Dar es Salaam. The executive chairman of Pan Africa Power Solutions Ltd (PAP), Mr Harbinder Singh Sethi, has finally come out this week to defend the way his company acquired Independent Power Tanzania Limited (IPTL).
Mr Sethi termed the deal ‘a clean transaction’, denying any wrongdoing in the business acquisition on Tuesday. He claimed that his company followed all the legal and regulatory procedures to acquire IPTL.
“I followed all the procedures....I did not come to Tanzania to make money....I want to help Tanzania to get sufficient electricity that is vital for economic development,” he told a section of journalists in Dar es Salaam from office premises of his company.
His response comes almost a week since The Citizen started to comprehensively report on how the deal involving IPTL and PAP was planned, funded and executed.
On Monday, The Citizen reported that the $122 million (Sh201 billion), which was in the escrow account held at the Bank of Tanzania (BoT), was transferred to PAP account between November 28 and December 8, last year.
Escrow account is a financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled.
However, Mr Sethi puts the amount that was/is in the escrow account at about Sh150 billion, noting, however, that there was nothing wrong with his company transferring the assets for IPTL -- including money -- to PAP since the latter is the legally-accredited holding company for IPTL. Before being acquired by PAP, IPTL was jointly owned by a Malaysian firm, Mechmar Corporation, and Tanzania’s VIP Engineering and Marketing Company Limited, with the former controlling a 70 per cent stake.
The company, according to its secretary and chief counsel, Mr Joseph Makandege, operated peacefully for just about five years before the unending wrangles erupted between the two shareholders --prompting money to be sent to the escrow account held at the BoT.
“With squabbles between shareholders, VIP Engineering and Marketing Company Limited became suspicious that the money would be defrauded so the proprietor sought a court order -- demanding that money, paid by Tanesco [the Tanzania Electric Company Limited] to IPTL, should be deposited in the escrow account at the BoT,” he explained.
In 2010, Mr Sethi brought all the documents -- which, however, were not handed to The Citizen for verification -- confirming that he has been duly chosen as the custodian for all of Mechmar assets in Tanzania.
The court cases notwithstanding, Mr Sethi went ahead to buy all the shares that Mechmar had earlier sold to Piperlink and transferred them to PAP. This, in essence, meant that Mr Sethi – through PAP - now owned 70 per cent of shares in IPTL, with VIP owning the remaining 30 per cent.
He later engaged VIP so he could buy the latter’s 30 per cent stake. “VIP agreed and was paid $7.51 million as down payment for a deal totalling $75 million,” explained Makandege, noting that the remainder was covered later. Having settled the deal, VIP went to court requesting the judge to drop all the cases involving VIP and Mechmar.
The court ruled -- on September 5, 2013 -- in favour of VIP and all the cases were dropped. PAP was thus granted the ownership of all of IPTL assets -- including money in the escrow account. PAP also agreed to pay all IPTL creditors. The duty of the provisional liquidator ended there.
The new company, according to Mr Makandege, then embarked on a duty of searching for wherever IPTL assets were. It arranged a meeting with Tanesco where they arrived at the right amount that the state-owned utility firm owed IPTL. “In fact, Tanesco board directed the management to inform key stakeholders that there were no more disputes between the state power company and IPTL – resulting in an official end of depositing IPTL money into the escrow account,” he said.
The duty ahead of PAP remained that of making sure that money from the escrow account was transferred into the PAP account.
“With that, an agreement had to be signed between IPTL and the government through the ministry of Energy and Minerals....it should be noted that money in the escrow account belonged to two of IPTL shareholders.....it was neither taxpayers’ money nor money for Standard Chartered Bank Hong Kong,” said Mr Makandege.
The government also required PAP to sign an Indemnity Agreement to the effect that whenever a new creditor comes, then PAP would be responsible. The government then wrote to BoT demanding that the money be released to the rightful and legally-accredited owner.
“That was how the money was released,” he explained.
On claims by Standard Chartered Bank Hong Kong, Mr Makandege said the financial entity was not legally recognised to be the project finance lender to IPTL. This, he said was because agreements that Mechmar and Standard Chartered Bank had gone outside Tanzania had not been domesticated. “So in short, Standard Chartered Bank is not one of the IPTL creditors that PAP legally inherited,” he said.
He, however, noted that they were aware that IPTL had, in 1995, sought a $105 million loan from Standard Chartered Bank Hong Kong.
The company ended up getting $84 million out of the $105 million that was approved. After completing the construction of IPTL plant, the company started repaying the loan in 2000 and by 2005, it had repaid a total of $38 million. After 2005, IPTL was placed under the provisional liquidator and according to Tanzania’s laws, a financial entity cannot charge interest on a company that is under liquidation.
Until 2007, IPTL had repaid another $20 million – bringing the total repaid amount to $58 million.
“This means that the total amount of Standard Chartered Bank Hong Kong’s loan to IPTL now stands at $26 million....this is the money that we may pay if they prove to us that they are one of the IPTL creditors in Tanzania,” he said.
On future plans for IPTL, Mr Sethi said he is determined to invest up to $1 billion and bring the company’s production capacity up to 500MW in the next few years.
Running on Heavy Furnace Oil (HFO), he said, since late last year, the company produces up to 90MW of electricity – up from about 30MW, thanks to the investment he had made in equipment.
According to Mr Sethi, the company’s capacity charges are the lowest compared to other independent producers that use HFO. This information, however, could not be independently verified by The Citizen
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