Equity Bank loan throws City Hall into cash crisis
Posted Monday, June 4 2012 at 19:30
The City Council of Nairobi is seeking cheaper funds to retire the Sh5 billion loan it took from Equity Bank last year, which has strained its capacity to pay workers on time and meet other financial obligations.
Newly appointed town clerk Roba Duba said the council’s financial position has worsened because nearly all its revenues and grants from the government are used to service the loan.
It pays Sh140 million per month against an average monthly revenue collection of Sh400 million. A further Sh350 million is due quarterly as repayment of the principal, with the council raiding its allocation of the Local Authority Transfer Fund (Latf) to pay this sum.
“The council is feeling the pinch of this high repayment amount and we will be going to Equity Bank, hoping to negotiate the lowering of the interest rate,” Mr Duba said.
The five-year loan was priced at 10 per cent and was used to settle City Hall’s other debts, including the Sh2.5 billion it owed the Local Authorities Pension Transfer Fund (Laptrust).
Mr Duba said the council was also considering using its assets — which include several housing estates — to secure cheaper credit to wind up the loan from Equity.
“We have idle assets, including land, which can be used as collateral. If we don’t find competitive rates we can as well raise cash by selling the assets,” he said.
The law prohibits councils from selling off their assets ahead of the transition to devolved governments.
Servicing the loan at a time when revenue collection has stagnated has compelled the local authority to turn to the State for bailouts.
City Hall’s failure to remit the Sh2.5 billion to Laptrust saw it lose some Sh2 billion from the Local Authority Transfer Fund (LATF) which pegged future allocations to prompt remittance of pension deductions.
Though disbursements of LATF has resumed, most of the money is being gobbled up by the loan, leaving little for the council to deliver services with and to pay workers.
The council has of late been embroiled in a tug of war with creditors who owe it more than Sh101 billion in a last-ditch effort to improve its financial position. The council is also relying on the Treasury to pay some of its guaranteed debts.
The Treasury is already paying a Sh212 million loan taken by City Hall 30 years ago from the United States Agency for International Development (USAid) for construction of houses in Nairobi’s Umoja Estate.
The cash-crunch at the council has led to delays in the payments of workers while city residents grapple with erratic delivery of services like garbage collection. Burma Market, a popular eatery in Shauri Moyo, Nairobi, was last week closed by public health officials for not meeting the required hygiene standards. The market is managed by the council.
The Sh5 billion loan was given on expectation of increased revenue collections from higher parking fees whose implementation was blocked by the courts.