A businessman with close ties to senior members of Kenya’s first ruling party Kanu, is at the centre of a $183 million scandal in Tanzania that is threatening to bring down senior government officials and leave a blot on President Jakaya Kikwete’s legacy.

Tanzania’s Public Accounts Committee has called for the immediate arrest and prosecution of Harbinder Singh Sethi, the owner of Pan African Power Solutions, over the irregular withdrawal of $183 million from an escrow account. The committee has also recommended that the country’s prime minister take political responsibility for the scandal and that some two Cabinet ministers, who include former executive director of UN-Habitat Anna Tibaijuka be relieved of their duties.

Last week, Attorney-General, Fredrick Werema, resigned after the committee observed that he failed to advise the state appropriately on the matter. It is a matter of time before the country knows whether more heads will roll and if some government officials will be prosecuted for causing the country to lose the colossal sum of money.

Prof Tibaijuka said she will not resign for receiving $1 million from VIP Engineering and Marketing Ltd — which owned a 30 per cent stake in Independent Power Tanzania Ltd — after it sold its stake in IPTL to Pan African Power Solutions (PAP). She insists it was a donation.

“The money I received from Rugemalira [IPTL owner] isn’t corrupt money; it was given to me for the construction of a girls school known as Barbro Johanson Girls Model Secondary School and other notable people have donated money to the school,” said Prof Tibaijuka.

Parliament resolved that the government freeze the accounts of all people who received money from the owner of VIP Engineering, James Rugemalira, on realisation that it was fraudulently withdrawn from the escrow account, part of which has been proved to be public money.

Mr Sethi has moved to court to quash the implementation of the committee’s recommendations. According to the report, tabled in parliament by committee chairman Zitto Kabwe last month, Sethi, the executive chairman of PAP, inappropriately transferred 70 per cent shares in the IPTL from its previous owners Mechmar Corporation, to Piper Links Investments Ltd, then transferred them to PAP using forged certificates.

READ: Tanzania taxman reverses ‘fraudulent’ takeover of firm as escrow row heats up

After acquiring the Mechmar shares and the 30 per cent of the minority shareholder in IPTL, VIP Engineering and Marketing Ltd, Mr Sethi withdrew $183 million from the Tegeta escrow account. The committee further directed the government to return the funds withdrawn from Bank of Tanzania to state coffers. It also recommended that the banks that were used to move the escrow money — Stanbic and Mkombozi — be sanctioned over money laundering.

The scandal could severely dent the ruling party, Chama cha Mapinduzi’s popularity. Already, CCM’s decline in performance in the local government elections from 92 per cent of the vote in 2009 to 75 per cent last week has been linked to voters being unhappy with the way the government has dealt with the scandal.

While the scandal may seem like a domestic matter for Tanzanians, it will not escape the interest of Kenyans who knew Mr Sethi in his heyday.

A search in newspaper archives reveals a man, described as a businessman or “tycoon,” who rubbed shoulders with the powerful elite during Kanu’s rule in the 1980s and 1990s.

His contribution of large sums of money during the then common harambees (fundraisers) is documented in newspaper stories. The Daily Nation of May 9, 1996 reports him donating Ksh200,000 ($2,210) to then president, Daniel arap Moi for the National Youth Development Programme. Barely a month later, on June 7, he is reported to have given Kenya Football Federation officials Ksh300,000 ($3,315).

According to newspaper reports, Mr Sethi was born and raised in Iringa, a small town in Tanzania’s Southern Highlands. Aged 19, Sethi and his two elder brothers Nota Singh and Manjit Singh, registered Ruaha Concrete Co Ltd, on November 1977.

Mr Sethi moved to Nairobi in the 1980s, where he is reported to have worked closely with the son of a prominent Kanu politician. He is also reported to be a close friend of a former powerful politician with whom he has invested in electricity generation.

In 1997, the report of the Kenya Auditor General (Corporations) cites a contract awarded irregularly by state corporation Kenya Pipeline Company to Ruaha Concrete Ltd to build a 9km access road, involving delays, large cost overruns, and poor workmanship.

