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Lilongwe Water Board $17 million loan yet to be serviced

PRELIMINARY TASK—Some of the equipment at the project site

Two years after Lilongwe Water Board (LWB) acquired $17 million loan from Nation Bank to cater for payment of invoices from Khato Civils and South Zambezi Joint Venture- Engineering, Procurement and Construction (EPC) contractor under the Salima-Lilongwe Water Supply project, the board is yet to start servicing the loan.

The money was meant for preliminary engineering services and tasks such as Geotech surveys, concept design, detailed designs, seismic designs and mobilisation of engineering personnel and equipment.

LWB board of directors had, through their meeting held on April 12, 2018, approved a request from the Minister of Finance, Economic, Planning and Development for the board to borrow the money.

The approval was made in a letter dated April 13, 2020 signed by former Minister of Finance, Economic Planning and Development Goodall Gondwe.

“I therefore write to grant approval to Lilongwe Water Board to proceed with arrangements to borrow an amount not exceeding $17 million from a commercial bank,” reads part of the letter.

It was agreed that the “Treasury would acquiesce to the loan by granting a sovereign guarantee accordingly and that the Attorney General would assist in the drafting of the sovereign guarantee as appropriate.”

The borrowing was also on the basis that the government, through the Ministry of Finance, would make a prior settlement to LWB of K3 billion being accrued water debtors from government institutions and departments so as to mitigate the impact of the commercial loan on the cash flows and operations of the board.

According to minutes of the meeting held on May 25, 2018, chaired by former Minister of Finance Goodall Gondwe, the other commitment was that the government through the Ministry of Finance would provide LWB with a formal commitment letter that the advance payment to the contractor shall be paid back to LWB once financiers for the whole project had been identified.

The request for approval to borrow from the commercial bank was further premised on an understanding that the Ministry of Finance would provide corresponding financial bailout in the event that the board defaults on the loan repayment arising from any unfavourable cash flow position.

But when asked yesterday as to whether the government had started meeting its commitments, spokesperson in the Ministry of Finance, Williams Banda, asked for more time so that he could get clarity on the matter.

According to minutes of a ministerial meeting on the progress of the Salima-Lilongwe Water Project held on October 2, 2019, it was reported that the financier that the Engineering Procurement Committee (EPC) had found—Grissag—was not approved by the Reserve Bank of Malawi.

“In view of the foregoing, LWB was unable to service the loan thereby accruing interests and penalties that it could not pay without duly affecting its operations,” read part of the minutes.

The then Chief Executive Officer of the board, Engineer Alfonso Chikuni, requested for consideration from the government to assist in repaying interest that had accrued. The request was considered and the interests were repaid for a period of six months ending December 2019.

When contacted yesterday, LWB CEO Godfrey Itaye asked for more time to go through the minutes and related documents.

The initial cost of the proposed Lilongwe- Salima Water Project, which was estimated at $400 million, was recently revised to about $298 million.

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