Zitto Kabwe, former MP and chairperson of the parastatal service parliamentary committee, has been vocal about the government’s deafening silence on the IPTL non-payment claims. Harbinger Singh has tugged him with a defamation suit in a court of law. This article will not unearth the case itself but will review the historical facts of some of the issues connected with it.
Key Points:
1. IPTL Scandal Background:
The IPTL (Independent Power Tanzania Ltd) case involves long standing disputes over payments tied to a power generation contract in Tanzania. It has been a subject of political and legal controversy for years, with allegations of corruption and irregular payments.
The IPTL (Independent Power Tanzania Limited) scandal, the Tegeta escrow account scandal, involved a multi-million dollar corruption scheme in Tanzania. In 2006, Tanesco (Tanzania Electricity Supply Company) and IPTL formed a joint escrow account, known as the Tegeta account, where funds were transferred to offshore accounts held by private businessmen and government officials.
The scandal revealed that between US$250 million and $800 million was diverted from the Bank of Tanzania, the country’s central bank, and distributed illegally. Top politicians and the clergy were on the long list of the BOT escrow account money recipients via Mkombozi Bank, owned by the Roman Catholic Church in Tanzania. It was also alleged that Stanbic Bank was part of the funds diversions, but no detailed list of recipients was accessible or made available. It remains an unproven allegation.
Key aspects of the scandal include the lack of proper consultation with stakeholders and the failure to obtain necessary approvals for the power deal. Even the release of the escrow account withheld money was littered with accusations and counter-accusations of premature funds payments since the international arbitration and verifications of exact financial obligations had not been sorted out. There was no basis to part with the cash, raising alarm bells of the venal culture eroding public accountability and transparency in Tanzania.
The scandal commenced during President Jakaya Kikwete’s administration, and his successor, President John Magufuli, arrested the founders of IPTL, including Harbinder Singh Seith and James Rugemalira, Tanzanian businessmen.
The Independent Power Tanzania Limited (IPTL) was a joint venture between Mechmar Corporation of Malaysia (70%) and VIP Engineering of Tanzania (30%). The company was formed in 1994 to provide electricity generation in Tanzania. VIP Engineering was headed by James Rugemalira, who later became a shareholder and was involved in a controversial deal regarding the company’s ownership. The IPTL project was a significant event in Tanzania’s energy sector, particularly due to its association with the “Escrow” scandal and the alleged embezzlement of funds.
Historical facts:
IPTL Formation:
IPTL was established 1994 as a joint venture, with Mechmar Corporation as the primary shareholder. The project aimed to address power shortages in Tanzania by providing a new electricity generation capacity.
VIP Engineering and Rugemalira:
VIP Engineering, with its Tanzanian shareholder James Rugemalira, was a key player in the IPTL venture. Rugemalira’s involvement, including selling his 30% stake to Pan African Power Solutions (T) Limited (PAP), became a point of contention.
Controversy and “Escrow“:
The IPTL project was marked by controversy, including allegations of corrupt practices and the misuse of funds from an escrow account held by the Bank of Tanzania. The deal involving the $270 million from the escrow account and Rugemalira’s sale of his shares became the subject of a court battle.
Impact on Tanzania’s Energy Sector:
The IPTL project significantly impacted Tanzania’s energy sector, raising questions about the government’s approach to energy procurement and the role of private investments. The “Escrow” scandal and other related issues highlighted concerns about transparency and accountability in public procurement.
Key Players:
Harbinder Singh Sethi:
A key figure in the controversy surrounding IPTL and the “Escrow” scandal, Sethi was charged with economic sabotage and other offenses.
James Rugemalira:
A former IPTL and VIP Engineering shareholder, Rugemalira, was also charged with economic sabotage and other offences related to the controversial deal.
Mechmar Corporation:
The Malaysian company, which held the majority share in IPTL, was also at the centre of the IPTL project’s controversies.
Harbinder Singh Sethi settled out of court.
Harbinder Singh Sethi took advantage of the plea bargain facilities to end his legal wrangles after the matter dragged on in courts without ending. After being remanded for approximately four years together with his business partner James Rugemalira, there was no hearing.
