On 30 March 2011, the then management of the defunct City Council (of Nairobi) obtained a loan of Kshs. 5 billion from Equity Bank at a transaction fee of Ksh. 50 million. The loan was meant to cater for payment of statutory debts which were attracting huge interest charges and was repayable in sixty (60) months in installments of Ksh. 333,33,334.00 payable every quarter at an interest rate of 10% per month. However, the interest for unknown reasons, kept on varying upwards making it difficult to reconcile.
The entire loan was not utilized for the intended purpose but was used to pay suppliers and legal pending bills on advice of Wachira Irungu & Associates who incidentally were also co-opted as signatory to the Equity Bank Account.
The firm had earlier been contracted by the Auditor General to carry out backlog audit and using the information gathered on pending bills they were retained as forensic consultants for verification of CCN creditors.
The consultants approved a total of Ksh 2,433,067,465.00 pending bills to be paid to various lawyers and suppliers of goods and services out of which Ksh. 1,288,205,759.00 had already been paid by the time the firm compiled the report.
Analysis of the Equity Bank Loan
Analysis of the Equity bank Loan revealed that out of the Ksh.5 billion borrowed, Ksh.1,651,845,644.10 had been paid as interest at varying rates while Ksh.2,334,000,004.00 had been paid as principal leaving a balance of Ksh 2,666,466,838.00 as at 30 June 2013.
The County has been paying quarterly Ksh 333,333,3340.00 as principal without monthly interest of about Ksh.60,00.00.00. A total of Ksh403,641,326.56 was paid as interest between January and June 2013 together with the March 2013 principal installment.
The City County defaulted in the principal loan repayment for the June 2013 and this may attract additional penalties. Consent of the then Minister for Local Government was not availed for audit review together with the agreement and full Council resolutions approving the borrowing from Equity Bank and utilization.
It is not clear why the statutory debts were not settled as envisaged and are still outstanding and attracting the huge penalties that would otherwise have been avoided had they been cleared as planned. The County management therefore should adhere to the terms and conditions of Equity Bank loan and ensure full settlement of the loan in order to avoid additional interest and penalties.