State owes retirees Sh225m in Muthurwa deal

Kenya: More questions have been raised on how property belonging to the Kenya Railways Staff Retirement Benefits Scheme were disposed of.

The Standard on Sunday takes you back to Nairobi of 2010. The property on sale was L.R 209/18566 in Nairobi West. The buyer was the National Housing Corporation (NHC). The sale price was Sh250 million.

In October and December of the same year, the lawyer representing the scheme was paid by the debtor, NHC. The debtor did not, however, remit the full amount to the scheme. It was not until a year later, on October 6, 2011, when the NHC confirmed settling the balance and lawyers provided with evidence.

This was after the scheme had requested confirmation of the outstanding balance for purposes of audit. The total outstanding amount of Sh10 million had not been remitted to the scheme by the lawyers as at the time of an audit in 2011 by the RBA. For this particular sale, the lawyer charged legal fees at 10 per cent of the value of the property, equivalent to Sh25 million.

Gakuo Court, Nairobi

Next in line was the 3.9-acre plot L.R 209/8760, also known as Gakuo Court. According to the Retirement Benefits Authority (RBA) report, the scheme received bids from two companies - Homebound Realtors and a joint venture between Abcon International LLC and Bliss GVS Pharma Ltd. Homebound offered Sh680 million while the latter offered Sh650 million. This property was sold for Sh650 million.

However, minutes from a special development committee meeting on September 21, 2010 indicate the property had been valued at Sh700 million by Crystal Valuers.

The scheme therefore accepted Sh50 million less than the property was worth. There is no documentation on how the buyers were selected.

Muthurwa Estate, Nairobi

The case of the 56-acre Muthurwa Estate is a curious one. Demolitions, forced evictions and construction of a bus stage and hawkers’ market meant to rid the city of small traders was just a tip of the iceberg that was Muthurwa’s carving and ultimate disposal.

Prior to the establishment of the scheme, the Kenya Railways Corporation had commenced the sale of this property to the Local Government. By the time the scheme was established, the sale was at an advanced stage. Fifteen acres were sold at Sh650 million. This amount was paid in full. Subsequently, an acre was sold to Kenya Power & Lighting Company for Sh110 million which was fully paid for.

In 2010, the Local Government expressed an interest in purchasing an additional five acres at a price of Sh325 million. The scheme sold the five acres for the stated price. To date, Sh100 million has been received, with the balance of Sh225 million still outstanding.

The remaining acreage was to be sub-divided and sold to individuals. This was advertised, but it raised contention from the existing tenants.

In their final submission, RBA officials said no documents of title or agreements of sale for Muthurwa were shown to them.

Makongeni’s vested interests

Unlike other properties, the 141-acre Makongeni Estate was not to be sold but redeveloped into a more viable income-generating site.

At the time they were carrying out their audit, officers from the RBA requested to see all documentation related to Makongeni.

The officers were advised that one of the trustees had picked the relevant file from the Scheme’s offices and had not returned it since.

Minutes from the board of trustees meetings indicate that Baseline Architects were appointed to lead a consortium to carry out a feasibility study in relation to the redevelopment. The selection of this service provider was not documented. It is, therefore, unclear how they were picked.

A letter of engagement was not provided, but on completion of the study and submission of a report, a fee note of Sh800 million was raised by the consortium.

Golf City big money mirage

The values in contention in the above allegedly illegal sales of property would pale in light of what was to be Nairobi’s most ambitious real estate development, invariably involving the railways retirees’ pension scheme and a real estate developer.

On offer for sale was two parcels of prime land measuring more than 22 acres. This was to include the 18-acre Nairobi Railway Club and an adjacent plot measuring 3.9 acres and another plot still under ownership of the Kenya Railways.

Between June and October 2009, the Kenya Railways Corporation invited, through the Press, interested bidders to tender for lease for development of the said properties. Court documents seen by The Standard on Sunday indicate that the decision to invite one bid for the three properties and the transactional plan were all disclosed in the classified bid documents.

Erdemann Property Limited, an interested real estate developer, submitted a Sh2.15 billion bid for the three properties on July 10, 2009. With the property, Erdemann was to build 24 apartment blocks, a shopping mall, office blocks and a five-star hotel all at a cost of Sh40 billion.

On July 30, Erdemann received a letter from the Kenya Railways Corporation informing them that they had been awarded the tender. Four days later, Erdemann responded confirming acceptance of the award.

On August 10, the retirement scheme advised Erdemann to contact the Kenya Railways chief executive officer to agree on a date and time when the negotiations would commence.

The contract form was, however, minus several terms that Erdemann had included in its bid. In their reply, the developers then amended the contract form to tally with their initially submitted bid and sent it to Kenya Railways.

On August 26, an introductory meeting was held between the parties. A date, September 17, was selected for a property sale negotiation meeting. But at the negotiation meeting, advocates acting for the sellers indicated that their client was offering the three properties at almost triple the bid price of Sh2.15 billion that was initially submitted.

On September 22, Erdemann’s lawyers wrote to the seller’s advocates requesting to be supplied with documents in support of the offer made by their clients. On October 1, the advocates responded by saying that they were awaiting instructions from their clients.

On October 23, following a meeting a day earlier, Kenya Railways sent a contract to Erdemann for execution. On October 26, Erdemann’s lawyers returned the contract to Kenya Railways unexecuted and forwarded an executed form of agreement to the retirement scheme.

Erdemann lawyers wrote to the scheme’s CEO on October 30 asking for the executed agreement. On that same date, Erdemann received a demand notice of Sh300 million from their bankers, Development Bank of Kenya.

After a flurry of activity and correspondence between the three parties involved plus the bankers, another meeting was eventually held to try and settle the issues that were raised by the tender within the boardrooms of the aggrieved parties. This was, however, not to be, as the intrigues continued.

As the case raged on in court, Erdemann applied for a search on one of the three properties it had bid for, LR No. 209/8760, on Lower Hill Road and owned by the scheme, and found out that it had already been sold and transferred to Greenfield Developers Limited at Sh650 million.