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The law requires every public entity to seek PPDA approval before signing or amending a contract. Yet NOCMA found a way to play around the rules—granting a contract worth $19,137,182 (approximately 32 billion Kwacha) to a fuel supplier without a tender process or PPDA’s approval. It also amended a contract with another supplier seven days after PPDA approved it. This, say insiders, is how state enterprises are plundered to pay kickbacks, with the government and motorists paying more for the fuel.
GOLDEN MATONGA AND JULIUS MBEŴE
State-owned National Oil Company of Malawi (NOCMA) increased contract sums and extended the period of contracts just days after the contracts were signed and approved by the Public Procurement and Disposal Authority (PPDA), prompting fears the additional amount was for paying kickbacks to officials.
One contract, initially approved by PPDA, worth $9,568,591 was extended a year later to $19,137,182 without opening a fresh tender or seeking PPDA’s approval despite the volumes of supplies and contract sum in the new one being more than twice the original.
Another contract was changed just seven days after being approved by PPDA.
By law, the PPDA approves all public contract terms before the contract is signed to ensure government procurement is not subjected to abuse. PPDA also reviews whether the sums proposed for each contract align with standard prices to prevent government money theft.
Any change of more than 15 percent to the initial contract (after the PPDA approves) is sent to the PPDA for fresh approval.
Section 37 of the PPDA Act reads: “An increase in quantities which exceeds fifteen percent of the contract sum requires either a new procurement proceeding or justification, if appropriate, as single-source procurement by Section 37 (11) of the Act and Regulation 154.”
Our investigation found that contracts were raised by over 100 percent, requiring PPDA’s approval.
Fuel transporters deliver fuel at NOCMA premises (PICTURE SOURCE: NOCMA)
EXTENSION OR NEW CONTRACT?
On 16th May 2023, state-owned NOCMA entered into a contract worth $9,568, 591 for the supply of 42,780 metric tons (MT) of Refined Petroleum Products (diesel and petrol) over a 12-month period with a company called Hass Petroleum, also identified as HAPCO FZE.
Then NOCMA Acting Chief Executive Officer (CEO), Micklas Reuben, witnessed by Acting Director of Finance, Dingiswayo Sambo, signed the contract on behalf of NOCMA. HAPCO FZE Group CEO, Mohamud Salat, witnessed by the company’s Group Chief Operating Officer (COO), Somolon Osundwa, signed the contract on behalf of the Dubai-based oil company.
The details of the contract include the supply of 20,617 MT of automotive gasoil at $233 per metric ton, totaling $4,803,761 (approximately K8.3 billion), and 22,162 MT of motor gasoline at $215 per metric ton, totaling $4,764,830 (approximately K8.2 billion), for a total contract of $9,568,591.
Just over a month later, on 7th July 2023, the contract terms were changed, with prices adjusted upwards. Premiums on petrol sales quoted at $215 were adjusted to $233. The contract for motor gasoline jumped from $4,4764,830 (approximately K7.7 billion) to $4,803,761 (approximately K8.3 billion).
On 10 April 2024, NOCMA extended the 12-month contract for another 12 months on the same terms.
Tellingly, the company, which was originally supposed to supply 42, 780 MT, was given an extra 80, 000 MT. The new arrangement meant Hapco FZE would be paid $19, 137, 182, double the original contract sum and volumes, without PPDA’s approval and open competitive tender.
NOCMA and Malawi Energy Regulatory Authority (MERA) did not respond to a PIJ questionnaire on the contract with Hass. Still, they responded to questions about the second contract we requested information on.
ADDAX CONTRACT
In May 2023, NOCMA signed a year-long fuel supply contract with Addax for 151,922.86MT. The Contract was signed under three international trade terms: 11,802.10MT under DPU, 74,169 MT under CIF, and 65,952MT under FCA.
Documents sourced by PIJ show that on 10th May 2023, 10 days after the signing of the Contract, Clauses 4 and 10 of the Contract were amended to, among others, increase all the supplier’s premiums in the main Contract by $40 per MT if the product was supplied on open credit and allowed the supplier to charge interest on all late payments “at a rate based on the actual cost of financing as advised by the financing bank."
The Contract was extended on 10th April 2024 for “12 calendar months” because, according to Addendum number 3 of the contractual document, the extension was necessary to sustain the “stability of fuel security in the country”.
The Addax contract initially covered 151, 922 MT but was extended to supply 186, 489.30 MT, totaling 336,411 MT. The price was also adjusted to $40 per MT, which means the Contract was now worth over $13, 456, 440 (equivalent to 23 billion Kwacha).
According to a source familiar with the procurement, the extension lacked any justification, as it was done before Addax exhausted the volumes under the original contract. Interestingly, clause 5 of the original contract stipulated that all volumes not delivered by 3rd May 2024 would be carried forward.
However, information gathered by PIJ shows that some contracts were changed just seven days after being approved by PPDA and signed. The PPDA confirmed to PIJ that they were not informed of the changes to the contract sums.
However, various sources pointed out in interviews that such changes are illegal and a symptom of theft of public funds, with officials usually using additional contract sums for kickbacks to senior government officials.
“This is how money for the kickbacks is raised. The question should be, what would change in seven days to justify the review of the contract? Was PPDA involved? The law is so clear about what percentage can be changed without involving PPDA,” said the source.
According to sources, there are also consequences for citizens as both consumers and taxpayers with NOCMA spend more hard-earned taxpayer money (plus using scarce foreign currency on fuel purchases). The over-the-top premiums paid for fuel mean consumers are forced to pay higher prices for fuel at the pump, too, according to insiders familiar with the fuel procurement system.
