How Kenyan tycoon sealed IPTL deal in Dar

madboy · 2014-03-08T08:20:51+00:00

The Kenyan businessman, Mr Harbinder Singh Sethi, claimed he had a solution to the IPTL saga whereby, among other things, he managed to garner the backing of some top government officials. The entry of Mr Sethi spoiled another arrangement that was earlier tabled by Standard Chartered Bank, Hong Kong, which would have enabled the Tanzania Electric Supply Company (Tanesco) to use the escrow funds to settle capacity charges as well as financing the upgrading of IPTL plants into gas-fired power generating plants. Not only that, but Tanesco would have also totally acquired the plants, ending expensive capacity charges it has been paying for years before questioning the rate charged by IPTL, according to details gathered by The Citizen investigative team. Following is the chronology of events that took place in the corridors of justice at home and abroad as well as behind the scenes: Events involving IPTL, Tanesco • Standard Chartered Bank-Hong Kong (SCB-HK) is the senior debt lender to IPTL; it is owed $145million(Sh234.465billion). • IPTL and Tanesco signed a Power Purchase Agreement (PPA) in 1997, for the production of 100 Megawatts during the peak load hours. • The project has been clouded by disputes between IPTL and Tanesco at one hand, and between IPTL's shareholders, Mechmar Corporation Berhad (MCB)- the majority shareholder – and VIP Engineering and Marketing Limited (VIP) – a local company that owns 30 per cent. • MCB raised private equity in Malaysia and debt facilities to fund the project's build-and-operate whereby the local company, VIP Engineering and Marketing, the local partner, negotiated and completed the project agreements in 1997. • Following the project's installation and commissioning, Tanesco sought to determine the PPA on grounds of excessive project cost and IPTL's failure to comply with agreed specifications. • The dispute was referred to the International Centre for the Settlement of Investment Disputes (ICSID) in accordance with the agreed dispute resolution mechanisms in the original project contract. • ICSID found that the project cost was inflated whereby it ordered an application for a reduction to the cost in order to determine a revised PPA tariff. But, ICSID found no justification in Tanesco's arguments on specification as well as no basis for termination of the PPA. • Tanesco commenced paying the reduced tariff in 2002 – about five years after the plant's installation and commissioning. • But in 2002, realising that the reduced tariff would affect the timing and value of its equity return, VIP filed an unfair prejudice petition, against IPTL, in which it claimed minority oppression through alleged unfair acts by MCB. • In its petition, VIP prayed for the acquisition of its minority shares, by MCB, for about $30million (Sh48.5billion) or, in the alternative, IPTL's winding up. • However, between 2002 and 2008, the petition was subject to various interlocutory hearings and decisions in the High Court and the Court of Appeal. • Late in 2006, Tanesco ceased paying the revised capacity tariff to IPTL after it realises that it was being over-charged. • Tanesco's argument was that IPTL's capital structure was inconsistent with that prescribed by the project agreements and, in therefore, the payments which it made between 2002 and 2006 were excessive. • The Parliamentary oversight committee chaired by Kigoma North MP Zitto Kabwe in 2009 discovered that IPTL inflated what it invested in Tanzania-a situation that enabled it to overcharge Tanesco in tariffs and capacity charge. • When Tanesco stopped paying IPTL, MCB, the majority shareholder referred this latest dispute with State-owned power utility to ICSID. • In December 2008, the appointed ICSID tribunal sat to consider the complaint but on the same day the High Court of Tanzania decided to hear the VIP's unfair prejudice petition and VIP's related application for the appointment of a provisional liquidator to IPTL. • The court ruled in favour of the application for the appointment of a provisional liquidator despite SCB-HK's efforts to the contrary, which were ignored. • Tanesco's counsel, at the scheduled ICSID hearing in London, referred the arbitral tribunal to the provisional liquidator's appointment, some three hours earlier in the day, and the consequent lack of authority, on the part of IPTL, to continue with the arbitral proceedings without the newly appointed Provisional Liquidator's consent. • Following the move, the tribunal adjourned the proceedings. • The provisional liquidator (the administrator general and an extension of government) subsequently declined to authorise a continuance of the ICSID arbitration despite SCB-HK offering to underwrite costs, something seen by other parties in this dispute as in clear violation of his duties. • In January 2009, SCB-HK filed an application for the appointment of an administrator pursuant to the corporate rescue provisions of the revised Tanzanian companies' laws whereby the High Court judge Thomas Mihayo granted the application. • Within days of the administrator's appointment, the provisional liquidator, who according to the rules, should be be an uninterested party moved the Court of Appeal to convene revision proceedings to quash the order appointing the new administrator. • However, during the new administrator's initial days in office, he authorised the continuance of the ICSID arbitration. • In the meantime, the then Chief Justice Augustine Ramadhani established a three-judge bench to hear the revision. • The appellate bench delivered its ruling one day before the rescheduled ICSID arbitration in April 2009, in which it quashed the order for Administration and removed the appointed Administrator. • The arbitration floundered for want of authority on the part of IPTL. • SCB-HK subsequently held a number of settlement and restructuring discussions with Tanesco and its counsel, Mkono & Co and Hunton & Williams. • The discussions focussed on ways to restructure the project and facilitate the settlement of creditors' claims