How Tanesco 'squandered' 30 billion/- on legal fees

21Sep 2016
The Guardian Reporter
The Guardian
How Tanesco 'squandered' 30 billion/- on legal fees
  • The cash-strapped, state-owned power utility firm also spent close to 4bn/- on its own officials in relation to a protracted lawsuit which it now transpires to have lost - while the winners spent much, much less

THE Tanzania Electric Supply Company Limited (TANESCO) spent over 32 billion/- on lawyer fees and travel expenses, more than three times what its rival Standard Chartered Bank-Hong Kong (SCB-HK) forked out

Felchesmi Mramba

, but still ended up on the losing side of a major legal wrangle between the two over the corruption-tainted Independent Power Tanzania Limited (IPTL) deal.

And apart from forking out what has been described as "exorbitant" amounts of money on legal fees, the cash-strapped TANESCO also incurred costs of close to 4bn/- over the past five years as expenses for its own officials related to the lawsuit.

Standard Chartered Bank-Hong Kong, which took its protracted dispute with IPTL for arbitration before the World Bank-funded International Centre for Settlement of Investment Disputes (ICSID), described TANESCO's legal bill as shocking and outstandingly bad.

Between 2010 and 2015, the state-owned power utility racked up over $14.5 million (31.7bn/-) in legal payments to Tanzanian and foreign lawyers in the ICSID case, and spent billions of shillings more in expenses associated with the legal fees.

Standard Chartered Bank-Hong Kong won the landmark lawsuit last week after the Washington-based tribunal ordered TANESCO to pay the bank $148.4 million (over 320bn/-) plus interest in outstanding claims, concluding more than five years of rigorous legal proceedings.

But the Hong Kong-based bank spent a small fraction of the staggering amounts that TANESCO paid its team of lawyers, raising curious eyebrows from legal practitioners.

In court documents seen by The Guardian, the bank described TANESCO's eye-watering legal bill as outright "exorbitant and egregious in nature."

The ICSID ruling shows that TANESCO spent billions of shillings in legal fees and expenses during two different phases of the legal proceedings.

In the first phase of proceedings between 2010 and 2014, TANESCO ran up legal fees amounting to $4,720,000 (over 10bn/-) payable to the Dar es Salaam-based Mkono & Company Advocates, which is owned by the Musoma Rural member of parliament Nimrod Mkono.

Mkono & Co. Advocates has also previously represented TANESCO and the Bank of Tanzania (BoT) in other high-profile, multi-million dollar lawsuits.

TANESCO also paid Hunton & Williams LLP, a US law firm, a staggering $5.316 million (11.6bn/-) in legal fees plus $355,620 (over 730 million/-) in expenses.

The state-run power utility furthermore spent $892,317 (1.77bn/-) and 53,000 British pounds (150m/-) between September 2010 and February 2014, as expenses for its own officials who were handling the ICSID lawsuit.

TANESCO's legal fees continued to sky-rocket in the second round of proceedings before the international arbitration body (May 2014 and October 2015) by paying a combined $3.54 million (7.7bn/-) to two Dar es Salaam-based law firms - Crax Law Partners and R.K. Rweyongeza & Co.

Crax Law Partners is linked to a well-known Dar es Salaam lawyer, Beredy Malegesi, while R.K. Rweyongeza & Co. is under the managing partnership of advocate Richard Rweyongeza.

On top of the huge legal fees, TANESCO also paid more than 100m/- to the two law firms as expenses.

TANESCO also paid a Zurich-based law firm, KellerhalsCarrard, some 955,081 Swiss Francs (2.12bn/-) as legal fees and another 44,225 Swiss Francs (close to 100m/-) in expenses.

On the other hand, Standard Chartered Bank-Hong Kong spent around 3.54 million British pounds (approx. 10bn/-) in both legal fees and expenses in the ICSID lawsuit - which is more than three times less than what TANESCO forked out - and still managed to win the case.

