The Nairobi County government has announced a sale of idle assets, including land and May levy, a new tax to avoid auctioning off its prime assets due to Sh4.4 billion KCB loan default.
The fundraising comes just weeks after the High Court authorised KCB Group to seize and auction the county’s assets as a result of the defaulted loan.
City Hall has informed its assembly of plans to sell idle assets, particularly land that has attracted grabbers in recent years in order to raise the billions of shillings required to clear the debt.
Nairobi Finance and Economic Planning CEC Allan Igambi stated that City Hall was also considering instituting a cess or a special tax for the sole purpose of repaying the loan.
The strategy is outlined in the Nairobi City County Medium Term Debt Management Strategy Paper for the fiscal year ending June 30, 2023, with the goal of reducing the devolved unit’s mounting debts.
“This paper recommends that we conduct an auction for all obsolete and idle assets and furniture and the proceeds realised be used to reduce the outstanding loan,” says the document.
Land and home sales provide City Hall with an easier way to raise the Sh4.4 billion that KCB requires.
To settle a Sh2 billion debt, City Hall was forced to transfer its Mariakani Estate to the Local Authorities Pension Fund in 2013.
The half-century-old estate is located on 10.13 acres in Nairobi’s South B neighbourhood and consists of 30 blocks of eight flats.
City Hall is now looking for a similar deal to pay off the KCB debt and avoid auctioning off its prized assets.
Last month, High Court judge Chacha Mwita dismissed the county government’s application challenging the amount awarded to KCB by an arbitrator in November 2019.
Equity Bank initially provided the loan to the now-defunct Nairobi City Council.
Following the establishment of devolved governments in 2013, Nairobi County inherited the debt.
In September 2014, KCB purchased the loan from Equity, offering better terms to the county government.
According to Justice Mwita, the law requires that an arbitral award be recognised as binding and enforced after court approval.
The county government also claimed that it was not given an opportunity to be heard about the statement of account provided to the arbitrator, and thus was condemned unheard.
City Hall operates on a budget that is dominated by the payment of salaries to its bloated workforce, leaving little for debt repayment and key projects such as the construction of roads and hospitals.
The transfer of Nairobi’s key functions and cash to the Nairobi Metropolitan Services (NMS) under Major-General Mohammed Badi has exacerbated the city’s budget woes.
Evidence presented in court revealed that Equity lent Sh5 billion to the now-defunct Nairobi City Council in 2011.
The funds were intended to help pay off statutory debts in order for the city council to gain access to the Local Authority Transfer Fund, which represented resources previously provided by the national government prior to the formation of counties to improve service delivery at the grassroots.
The funds were transferred to the National Social Security Fund, the Kenya Revenue Authority, the Local Authorities Pension Trust, and the Local Authorities Provident Fund.
Equity stated in 2014 that City Hall owed it Sh4.75 billion, including a Sh1.45 billion over draft.
When KCB took over the loan in September 2014, it extended the maturity period to eight years at a 13 percent interest rate, giving the county more time to repay the debt.
Equity charged a varying annual interest rate of between 18 per cent and 24 per cent on a decreasing balance, and the county was required to repay the money in 60 months.
KCB also offered the county a six-month grace period before beginning debt service
