Malawi Energy Regulatory Authority (Mera) last month resolved to divert K2.964 billion from the Price Stabilisation Fund (PSF) to buy maize for Admarc, a decision Finance Minister Goodall Gondwe has described as illegal.
The Mera board on 24 February 2016 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 25 February 2016 from Mera to Secretary to Treasury and copied to Chief Secretary, Office of the President and Cabinet and Mera board chair Dingiswayo Jere.
Gondwe confirmed on Wednesday that he was aware that the Mera board decided to use money from the PSF to pay for maize purchases for Admarc, but he said his ministry did not authorise the transaction as the decision was illegal and not normal.
Under the Public Finance Management Act, government has no mandate to use money without the authorisation of Parliament except in very special cases.
Said Gondwe: “The ministry is investigating the matter.”
When told that the letter from Mera informed the Secretary to Treasury about the decision as well as asked for his advice on it, Gondwe insisted Treasury did not authorise the payment and that is why they are investigating the issue.
Says the letter: “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 Funds.”
The PSF is an account that accumulates funds from fuel sales meant to cushion any rises in fuel products that would raise inflation.
Mera board chair DingiswayoJere confirmed in an interview on Thursday that the board decided to release funds to buy maize for Admarc but he wouldn’t know if the decision was implemented.
Jere also said the Ministry of Finance has written Mera CEO to explain the release of the funds to Admarc but they are yet to meet and respond to the minister. He, therefore, said it was premature for him to comment on the matter.
Mangani said Treasury was discussing the matter with Mera to find the best way forward. He did not want to elaborate.
Admarc chief executive officer Foster Mulumbe could not say if Admarc received the money from Mera.
Instead, he first demanded to see the communication from Mera to Secretary to Treasury before he could respond.
But chief executive officer of Auction Holding Commodity Exchange (AHCX), Davis Manyenje, confirmed yesterday Admarc purchased over 22 500 metric tonnes of maize from his organisation.
Manyenje said all the maize that government has been purchasing has gone to Admarc.
“I wouldn’t know whether the money was from Mera or Admarc,” he said.
Coincidentally, a week after the Mera board’s decision, fuel prices were raised prices 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. Paraffin, which is used mostly by industry and the majority of the poor households, went up to K580.40 from K526.30.
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.
The Maize/Drought levy was removed from the levies structure in May 2012 following an improvement in the maize supply then. Finance Minister Goodall Gondwe could not say how much money was in the Drought/Maize Levy Fund in 2012 when it was removed and what it has been used for.
Budget and Finance Committee of Parliament chairperson Rhino Chiphiko said the decision by the Mera board to use the PSF was a violation of the law considering that fuel prices are being raised, and the money would have been used to cushion this.
Chiphiko said government or Mera has no mandate to release such a big amount of money.
Said Chiphiko: “As an oversight body, my committee would like government to explain how it arrived at the decision to use funds from the Price Stabilisation Fund for the purchase of maize without Parliament’s approval.” “Why is government funding Admarc, which is a government company? We have approved a lot of money for Admarc. Should we believe that Admarc does not have adequate resources to procure maize, hence the decision to get funds [from Mera]? This is a serious matter which needs ACB to investigate.”
He suggested investigating other parastatal bodies saying that the same things that Mera has done could be happening in other government institutions.
Economics Association of Malawi (Ecama) president Henry Kachaje said although it was understandable that government might have been pressed to explore any possible avenue to raise money to finance the purchase of maize, transparency and accountability principles demand that government seek proper authorisation either from Parliament or any other relevant institution to divert the use of a particular levy for emergency use.
According to Kachaje, if the Drought/Maize Levy was abolished in 2012, government needed to follow appropriate procedures to reinstall the levy when deemed necessary as this would have ensured adherence to transparency and accountability principles.
“It is especially worrying that such a transaction was done without the knowledge of the Minister of Finance who is the principal custodian of the national purse,” said Kachaje.
During its present sitting Parliament has approved K4.8 million for Admarc to buy maize.
In November last year, Mera used the PSF to maintain pump prices at K723.60 per litre for petrol, K734.60 per litre for diesel and at K633.20 per litre for paraffin. This was when the fuels qualified for an upward price adjustment following the depreciation of the kwacha under the Automatic Fuel Pricing Mechanism (APM) which Mera uses to adjust pump prices.
According to Weekend Nation source, Admarc will buy the maize from AHCX.
Last year Admarc secured loans of K1.9 billion from FDH Bank and K100 million from the AHCX for the purchase of maize to be sold in its markets. n