Debt-laden Malawi Government is set to blow over K20 billion of taxpayers’ funds to clear accrued interests on delayed payment of arrears for road contractors and Fisp transporters, Weekend Nation can reveal.
Two reports we have seen indicate that government has accumulated K14.63 billion (US$32.51 million) in interest on K25.99 billion (US$57.76) arrears for road contractors and K5 billion (US$11 million) interest on K15 billion (US$33.3 million) arrears for transporters in the 2014/2015 Farm Input Subsidy Programme (Fisp).
But with government’s total arrears to suppliers hovering at K155 billion (US$344 million), as at June 30 2014, the interest is likely more.
A 2014 European Union (EU) report on the assessment of public arrears and liabilities generated from contracts in the Malawi road sector puts government’s potential liability for arrears, as at June 2014, at K29.99 billion plus K11.53 billion in respect of interest on delayed payment.
“If nothing is done to service the arrears, a further K14.63 billion in potential interest will be accumulated in 2014/15,” warns the report published in September last year.
The report, which notes that 87 percent of the arrears in the road sector were owed to only three companies — Mota-Engil, K16.54 billion; MA Kharafi and Sons, K2.73 billion; and Fargo Limited, K1.69 billion — faults the Ministry of Finance for approving funds for contracts “without guaranteeing that the funds will actually be made available as expected”.
While also blaming inadequate mid-term reviews of budget performance and incomplete reporting of contracts for the accumulated arrears, the report mainly faults over-commitment on the part of government to fund road projects.
“The major cause of arrears was committing to expenditure beyond that provided for by the budget… K31.91 billion worth of invoices were payable in 2013/14; of this sum invoices totalling K23.41 billion were issued [as] compared to a budget of K10.08 billion,” it reads.
Meanwhile, government has also accumulated K5.5 billion in interests for failing to honour K15 billion payments for transporters who provided services in the 2014/2015 Fisp.
A report on the implementation of Fisp, published on May 25, 2015, says government has not settled any debt to its suppliers on transport, fertiliser, maize and legume vouchers, in addition to owing Admarc/SFFRFM about K1 billion for fertiliser supplied and interest due on late payments.
“At the date of publishing this report government indebtedness to various suppliers for the 2014/15 subsidy programme amounts to approximately K15.86 billion exclusive of the running cost of interest accruing on the unpaid amounts,” reads the report in part.
Ministry of Finance spokesperson Nations Msowoya last week said government had issued promissory notes to the road contractors, while it awaits communication from the Ministry of Agriculture on the Fisp arrears before payment can be processed.
Msowoya’s position on Fisp arrears, however, contradicts Minister of Agriculture, Irrigation and Water Development Allan Chiyembekeza who said in an interview this week that all the Fisp debts will be settled by 30th June this year.
Said Chiyembekeza: “Government has already allocated for the payments which have been delayed along the government chain. We will pay them, but as for the interest’s rates, you will need to ask the Minister of Finance as my ministry is not responsible for that.”
But Msowoya said the Fisp arrears need to be independently verified and audited by the Auditor General before his ministry can issue payment.
Said Msowoya: “Arrears that government owes various contractors and suppliers including those from Roads Authority were all audited by the National Audit Office. Government is settling them through issuance of promissory notes which will mature over a period of three years.
“Treasury is waiting for confirmation from Agriculture before it can make any plans for repayments on the arrears, if any.”
Commenting on the EU’s observations on government overcommitments, Msowoya said they had taken note of the concerns and would implement the recommendations it can afford.
“The government, therefore, welcomes the report by the European Union. Government will analyse the report to see which recommendations are implementable. As for the specific amount of arrears government will engage the Auditor General,” he said.
According to Cecile Leemans, EU’s acting head of social sectors and infrastructure, the assessment on arrears in the road sector aimed at providing a clear picture of the impact of delayed payments on the road construction sector.
“The report was used by the road agencies to advocate towards the Ministry of Transport and Public Works, the Ministry of Finance and Parliament on issues paralysing the sector,” Leemans said.
“By raising the issue at the highest level, the Roads Authority (RA) was able to renegotiate or terminate contracts that were not adequately funded, that were raising numerous claims and those that went beyond the allocated budget.”
She further said the EU provided technical assistance to RA on claims assessment and revision of contract documents among other skills.
Minister of Transport and Public Works Francis Kasaila said in an interview this week that the ministry has held meetings with the contractors where it promised to pay them the outstanding arrears.
“The Ministry of Finance is finalising payments through promissory notes,” he said.
The delays in settling arrears have displeased Malawi Congress Party shadow minister of finance Joseph Njovuyalema who faulted government for lacking robust mechanisms for strengthening accountability and prudence in handling public resources.
“This puts doubt on the seriousness of our governance structures considering the weak policy on how arrears should be handled,” he said.
Chairperson for the Budget and Finance Committee of Parliament Rhino Chiphiko called on donors and the civil society to strengthen their oversight role in the roads sector.
Some of the major road projects with outstanding arrears include Ngabu-Bangula Road, Chiringa-Miseu Folo-Chiradzulu, Lilongwe-Nsipe Road—all implemented by Mota-Engil; Zomba-Jali Road with Kharafi and Sons as main contractors; Mzimba-Mzarangwe Road and Ekwendeni-Ezondweni Road, both implemented by Fargo Limited.