Telecom, education transactions in question
The Attorney General’s Economic & Tax Crimes Directorate has pressed charges against the Ethiopian branch of Chinese multinational company ZTE (H.K.), and its two former General Managers. At the Federal First Instance Court Lideta Division, prosecutors argued that the company evaded income taxes, failed to pay Value Added Tax (VAT) and used illegal receipts.
ZTE is alleged to have evaded 128.5 million birr in taxes between 2009 and 2012. During that time they earned 941.1 million birr from transactions. They also are being accused of failing to pay 28.8 million birr in VAT collected from their customers.
During four fiscal years of the company’s transactions, the former Ethiopian Revenues & Customs Authority (ERCA) which is now the Ministry of Revenue (MoR) established 34 audit irregularities and demanded payment of 857 million birr.
The company appealed to the tax appellate bench of the authority and started to pay after the amount was reduced to 412 million birr, last year. Even though the company began making payments the former ERCA reported illegal activities to police who conducted further investigations.
The company’s communication officer declined to comment on the matter or to say if the company paid the remaining amount on time.
The investigation which involves, ZTE Corporation, was related to its project contract with Ethio telecom. The company was accused of abusing the duty-free privileges granted for projects worth billions of birr. In addition, its contractual relationships with the Ministry of Education have come under scrutiny and have irregularities which appear to be illegal.
The prosecutors presented ten counts against the multinational company.
They said the company and its affiliate ZTE Corporation had various Mobile Network installations and related projects in the country starting from 2009 but they failed to declare some of their income and used illegal receipts to collect payments.
The first count also alleged that the accused evaded income generated by providing trainings in Ethiopia and internationally.
In counts two through five prosecutors alleged that ZTE H.K. attempted to deceive tax authorities to get out of paying profit taxes by making phony receipts and claiming they made less money than they actually did. Over four years they apparently took in 2.9 billion birr but failed to pay 28.8 billion birr in VAT that they actually collected from customers. They would use illegal receipts to collect VAT but would not send that money to the government coffers.
The charges list two former people employed as General Managers at the time the infractions occurred as second and third defendants.
Jiyang Yung Jun, who was the General Manager of ZTE H.K. from December 28, 2006 up to January 16, 2009, and Zan Yan Ming who served from January 16, 2009 up to November 22, 2012 are accused of failing to protect the company from committing crimes and using illegal documents. They are not in custody.
Responding to Capitals inquiry, Teka Mehari, the company’s lawyer, said they hadn’t been served any court warrant and that he had no knowledge of any development in the case, other than the Attorney General’s long lasting investigation into the mater.
ZTE charged with tax evasion
Troubled Waters Gov’t: MetEC shouldn’t have gotten involved in GERD
The government has expressed regret for the Metal and Engineering Corporation’s (MetEC) involvement in the Grand Ethiopian Renaissance Dam (GERD), which has taken four years longer than anticipated and is currently experiencing delays. The project which began in 2011 was expected to be finished in 5 to 7 years or by 2017, according to the original plan and was supposed to be generating power even earlier.
The civil work, managed by the Italian firm Salini Impregilo, is progressing well even though some of their work has been derailed by MetEC’s electromechanical and hydraulic steel structure work which was supposed to be run in parallel but that has been significantly delayed.
In a panel discussion held on December 13 at Elilly International Hotel Seleshi Bekele (PhD), Minister of Water, Irrigation and Electricity, said that it was a mistake handing over part of the project to MetEC.
MetEC was not experienced and was a new company when it took the electromechanical and other related work at the GERD. The officials at the Ethiopian Electric and Ministry said that the major problem was lying about the performance.
Salini has concluded 82 percent of its part and secured the payment equivalent. At the same time MetEC has consumed 65 percent of the payment but has only finished 23 percent of the work.
He criticized MetEC for relying on politics instead of professionalism. “This contributed to loss of the opportunity that the country would have earned if everything was run on time,” he said. “The civil work it better than the complex electrochemical work for new companies,” he expressed.
