THE Washington-based International Centre for the Settlement of Investment Disputes (ICSID) has temporarily halted enforcement of a $148.4 million (over Sh330 billion) award issued in "favour of the Hong Kong arm of Standard Chartered Bank while the state-owned Tanzania Electric Supply Company’s annulment bid is being weighed, but ordered that a security bond be posted.
Cash-strapped TANESCO is asking the Washington-based World Bank tribunal to scrap the award that was issued against it last year to resolve a dispute stemming from a complex web of power purchase and loan agreements.
"In light of the facts, the committee decides that the provisional stay on enforcement of the award is extended until such time as the committee determines, on the condition that TANESCO provides, within 30 days of the decision of the committee, an unconditional and irrevocable bank guarantee or security bond," Dr Claus von Wobeser, President of the ICSID ad hoc committee, said in a ruling on Wednesday this week.
The ruling, seen by The Guardian, requires TANESCO to provide a guarantee issued by a first-tier reputable international credit institution outside Tanzania and with no principal establishment branch in Tanzania for the full amount of the award rendered against it ($148.4m), inclusive of all interest accrued.
ICSID demanded that the bank guarantee or security bond to be issued by TANESCO should be irrevocable and should be made immediately payable to Standard Chartered Bank Hong Kong (SCB HK) upon the issuance of a final decision of the committee.
"In the event that TANESCO declines to issue such guarantee and informs the Secretary-General of ICSID within 30 calendar days following the notification of this decision, the stay on enforcement shall be automatically terminated," said Dr Wobeser.
"The committee decides to continue the stay on enforcement of the award pending a decision on the application and subject to the conditions set out above. If the conditions set out above are not complied with, the stay on enforcement shall be automatically terminated."
TANESCO argued successfully in court that if the stay on enforcement of the award is lifted, it "would be put under considerable financial stress, which would risk undermining its ability to fulfill its obligations vis-à-vis IPTL and its other contractual counter parties."
TANESCO said if it was ordered to pay the $148.4 million award, the resulting consequences could leave "millions of Tanzanian residents without electricity."
Standard Chartered Bank filed arbitration proceedings with ICSID against TANESCO to recover a loan that was issued to Independent Power Tanzania Limited (IPTL) to finance a power plant in Tanzania.
In 1995, TANESCO and IPTL entered into a power purchase agreement (PPA) under which the parties agreed to build and operate an electricity-generating facility. Under the PPA, TANESCO was to pay IPTL various payments for over 20 years.
IPTL raised funds to establish a power plant through a loan, which was given by a consortium of Malaysian banks pursuant to a loan agreement. IPTL later entered into a security deed, which gave the lenders certain rights under various contracts, including the PPA. After disputes arose, TANESCO filed arbitration with ICSID against IPTL, claiming that it was entitled to terminate the PPA. In 2001, a tribunal issued an award, finding that the PPA remained valid.
SCB claims that the acts and measures taken by Tanzania constituted an expropriation of its investment and that Tanzania failed to provide its investment with fair and equitable treatment.
Tanzania objected to ICSID's jurisdiction over the case, arguing that the investment was made, funded and controlled by a Hong Kong entity, that the debt was restructured in a deceitful manner and that SCB breached the Tanzania Investment Act, among other objections.
On 12 February 2014, the tribunal found that it lacked jurisdiction over the dispute, finding that SCB was not an investor in Tanzania.
In the ruling on jurisdiction, the tribunal said it directed the parties to try and agree on certain items. After an agreement was not reached, the tribunal noted that it had jurisdiction to reopen the case.
Tanzania objected to any decision to reopen the case, arguing that there were no new developments in the status quo. However, the tribunal reopened the case and determined that the tariff should be determined on the basis of an internal rate of return of 22.31 per cent to be applied to the shareholder loan.
The claimant (SCB) argued that the tariff recalculation was unnecessary because it was willing to adopt the amounts that were included in a 2013 settlement to resolve the dispute. The claimant submitted that the outstanding sum would be $214.6 million as of September 2015. In the alternative, the claimant requested that the tribunal determine the full amount actually owned under the PPA.
The tribunal ordered that Tanzania should pay SCB $148.4 million under the PPA as of September 30, 2015, plus interest.
The tribunal found that the amounts paid by TANESCO into an escrow account did not discharge its payment obligations under the PPA and could not be used to reduce the award amount that is owed to SCB.
Another independent power producer, Symbion Power, announced last month that it was seeking $561 million (over Sh1 trillion) from TANESCO via international mediation, accusing it of breach of contract, further compounding the financial troubles of the public utility.
Symbion owns a 120MW thermal power plant in Dar es Salaam and is one of a handful of independent producers that sell power to TANESCO.
Symbion's spokesperson Julie Foster said the US company sued TANESCO at the International Chamber of Commerce's International Court of Arbitration in Paris on March 13 because it had failed to honour a 15-year agreement.