Malawi Government through the Ministry of Finance has expressed support for Quay Energy Corp (Australia) Pty Ltd, the financier of the Lake Malawi water project amid concerns that the company expected to help Malawi secure US$313  million (about K300 billion) was only established last year.

Last week, the ministry got an approval from Parliament to borrow $300 million from a company in Australia for the project to tap water from Lake Malawi to Lilongwe.

However, it has been established that the company arranging the financing, Quay Energy Corp (Australia) Pty Ltd, was only formed last year, leading to concerns over the loan Malawi is getting.

“This arrangement smells money laundering. Palibe Loan pa [there is no loan here]. This is a heist in making,” said social commentator Joshua Chisa Mbele.

The Government has, however, released a statement through the Ministry of Finance in which it has vouched for Quay Energy Corp (Australia) Pty Ltd and has claimed that due diligence was conducted on the company.

“Despite being established in 2021, there is no negative feedback on its directors and affiliates. Thorough due diligence was conducted on the Arranger of the financing.

“Additionally, Quay Energy, has indicated that it would be working with reputable international financial institutions in arranging this financing hence the financing shall be syndicated. Thus, Quay Energy is not the financier but the arranger for the loan,” the ministry said in the statement.

The ministry added that the US$313 million loan has repayment period of up to 25 Years, grace period of 6 years, interest rate 1.5% and a one-off payment for structuring fees of 2.5%.

The ministry also argued that Government has not yet negotiated or signed loan agreement with Quay Energy and Minister of Finance Sosten Gwengwe in his capacity as Minister responsible on issuance of Sovereign Guarantee (SG) has not yet issued any SG in favour of Quay Energy.

“Following the approvals for issuance of SG, it is expected that Quay Energy, would submit to the Government of Malawi a detailed Financing Agreement, which shall be negotiated and publicly signed between Quay Energy and the Malawi Government. Quay is yet to submit the said Financing Agreement.

“The steps taken so far by the Government of Malawi are the legal steps, which are required when it comes to issuance of the SG, particularly, section 63 (1) of the Public Finance Management Act of 2003,” the statement says.

The Government of Malawi in 2015 initiated a project to source water from Lake Malawi. Consequently, Lilongwe Water Board (LWB) signed an Engineering, Procurement and Construction (EPC) Contract on 19th December 2016 with Khato Civils Pty Ltd and South Zambezi Joint Venture.

The scope of the Contract is for the extraction of water from Lake Malawi to the city of Lilongwe, surrounding areas and town centres along the M14 Lilongwe – Salima Road. The Project involves abstraction and treatment of 100,000m3/day water from Lake Malawi (Salima) and transportation of treated water through a 120km transmission pipeline. The project objective is to increase water availability for Lilongwe City and strengthen capacity of LWB and surrounding Towns to respond to adverse climatic conditions, hence sustain reliable water supply to its customers.

However, the project has delayed over the years due failure to identify a suitable financier. The contract with Khato Civils required the contractor to identify a financier of the project while the Government of Malawi’s obligation was to issue a sovereign guarantee for the loan.

In 2018, while waiting for project funds, the contractor requested payment from Government for pre-construction activities. LWB obtained a facility from National Bank of Malawi amounting to USD17 million as part payment to the contractor. Considering that there was no confirmed financing for the project, LWB wrote the Ministry of Finance asking that the Project activities be curtailed pending identification of financing. In June 2018, the Government directed that all project activities other than identification of financing should be stopped.

Following the receipt of the letter curtailing Project activities, in August, 2019, Khato Civils triggered the arbitration clause in the Contract and claimed the sum of US$71.5 million representing compensation for contract termination. Through this litigation and considering that the contractor had not defaulted, Government risked paying huge compensation to the contractor but with nothing to show for this huge outlay of Government resources. Due to the lawsuit, Government advised the contractor to continue searching for a financier with terms acceptable to the Government.

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