Govt over paid FILP suppliers by K61 billion
Government paid out a whooping K72 billion to four firms that were identified to supply fertiliser in the K11.1 billion Farm input Loan Programme (FILP) which was instituted by the Government of People’s Party (PP) of former President Joyce Banda.
One of the senior managers in the four firms that include Export Trading Company, Sealand Investments Limited, Midima Produce Limited and Bosveld Phosphates confirmed of the payment.
“The treasury had indicated that they will pay us K72billion with an accumulation of profit but through promissory notes,” said the manager who was equally in bewilderment that they were getting so much.
Managing Director Sealand Investments Limited Dipak Jevant also confirmed of the agreement Government has struck with the two firms.
“They [Government] are going to pay us through promissory notes but up to now we have not received it,” said Jevant in an interview when the payment agreements were being made.
Operations Manager for Export Trading Company Paresh Kiri could not come out clearly on their agreement with Government in an interview on Wednesday.
A highly placed source in the treasury has said officials and some company officials cannot justify the additional ‘payment’.
At the time of the transactions, spokesperson for the Reserve Bank of Malawi Mbane Ngwira was noncommittal when asked if the central bank had issued the promissory notes.
He said he could not shed light on the matter as this was amongst many items on his desk.
“I have to follow the queue,” insisted Ngwira when he was pressed for the central bank’s comment.
Ben Botolo, who replaced Ronald Mangani as Secretary to the treasury in February this year conceded that the transaction was a total confusion but dismissed information that Government overpaid the suppliers.
“It was a total mess,” said Botolo through a roaming phone interview from India.
He explained that after taking over office from Mangani who struck the deals, it took him two months just to understand what was going on.
He said the complication came in because there were companies which were underwritten by African Trade Insurance (ATI) and one of them was ETG, said Botolo who explained further that there were other companies that were underwritten by another insurance firm Lloyd’s in London.
In his recollections, they had to pay US$6m to ATI and the there were other amounts they owed to the Lloyds.
“We have been battling with these payments but we eventually had to find a formula to pay because then our credit ratings would have gone down and it would have affected our international market standing,” he said.
At the time that the transactions had been made the treasury could not explicitly state when Government was going to issue the promissory notes. The then treasury spokesperson Nations Msowoya could also not state whether or not treasury consulted the Attorney General on the payment arrangement that has included the interest.
“The matter of FILP is still under discussion with suppliers therefore the issue of interest rates is not concluded yet,” said Msowoya in a written response at the time.
In an interview with Attorney General Kalekeni Kaphale he said since he had not been consulted, he was not willing to make any comments at all on the correctness of facts.
“I know no law which says every time treasury has to settle a liability the AG has to be consulted?” stated the learned Senior Counsel. “On another note, I have not been consulted and would only be consulted if there are legal issues to advice on.”
He said in the event that the firms had sued Government then”that would have brought it within my province,” as per the provisions of the Civil Procedure (suits by or against the Government or Public Officer).
The four suppliers provided 75,000 Metric Tonnes that government secured and according communication from the then OPC Principal Secretary for Administration Clement Chinthu-Phiri to the then Secretary to the treasury Ronald Mangani on supply and delivery of the 2013-2014 Filp which is indicate that the companies were yet to be paid.
The communication indicates that on November 6, 2014 the treasury called for a meeting that was attended by the Attorney General Kalekeni Kaphale, Chinthu-Phiri, the then secretary to the Vice President Luckie Sikwese, budget director where Mangani asked Sikwese and Chinthu Phiri to confirm if the fertilisers were procedurally procured.
“The two principal secretaries confirmed that the transaction followed procurement guidelines,” said Chinthu-Phiri.
The process started when former President Banda said in her May 17, 2013 State of the Nation address that Government had introduced a special loan scheme called Filp to run side by side with the Farm Input Subsidy Programme (FISP).
“The facility was a public private partnership programme where the private sector would offer loan facilities for inputs to deserving and qualifying farmers,” explains Chinthu-Phiri.
