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Railways scheme sits on Sh30b as thousands of retirees live in misery

FINANCIAL STANDARD
By Dominic Omondi | November 15th 2016
Retired Kenya railways staff at the Milimani court afterb the hearing of a case in whichthey have sued overtheir pension.Justice Alfred Mabeya directed that the matter be heard on june 19.11/5/2015 PHOTO BY GEORGE NJUNGE

Caleb Nyakech passed away on July 2, 2016. The money that would have probably bought him more time hit his bank account on July 16, 2016.

He was to get his monthly pension for June on 25th of the same month, according to his pension scheme’s Trust Deed and Rules. Unfortunately, the Sh7,500 paycheck from the Kenya Railways Staff Retirement Benefits Scheme (KRSRBS) delayed. His killer did not.

When the money finally hit his bank account 21 days later, he’d already been buried and forgotten.

Nyakech, a victim of the 1998 Kenya Railways retrenchment, died miserably just as he had lived.

Neighbours found his lifeless, semi-nude body sprawled on a dirt floor in his dingy room in a slum overlooking filth-laden Nairobi River in Dandora.

A soft-spoken man, his neighbours could hardly tell what killed the old man, let alone what was walled in his head. But once in a while, he did confide to his close friend and former colleague Dofiko Ekiliani.

Before his death, he had complained of two things: A sharp pain in his belly and the delay of his pension. Either of the two killed him, or at least catalysed his death.

The 64-year-old father of two did not have the money to see a physician, remembers Ekiliani.

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A few days before he died, Nyakech walked for 11 kilometres from Dandora to the scheme’s offices in the city centre to inquire on the status of his cash. He was told he would get the money on July 1, 2016. It never came.

The condition had immobilised him such that he could hardly leave his bed to go round the streets collecting used bottles and plastics for sale as he normally did.

So he helplessly lay in his death-bed. He would soon die a powerless and poor man, a number (C/NO271409) that would soon be knocked off the payment roll of Kenya Railways Staff and Retirement Benefits Scheme.

By 2014, about 2,726 Kenya Railways pensioners from different parts of the country had died of various illnesses, chief among which was a fatal disease called ‘frustration’. Many others are feared dead, though not documented.

Meanwhile, billions of shillings that would have been used to pay these pensioners, and in effect extend their leases on this earth, have been carted away and hidden into individual accounts, denying the scheme vital cash-flow.

Business Beat has interviewed the scheme’s pensioners, and gleaned over troves of documents which paint a grim picture of a scheme that is being milked dry by greedy officials in cahoots with selfish pensioners.

This is even as thousands of old and infirm former employees of Kenya Railways go for months without their pay.

The pension scheme is a cash-cow for a few members of the management who, in total disregard of the law, have turned the scheme’s properties into individual assets.

It is also a cash-cow for a clique of some brusque and well-connected pensioners who have unashamedly dropped all pretenses to comradeship and hopped onto the bandwagon of self-aggrandisement.

A cabal of lawyers have not been left behind. They have pocketed exorbitant fees for trifling jobs as defenders of justice turn into perpetrators of injustice.

 To meet its main objective of settling a monthly pension bill of about Sh70 million, the definite pension scheme, which is closed to new members and does not receive contributions, depends on the sale of its properties (currently valued at Sh30 billion) and rent collections.

Unfortunately, both have been perfect conduits for opportunists to siphon cash from the scheme. By the time Nyakech was dying, the scheme was cash-strapped. Over 97 per cent of the scheme’s assets are illiquid, against the Retirement Benefit Scheme’s requirement that a pension scheme only holds 30 per cent of its assets in real estate.

This has sparked a mad-rush to dispose the scheme’s property. And with that also an opportunity for buccaneers to cash-in.

Corrupt registry

Pensioners have for a while been banking on receiving payment for some property they sold in October 2014 for their monthly bill plus billions of arrears in annual increments. They sold 6.51 acres of land in Matumbato, in the lucrative area of Upperhill, Nairobi, at a cost of Sh1.79 billion.

