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Anti-Corruption Commission Report On Income Electrix Contract

5 February 2012 at 01:16 | 1815 views

Faulty Lines in a Flawed and Costly Contract
1
CONTRACT FOR THE SUPPLY OF THERMAL EQUIPMENT/POWER
FOR IMMEDIATE AND MEDIUM TERM BY INCOME ELECTRIX LTD
(IEL)

BACKGROUND

In fulfillment of the President’s proclamation to provide electricity to the Western
Area by 20th December 2007, two distinct procurement processes were initiated by
both the World Bank and the Government of Sierra Leone (GOSL). The World
Bank undertook part funding of US$7 million for the provision of a 15MW of power
equipment through an international competitive bidding, while Government of Sierra
Leone committed US$25 million to the 15MW project and undertook the provision
of an additional 25 MW of thermal power through a process which seemed to
involve a combination of both competitive and sole sourcing procedures.

The procurement of the 15MW was deemed to have gone through the set criteria
for standard procurement practices in accordance with the World Bank procedures.
The contract is therefore said to have been awarded to the most responsive bidder,
the Global Trading Group (GTG).
In his address to Parliament on the 5th October 2007, His Excellency the President
identified the challenge of inadequate electricity in Sierra Leone as a national priority
deserving immediate attention. Therefore, the Presidential Energy Emergency Task
Force (PEETF) was formed to institute emergency measures to restore the supply of
electricity .The PEETF had the following membership:
:

 Dr. Lancelot Ayo Lake - Chairman

 Prof. Jonas A.S Redwood-Sawyerr - Member

 Dr. Abdul Jalloh - Member

 Dr. Ramadan Dumbuya - Member

 Mr. Tani Pratt - Member

 Mr. Raymond A Bola Williams - Member

The terms of reference were as follows:

1. To prepare periodic reports identifying and suggesting ways to
address key institutional, technical, economic and policy issues
associated with the provision and maintenance of reliable electric
power supply in Freetown and the Provinces;

2. Provide advice on the procurement process for emergency
power;

3. Review existing energy sector policy and make recommendation
for its adoption and

4. Define and facilitate measures for improving the energy sector
performance which includes:

(a) (1) Cost reductions including fuel purchase management
and excess staff capacity;

(2) Improving maintenance performance;

(3) Improving recovery rates via improvements in
transmission distribution;

(4) Improving recovery rates on commercial
operation;

(5) Provide advice on the process for restructuring
NPA including management contract and
privatization.

(b) Evaluate current proposals that fall outside of the current
World Bank bidding process and formalize IPP.

(c) Evaluate and facilitate the completion of Bumbuna in a
timely manner.

In order to procure the additional emergency thermal power and as a fall back
arrangement in the event the World Bank support delayed, the Presidential Energy
Emergency Task Force then set up the Working Group#1 with the following
membership:2

1 PEETF Working Group Terms of Reference

2 Working Group #1 Final Report on the Sole sourcing of Thermal Power for the Intermediate and
Medium Term.

 Prof J. S.A. S. Redwood-Sawyer - Coordinator

 Abdul Jalloh -Coordinator

 Mr. Farid Alghali – National Public Procurement Authority

 Mr. Sahr L. Jusu – Ministry of Finance and Development and Economic
Planning

 Mr. Abdul Mansaray – National Commission for Privatization (NCP)

 Mr. John Kabia - National Power Authority (NPA)

The Terms of Reference were as follows:

1. To review proposals submitted to the GoSL for the supply of emergency
thermal equipment.

2. To make recommendations to Presidential Energy Emergency Task Force
(PEETF) for the sole sourcing of thermal equipment, its installation,
commissioning and operations.
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 of
“Concerns on recent development in respect of decisions taken by the Task
Force” and of non adherence to professional advice on financial and technical
matters relating to the said contract as was also recommended in the PEETF
Working Group#1’s Final Report. This contract was co-signed by the Minister of
Energy and Power and the General Manager of the National Power Authority
(NPA).

