A report by an independent assessor, PricewaterhouseCoopers (PwC), has confirmed that the Malawi Energy Regulatory Authority (Mera) Board made an unlawful K2.9 billion payment to Admarc for the purchase of maize.
The observation is consistent with Ministry of Finance’s position, which called for the probe on the matter since Weekend Nation exposed the transaction in March this year.
Although Minister of Finance and Economic Planning Goodall Gondwe says he will wait for the same Mera board that made the decision to act on the report, the board alleges it is yet to receive it.
The report to Mera Management on Internal Controls for year ending June 2016, which Weekend Nation has seen, says the K2.9 billion payment is not in line with the purpose of Price Stabilisation Fund (PSF).
Reads in part the 17-page report: “The purchase of maize for distribution to the public is not in line with the purpose of the funds and it is, therefore, unlawful.”
The PwC report has since advised Mera management to resolve the matter and ensure that all levies collected are used for their intended purposes.
“We consider it an important part of audit service to contribute to our clients experience of good management and accounting practice in those areas that we necessarily need to consider for an audit. Our objective is to help management, over and above our legal duties. To this end, we have identified areas and matters where we believe that improvements may contribute to increased efficiency and better internal controls within the organisation.
“We would like to assure you that the reason for inclusion of these issues is not to reflect negatively on past performance, but instead through their resolution, to contribute to future success of the organisation,” reads in part an introduction letter—in the report to Mera management— signed by PwC (Malawi) associate director Moffat Ngalande.
In March this year, a Weekend Nation exposé revealed that Mera had diverted K2.964 billion from PSF to Admarc for maize purchases, a decision Gondwe described as illegal as he had not authorised the transaction.
Mera board on February 24 resolved to purchase 10 000 metric tonnes of maize at a cost of K2.964 billion, to be sent to Admarc for sale in its markets, according to a letter dated February 25 2016 from Mera to Secretary to Treasury and copied to Chief Secretary in the Office of the President and Cabinet, and the then Mera board chairperson Dingiswayo Jere.
Mera letter reads: “Although the board noticed that the drought/maize levy was abolished in 2012, the board agreed to purchase maize from the Price Stabilisation Fund.
“In arriving at the decision, the board recognised that the current drought has affected a lot of Malawians who did not have adequate access to maize stocks.”
The board further noted in the letter that the drought/maize levy which would have collected funds for the drought was removed from the pricing structure in May 2012.
“The board, therefore, decided that the maize purchase should be funded out of the Price Stabilisation Fund [PSF].”
Ironically, barely two weeks after the Mera board’s decision, fuel prices were raised effective March 4 2016 to K743.30 per litre for petrol from K711.90, representing an increase of 4.41 percent and K722.80 per litre for diesel from K671.30 per litre representing a 7.67 percent rise.
In its statement justifying the increase, Mera said it considered recent trends in the world petroleum prices and other changes in macroeconomic fundamentals, notably exchange rate and their impact on energy prices as the reason for the hike.
Under the Public Finance Management Act, government has no mandate to use money without the authorisation of Parliament, except in very special cases.
Section 76 of the Act states: “The resources of a statutory body may be applied only for the purposes specified in its empowering Act, this Act [Public Finance Management Act] or otherwise lawfully conferred on the body.”
Section 88 subsection 1 (e) of the same Act states that a person commits an offence if he spends funds where there is no “appropriation permitting such expenditure”; hence, under subsection 2, he is liable to a fine of K100 000 and imprisonment for five years or where the person is a statutory body to a fine of K500 000.
Gondwe, who by virtue of the Act, is supposed to be advised by the head of a statutory body in writing “immediately a significant event occurring or becoming known which adversely affects financial position of a statutory body,” ordered that the matter be investigated.
In August, Mera board announced that it had sent on leave two of its senior bosses— chief executive officer (CEO) Raphael Kamoto and director of finance Elias Hausi—to pave the way for investigations.
The PSF is an account that accumulates funds from fuel sales meant to cushion any rises in fuel products that would raise inflation. There are four levies in the energy price build up, as established in the Energy Laws of 2004, namely the Road Levy, Malawi Bureau of Standards Levy, Rural Electrification Levy and Fuel Price Stabilisation Levy.
According to Budget and Finance Committee of Parliament chairperson Rhino Chiphiko, Mera board’s decision to use the PSF was a violation of the law as the money in the fund is meant to cushion Malawians from fuel price hikes.
The Liquid Fuels and Gas (Production and supply) Act requires that the PSF shall be a fund managed by the authority for the sole purpose of cushioning of fuel.
Mera was established as a corporate body under the Energy Regulatory Act No. 20 of 2004 as the Energy Sector Wide Regulator. Its mandate is to regulate the energy sector in a fair, transparent, efficient and cost effective manner for the benefit of the consumers and operator.
When asked on Wednesday to comment on the audit, Gondwe said he will wait for the Mera board to act on it.
Said Gondwe: “I am waiting for the board’s decision on this issue and if nothing else is done, my ministry is definitely going to pursue the matter further.”
He explained that his ministry has been pushing for similar audits to all parastatals.
Mera board chairperson Joseph Bvumbe yesterday said they will act on the report as soon as it is submitted to them.
“As a board, we are yet to receive the report but we are at the moment dealing with the issue of the money for maize based on a fact finding report. We will deal with the contents of the report once it has been submitted to us,” he said. n