EGENCO faces possible liability in the case involving Midima Holdings Limited vs Techfab International Limited

* This is contained in the EGENCO’s Forensic Audit and Investigation of Alleged Irregularities Report

* Which also exposes EGENCO’s reluctance to write off ESCOM debt of K62.2 billion

By Duncan Mlanjira

Apart from the revelations that corruption suspect Abdul Karim Batawala is involved in the massive rot following a forensic audit that government instituted at Electricity Generation Company (EGENCO), other disclosures include a possible EGENCO liability from a court order in the case of Midima Holdings Limited vs Techfab International Limited.

The audit report — released on February 13, 2024 entitled ‘Forensic Audit and Investigation of Alleged Irregularities Report’ that that was carried out by Mwenelupembe, Mhango & Company for the Auditor General as the client — reveals that EGENCO entered into a contract with Techfab International of India on April 22, 2017.

The foreign company was to mandated to ‘build-design, supply, deliver, install and commission 30MW diesel power generation plant and equipment’ for Lilongwe and Blantyre at cost of US$12,549,620 — under contract number was ESC/674/RT/G/FY2016-17. 

“We established from the records that on 11 April, 2018, Midima Holdings Ltd – not a party to the contract — obtained a freezing injunction from the court against EGENCO in the amount of US$905,598.19.

“We noted that EGENCO and Techfab made an addendum to contract Esc/674/RT/G/FY2016.17 regarding the payment of US$905,598.91 to Midima Holdings Limited – not a party to the contract – while a court order was in force. 

“In 2017 the court had ordered EGENCO to withhold the sum of US$905,598.19 from the contract amount of US$12,549,620 with Techfab with a view of using the amount to settle the dispute between Techfab and Midima Holdings. 

“EGENCO proceeded to pay Techfab the contract value save for the 5% retention money (US$625,000) thereby exposing the company to contempt of court proceedings and possible liability.

“We observed in a later court order of 19 December 2023 that the court had ordered EGENCO to pay Midima Holdings the sum of US$625,000 (equivalent to 5% retention money) and that Techfab should pay Midima Holdings the balance of US$208,589.19. 

“We confirmed that EGENCO has since performed its part of the court order,” says the reporting, adding that at the time of the firm’s investigation, “Techfab had not yet paid Midima Holdings as ordered by the court, and that there was a demand letter for interest accumulated between April, 2018 to December, 2023 dated 9th January, 2024”.

“However, the legal & compliance manager of EGENCO assured us that EGENCO’s liability was limited to US$625,000 according to the court order of 19 December 2023 and nothing over and above that. 

“In the event that Midima Holdings appeals against the court order of 19 December 2023, chances that their appeal can prosper are limited since the time of appeal has now lapsed.”

The report also reveals of EGENCO’s reluctance to write off K62.2 billion debt owed by Electricity Supply Corporation of Malawi (ESCOM) — despite a directive by Secretary to Treasury to do so taking into consideration that EGENCO’s previous billing system was based on capacity before it was revised to capacity and actual power supplied.

It became a source of a dispute between the two state owned enterprises and despite the intervention of the Secretary to Treasury, the debt amount “has not been written off as at the time of audit”, according the report.

Kapichira Dam intake wash away due to Cyclone Ana-induced floods

The audit report also reveals reports of negligence and that managers “deny responsibilities when accidents and disasters occur”, specifically, the Kapichira Hydro Power Station, whose intake was washed away due to Cyclone Ana-induced floods in 2022 as well as loss of two boats.

“We observed that EGENCO is using an operations manual inherited from ESCOM. The manual does not state anything about repairs/maintenance procedure, frequency, responsible officers and has never been updated. 

“We noted that at the time Cyclone Ana arrived, only two spillway gates (out of five) were fully functional. Two other gates had damaged ropes and could not open. 

“One gate had just been repaired but the stop logs were not removed and as a result it could not open too — thus, only two gates out of five were functioning.

“EGENCO was ill-prepared for the storm given the condition of the spillway gates and despite the warning sounded by the Meteorological department. We noted that both, the maintenance plan and the emergency preparedness plan — specifically for Kapichira — were prepared in January 2023 after they were demanded by the World Bank.”

