City Hall plans to hand out another prime estate to Pension scheme in debt swap

City Hall plans to hand over one of its prime properties to a pension scheme as part of a strategy to reduce its Sh70 billion debt.

Revelations contained in the county government debt management strategy paper for the 2019/2020 financial year, show that already negotiations have started with the Local Authorities Pension Trust (Laptrust).

The strategy paper, however, does not specify how much Laptrust is owed, and which property is being targeted in the debt swap.

“To settle this amount owed to Laptrust, the county has negotiated with the statutory creditor for a property swap to transfer to the scheme one of our prime asset in respect to accrued debts,” reads the paper.

“Currently a debt swap negotiated with the National Social Security Fund (NSSF) is in force against property rates.”

This will be the second such transaction. In 2013, the county government transferred Mariakani Estate to Laptrust.

The county owns many houses that can be redeveloped given their current dilapidated state. They include those in Bahati, Ziwani, Landhies Road, Joseph Kang’ethe, Harambee, Mbotela, New Pumwani, Bondeni, Kaloleni, Uhuru and Embakasi estates.

Others are in Maringo, Jerusalem, Jericho, Lumumba, Ofafa and Mbotela, Pangani, Jevanjee, Bachelors Quarters, Jamhuri, Kabete, Juja Road, Gorofani, Kariobangi South, Huruma and Outering.

Most of the estates are occupied by county employees.

City Hall is further seeking to ease its debt owed to KRA by conducting another debt swap. The County plans to approach the National Government and negotiate a debt swap.

The swap will be guided by the outstanding rates owed to it by the National Government

The overall Sh70 billion debt consists of statutory debt, money owed to suppliers of goods and services, legal creditors, personnel emoluments, loans and contingent liabilities. 

The strategy paper highlights that City Hall owes Sh30.13 billion to workers in unpaid statutory deductions, Sh10.6 billion to unpaid suppliers, contractors and lawyers.

A debt of Sh3 billion is owned to various banks. Kenya Power is also owed Sh0.64 billion in utilities. Retired and deceased staff have also not been paid Sh0.134 billion in benefits.

Moreover, the county inherited a huge debt from the defunct City Council of Nairobi, including long-term loans amounting to Sh19.1 billion.

Inherited debt

The county also inherited a Sh5 billion bank loan, which the defunct City Council of Nairobi had taken to finance payment of statutory debts. 

Finance Executive Allan Igambi said that the administration, through the debt management department, would undertake negotiations with other various creditors with a view of swapping debts for assets.

This is in order to retain the county’s debt at a manageable level.

“Where the county owes various statutory creditors or utility firms, who in turn owe us various debts in form of rates, the county will enter into negotiations with these creditors with a view to effect debts/assets swaps,” said Mr Igambi.

The finance chief was also optimistic that debt renegotiation with banks will help City Hall obtain favorable lending terms.

In the long term, according to Igambi, the less the debt pressure, the better service delivery for Nairobi residents.

“Considering the current level of debt, both inherited and pending bills, the debt management strategy paper will reinforce measures geared towards its reduction,” said Igambi.

“In addition, the county government will continue to build capacity for the newly established Debt Management Department in terms of staffing, and training, to ensure that it is in a position to handle all matters relating to borrowing and servicing of debt.”

This is even as it emerged that the county government’s debt has increased by approximately Sh3.6 billion between June and December 2018.

As at June 30, 2018, the debt stood at Sh66.57 billion and Sh70.2 billion as at December 31, 2018.