Audit of Malawi northern corridor (Southern Africa regional) project no. 690-0237

The audit covers the period 7/86-3/90. Despite delays caused by problems in obtaining land rights in Tanazania, the multi-donor project has progressed satisfactorily towards improving Malawi"s access to Dar es Salaam, and overall coordination has been very good. Regarding A.I.D."s portion of the project, construction of port facilities at Chilumba and Chipoka and of a ship repair facility at Monkey Bay were virtually complete as of 3/22/90, and procurement of A.I.D.- financed commodities, though delayed, should be completed by 6/30/91. With this, A.I.D."s participation in the project will be complete. Several problems are to be noted. (1) USAID/M used the Fixed Amount Reimbursement (FAR) method to finance construction, which inappropriately removed project oversight and may have increased construction costs. (2) About $2.6 million of materials and equipment were purchased from ineligible sources, mostly from Western Europe (especially the United Kingdom. This occurred because the Government of Malawi (GOM) failed to satisfy a Pro-Ag requirement to include A.I.D. source and origin rules in its contracts and because USAID/M failed to ensure compliance in this matter. (3) Although disbursements were made in accordance with applicable laws and regulations, excessive advances to the GOM resulted in unnecessary interest costs to the U.S. Treasury of about $383,000. The GOM still retains unnecessary advances of $500,000. (4) USAID/M did not establish a monitoring system to ensure that the GOM was contributing resources as agreed. This was due to the Mission"s belief that the GOM was not contractually bound to make these contributions. (5) The project failed to adequately pursue measures to safeguard Lake Malawi from pollution. While most project activities would have little or no significant impact on the lake, ships carrying diesel, petrol, paraffin jet fuel, and other chemicals will be traversing Lake Malawi in increasing numbers as a result of the project.