On 17 June 2021, the Kisutu Resident Magistrate’s Court ordered Seth to pay Sh 26 billion in compensation after being found guilty of fraudulently obtaining money after being incarcerated for approximately 4 years.
James Rugemalira refused to access the plea bargain arrangement and was later unconditionally freed by President John Magufuli’s successor, President Samia Suluhu Hassan.
Zitto Kabwe’s Role:
Zitto Kabwe, a Tanzanian politician and former MP, has been vocal about transparency and accountability in the IPTL saga. His advocacy has often put him at odds with individuals linked to the scandal. He has recently been urging President Samia Suluhu Hassan’s administration to obey the Appeals Court ruling that stopped the government from honouring claims of the IPTL and its successor, PAP. The details of the defamation case have been intentionally redacted until a final court ruling is delivered.
Contextual Understanding:
The IPTL case remains a critical governance issue in Tanzania.
History of IPTL in Tanzania and Key Court Rulings
Origins of IPTL (1990s)
The Independent Power Tanzania Limited (IPTL) was established in 1995 through a Power Purchase Agreement (PPA) between the Tanzanian government and a joint venture of Malaysian firm Mechmar and Tanzanian company VIP Engineering. The deal aimed to address an energy crisis by building a 100 MW diesel-fired power plant in Tegeta, Dar es Salaam. However, the agreement was mired in controversy from the outset:
Corruption Allegations:
The contract was approved despite opposition from Tanzania’s Ministry of Energy and international donors like the World Bank, which withdrew funding due to suspicions of bribes to officials.
Flawed Economics:
IPTL’s electricity costs 12 cents per unit, far higher than TANESCO’s 7–9 cents. The PPA lacked competitive bidding, feasibility studies, and transparency, locking Tanzania into overpriced payments for unneeded capacity.
Legal and Financial Disputes.
1. Arbitration and Escrow Scandals:
In 1998, TANESCO challenged IPTL’s inflated costs at the International Centre for Settlement of Investment Disputes (ICSID), leading to reduced tariffs. A second arbitration in 2008 uncovered further overcharging, prompting TANESCO to deposit payments into an escrow account at the Bank of Tanzania (BoT) pending resolution.
By 2013, Pan Africa Power (PAP), linked to businessmen James Rugemalira and Harbinder Singh Sethi, acquired IPTL’s shares using funds from the escrow account. This occurred despite IPTL being under provisional liquidation, raising legal questions about the validity of asset transfers .
2. High Court Rulings:
In 2013, Tanzania’s High Court approved PAP’s acquisition of IPTL’s assets, dismissing objections about IPTL’s insolvency. The court sanctioned a settlement allowing PAP to pay VIP Engineering $67.5 million for its 30% stake, funded directly from the escrow account.
This decision was later criticized as fraudulent, with evidence of judicial collusion and bribes to officials. A parliamentary probe in 2017 implicated judges and ministers, leading to resignations and arrests. The Appeals Court overturned this ruling as will later be presented.
3. ICSID’s 2019 Ruling:
In a separate case, the World Bank’s ICSID tribunal ruled against Tanzania in 2019 for breaching its contractual guarantee to Standard Chartered Bank (SCB) Hong Kong, which had acquired IPTL’s debt. The tribunal ordered Tanzania to pay $185 million in compensation for expropriating SCB’s rights to the escrow funds.
Impact and Aftermath.
Financial Burden:
By 2024, IPTL’s unresolved claims against TANESCO totaled $148 million in unpaid debts from the escrow agreement, exacerbating the utility’s financial crisis.
Institutional Weaknesses:
The case highlighted systemic corruption in Tanzania’s judiciary and energy sector, with reforms like the Prevention and Combating of Corruption Bureau (PCCB) failing to address root issues.
Policy Reforms:
Post-2015, Tanzania phased out emergency power contracts like IPTL, prioritizing gas and renewable energy. However, legacy issues from the scandal continue to shake investor confidence.
Key Lessons
Transparency Deficits:
The lack of competitive bidding and stakeholder consultation in the IPTL deal enabled corruption.
Contractual Risks:
Weak enforcement mechanisms allowed PAP to exploit legal loopholes, draining public funds.
