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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