After saddling it with a $17 million (about K12.5 billion) loan for the Lilongwe-Salima Water Project, government has left Lilongwe Water Board (LWB) on its sickbed to die alone of huge debts it cannot pay.
The development comes at a time government also owes the parastatal about K8 billion in unpaid water bills.
Government directed LWB to obtain a $17 million loan (about K12.5 billion) for the Lilongwe-Salima Waterway Project, with an assurance from Treasury that it was going to take it up when finances for the project were ready.
According to sources, the board of LWB was told that the parastatal, whose monthly turnover is K2.3 billion, could not afford the $17 million loan.
Regardless, government authorised the loan that LWB obtained from National Bank of Malawi (NBM) to meet some preparatory works for the K400 billion water project awarded to South Africa-based engineering firm Khato Civils, requiring it to pay NBM close to K600 million monthly.
The board’s chief executive officer (CEO) Alfonso Chikuni confirmed in an interview on Saturday about challenges his parastatal is facing to repay the loan and subsequent consolidation of the board’s bank accounts by NBM to recover repayments.
On the other hand, the CEO also confirmed the decision by Khato Civils, which has written them through their lawyers, expressing an intention to terminate the contract and a demand of $71.2 million (about K56.2 billion at the current exchange rate) for works the firm implemented as they prepared to execute the project.
Chikuni also confirmed that after the board of LWB met and approved the $17 million loan, Treasury guaranteed them that it would come in to take responsibility to clear the loan, but that has not been the case.
According to documents we have seen from one of the lawyers representing Khato Civils, Chancy Gondwe, the $17 million loan approval for LWB was made by former Finance minister Goodall Gondwe.
Minister of Finance and Economic Planning Joseph Mwanamvekha in an interview on Saturday said Ministry of Agriculture, Irrigation and Water Development was the line ministry that had to comment on the issue.
But told that the approval for the LWB to borrow $17 million came from Treasury, the minister said he did not have enough time to understand the finer details, insisting that Ministry of Agriculture would be in a better position.
Minister of Agriculture, Irrigation and Water Development Kondwani Nankhumwa could not pick calls while the ministry’s Principal Secretary (PS), Gray Nyandule-Phiri, said as long as we had spoken to Ministry of Finance and LWB; his ministry had nothing to do with the issue.
Sources disclosed that the water board started repaying the loan in June last year, coughing K200 million every month up to last December as loan interest.
“You should understand the board’s budget. The board diverted funds from other projects to meet this obligation. Trouble came in January when the bank put principal on the interest, it now required the board to start paying K500 million every month, which it could not afford,” said the source.
“We have some bank accounts with the bank, and the bank, after we failed to pay, consolidated all our accounts and took money, some of it meant for purchase of chemicals to meet the loan repayment due,” one source added.
Another source said management reasoned with the bank that continued paying of the loans would paralyse the operations of the utility company that serves close to one million residents.
“The bank luckily, understood our position and stopped that, but the unfortunate thing is we have been accumulating arrears, which as of last month, stand at over K2 billion,” the source said.
But when Chikuni was asked, he declined to comment, saying discussions are underway and there is a meeting pending between the water board, Khato Civils and Ministry of Finance officials to iron out issues.
The CEO, nevertheless, said whatever happens, the Lilongwe-Salima Project would remain their proposal to solve the water woes considering the gloomy picture of the current water sources for the capital city, Dzalanyama and Kamuzu Dam.
The levels of water from the two sources are going down.
“We are hoping for the best. If we continued repaying the loan to the bank, that was going to have a serious effect on our operations. But again, we can’t continue without repaying, the bank will still need its money,” Chikuni said.
To add insult to injury, ministries, departments and government agencies (MDAs) owe the country’s water boards K23.1 billion as of May 30, according to a letter dated July 22 2019 which Water Employees Trade Union of Malawi (Wetum) wrote to Comptroller of Statutory Corporations.
In an interview with our sister paper, Weekend Nation, in July, Secretary to Treasury Cliff Chiunda confirmed that the bill has reached K23 billion and that Treasury had started looking at how best they can settle it in the 2019/20 fiscal year.
Based on the letter to Comptroller of Statutory Corporations, LWB is owed K6.70 billion.
Government, after Khato Civils had already spent about K52.6 billion on the preparatory works, including the bringing in of machinery into the country, appears not to be interested any longer with the project.
Lawyers representing Khato Civils, in their claim letter dated August 18 2019 to LWB, say their client met all obligations to the execution of the contract and they expected the board and government to meet their obligations as well without fail.
The lawyers say it was clear [LWB and government] were no longer interested in the execution of the contract, as such, consider the contract terminated due to frustrations, unless otherwise stated.
After years of court battles on how the K400 billion contract was awarded to Khato Civils and when it appeared dust was settling, the financial aspect became a hurdle after government has been failing to strike a deal with financiers Khato Civils has been identifying.
Gondwe, then Finance minister, disclosed in October 2018 that government discussed and arrived at an agreement with a financier Khato Civils identified to implement the project that was supposed to tap water from Salima to Lilongwe and surrounding districts.
He had hinted that the agreement was signed but what remained was for the Cabinet to meet after some changes were made in the loan agreement, but that did not materialise.
Lilongwe-Salima Waterway Project CEO Modesta Kanjale, appointed on December 12 2017 to oversee the project, said in an interview in October 2018 that implementation works had not started as government was yet to approve the changes that were made in the loan agreement for the project.
The CEO said her office had not received funding to enable them start implementation works, adding that only a few paperwork was done.
Gondwe in October 2018 said government had discussed with the financier, Trissag Espanola of South Africa, identified by the project contractor, Khato Civils, to fund the K400 billion water project, but that again, did not materialise.
According to a 2019 Annual Economic Report prepared by Ministry of Finance and Economic Planning, at individual water board level, LWB registered the highest increment of about 27.4 percent of the population served while the share of the population served by the Southern Region Water Board remains unchanged.
“This increase can be attributed to the increased water production in the year under review, and a rise in the number of new customers that the boards registered.
“From the population currently being serviced by the water boards, the percentage of people able to access water within 30 minutes from a water source on average stands at 86.34 percent, compared to 83 percent in the previous financial year,” reads the report in part.