The Tanzania Court of Appeal ruled against Pan Africa Power Solutions (PAP)’s acquisition of IPTL, declaring the transfer of ownership unlawful and procedurally flawed. Here’s a detailed breakdown of the ruling and its implications:
Court of Appeal’s Key Ruling.
1. Invalidation of High Court Orders.
The Court of Appeal overturned a 2013 High Court decision that allowed IPTL’s assets and management to be transferred to PAP. The Court ruled that the High Court had exceeded its authority by granting consequential orders (e.g., transferring IPTL’s power plant to PAP) when VIP Engineering withdrew its petition to wind up IPTL. These orders were made without hearing arguments from Mechmar (IPTL’s 70% shareholder) and without determining the winding-up petition on its merits.
2. PAP’s Lack of Legal Standing.
The court emphasized that PAP was not a party to the original winding-up proceedings initiated by VIP Engineering in 2002. The transfer of IPTL’s shares and assets to PAP was based on a Share Purchase Agreement (SPA) between VIP Engineering (30% shareholder) and PAP, which Mechmar (the majority shareholder) was excluded from. This unilateral action violated Mechmar’s rights as a majority stakeholder.
3. Procedural Irregularities.
The judges criticized the High Court for granting PAP ownership rights “as if the petition had been determined on merit,” despite the case being withdrawn. The withdrawal of the winding-up petition should only have resulted in cost-related orders, not asset transfers.
Context of the Dispute.
Ownership Background:
IPTL was established in 1995 with Mechmar (70%) and VIP Engineering (30%). After disputes between shareholders, VIP petitioned to liquidate IPTL in 2002 but later withdrew the case after selling its shares to PAP in 2013.
Escrow Account Controversy:
PAP used funds from the Tegeta Escrow Account (intended to resolve tariff disputes between TANESCO and IPTL) to finance its acquisition of IPTL’s shares. This raised legal and ethical questions, as IPTL was under provisional liquidation at the time.
Fraud Allegations:
Politician Zitto Kabwe and others alleged that PAP’s ownership was fraudulent, as Mechmar’s shares were never legally transferred. Instead, PAP claimed ownership through a shell company (Piperlink) and misused escrow funds. By accusing PAP of fraud, that provoked the defamation suit of which the details are beyond tje scope of this discourse.
Impact of the Ruling
Restoration of Mechmar’s Rights:
The decision reaffirmed Mechmar’s 70% stake in IPTL, invalidating PAP’s claims. However, enforcement remains complicated due to ongoing legal battles and PAP’s continued control of IPTL’s assets.
Escrow Funds and Liability:
The Tanzanian government and TANESCO faced financial liabilities from the escrow saga, including a $185 million ICSID award to Standard Chartered Bank Hong Kong (SCBHK) for misappropriated funds. Tanzania government had never seek accountability from those who were involved as the criminal indictments against James Rugemalira and Harbinder Singh Sethi showed. The duo were charged of criminal conspiracy but nobody on the government was charged eviscerating collusion factors of which their absence made a criminal matter dead on arrival.
Private individuals didn’t release billions from the BOT escrow account but senior public servants did but were criminally shielded! Without proving collusion through public servants the whole caboodle of criminal conspiracy was a pratfall: hurtling to nowhere.
Political Fallout:
The ruling reignited scrutiny of corruption in Tanzania’s judiciary and energy sector, with calls for accountability from figures like Harbinder Singh Sethi (PAP’s chairman).
Ongoing Legal Challenges
Despite the Court of Appeal’s decision, PAP continued to file lawsuits, including a 2024 case seeking to invalidate a 2021 settlement with the government. The High Court dismissed this case, upholding the settlement and describing PAP’s claims as unsubstantiated .
Conclusion.
The Court of Appeal’s ruling marked a critical juncture in the IPTL saga, exposing systemic governance failures and reinforcing perceptions that government officials have ignored the matter.
Harbinder Singh Sethi will have to prove his case despite taking a plea bargain of guilty as charged and parting with a colossal Tshs 21 Bill or so. Kabwe could seek “qualified privilege” to swat the defamation suit.
Read more analysis by Rutashubanyuma Nestory