In the arbitration process, the bank was represented by a team of lawyers from two London-based law firms - Herbert Smith Freehills LLP and Linklaters LLP.

Last week’s ruling in favour of Standard Chartered Bank-Hong Kong came nearly three years since the government controversially authorised payments of over $200 million (440bn/-) from the TANESCO-IPTL Tegeta escrow account to businessman Harbinder Singh Sethi of Pan Africa Power Solutions Tanzania Limited (PAP).

This was after the bank purchased the IPTL loan at a discount price of $76.1 million from Malaysia’s Danaharta Bank in August 2005, following the latter’s failure to secure its outstanding loan from IPTL.

The actual face value of the debt was $101.7 million, according to available evidence. IPTL borrowed over $100 million in 1998 from a consortium of Malaysian banks in order to finance construction of its 100-megawatt Tegeta power generating plant.

A few months before ICSID issued its ruling in the initial arbitration case involving a tariff dispute between TANESCO and IPTL, the government controversially (and secretly?) paid all the money in the escrow account to PAP after the company claimed that it had acquired full 100 per cent ownership of IPTL in September 2013.

Standard Chartered Bank-Hong Kong took TANESCO to the ICSID after it realised that the money in the escrow account had been paid to PAP even though the case over the tariff dispute was still pending.

The Hong Kong-based bank took over control of IPTL after the company failed to pay its loan in 2008, and has since then been fighting to recover the debt.

The bank was demanding outstanding payments to clear a loan taken by IPTL’s initial owners to set up the electricity generating turbines.

According to last week’s ICSID ruling: "The tribunal orders that TANESCO pay to SCB-HK (Standard Chartered Bank Hong Kong) the amount of $148.4 million with simple interest at three month LIBOR (London Interbank Offered Rate) plus 4 per cent from September 30, 2015 until the date of this award."

"Interest shall continue at the same rate until full payment is received."

ICSID also ruled that payments made by the government from the infamous Tegeta escrow account "did not discharge TANESCO's obligations under the power purchase agreement (PPA) and thus cannot be used to reduce the amount that TANESCO owes SCB HK."

TANESCO paid PAP more than $120 million from the Tegeta escrow account in very fishy dubious circumstances in 2013, triggering a major national corruption scandal which ultimately led to the resignations of at least three senior ministers in then president Jakaya Kikwete's government.

A number of other senior government officials were also charged with corruption at the Kisutu resident magistrate's court over the monumental scam.

Lawyers representing Standard Chartered Bank-Hong Kong at the arbitration accused TANESCO of misleading the ICSID tribunal judges by concealing facts about the escrow account payments made to PAP.

"SCB-HK understands that PAP used $75 million of the funds obtained from the escrow account to pay VIP Engineering and Marketing Limited (owned by Tanzanian businessman James Rugemalira) for its 30 per cent shareholding in IPTL," says part of the 100-page ICSID ruling.

"The funds held in the escrow account that should have been available to satisfy TANESCO's payment obligations to IPTL under the PPA (power purchase agreement) have therefore been paid to two Tanzanian parties - VIP and PAP - neither of whom made any financial contribution to the construction of the facility," it adds.

The ruling was dispatched to the parties involved in the arbitration - Standard Chartered Bank and TANESCO - on September 12 this year.

The ICSID is part of the World Bank Group and is funded by the Bretton Woods institution. It is headquartered in Washington, DC, in the United States.

An ICSID award is binding on all parties to the proceeding and each party must comply with it.

If a party fails to comply with the award, the other party can seek to have the pecuniary obligations recognised and enforced in the courts of any ICSID member state as though it were a final judgment of that state’s courts.

Members of the tribunal that issued last week’s award in favour of Standard Chartered Bank-Hong Kong were Prof Donald McRae (president), Prof Zachary Douglas (arbitrator), and Prof Brigitte Stern (arbitrator).