Auditors uncover K6.7BN Egenco‘rot’

Electricity Generation Company (Egenco) of Malawi is sitting on a K6.7 billion procurement mess for transactions undertaken between January 2017 and March 2022, a forensic audit and investigation has uncovered.

The alleged misprocurement is said to be connected to unissued items in stock, unauthorised requisitions and rampant single sourcing of materials and services instead of sourcing through national competitive bidding (NCB), the audit report The Nation has seen indicates.

Dated February 13 2024 and titled ‘Forensic Audit and Investigation of Alleged Irregularities Report’, the exercise was carried out by Mwenelupembe, Mhango & Company with the Auditor General as the client. It was carried out in accordance with Section 10 of the Public Audit Act of 2003.

From the K6.7 billion query, the report details that Egenco has K447.6 million unissued stock from 2018 purchases, another K224 million from 2018/19 purchases, K479.5 million from 2019 purchases and K679.9 million for 2020 purchases, all totalling about K1.8 billion.

Reads the audit report in part: “The total amount above of K6 751 830 584.66 consists of duplicated amounts of K1 610 979 456.82 because it is detailed to reflect amounts specifically to areas of findings.

“We noted that the procurement policy is still in draft form and not yet approved for use. The entity uses mostly the Public Procurement and Disposal of Assets Authority [PPDA] Act and rules, but often deviates from the rules. There is no procurement manual in place as recommended by the internal audit department.”

The report details that, for instance, procurements relating to one of the suppliers, Teligenta, did not pass through the PPDA.

“Due diligence on Teligenta was done in 2022, four years after the first contract was offered to it. We were informed that the CEO has the final say on ‘some major procurement’,” it reads.

The auditors, using the Inventory Movement Report, also said they found data indicating that some stock items procured and received in Egenco warehouse, specifically at Kapichira Hydro Power Station in Chikwawa in 2018, 2019, 2020, were not issued to the end users, meaning that there was no movement of the items.

“Therefore, one wonders the motive of procuring items under single-source method when the need or urgency is not there,” the report further reads.

The report also noted that about K1.19 billion was spent on procuring goods like a printer, laptops and their bags as well as diodes, that no one had authorised their requisition.

There were also some goods and services procured using single source method without seeking “no objection” approval from the director general of PPDA, on things such hydrostatic pumps, air compressor, distribution fuses and spare-parts for Chizumulu Island, which amounted to K176 million, according to the report.

The report also observed that some local companies, namely Novatech Engineering Supplies and L & G Tools and Engineering were getting contracts from Egenco repeatedly,

The auditors said they established that the two firms belonged to local businessperson Abdul Karim Batatawala.

Reads the report: “Both companies got contracts through the single-source method. We also established that there was no initial competition of companies from which Abdul Karim Batatawala’s companies emerged as successful bidders.

“Thus, the process and circumstances under which the single source method was used was itself flawed, and in breach of the Competition and Fair Trading Act, the Public Procurement and Disposal of Assets Act and the Corrupt Practices Act.”

Other grey areas relate to gross financial mismanagement totalling K240.5 million, out of which K16.5 million was given to the former ruling Democratic Progressive Party (DPP), K117 million was the cost of an international training programmes which the company ought to have conducted locally while K106.7 million was conducted for irregular car hires.

The report further said there were lapses in the oversight role played by the Egenco board, especially with regard to the unprocedural recruitment of some staff and the delay in approving the procurement policy, but also the culture of fear, misalignment of activities to policies and conflict of interest which hinder Egenco’s growth and development.

Egenco board chairperson Colleen Zamba, who is also Secretary to the President and Cabinet (SPC), yesterday confirmed the audit report and said some of the issues unearthed “depending on their nature, may require disciplinary action while others may require courts”.

In a written response, she said: “The report is still under discussion by the board. It is the normal process of governance structures for different committees to meet and deal with business.

“After this, we report to the full board and then resolutions are made.”

The audit followed allegations of abuses at Egenco and former Secretary to the Treasury (ST) McDonald Mafuta Mwale last October sent former Egenco chief executive officer William Liabunya and director of corporate services Videlia Mluwira on leave to pave the way for the probe.

In an interview yesterday, Liabunya wondered why the auditors left him out, saying he was not contacted and was not aware of the report.

“Normally the audit was supposed to get my side of the issues, but I never had any contact during and after the audit,” he said.

Minister of Energy Ibrahim Matola refused to comment on the contents of the audit, saying he had not yet seen the report and referred us to the Egenco board.

Egenco was established in 2017 to generate electricity, following the unbundling of the Electricity Supply Corporation of Malawi (Escom) Limited into two separate institutions as part of power sector reforms.

Egenco was to focus on generation while Escom focussed on transmission and distribution.