Hon. Abdul Tejan-Cole Esq.
Commissioner, Anti-Corruption Commission (ACC)
Republic of Sierra Leone.
Wednesday October 15th 2008
RE: FAULTY LINES IN A FLAWED & COSTLY CONTRACT
Our attention has been drawn to the above titled report credited to your Commission and we would like to state as follows:
1. Income Electrix Limited (IEL) is a reputable Nigerian firm with enviable credentials in the field of electrical power engineering. As a good corporate citizen, IEL respects the laws of Sierra Leone and fully respects and supports the valuable work you are doing at the Anti Corruption Commission of Sierra Leone. We realize that you have the legal mandate to protect the people of this beautiful country, Sierra Leone from the corrupt practices that have resulted in the country suffering from mismanagement of its resources over the years. Sir, we fully respect the ACC but after reading the recently issued ACC Report entitled "Faulty Lines in a Flawed and Costly Contract", we strongly believe that we have been unfairly treated and we request for the ACC to review its Report after giving us a chance to be heard.
2. Sir, on Page 2 of your report, you state inter alia,
"In order to procure the additional emergency thermal power and as a fall back arrangement in the event the World Bank support delayed..."
Sir, we are not aware that the emergency power sought from us was a fall back arrangement in case the World Bank support delayed. Our proposal and negotiations commenced well before the World Bank’s Request for Proposal and we were made to understand that the 15MW backed by the World Bank will not be sufficient to actualize all the electricity needs of the capital city.
3. On Page 3, you state inter alia,
"The contract for the supply of the 25MW was awarded to Income Electrix Limited on the 23rd November 2007 amidst alleged controversies as was evident in Messrs Tani Pratt and Professor Jonas A.S. Redwood-Sawyerr’s letter…"
Sir, we were not aware of such controversy; we were only told that our initial 3 months moratorium was not accepted by the Working Group who instead requested 6 months. After consultations with our Financiers, we were able to increase the moratorium from 3 months to 5 months in favour of Sierra Leone.
4. On Page 4 of your report under Chronology Of Events, the inclusion of phrases like "participated and failed" and "after they lost their first bid" seems to suggest "fail" and "lost" are crimes. In a competitive bid, only one bidder wins. All the others fail. Based on our responsiveness, the World Bank commenced negotiations with us but later decided to settle for GTG whose bid they must have preferred. Out of over 13 companies who participated, we emerged as the runners-up to GTG so we must have submitted a reasonable bid.
5. On Page 5 of your report under The Procurement Process And Sole Sourcing Procedure, you assert:
"the Working Group#1’s Final Report considered Income Electrix’s "conditions as being very unfavourable to GoSL/NPA".
However, the only unfavourable condition communicated to us was the aforementioned issue of our proposed 3 months moratorium which after discussions, we moved to 5months which latter was accepted.
6. On Pages 8 and 9 under "Procurement or Investment?", there seems to be a misunderstanding of the meaning of Independent Power Provider (IPP). IPP means an independent power producer or generator of electricity. It does not mean a utility or power retail company. An IPP produces power and sells it to a utility such as NPA which retails the electricity to the end-user. At no time did we propose to sell power directly to consumers as the existing laws of Sierra Leone could not even have permitted it. It is also highly misleading to compare GSM Telecommunications Companies to IPPs. Electricity distribution is a natural monopoly and no two electricity distribution companies can operate in the same geographical area without delineation. So, comparing it to GSM telecommunications companies is very misleading. GSM telecommunication signals are not carried by physical wires but through space. Several GSM companies can operate in the same area. Once they set up their equipment, they can all reach any of their customers in the same geographical domain. It is not the same for electricity. The comparison is non-existent.
7. On Page 9 of your Report under "Manipulation of the Procurement Process", it is news to us that IEL was not recommended by the Working Group. However, the company called Emieola Group which was supposed to have proposed superior technical and financing capacity to have satisfied the requirements of the Government of Sierra Leone, was also awarded a 20MW Contract alongside IEL’s 25MW Contract. Until date, Emieola Group has been unable to perform despite their "superior" presentation. We believe IEL should be commended for performing and all those who had the foresight that IEL would likely outperform the others, should also get commendation. Those who made misjudgments about IEL should now be courageous enough to concede that their judgment was not correct.
8. In reaction to "The Commission’s Findings", which start on Page 10 of your report, we first of all reiterate that the members of the technical committee who opted for IEL should be commended for their good judgment in being able to identify who can perform as against those that were possibly being recommended for other reasons but couched under technical advise.
9. With respect to Paragraph 5 of your Findings, we believe what was presented to the NPPA was that the project will be pre-financed and not that it will not have financial obligations on NPA and the Government. The NPA is the sole off-taker of the power generated by IEL. Sir, was NPA expected to be taking the power for free?
