Auditor General Ouko wants limping Nakumatt out of NSSF building

Troubled retailer Nakumatt’s woes could deepen further after it emerged it could be kicked out of another prime location in Nairobi’s Central Business District.

Auditor General Edward Ouko wants the National Social Security Fund (NSSF) to resolve challenges facing completion of its Hazina Trade Centre that houses the retailer’s Lifestyle branch.

Nakumatt, which is the anchor tenant at the premises, successfully obtained a court injunction in 2014 stopping expansion works on the building, arguing that it was hampering its business. 

The pension scheme had received approvals to increase the number of floors from two to 38 in 2010 and awarded a Sh6.7 billion contract to China Jiangxi International Kenya to complete the building.

The court injunction, however, stalled construction four years later, a situation the Auditor General wants to be resolved urgently.

“NSSF should take legal action against the tenant (Nakumatt Holdings) to secure completion of the building and safeguard members’ contributions,” said Mr Ouko in his annual report for the year to June 2016.

According to Mr Ouko, an audit inspection carried out on January 14, 2016, revealed that the work had stalled after reaching the 15th floor.

“The reason given for stalling of the project was that the columns inside Nakumatt Lifestyle Supermarket needed to be strengthened and reinforced for other floors to be added, but Nakumatt Holdings, the tenants, had denied the contractor access to the basement floors contrary to the provisions of the lease agreement signed in 2003,” he said in the report.

Disputed land

Should NSSF follow up on the Auditor General’s recommendation, it could see the troubled retail chain kicked out of the prime location in the CBD.

This would deal another fatal blow to Nakumatt’s recovery efforts after recently losing another prime space at the Thika Road Mall on the Thika Superhighway and at the Junction Mall in Dagorreti for non-payment of rent.

It could further jeopardise a proposed merger deal with rival Tuskys aimed at containing Nakumatt’s cash flow crisis and rescue it from imminent collapse on account of reduced branch network.

NSSF has already spent Sh1.91 billion in the additional floors and the Auditor General warned that the money could be lost if the standoff between the scheme and Nakumatt was not resolved.

The possibility of losing close to Sh2 billion already sunk in Hazina Trade Centre should construction works not resume soon is not the only risk to contributors’ funds.

The Auditor General also cited irregularities in the disposal of assets, including a 69-acre piece of land that was sold five years ago in Mavoko municipality worth Sh126 million.

According to the report, the state-run pension scheme cannot account for the disposal of the land.

While the deal was concluded in 2011 and the land transferred to the new owners, NSSF only received 10 per cent of the money, with the remainder yet to be remitted as of June last year.

Mr Ouko noted that no efforts had been made to recover the unpaid amount.

“According to documents availed for audit in support of the sale, the plots were sold to AMS Properties Ltd on the basis of an agreement dated November 21, 2011, at a total cost of Sh126 million. However, only Sh12.6 million or 10 per cent was paid. The remainder has not been settled five years later,” he said in the report.

Legal duel

Mr Ouko also explained that no reasons were given for the failure to terminate the sale agreement upon the expiry of a 90-day execution period, which the agreement stipulated to be the duration by which full payment should have been made.

The Fund now risks the loss of the land in its entirety. While the push and shove on illegal asset disposal claims rock the Fund, NSSF management is positioning itself for a gruelling fight with a number of employers who have failed to remit their employers deductions.

The Fund has already sent demand letters to the employers while preparing for a legal duel with them.
“Employers are required under section 8(a) of the NSSF Act 2013 to remit into the fund contributions deducted from members in full and in time. However, examination of 20 sampled employer files maintained in nine NSSF branches disclosed that contributions totalling Sh755 million had not been remitted in the stipulated period,” Ouko’s report claims