For two years, Nyakech and over 9,000 other pensioners waited for this money. At some point some like Nyakech could not wait any longer. A few that were left have been keeping up the fight.

So, one morning last month they marched to Landmark Plaza, just opposite Nairobi Hospital. They confronted their corporate trustee, Corporate Trust & Pensions Services Limited. They wanted to know where the Sh800 million for the land was. And they got the same old and cold response: Be patient.

True, the payment had delayed, said Nicholas Kilavi, the managing director of Corporate Trustees & Pensions Services Limited.

But it was not their fault. The property had a lot of issues, said Kilavi. They did not have all the necessary documentation such as title deeds and certificate of land rates and rents.

They also had to get title deeds from a ‘corrupt land registry’ where files disappeared the moment you appeared, said Kilavi. “If there is a delay in the issue of title it cannot be attributed to me, it cannot be a scandal about me,” said Kilavi putting the blame squarely at the doors of the land registry.

But there is hope, he said. “Our lawyers have submitted all the documents, we are waiting for the money so that we pay the debts,” said Kilavi. And when would he do that? Soon. He added that “in a matter of days” they would be paying arrears for the pensioners, which runs into billions.

Despite all the assurances, pensioners think some things about this transaction were not adding up. First, despite the delay in payment, part of the land has already been put under construction.

Also, part of the land has been sealed off and what looks like a parking lot is under construction.

But pensioners were more concerned about the price at which this piece of land was sold. It works out to Sh260 million per acre.

This, according to some pensioners, is way below the market price. In 2014 for example, asking price for an acre of land in Upper Hill, according to Hass Property Index was Sh475 million. The difference would have paid the pensioners for at least 22 months.

But Mr Kilavi, says “land pricing is not standard in the city.” Some areas are pricier than others depending on their proximity to such things as roads and amenities.

The property they sold, he says, was in a residential area, the lease was almost expiring and land and rent rates had not been paid. These factors combined to reduce the value of the property.

He insists that the property was valued, advertised, and sold to the highest bidder. Kilavi is also of the opinion that price of land in Upperhill is exaggerated.

However, the scheme’s external auditor Deloitte in its annual report for year ending 2014, warned that the trustees were carrying most of the scheme’s investment properties at forced sale value—at throw-away price.

The auditor, who slapped the scheme’s financial statement with a qualified opinion, said that of the properties they sold only this one- Matumbato L.R. NO 209/6505 had been revalued in 2014.

Others including Nairobi West (3.81 acres), Sh250 million; Whitehouse (three acres), Sh580 million; Gakuo Court (acres), Sh650 million; Ngong Road (half an acre), Sh90 million; Makongeni (two acres), Sh220 million; and Kindaruma (half an acre), Sh80 million were last revalued on June 30, 2011 by Knight Frank Limited.

Deloitte is actually saying the sole trustee might actually have been selling the scheme’s properties at throw-away prices, denying pensioners billions of shillings. Properties sold without being revalued add up to Sh1.78 billion.

“This is not consistent with the requirements of IAS 40 which requires that the fair value of the investment property shall reflect market conditions at the end of the reporting period,” said Deloitte.

“The values of most of the investment properties are based on forced values which is not consistent with requirements of IFRS 13 which requires that fair value of an investment property should be determined based on highest and best use of the property,” the report added.

Restore confidence

According to property experts, people tend to ‘force sale’ when in a financial distress, to satisfy a legal claim or simply to liquidate.

Meanwhile, this question has continued to appreciate in value. By 2016, it had appreciated by about seven percentage points. Unfortunately, should the money come in, pensioners will receive the value for the property in 2014.

This is despite the fact that Procurement Act gives parties 90 days to complete a transaction in what is designed to save the seller from losing out.