The report noted that Ruaha was registered “under the category of painters and builders of access roads in estates.” Supervising engineer A S Kitololo resigned after refusing to sign off on shoddy work. The total project cost rose from Ksh197 million ($2.18 million) in February 1995 to over Ksh510 million ($5.63 million) in June 1998, when the project was finally completed. 

On inspection, the road was found to be sub-standard. The report recommended that Ruaha Concrete be blacklisted and investigated.

Another Sethi company, Pan Africa Builders and Contractors, (PABCO), entered into a contract with Kenya’s National Social Security Fund to build houses, apartments and a shopping centre on the Fund’s Kitisuru Estate in Nairobi for nearly Ksh2 billion ($22 million). The project was subsequently delayed for seven years and “scaled down” to Ksh822 million ($9.09 million).

On handing it over in February 2007, the account was not settled and PABCO sued NSSF for a total of Ksh1.3 billion ($14.4 million).

On August 31, 2010, the High Court ruled in favour of PABCO awarding the company Ksh668 million ($7.4 million), plus costs and accrued interest. PABCO eventually settled for Ksh590 million ($6.52 million), but the firm defaulted in paying the Kenya Revenue Authority tax amounting to Ksh260 million ($2.87 million).

The Parliamentary Public Investments Committee blacklisted Mr Sethi, recommending that he not be allowed to undertake construction work anywhere in the country.

CHRONOLOGY OF SCANDAL

1994: A joint venture known as Independent Power Tanzania Ltd is set up between Mechmar Corporation of Malaysia (70 per cent) and VIPEM of Tanzania (30 per cent) to help solve Tanzania’s power problems.

May-June 1995: IPTL and Tanesco sign a 20-year power purchasing agreement to build and run a 100MW slow-speed diesel power plant in Dar es Salaam at a cost of $163.5 million.

February 1995-January 1996: IPTL negotiates with Wärtsila to build a cheaper medium-speed diesel plant (MSD).

September 1997: Tanesco requests full documentation of actual costs incurred in order to negotiate final power purchase tariff.

April 1998: Tanesco issues notice of default to IPTL for unilateral substitution of MSD facility.

April-October 1998: Tanesco attempts unsuccessfully to negotiate a lower tariff.

November 1998: Tanesco requests arbitration before the International Centre for the Settlement of Investment Disputes after IPTL fails to justify the cost structure and payments.

February 2001: ISCID finds that IPTL was overpriced by $23.5 million, but the contract stands since Tanesco was aware of the switch from SSD to MSD.

March 1, 2002: VIPEM petitions the High Court of Tanzania to wind up IPTL.

2006: Tanesco disputes the capacity charges charged by IPTL, forcing the two sides to seek arbitration at the ICSID. IPTL and Tanesco open an escrow account at the Bank of Tanzania, pending the determination of the arbitration.

2008: Mechmar is placed under receivership because it defaulted on a loan it borrowed to buy the Tegeta power plants. Standard Chartered Bank Hong Kong takes over the management of Mechmar, including IPTL.

2009: The High Court of Tanzania places IPTL under a receiver manager (RITA) following the 2002 winding up petition filed by Mr Rugemalira (IPTL owner).

2010: The Malaysian High Court and later on British Virgin Islands High court revoke an attempt to sell Mechmar’s 70 per cent stake in IPTL to a company called Piper Link.

2010: Mr Sethi comes to Tanzania, and says he had bought 70 per cent of IPTL but fails to take over its management because of the winding up petition filed by Mr Rugemalira

September 2013: Mr Rugemalira agrees to sell his 30 per cent stake to Mr Sethi’s company called PAP for $75 million. He is paid an advance of $7 million on condition that he withdraws his winding up petition filed at the High Court of Tanzania

October 2013: PAP lays claim to the escrow monies, but faces legal hurdles. BoT raises concerns, including the allegation that PAP had not registered the purported sale of the 70 per cent stake with the Business Regulatory and Licencing Authority).

PAP presents documents to Tanzania Revenue Authority that show that Mechmar sold its 70 per cent stake to Piper Link for Sh6 million ($3,663). The documents further show that two weeks after the purported transfer of shares, the British Virgin Island company sold those share to PAP at the price of $300,000.

November/December 2013: BoT transfers escrow funds to PAP’s accounts.