How power brokers plotted to fleece billions from NHIF

The National Hospital Insurance Fund has paid out more than Sh1.5 billion to consultants, engineers, and lawyers engaged in a white-elephant referral hospital plot conceived 11 years ago.

The fund is exposed to more losses as it tries to figures out whether to drop or continue with the proposed development of a Sh22.6 billion medical facility amid mixed signals from the Treasury and the Health ministry.

The controversial payments were the subject of closed door discussions on Tuesday between the parliamentary health committee and NHIF managers who are fighting a claim of Sh4.7 billion for the phantom project from consultants, even before a brick is laid.

The fate of the project now lies with Health secretary James Macharia to whom the board sent a brief on June 10, 2013 alleging that the project was initiated by the government and NHIF was just the implementer.

“The board has already incurred substantial resources for services rendered by the consultants and is faced with pending Bills following the instructions given by the parent ministry to revise the original project,” reads a report on the scam seen by the Business Daily.

The report was prepared by NHIF CEO Simon ole Kirgotty after consultants petitioned Parliament’s Committee on Health to compel the fund to pay them outstanding balances arising from the decade-old saga.

It all started in 2002 when the fund proposed to build a recreational/training facility and acquired land in Karen for the project for Sh94 million.

The board provided another Sh85 million for the construction of the facility on the advice of then chief executive Ibrahim Hussein who hired consultants to work on the design without the board’s approval.

Treasury rejected the approval saying it was not justifiable.

“After evaluation of the proposed project, the Health Permanent Secretary on September 19, 2002 forwarded the response from the Treasury … stating that there was no justification for the project and therefore did not grant approval for the project,” the report stated.

(Related: Contributors face further losses in NHIF car park)

The ‘professionals’ claims on NHIF were first rejected by the board in 2006 citing Mr Hussein’s unilateral decision to hire the advisors.

By this time, Mr Hussein had left the fund after being charged with corruption in April 2003 for depositing Sh519 million of the fund’s cash in the collapsed Euro Bank. The firm is yet to recover the money.

At the time the bill for the services was Sh735 million but this was scaled down to Sh352 million in an arbitration award. Mr Hussein had actually committed to pay the advisors Sh1.25 billion in the contracts.

In June 2011 NHIF paid the consultants Sh407 million for the services, presumably including interest.

This was after the board withdrew a case challenging the arbitrator’s award and lost interest in “without prejudice” negotiations with the consultants to reach a settlement “based on the figure of Sh1.25 billion.”

It is unclear why the board mandated the fund’s management to commence negotiations with the consultants based on the original high figure even after the mediation talks yielded a much lower claim.

In their quest to get compensation for the stalled project, the consultants were supported by former medical services minister Peter Anyang’ Nyong’o who on two separate occasions directed NHIF to drop the court case and negotiate with the advisors.

“The minister …in June 2008 wrote to the fund stating that the project proposal gave a detailed rationale for building the Centre, which is considered sound,” the report states. In effect Prof. Nyong’o was backing a proposal rejected by the Treasury.

Beneficiaries of the payouts include Friscan Construction Management – the supposed project manager for the construction facility, Baseline Architects and Ujenzi consultants.

According to registration information Friscan is solely owned by one Francis Odhiambo Guya whose nationality is given as “African.” The company was registered on January 21, 1997. Records for Baseline Architects, the biggest beneficiary with a hand in payments amounting to Sh406 million, were not readily available at the company registry.

The firm was paid Sh162 million for architectural services and design, Sh229 million jointly with Ujenzi Consultants for feasibility study and financial analysis and business plan; and Sh21 million for architecture consultation and related tasks jointly with PKF Consulting.

Ujenzi was on its own paid Sh186 million for quantity survey costs while the National Environmental Management Authority and Nairobi City Council shares Sh8 million for licensing and approval fees.

Despite this NHIF has continued engaging the advisors after settling their initial claims after the stalled recreational suddenly mutated into a proposed medical centre.

On January 7, 2009, Prof. Nyong’o assembled senior ministry staff, the consultants and the NHIF board where he allegedly said the original project would be revised into a medical centre.

“The drawings and other works done by the consultants would be used for implementation of the project to avoid further expenditure in commissioning new works,” the report states.

It is unclear how plans for a recreational centre can be transposed to a medical centre meant to train health workers and offer specialised services such as dental surgery, neurology, and pediatrics.

Prof Nyong’o and the former Office of the Prime Minister subsequently wrote several letters to NHIF pushing for the medical centre, whose funding was to be sourced from China.

“The board of NHIF tasked management to liaise with the consultants to ascertain the implication of the instructions from government,” the report reads. The fund’s CEO then hired Baseline Consultants to conduct a fresh feasibility study on the revised project whose cost was put at $267 million (Sh22.6 billion).

Following the new study, NHIF on November 9, 2011 called for expressions of interest from firms interested in building the medical centre. This attracted 13 bidders, mostly Chinese firms such as China Gezhouba Group and China Wu-Yi Company.

Treasury again threw a spanner into the works, calling for a “proper” feasibility study that would guide in funding the project.

Baseline had projected the Centre would break even in the seventh year and generate annual pre-tax profits of Sh3.3 billion. The project has stalled to date and NHIF is facing more claims from consultants in a project whose funding and rationale is shaky. The fund’s core mandate is to provide medical covers for its members.

“Project manager (Friscan) was tasked by the board of NHIF to prepare a comprehensive brief on the consultant fees. The pending consultant fees will be determined upon verification by the Ministry of Public Works,” Mr Kirgotty said in the report, adding that he is consulting the Ministry of Health for direction on the project.”

The report by Mr Kirgotty suggests that the government should take over the pending bills and reimburse NHIF money spent on the consultants after the project was scaled up to the Proposed Karen Medical Centre for Excellence on the advice of Prof. Nyong’o.

“The board resolved that it would not proceed with the project beyond the feasibility study as the finances were not available and appropriate approvals had not been received from the National Treasury,” the board’s brief to Mr Macharia read.

The imprudence at NHIF comes at a time when the fund is seeking to increase workers’ statutory contributions from the current Sh320 per month up to Sh2,000. The rate increments have, however, been blocked awaiting the outcome of litigation by a number of contributors.

NHIF says a larger budget will allow it to offer a wide range of inpatient and outpatient covers.

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