THE $52MILLION SCANDAL

Former Minister of Finance and now Minister of Technology and Science, Felix Mutati has been fingered as being at the center of the $52million paid as penalties for a contract that was never executed to supply 98 storage warehouses in 79 rural sites under the Food Reserve Agency(FRA).

During the swearing-in ceremony of the Drug Enforcement Commission ( DEC) Director General, Mary Chirwa, President Hakainde Hichilema expressed disgust at how $52million (K884 million) was looted from the Treasury using contractual, legal schemes and off-shore accounts.

Documents obtained show that Felix Mutati, as Minister of Finance and Dora Siliya as Minister of Agriculturer, revived the said contract abandoned in 2015.

In October 2017, Government announced that it had selected Savenda Management Services as lead contractor for the Advanced African Solutions’ project (ADAS) to build ninety eight (98) warehouses for the Food Reserve Agency (FRA) in seventy nine (79) rural sites in the country.

BACKGROUND

In 2012, the Food Reserve Agency(FRA) signed two contracts with Advanced African Solutions Africa ( ADAS) to design, rehabilitate and build grain storage facilities.

ADAS is an alleged American company but registered and incorporated in the off-shore Republic of Mauritius.

The initial contract sum was $70million and was signed on 18th July 2013.

The funding for the project was to be financed by external sources identified as the Deutsche Bank of Newyork with guarantees from the Ministry of Finance.

Following extensive negotiations, a draft agreement was made and the contract sum was revised upwards to $73million.

By 2015, the financing arrangement however failed as government was reluctant to issue a sovereign guarantee to the Newyork Bank and the contracted works were never done.

Consequently this contract did not become effective as external financing on which the contract was based, was abandoned in 2015.

ENTER FELIX MUTATI, DORA SILIYA

In October 2017, on their part, Savenda submitted a letter written by ADAS Chief Executive Officer, Craig Bailey, to the Group Chairperson, Clever Mpoha, to Ministry of Finance that the Zambian company was selected to perform the erection of ninety eight (98) warehouses across seventy nine (79) rural FRA sites.

SAVENDA Group hosted a public event for the signed partnership agreement with Advanced Africa Solutions (ADAS) Limited for the construction of 98 warehouses across 79 rural sites for the Food Reserve Agency (FRA).

In December 2017, Hon. Felix Mutati as Minister of Finance wrote to Hon. Dora Siliya, as Minister of Agriculture and copied FRA informing the Ministry that Goverment would use internally generated funds to undertake the works.

Following the instructions by Mutati, FRA resubmitted the ADAS contract for fresh approval to the Zambia Public Procurement Process (ZPPA) as the one signed in 2013 had lapsed.

On 5th April, 2018 the Ministry of Finance granted treasury authority for the Food Reserve Agency to engage ADAS to finalize the commercial contract on the basis that funding would be provided through national budgetary allocation.

On 12th April 2018, FRA and ADAS signed the Agreement at a contract price of $73million.

The Office of the Attorney General approved the contract as the only amendment to the earlier 2013 contract was;

a) the source of funding from external sources, to internally mobilized resources by government.

b) A second variation included showed that the contract price had risen from $70million to $73million.

TERMS OF THE CONTRACT

In the terms of the contract, FRA was required to source funding from Government for the contract and would pay as follows;

i). A payment of 25%( $18.2million) of the contract price to be paid on signature and at launch of the project.

ii). US$3.1 million was to be paid in the month following payment of the advance payment.

iii). The balance to be paid in monthly installments on the last business day of each month.

iv). In the alternative, the Government could procure alternative external financing through a third party, which maybe in the form of a long-term loan.

And a substantial punitive clause was introduced in the contract that stated that failure to comply with the laid-out payment terms, Government would be liable to pay prescribed penalties and interests.

Following failure to pay, the Minister of Finance, Mutati, in a letter dated 6th February 2018, ref MF/IDM/101/35/82, wrote to the Minister of Agriculture, Dora Siliya, stating that;

“I wish to confirm that the five (5) Silos will be financed using a $50million credit-line from the Polish Government. Regarding the upgrading of slabs I to sheds, the Ministry has no objection to your embankment of tender process to engage a contractor. Funds will made available in the 2018 Budget.”

The credit line failed through.

PENALTIES OF $52MILLION ACCUMULATES, SETTLED, BUT NO WORKS DONE

On 31st December, 2020, Secretary to Treasury informed FRA, that following a meeting between ADAS and Government, the accumulation of penalties would be capped and would not exceed $52million.

FRA wrote to Mr. Costain Simamba, a close associate of Mr. Mpoha and identified as Regional Managing Director for the Mauritius incorporated firm, that all future penalties would not exceed $52million.

Lawyers Mulenga Mundashi SC acting on behalf of ADAS, signed the new arbitration agreement with FRA seeking approval from the Ministry of Finance and the Attorney General.

Government subsequently paid the $52million accumulated penalties and interests to ADAS.

However the supply and installation of storage sheds and the rehabilitation of other storage sheds has NEVER been done.

FRA remains with a critical storage capacity deficit of 1,100,000 metric tonnes.

AUDITOR GENERAL’S REPORT

The Auditor General’s Report of Financial Year 31st December, 2020 has cited this contract as fraud and wasteful expenditure.

  • Contract between Food Reserve Agency and Advanced African
    Solutions (ADAS)

On 18th May 2018, the Food Reserve Agency (FRA) and Advanced African Solutions
(ADAS), a company incorporated in the Republic of Mauritius, entered into a contract for the designing, building and rehabilitation of ninety eight (98) grain storage sheds at a contract
price ofUS$73,000,000.

Terms and conditions of the contract included upfront payment of 25% (US$18,250,000) of
the Contract price payable as follows:

▪ US$7,000,000 payable on or before 30thJune 2018 on providing of a payment security

▪ The balance of the upfront payment (US$11,250,000) and the further payment of
US$3,165,642 pursuant to variation Order No 1, were to be paid from a supplementary
budget that was to be procured by the Ministry of Agriculture during the 2018 fiscal year.

Clause 22.4 of the contract stipulates that if the contracting authority fails to comply with clause 20 (Payments) causing a late or partial payment to the contractor which persists for a continuous period of not less than four (4) weeks, the contracting authority shall be liable to pay a penalty until such time that full payment is made, which penalty shall not be capped.

Further, the contract required interest to be payable on the advance payment of
US$18,250,000 and the variation order No.1 amounting to US$3,165,642.

However, the Government failed to pay the advance payment by 30th June 2018 as required
by the contract. As a result, between 1st August 2018 and 30th June 2020, the Ministry of Finance through FRA incurred a total of US$115,498,000 in penalties.

On 30th December 2020, the parties settled for a negotiated penalty sum of US$52,000,000
(K1,123,200,000). The negotiated penalties plus advance payments and variations translated
into US$73,415,624 (K1,537,694,738) as at 15th February 2021.

As at 28th May 2021, the contractor had been paid amounts totalling US$41,424,365
(K856,500,000) leaving a balance of US$41,423,365 (K681,194,739).

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