“On that (value appreciation), I agree that they (Corporate Trustee) messed us up. They could have inserted in the sale agreement, a provision that allows for the renegotiation of price if the transaction goes past the required period of time,” said Johnson Miano, the chairman of the Association of Kenya Railways Retirees, who however insists that the corporate trustee is not selling land at throw-away prices.

It is also not clear why the sole trustees advertised the land without acquiring the necessary documentation even though the scheme’s Disposal of Property Manual dated May 19, 2010, demands that the trustees secure all the relevant documentation including title, land and rate clearance certificates before advertising it for sale.

In Makongeni estate, the corporate trustee sold two acres of land to Kenya Power & Lighting Company at Sh220 million in 2013. However, the money was put in an escrow account until when the seller provided the power utility with the title deed. This is money that would have paid pensioners for three months.

In 2011, the then board of trustees had agreed to sell one of the scheme’s property known as White House at a cost of Sh540 million, this was Sh85 million less than the initial price of Sh625 million that the scheme had asked for. The deal fell through.

However, two years later, when the corporate trustee came in, he sold the same property at a cost of Sh510 million in what is clear case of force sale. Although corporate trustee says it later renegotiated and got Sh580 million.

Business Beat spoke to a number of pensioners who didn’t want their names to appear for fear of victimisation. According to them, such is the mystery surrounding the sale of a lot of investment properties for the scheme.

According to Retirement Benefits Scheme (RBA), the appointment of the corporate trustee was supposed to “restore some confidence in the Scheme.”

The scheme had been bungled by a nine-member board of trustees (BOT) when income worth billions of shillings is said to have been stolen through shoddy land transactions, non-existent contracts and inflated legal charges.

Properties were sold without being advertised, according to an inspection report by the RBA.

In one instance, the scheme is said to have entered a 50 year lease with JIPE CLOSE Ltd at a cost of Sh100 million which would be followed by monthly payments of Sh15 million.

“The scheme denied validity of their signature and alleged the same to have been forged,” wrote the RBA in the 2011 inspection report.

According to RBA, the lease appeared to have been signed by then Board of Trustees Chairperson Beryl Odinga, sister to former Prime Minister Raila Odinga and the then CEO Mathews Tuikong. By the time of writing the inspection report, payments of about Sh39 million had been made. It also appeared to have been witnessed by a law firm, Ahmednasir Abdikadir & Co Advocates, according to RBA.

In another case, in 2010 the scheme sold to National Housing Corporation (NHC) its Nairobi West property. Under the instructions of the scheme, RBA said NHC paid the money to the account of the lawyer representing the scheme. It was about Sh100 million.

“It was not until October 6, 2011 when the NHC confirmed to the Scheme that they had already settled the balance to the lawyers that the lawyers provided evidence of the same,” said RBA noting that the lawyers had not remitted about Sh10 million to the scheme as at the time of inspection.

And for this particular transaction, the lawyer charged legal fees at 10 per cent of the value of the property, equivalent to Sh25 million. This is despite the fact that Advocates (Remuneration) Order 2009 put the charge at 1.25 per cent for a transaction valued at between 5,000,001 to 250 million. In this case, the advocates were supposed to receive about Sh3.12 million.

The entry of the corporate trustee has not restored any confidence to the pensioners. In 2014, lawyers went home with Sh174 million, more than eight times what they received in 2013. Pensioners’ efforts to get a break-down of the fees have hit a wall. The scheme disposed property worth Sh534 million, which works out to Sh6.3 million as legal fees.

Since it was appointed by the sponsor, the corporate trustee has sold properties close to Sh3.57 billion. Add to this a few rents collected monthly from the various estates. Yet they have barely increased the retirees’ pensions annually to help them cope with the rising cost of living. By the time of writing this, pensioners had not been paid their October 2016 monthly pension.

Meanwhile, a man is at large for defrauding the scheme part of its rent collection; a very senior official has been interdicted for leasing part of the scheme’s property to a private developer in what is thought to be a huge racket; and some pensioners have literally divided among themselves the scheme’s property like warlords.

 

 

 

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