METHODOLOGY

The Anti-Corruption Commission held series of discussions with officials of key
institutions that were involved in one way or another in the process of awarding
the said contract to Income Electrix Limited for the provision of an additional
25MW of thermal power to the Western Area. The list of people interviewed is
attached as annex 1 to this report. The report examines the extent to which the
procurement process was complied with and the processes and procedures
involved in the award of the energy contract to Income Electrix Limited.
In the conduct of this exercise the Commission was guided by its mandate as
provided in the following sections:
Subsection 1 of section 5 of the Anti-Corruption Act (2008) which states that:
“the object for which the Commission is established is to investigate instances of alleged
or suspected corruption referred to it by any person or authority or which has come to
its attention, whether by complaint or otherwise and to take such steps as may be
necessary for the eradication or suppression of corrupt practices”.
Sub section (2)(a) and (b) of section 5 of the said Act provides that it shall be the
functions of the Commission to examine the practices and procedures of
Government ministries, departments and other public bodies, in order to secure
a revision of those practices and procedures which, in the opinion of the
Commissioner, may lead to corrupt practices, and to advise the heads of such
ministries, departments and other public bodies thereon and to instruct, advise
and assist any person or authority on ways in which corrupt practices may be
reduced or eliminated.

CHRONOLOGY OF EVENTS:

1. The Working Group completed and submitted their final report to the
PEETF on the 20th November 2007.

2. The proposal submitted to the NPPA for ‘No Objection’ which according to
the Chief Executive Officer had no financial commitment from Government
was given on the 6th of November 2007.3

3. Letter of Commitment, which the Minister of Finance and Development
describes as a letter of comfort issued to Income Electrix Limited 6th of
November 2007.

4. The World Bank contract to Global Trading Group was signed on 17th
November, 2007 in which Income Electrix Limited participated and failed.
3 CEO, NPPA letter to the Permanent Secretary and Chairman of Procurement Committee, Min. of Energy
and Power, 6th Nov.2007 and 12th December 200

5. The contract with Income Electrix Limited was signed on the 23rd November
2007, barely six days after they lost their first bid in the energy sector.

6. The Ministry of Finance was asked for a ‘No Objection’ to the signing of the
contract on the 29th of November 2007, five days after the contract had been
signed.

7. The National Power Authority Board gave its approval to the contract
between National Power Authority and Income Electrix Limited on 31st
January 2008 – over 60 days after the contract was signed. This practice has
very serious implications for corruption in public sector management.

THE PROCUREMENT PROCESS AND SOLE SOURCING PROCEDURE

The method of procurement requested by the PEETF for sole sourcing and the
manner in which it was applied left a lot to be desired and seems to suggest that
there was a premeditated plan to award the contract to Income Electrix Limited
even before the biding process had commenced. A number of factors led us to this
conclusion. For example, the Working Group#1’s Final Report considered Income
Electrix’s “conditions as being very unfavourable to GoSL/NPA”, and therefore did
not even recommend that further discussions be held with them. Inspite of this
professional advice, Income Electrix was considered and eventually awarded the
contract.

Sole-Sourcing or Competitive bidding?

The terms of reference prepared by the PEETF for the Working Group suggest that
the sole sourcing procurement method should be adopted at all cost even when this
is contrary to the procurement regulations.
The provisions of the Public Procurement Act 2004 dealing with sole sourcing
provide as follows:
“46. (1) Public procurement by means of the sole-source procurement method is
permitted only in the following circumstances:-
(a) when only one supplier has the exclusive right to the manufacture of the goods,
carry out the works, or perform the services to be procured and no suitable
alternative is available;
(b) for additional deliveries of goods by the original supplier which are intended
either as parts replacement for existing goods, services or installations, or as the
extension of existing goods, services or installations where a change of supplier
would compel the procuring entity to procure equipment or services not meeting
requirements of interchangeability with already existing equipment or services;
(c) when additional works, which were not included in the initial contract have,
through unforeseeable circumstances, become necessary and the separation of the
additional works or services from the initial contract would be difficult for technical
or economic reasons;
(d) in cases of extreme urgency, provided the circumstances which gave rise to the
urgency were neither foreseeable by the procuring entity nor the result of dilatory
conduct on its part;
(e) when the services require that a particular consultant be selected due to his
unique qualifications, or when it is indispensable to continue with the same
consultant.
(2) Use of sole-source procurement on the grounds referred to in paragraphs (b),
(c), (d), and (e) of section (1) is subject to prior approval by the procurement
committee.”

