MPs question City Hall use of Sh5bn Equity loan

City Hall came under sharp focus Wednesday after it emerged that it used some of the Sh5 billion loan, whose original contract cannot be traced, from Equity Bank to pay out millions to wrong parties.

(Read: Equity Bank loan throws City Hall into cash crisis)

The City Council of Nairobi (CCN) used the cash to pay institutions such as Kenya Revenue Authority, National Hospital Insurance Fund, creditors and banks by reducing payments to parties listed in the loan agreement or making payments without formal request.

Parliament heard that mayor George Aladwa and former Town Clerk Philip Kisia irregularly signed the form of acceptance for the loan although the law does not allow mayors to sign documents on behalf of the councils.

Parliamentary Local Authorities and Fund Account Committee members were shocked when deputy director of audit Elizabeth Nguring’a told them that the council could not produce the original loan contract.

“We were not able to see the original contract. We only saw a photocopy of the same,” said the Kenya National Audit Office auditor who is in charge of Nairobi and Wajir.

City Hall took the loan from Equity in March last year to service its huge debt that stood then at Sh30 billion. It pays Sh140 million interest monthly and a further Sh350 million quarterly as repayment of the principal amount.

The five-year loan pegged at 10 per cent was used to pay City Halls debts including Sh2.5 billion owed to Local Authorities Pension Transfer Fund (Laptrust).

The House committee chaired by Wundanyi MP Thomas Mwadegu was taken aback on learning that a copy of the loan analysis Town Clerk Roba Duba presented had neither a date nor a signature prompting the team to order production of a certified copy. Mr Kisia and PS Karega Mutahi attended the meeting.

The auditor expressed concern that the council paid institutions, which had not been factored in the balance of approved creditors’ list.
MPs questioned why the council had spent Sh50 million as loan processing fee.

In the original request, the council had asked for Sh2.5 billion for Laptrust, Sh1.1 billion for Lapfund, Sh884.3 million for National Social Security Fund (NSSF) and Sh1.7 billion for general creditors. The auditor revealed that the council paid Laptrust Sh2.3 billion instead of Sh2.46 billion requested, Lapfund Sh800 million instead of Sh878.8 million and NSSF Sh200 million instead of Sh856 million.

Kenya Revenue Authority, according to Ms Nguring’a was paid Sh124 million while National Health Insurance Fund got Sh105 million without approval.

The council also paid out Sh862.9 million to other/general creditors instead of Sh1.3 billion, which had been requested
The auditor said the payments were effected without forensic audit.

“Although the council was to use the loan to pay off its statutory creditors, this should have only been done after a forensic audit had been carried out on general payments before the actual monies were paid out,” she told the committee sitting at County Hall in Nairobi Wednesday.

Mr Mwadegu demanded to know why the council deviated from the approved payments and sought to find out whether the same was sanctioned by the former Local Government minister Musalia Mudavadi and the PS.