AG cautions on Khato deal

Attorney General (AG) Kalekeni Kaphale has urged caution on the Lilongwe-Salima Water Project and advised the Secretary to Treasury (ST) and Lilongwe Water Board (LWB) to immediately engage the contractor, Khato Civils, on financing.

In a legal opinion dated October 3 2019 on the matter which we have seen, the AG stresses that government should engage Khato Civils in a bid to expedite the identification of a financier to reach financial closure of the project.

If such is not done, Kaphale fears that conditions in the K400 billion contract will not be met and that the deal will be frustrated and terminated.

Specifically, the AG wants the ST and LWB to impress upon the contractor, Khato Civils, to identify financiers and reach financial closure within an agreed time-frame.

The opinion follows a high-level meeting last week chaired by Chief Secretary in the Office of the President and Cabinet (OPC) Lloyd Muhara and attended by officials from Ministry of Agriculture, Irrigation and Water Development, Ministry of Finance and LWB. During the meeting, government resolved to seek a legal opinion from the AG on the future of the project.

Reads Kaphale’s legal opinion in part: “The ST and LWB should, with urgency, engage the contractor to impress it upon the contractor to identify financiers in line with Clause 5.1 and reach financial close within an agreed time frame. The identification of financiers should not be seen as a perpetual exercise which continues to put government as guarantor exposed to liability.

“The engagement, will, besides providing an opportunity to agree on realistic time frames, also assure the contractor that government and LWB are not seen by the contractor as intending to frustrate the contract, as they allege in their letter.”

In the event that government was to decide not to allow it continue with the project it duly signed with LWB, Khato Civils was demanding $71.2 million (about K56.2 billion at the current exchange rate) for works the firm implemented as they prepared to execute the project.

In their claim letter dated August 18 2019 to LWB, lawyers representing Khato Civils say their client met all obligations to the execution of the contract; hence, they expected the board and government to meet their obligations as well.

The lawyers said it was clear that LWB and Malawi Government were no longer interested in the execution of the contract, as such, consider the contract terminated due to frustrations, unless otherwise stated.

But Kaphale has argued in his opinion that Khato is not correct to claim that Capital Hill and LWB have demonstrated lack of willingness to address certain key issues on the deal.

“The recent initiative towards identification of a funder, held in May 2019, is an indication of the effort by the government to assist in the identification of a possible funder.

“At the conclusion of the meetings, the government representatives and Khato Civils agreed on tasks which both parties had to undertake in order to finalise the process and possibly negotiate the financing instruments with identified banks.”

In an interview yesterday, lawyer representing Khato, Chancy Gondwe, said the only response they got from LWB is that the parastatal had written its legal counsel and the AG seeking legal opinions on the matter.

He said: “I am not aware of any legal opinion on the matter. Even if it is there, it is not for my client’s consumption, but rather for their clients.

“It must be a legal opinion solicited within the context of client/solicitor relationship and, therefore, it does not concern my client as it is privileged material within the scheme of solicitor/client relationship.”

Government directed LWB to obtain the $17 million loan with an assurance from Treasury that it was going to take it up when finances for the project were ready.

According to sources, the board of LWB was told by management that the parastatal, whose monthly turnover is K2.3 billion, could not afford the $17 million loan.

Despite this, government authorised the loan that LWB obtained to meet some preparatory works for the K400 billion water project, requiring it to pay National Bank of Malawi (NBM) close to K600 million monthly.

The board’s chief executive officer (CEO) Alfonso Chikuni confirmed in an earlier interview about challenges they are facing to repay the loan and subsequent consolidation of the board’s bank accounts by NBM to recover repayments.

He also confirmed the decision by Khato Civils, which had written them through their lawyers, expressing an intention to terminate the contract and a demand of $71.2 million (about K56.2 billion at the current exchange rate) for preparatory works the firm has undertaken to date.

Chikuni also confirmed that after the board of LWB met and approved the $17 million loan, Treasury guaranteed them that it would come in to take responsibility, but that had not been the case.

Documents we have seen show that the $17 million loan approval for LWB was made by former minister of Finance, Economic Planning and Development Goodall Gondwe.

Sources disclosed that the water board started repaying the loan in June last year, coughing K200 million a month up to last December as loan interest. But LWB could not afford when principal was added on the interest, requiring them to pay around K600 million per month.

In worst case scenario, ministries, departments and government

agencies (MDAs) owe the country’s water boards K23.1 billion as of May 30, according to a letter dated July 22 2019 which Water Employees Trade Union of Malawi (Wetum) wrote to Comptroller of Statutory Corporations.

Based on the letter to the Comptroller of Statutory Corporations, LWB is owed K6.70 billion.

On LWB’s NBM loan, Minister of Agriculture, Irrigation and Water Development KondwaniNankhumwa said in an interview last week that the meeting held at OPC identified two critical areas requiring attention.

Said the minister: “First thing we discussed was the $17 million loan [about K12.5 billion] the LWB obtained from National Bank of Malawi. On this, we discussed how we can help LWB get out of this.

“We finally resolved to form a subcommittee, comprising officials from Treasury and LWB. We empowered them to go and discuss the matter and find solutions to the loan issue.”