An operating environment tainted with chaotic governance, constant interference by both board members and senior managers with vested interests, is what brought the Electricity Supply Corporation of Malawi (Escom) on its knees, painting a bleak future for the entity, Malawi News can reveal.
This placed the company on the verge of collapse through abuse, misappropriation and misprocurement of funds amounting to K64.5 billion perpetuated by board members overarching to management that resulted into the resignation of the company’s former Director of Finance Betty Mahuwa.
The revelation has been made in a financial forensic audit report which we have seen on findings of what transpired at Escom in the period prior and after its K53 billion bailout request to government in 2018.
It is believed that this is what has led to recent arrests of Escom’s former board chairperson Jean Mathanga and former Chief Executive Officer John Kandulu by the Anti- Corruption Bureau (ACB) on allegations related to misprocurement.
The abuse of funds happened in 2015 and 2018 through over pricing and misprocurement of goods at the company.
The report that was compiled by a task force which was instituted to look into the root causes of the financial mess and findings indicates that in 2015/2016 financial year, materials worth K5.25 billion were procured without following proper procedures.
Comptroller of Statutory Corporations Stuart Ligomeka, who chaired the taskforce, declined to comment on the document, saying the one they [taskforce] compiled was not meant to be shared to the public and.
“That is not a signed report, a signed report was submitted to the board. We were not supposed to keep a copy as we were only requested by the board to carry out that task,” Ligomeka said.
ACB Director General Reyneck Matemba said the bureau has not seen the report in question, but was quick to say the bureau is noting all complaints and allegations from different sources.
“No, we haven’t received the report. And I don’t think we will receive the report because looking at the report, it wasn’t meant for us,” he said.
The report discloses that Kandulu failed to act on a November, 2016 Internal Audit Report whose findings indicated that materials worth K5.25 billion which stood at K1.3 billion in July, 2016 were misprocured as they did not go through the Internal Procurement Committee (IPC) and Office of the Director of Public Procurement (ODPP) approval process.
“The Task Team learnt that suppliers on the procurement in question were informed either through telephone calls or emails by Mr. Fanuel Nkhono and Mr. Emilius Kandapo Director of Procurement and Procurement Manager, respectively.
The Task Team learnt that there were no contracts or LPOs for such materials and in some cases the contracts were being drawn after the materials were already delivered and used. In isolated case where the LPOs were raised, the LPO values were above those approved by ODPP,” it reads.
The report further reveals that Escom lost US$505,000 due to overpricing by suppliers which at today’s rate is K308 million kwacha.
The utility company overpriced 63A circuit breakers by 103% whose procurement process did not go through the IPC and had no approval of ODPP.
The supplier was single sourced at USD995, 000 at today’s rate equivalent of K733million.
In 2016/2017, K8.3 billion of goods were misprocured while in 2018/2019, K4.3 billion of goods were also misprocured.
“This loss was on procurement of 100,000 63A Main Circuit Breakers (MCBs) which were procured at US$9.95 each against the normal price of not more than US$4.90 each, representing an increase of 103%.
“This was revealed in the July 2016 Internal Audit Report which further shows a change in the procurement method from restricted tendering to single sourcing without IPC and ODPP approvals. Escom later sought ODPP ratification of the decision after the MCB’s had already been delivered and used. It is on record that Multistar International was single sourced at US$995,000,” reads the report in part.
The report noted that there was conflict of interest where some board members were supplying materials to the corporation.
“The Task Team established that Escom employees, including members of Executive Management, procured for Escom. For example, the former Director of Finance, Mr. Elias Banda, is reported to have had companies that were supplying to Escom, namely: Noordyck, Sopa, Rousant and ICT Networks.
Furthermore, most of the employees used companies of their relations or friends to supply to Escom directly or indirectly so that they are not detected in the process,” reads the report.
The report made by the Taskforce noted that governance issues at Malawi’s electricity statutory body, in particular leadership at Board level, was one of the numerous factors which led to the downfall of Escom.
The Taskforce further made findings on poor record management and security of stores which the Taskforce observed that a large quantity of Escom materials inexplicably found their way into local markets.
When asked to comment on the matter, Executive Director of Centre for Social Accountability and Transparency Willy Kambwandira said the report clearly shows that Escom was ransacked through bad governance and decisions.
“The report clearly shows that there was no one in charge at Escom, CEOs and Board members plotted and authorized looting at the power utility body. It is sad that people who were entrusted to manage the affairs of Escom facilitated creation of fertile grounds for corruption and abuse of resources, and benefitted from the looting,” Kambwandira said.
Kambwandira has asked government to take urgent efforts to restore integrity at Escom and that responsible officers should be held accountable.
“Unless we have stiff consequences, abuse of public resources and office in parastatals remain a serious challenge in the country.
The new administration should swiftly act on the recommendations of the forensic audit report to restore integrity of the power utility body. Escom is a high risk parastatal,” Kambwandira said.