Simbi’s Khato warns Malawi over ‘financial consequences’ if it cancels Lilongwe-Salima water project

Contractor of the K400 billion Lilongwe-Salima Water Supply Project, Khato Civils,  has said  it is ready to start with construction activities anytime once Malawi  government concludes the loan agreement with the financiers and warned that there are financial consequences if the contract is terminated.

The Salima-Lilongwe Water Supply Project seeks to pump water from Lake Malawi to Lilongwe and surrounding districts to ease water supply challenges, according to Lilongwe Water Board.

In a statement Khato Civils CEO Mongezi Mnyani dismissed reports in The Nation newspaper and Nyasa Times online publication that the contractor is yet to find a new financier for the project, months after government rejected terms of the previous one.

“Our contract stipulates clearly that we must source funding for the project but does not place any restrictions what so ever in terms of where and how the loan has to be obtained. In this regard, most of the funders approached are from the open market and provide such loans with interest varying from 4-6 percent,” the statement reads in part.

Khato, which is owned by South African based Malawian business tycoon Simbi Phiri, states in the statement that Malawi government wanted to pay an interest of less than 2% per annum over a period of 20 years to the financier and part of the loan to be debt free (concessionary loan).“There is no clause in our agreement where we are required to only source funding that will have a loan portion classified as concessionary. It is important to note that such types of loans can only be provided to government via financial institutions such as the World Bank and IMF and only government can enter into such negotiations.

“Our legal obligation is to source the loan from the open market and all what is required now is for government to agree on repayment terms,” the contractor said in the statement.

Khato states that its meeting with representatives of Malawi Government and prospective funders took place from April  29 to  May 2  2019 and in principle agreements were finalised pending a meeting with former Minister of Finance,  Goodall Gondwe.

“Unfortunately due to national elections that took place on May 21, 2019, we had to wait for the new administration to be in place in order to bring financiers to finalize details of the loan. At this juncture there is no impediment on our side and government and financiers must meet and discuss the loan agreements,” the statement said.

The contractor said up to US$71.2 million of Khato Civils money has  been spent so far on the required processes precedent to commencing the project this far.

“Since our appointment we have worked tirelessly to ensure that we meet all conditions precedent to the Contract and indeed all these have been met without exception.”

The contractor says it has completed all the designs of the pipeline meter by meter from Salima to Kanengo and the construction drawings and plans have been accepted and approved by Lilongwe Water Board.

“Khato Civils is ready to start with construction activities anytime once government concludes the loan agreement with the financiers,” it stated.

Simbi’s company says its contract with Lilongwe Water Board is still valid and warned that if Malawi government wishes to cancel then Khato Civils will be entitled to “full payment of all expenses incurred to date.”

The contractor highlighted that government of Malawi through Lilongwe Water Board has both legal and financial obligations to fulfil towards the contract “and if they so wish not to continue with the project we will without a doubt exercise our legal rights if that arises.”

It stated that any signatory to the contract who decides to terminate must understand that there are financial consequences for all involved.

The contractor claims it has introduced potential financiers and lenders regarding the funding of the project but the Malawi Government could not agree on terms of the loan repayment.

Khato Civils is on record as having claimed that some individuals were throwing spanners into the works of the project and pointed in the statement that the stories which appeared in The Nation newspaper and on Nyasa Times could be one of many attempts from its “detractors to win public opinion so that the project does not see the light of day.”

However, Khato says it remain committed to work on the project and bring necessary water to people of Lilongwe and surrounding areas.

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