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Khato cuts Salima–Lilongwe water project cost

From $400 million to $298 million

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Gospel Kazako

Khato Civils, a company that won the Salima-Lilongwe water project, has reduced the amount of money meant to cater for the project from US$ 400 million (about K300 billion) to US$ 298 million (about K227 billion).

This was arrived at on Thursday August 27, 2020 during a virtual meeting between representatives of Khato Civils and government officials from the Ministry of Finance, Department of Environmental Affairs and the Lilongwe Water Board.

Secretary to Treasury Chauncy Simwaka led the government delegation while Mungozi Munyani represented Khato Civils.

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After the meeting, Chairperson of the Parliamentary Committee on Natural Resources, Werani Chilenga, told Malawi News that Khato Civils has meanwhile withdrawn the case in court against the previous administration and that they want the project to continue.

“They have further told us that the project cost which was over US$ 400 million dollars has been trimmed to US 315 million. This is also the case because Lilongwe Water Board had already pumped in US17 million and that has also been subtracted, bringing the total cost to US 298 million. We are also happy that Khato Civils have also shown commitment to continue the project with the new government,” Chilenga said.

According to Chilenga, government has also withdrawn the decision to terminate the contract. This means Khato Civils will proceed with the implementation phase of the project.

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Chilenga said his committee is impressed with how government has handled the matter and condemned politicisation of government projects at the expense of addressing scarcity of water in Lilongwe city.

Malawi News has information in its possession to the effect that Malawi government and Khato Civils have agreed to finalise all the contractual agreements by October 15, 2020.

Reacting on the matter, Centre for Social Accountability and Transparency Executive Director, Willy Kambwandira, expressed happiness that government and Khato Civils have finally resolved their differences amicably without having Malawians foot unnecessary costs.

“We are delighted that at last, dust has settled on the matter. However, we are not happy with the manner government handled this project. It is clear that the implementation of this project undermined the principles of transparency and accountability right from the outset of the project. We were not surprised though that the project was highly politicised. It is our strong belief that the project will be of high quality. We are tired of poor workmanship and substandard work,” Kambwandira said.

Kambwandira has since advised government and Khato Civils to put in place grievance redress mechanisms to ensure that cases arising during implementation of the project are adequately resolved.

Khato Civils had been demanding a compensation of K 48, 377, 953, 335 billion and accumulated interest K 2 452, 759, 102 billion.

Khato also demanded MK 7 256, 693, 002 for breach of contract and K 553, 009,102 as costs for demobilisation of project equipment, bringing the total cost to K 58, 640, 414, 541 Billion.

The controversy dates back to the time when Khato Civils had managed to secure funders of the project – Grissag AG Ltd – who were going to provide $400 million on a long-term basis.

The interest rate on the long-term loan was fixed at 1.8 percent per annumn, paid on a yearly basis for the 30 year period, with a grace period of five years on capital and three years interest,

The identified funders later queried government for noncompliance to the contract agreements.

The loan agreements for the project were signed between 25-26 September 2018 where the then Secretary to Treasury, Ben Botolo put pen to paper with Grissag AG Limited.

On April 12 2018, Khato Civils presented an invoice for the engineering, procurement and construction works the project at the then Minister of Finance Goodall Gondwe’s office.

About US$40 million was used for mobilisation to site of various equipment and personnel, aerial and geotechnical surveys, preparation of feasibility and study and preparation of concept design and detailed designs and drawings.

Khato Civils asked for an upfront payment of $25 million but government negotiated to US$17 million due to lack of resources.

Government then requested LWB to honour the fee note on its behalf on the understanding that the money would be reimbursed

Following the recommendations, LWB obtained a loan from National Bank of Malawi to square the bill.

LWB has been struggling to service the loan following the previous government’s actions to freeze the project.

The Salima-Lilongwe Water Supply Project seeks to pump water from Lake Malawi to Lilongwe and surrounding districts to ease water supply challenges.

The project also faced resistance from environmentalists, who demanded an Environmental Impact Assessment study before implementation.

Despite signing the $400 million (about K300 billion) Salima- Lilongwe Waterway Project with Khato Civils, government said it was no longer interested, a development that made Khato Civils to seek compensation at the courts at a cost of US$71.2 million (approximately K57 billion at current exchange rate).

Lack of interest by the previous government, resulted in a mess, as evidenced by frustrations raised by the contractor, who upon seeing the delay and lack of action on the part government, sought compensation.

Khato civils Chief Executive Officer, Mongezi Munyani, who led the Khato delegation during the meeting, has also confirmed that the Salima-Lilongwe Water Project is back on track.

“I can confirm that we had a conference call with Committee on Natural Resources, Lilongwe Water Board, officials from the ministries of Agriculture and Finance, we presented our plans, however I can not give you more information because the matter is still under discussion,” Munyani said.

Government spokesperson, Gospel Kazako, has also confirmed that Capital Hill has re engaged Khato Civils for the project.

“Khato took government to court, and the company demanded Malawi to pay taxpayers’ money amounting to 71 million US dollars without people of Malawi having water, we could have payed them without seeing any development, now we had to re engage so that we make a productive and effective decision,”Kazako said

According to Kazako, the project will see Lilongwe and other districts benefitting.

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