The Public Procurement Regulations 2006 dealing with sole sourcing provides as
follows:
“45. (1) A procuring entity may use the sole-source procurement method source
where:
Faulty Lines in a Flawed and Costly Contract
7
(a) only one supplier has the technical capability or capacity to fulfill the
procurement requirement within the time required by the procuring entity or a
particular supplier has exclusive rights in respect of the goods, works or services
and no reasonable alternative or substitute exists;
(b) for additional deliveries of goods by the original supplier which are intended
either as parts replacement for existing goods, services or installations, or as the
extension of existing goods, services or installations where a change of supplier
would compel the procuring entity to procure equipment or services not meeting
requirements of inter-changeability with already existing equipment or services;
(c) when additional works, which were not included in the initial contract have,
through unforeseeable circumstances, become necessary and the separation of the
additional works or services from the initial contract would be difficult for technical
or economic reasons;
(d) in cases of extreme urgency, provided the circumstances which gave rise to the
urgency were neither foreseeable by the procuring entity nor the result of dilatory
conduct on its part;
(e) when the services require that a particular consultant is selected due to his
unique qualifications, or when it is indispensable to continue with the same
consultant.
(2) Procurement under the sole source procurement method shall be subject to
prior approval by the Procurement Committee.”
In examining the provisions of the Act and the Regulations in relation to this
contract the Commission notes the following:

 The procurement should be direct and not based on an open competitive
bidding. As the name suggests sole sourcing usual refers to one and only one
source that possesses a unique product having singular characteristics or
performance capability. In procurement terms, it is the award for supply of a

good or service that can only be purchased from one supplier because of its
specialized or unique characteristics. This requirement was negated as
proposals were requested from several companies and evaluated.

 The entity requesting the sole-sourcing of procurement should secure a
specific waiver to sole source from a supplier without competition.4 However
this was not the case with this contract as there was the Working Group
sought and received responses from seven companies. These were Emieola
Group (Sierra Leone)/Delamore and Owl Group, Matelec Group, Duncan
Trem, Aggreko, Euroelettra Sistemi, Eurodiesel and Jacobsen Elektro.

 In the case of extreme urgency, the circumstances which gave rise to the
urgency should not have been foreseeable by the procuring entity nor the
result of dilatory conduct on its part. It is clear that even if the circumstances
in this specific case were considered as a case of an extreme emergency, the
circumstances were foreseeable. An unforeseen circumstance could occur
when there is an abrupt disruption in the supply of electricity that was not
envisaged.

 Only one supplier should have the technical capability or capacity to fulfill the
procurement requirement within the time required by the procuring entity
or a particular supplier has exclusive rights in respect of the goods, works or
services and no reasonable alternative or substitute exists. This was not so in
this case as there were other suppliers available based on proposals
submitted.

The above arguments clearly explain how even the sole sourcing procedure
purportedly adopted was a misnomer. It is clear from these arguments that the
provisions of the Public Procurement Act 2004 and the Public Procurement
Regulations 2006 were either inapplicable or were not complied with in this case.
Procurement or Investment?

The opinion expressed by the National Public Procurement Authority (NPPA)
indicated that this contract was not under the purview of procurement but rather an
investment transaction that should not have any financial implication for Government
4 Clause 6.5 Public Procurement Manual First Edition 2006 page 35
Faulty Lines in a Flawed and Costly Contract
9
or any Government agency because the suppliers are Independent Power Producers
(IPPs) and are private investors. The guiding principle emphasized by the Ministry of
Finance and Economic Development and Planning was that IPPs being private
investors would not have recourse to the Government for any financial support or
commitment. 5 Their establishment, production and sale of electricity should be
financed by themselves as in the case of telecommunications service providers such
as Celtel, Comium, Tigo and Africell. As was noted by the NPPA in its letter to the
Secretary to the President dated 14th March 2008 IPPs being private investors and
since there was no financial commitment on the part of Government, they did not
fall under the purview of the Public Procurement Act 2004. However, since the
reality was that there was a huge financial commitment on the part of Government,
they clearly fell within the purview of the Act.
Manipulation of the Procurement Process

