Cash-strapped LCC ‘sits’ on money
Cash-strapped Lilongwe City Council (LCC) has for the past 12 years, been sitting on a potentially valuable commercial asset—an upmarket hotel plaza project—which it has failed to develop.
Now, a construction firm, East Motors Malawi Corporation Limited, contracted in 2019 to construct the hotel at what used to be the LCC Rest House site in Old Town is contemplating terminating the contract, and claim K120 million from the council for works it has already done on the project which has stalled following the council’s failure to fulfil some contractual obligations.
Under a concession agreement signed in January 2019, East Motors Malawi Corporation Limited, a local authorised representative and taking full charge of the project on behalf of a Chinese investor Xin Ya Business and Trade Ltd company, would renovate and construct a new hotel plaza, operate the facility and pay monthly rentals to LCC, calculated at K8 million.
Under the contract, East Motors Malawi Corporation Limited was expected to start paying rentals from this month following expiry of the 18-month agreed construction period.
But, according to the contractual agreement, LCC was supposed to facilitate removal of Electricity Supply Corporation of Malawi power lines before substantive work on the site would commence.
Documents we have seen show that on several occasions, the contractor wrote the council requesting for assistance to have Escom power lines removed before commencement of the works as well as an extension of the construction period due to delays to remove the Escom poles but to-date nothing has happened.
In a letter dated July 25 2021 addressed to former LCC chief executive officer John Chome, titled ‘Concession Agreement over Councils Rest House’, East Motors Ltd chairperson Zhuo Jishui, who signed the letter, observed that if the issue of power poles is not resolved and construction period is not extended, the board would contemplate terminating the contract.
Reads part of the letter: “Our board felt that it would be necessary for us to terminate the contract and withdraw our investment. We have invested around K120 million already. We will reserve right to claim it.”
Other requests by the contractor include that LCC should assist in obtaining an exemption letter from the Malawi Revenue Authority for the construction costs during the construction period and that due to the impact of the Covid-19 pandemic, construction should be done in four phases, to end in 2025.
According to the plans, the first phase involves construction of two buildings next to the road. These two buildings were expected to be operational by end of 2021. The second phase was erecting a building in the middle of the site, to be operational by June 2023 while the third and fourth phases were expected to be completed by end of 2025.
But LCC has not facilitated the removal of the power lines and other issues as requested by the contractor, and as per the concession agreement.
In an interview this week, LCC spokesperson Tamara Chafunya could not say exactly why the council is failing to meet the contractor’s requests.
Said Chafunya: “As council, we are also consulting some independent legal minds to help us on our next course of action, but we are considering terminating the contract, if there is no progress.”
East Motors Ltd also insists that the monthly rentals can only start 18 months after the power lines have been re-located.
In a letter addressed to Chome dated June 28 2021, Xin Ya and Business Trade Ltd board chairperson requested LCC to reconsider rental payment be according to completed phases.
Reads the letter: “Due to the impact of Covid-19 pandemic, we are not sure how our business will be in the future, so we adopt the strategy of building in phases, and we will rent out after each phase is completed.”
Minister of Local Government Blessings Chinsinga while refusing to comment specifically on the LCC woes, explained that the ministry is driving a transformative agenda to ensure that all councils are financially independent and sustainable.
Said Chinsinga: “Our role is to advise on strategies to make the councils viable and it’s the responsibility of each council to be accountable for its actions and ensuring that there is value for its decisions.”
In its 2021/ 2025 strategic plan LCC indicates that revenue collection faces challenges of weak incentives, maladministration and corruption but spells out an ambitious plan to increase revenue to K47.2 billion in the next years.
Strategies to address the challenges include focusing on large tax payers to collect property arrears of K7 billion of an outstanding K11.7 billion, outsourcing revenue collection and the management of commercial assets as well as restructuring department and incorporate revenue collection into performance contracts for all directors.
