The financial mess at Electricity Supply Corporation of Malawi (Escom) can be traced to a compromised board and executive management that creates a fertile ground for plunder, fraud and corruption, an investigative report has shown.
Investigations into the cause of the financial mess that prompted Escom to make an abortive K53 billion bail-out request from Treasury exposed entrenched weaknesses that prompted a Special Task Team to recommend recruitment of external management consults to drain the swamp at Escom.
In a confidential report titled Report on Building and Unleashing Escom’s Potential in the New Environment, dated February 7 2019, the task team, chaired by Comptroller of Statutory Corporations Stuart Ligomeka, has detailed failure of the procurement, stores, distribution and financial management functions as well as indiscipline and poor organisational culture.
The report has suggested that the Escom board of directors was part of the mess as it was compromised to critically question executive management on the many lapses at the power utility.
The observed weaknesses include conflict of interest of some board members in the supply and payment for goods and services to
Escom and questionable character and integrity of some board members.
Escom’s executive management, on the other hand, is said to be a fertile ground for malpractices that have entrenched poor organisational culture, leading to “gross abuse and financial mismanagement” at the parastatal, according to the report.
Since 2016, according to the report, the board and management have watched Escom wrongly procure goods valued at K8.3 billion, buy phased out wall-mounted three-phase prepaid meters worth K1.8 billion and items worth K122 million without local purchase orders (LPOs) and internal procurement committee (IPC) approval.
The task team has since recommended immediate engagement of Escom to champion organisational cultural change management and business re-engineering.
But while agreeing that enrolling an external management consultant sounds an ideal solution in the short-term, governance experts have argued that the proposed path cannot work in the long-term due to Escom’s ingrained political economy dynamics.
The 102-paged report highlights failure by the Escom board to act on signals and information on misprocurement even after the parastatal’s then director of finance Betty Mahuka resigned due to pressure from the board for her to process payment for the misprocured goods.
The report says the Escom board compromised and could not act, support and protect the former director of finance “on this good cause”.
The matter relates to the K4.3 billion (K5.25 billion after value-added tax) worth of procurements done without complete documentation, which during a meeting in Lilongwe, some board members wanted the misprocurements to be regularised.
The report also says some Escom board members were supplying goods and services to the parastatals or were interfering with operations by exerting pressure on management to pay specific suppliers apparently to give advantage to their companies or those of their colleagues.
Worse still, the task team observed that over the years, Escom has had some board members who did not meet the minimum requirements for board membership, such that they could not critique or interrogate management’s proposals or decisions.
“There was also an incident where some board members were classified as untrainable by training institutions when Escom attempted to train its board on power purchase agreements [PPAs] in Zambia,” notes the report.
Executive management flaws
Further, the report reveals that both former and current Escom chief executive officers (CEOs) failed to act on reported misprocurement, secure warehouses and stores as well as probe further into the circumstances surrounding the resignation of senior staff.
Incumbent CEO Allexon Chiwaya is accused of overseeing continuing inadequacies for allegedly failing to ensure that all expenditure is incurred with due regard to economy, efficiency, effectiveness and the avoidance of waste.
He is also blamed for failing to stamp out misprocurement and overprocurement.
Chiwaya’s predecessor, John Kandulu, is also accused of failing to act on the November 2016 Internal Audit Report findings that materials worth K5.25 billion which stood at K1.3 billion in July 2016 report were misprocured as they did not go through the IPC and ODPP approval process.
Other vices by the executive management include failure to provide information on misprocured goods to external auditors, limited communication and lack of transparency with employees, weak supervision, failure to implement austerity measures and disregard for audit findings and recommendations.
Governance experts offer insights
On engaging external management consultants, governance expert Henry Chingaipe said: “I agree with the suggestion, it would go a long way in cleaning up the mess and put Escom back on track. It should be seen as a short-term measure. But for the long-term, we need serious public sector reforms that focus on statutory corporations, especially where they make profits like Escom.”
His counterpart, Rafik Hajat of Institute for Policy Interaction said the team had done a good job, but noted that Escom does not only need an impartial management team to come and clear up the mess, but also the board itself should be dissolved and re-appointed on merit.