Malawi News investigations have revealed that despite signing $400 million (about K300 billion) Salima- Lilongwe Waterway Project with Khato Civils, government is now no longer interested in the venture that could have taken water from Lake Malawi into homes in Lilongwe City and surrounding districts.
This lack of interest has 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, is now seeking compensation at a cost of $71.2 million (approximately K57 billion at current exchange rate).
“Our clients having met all the obligations precedent to the execution of the contract, they expected you [LWB] and the Malawi Government to meet your obligations as well without fail,” reads part of the document dated August 18 2019 that we have seen from Gondwe & Attorneys, lawyers representing Khato Civils. Writing to LWB’s chief executive officer, the lawyers claim, since the appointment date, Khato Civils had so far spent $71.2 million on the required processes precedent to start of the project.
“From the side of our clients, it is clear that you are no longer interested in the execution of the contact and as such our clients consider the contact terminated due to frustration unless otherwise stated,” reads part of the letter.
Apart from asking for compensation for expenditure incurred in the expectation of completing the whole works,
Khato Civils is demanding payment on all certificates that are due, interest on the sums due and owing at the bank lending rate and damages for breach of the contract.
During the investigations, we found out that at the start of the project, government tasked Khato Civils to identify funders of the project whose loan would be paid back within a maximum of 30 years.
In this regard, Khato Civils 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 will be fixed at 1.8 percent per annum, paid on a yearly basis for the 30 years period with a grace period of five years on Capital and 3 years interest,” reads part of a loan agreement document.
The identified funders later queried government for noncompliance to the contract agreements.
“It is common cause fact that the term sheet and the loan agreement were signed on 25 September 2018 and as at the date of this letter [October 20 2018], our clients have still not received the upfront payment of USD 0.4 million as confirmed by your good-selves,” reads a letter from lawyers representing Grissag AG Ltd.
Our investigations showed that government, through then Secretary to Treasury Ben Botolo signed the loan agreement with Grissag AG Limited on September 26, 2018 for the project.
We have also found out that a meeting held on April 12 2018 at the then minister of Finance’s office Goodall Gondwe, Khato Civils presented an invoice for the Engineering, Procurement and Construction works the
Contractor had carried out at $40 million (K30 billion) which government was supposed to settle.
According to Gondw the $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.
From the said amount, Khato Civils was asking for an upfront payment of $25 million but government negotiated to $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 soonest the project facility would become available,” reads part of the minutes of the meeting chaired by Gondwe.
Among others, members further agreed LWB would call for an emergency board meeting on the same day to seek necessary board approvals to borrow $17 million from commercial banks and that “Treasury would acquiesce to the loan by granting a Sovereign Guarantee (SG) accordingly and that the Attorney General (AG) would assist in the drafting of the Sovereign Guarantee as appropriate”.
Following the recommendations, our investigations showed that LWB obtained the loan money from National Bank of Malawi.
“Therefore I am pleased to inform you that government consent is granted allowing Lilongwe Water Board to borrow an amount not exceeding US$17,000,000 from National Bank of Malawi,” reads one of the communications from Gondwe.
Our investigation found out that Lilongwe Water Board is struggling to pay back the money after government’s actions to freeze the project and fulfilling its promise to pay back the money through Sovereign Guarantee it provided the board.
On 20 August, 2019 the bank wrote LWB reminding the board that it had not received any payment since February 2019 and needed over K2 billion to settle arrears for the months the loan was not serviced.
“We take this opportunity to bring it to your attention that the instalments for the both the Malawi Kwacha and US Dollar facilities due on the 30tt August 2019 are K278,872,215.16 and USD 213,185.84, respectively. Kindly make a provision for these instalments,” a letter from the bank reads.
Minister of Finance spokesperson Davis Saddo refused to comment and instead referred the matter to LWB.
LWB Public Relations Officer Maurice Mkawihe requested for a questionnaire which by the time we went to press was not responded to.
The Salima-Lilongwe Water Supply Project, which seeks to pump water from Lake Malawi to Lilongwe and surrounding districts to ease water supply challenges, has been rocked by a series of controversies, including how the contractor was identified and amount of money required for the project with some Malawians arguing it was too high.
After a long court battle which went up to the Malawi Supreme Court of Appeal, the project is yet to start.
In its manifesto launched on March 9 this year in Lilongwe, opposition Malawi Congress Party pledged to complete the project because, in the long term, it will ensure steady water supply to the growing population of Lilongwe City.
However, civil engineer Newton Kambala has argued that the water project is a massive project requiring comprehensive investments in the energy sector.
The project also faced resistance from environmentalists who demanded that the project should have an environmental impact assessment study before it takes off.