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Blueline award threatens existence of EADB

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EADB Kampala, the bank is facing tough times. Picture: File

EADB Kampala, the bank is facing tough times. Picture: File 

By MICHAEL WAKABI, AND BERNARD BUSUULWA

Posted  Sunday, November 20  2011 at  16:25
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East Africa Community leaders are facing a fresh dilemma over the future of a key regional financial institution slapped with a $137 million bill by a Dar es Salaam court.

This will probably shake diplomatic relations among the partner states and test the bloc’s countries commitment to keeping the lender afloat.  

The very survival of the East African Development Bank (EADB) hangs in the balance following the court ruling requiring it to pay a Dar es Salaam based transport firm Blueline an award.

Observers said following the ruling, Rwanda, Kenya, Uganda and Tanzania — the major shareholders of the bank — might not be willing to commit taxpayers’ money to pay Blueline.

Even as EADB and its shareholders mulled on a logical response to the court decision, independent analysts were predicting wider ramifications for the region’s long-term lender and Tanzania’s attractiveness as a host for supranational institutions.

The other shareholders include the African Development Bank (AfDB), the Netherlands Development Finance Company (FMO), German Investment and Development Company (DEG), SBIC-Africa Holdings, Commercial Bank of Africa, Nordea Bank of Sweden, Standard Chartered Bank and Barclays Bank Plc.

To enable the Bank to fulfil its obligations, the Charter which established it vests upon it immunities and privileges in judicial proceedings and protection of its assets under Articles 44 and 45.

Judge Augustine Shangwa of the High Court at Dar es Salaam issued the order on November 8, following a recent dismissal of EADB’s application by the Court of Appeal of Tanzania.

The dispute between the Bank and Blueline and the eventual award has brought to focus the value and efficacy of the Bank’s special status, exemptions, immunities and privileges under the Charter without which it would not be easy for it to fulfill its obligations.

Whereas Uganda representatives to the banks board were not immediately available for comment, according to analysts, immediate consequences for the bank and region arising from the ruling include higher mobilisation costs for funds in domestic and international capital markets, lost opportunities as potential lenders withhold funds awaiting resolution of the dispute and negative impact on the flow of resources to the region given that other development finance institutions are likely to be convinced that their immunity and operations could be as much under threat as EADB.

In a dramatic ending a fortnight ago to a legal battle that has engaged the region’s legal minds for the better part of two decades, the High Court of Tanzania allowed the attachment of the EADB’s physical assets in Tanzania if the bank failed to settle a $137 million arbitration award in favour of Blue-line Enterprises Limited.

The award was part interest accrued on a $61 million garnishee order issued against the bank in 2006.

Although sources at EADB said the award would not affect the banks operations in material terms, at $137 million, it constitutes 58 per cent of the bank’s assets which stood at $237.3 million as at the end of December 2010.

Whereas the court’s order apparently, can only be enforced in Tanzania and targets the banks physical assets in Dar es Salaam whose value is estimated at about $2 million in total, a latent danger for the bank lies in a 2009 decision by the Tanzanian High Court which then ruled that although under the Banks Charter its assets were immune to confiscation, this immunity did not extend to its cash.

That decision which opened the way for Blue-Line to try without success to attach the bank’s accounts in Tanzania culminated in the latest court order which in effect contradicts the earlier finding that recognizes the immunity of the bank’s assets.

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