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Questions on K174 billion deal

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Sosten Gwengwe

By Taonga Sabola & Deogratias Mmana:

Opposition members of Parliament Thursday queried government’s decision to issue a $170 million (K174 billion) sovereign guarantee to United Kingdom-based Auzano Capital Management to extend a facility to the Smallholder Farmers Fertiliser Revolving Fund of Malawi (SFFRFM).

The firm was supposed to finance the procurement and transportation of 350,000 metric tonnes of fertiliser for the 2022-23 farming season.

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By issuing the sovereign guarantee, through Minister of Finance Sosten Gwengwe, government was committing itself to pay the funds in the event that SFFRFM defaulted.

The matter came to Parliament by legislator for Thyolo Central Ben Phiri, who wondered how Auzano—whose quick online search shows is a capital management firm focused on trade in Africa—was identified.

Phiri said at the time of the issuance of the guarantee, Auzano was less than one year old and that the company registers two physical addresses, one which does not exist.

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“How safe are our country’s bonds since a sovereign guarantee is a tradable instrument?” Phiri queried.

But the minister insisted there was nothing fishy in the deal which he said had the blessing of Cabinet.

He described the sovereign guarantee as a contingent liability, saying it only becomes a liability on the part of government if a State-owned enterprise fails to settle its obligation with a financier.

Gwengwe said the procedure is that once a request is made to the Ministry of Finance for a sovereign guarantee, the minister responsible must take the guarantee to Cabinet to seek permission to proceed to issue the guarantee.

He added that protocol also demands that the guarantee be brought to Parliament for a Finance Minister to inform lawmakers.

“The misunderstanding out there is that a sovereign guarantee can only be given to a company. And once the Minister of Finance issues a guarantee, the guys out there go on Google to search which company is this. But it doesn’t have to always be a company. It can be a person.

“So if you ask me: Can a Minister of Finance issue a guarantee? Yes he can. But he can only do so with the approval of Cabinet. Cabinet sat on September 9 and authorised the Minister of Finance to proceed with the issuing of the guarantee,” Gwengwe said.

He said the fertiliser involved in the deal was for commercial purposes and not meant for the Affordable Inputs Programme (AIP).

Gwengwe also said the contract that is currently circulating in the social media is not what he signed.

He was referring to a document which purports that the deal was for the procurement of fertiliser under AIP.

“The guarantee that I signed was tightened by inserting a clause that the guarantee only becomes effective when the fertiliser is delivered in Malawi,” he said, implying Auzano could not act on the bond without fulfilling its obligation.

Still, Mangochi South West lawmaker Shadric Namalomba wondered by government has kept issuing sovereign guarantees to various enterprises without going through the normal procurement processes.

This, according to Namalomba, provides a fertile ground for the breeding of dobadobas who are pestering government officials that they can help source financing.

By the time we went to press, SFFRFM Chief Executive Officer Richard Chikunkhuzeni had not responded to our questionnaire in which we wanted to know how Auzano was identified to finance the deal.

On her part, spokesperson for Public Procurement and Disposal of Assets Authority, Kettie Kujaliwa, said the authority did not handle the contract and referred us to Treasury.

“PPDA cannot comment on this matter since this issue is about programme financing. PPDA does not deal with financing or contract management issues,” Kujaliwa said.

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