10. With respect to Paragraph 9 of your Findings, at no time did the IEL proposal or contract not have financial obligations. It had a clearly stated contract sum. Sir, what should that sum be termed as? Additionally, our international bankers providing us the loan to start the project, had concerns as to whether NPA alone could afford the operational cost of the project. When these concerns from our financiers were brought to the attention of the Government, the Government of Sierra Leone issued the 6th November 2007 Letter of Commitment to IEL that bore the signature of no less a person than Sierra Leone’s Finance Minister David Carew who was in an adequate position to know what the Government could or could not financially commit itself to.
11. With respect to Paragraph 10, we do not understand how a power contract whose maximum sum (at 100% operating capacity) is $65.5million, could somehow be interpreted to have a real cost that could reach $100million. We would like to know how that figure was reached. It should here be noted that despite IEL establishing a presence on the ground since 23rd November 2007 (when the contract was signed and civil works were started), and providing power from Blackhall Road since 12th February, 2008 when no less a person than the President of the Republic of Sierra Leone, Dr. Ernest Bai Koroma commissioned the Plant, IEL has not received any money under the contract from NPA or the Government of Sierra Leone. The IEL contract had a provision for a generous five month moratorium specifically inserted; in order to give NPA and Government of Sierra Leone time to generate power, accrue income and service the IEL contract with the generated revenue.
12. With respect to Paragraph 12 on the issue of providing 2 to 3 MW instead of the 10MW currently commissioned, we do not know where the ACC conducted its investigations but it is a fact that the ACC never visited the site of the execution of the contract. IEL commissioned Blackhall Road Power Station in February 2008. IEL’s Contract indicated that IEL should procure diesel, but for reasons best known to the Government, they did not adhere to the terms of the contract that should have facilitated such purchase (i.e.: issue a Letter of Credit). Instead, NPA decided to be the one providing us with diesel to run the machines that supply electricity power to Eastern Freetown. Therefore, IEL can only run the number of machines for which fuel is provided for. Sir, we want to make it very clear that we have the capacity to keep all the 10MW machines on at full steam but the available fuel supplied to us on a weekly basis would only run all the 10MW units for a limited time following which the supplied fuel would be consumed. Our ability to supply the full 10MW at any given point in time is directly linked to NPA’s financial ability to supply the required fuel since the Government did not issue the contractual Letters of Credit. Now, since virtually the entire East of Freetown from Kissy Road to the far Waterloo environs are supplied by power generated by Income Electrix and since this is the most densely populated part of Sierra Leone, should Income Electrix decide to shut down our machines, a huge swathe of Freetown would be pitched into bitter darkness. This is why we spread out the use of the diesel supplied to us weekly in such a manner as to supply electricity to rotational segments of the East for a whole week. With this constraint, we can only power on as much machines as we can fuel. If we are given enough fuel, we will power on all the machines throughout the week. It should also be noted that IEL commissioned 10MW in February, provided over 6MW in March and April, almost 5MW in June, over 3MW in July and August and again almost 5MW in September. Your investigators never visited the site of execution of the contract being investigated. Otherwise, they would have confirmed these figures from the Meter Log Books.
13. With reference to Page 13 of your Report under the heading of "Onerous Terms of the Contract", we are at a complete loss as to why this portion was included as part of your report. You may not be aware that after the National Commission on Privatisation (NCP) through Bruce Carrie’s advice raised the issues regarding the terms of contract, the Government set up a Presidential Re-Negotiation Committee to address the issues raised. This Presidential Committee which included the NCP’s Bruce Carrie himself, was chaired by the Secretary to the President and included the Finance Minister, the Governor of the Central Bank, the Financial Secretary, the Attorney General and the Minister of Energy & Power. This Committee exhaustively thrashed out the issues raised by Bruce Carrie with Income Electrix. The Outcome was a Supplemental Agreement which I attach here for your reference. This Agreement that came out of the renegotiations was as a result of acceptable explanations for the supposed onerous clauses that hitherto were not properly understood by the NCP.
14. Still under Onerous Terms of the Contract, genuine attempts to compare the Global Trading Group’s Contract with the IEL Contract will show that IEL Contract Clauses are clear, simple and understandable. During the renegotiations held at State House with the Presidential Committee, IEL requested the Government of Sierra Leone to use the same conditions (Capacity and Energy charges, fuel consumption rate, minimum take off, etc) contained in the World Bank’s GTG contract as a basis for the renegotiations. In response, no less a person than the NCP’s Bruce Carrie, for the first time revealed at State House in no uncertain terms that the World Bank GTG contract is "not a good contract". So the question now is: Where do we go from here? GTG Contract is not good and IEL Contract is not good. So, what is good for Sierra Leone to be able to boast of regular electricity supply? What is good that will ensure Sierra Leone’s capital city does not revert back to being called the darkest city in the world? For your information sir, power purchase agreements (PPAs|) of this nature are much the same and are standard templates,
15. Sir, please find below a Price Comparison between IEL and GTG
• Fuel cost is 80% of power production cost. IEL imported in brand new highly efficient machines which are 10% more fuel efficient than Global Trading Group’s own used machines. Thus, if our figures are used for GTG’s operations at Kingtom, Sierra Leone would save over $150,000 every month.
