THE Controller and Auditor General (CAG), Professor Mussa Assad, has recommended changes of percentage ownership in the over 4.8 trillion/- project involving extraction and exploration of coal mines and iron ores at Mchuchuma and Liganga in southern Tanzania.
Such changes, according to his report
presented before the National Assembly in Dodoma recently, would reflect
the value of mineral resources used to secure the loan under which the
project is being financed at 2.4bn US dollars.
A review of agreement revealed Hongda
Sichuan (Group), a private partner with 600 million USD equity towards
implementation of the project, owned 80 per cent shares of the Tanzania
China International Mineral Resources Limited (TCIMRL), while National
Development Corporation (NDC) owns 20 per cent. “We are of the opinion
that share distribution comes with financial responsibilities.
Thus, if a loan is to be secured against
Tanzanian resources, NDC, on behalf of the government, should have
become TCIMRL majority shareholder,” Prof Assad suggests in his report.
The CAG also advised that the management
of NDC, in the alternative to change share ownership, should assess the
possibilities of ensuring that the government stake in the Tanzania
China International Mineral Resources Limited (TCIMRL) is not at risk.
He stated that to achieve such goal, the
NDC management should have negotiations with the private sector partner
to secure the debt financing other than the mining rights of the
project as suggested in the contract.
According to the CAG, additional
financing of up to 2.4 billion US Dollars will be secured using the
assets of the Joint Venture Company (JVC), including the mining rights
of the project instead of Hongda Sichuan (Group) resources. This is
because, the CAG says, the value of unexploited resources is worth more
than what Hongda Sichuan (Group) has promised to inject 600m US dollars.
“Absence of tracking mechanism for
verification and approval of expenditure incurred by the investor in the
project has a negative impact on the payback period and the cost, which
NDC is incurring taking into account that all costs being incurred by
the investors are treated as recoverable costs,” he states.
On September 21, 2011, NDC, Sichuan
Hongda (Group) Company Limited and TCIMRL signed a joint venture
agreement, which relates to operations of Tanzania China International
Mineral Resources Limited, a special purpose company formed to carry on
Mchuchuma and Liganga projects.
As per the agreement, Sichuan Hongda
(Group) agreed to contribute up to 600m US dollars of equity to TCIMRL
to be applied in accordance with the progress of the implementation of
the project.
In addition, the company will seek for a
debt financing of up to an aggregate of 2.4bn US dollars to be secured
by the assets of the joint venture company, including the mining rights
owned by the firm in connection with the project and guaranteed by
Hongda.
The CAG stated that review of NDC
operational processes and controls revealed that, there was no mechanism
in place to verify and approve the amount injected by Hongda to date as
part of its agreed equity of 600m US dollars towards the implementation
of the project.
He explains in the report that the only
means of getting information is through annual general meetings and
annual audit reports which come a year later after transactions have
occurred.
“These reports cannot give NDC any
assurance to prove if transactions for which payments were made are
allowable as per JVC agreement and which form part of the capital
injected,” Prof Asaad concludes.
Meanwhile, the CAG has revealed unpaid
compensation to the citizens in Iringa District Council for Mchuchuma
Coal to Electricity Project and Liganga Iron and Steel Project amounting
to 13.31bn/-.
He stated that their overview has
revealed that compensation and revaluation report undertaken by the
council in August 2015 on the Mchuchuma and Liganga project amounting to
4.472bn/- and 8.836bn/- respectively aiming at compensating citizens
was submitted to NDC for implementation. “To date, however, NDC has not
arranged for compensation with a period of six months already lapsed
since the issuance of the revaluation report.
The delay may lead to an increase in
compensation costs in line with requirement of the Land Act No. 4 of
1999 and Land Acquisition Act No. 47 of 1967,” he stated.
According to the report, the review of
Mchuchuma and Liganga Iron Ore Project also revealed that there were no
agreements reached between Tanzania Electric Supply Company Limited
(TANESCO), NDC and JVC in relation to a Memorandum of Understanding
(MoU) and Purchasing Power.
The agreements, he stated, have been
kept on hold due to the fact that TANESCO needs to carry out a due
diligence against the Hongda Sichuan (Group), although the same has
already been undertaken by NDC at early stages.
He stated further that it has been noted
that TANESCO has recommended the discussion on Public Partnership
Agreement (PPA) to start on January, 2017 after completion of the
feasibility study of a transmission line between Mchuchuma and
Makambako.
“If the proposed schedule will be
followed, it will automatically delay all the processes and hence an
increase in project costs,” the CAG stated in the report. He explains
that unnecessary limitations may cause delay in project implementation
as per the work programme scheduled in the contract and hence an
increase in costs.
Prof Asaad stated that bureaucratic processes may lead to unnecessary increase in Government expenditures.
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