A parliamentary committee is investigating how the cost of constructing a mall by the Lake Basin Development Authority (LBDA) rose from Sh2.45 billion to Sh3.86 billion.
The Parliamentary Departmental Committee on Environment and Natural Resources chairman, Wilber Otichilo, has demanded an explanation on the cost of Western Kenya’s biggest mall, which rose by Sh1.4 billion.
“We have asked for documentation from the authority and they have promised to supply them early next week,” Mr Otichilo said.
The mall in Kisumu city is said to be 90 per cent complete and was to be officially opened in August last year.
It has also emerged there have been several changes of LBDA’s top management since construction of the mall began in August 2013.
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“From the briefing, we have gathered that there are numerous challenges affecting the project. One of them is frequent changes in the management of the authority,” said Otichilo.
A brief from LBDA submitted to the committee reveals that the authority has had to revise the project’s master plan to “allow proper utilisation of space”. “The effect was to maximise on the facilities available within the mall area for improved revenue. This called for the addition of a three-star hotel, show room, tyre centre and back access road as part and parcel of the mall. This brought the revised implementation cost to Sh3.86billion,” reads the brief.
Loan repayment
The authority also indicates that they had to change the plan to avoid conflicts due to the planned expansion of the Kisumu-Kakamega highway and the northern bypass interchange at Mamboleo junction.
Initially, LBDA had partnered with Hawthorne Development Corporation (HDC), which was to provide 100 per cent financing for the mall.
When HDC failed to secure the funds, the authority advertised for a new partner.
Through a procurement process, Erdemann Property Ltd (EPL) was identified. LBDA then engaged EPL to finance and construct the shopping mall at an initial cost of Sh2,451,035,644.
The authority was to provide Sh490,207,128.60, being 20 per cent of the cost as advance payment.
It has only paid Sh359.5 million of this amount so far. The authority has requested the National Treasury to help it pay Sh2.5 billion of the outstanding amount which as repayment for the loan.
It is also proposing that they be allowed to take a commercial loan of Sh1 billion to pay the balance to EPL and use rent from tenants to service the loan and other operational costs.