“Only 33 percent of the bottom has been finished and there are problems with quality and dimension but this section is supposed to be finished already,” Kifle Horo (Eng), manager of GERD said.
He said that several similar projects that are supposed to be accomplished face quality problems that will be dealt with soon.
GERD is expected to be finished in 2022, and generation from two turbines will begin in two years.
Kifle said that some work being done by MetEC has been transferred to other companies which are supplying equipment like turbines and generators. Well accepted international companies like Alstom of France and Voith of Germany will be part of the installment process.
The main problems involve lack of quality largely because MetEC created material and standard errors, significant delay, and was forced to make additional payments to correct the errors and claims by civil contracts, according to Abraham Belay (PhD), CEO of Ethiopian Electric Power (EEP), which was supposed manage GERD directly and now has done so.
Seleshi criticized the exclusion of EEP from the project. “The knowledge of EEP was not transferred because it did not have a role in GERD, and instead only settled the required payment,” he said. “EEP has massive experience, but in the GERD case it did not get involved,” Seleshi said adding that; “institutional arrangements have been another challenge.”
He said that EEP has to own the project. Officials declared that additional costs will be disclosed in the near future. So far the GERD has consumed 98 billion birr. Initially the government stated it would consume USD 4.6 billion, which is around 129 billion birr given the current exchange rate.
The officials expressed their hope that the public would continue to support the dam, which is fully financed by local sources, and still by GERD Bonds.
Roman Gebreselassie, Director of the GERD Council Secretariat, said that from the total cost 20 percent was expected from the public contribution via different forms including the bond. She said that the public has already contributed 15 percent of the total expected contribution, while the latest reports regarding GERD has frozen the public’s resolve.
“In our latest general survey 47 percent expressed disagreement for further financial support and the 45 percent are still hopeful about the flagship project,” she said. She underlined that GERD has to show improvements.
Kilfe, who replaced the late Simegnew Bekele (Eng.) as a project manager, promised that they would never present fabricated reports about the performance of the project, which is now stuck at 65 percent from the previous 67 percent report. MetEC, which has most of its former leaders under custody on corruption charges, was well known for giving contradictory performance figures about its operation at GERD and other mega projects like sugar and fertilizer factories.
Meter taxi association to sue Addis Ababa Transport Authority
A 1,000 member taxi association made up of ‘code 3’ vehicles is suing the Addis Ababa Transport Authority (AATA), arguing that they have the legal right to provide transportation services. AATA has ordered them to cease offering their services saying they are not permitted to serve as taxies. Drivers of these vehicles, which are often Toyota model Vits, Corolla or Yaris, work as independent contractors for the RIDE application service which is similar to Uber in that customers use either an application on their phone or contact a call center to obtain meter taxi services and the drivers use the application to make themselves available for work. The company takes a cut of the meter fare for serving as a go between for the customer and driver. They are called code 3 vehicles because they are required to get a code 3 license plate, used by rental cars, to provide the service.
“The transport proclamation says anyone who has a car with a code 3 plate can transport goods and people and that is what we do, we transport people from one place to another. It is not fair for someone to stop us from working without any legitimate reason so we will sue AATA for preventing us from working; after AATA made its announcement some Lada taxi drivers are threatening and insulting us while we are working. It is a shame to see such actions,” a code 3 representative said.
Samrawit Fikru, the co-founder and CEO of Hybrid Design PlC, provider of the RIDE application for both the passengers and the taxis, said that the cars are eligible to provide services.
“When we register them to use the app we require them to bring a license for renting cars, a driving license and registration of the car. I don’t know why the AATA is preventing them from conducting business. As many of us know there is a transportation shortage in the city and this taxi service alleviates this problem.”
AATA counters that contract based transportation service must be given by code one licensed blue taxies and yellow meter taxis who are eligible under the city’s transport proclamation.
RIDE started as an SMS-based taxi hire platform. Now their mobile app is used by 18 taxi associations making it the most popular taxi app in the country.
Raya Brewery share sale brings huge profit to United Insurance
The share transfer of Raya Brewery has increased the earnings of one of the most profitable private insurers, The United Insurance Company (UNIC), by 95 percent.