The Commission is of the view that the inclusion of Income Electrix Limited amongst
the recommended companies for the supply of thermal electricity was manipulated.
The Working Group appointed by the PEETF recommended two companies who
were deemed to have the technical and financial capacity to satisfy the requirements
of the Government of Sierra Leone. These companies were Emieola Group and
Matelec Group. According to the Final Report of the Working Group#1, Income
Electrix Limited presented a proposal that had unfavorable financial
implications for Government and as a result they were not recommended.
However, in spite of these facts the Chairman of the PEETF, Dr. Lancelot Ayo Lake,
in his letter of 20th November 2007 addressed to the Honorable Minister of Energy
and Power for the attention of His Excellency the President went ahead and included
Income Electrix Limited amongst the companies recommended by the Working
Group. Further to this, two members of the PEETF, Messrs Tani Pratt and Prof Jonas
A S Redwood Sawyer, wrote a strongly worded letter dated 30th November,2007
to the Chairman of the PEETF expressing grave concerns about certain anomalies
relating to the signing of contracts without due consideration for the financial
implications to Government. Even the supervising agency, the National Commission
5 Chief Executive Officer’s Correspondence to the Secretary to the President, 14th March 2008
Faulty Lines in a Flawed and Costly Contract
10
for Privatization (NCP) was not informed of the signing of the contract with Income
Electrix until February 2008.

Further still, the chronology of events leading to the eventual award of the contract
to Income Electrix Limited portrays a determination by the PEETF to ensure that
Income Electrix Limited gets the investment contract against all professional and
technical advice. It must also be noted that Income Electrix Limited had failed a
similar bid with the World Bank procurement process for the supply of the 15MW
of thermal power for the same entity.
The Commission’s findings

Based on its investigations, the Commission has concluded as follows:
1. That competitive bidding was the procurement method used but that this
was misrepresented by the use of the term sole source. That this
misrepresentation was done so as to prevent full compliance with the
provisions of the Public Procurement Act 2004 and Public Procurement
Regulation 2006.

2. Technical advice was disregarded and manipulated. This was clearly done
in the case when the Working Group’s recommendation to the PEETF
that Income Electrix Limited’s proposal had unfavorable financial
implications for Government was ignored and their name was added to
the list and they were ultimately awarded the contract.

3. There was a deliberate effort by the PEETF to award the contract to
Income Electrix Limited as seen in the retrospective efforts undertaken to
legitimize their action. Board approval and the consent of the National
Commission for Privatisation was only sought after the contract had been
signed.
4. There was misrepresentation of facts between the NPPA and the Ministry
of Energy and Power (NPA) on the one hand, and the Ministry of Finance
Faulty Lines in a Flawed and Costly Contract
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and Economic Development on the other on the issue of non-financial
implications to Government.

5. The proposals presented for review to the NPPA show that the Income
Electrix Limited proposal as with other proposals does not require any
financial commitment from the Government since the projects are Build
Operate and Manage (BOM).6 The commitment on Government was later
built into the contract at the time of the signing without any further
reference to National Commission for Privatisation7 and the National

Public Procurement Authority or even the Board of the National Power
Authority.

6. The presence of representatives of the National Commission for
Privatization, the National Public Procurement Authority and the Ministry
of Finance in the Working Group does not waive the fact that the
consent of these institutions ought to have been sought before the
contract was approved.

7. At a meeting in the Ministry of Finance and Economic Development
(MOFED) of both the Ministers of Energy and Power and MOFED, the
submission made by the Minister of Energy and Power was that there was
no financial implication to Government on the aforesaid proposals.
However the contract carries enormous financial implications to the
disadvantage of Government as against Income Electrix Limited as
buttressed by the Finance Minister’s response to the contract agreement
submitted. 8 It is the opinion of the Commission that the Minister of
Energy and Power, Haja Mrs. Hafsatu Kabba, played a key role in getting
6 CEO, NPPA- Correspondence for the attention of the President, Sole

Sourcing of Independent Power

Producers, 14th March 2008

7 In the National Privatisation Act No 12 of 2002, the Commission replaced the Minister of Energy and Power
as the main power responsible for the management of the Authority and its object include to remove
interference in the management of the NPA from the Ministry. The National Power Authority Act No. 3 of
1982 was amended to this effect.
8 Minutes of Meeting held between MOF and MEP
National Commission for Privatization (NCP), comments on Income Electrix Electricity Generation Contract,
25th February 2008
the Minister of Finance and Economic Development to make a joint
financial commitment on behalf of Government to Income Electrix
Limited even before the signing of the contract. In addition, the Minister,
despite the caution by the Minister of Finance and Development and
Economic Planning about the huge financial implication to Government
amounting to about US$ 65.5 M if this contract should go ahead, went
ahead and signed the contract.