• Also the capacity charge (cost of hiring the machines) and the energy charge (cost of operation and maintenance) of IEL is about 5% cheaper than that of GTG, which means we would have saved Sierra Leone another USD45,000 monthly.
• Again, GTG places 93% of her cost on capacity charge (amount payable whether light is provided or not) while that of IEL is only 69%. So whether GTG generates power or not they will still be paid very much close to their total cost. In fact it is to their advantage that they do not generate power at all.
• ACC overlooked the above cost-saving advantage IEL has over GTG but decided to overly stress on the mobilization, civil and insurance costs that constitute less than 3% of the total project cost. Why?
• On mobilization cost, IEL air freighted in a brand new 10MW plant to Freetown (because of the political exigencies of keeping to H.E. the President’s pronounced December 2007 date) while the balance 15MW came in by sea. On the other hand, GTG brought in their used containerized generators by sea from a much nearer location. Hence, the mobilization simply could not have been the same.
• On civil cost, IEL brought in brand new plants to meet the immediate emergency and the medium term power needs of Sierra Leone which require civil-works concrete foundations, while GTG has old containerized generators that can be redeployed at any time and do not require civil foundations. IEL also had to carry out extra civil works in the form of huge repairs on the premises and construction of a chain link fence and gate around the facility. This was not the same for GTG.
Sir, during your investigations into the IEL Contract, the ACC seems to have been given only a list of Bruce Carrie’s concerns from the NCP whilst our own adequate responses to those concerns were not shown to you. We are therefore reproducing our responses to the NCP’s Clauses of Concern as an appendix to this letter. The NCP’s Concerns are in Blue whilst our Comments are in Red.
Honourable Sir, the pronouncement of the President of Sierra Leone in October 2007 was focused on providing reliable electricity to Freetown. The fact that the World Bank’s GTG contract provided 15MW of electricity to the Western area of Freetown did not mean the perennial electricity shortage issue was solved. The entire Eastern area of Freetown where arguably the bulk of the population resides and where virtually all the industries and factories are located still needed electricity, thus the IEL contract at Blackhall road.
When IEL came in, we found an archaic system of power generation and a primitive Transmission, Distribution and Safety Device systems in place. A significant percentage of these systems have not been upgraded to modern standards from the time Sierra Leone was under British Rule. Although we had no such contractual obligations, IEL did a survey (free of charge) of NPA’s Transmission & Distribution (T & D) Network in Freetown and subsequently provided highly technical advice (free of charge) to NPA. We even imported in modern cables and jointing kits which we supplied to NPA to improve her ability to transport the power from both Kingtom and Blackhall road to the consumers.
IEL’s top-notch Power Engineers from India and Nigeria, working in consonance with NPA Engineers have ensured that despite these archaic hurdles, the vision of H.E. Dr. Ernest Bai Koroma for a brightly lit Freetown has been attained. President Koroma’s promise to his people has been kept. It has been a tough task that saw us shedding sweat and blood. What Income Electrix has undertaken in Sierra Leone is indisputably a noble effort in chivalry; the likes of which are hardly seen in today’s corporate corridors. I challenge that no other corporate entity will be able to exceed what we have undertaken.
Sir, we have taken the opportunity of copying this letter to the Office of the President, the Speaker of the House of Parliament and other relevant stakeholders. Additionally, we have placed the Letter in the public domain because of the widespread publicity that your Report has since generated in the public domain. We really would have loved to have been given a chance to have an audience with you during which we would have set the records straight. However, it is not too late and so, in the light of the facts as spelt out in this letter and its accompanying attachments, we now humbly call on the ACC to review their position towards our reputable company’s noble efforts in this beautiful country of Sierra Leone.
Sir, accept the assurances of our highest possible esteem for you and your noble Commission.
Mrs. Chinwe Chiji-Nnorom
Chief Executive Officer
Income Electrix Limited
Dr. B. B. Ratha
Chief Operating Officer
Income Electrix Limited
CC: The Secretary to the President
The Honourable Speaker of Parliament
The Chairman of the House Committee on Energy & Power
The Minister of Finance & Economic Development
The Minister of Energy & Power
The Chairman, National Commission on Privatization
The Chairman, Board of National Power Authority
The General Manager, National Power Authority
The President, Sierra Leone Association of Journalists
Civil Society Organizations in Sierra Leone
The Press and Mass media
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