Attorney General gets tougher on AUM Sugar, rebuffs arbitration insists on termination
Attorney General (AG) Thabo Chakaka-Nyirenda has rejected demands by AUM Sugar and Allied Limited of India for arbitration instead of outright termination of their shareholding deal in Salima Sugar Company Limited.
The AG confirmed yesterday that the two shareholders, through KD Freeman and Associates, wrote the Green Belt Authority (GBA), as a shareholder, asking for arbitration.
On December 19 2023, GBA chief executive officer Eric Dudley Chidzungu announced termination of the deal, saying the agreement had been breached as revealed by results of a recent government instituted forensic audit.
Said Chakaka-Nyirenda: “Yes, there was a response from their lawyers, KD Freeman and Associates. They want arbitration. But there is nothing to arbitrate on.”
A public-private partnership (PPP) venture, Salima Sugar Company Limited (SSCL) has come under strict State scrutiny after an interim audit report revealed that K50 billion in payments cannot be validated.
In an interview yesterday, one of the lawyers from KD Freeman, Shadreck Mhango, insisted that the shareholding agreement requires that arbitration takes place before any termination is done.
He said: “Indeed the shareholder agreement between the parties provided for arbitration, that all disputes should be handled through arbitration.
“The feeling was that the termination was extremely premature because the dispute was not taken for arbitration. The agreement specifically provided for arbitration, but the termination foregoes all those.”
Mhango could not say what will happen next now that the AG has ruled out arbitration.
“We have not been mandated to speak much on the matter, but arbitration is what the agreement calls for,” he said.
Salima Sugar Company Limited executive chairman Wester Kosamu said AUM Sugar and Allied Limited of India were busy fighting the report, instead of responding to the issues raised.
“When we wrote them before the termination, they were busy fighting the report; they said it’s lame, mere speculation, that there was no evidence on alleged issues. This is why now they are asking for an arbitrator.
“The challenge that they have is that they are arrogant. They don’t understand governance issues, it’s like the company was given to be theirs. When we came in and said they should follow the law, they thought we are disturbing them,” he said.
In the termination letter, Chidzungu said the decision, which is in accordance with Section 12(3) of the shareholders agreement, was arrived at a meeting held on December 6 2023 in Lilongwe.
It reads in part: “The shareholding agreement has been breached as per results of the Forensic Audit Report, which has revealed that despite not paying in time your equity contribution you have also been defrauding the company by raising equity using company resources.”
He said the contract clause indicates that the agreement could have been terminated at any time by either joint venture (JV) partner for a good cause, including a default of any payment after the expiry of 180 days of notice to make such payment or a breach of contract terms and conditions.
“If the other JV partner commits a breach or default of any or all terms and conditions of this agreement and such breach is not cured by the defaulting JV partner within 90 days of the non-defaulting JV partner has given written notice of the breach and required remedy,” reads the letter.
The government also indicates that valuation has been done to verify the equity contributions of both parties with that of AUM Sugar and Allied Limited standing at 12 percent.
During a press briefing held on December 6 last year, the AG acknowledged that $35 million (about K40 billion) that was invested in the venture could not be accounted for.
A copy of the preliminary audit report showed that the company has failed to validate utilisation of $42.86 million (about K55 billion) out of the $76.5 million (about K114 billion) borrowed from India and local banks to finance the setting up of the firm.
The loan from India was meant for construction of fuel tanks and irrigation network for the company, a joint-venture investment, in which the Government of Malawi is the minority shareholder.
The 122-page report also reveals that government ended up guaranteeing $25 million (K30 billion) for raising of loan capital which the investor failed to pay their equity share contrary to the shareholding agreement.
Following the constitution of Greenbelt Initiative, the Malawi Government established Salima Sugar Company, but due to lack of requisite technical know-how to operate the sugar processing plant, it sought the JV partner to operate and manage the project in Salima under a public-private partnership
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