Government cancels road contracts

Government has terminated construction contracts for two major roads due to what Capital Hill claims is a contractor’s breach of obligations, The Nation has learnt.

The contract cancellations—confirmed in documents we have seen and interviews we had with the Ministry of Transport and Treasury late last week—will further hold-up the already delayed projects and keep road users, especially those in the beneficiary catchment areas, waiting for better roads.

The affected roads are Thyolo-Makwasa-Thekerani-Muona Road expected to connect Thyolo Highlands to the agriculture-rich Shire River’s East Bank in Nsanje and the Zomba-Jali-Phalombe-Thekerani Road set to provide better accessibility to Phalombe and surrounding areas.

The main contractor for both projects is Kuwait-based MA Kharafi & Sons—a multi-billion dollar private business empire that counts construction among its scores of business interests across the globe.

Government has since written the projects’ external backers—Kuwait Fund for Arab Economic Development (KFAED), Opec Fund for International Development (OFID) and Arab Bank for Economic Development in Africa (Badea)—seeking “No Objections” to engage  other contractors.

In an interview on Thursday, Minister of Transport and Public Infrastructure Francis Kasaila confirmed termination of the contracts.

However, Kasaila said government could not terminate the contracts sooner due to other contractual agreements related to the projects.

“MA Kharafi & Sons subcontracted 100 percent of the ongoing works, which is contrary to the provisions of the General Conditions of Contract [GCC]. They were in default,” said the minister.

In a letter dated December 8 2014 signed by Ministry of Transport and Public Infrastructure Principal Secretary Moffat Chitimbe on the construction of Thyolo-Makwasa-Thekerani-Muona Road under the subject: Notice of Termination of the Contract, government alleges that the contractor breached contractual agreements.

The letter is addressed to the three Arab financiers of the projects— KFAED, OFID and Badea. It is copied to Malawi’s Secretary to the Treasury, the Solicitor General and Secretary for Justice.

The letter gives two reasons why the Malawi Government considers MA Kharafi & Sons to be in default on the project and why it was terminating the contract.

According to the letter, MA Kharafi & Sons subcontracted 100 percent of the ongoing works on the Thyolo-Makwasa-Thekerani-Muona Road contract, which is contrary to the provisions of sub-clause 4.1 of the GCC and sub-clause 4.4 of the Conditions of Particular Application (CPA).

The letter says in line with ‘Appendix to Tender’, the maximum amount of works to be sub-contracted is 30 percent of the contract price.

The second reason, says the Malawi Government, concerns the contractor’s performance.

Explains the letter in part: “In accordance with sub-clause 8.1, government is of the opinion that MA Kharafi & Sons have not met requirements of this provision. The contract was supposed to have been executed in a period of 36 months, but it is now 6.5 years from commencement of the contract. It has also been observed that MA Kharafi & Sons have persistently suspended the works whenever there have been some delay in payment.

“Please note that the basis upon which MA Kharafi & Sons was awarded the contract was that they had demonstrated in their bid that they had financial and plant capacity to implement the contract. Government is of the impression that this project cannot be finished successfully based on the attitude MA Kharafi & Sons are displaying in its implementation.”

On the Zomba (Ndege)-Jali-Phalombe-Chitakale Road, government said it terminated the contract based on grounds similar to those of the Thyolo-Makwasa-Thekerani-Muona Road project. This project started in 2005 and, according to the ministry, should have been completed by late last year.

Said the Ministry of Transport and Public Infrastructure letter, also dated December 8 2014, to the three financiers, about the Zomba (Ndege)-Jali-Phalombe-Chitakale Road: “On 22nd September 2014, government gave MA Kharafi & Sons a ‘Notice of Intent to Terminate the Contract’ for breach of contract on the basis of the contractor’s subcontracting 100 percent of the works without the consent of the engineer.

“On 24th October 2014, MA Kharafi & Sons responded by giving a ‘Notice of Termination of the Contract’ on the basis of late payments. MA Kharafi & Sons observed that more than 90 days had elapsed since the expiry of the time stated in sub-clause 60.8 of the [GCC] as amended by the CPA.”

Government, however, rejected this assertion, saying Capital Hill had done its part and told MA Kharafi & Sons to proceed with the works, but no progress was made; hence, the contract was in default.

Roads Authority (RA) spokesperson Portia Kajanga referred the matter to Ministry of Transport and Public Infrastructure.

Ministry of Finance spokesperson Nations Msowoya said the estimated cost in 2004 for the Thyolo-Makwasa-Thekerani-Muona Road project was K26 billion ($56 million) and the Zomba (Ndege)-Jali-Phalombe-Chitakale Road was K30 billion ($64 million.)

Giving a break-down of the costs, Msowoya said on the Thyolo-Makwasa-Thekerani-Muona Road, a contribution from creditors was as follows: KFAED ($20 million), OFID ($10 million) and Badea ($7 million).

Thus, the total funding from the creditors was $37 million, which means that the government of Malawi was supposed to contribute the difference of $19 million.

However, after a few years of implementation, the project was affected by increased costs of fuel [in 2008/09], steel, cement and delayed compensation.

These factors affected the costs of the project and the final figure was revised to $102 million, said Msowoya.

He said since government did not have enough money, it asked the co-financiers for additional financing, which they provided in 2011 amounting to $19 million.

For the Thyolo-Makwasa-Thekerani-Muona Road project, the creditor’s contributions included KFAED ($13.5 million), OFID ($10 million), Badea ($10 million) and the Saudi Fund for Development ($12 million).

Total contribution from creditors was, therefore, $46 million and government was supposed to add $18 million.

Msowoya said in the wake of the developments, government will have to identify funds from the budget to complete the projects.

He, however, said this would be done in phases in line with available resources.

Ironically, in August 2014, construction of the Zomba-Jali-Phalombe-Chitakale Road was extended from June 30 2014 to December 2015 after the contractor had applied for the extension.

This is not the first time for road construction projects in the country to delay beyond their deadlines.

In 2005-07, construction of the Mponela-Ntchisi Road had its initial cost tripled due to delays in construction whereas the Masauko Chipembere Highway dual carriage road project in Blantyre is also yet to be completed, further escalating costs.

Construction of the 60-kilometre Mzimba-Mzalangwe Road in the Northern Region, wholly funded by the Malawi Government, has also stalled with the contractor only doing eight kilometres to bitumen standard since 2009 and 14 kilometres completion to base level.

Efforts to talk to MA Kharafi & Sons proved futile as we could not get hold of their representatives.