Malawi President Joyce Banda’s rejection of Peermont Global Proprietary Limited to manage Umodzi Park has turned messy—costing taxpayers over K1 billion (about $2.5 million) and risking a law suit that may cost even more.
The mess follows the President’s directive—whose story Weekend Nationbroke last month—that the Ministry of Tourism and Culture cancel negotiations with Peermont.
Peermont is the firm that won the bid to manage Bingu wa Mutharika Conference Centre, President Hotel and Presidential Village following a 2012 tender that was supervised by the Office of the Director of Public Procurement (ODPP). The Ministry of Justice also endorsed it.
The Malawi Government confirmed the firm’s bid evaluation success in a letter to the South African-based hotel group.
After cancelling the negotiations, Banda ordered the ministry to re-tender using restricted procurement method.
Peermont has meanwhile responded angrily to the cancellation of negotiations and the subsequent re-tender.
Peermont’s lawyers—Sacranie, Gow&Co—wrote government, on March 12 this year, demanding an explanation for the cancellation within seven days which ended on March 19 (Tuesday), a move that could lead to the company pushing for compensation.
Government sources said the results of the restricted tender—which Peermont did not participate in—are out and that Danish hotel group, Carlson Rezidor, won the tender, beating two other contenders: Legacy and Indian Hotels.
It is unclear how Carlson Rezidor will be handled, but government sources familiar with the tender indicated that it is Peermont’s name that was again recommended to the President, who rejected it for the second time earlier this month.
The President stated her reservations about Peermont in the instructions on the letter she received from Tourism and Culture Minister Rachel Zulu dated March 1 2013 bearing reference number MTWC/2/238 with the subject: Progress Report on the Procurement of Management Services for the President Hotel, Bingu Conference Centre and Presidential Village.
In her letter, the Minister reported to the President that Peermont was the successful bidder and going for another bidder would have financial complications as advised by the Attorney General.
But in response, President Banda scribbled on the minister’s letter on March 5 2013: “Thank you for the report. I do not remember Cabinet approving the engagement of Peermont. I need to be reminded. What I recall is that Cabinet rejected their involvement and asked that we take the route we have taken now. Can we discuss this as quickly as possible?”
But contrary to what the President wrote on the memo, the report from Umodzi Holdings Limited board of directors says Cabinet directed them to conclude contract negotiations with Peermont.
The ministry made the Peermont recommendation to President Banda even though at this stage, the results of the special tender evaluation, which Carlson Rezidor won, were finalised but not communicated to bidders and the public.
Asked to explain why Carlson Rezidor was not recommended for the contract after winning in the restricted tender, Umodzi Holdings Limited board chairperson Francis Mbilizi said the results of the restricted tender are not yet formal because “we have to take them to the relevant authorities.”
He could neither confirm nor deny that Carlson Rezidor won this special tender.
Zulu, in an interview on Friday gave her position on the matter, only to withdraw the interview later. She instead asked us to speak to the ministry’s principal secretary, Fletcher Zenengeya, who said results of the special tender were suspended and that the ministry had since sought direction from the ODPP’s office.
“The firms were asked to clarify a few things in their bids after which they should re-tender for the three companies to compete again,” he said.
But government has already spent over K1 billion in expenses incurred by the hold-up to seal a deal with an operator.
Documents we have seen, including an October 2012 report on the first procurement process and a February 25 legal opinion from the Attorney General to the Minister of Tourism, show that procrastination on the deal has brought the following burden on taxpayers’ shoulders: K700 million (about $1.75 million) loan plus interest for running Umodzi Park; K270 million (about $675 000) for utilities and insurance and K92 million (about $230 000) in outstanding bills.
Other costs of the delays to the taxpayer are revenue loss as the hotel should have been opened by January 2013; the risk of losing the hotel since insurers have cancelled its insurance, deterioration of the facility owing to poor maintenance and risk of government spending millions on maintenance as the defect period with the contractors ends on June 13 2013.
In February this year, Attorney General Anthony Kamanga—in a legal opinion to the ministry—warned that stopping Peermont, which almost finalised the process to sign a contract with government, could cost taxpayers’ a lot of money.
The Ministry of Tourism and Culture sought the legal opinion after Peermont chief executive officer Anthony Puttergill, on February 18 2013, wrote the Secretary for Tourism and Culture, expressing disappointment and demanding reasons for termination of negotiations.
Kamanga’s legal opinion of February 25 2013 paints a weak case for government against Peermont given that the company was already told it was the preferred bidder and invited for negotiations, which were concluded although no contract was signed.
“I have no doubt in my mind that the company will at some stage demand compensation for the termination of the negotiations by the government; the company is most likely to claim from the government expenses that have been incurred by it during the negotiation process; and I think we should brace ourselves for protracted litigation ahead,” he wrote.
A well-placed source in the board of Umodzi Holdings—a purpose vehicle government set up to oversee the facilities—claimed that what is complicating their work is that there are “orders from above” to ensure that Legacy gets the deal.
The member said the board sent proposals to eight bidders on January 1 2013, but by the February 16 2013 deadline, only three companies—Carlson Rezidor, Legacy and Indian Hotels—responded.
The member said evaluation was done from February 18 to 19 2013 by a special technical committee which comprised officials from ministries of Tourism, Finance, Justice and Constitutional Affairs, Economic Planning and Development ; Privatisation Commission; director of Buildings and a hotel expert.
According to the member, Carlson Rezidor got 71.6 percent; Legacy 59.3 percent and Indian Hotels 50.9 percent.