Govt stopped from borrowing K105 billion for Salima-Lilongwe Water Project


Khato Civils equipment

Forum for National Development (FND) has been granted an injunction stopping Malawi Government from borrowing K105 billion from NBS Bank and National Bank of Malawi for the Salima-Lilongwe Water Project which was awarded to Khato Civils.

Judge Ken Manda of the High Court granted the injunction to FND, a local non-governmental organization, on Thursday.

Plans to construct a pipeline to pump water from Lake Malawi in Salima to Lilongwe started in 2016 during the Democratic Progressive Party (DPP) administration and it was agreed that Khato Civils would find a financier with the government providing a sovereign guarantee for the loan.

An Australian company called Quay Energy was identified to provide US$330 million (about K340 billion) but negotiations which started in 2021 appeared to have produced no positive resolution.

The Malawi Congress Party (MCP) administration on 5th April 2023, tabled before Parliament a bill referred to as NBS Bank Plc and National Bank of Malawi Plc (Lake Malawi Water Supply Project) Loan (Authorization) Bill, 2023.

The Bill was accordingly passed on 6th April 2023 effectively authorising the Government to borrow from NBS Bank Plc, National Bank of Malawi Plc a sum of one hundred and five billion Kwacha.

FND has obtained an injunction challenging this arrangement saying if Government has resolved to borrow money to finance the project then it should allow other companies to also bid for the project.

“The act of government to authorize borrowing of money from these local banks to assist the Third Defendant (Khato Civils) in financing the project is a variation of terms of the initial contract between the government and Third Defendant.

“Due to the variation of the initial contract, the contract which government is supporting the Third Defendant secure finances for the project is a completely new contract as the variations of terms essentially terminated the initial contract.

“The contract with new terms where government is assisting the Third Defendant to secure loans for financing the project is a void contract.

“Because the contract is void, there was supposed to be a new public bidding for the contract where local contractors would have participated,” FND executive director Fryson Chodzi said in sworn statement supporting the application for injunction.

According to FND, by borrowing money on behalf of Khato, government is giving the contractor preferential treatment that discriminates against other potential contractors that could have bid for the project had they known that financing therefore would be raised by government.

Social commentator Onjezani Kenani has since commended FND for taking the matter to court. Kenani has argued that government should not be burdening the taxpayer with loans for a project that lacks transparency.

“At the onset of the project, we were all told Khato was to raise funds outside Malawi for the project. It is clear now that no foreign financier accepts the risk of financing this project, so Malawian taxpayers are being saddled with the enormous loan, at a time we cannot afford to take on half a trillion-kwacha loan to finance one project whose costing has never been transparent. On this one, Mr. Chodzi has taken a good fight,” said Kenani in a Facebook post.

However, activist Undule Mwakasungula has described the injunction as a setback and worrisome saying the project is important as it will ensure reliable water supply for Lilongwe City.

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