The arrest and arraignment of business tycoons Harbinder Singh Sethi and James Rugemalira over the theft of more than $200m from the Tegeta Escrow Account in 2013 is the most dramatic move yet in Tanzania President John Magufuli’s anti-corruption strategy.

Mr Sethi and Mr Rugemalira were this week charged with economic sabotage, forgery, impersonation, running a criminal syndicate and obtaining money by false pretences, as well as causing loss of money to the government.

They appeared before Kisutu principal resident magistrate Huruma Shaidi, but were not required to take a plea as the court lacked the jurisdiction to hear the case. They were denied bail and will be remanded until July 3, when the matter will come up again for mention.

The Escrow scandal

True, $200 million is a large amount for Tanzania to lose to fraudsters. In addition, the Escrow scandal led to the freezing of $558 million in general budget support and contributed to the eventual cancellation of a $473 million US Millennium Challenge Account grant that would have financed new power projects. So the total loss to Tanzanians is almost a billion dollars.

But the financial and developmental losses incurred following the launch of the Independent Power Tanzania Ltd (IPTL) in the early 1990s run into billions of dollars.

First, IPTL was “fast-tracked” by Tanzanian politicians at the expense of the gas-to-electricity project Songas. In 1998, Tanzania’s power utility Tanesco challenged IPTL’s proposed power tariff in the International Centre for the Settlement of Investment Disputes (ICSID), a dispute that took years to resolve.

As a result, IPTL’s planned “emergency” generators produced no power until 2002, and Songas until 2004, during which time Tanzania experienced recurrent power crises. The cost of these delays to Tanzanian small, medium and large enterprises and domestic consumers, to TRA in taxes forgone, and to the economy of the country in terms of meeting the growing demand for new power connections, must be measured in percentage points of GDP.

Second, despite the ICSID ruling that reduced IPTL’s power tariff, IPTL power was still very expensive. To date, IPTL has been running on expensive imported diesel fuel, despite a commitment to convert to natural gas following the ICSID arbitration.

In 2006, analysts claimed that the conversion would save $1 million a month. The Songo Songo natural gas pipeline passes in front of IPTL’s Tegeta plant on the way to Wazo Hill cement factory.

Third, the reluctance to convert to gas is explained by the overpricing of imported diesel, which served to finance corrupt rents that were distributed to IPTL’s key supporters.

Fourth is the time and money wasted in endless local and external court cases and international arbitration, running into tens of millions of dollars. For example, the ICSID ruling of September 2016 itemised the costs of the hearings to Tanzania at nearly $18 million.

Tanesco’s estimated debts were over $300 million in February this year. Tanesco has outstanding rulings against it related to the ownership of IPTL (Standard Chartered Bank Hong Kong claims to own IPTL’s debt) as well as numerous demands by unpaid suppliers of power and gas, running into further hundreds of millions of dollars.

For over three years since Escrow, IPTL has continued its mission of plunder, but it may not survive much longer given President Magufuli’s order to power regulator Ewura (Energy and Water Utilities Regulatory Authority) to stop negotiations to extend IPTL’s contract with Tanesco, and the serious charges facing Mr Sethi and Mr Rugemalira.

What should happen next? First, IPTL should be put in receivership and sold through a transparent tender process to a buyer who is prepared to pay the cost of converting the plant to natural gas.

Second, Mr Rugemalira and Mr Sethi should plea bargain their wealth for lesser sentences. If found guilty, they could spend the rest of their lives behind bars. But the amounts to be paid to the Tanzanian Treasury should not be benchmarked on the $200 million plundered from the Escrow account, but on the additional billions lost through IPTL over the past two decades.

The chaos and waste IPTL has caused at the expense of the public is vastly disproportionate to its 100 MW capacity. Despite the efforts of parliament and the media, IPTL survived Escrow, and has continued fleecing power users to date.

In 2002, I argued: “It is one thing for politicians and bureaucrats to take a cut from a valid investment … It is quite another for this group to take a corrupt cut from a project that derails a key national policy, and imposes huge additional costs on the end-users and tax payers.”

If we don’t learn from our mistakes then we are destined to repeat them.

Brian Cooksey is a Tanzania-based consultant.