The 24th ordinary and 11th extra ordinary general meeting of UNIC, which is one of the oldest private insurance firms since the free market was reintroduced in the early 1990s, has also decided to double the capital from the current quarter billion to half a billion birr.
According to Girma Wake, chair of board of directors, the insurance sector has contributed a 26 percent increase in terms of profit. He said that for the significant profit growth is pushed by the capital gain from the share transfer of Raya Brewery which is fully controlled by BGI International, who was one of the major shareholders of the youngest brewery. BGI owned 42 percent of the total shares at that time. They offered seven times the amount per share to buy the balance of 58 percent of the shares of the brewery located in Maichew, Tigrai.
In the 2017/18 financial year the insurer registered gross written premiums of 474 million, an increase from 417 million in 2016/18, while the gross earned premiums stood at 449.5 million which is a 65 million birr increase compared with the preceding year’s performance. From the total 474 written premiums the life section has the highest portion at 36 million birr.
The premium earning has increased by 13 and 20 percent in the general and life sector respectively. The report from board of directors indicated that the premium increase at UNIC is slightly different compared with the average 11 percent growth in the industry.
The loss ratio also declined, which is unique compared to the trend in the country. For the year the loss ratio stood at 67.9 percent which was 70.5 percent a year ago. The annual report of UNIC indicated that the net underwriting income has increased to 391 million birr as opposed to 319 million a year ago.
At the same time the net income has reached 237 million birr from 150 million in the 2016/17 fiscal year. The report indicated that the profit before tax for the 2017/18 fiscal year reached 132 million birr which is an unusual increase compared with the sector trend. A year ago the company earned a profit before tax of 67.8 million birr. The past year’s performance is a significant growth and an increase of 95 percent.
The board chair report indicated that the insurance firm, which also controlled significant shares at Raya, has earned close to 54 million birr from the share sale. For the year the gross profit after tax stood at 125 million birr that which is an increase of over 100 percent. In the 2016/17 fiscal year the profit after tax was only close to 60 million birr. The earnings per share increased significantly during the year. According to the report the earnings per share was 504.5 birr per 1,000 birr share value. The earnings per share increase is over 103 percent compared with the 2016/17 financial year that was 247.8 birr per 1,000 birr share value.
As of the end June 30, 2018 the assets of UNIC reached at 1.33 billion birr which was 1.19 billion a year ago. In his report Girma indicated that the head quarter building that is located at Tewodros Square will be fully finalized in the coming two months and the headquarters will be moved there in the current fiscal year. The general assembly has agreed for the payment of 43 percent of the dividend.
During its extra ordinary meeting the board of directors tabled for the capital increase to 500 million birr that is now 250 million birr. The board of directors indicated that the capital increase is crucial to be one of influential market actors in the industry. The board chairman explained that the company needs to expand its capital in relation to its growth and other projects. “United Bank that UNIC is one of the major shareholders of has decided to boost its capital to 5 billion birr form the current two billion so it should invest proportionally, while the finishing work at the headquarters, building construction at Bahir Dar branch, possessing new recovery site and commence construction in the existing recovery area, and other investments needs significant investment,” Giram explained.
He said that the total investment for this and other projects including settling the subscribed capital at Ethio Re the insurance firm needs 422 million birr. He also added that the insurer should become one of the top insurers. He elaborated that some of peer insurance firms already have a similar amount of capital. “In addition to several benefits the bargaining power of business with reinsurers will also increase if we boost our capital,” he added. The capital will be fully paid within five years by the end of 2023.
During one of the regular sessions of the meeting the new board directors was elected. During the session Samrawit Getamesay, Teguest Yilma, Abera Tasew, Mulualem Berhane, Enat Bank, Amare Gashaw, Akiko Seyoum, Alemayehu Gebree and Birtukan Gebre-egzi won the most votes to lead the Insurance firm for the next term. Of the nine elected directors the first two had the highest vote total respectively, while four of the total board members are women.
