Malawi renegotiates Vale, Cear deals

Malawi has renegotiated deals with Vale Logistics and Central East African Railways (Cear) in a move that will see Malawian investors owning shares in the two companies.

The Nation has established that the new deals will also see the rehabilitation of railway lines and an increase in concession fees, all in exchange for Malawi Government’s guarantee to a K1.9 trillion ($2.7 billion) loan.

Malawi has separate deals with Vale Logistics Limited and Cear Malawi—the two companies managing railway lines from Kachasu in Chikwawa to Nkaya in Machinga and from Nkaya to Limbe in Blantyre, respectively.

In the agreements, Malawi waivered taxes and royalties in favour of the companies which experts thought were to the disadvantage of the country, but when Vale Logistics Limited wanted to borrow K1.9 trillion from international lenders, Malawi engaged into the renegotiation of the two deals.

In an earlier interview yesterday, Minister of Finance, Economic Planning and Development Goodall Gondwe said Malawi agreed to guarantee the loans on condition that the country will, for the period of the loan, not engage in political mishap that would lead to the destruction of the railway line.

He said: “If we engage in anything that would destruct the railway line we will pay the amount in full. So too is Mozambique.”

Gondwe said in exchange, Malawi, among other things, asked for larger volumes of cargo to be moved on the railway line and some money that would help to rehabilitate roads in Mwanza district.

The Nation also understands that in the new deal, government has asked Vale Logistics and Cear to rehabilitate two more railway lines from Limbe to Nsanje and another from Salima to Mchinji.

Government has also sought for 20 percent shares in Cear to be allocated to Malawians as well as an increase in the concession fees by 20 percent.

However, up to now, no Malawian investor has picked up the 20 percent shares offered on Vale Logistics Limited.

Ministry of Transport and Public Infrastructure said details regarding how Malawians will obtain the shares from both companies would come out after stakeholder consultation.

Ministry of Natural Resources, Energy and Mining confirmed that an addendum was added to the concession but could not be drawn to explain what was in the addendum following the renegotiations of the two deals.

The ministry’s spokesperson James Chakwera said the addenda to the Cear and Vale Logistics concession agreements was signed but said the 20 percent shares in Cear to be allocated for purchase by Malawian investors was not part of the negotiation.

“The rehabilitation south of Limbe is not part of the negotiation,” he said, explaining that the concession fee for Cear was increased by 20 percent, however the renegotiations did not touch on taxes.

However, Chakwera could not put monetary value to the additional benefits, saying: “This is subject to the works to be covered which would vary due to the current rains. The result of the 20 percent concession fee increase in Cear would be subject to the tonnages to be moved.”

Head of Economics Department at Catholic University, Gilbert Kachamba, said the renegotiation of the deals was a welcome development but said he believed Vale and Cear did not go into the discussions to entice Malawi to support the K1.9 trillion borrowing, saying it was not viable.

He said the K1.9 trillion Vale loan should not have concerned Malawi as the country does not have interest in the activities of a private company.

“Unless Malawi is benefitting something from this deal, otherwise the country should not have taken that deal,” he said.

While applauding government for negotiating for the rehabilitation of the railway lines, Kachamba said unless Malawi has some business activities in the areas it has no investment benefits.

In the previous agreement with Vale Logistics, government gave away corporate tax calculated at 30 percent and value added tax (VAT) at 16.5 percent.

Further, Malawi offered an exemption of import duties for project equipment and removed VAT or exclusive use in Malawi in connection with the construction, renovation and expansion of the railway and no withholding tax on “service fees” made to non-residents incurred in relation to the project deliverables.

The country also offered Vale zero withholding tax on payments of interest made to non-residents and payable according to contracts registered with the Reserve Bank of Malawi (RBM) and that any corporate social responsibility (CSR) initiatives as agreed and approved by government are tax deductible.

The agreement reveals that Malawi agreed to reduce corporate tax by 30 percent on works conducted in relation to the project, its affiliates and subcontractors.