A Supplementary Loan Agreement was signed today in Lilongwe between the Republic of Malawi and Kuwait Fund for Arab Economic Development, whereby the Fund will make a Loan of KD 2,900,000 (equivalent to about US$ 10 million), to assist in financing the increased costs of Zomba - Jali - Phalombe – Chitakale Road Project. The Supplementary Loan will be the second loan for financing the said Project, as the Fund is making at present a Loan of KD 6 million (equivalent to about US$ 21 million), by virtue of the Agreement signed on 08/12/2004 for financing the same Project.

The Supplementary Loan Agreement was signed on behalf of the Republic of Malawi by H.E. Mr. Ken Kandodo, Minister of Finance and on behalf of Kuwait Fund by  Mr. Hamad S. Al-Omar, Deputy Director-General.

The Project aims at the upgrading of the existing gravel road that connects  “Zomba – Jali – Phalombe – Chitakale “ to a bituminous road with a total length of about 102 Kilometers, of  about 6.7 meters a carriage way and asphalted shoulders of about 1.5 meters at each side, and will thus help the integration of the road network and further improve potential of social and economic development in the Project areas.  The Project involves the Civil Works for the upgrading of the above road, including earthworks, pavement layers, drainage facilities, bridges, erosion controls, bus bays, access roads, relocation of utilities and traffic safety measures. The Project also includes the Consulting Services for the Supervision of Construction.  

The total cost of the Project was estimated at the time of appraisal at about 4.7 billion Kwacha (equivalent to about Kuwaiti Dinars 13.4 million), of which about KD 11 million is in foreign exchange, which represents about 83% of the total cost of the project.  The Fund’s Loan was expected to cover about 45% of the total cost of the project.  In addition to the Fund’s loan, the Arab Bank for Economic Development in Africa (BADEA) also participated in the financing of the Project with a loan of about KD 3 million, which was expected to cover about 22% of the total cost of Project, and the OPEC Fund for International Development also assisted in the financing of the Project with a loan of about KD 2.1 million which was expected to cover about 16% of the total cost of the Project, while the balance of the Project’s cost was expected to be covered by the Government of Malawi.
 
However, the Project’s revised costs have substantially increased during implementation of the Project by about KD 6.5 million, which represents about 48% of the original costs estimated at project’s appraisal, and it is expected that all financiers will participate in bridging the financing gap by the same percentage of their financing in the original project.  Thus the Fund’s Supplementary Loan of KD 2.9 million will cover about 45% of the revised costs.

On the basis of consolidation of the First and Supplementary Loans, the term of the Consolidated Loan is 25 years, including a grace period of 4 years commencing as of the date when the Agreement for the First Loan became effective.  The Consolidated Loan will be repaid in 42 semi-annual instalments, the first of which was due on 15/09/2009 and the last will be due on 15.03.2030.  Interest on the Loan is fixed at the rate of 1.5% per annum, in addition to a service charge of 0.5% per annum to cover administrative costs and expenses of implementing the Loan Agreement.

By extending this Supplementary Loan, it would be the 6th Loan provided by the Kuwait Fund to the Republic of Malawi, as the Kuwait Fund had previously provided to Malawi with 5 loans totaling KD 18.62 million (equivalent to about US$ 65 million) in the sectors of Transport and Telecommunications, in addition to a Grant In Aid totaling KD 30,300/- (equivalent to about US$ 106,000), which has been extended for financing a study in the sector of Resettlement.