Tanzania probes loss of over $54m meant for IPTL fuel oil purchase
An audit report details wasteful procedures and overvaluation of the money paid for the supply of heavy fuel from a local oil firm
Tanzania is investigating several officials accused of stealing millions of dollars meant for an independent power producer as the country battles crippling energy shortages.
The government estimates that at least $54 million meant for the purchase of heavy fuel oil for Independent Power Tanzania Ltd (IPTL) may have been stolen.
The private firm’s multimillion-dollar 100MW production power supply contract with the Tanzania Electric Supply Company, Tanesco, has been dogged by controversy throughout.
A new audit report details wasteful procedures and overvaluation of the money paid by the government for the supply of heavy fuel from a local oil firm.
A senior government official confirmed to The EastAfrican that there was evidence to back allegations that some senior government officials from the Ministry of Energy and Minerals, the Treasury and the state owned Tanesco colluded in the deal.
“Yes, I can confirm there is an investigation ongoing, but it is still in the early stages,” said Minister for Energy and Minerals William Ngeleja.
The power crisis currently facing the country has compelled Tanesco to pay $12 million to Independent Power Tanzania Ltd every month for production of 60MW instead of the initial production of 100MW.
In 1995, Tanesco signed a power purchasing agreement with IPTL, a joint venture between a Malaysian firm, Mechmar Corporation, and a local investor, VIP Engineering and Marketing Company Ltd, for the purchase of 100MW of power from diesel generators for 20 years. VIP Engineering own 30 per cent equity while Mechmar Corporation of Malaysia owns 70 per cent.
“From the start, the deal was hotly contested by donors and consultants on the grounds of cost, the choice of technology and the projected demand for power,” said Brian Cooksey of Transparency International.
The government agreed to pay for the capacity whether or not it was actually needed.
In the project’s first year, 2002, IPTL was paid $40 million in capacity payments alone, and has functioned at less than 10 per cent of capacity since then.
The deal led to a public outcry and fiery parliamentary debates.
Tanesco was forced to pay a high price for capacity that it didn’t really need since its major problem was not insufficient generating capacity but rather a lack of gridlines. Following a legal battle involving the IPTL shareholders VIP Engineering and Marketing Company, the plaintiff, and Mechmar Corporation after the High Court of Tanzania ruled in favour of VIP Engineering.
VIP Engineering had accused Mechmar of misappropriation of $126 million paid to IPTL as capacity charges and in 2002, the local investor sued the Malaysian partners over the issue.
By November 2006, Mechmar Corporation had received $146,260,819.90 as capacity charges from Tanesco.
The Malaysian firm could lose over $126 million held in an escrow account at the Bank of Tanzania, in which the firm was required