Sh2.5bn debt query as hammer hovers over landmark project
Kisumu city. PHOTO | TONNY OMONDI | NATION MEDIA GROUP
What you need to know:
How did we end up here?
When blame is apportioned, the authority’s board and management will have to take its full share.
I blame them for allowing the Chinese contractor to saddle the public with such a massive debt.
The whole arrangement invites the following questions: how did the titles end up being charged by the bank when the loan proceeds were going to the contractor?
The other day, a group of Members of Parliament from the lakeside town of Kisumu came out speaking loudly, urging the government to save the Chinese-built Lake Basin Development Authority Mall in Kisumu from the auctioneer’s hammer. Indeed, the fate and shenanigans of what is regarded as one of the landmark projects in the region has been the subject of sensational conspiracy theories.
I sought to find out the root of this raging controversy and here is some background information on what I found. First, I found that the mall is one of the most expensive property development projects to be built in the whole of western Kenya in recent years.
Secondly, I found that it sits on a total built-up area of 60,000 square metres, comprising a basement floor, a mezzanine floor; and two additional floors – complete with expansive and thoroughly modern show rooms sitting on 5,000 square metres, a three-star hotel and parking space capable of accommodating 350 cars.
Third, I found that despite the fact that the project was finished and a competition certificate issued in April last year, the mall is yet to be put into operation on account of a Sh2.5 billion debt owed to the Co-operative Bank of Kenya.
Fourth, according to an assessment on the rental income conducted by property agent Tysons, the mall has the potential to fetch Sh235 million a year. The property agent has proceeded to seal deals with major occupants, including an anchor tenant and a major tyre maker, who intends to erect a huge tyre centre.
NOT PAID
Finally, I have just recently come across a February, 2017 letter by the Ministry of Devolution and Planning to the National Treasury requesting funds to pay a Co-operative Bank loan.
If the Co-operative Bank loan is not paid, the mall will surely be auctioned to a third party seeking to reap value from the difference between the market price and the outstanding loan amount.
How did we end up here? When blame is apportioned, the authority’s board and management will have to take its full share. I blame them for allowing the Chinese contractor to saddle the public with such a massive debt. The whole arrangement invites the following questions: how did the titles end up being charged by the bank when the loan proceeds were going to the contractor?
Secondly, considering that the contractor was being paid against certificates, shouldn’t they have borrowed against their own securities? What we have is a massive loan borrowed against titles owned by the parastatal. Mark you, the contractor fashioned itself as a co-developer for the project. The individuals who negotiated it need to explain why they committed public funds to such a lopsided deal. The initial agreement signed in April, 2013 was for a project of a lump-sum fixed price of Sh2.4 billion. They varied the project to Sh3.8 billion, way beyond the threshold stipulated in the Public Procurement and Disposal Act. When was the mandate of the LBDA changed to allow it to go into commercial property development projects?
INTO COMMERCE
Are we headed to a time when regional development authorities will now be allowed to venture into commerce? This has all the hallmarks of a kick-back-motivated project designed by rent-seeking elites to make money for their own pockets. The whole thing needs to be thoroughly investigated. Yet I still think that the mall is not beyond salvage. We should be ashamed that such a valuable public asset is just sitting there wasting away – like a cathedral built in the desert – when commercial viability has been established.
If there is value to be realised from this project, let the money go to the authority. Private equity funds buy or develop assets, own them for a period then flog them off for handsome profits. Since we allowed our development finance institutions to die, we may as well allow regional development authorities to take up some of the responsibilities.
The Kenya Tourist Development Authority used to have the mandate to develop hotels. When was the last time they built a hotel? When did the Industrial Development Bank last partner with an investor in manufacturing? The mandate of the Kenya Industrial Estates was SME development. It is more or less moribund. In the good old days, the Industrial Commercial Development Corporation would have been the ideal partner for the co-developer of the mall. It is crippled by the lack of funding. The government should not allow the Lake Basin Development Authority Mall to fall under the hammer.
