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Salima-Lilongwe water project suffers blow

Financier struggles to get funds

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Sosten Gwengwe

By Wezzie Gausi:

Finance Minister Sosten Gwengwe has said Quay Energy has struggled to raise the necessary financing for the Salima-Lilongwe Water Project.

Quay Energy was mandated to secure $313,447,757 (about K322 billion at today’s exchange rate) and the funds had a repayment period of up to 25 years.

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The firm had offered Capital Hill a grace period of six years, with the interest rate pegged at 1.5 percent and a one-off payment for structuring fees of 2.5 percent.

But in an interview Wednesday, Gwengwe said there is a possibility that the government may recall the sovereign guarantee on Quay Energy.

“Khato Civils, through Quay, were meant to raise the financing for the project. We only guaranteed the financing element. But with how things are going, the government may recall its guarantee,” Gwengwe said

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Early this year, Treasury defended the appointment of Quay Energy as the finance company for the Salima-Lilongwe Water Project despite some quarters accusing the company of lacking experience.

However, Khato Civils spokesperson Daniel Mababa said he could not comment on the issue.

“There are key meetings this week. If anything comes up, I will surely share the information with you,” Mababa said.

Quay Energy had indicated that it would be working with reputable international financial institutions in arranging the financing, hence the financing shall be syndicated.

The scope of the contract is for the extraction of water from Lake Malawi to Lilongwe, surrounding areas and town centres along the M14 Lilongwe- Salima Road.

The project also involves abstraction and treatment of 100,000m3/day water from the lake in Salima and transportation of the treated water through a 120 kilometre transmission pipeline.

The contract required the contractor, Khato Civils and South Zambezi, to identify a financier of the project while the government’s obligation was to issue a sovereign guarantee for the loan.

In November last year, Khato Civils has expressed worry over Treasury’s delays to sign a draft term sheet for the loan agreement, which was necessary in the implementation of the Salima-Lilongwe Water Project.

In a letter dated November 2 2021, and signed by its chief executive officer Mongezi Mnyani, Khato Civils bemoaned that the delay in signing the term sheet was causing an embarrassment to the company and raising doubts about its credibility and seriousness to raise funds using the loan facility of the project.

Mnyani informed the Treasury and Natural Resources Committee of Parliament that they had done everything to secure the loan for the project but that Ministry of Finance officials’ actions were jeopardising their efforts, resulting in a case where financiers were threatening to pull out.

“Their [financiers’] lawyers are currently on standby to draft the detailed loan facility agreement but in the absence of the signed term sheet, they are unable to continue and, unfortunately, they have very limited time to finalise this document as they would be closing their offices for the December break.

“We must make it very clear that this is our last attempt to get the funds for the project and failure to sign the term sheet will fall on your square and therefore the ministry will be responsible for securing a loan for this project,” the letter reads.

According to Lilongwe Water Board, which will benefit from the initiative, the current water supply in Lilongwe is 62 000 m3/ day, which, it indicates, is lower than the demand of 78,000 m3/day.

According to the World Bank, the deficit is likely to worsen further because Lilongwe’s population has been growing at over 4 percent annually.

The area’s existing distribution network spans 142 kilometres.

Water resource experts fear that Lilongwe’s water demand will reach almost three times the current supply by 2035.

To facilitate implementation of the project, Khato Civils reduced the amount of money meant to cater for the project from $400 million to $298 million.

However, there have been fears that some government officials prefer the Diamphwe Multipurpose Dam project.

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