Joyce Banda’s hotel move on the rocks

President Joyce Banda’s move early this year to cancel a hotel management deal with Peermont in favour of Legacy is turning sour as contractual disagreements during negotiations threaten the multibillion kwacha investment.

As a result, Umodzi Park in Lilongwe—comprising the Bingu wa Mutharika Conference Centre, the President Hotel and Presidential Villa—remains without an official operator more than six months after Legacy was offered the deal in May.

Tourism Minister Moses Kunkuyu confirmed in an interview on Wednesday that Legacy will not start managing Umodzi Park this month as envisaged because the two parties are still haggling over technical matters surrounding the contract. But as the procrastination continues, the hotel complex is piling up bills for the taxpayer in form of utility costs, insurance and interest charges on bank loans, among others, that were estimated to have topped K1 billion late last year.

The minister, however, said the deal will be in place soon although he conceded that “emerging bottlenecks” are derailing the negotiation process.

“There is no deal yet between government—Umodzi Holdings Limited [UHL] on one hand and Legacy Holdings on the other. There are several issues that are emerging that need to be addressed before signing the contract,” he said.

Kunkuyu said government is negotiating extensively for a better deal for the taxpayer, saying, “If government wanted, we could have signed the deal tomorrow, but we are fighting for a win-win kind of deal.”

Weekend Nation broke the story on February 9 2013 about President Banda’s cancellation of Peermont negotiations and shelved a draft contract. She also directed that a special restricted tender that included Legacy, which had earlier not submitted a bid despite being invited, be processed.

But Weekend Nation established earlier this year that even in the special procurement process that President Banda ordered to accommodate Legacy, the company failed to sway the technical evaluators.

Rather, it was Denmark-based Carlson Rezidor, which beat Legacy in the February 2013 restricted tender and which Peermont refused to participate in, that carried the day.

By October 2012, the President’s intervention—which reversed a duly followed procurement process supervised by the Office of the Director of Public Procurement (ODPP)—had cost government over K1 billion in expenses incurred by delays to seal a deal and allow the venture built with a Chinese loan to start operating fully to meet its obligations.

According to documents, the procrastination on the deal had brought the following burden on taxpayers’ shoulders:

Refund National Bank of Malawi K700 million (US$1 707 317) plus interest for items sourced from South Africa by Sunbird Tourism Limited because the operations of the hotel were too delayed to warrant any repayment soon. Sunbird was given a short-term deal to run the hotel awaiting a permanent operator. The arrangement expired.

Provide an additional K270 million for water, electricity, security and insurance for a year before the next operator comes on board.

Settle all outstanding bills of K92 million, including payment for insurance, utilities and security.

Cough additional funds for another procurement process.

Pay another contractor should any defects of the hotel come outside the agreed defect period.

In the Wednesday interview, Kunkuyu accepted that as a result of the delays to seal the deal, Umodzi Park is piling up bills from electricity, water and security services on top of the insurance premium payment for the Presidential Hotel and the villas.

In insisting on the President’s choice of a firm to manage the facility, government also ignored advice from the Attorney General (AG) against cancelling the Peermont deal.

The AG argued that the move would be costly to the taxpayer should the dumped first suitor sue for breach of contract.

The move is also against advice of the board of UHL, which had warned the Ministry of Tourism against the lease deal with Legacy, saying the arrangement makes supervision difficult and would generate less revenue for government.

Despite these warnings, the ministry wrote Legacy chairperson Bart Dorrestein on May 13 2013, informing him of their choice and inviting the hotelier for negotiations.

Sources from the Ministry of Tourism and UHL—the complex’s parent company owned by government—confided in Nation on Sunday this week that the major sticking points are on revenue sharing and the lease arrangement that is seen to favour Legacy.

Earlier, on April 10 2013, UHL chairperson Francis Mbilizi wrote Secretary for Tourism, Wildlife and Culture Fletcher Zenengeya, reminding him of the board’s position with regard to the issue of the management of Umodzi Park facilities.

Apparently, at its extraordinary meeting held on March 11 2013, the board had considered a comparative analysis of two options—lease and management approach—and determined that government should not opt for a hotel lease.

The board explained that the hotel lease option offers the owner less revenue than the management agreement, adding that in a lease arrangement, the owner has little influence over what happens to the business and the property during the long lease period.

In response, Zenengeya advised the board to support the lease agreement with Legacy because the “authorities” are getting impatient, according to e-mail exchanges we saw at the time.

On Thursday, Mbilizi declined to comment on the issue.