Nairobi City Council in danger of total financial shutdown

By Protus Onyango

The City Council of Nairobi is broke and cannot pay its debts and meet its other obligations.

For the last three months, the council has delayed paying salaries to its workers, prompting them to demonstrate outside City Hall.

The then Town Clerk, Roba Duba had to threaten to auction properties of its debtors, including property owners to raise revenue.

Despite raising Sh2 billion from rate payers recently, the City Council finds itself in yet another financial heart ache. The latest twist involves freezing of council accounts by the Kenya Revenue Authority (KRA) over non-payment of tax arrears amounting to Sh200 million.

KRA slapped the council with an agency notice which denied it access to its own bank accounts, further paralysing financial obligations.

In July, the council had collected Sh2 billion from land rates.

Freezing of the accounts for two weeks had caused anxiety to suppliers and other business partners. Some suppliers are concerned because they have not been paid for the last three months.

Although accounts have been freed as confirmed by the city council public relations manager, Wilfred Marube, the local authority is still in deep trouble.

“Our accounts had been frozen but we are now able to access them after we signed an agreement with KRA to be remitting Sh30 million per month until we clear the sh200 million arrears,” Mr Marube said while confirming lifting of the KRA caveat.

Industrial action

 Kennedy Onyonyi, KRA spokesman confirmed the freeing of the council accounts.

“We had issued the agency notice to the council after it failed to honour its tax obligations. We, however, lifted it on Thursday after the council committed itself to clear the arrears,” Mr Onyonyi says.

According to insiders, cash problems at the council are far from over. In fact, the situation could degenerate very soon.

“Our financial woes are as a result of the huge amounts of money owed to us by debtors. The council is also servicing a big loan it took from Equity bank. This explains why we are unable to provide most services,” says Benson Olianga, the Nairobi Branch Local Government Workers Union Secretary General.

He says the problems started in 2010 when the council took a Sh5 billion loan from the bank.

“The money was borrowed at a lower rate but the council is now forced to repay at 25 per cent interest rate. The council which collects Sh18 million per month is now forced to deposit the same money each month to settle the debt, leaving it with nothing,” he says.

Mr Olianga predicted that matters could turn out for the worse.

“If the council has committed to paying Sh30 million per month to clear the tax arrears, this means workers will not be paid and many other services will be affected. If the council only collects Sh18 million per month and pays the whole of it to Equity Bank, where will the balance come from?” he asks.

 Should workers not be paid in the coming months, Mr Olianga threatens to mobilise the 11,000 strong workforce for an industrial action.

 In July, workers joined the management and other staff and literally walked to their debtors to ask for their money.

During the month, the workers’ salary and their medical scheme provided by Alexander Forbes had been withdrawn. Other employee benefits had also been put on hold.

People’s pockets

 This forced Mr Duba, who was less than a month old at the helm as Town Clerk to lead workers in seizing the Kenyatta International Conference Centre (KICC) parking lot over a Sh26 million debt, causing a confrontation between his group and guards hired by the KICC management.

Mr Duba admitted that at that time, the council was owed Sh109 billion by public and private organisations and individuals. He warned defaulters that they risked facing the council’s wrath if they did not pay.

Among the worst defaulters are Department of Defence (Sh61 billion), Kenya Power and Lighting Company (Sh257 million), Parliament (Sh500 million), Government Parking Bays (Sh500 million) and Central Bank of Kenya (Sh500 million).

Mr Olianga blames corruption for the misuse of the council funds.

“A lot of money is paid to Nairobi city council but ends up in some individual’s pockets. The Government, for example, pays Sh120,000 per year per one parking lot. NCC budgets for this money which, unfortunately, ends up in some pockets somewhere,” he says.

When contacted for comment, former Town Clerk Philip Kisia, refuted claims that Equity bank is paid Sh18 million monthly.

“The loan has been serviced for a year now and the bank takes only Sh2 million. The rest goes to pension funds and Kenya Revenue Authority,” Mr Kisia said.

Cash injection

  “We took the loan because the council had been locked out of the Local Authority Transfer Fund (LATF). If we hadn’t done so, the situation would be worse now. We also managed to pay all the retirees and pay Sh580 million for 30 months to workers. I negotiated for NHIF and LAPTRUST waiver and discovered that NSSF owed the council money and not the other way round,” he said.

Tom Odongo, the current Town Clerk explains the murky situation.

“We took the loan from Equity bank because it gave the best offer of ten per cent compared to other commercial banks. We paid statutory debts we owed LAPTRUST, LAPFUND, NSSF and NHIF because they were attracting punitive penalties of 36 per cent interest of the principal amount,” Mr Odongo says.

 The issue does not end there.

“The Sh5 billion loan was not enough to clear all the outstanding statutory debts and penalties due to punitive interests charged by the debtors,” he adds.

Timothy Muriuki, an aspirant for Nairobi gubernatorial seat who is also chairman Nairobi Central Business District Association (NCBDA), wants the council to put its house in order.

“Managers who misused council money should face the long arm of the law. Delaying workers’ salaries demoralises them. Those who suffer are the residents because they don’t get services they pay for,” Mr Muriuki says.

To rub salt to the wound, only last week, the council was dealt a serious blow after High Court barred it from collecting levies from traders and car owners in Makadara Constituency, following failure to provide essential services.

 The case had been filed by area MP Gidion Mbuvi alias ‘Sonko’.

These developments will not be good news after it emerged that all counties in Kenya lack the financial muscle to function well in the devolved system.

The future for Nairobi looks bleak according to a Parliamentary report by the House Budget Office. It revealed that though Nairobi is the richest county in the country, it can only raise half the required revenue.

All the 47 counties will require cash injection of Sh133 billion to fill their budgetary deficits to function adequately because they can only raise Sh17 billion in revenue yearly.