Malawi Government has moved to review a 2015 shareholding agreement in Salima Sugar Company Limited to strike what it calls a win-win scenario that will benefit Malawians.
Minister of Finance and Economic Affairs Sosten Gwengwe confirmed in an interview last week that government has set up a taskforce to review the shareholding agreement.
He said the deal was not properly negotiated and was not in the best interest of Malawians.
Gwengwe said: “The bone of contention is the shareholding agreement. We feel like it does not benefit us as a country and we are trying to see if we can correct that anomaly.
“The moment we have a report on that I should be able to come to the public and provide our position. We want to give this the urgency and the priority it deserves because it’s an agreement we think was not negotiated properly.”
According to the shareholding agreement dated August 27 2015, the Government of Malawi through the Green Belt Initiative (GBI) Holdings Limited holds 40 percent shares while the investors, AUM Sugar and Allied Limited (AUM) of India, has a 60 percent stake.
The agreement states that the total project cost is $95 million (about K80.7 billion at current exchange rate) and Malawi’s contribution included 4 000 hectares valued at $4.6 million (about K3.9 billion) and construction of the factory shell at $36.4 million (about K30.6 billion). In total, Malawi’s contribution was set at $41 million (about K34 billion).
In the deal, equity capital contribution is put at $28.5 million (about K23.8 billion), representing 30 percent of the total project cost. Out of this, government is supposed to pay $11.4 million (K9.6 billion or 40 percent) and $17.1 million (K14.5 billion or 60 percent) to the investor.
But Salima Sugar Company Limited board chairperson Shirieesh Betgiri has backed the agreement, saying it was formulated after thorough consultation.
In a telephone interview, he said the company is still in its infancy and only produces around 17 000 metric tonnes of sugar per year.
Betgiri said: “We had the PPPC [Public Private Partnership Commission], OPC [Office of the President and Cabinet], Treasury, Ministry of Agriculture and Ministry of Justice all involved in the [contract negotiation] process.
“In fact, the agreement was drafted by the Ministry of Justice and a decision was made that we should hold majority shares. There is absolutely nothing wrong with the agreement.”
But Gwengwe questioned the role of GBI Holdings Limited board, which represents government interest in the deal.
He said he has sought a legal opinion from the Attorney General if it could be dissolved and have its powers transferred to the board of Green Belt Authority.
Attorney General Thabo Chakaka Nyirenda confirmed receiving a request for a legal opinion on this matter but refused to share the details of the letter.
The review process followed a report by the Parliamentary Committee on Commissions, Statutory Corporations and State Enterprises on the alleged irregularities at GBI Holdings Limited. Parliament adopted the report on March 17 2022.
The report documented governance gaps at the Salima Sugar Company and recommended to government to dissolve the board of directors of GBI Holdings Limited which oversees the Salima Sugar Company investment.
The committee also raised concerns over the shareholding agreement in the company which makes government a minority shareholder when it injected more resources, including capital than the investor.
Ministry of Finance and Economic Affairs official Chimwemwe Kaunda, who was appointed information officer under the Access to Information Act, disclosed that government paid its equity capital share in full while the investor only 30 percent.
“The investors are indeed expected to inject $17.1 million in the business as equity capital. So far, $5.6 million [about K4.7 billion] has been remitted out of this amount leaving a balance of $11.5 million which the investor is yet to pay,” he said.
Kaunda said the payment for equity capital share was supposed to be honoured by 2017.
But he indicated that government had given the investor up to February this year to pay the balance.
Under contention is also a clause in the agreement that says government will only receive dividends from the investment once it has settled loans the government took for the company to take off.
The company’s financial statement for the year ending December 2018 showed that it registered a profit of about K2.3 billion.
From 2016, the firm has been enjoying a five-year tax holiday as an incentive for this investment.
Further, GBI Holdings Limited was registered in July 2015 as a private company and prohibited from making any invitation to the public to acquire any of its shares.
The Secretary to the President and Cabinet (SPC) holds one percent share and Secretary to Treasury has 99 percent shares.
The company has a staff complement of 102 permanent employees.