Treasury Building: Treasury plans to spend Sh540 million in the next two years to establish 10 guesthouses that will host visiting dignitaries.
Nairobi’s top hotels are set to lose a key revenue stream as the government moves to reduce its expenditure on visiting State guests with the acquisition of guesthouses to accommodate them.
Through an initiative set in motion last week, the government plans to buy prime property in the capital to be converted into guesthouses where visiting heads of state, top foreign government officials and envoys will stay.
The Ministry of Foreign Affairs says the plan should help the State reduce the Sh100 million it spends to book foreign dignitaries in five-star hotels every year.
“State guests are booked in exclusive and expensive hotels that consume a huge chunk of the ministry’s budget, which over the last three years amounts to an average of Sh100 million,” the Ministry of Foreign Affairs said in a brief.
Treasury plans to spend Sh540 million in the next two years to establish 10 guesthouses that will host visiting dignitaries.
Procurement of the first batch of properties to be converted into guest houses began last week with the publication of notices inviting tenders from owners of suitable property.
“The ministry invites sealed bids from interested eligible bidders for the purchase of government guesthouses for VIPs in Nairobi,” the ministry said in a public notice indicating October 1 as the deadline for submission.
“Bidders are required to provide a bid security of Sh1 million from a reputable bank or insurance company located in Kenya and must be valid for a period of 150 days from the date of tender opening.”
Treasury has allocated Sh200 million for the project in the current budget with the remaining portion expected to come in the next financial year. Ministry officials said the facilities will be managed in the same way the government runs State House and the various State Lodges countrywide.
Acquisition of guesthouses is expected to hive-off a small but lucrative chunk of the hospitality business that is currently enjoyed by five-star hotels such as the Nairobi Serena, Laico Regency, InterContinental and Hilton that have presidential suites.
Presidential suites cost up to Sh250,000, inclusive of taxes, a night. Nairobi’s Laico Regency, for instance charges Sh212,800 for the presidential suite per night while an executive suite costs Sh48,640 a night.
“Nairobi is becoming a major business hub and we already host key UN facilities that are making visits by dignitaries more frequent piling pressure on the ministry’s budget,” said Egara Kabaji, the director of public affairs and communications at the Foreign Affairs ministry.
Prof Kabaji says accommodating State guests in private hotels is straining its budget hence the resolve to own exclusive government-run facilities to host them. The ministry hopes to recoup the Sh540 million investment in the guest houses within eight years.
Critics have argued that managing and maintaining State-owned guest houses would in the long run prove even more expensive than booking the dignitaries in the hotels, citing the cost of employing qualified staff on a permanent basis and the millions of shillings that will have to be spent on the facilities every year to maintain high standards.
“It all goes against the current model of running a government in which the private sector is allowed to do what it is good at. The State can certainly not claim to be good at running a hospitality facility,” said Ken Stewart, an independent economist.
Mr Stewart warned that the tax payer runs the risk of being asked to pay for facilities that a few years down will be so badly run forcing the State to book important guests in the same hotels they are running away from.
“Certainly the cost consideration here should not be in the purchase of these facilities, but in the long term price that the government will pay to run them,” he said. Prof Kabaji reckons that feasibility studies had shown that the planned VIP guest houses would not suffer underutilisation.
“The estimated flow of guests is sufficient to keep the facilities occupied round the year and the fear of underutilisation is not an issue at least for now,” he said.
In opting to acquire its own guest houses, the Ministry of Foreign Affairs says it is only following in the footsteps of other governments that own similar facilities for state guests. “
We are taking on the same and hope cut down on our costs significantly,” Prof Kabaji said without giving specific cost variations that would come with the new model of operation.
Mike Macharia, the CEO of Kenya Association of Hotel Keepers and Caterers (KAHKC), said government guest houses are unlikely to significantly dent revenue sources of big hotels in Nairobi.
“We don’t see this as a danger to existing facilities because while the planned guest houses would take up the VIPs, the hotels will continue to accommodate members of their entourage,” he said.
“The main concern would be how to manage idle capacity especially when we don’t have guests around,” Mr Macharia said. “The concept is critical in line of security because it is easier to secure a private guest house than a hotel that is open to public.”
The government has in the recent months come under immense pressure over under utilised State Lodges with a Parliamentary committee recommending that those in Sagana, Eldoret and Kakamega be converted into training facilities.
In a report on government expenditure under the Office of the Prime Minister and State House, the parliamentary departmental committee on national security and administration also asked the government to make public the status of State Lodges in Rumuruti, Cherangany and Mtito Andei.
The MPs asked the government to consider building official residences for constitutional office holders, just like State House for the President, and criticised the allocation of public funds to repair the Prime Minister’s private residence.
The accomodation-centred cost-cutting moves by the Foreign Affairs ministry have been extended to its missions abroad where the government is purchasing facilities or constructing new ones to stop paying rent.
“On average the ministry spends Sh384 million on chanceries and Sh874 million for residences abroad annually taking 18 per cent of the ministry’s total budget,” the ministry said in a report.
In the last three years the ministry undertook more than five projects including buying property abroad. It purchased a chancery and the ambassador’s residence in Beijing at cost of Sh535 million saving the government Sh7.7 million in rent annually.
It also purchased a chancery in Brussels at a cost of Sh385 million leading to savings of Sh17.7 million in rent annually. It further constructed a chancery and high commissioner’s residence in Dar-es-Salaam at a cost of Sh282 million leading to savings of Sh6.8 million in rent annually.
It purchased a building to house the chancery and ambassador’s residence in Tokyo at a cost of Sh1.5 billion and as result saved Sh48 million in annual rent.
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