The east African nation would be in less of a pickle if the energy that went into corruption went into producing affordable power for the people.
Independent Power Tanzania Ltd calls itself the “leading electric power generation company in Tanzania”. Established in 1995 in response to a drought-induced energy crisis, IPTL didn’t provide energy to the national grid until 2002. By which time, the energy crisis had come and gone.
Since 2002, the energy company has “become a permanent feature of the energy sector” in Tanzania, according to a new report by Africa Research Institute, a London-based think-tank. The report, written by independent researcher Brian Cooksey, who’s based in Tanzania, details the corruption at the heart of the country’s energy industry.
Mr Cooksey says that over the past 15 years, IPTL has “burdened” Tanzania Electric Supply Company (TANESCO), a state-owned utility, with “overpriced” and “imported” diesel-fuelled power. Beyond claims of inflated prices, the study says Tanzania’s government pushed ahead with the pricey IPTL scheme at the expense of pursuing more affordable power; effectively contradicting its official “least cost” strategy. Moreover, the IPTL project undermined the development of Tanzania’s homegrown gas-fuelled power.
“To make matters worse,” writes Cookesy, who has been monitoring Tanzania’s energy sector since 1997, “a second ’emergency’ project known as Richmond – later Dowans and finally Symbion – failed to address another energy crisis in 2006, and remained idle for two years after its eventual completion, while still collecting capacity charges of US$4 million a month.”
IPTL began life as a merger between a local Tanzanian company, VIP Engineering and Marketing, which owned 30% of the power generator, and Mechmar Corporation, a Malaysian operation. In the early 1990s, Tanzania’s government received an unsolicited proposal from Mechmar, seen as close to Malaysia’s then-prime minister Mahathir Mohamed, to finance and build the emergency diesel-fuelled plant; ostensibly to provide more power during the 1994-95 crisis.
A central figure in the saga is Tanzanian tycoon James Rugemalira, a director and later owner of VIP. Rugemalira was instrumental in ushering the IPTL project through Tanzania’s halls of power. And, according to Cookesy’s report, bribed senior officials and politicians.
This story has many moving parts, and in 2007 there was another twist. TANESCO, the state-owned utility, took IPTL to the International Centre for Settlement of Investment Disputes (ICSID) for arbitration. This was the second time TANESCO had taken IPTL for arbitration. This first time, from 1999-2002, the international arbitration body found IPTL had indeed been overcharging TANESCO, and ordered IPTL to reduce its monthly charges from $4.5 million to $2.6 million.
The 2007 claim by TANESCO was also based on the allegation that IPTL was overcharging for electricity. It took almost seven years for the ICSID to make a decision. During this time, while the dispute was being argued, the money that TANESCO owed to IPTL was paid into a Bank of Tanzania holding account. The money therefore was held “in escrow”, an old-fashioned term for when a third party holds funds in trust. In this case, held in trust until arbitration decided if IPTL was again overcharging TANESCO. (In Tanzania, this long saga has become known as the “escrow scandal”.)
In 2014, the case was decided in TANESCO’s favour and IPTL was ordered to pay back the money it had been overcharging the utility. “However, by the time the ruling was made,” writes Cooksey for Africa Research Institute, “IPTL was under new ownership and more than half the money held in trust had already been paid to IPTL’s new owner, Pan African Power Solutions (PAP), owned by Harbinder Singh Sethi.”
A local media storm ensued, and the public came to know Mr Sethi, a Tanzanian-born tycoon who’d made a fortune in Kenya during the reign of Daniel arap Moi from 1978-2002. It was revealed that Mr Sethi had acquired Mechmar’s 70% shareholding in IPTL via a convoluted scheme which relied on, amongst other things, an intermediary in the British Virgin Islands and a payment of $75 million to Mr Rugemalira. The payment, using money Mr Sethi had got from the escrow account, was for Mr Rugemalira’s 30% holding in IPTL. In turn, Mr Rugemalira’s was shown to have paid $1m each to a likely list of senior officials, including the former attorney general.
“In late 2014,” writes Cooksey, “despite overwhelming evidence in the public domain of malfeasance on the part of Messrs Sethi and Rugemalira, President Jakaya Kikwete (2005-2015) in effect endorsed the looting of the TEA [Bank of Tanzania escrow/holding account] by settling for a few symbolic resignations and minor prosecutions.”
Mechmar’s original investment in IPTL was less than $100m, according to Cooksey’s research. Yet this investment “set in train a series of events”, including cronyism, litigation and lost productivity from poor power planning, which has cost Tanzania about $1.5 billion. This is a prime example of “dumb corruption”, says Cooksey, as opposed to “smart corruption”, which, while not endorsing it, he defines as “taking a one-off cut” on justifiable projects that prove beneficial to a nation’s economy. In short, if IPTL is the leading electric power generator in Tanzania, as it calls itself, one shudders at the thought of the country’s worst performing operation.
As a possible promising postscript, on June 19th 2017, the conspiring duo of Messrs Sethi and Rugemalira were arrested and charged with money laundering, economic sabotage and criminal conspiracy. If convicted, they could face long stints behind bars. The outcome of their case is seen as a test of John Magufuli, Tanzania’s president since 2015, who has won applause for his crackdown on corruption. Mr Magufuli has also attracted criticism for his crackdown on the press and his political opponents. Tanzania is entering a precarious stage. If the leader and his inner circle cannot drive out corruption without ruining the country’s democracy, then all efforts, in the end, may come to nil.
Top photo: The "escrow scandal" has been a big story in Tanzania. Daniel Hayduk/AFP/Getty Images