Five months later, on October 1, 2013 the Centre for Investigative Journalism Malawi (CIJM) understands that the then minister of agriculture and food security presented to cabinet a brief on status of Filp where it directed the minister to implement the Filp activity plan.
Between August 2013 and September 2013 Chinthu-Phiri communicates in the letter that ‘procurement processes began following Government determination to use the restricted tender method of procurement’.
He says seven companies were identified to provide bids and these included Export Trading Company, Sealand Investments Limited, Compestre, Lyambai DMCC, Afri Ventures FZE, Midima Produce Limited and Bosveld Phosphates. Out of the seven only four were picked.
“The principal secretary of the public sector reforms management unit of OPC, at that time now Secretary to the Vice President, was tasked to set up a team which had to negotiate with the identified companies, the terms of contracts,” writes Chinthu-Phiri.
Among the terms, the companies were to use their resources to import the fertiliser and that payment would be made in the 2014/2015 financial year in four instalments in the months of July, August, September and October in 2014.
The International Procurement Committee of the OPC chaired by Chinthu-Phiri was assigned to process the procurement as required by law after negotiations with various possible suppliers were done one volumes of fertiliser requires and terms of supply.
Although the treasury wrote Sikwese that Government had agreed that payments to fertilizer suppliers would be completed by end of October 2014 the situation on the ground is contrary to what was stipulated in the contract agreement.
Chinthu-Phiri also explains that government’s finance company, Malawi Enterprise Development Fund (Medf) – formerly Mardef – was engaged to ensure that the suppliers deliver the fertilisers and that suitable warehousing facilities and transport were available.
“Mardef was further tasked to create a loan facility for farmers to access the fertilizers,” he says.
Chinthu-Phiri also concedes in his communication reference number 16/07/4 dated November 7, 2014 that Government had at this time not paid any supplier for the fertilisers that were supplied and delivered.
“Almost all of them had to get bank loans to finance the import of the fertilizers, which are now accumulating interests,” he said.
Another communication that CIJM has seen from the Office of the Director of Public Procurement (ODPP), signed by its Director of Public Procurement Manuel Mphinga, gives approval to Mardef to use single sourcing for procurement of fertiliser distribution services to four companies.
The letter dated October 23, 2013 further advised Mardef to negotiate with the firms on all contract terms and conditions including price.
The then treasury Spokesperson Nations Msowoya said in an earlier interview that Government had made part payment to the suppliers and government will be finalising these payments in the 2015/2016 financial year.
According to a presentation former Mardef CEO Joseph Mononga made at a media workshop in Blantyre on October 31, 2014 the firms were supposed to submit monthly invoices for payment.
Mardef was supposed to claim operational funding from Government which was to be used to pay distributors but at that time government was not availing any funds.
As of October 2014 when the distributors were paid, they nevertheless still continued charging for warehousing.
“Delays in payment of distributors resulted in escalation of the distribution costs due to continued charges on warehousing which resulted in a total bill of K2.3 billion,” according to the presentation that CIJM has seen.
Since the program was not included in the 2013/2014 budget, Mardef says this made it difficult to have funding for major activities including payment of distributors.
Newly hired MEDF CEO Mervis Mangukenje insisted that the contract for supply of fertilizer was between Government of Malawi and the four fertilizer suppliers and not MARDEF and the fertilizer suppliers when called to explain the payment.
“OPC and Treasury is in a better position to give you updates on the matter,” she insisted before adding in a response to a questionnaire:
“However be advised that Government instituted a special audit through the National Audit Office on MEDF Ltd to verify if the 75,000Mt fertilizer was indeed delivered.”
She also stressed the fact that MEDF’s only involvement was to manage the distribution to the beneficiaries since it was a fertilizer loan.
Mangulenje also said all fertilizer distributors were paid in full using loan recovery funds as directed by the Treasury.
“MEDF paid a total of K2.4 billion to the fertilizer distributors and the said amount was audited by external auditors KPMG,” she said maintaining that they do not have any information regarding the Promissory Notes as the Contracts were between Government of Malawi and the Suppliers. – Gregory Gondwe
This article was produced by the Centre for Investigative Journalism Malawi – www.investigative-malawi.com