8. There was an apparent inconsistency as the Minister of Finance and
Economic Development signed a letter of commitment on the 6th
November 2007 with the Minister of Energy and Power to Income
Electrix Limited stating that “the Government of Sierra Leone will
guarantee the obligations of the National Power Authority (NPA) as
stipulated in the final negotiated contract” even before the signing of the
contract on the 23rd of November 2007. The Minister of Finance and
Economic Development later highlighted weaknesses of the contract on
the 14th of February 2008 in terms of the financial implications on
Government. This seems to indicate that had the Ministry known the full
financial implications of the contract they would not have signed the letter
of commitment.

9. Also, whilst the letter of commitment to Income Electrix was being
signed, another letter was sent on the same date of 6th of November
2007 by the Ministry of Energy and Power requesting a ‘No Objection’
from the NPPA on two proposals, including Income Electrix which do not
contain any financial commitment from the Government.

10. The process of awarding the contract to Income Electrix Limited by
Ministry of Energy and Power against the recommendation of the
Technical Committee clearly manifests the degree of interest and
manipulation done in favour of the company. The complete nonadherence
to procurement procedures and failure to take into account
the financial burden of awarding the contract to Income Electrix, results

in huge financial loss to not only NPA but the Government, moreso
Government will be obliged to meet huge costs for the entire plant
whether it is operational or not. The real cost of the contract could
reach US$100 million a year, when penalty charges are levied on unpaid
amount due to Income Electrix Limited

11. The arbitrary decision of Dr. Lancelot Lake and the Minister of Energy
and Power, Mrs. Haja Afsatu Kabbah, to overturn the professional
recommendation of the Technical Committee resulted in Professor
Redwood- Sawyerr and Mr. Tani Pratt writing a strongly-worded letter to
complain about the same and it clearly manifests the gross abuse of
executive authority resulting to loss of public funds.

12. Based on our investigation, even though the contract is for 25MW, up till
now, only 10MW has been installed and commissioned on February 12,
2008. Of the 10 MW installed capacity, only about 2-3 MW has been
working since commissioning date although the contract stipulates that
Government/NPA should pay for 25MW capacity charges.

ONEROUS TERMS OF THE CONTRACT

The contract signed with Income Electrix Limited on the 23rd November 2007
contains a number of terms and conditions that are onerous to the Government of
Sierra Leone. The analysis of some of the terms and conditions of the contract
below clearly illustrates this. In order to illustrate this point even further it is
necessary to compare the same with the Global Trading Group contract for which
the World Bank carried out the procurement process.

In a letter to the Minister of Energy and Power written by the former Chairman of
the NCP dated 25th February 2008, the following concerns were raised regarding the
terms of the contract:

Clause1 - The contract is for the provision of 25MW of continuous power to be
delivered at two sites designated by National Power Authority. Given the current
state of National Power Authority transmission and distribution system, it may not
have the capacity to evacuate such a big amount on top of the 15MW already
committed through the Global Trading Group (GTG) contract. In the likely event
that National Power Authority cannot utilise all the power provided by Income
Electrix Limited the contract provides that National Power Authority will still incur
the capacity charges (the flat charge for the rental of the generating plant). The GoSL
is liable for any default in payments by National Power Authority to Income Electrix
Limited. On the basis of Income Electrix Limited’s own calculations, total payments
owed to Income Electrix Limited over the term of the contract could amount to
more than US$ 180 million.
Clause 2.1.3

