Khato’s last laugh

After several false starts for the Salima-Lilongwe water project, Khato Civils can now afford a smile following a formal letter government has issued committing to guarantee a loan to finance the long overdue project.

Both the South Africa-based engineering and construction firm and the Ministry of Finance confirmed the development in separate interviews last week, 53 months after government appointed Khato Civils (Pty) Limited to implement the water project.

The company signed a memorandum of understanding with Malawi Government in 2016 to jointly execute the multimillion dollar project with its sister engineering company known as South Zambezi.

The project is expected to provide at least 50 000 m3 of raw water to Lilongwe City per day through a 120-kilometre pipeline from Lake Malawi (Senga Bay, Salima) to meet the city’s growing population of 1.12 million.

The city’s population has been growing at a rate of 4.3 percent and is projected to be with a population of about 1.17 million by 2022.

Khato Civils chief executive officer (CEO) Mongezi Mnyani told Weekend Nation they were “excited and enthusiastic” with the development because they have taken more than four years working on the project and have invested a great deal of resources, both financial and technical.

He said so far the company had spent an estimated $71.2 million (about K56 billion) of its resources on the required processes, prior to commencing the project which will be done as a once off phase and expected to complete within 24 months.

However, Mnyani could not say when construction of the project would start.

“Khato Civils has a proven track record for service excellence and we are confident that we will execute this project without fail and within the required time frame,” he explained in a written response.

Mnyani said the firm was now negotiating with various potential funders for the project to be signed with Malawi Government.

The Khato CEO, however, said the contract cost had been affected by the depreciation of the kwacha although the company had developed measures and strategies to ensure it still delivers the project as expected within budget.

The total project cost, according to Mnyani, now stands at about $306 million (about K245 billion) from the original $400 million, which was later reduced to $315 million after several discussions.

Treasury spokesperson Williams Banda, in a separate interview, said government, through project implementer Lilongwe Water Board (LWB), has signed a pre-contract with Khato, which carries some conditions which have to be met by the contractor such as finding a financer to provide a concessional loan.

“A concessional loan is a loan that does not have high interest. So, once they find that financer, LWB and Khato will finalise the deal, including the final project cost,” he said.

Last week, both LWB acting CEO Silli Mbewe and Minister of Forestry and Natural Resources Nancy Tembo declined to comment on the matter.

But chairperson of the Parliamentary Committee of Natural Resources and Climate Change Welani Chilenga said, while his committee was also yet to be formally briefed by Treasury, the development was welcome, and a bonus to the country.

Mnyani said so far, the feasibility study, ESIA as well as the detailed designs for the project have been completed and approved by relevant authorities in Malawi.

“The project should now progress into construction upon the signing and conclusion of funding/loan agreement between financiers and Government of Malawi,” he said.

The World Bank was initially expected to finance the project but the Bretton Woods institution instead preferred to implement the multipurpose Diamphwe Dam for both irrigation and drinking water supply to Lilongwe City.

Earlier, LWB indicated intention to terminate the contract with Khato Civils on grounds that the service provider had failed to find a financier.

But the firm dismissed LWB’s claims and warned government that should it terminate the contract, it would have to pay $71.2 million to compensate the firm for the resources it had used on the required processes precedent to commencing the project.

The equipment, currently in Malawi since 2017, is wholly owned by Khato Civils and was specifically procured for the project, according to Mnyani.

Economist Betchani Tcheleni from the Malawi University of Business and Applied Sciences yesterday said prospects of Khato Civils getting the concessionary loan for the project are high, but expressed fears whether development partners would be comfortable with such an arrangement.

“What I see would be of concern is whether Khato Civils, as a private firm could really be entrusted with a concessionary loan by these development partners. Generally, these development partners are happier if the loan is being sought [directly] by a public entity unlike in this case where government is guaranteeing a private company,” he said.

However, the economist noted the arrangement was not usual and hoped government would play a bigger role than just as the guarantor.