from the Tegeta escrow account and future operating cash flows. • The escrow was an account established at the BoT to hold the disputed invoice amounts since Tanesco's refusal, in early 2006, to make tariff payments directly to IPTL citing inflated tariff. • A detailed project restructuring plan was presented to Tanesco by SCB-HK and its advisors whereby among other things it made provision for the following: 1: A marked reduction in the tariff payable by Tanesco 2: The ultimate transfer of ownership of the plant to Tanesco after settlement of creditor obligations 3: The settlement of SCB's debt via the payment of a bullet amount followed by the amortisation of the residual debt over four years 4: SCB-HK's willingness to write off a portion of its debt upon due performance of IPTL's settlement obligations • After months of discussions on the proposed plan, the notion of a project restructuring was finally rejected by Tanesco lawyers on the basis that the minority interest, VIP, was not in agreement (this being the case despite the restructuring intended as a creditor (not shareholder) led process as would be the case in most competent jurisdictions). • Various subsequent efforts by the bank to reach out to government proved futile. • Efforts to obtain justice in the local courts likewise failed with applications by the bank either ignored or dismissed. • Left with no alternative, SCB-HK commenced an arbitration against the Government under the provisions of the UK Bilateral Investment Treaty. • The ISCID tribunal ruled against the bank on grounds of jurisdiction. • SCB-HK, via an assignment of rights under the project and security agreements, also commenced arbitration against Tanesco in respect of the 2007 invoice dispute whereby the outcome of that arbitration was released on February 14 after the tribunal agreed that there were inflated tariff and therefore the two sides should sit down and re-calculate the new applicable tariff. • Despite applications by SCB-HK and its receiver (appointed over both IPTL's business and assets and over its shares) to withdraw the VIP petition and prevent the company's ultimate winding up, the court made an order for winding up in July 2011. The order made was made with procedural anomalies and omissions. • SCB-HK appealed to the CJ for revision of the order and for the first time the appeal bench, which included Othman CJ, agreed with the bank and quashed the winding up order. How the deal was finally sealed • According to details gathered by The Citizen, to conclude the deal, Mr Sethi finally joined hands with VIP Engineering Ltd, a local company that used to own 30 percent of the IPTL shares. In so doing, The Citizen was told, SCB, which as the key player in the whole saga was excluded. Under the deal, VIP Engineering Ltd agreed to sell its shares in IPTL to Mr Sethi's company, Pan African Power Solutions (T) Limited (PAP), for $75m (Sh121.275 billion), according to the exchange rates ordered by the High Court in January, this year. To fund the acquisition, Mr Sethi used monies from the Escrow account having purportedly settled the dispute with Tanesco in the local corridors of justice. As part of the deal, VIP Engineering agreed to withdraw the petition it filed in 2002. Finally on September 5, 2013, Justice Utamwa J ruled in favour of VIP's application and included, therein, PAP's right to assume control of IPTL. However MCB liquidators, Standard Chartered Bank-Hong Kong, was denied the right to be heard on VIP's application for the withdrawal of its petition. But, Mr Sethi's MCB ‘Tanzania chapter', on the other hand, was heard and acknowledged by the High court. Following the controversy surrounding the ruling, MCB liquidators have written to the Chief Justice seeking a revision of the order issued by Justice Utamwa J on grounds that its locus was incorrectly ignored and that the order granting PAP the custody of IPTL was fundamentally wrong in procedure and according to the law. In 2013, VIP mounted an action in New York against Standard Chartered Bank Tanzania Ltd (SCB) in which it claims an amount in damages of $485m. The same claim was also filed in the Tanzanian courts. However, as some lawyers put it to The Citizen, "The claim has no legal merits" because SCB-Hong Kong is the contracting party with IPTL and therefore the only party that could legitimately be sued by VIP. According to details gathered by The Citizen, VIP has taken it upon itself to include Standard Chartered Bank Tanzania (a separate and distinct entity from SCB HK) as well as a purported bank entity in the UK that doesn't exist. Access to escrow account It is believed that so far, Mr Sethi has accessed the escrow account and misappropriated its proceeds. It is believed the escrow account had $122 million stashed in it by the end of last year. In the latest development, BoT yesterday admitted that the money was taken from escrow account, insisting that the amount paid was $122million. The BoT governor, Professor Benno Ndulu, stated yesterday that the bank released the payments after it was instructed to do so by the relevant authorities. But when asked who about who was paid with the money from Escrow account, the BoT boss said: "It's IPTL that was paid…you can contact them and you will get all the details." Prof Ndulu insisted that the two signatories from IPTL and Tanesco signed in order to allow the monies to be withdrawn from the escrow account at BoT Earlier, SCB-Hong Kong had offered the government a substantial cut on its debt, in the event of a settlement, to $75 million from $ 145m. But, according to details gathered by The Citizen, that offer was ignored. The bank went further by offering the government a sovereign facility with provision to refinance IPTL's obligations to the bank, at the discounted level ($75m). But, Mr Sethi allegedly threatened to have the bank's debt claim rejected by the Tanzanian courts.

Thread starter madboy
Start date Mar 8, 2014

madboy

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How Kenyan tycoon sealed IPTL deal in Dar

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