The source pointed to the PPDA Act, which obliges government entities to ensure all public procurement is done in a manner that promotes transparency and accountability.
NOCMA, in response to the PIJ questionnaire through its spokesperson Raymond Likambale, defended the amendment of the Addax contract, saying the changes in supplier premium increases were due to the failure to secure foreign currency to support letters of credit.
Reads the response: “The US$40/MT you are referring to is not an additional premium to the supply contract. It is a financing charge levied on open credit supplies. For starters, NOCMA signed a contract with Addax whose payment term is through the establishment of Letters of Credit (LC) prior to the supplier loading the fuel for delivery to Malawi. Since December 2021, NOCMA has been unable to secure adequate forex on time to facilitate the timely establishment of LCs. This led to NOCMA being unable to import adequate fuel for the country. Consequently, the Strategic Fuel Reserves were depleted.
“Given the foregoing, in 2023, when the fuel stock situation in the country got worse, NOCMA negotiated open credit facilities with suppliers. Addax was among the suppliers who responded favorably. The open credit facility enables NOCMA to receive fuel from suppliers even when there is no LC in place. Payment is then arranged as and when financing support is available from financing banks. Please note that regulatory approvals were sought and granted.”
In essence, the supplier banks arrange financing for NOCMA’s fuel. This comes for US$40/MT. It is not an additional premium but a financing cost on fuel supplied under the open credit arrangement.”
The response falls short of answering why the change was made just days after the contract was signed and approved by PPDA.
However, NOCMA said that due to the forex scarcity, when it completed the contractual volumes in April 2024, it owed Addax $37 million in open credit supplies.
“NOCMA was obliged to pay Addax the entire amount of US$37 million at the end of the contract. Although NOCMA was liquid in Malawi Kwacha, the company could not secure the forex to settle the obligation. The small amount of forex secured was channeled to procure new volumes to ensure a continued supply of fuel into the market.
“The matter was brought to a Cabinet Committee on fuel supply which tabled it before Cabinet. In order to ensure the continued security of the supply of fuel, the Cabinet directed the NOCMA Board to process an extension of the contracts for two suppliers, Addax and Hass, under the same contractual terms and conditions. The idea was to enable the two suppliers to continue to offer the open credit facility. Please note that regulatory approvals were sought and granted,” added the response.
PIJ sent questions to a representative of Addax and Hass. Still, neither of them has responded as we published this article.
Centre for Human Rights and Rehabilitation (CHRR) and Centre for Social Accountability and Transparency (CSAT), civil society governance watchdogs, separately called for a forensic investigation at NOCMA.
CHRR Executive Director Michael Kaiyatsa
CHRR Executive Director, Michael Kaiyatsa, described the revelations as “deeply troubling” and indicative of systemic flaws in the procurement processes.
“Contract extensions and amendments should only happen based on genuine needs and not as a means to circumvent established procurement procedures,” said Kaiyatsa.
He added: “Law-breaking in procurement, especially when it leads to overspending or misuse of public funds, has severe implications on public finance management.”
“It undermines the principles of accountability and transparency, which are crucial for effective public financial management,” Kaiyatsa explained.
Willy Kambwandira, the Executive Director of CSAT, said the revelations were consistent with a pattern of abuse of public resources in state enterprises.
“The conduct by NOCMA raises serious suspicions of corruption and fraud, and it puts the authority and mandate of PPDA into question,” he said.
“It is clear that the public procurement entity is now powerless. Obviously, bending the rules is deliberate and meant to benefit some individuals within the system and must be investigated. This is an organized scheme,” said Kambwandira.
The revelations come amid a government debate over the role of the so-called middlemen suppliers. Recently, the government announced intentions to switch from the middlemen to a government-to-government arrangement to curb the corrupt influence of the suppliers.
The suppliers allegedly inflate prices to cover the costs of kickbacks to government officials and clandestine financing of political parties. In one embarrassing scam, the government paid K750 million in advance to a butchery in London, United Kingdom, for the supply of fertilizer that never arrived.
Critics argue that procuring military equipment, vehicles, uniforms, essential health supplies, and agricultural inputs such as fertilizer would cost far less if this was done through purchases straight from manufacturers.
READ MORE:
Inside ADMARC’s Dodgy Proposed K650bn Fuel Loan Shark
NOCMA Files: Tembenu and NOCMA’s 660 million Kwacha Bounty
NOCMA Files: Mulli’s Free NOCMA Multimillion Kwacha Fuel Ride
NOCMA Files: Zamba, The Chief and The Doomed Plan of The New Oil Cartel
Without Tender, Govt Contracts LL Forex Bureau to Supply K128bn Worth of Fuel
FUEL DEAL: PPDA approves K128BN NOCMA-Forex Bureau contract
From Fuel Deal to Gold Mine– ‘Forex Bureau’ Scores (Illegally) Again
FOREX BUREAU: Ombudsman launches probe over MK128BN fuel deal
Fraud and Corruption Haunting Malawi’s Energy Regulator
This article was produced by the Platform for Investigative Journalism, a non-profit public interest centre for investigative journalism.
ABOUT THE AUTHORS
GOLDEN MATONGA is a journalist based in Lilongwe. He is a member of the International Consortium for Investigative Journalism (ICIJ) and his work has appeared in the New York Times, Financial Times, The Economist, Mail & Guardian, among others. Email: [email protected] X: @GoldenMatonga
JULIUS MBEŴE is a journalist who regularly writes for PIJ-Malawi. He has previously worked for YONECO FM. Email: [email protected] X: @CaleoneMbewe
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