Water project saga: AG seeks review of K400bn Salima-Lilongwe water deal

• Contractor to challenge any attempt to suspend the contract

Attorney General Kalekeni Kaphale has waded himself in the high-profile $500 million (K400 billion) construction of water pipeline from Salima to Lilongwe with a legal opinion calling for a review of certain details of the contract.

Both the contractor for the project, Khato Holdings Limited and the Attorney General (AG), have confirmed the development.

However, speaking in an interview, the AG has quashed any fears that the action could attract a lawsuit from the contractor who has already started mobilising equipment for the project, cautioning against ‘jumping the gun.

According to sources, the AG is not against the closed tender process which awarded the contract to a joint venture of Khato Civils ( Pty ) Limited and Zambezi (Pty), but he is uncomfortable with the financial component of the deal, including payment modalities.

The AG reportedly wants more financial safeguards for Malawi g o v e r n m e n t i n t h e project. The contract belongs to Lilongwe Water Board (LWB), while the contractor Khato Holdings will identify funding, but Malawi government is a guarantor to the deal, hence the AG’s involvement.

Khato Holdings Limited chairperson Simbi Phiri confirmed receiving the AG’s legal opinion, but said the company was still gearing up to roll out the project.

“We recei ved communication on the questions the AG is raising. We are only surprised this is being d o n e n o w a f t e r t h e contract was already signed. In any case, we anticipate that the project is going ahead. We have already procured a lot of equipment for the project, some of which is already on the ground,” he said.

Phiri, who claimed his company has already spent $56 million on the project, indicated that the company will challenge any attempt to suspend the contract.

However, he said it will wait to hear from government on the matter before making further comment.

“ The AG says the contract should have been signed using an SPV. SPV is just for purposes of payment. This is happening six months after agreement was signed,” said Phiri.

In a separate interview, Kaphale, while confirming the legal opinion, refused to be drawn to comment on its contents, saying he was bound by confidentiality demands of the legal profession.

He said he was only intervening in the matter now because he was not consulted when the contract was being signed.

He said it was unlikely that his move will lead to any legal challenge from Khato Holdings or even cancellation of the contract.

“I did not know about the contract until I read about it in the newspapers. I was not consulted, which is not abnormal because normally parastatals such as LWB use private lawyers. I am the principal legal adviser to the government, so I have an oversight role.

“ Parastatals are not ‘government proper’, but I am only coming in now because government is a guarantor to the contract. After I saw, through the newspapers, that the contract was signed, I called for all the documentation and upon review, I have made several recommendations. There are many, the legal opinion could be six pages or more,” said Kaphale.

On the possibility of a legal standoff with Khato, Kaphale said: “I doubt very much. I really doubt. I haven’t been given any feedback on how they are reacting to my advice. I have not written any letter of demand to them. What we are focusing on a lot is clause five of the contract. I also don’t want to answer that question. It is work in progress. You are jumping the gun.”

He could not divulge the contents of clause five. In an interview, LWB chief executive officer Alfonso Chikuni defended the contract, saying the parastatal’s lawyers scrutinised the contract before it was entered into.

However, Chikuni, who insists that LWB reviewed the agreement with legal experts, said the AG wants to put additional financial safeguards to the contract.

“A contract like that one, which involves government or Parliament, cannot be drafted without an accompanying legal opinion. We had a legal opinion and the contract was well scrutinised. There is need to clarify that there is a provisional agreement, but the contract awaits final discussions on the financial component. The last time we wanted to have the discussions, the Secretary to Treasury was not available, hence we shifted the date,” he said.

According to Chikuni, the agreement stipulates that the contractor will source finances for the project. However, he said it was not clear whether the contractor has sourced the funds as the two sides are yet to reach that point in the ongoing discussions.

Quizzed about the specific provisions the AG wants reviewed, Chikuni while also admitting that the AG is not against any legal provisions in the deal or the awarding of the contract, cited financial safeguards as the key issue.

“The financial component has not been done yet. It is not a legality issue. This is a provisional agreement pending financial precedence in terms of putting safeguards in place. The AG concedes there is no figure in the provisional contract on the payment. In my own understanding, he [AG] wants to put the safeguards,” added Chikuni.

Government engaged Khato Holdings for the water pipeline project following a closed tender process involving over six companies and an earlier successful business pitch at the Malawi Investment Forum (MIF). The project, which will cover 125 kilometres—from Salima to Lilongwe will include a water treatment plant and will supply about 50 million litres of water per day.