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State parastatal debts generating a penalty of Sh30m monthly

By Kepher Otieno | September 3rd 2019

A Sh1.4 billion loan to the Lake Basin Development Authority (LBDA) is generating interest of Sh30 million a month, the agency has revealed

This means that if the loan is not settled in time, LBDA will fork out Sh360 million a year. Last week, LBDA Chairman Calvince Owidi confirmed that the mall’s loan advanced by the Cooperative Bank was continuing to accrue huge interest monthly.

“Today, the outstanding loan is Sh3.5 billion. We wonder why some people in authority cannot see this economic sense and stop the LBDA from incurring such a huge loss,” said Mr Owidi in an interview with Financial Standard.

He termed investigations by the Ethics and Anti-Corruption Commission (EACC) a waste of time. “This is because, in the mall building contract, LBDA agreed with the contractor to look for money to build the mall since they had the plan but lacked money,” he said.

But EACC Spokesperson Yassin Amaro said investigations into the deal including cost variations are ongoing before the mall can be opened.

But Mr Owidi claimed that LBDA was not able to attract anchor tenants because of the EACC probe, which scared away investors. “Currently, were are supposed to earn an annual income of Sh230 million a year from the mall investments, but tenants are wary of the EACC probe,” he said.

Mr Owidi observed that the State had accepted to finance the mall, and Treasury gave them Sh2 billion out of the project’s initial cost estimated at Sh2.5 billion.

Then the LBDA board mooted additional works such as constructing a perimeter wall, a three-star hotel, a restaurant and showroom within the mall.

“These additional works increased the cost of the project by Sh1.4 billion,” Owidi explained.

Additional contract

LBDA then inked a pact with the contractor to source for the cash to build mall and hand over the facility plus the costs incurred.

This saw the contractor seek a Sh2.5 billion loan from Cooperative Bank, then and did additional works, hoping to be paid.

The trouble started when the contractor demanded payment. The board sought to know how the money shot from the initial Sh2.5 billion to Sh4.1 billion.

This is because the Treasury knew they had only a balance of Sh500 million to clear the loan.

The State was unaware that the LBDA board had entered into an additional contract. So they decided to hold on to the balance of Sh500 million, as well as give LBDA authority to take over the loan from the contractor with accrued interests rates.

Interestingly, the contractor had handed over the building to LBDA, although he wasn’t yet paid the principal sum as assured. This, Owidi disclosed, was what prompted investigations.

The EACC is out to know how the loan was acquired. “The woes here is that the bank is owed and is continuing to charge a monthly interest of Sh30 million, which to us does not make sense,’’ he told Financial Standard in an interview.

“This is what is generating all these questions that have informed the probe. The Bank loans as things stand has shot the cost variations to Sh3.5 billion because of the interests,’’ he claimed, noting that unless urgent action was taken, the mall will lose its value.

Owidi wants probe concluded to allow the mall to open. “Currently, the probe is causing unnecessary panic yet the mall has a great income earner with per capita of Sh230 million a year,” he noted.

Recently, a group of youth staged demo in the city streets asking the State to allow the mall to be occupied.

The small traders want investigations by EACC concluded and the mall opened - terming its delayed opening economic sabotage. “An audit report on rental income shows that the mall can generate up to Sh232.6 million annually if put into active use,” said LBDA Managing Director Dr Raymond Omollo.

Mr Owidi admitted investigations had taken too long to complete, with EACC frequenting the place for the probe. They have been to LBDA nine times since the year began.

Outgoing Auditor-General Edward Ouko raised queries on the variations of the facility which increased the cost from the initial Sh3.5 to Sh4.1 billion.

Ouko, however, recommended that the Public Procurement Regulatory Authority be roped in since procurement laws peg variation at a maximum of 15 per cent of the contract sum.   

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