The date of commissioning the plant is defined as the date when the
power station is connected to the National Power Authority system, not when it is
actually operational. Normally under such contracts the commission date is when
the plant has been tested and certified by the utility as being capable of providing the
full contract amount.
Clause 2.3 The contract is for a period of three years. If it is terminated for any
reason, the capacity charge is payable for the entire period of the contract. This is
estimated to amount to US$ 21.021 million.
Clause 2.5 The capacity charge is levied “irrespective of the operational
capacity of the plant” and is payable from “the day that the equipment (an
undefined term) is delivered to Freetown Port.” Normally in such contracts the
capacity charge is levied from the date the plant is commissioned and is only payable
if the plant is fully operational. In the case of the Global Trading Group contracts,
liquidated damages are payable to National Power Authority if the plant is not
capable of delivering the required capacity and it is not commissioned on time.
Clause 2.7 The Energy Charge (to cover the cost of maintenance, etc) is based on
the actual energy consumed or the minimum daily off take, which is defined as th
full contracted amount of electricity (that is the plant running at full capacity for 24
hours per day for the full contract period), whichever is greater.

This will amount to
a minimum of US$9.5265 million over the term of the contract. Such a position is
not unusual except that the minimum daily off take is normally set at quite a low
level, nowhere near the full contracted amount. In the case of the Global Trading
Group contract, there is no minimum daily off take so there is no energy charge
levied unless power is being delivered.
Clause 5.1.5 The cost of mobilization and installation of the two plants, which must
be met by National Power Authority, is US$2.45 million. The corresponding figure
for the 15MW GTG plant is US$538,862.
Clause 5.1.6 The demobilization and removal charges, which must be met by
National Power Authority, are US$2785, 000 “or the current market price”. The
contract does not specify, but presumably it is whichever figure is higher. The
corresponding figure for the Global Trading Group contract, which is a set amount,
is US$420,580.
Clause 5.1.8 The cost of site preparation, which must be met by National Power
Authority, is US$179,000. There is no corresponding cost under the Global Trading
Group contract where National Power Authority must just provide a suitable site.
Clause 5.1.18

Metering is undertaken by the Income Electrix Limited alone.
Normally such contracts provide for a set of check meters which are contracts provide for a set of check meters which are used to verify
that the main meters are operating properly. This is the case in the Global Trading
Group contract.
Clause 6.8 All duties, taxes, fees and charges and “any legislative modification
with financial implications on the contract shall be waived by NPA/GOSL”. This is a
very sweeping and ill defined provision which could have serious financial
consequences for the Government as it appears to provide a duty waiver on the
importation of fuel. This sets a bad policy precedent (other people using diesel for
electricity generation could ask for duty waiver) and the duty free fuel could easily
be diverted to other uses. GTG was provided a waiver on import duties on plant
and machinery only.

Clause 6.10 This clause provides that “supply of fuel has been separately
charged and it is stipulated in table two”. Unfortunately table two, which appears to
have been lifted directly from Income Electrix Limited’s bid for the World Bank
funded Emergency Plant, does not specify how the fuel charge will be calculated. The
clause also specifies “the price of fuel is subject to fluctuation”. Again, neither the
clause nor table two specifies how the fluctuations are to be taken into account in
calculating the fuel charge. As the fuel charge is by far the largest cost component
under the contract in the order of US$50 million per year, these are serious
omissions.
The GTG contract includes detailed provisions as to how the fuel charge will be
calculated and, most importantly, relates the fuel charge not to any claim fuel usage
but rather to the amount of fuel that should be used to generate the amount
electricity delivered given the efficiency of the plant that was specified in GTG’s bid.

That is, if the plant is running inefficiently the additional cost incurred are a charge to
GTG not National Power Authority.
Clause 7.9 National Power Authority is required to take “minimum energy…..
Which is 100% load of the continuous power being supplied…..” On the fact of it
this seems to mean that National Power Authority has an obligation to take, and
therefore pay, all the cost of running the plant at full capacity. The cost of running
the plant at full capacity (in excess of US$60 million per year) regardless of how
much power is actually taken. However, paying for fuel which has not been used is
clearly so outrageous that it is doubtful the Income Electrix Limited will try and
interpret this clause that way. Most likely the clause will be taken to mean that all
the other the charges (capacity, energy, etc.) must be paid in full regardless of the
amount of the power actually taken.

