Controversial Lake Basin Mall piles up Sh4b debt

A loan taken by the Lake Basin Development Authority (LBDA) to build a mall has now risen to Sh4 billion due to accrued interest charged for failure to service the debt.

The principal amount from Co-operative Bank for additional construction work on the controversy-ridden project in Kisumu was Sh2.5 billion but it has piled up penalties.

Calvin Odoyo Owidi, the LBDA board chair and Raymond Omollo, the managing director confirmed that the debt is increasing by the day, with sources indicating the authority was being charged about Sh30 million a month, for the last eight years. 

“If the trend continues, and the loan is not settled in time, LBDA will lose Sh360 million a year, which defies the investment’s logic,” Owidi said.

But why is LBDA staring at the increasing penalties without putting a stop to it? 

Weekend Business established that the National Treasury is yet to give approval and funds to LBDA so that it can release the mall’s contractor from the loan obligation and take over the property.

Partly occupied

The loan was taken by a contractor, Erdermann Properties, which built the mall in Mamboleo. It has since been partly occupied by a number of State parastatals and private firms.

Erdemann was contracted to carry out the work under an engineering, procurement and construction contract.

It then sought a loan from Co-operative Bank of Kenya to finance the construction.

The certificate of completion was issued by the architect on April 19, 2016.

Measuring about 60,000 square feet, the five-floor complex stands on 22 acres and has 140 shops, a three-star hotel, showrooms, doctors’ plaza, an amphitheatre and children’s play area.

The final account showed the project cost Sh4.1 billion.

But six years after its construction, the Ethics and Anti-Corruption Commission (EACC) instituted a probe to establish the cost incurred to put up the mall.

Owidi said when the loan was applied for in 2014, an acre in Mamboleo was valued at Sh3 million. LBDA agreed with the contractor to secure a Sh2.5 billion loan from the bank using the title as lien.

This is what the contractor relied on as a right to keep possession of the property until the debt owed by the authority is discharged.

LBDA says Treasury only needs to pay the Sh4 billion debt and the authority takes over the mall.

Over the weekend, Principal Secretaries Jerome Ochieng (ICT), Joe Okudo (Sports), Margaret Mwakima (TVET), Ali Noor (Cooperatives) and Alfred Cheruiyot of Skills Development visited the mall to check the progress.

“We are going to follow this up with the Treasury immediately,” assured Ochieng, who led the delegation.

Treasury finances LBDA’s recurrent expenses of about Sh180 million year. Sources at the Board say Treasury, which is the principal funding agency of LBDA, only needs to make a budgetary provision to settle its debts and stop financing LBDA's recurrent expenditure each financial year.

But the mall, if fully occupied, has the capacity to generate about Sh200 million in a year.

This means if the bank loan is settled, LBDA will begin to recoup the sum invested at the rate of Sh200 million per year.

Last year, the Senate Devolution Committee raised audit queries in relations to the ongoing investigations by EACC on the cost of the mall.

The Director of Public Prosecutions Noordin Haji charged a number of suspects allegedly implicated in financial impropriety including former LBDA chair Onyango Oloo.

This was after the agency’s Director of Investigations Abdi Mohamud said the mall project was scarred by bribery. About 90 people recorded statements as either suspects or witnesses.