City Council under scrutiny over use of Sh5bn Equity loan
The NCC building along Mama Ngina Street, Nairobi. Photo/File
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The House Committee on Local Authorities and Funds Account also called for an investigation into the conduct of top City Hall officials under whose tenure the loan was secured and payments made.
The council signed an agreement for a banking facility with Equity Bank for Sh5 billion repayable in 60 months on March 30, 2011.A 10 per cent interest was to be paid monthly on drawn balances, but subject to revision at the discretion of the bank.
The anti-corruption commission has been asked to investigate the financial management of the City Council of Nairobi, including the procurement and use of a Sh5 billion loan from Equity Bank.
The House Committee on Local Authorities and Funds Account also called for an investigation into the conduct of top City Hall officials under whose tenure the loan was secured and payments made.
The move would put former Town Clerk Philip Kisia and former director of legal services Aduma Owuor, who are seeking to be governor of Nairobi and MP for Nyakach respectively, on the spot.
The council signed an agreement for a banking facility with Equity Bank for Sh5 billion repayable in 60 months on March 30, 2011. A 10 per cent interest was to be paid monthly on drawn balances, but subject to revision at the discretion of the bank.
The interest rate, according to the committee’s findings, was varied from 10 per cent to 24 per cent without involvement of the council.
The committee, in a report tabled in Parliament last week accused the former City Hall officials of flouting financial regulations by conducting the huge transaction without proper approval.
The committee also recommended that Equity should pay the Council interest earned on any balances more than Sh500 million in an escrow account as stipulated in the loan agreement.
“The escrow account in use for this facility did not accrue interest, in spite of the bank charging high interest rates on the loan. This put the council at a disadvantage as it was earning no interest on its money, but the bank had additional funds to use for its operations at no cost,” the MPs observed.
The council was to maintain a daily cash float of Sh1 million at the escrow account up to a maximum Sh500 million with Equity as part of the loan security.
The MPs said the council was not in possession of crucial loan documents, such as contract agreement, and charge documents.
They said chief officers did not take responsibility for executing the agreement. The council secured the loan to pay statutory and sundry creditors.
However, the committee found that a large portion of the money was released on the same day the agreement was signed, before receipt of ministerial approval for the loan.
The team said all the statutory payments were approved except Sh686 million for National Social Security Fund. Other creditors owed Sh862 million were to be verified before payment.
However the committee said an extra Sh516 million was paid to other creditors. Only payments of Sh295 million were verified leading to payments to creditors who had not been approved.
“Some City Hall officials and councillors who were the contact persons for the verification exercise ended up showing preferences in certain creditors being approved ahead of others,” said the auditors in the report.