Clause 7.10 This clause provides that “NPA shall provide logistics charges for fuel
storage and transportation charges…” However, nowhere is it specified what these
charges are and how they are to be calculated. Typically such charges are included in
the energy charge.
Clause 8.1 National Power Authority is required to “establish two confirmed
irrevocable letters of credit for the full amount payable to Income Electrix Limited
annually with a reputable international bank acceptable to Income Electrix Limited.”

According to Income Electrix Limited’s calculations, this requires the establishment
of two letters of credit by National Power Authority with a combine value in excess
of US$60 million. Under the GTG contract, a single letter of credit to the value of
US2 million was required to guarantee fuel payment.
Clause 8.2.6 The penalty for late payment National Power Authority is LIBOR plus
7.3%. This is a very high penalty rate. The equivalent rate in the GTG contract is
LIBOR plus 1.5%. However it is unclear how late payment by National Power
Authority could occur as it would seem the Income Electrix Limited can meet all
payment due to it by calls on the letters of credit describe above.
Clause 8.3. The capacity charge is paid monthly in advance and the energy charge
monthly in arrears. The fuel charge is paid monthly in advance but with two months
being paid “at the inception of the contract…” (This is close to US$9 million for
initial two months).

It is not clear exactly how the value of the advance fuel payment
can be determined as the value varies depending on the fuel price and, depending on
the interpretation of Clause 7.9 on the amount fuel used.
Clause 8.4 In additional to the general guarantee provided by GOSL under
Clause 1 and the letters of credit established by NPA under Clause 8.1, the
government is required to issue a bank guarantee to Income Electrix Limited to
ensure payment of any amount unpaid by National Power Authority and outstanding
for more than 60 days. The value of this bank guarantee appears not to be specified.
Clause 8.5 National Power Authority is guaranteed “a moratorium” for five
months after commission on all charges due to Income Electrix Limited except
fuel charges. It is not specified, but presumable all outstanding amounts become due
at the end of five months.

Clause 11 National Power Authority is required to pay for insurance for Income
Electrix Limited personnel and equipment. The estimated cost is US$250,000. This is
a most unusual provision. Insurance is normally the responsibility of the owner and
the operator of the equipment. This is the case of GTG contract.
Clause 14.3 If the contract is terminated for any reason, National Power
Authority must pay the capacity charge to Income Electrix Limited for the remainder
of the contract. In total, the capacity charges are in excess of US$21 million.

This
appears to apply regardless of which party terminates the contract. Although it is
usual to have penalties for termination to cover loss of income, payment usually
depends on the circumstances of the termination and which party invokes the
termination. Payment of the entire reaming capacity charge is excessive as if the
termination occurred early in the contract the plant could easily be shifted to
another earned rental income.
Clause 14.4-14.7 NPA is allowed to terminate the contract only in the case of a
delay in commissioning the plant in excess of 12 weeks after the plant is delivered to
the cite the case of force majeure. NPA has no general right to terminate the plant if
for example the plant is no longer needed because of the commissioning of Bumbuna.
Clause 19 Income Electrix Limited’s obligations under the contract are
dependent on NPA obtaining approval from its Board for the contract, confirmation
that authorization to import all equipment has been obtained and the establishment
of the two letters of credit required under Clause 8.1. It is not clear that all these
conditions precedent have yet been met.

CONCLUSION

The Commission notes that one of the President’s post-election priorities was to
restore electricity supply to the country. The President has been quoted on a
number of occasions including his inaugural address to parliament on 5th October
2007 as saying “Our priority in terms of development is energy. We believe it is only
when you have energy that you will be able to unlock the other economic
activities.”9 The Commission is also cognisant of the fact that the Minister of Energy
and Power was under immense pressure to deliver power supply to Freetown by
Christmas.

Despite this immense pressure, the Commission is of the view that the
proper process ought to have been complied with. The World Bank procurement
process which led to the award of the contract to Global Trading Group
commenced almost around the same time as this process. If they were able to
comply with the proper process and meet the deadline, it is our view that the same
could also have been done in this case.
Mis-procurement and the failure to comply with procurement laws and regulations
immediately raises the red flag and suggests that corrupt practices have taken place.
Although the Commission has not been able to find any evidence of the commission
of an offence under the Anti-Corruption Act 2000 in this specific case, the
Commission will remain seized of the matter and if there is any evidence of a breach
of the provisions of the Act the necessary action will be taken by the Commission.

