Revealed: The cost of paying Dowans
By ThisDay Reporter
19th January 2011
NATIONAL ECONOMY, GOVERNMENT'S MORAL AND ETHICAL STANDING IN JEOPARDY
AS PRESSURE MOUNTS TO MAKE HUGE PAYOUT FOR AN ILLEGAL POWER CONTRACT
THE decision by the Ministry of Energy and Minerals to agree to pay Dowans Holdings SA/Dowans Tanzania Limited a staggering $65 million plus interest (approx. 100 billion/-) for an illegal power generation contract could have far-reaching and potentially devastating consequences for President Jakaya Kikwete's government, it has been revealed.
The Richmond/Dowans contract with the state-run Tanzania Electric Supply Company (TANESCO) was terminated following recommendations of a parliamentary committee chaired by the Kyela Member of Parliament, Dr. Harrison Mwakyembe, that probed the dubious power generation deal signed in 2006.
The report of Mwakyembe's committee, which was unanimously endorsed by the National Assembly, called among other things for the termination of the contract because it contravened the Public Procurement Act of 2004.
After carefully studying the parliamentary resolution, a team of legal experts at the Attorney General's Chambers concurred with the Bunge recommendations and the contract was duly terminated.
But in an unexpected move, the same Attorney General's chambers has now reversed its initial decision and advised the government to now pay Dowans more than $65 million for the same illegal contract.
"If the government pays Dowans, it means it has effectively gone against its own decision and that of the Tanzanian Parliament to declare the contract null and void and call for its termination," said a senior legal expert in government.
"Parliament declared that the Dowans contract was illegal. A parliamentary resolution to this effect was unanimously approved by all lawmakers. Any payments by the government to Dowans would contravene a valid parliamentary resolution."
There are sharp divisions among senior government officials, including Cabinet ministers, over a controversial ruling of the International Court of Arbitration (ICC) that ordered TANESCO to make questionable payments in favour of Dowans.
The Minister for Energy and Minerals, William Ngeleja, surprisingly announced that the government had agreed to pay Dowans as per the ICC ruling without even seeking prior Cabinet approval.
Under normal circumstances, Ngeleja would need to get the approval of Cabinet before making any final decision unilaterally regarding such a massive financial liability to the government.
Apart from creating divisions in the top echelons of the Kikwete administration and eroding the government's moral and ethical standing, the Dowans saga could have a devastating blow on the nation's economy.
"The Dowans situation has already caused shock waves in interbank trading. The market has panicked, thus pushing the shilling downwards towards further depreciation," a trader at a state-run bank told THISDAY.
Commercial banks quoted the shilling at 1,485/1,490 to the dollar last Thursday compared with 1,469/1,475 at the close of trading the previous week.
"There is a scarcity of dollars in the market right now. Therefore, an outflow of 65 million dollars from the market will mean the shilling could slide sharply to 1,500 or even 1,800 levels."
"Paying Dowans will mean exporting $65 million out of the country. This will seriously hurt Tanzania's economy."
A weaker currency could push up the inflation rate and undermine the government's goal of achieving a 7.2 percent economic growth this year.
"There is one golden rule about weak currencies – they affect the economies of poor countries like Tanzania that are import-oriented and carry huge debts," said the bank trader.
"This means that Tanzanians could end up paying more for basics such as food, consumer goods, kerosene and petrol, as a direct result of the Dowans payment. This is something that any sensible government should avoid."
While some government officials are seemingly in a rush to pay Dowans, the Minister for Finance, Mustafa Mkulo, has declared that government coffers have already dried up.
It has been suggested that Ngeleja's ministry and TANESCO could make re-allocations of their existing budgets and try to raise the $65 million, which government bureaucrats admit would be a difficult thing to achieve.
"TANESCO is cash-strapped and has huge debts. Where will the money come from to pay Dowans for a contract that is illegal in the first place?" Asked one well-placed government official.
Several government development initiatives, such as construction of roads and other infrastructure projects, have now been put on hold because of budget constraints.
Some analysts warn that the government could land in a political quagmire if it persists in paying Dowans for the illegal contract.
"Any payments to Dowans could have a major political backlash on the government. Parliament will need an explanation on why the government chose to disregard a valid Bunge resolution on the matter and there is growing public resentment on the move," said one political commentator.
“Donor countries are closely watching the government's next move and could free funds for the 2011/12 budget if it is revealed that the government squandered $65 million on an illegal contract.”
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