Malawi cancels Peermont contract

Malawi government has offered Legacy Holdings the contract to manage the Bingu International Conference Centre, The President Hotel and Presidential Villas in the capital, Lilongwe, scorning Peermont Global Proprietary Limited which won in the first tender processed in 2012.

Legacy has clinched the deal despite failing to impress in a special tender that Malawi President Joyce Banda ordered to accommodate it after she cancelled negotiations with Peermont. Both firms are based in South Africa.

By insisting on the President’s choice of firm to manage the facility, Malawi government has ignored advice from the Attorney General (AG) against cancelling the Peermont deal.

The AG argued that the move would be costly to the taxpayer should the dumped company sue for breach of contract.

The move is also against advice from the board of Umodzi Holdings Limited (UHL)—which runs the complex.

The board warned the Ministry of Tourism against the lease deal with Legacy, saying the arrangement would make supervision difficult and would generate less revenue for government.

Cancelled deal

Despite these warnings, the ministry wrote Legacy chairperson Bart Dorrestein on May 13 2013, informing him of their choice and inviting the hotelier to negotiations.

Wrote the ministry’s Kenson M’bwana—who is director of finance and administration—on behalf of Secretary for Tourism, Wildlife and Culture: “I am pleased to inform you that your company, Legacy Group Holdings [Pty] Limited, has emerged as a preferred bidder following your bid submission towards provision of management services, on lease basis, to the Bingu International Conference Centre, The President Hotel and the Presidential Village, in Lilongwe, Malawi.

“As such government has granted authority to enter into negotiation with your company on condition that you submit to this office your audited accounts for the last three years as soon as possible.”

Earlier, on April 10 2013, UHL board chairperson Francis Mbilizi wrote Secretary for Tourism, Wildlife and Culture Fletcher Zenengeya, reminding him of the board’s position with regard to the issue of the management of Umodzi Park facilities.

Apparently, at its extraordinary meeting held on March 11 2013, the board had considered a comparative analysis of two options—lease and management approach—and determined that government should not opt for a hotel lease based on the fact that:

—The hotel lease option offers the owner less revenue than the management agreement. The board’s calculations for the lease option clearly showed that in every case the operator makes more money than the owner.

—It was also apparent that in a lease agreement, the owner has little influence over what happens to the business and the property during the long lease period.

Mbilizi wrote Zenengeya: “If it is the view of the shareholders [government] that the Umodzi Park facilities should be on a lease basis as opposed to the management contract, contrary to the board’s position, I would like to request that the shareholders inform the board of this direction accordingly.”

In response, Zenengeya advised the board to support the lease agreement with Legacy because the “authorities” are getting impatient.

He said: “I would support the proposal for more time in order to study the implications arising from the lease agreement. The only challenge is that the authorities are not ready to wait and I would, therefore, like to appeal to the board to reconsider and embrace the government decision.”

ODPP consent

In an interview, ODPP assistant director of public procurement Arnold Chirwa said: “Our consent was given after considering a number of factors presented by the procuring entity [the Ministry of Tourism]. These factors hinged on the financial and economic factors of running the facility after the procuring entity had weighed the costs and benefits of the lease arrangement.”

The Nation

has it on good authority that Legacy officials were last week expected to arrive for negotiation meetings that were set for Saturday (May 18) and Sunday (May 19) 2013 at Bingu International Conference Centre in Lilongwe from 9:30am.

In an interview this week, Minister of Tourism, Wildlife and Culture Rachel Zulu confirmed that government has offered Legacy the lease agreement.

She also vowed that government would handle any legal action against it should Peermont decide to file one.

Prior to the decision, AG Anthony Kamanga—in a legal opinion to the Minister of Tourism, Wildlife and Culture—warned that stopping Peermont, which almost finalised the process to sign a contract with government, could cost taxpayers’ a lot of money.

The ministry sought the legal opinion after Peermont chief executive officer Anthony Puttergill, on February 18 2013, wrote a letter to Secretary for Tourism and Culture expressing disappointment and demanding reasons for termination of negotiations

Weekend Nation

broke the story on February 9 2013 about the President’s cancellation of the deal.

In his legal opinion of February 25 2013 to the minister, Kamanga painted a weak case for the Malawi Government against Peermont given that the company was told it was the preferred bidder and invited for negotiations, which were concluded although no contract had been signed.

A member of the Umodzi Holdings board of directors—the purpose vehicle government set up to oversee the five-star hospitality establishment—confided that the President instructed the board to ignore the first procurement process and do a restricted tender to accommodate Legacy.

The President’s intervention—which also walked all over a duly followed process supervised by ODPP—has already cost government over K1 billion in expenses incurred by delays to seal a deal and allow the venture built with a Chinese credit line to start operating fully to meet its obligations.

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:

—Refund National Bank of Malawi K700 million plus interest for items sourced from South Africa by Sunbird Tourism Limited because the operations of the hotel have been too delayed to warrant any repayment soon.

—Provide an additional K270 million for water, electricity, security and insurance for a year before the next operator comes on board.

—Settle all outstanding bills of K92 million, including payment for insurance, utilities and security.

—Cough additional funds for another procurement process.

—Pay another contractor should any defects of the hotel come outside the agreed defect period.