RECOMMENDATIONS

The following are recommended by the Commission:

 Government should seriously consider terminating the contract with
immediate effect within the requisite legal framework to avoid further costs
and embarrassment;

 In the alternative, the provisions of the contract must be thoroughly
reviewed by the Attorney-General and Minister of Justice with a view to
advising Government on how the same ought to be avoided or at the very
least renegotiated by Government for more favourable terms that will
minimize the fiscal impact as well as the monetary burdens on the nation’s
economy.

 Substantially violating procurement procedures and awarding the
contract without prior approval from legally authorised institutions, is in itself,
grossly improper. Individuals who sign contracts on behalf of Government
9 http://www.thecommonwealth.org/news/172936/

and without complying with the procurement laws and regulations must be
held personally liable for whatever loss is incurred by Government.

 The rules and regulations according to the Public Procurement Act 2004 and
the Public Procurement Regulations 2006 should be scrupulously followed
at all times. Now that the NPPA and the Anti-Corruption Commission have
organized a workshop for cabinet there can be no further excuse for a
breach of the provisions of the law. Regular refresher courses must be
conducted to ensure that Ministers, Deputy Ministers and senior staff in all
MDAs are kept abreast with the law.

 The Public Procurement Act 2004 must be amended to include a provision
that will clearly spell out the consequence of mis-procurement or failure to
comply with the provisions of the Act. The Commission is of the view that
blatant disregard for the law must in certain instances invalidate the
contract ab initio. Although the provisions of the Anti-Corruption Act No 12
of 2008 does not apply to this contract, had it been in force at the time of
the signing of this contract the provisions of subsection (2) (b) of Section 48
would have applied. This provides that “Any person whose functions concern the
administration, custody, management, receipt or use of any part of the public
revenue or public property commits an offence if he willfully or negligently fails to
comply with any law or applicable procedures and guidelines relating to the
procurement, allocation, sale or disposal of property, tendering of contracts,
management of funds or incurring of expenditures;”

 The process of committing Government to contracts must be clearly spelt
out and Ministers must comply with the same. The Government of Sierra
Leone should come up with a white paper on the signing of contracts
making it mandatory for all MDAs to secure the expressed approval in
writing of the Ministry of Finance and the Office of the Attorney General and
Minister of Justice within the threshold of National and International
Competitive Bidding. For example, it must be a requirement that the Ministry
of Finance and Economic Development must provide a signed certificate of
approval before any contract that has any financial implications for
Government is signed.

 The Attorney-General and Minister of Justice, being the principal legal adviser
to Government, must advice on the legal implications to Government on any
contract before it is signed. The Ministry must be given the capacity to
provide this advice or alternatively lawyers should be attached to all MDAs to
provide legal assistance in the signing of contracts. This will help to forestall
the signing of more onerous agreements like the contract with Income
Electrix Limited.

 The role of the National Commission for Privatisation vis--vis the role of the
Minister of Energy and Power in administering the National Power Authority
must be clearly spelt out and all three institutions must strictly adhere to
their respective roles as defined in the National Power Authority Act No. 3
of 1982 and National Privatisation Act No 12 of 2002.

 The Anti-Corruption Commission continues its investigations into the award
of the contract to determine whether there was a breach of the provisions of
the Anti-Corruption Act 2000 which was the Act in force at the time this
transaction took place.

People Interviewed

1. National Public Procurement Authority

Alfred H. Kandeh – Chief Executive Secretary

Farid Alghali – Legal Affairs Specialist

2. National Commission for Privatisation

Abu Bangura – Chairman, NCP

Bruce Carrie – Senior Advisor, NCP

Abdul Mansaray – Financial Analyst, NCP

3. Ministry of Finance and Economic Development

Sahr L Jusu- Head Public Debt Unit

 A draft copy of this report was sent to inter alia the Secretary to the
President, Minister of Finance and Economic Development and Minister of

Energy and Power. Both responded in writing and their comments were
taken into consideration.

Top photo: ACC boss Joseph Kamara.

Former Energy minister Afsatu Kabba (foreground).

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