The report furthers damns EGENCO that it takes “a reactionary approach instead of being proactive in dealing with issues,” — while revealing that other than the maintenance and emergency preparedness plans at Kapichira, none were seen for the other power stations of Tedzani and Nkula.

Soon after Cyclone Ana destroyed Kapichira Dam, EGENCO tried to shift the blame to Shire Valley Transformation Programme, which was at that time constructing a water intake for the mega irrigation canal it is building at the dam.

But reports, which were tried to be covered up, still pointed at EGENCO’s negligence because the first part of the restoration of the dam included repairing rehabilitating the gate systems.

Cyclone Freddy in 2023 was much stronger that Ana and as soon as EGENCO received an alert of Freddy by the Department of Climate Change & Meteorological Services, they immediately rolled out a training programme for all staff members on emergency preparedness and planning procedures.

Former chief executive officer, William Liabunya officially told the media soon after Freddy had passed that the emergency preparedness helped as they did not experience any damage to the machines by shutting down Nkula and Tedzani at the peak of the torrential rains in order to control the huge debris that accompanied the heavy flow of water.

Kapichira gates were fully functional and had the capacity to take in the heavy flow of the Shire River as was designed to and thus they managed to continue with rebuilding the dam for the restoration of 130MW power it lost.

Meanwhile, Liabunya and director of corporate services Videlia Mluwira were sent on forced leave by former Secretary to the Treasury (ST) McDonald Mafuta Mwale last October to pave the way for the probe — in which he is further implicated of gross procurement financial mismanagement.

This include hiring of vehicles, training and capacity building, overtime, duty allowance and other financial provisions provided to staff and the auditors also observed that “while EGENCO has an accounting manual and procedures in place, they are not being followed as stipulated”.

“For instance, payment vouchers to be found without supporting documents is a sign of non-adherence to the procedures as well as a weakness in internal controls.

“We also noted that some training programs that were attended outside the country could be attended locally, therefore, in our view this was uneconomical and wastage of public resources.

“We further noted that the performance efficiency of the company is declining as revealed by the operating cost coverage ratio (OCCR).”

For Batawala, it involves about a K6.7 billion in two comapnies belonging to Batatawala, which got contracts from EGENCO through single-source method and the report established that there was no initial competition of companies from which the companies emerged as successful bidders.

“The process and circumstances under which the single source method was used was itself flawed, and in breach of the Competition and Fair Trading Act, the Public Procurement and Disposal of Assets Act and the Corrupt Practices Act,” says the report.

From the K6.7 billion query, EGENCO has K447.6 million unissued stock from 2018 purchases; another K224 million from 2018/19 purchases; K479.5 million from 2019 purchases and K679.9 million for 2020 purchases — all totalling about K1.8 billion.

“The total amount above of K6,751,830,584.66 consists of duplicated amounts of K1,610,979,456.82 because it is detailed to reflect amounts specifically to areas of findings.

“We noted that the procurement policy is still in draft form and not yet approved for use. The entity uses mostly the Public Procurement and Disposal of Assets Authority (PPDA) Act and rules, but often deviates from the rules. There is no procurement manual in place as recommended by the internal audit department.”

Using the inventory movement report, the auditors found data indicating that some stock items procured and received in EGENCO warehouse — specifically at Kapichira Station in 2018, 2019, 2020 — were not issued to the end users, meaning that there was no movement of the items.

“Therefore, one wonders the motive of procuring items under single-source method when the need or urgency is not there,” the report further says, adding that auditors noted that about K1.19 billion was spent on procuring goods like a printer, laptops and their bags as well as diodes, that no one had authorised their requisition.

There were also some goods and services procured using single source method without seeking “no objection” approval from the director general of PPDA, on things such hydrostatic pumps, air compressor, distribution fuses and spare-parts for Chizumulu Island, which amounted to K176 million.

Some local companies, such as Novatech Engineering Supplies and L&G Tools and Engineering, were repeatedly getting contracts from EGENCO — which showed there were lapses in the oversight role by the EGENCO Board.

This also include unprocedural recruitment of some staff and delay in approving the procurement policy, “but also the culture of fear, misalignment of activities to policies and conflict of interest which hinder EGENCO’s growth and development”.