power tariff.

It is hence obvious that the government and Tanesco understand the involvement of SCB-HK in the multi-billion power deal that has made the headlines in the country for 19 years. The advert confirms that the government fully understands the jurisdiction of the ICSID tribunal.

But, on Friday, the minister for Energy and Minerals, Prof Sospeter Muhongo, posed a question to Mwananchi newspaper: “Are we governed by US laws?

Prof Muhongo either believes ICSID operates according to US laws or has no jurisdiction over the government of Tanzania. The minister seemed to contradict an announcement from his ministry, which confirms and recognises the jurisdiction of ICSID tribunal.

Investigation by The Citizen has also established that on February 13, 2014, the permanent secretary in the ministry of Energy and Minerals, Mr Eliakim Maswi’ trashed SCB-HK demands, saying the bank wasn’t party to the long-standing dispute between IPTL and Tanesco.

In his later dated February 13, this year with reference number CBD.88/417/01/25, directed to Mr Joseph Casson of SCB-HK, Mr Maswi writes: “We have carefully studied the contents of the letters…it surprises to see that the SCB-HK, which neither a party to the Power Purchase Agreement (PPA) nor to the Implementation Agreement (IA) alleges the breach by the government of Tanzania or Tanesco.”

Mr Maswi further writes: “The GOT believes that SCB (HK) is quite aware that it lacks locus standi to claim, pursue, and or require a part or parties to the said agreement to undertake any associated requirements as it is not a party to the agreements.”

The letter, which was also copied to AG concludes: “In view of the above, the GoT does not see a necessity to meet and discuss any steps in relation to the alleged defaults for mitigation purposes and its subsequently discourages SCB (HK) from raising any matter against the GOT in relation to the PPA and IA.”

It is not clear why Mr Maswi chose to respond to a letter that was directly directed to Tanesco and simply copied to the ministry of Energy and Minerals.

But as both the minister and permanent secretary claim that SCB-HK is not an interested party to the IPTL-Tanesco dispute, the statement from the same ministry and available documents obtained by The Citizen proves the opposite.