The interest on a Sh5 billion loan the defunct City Council of Nairobi took three years ago to settle statutory debts now stands at Sh2.5 billion.

At the same time, auditors from the Kenya National Auditors Office (KNAO) have said Nairobi City County, which replaced the council, is yet to clear an outstanding balance of Sh3.08 billion.

The city council took the loan from Equity Bank in March 2011 to pay the debt that had accumulated to Sh30 billion.

 “We have noticed that the interest has been varying. Initially it was 10 per cent, but on October 16, 2011, it was 18 per cent, and at a high of 24 per cent on November 15, 2011. However, we confirmed that the variation on interest was an agreement in the contract,” the auditors said.

LOAN TRANSFERRED

Head of Treasury Accounting Stephen Osiro said the Central Bank of Kenya base rate stood at 10 per cent and Equity Bank was, therefore, at liberty to charge higher interest rates on its loans.

The figures were revealed last week when the team met the County Assembly Public Accounts Committee and representatives of the County Treasury.

The loan was used to pay Laptrust (Sh2.3 billion),  Lapfund (Sh800 million), Kenya Revenue Authority (Sh124 million), NSSF (Sh200 million, NHIF (Sh105,344,263), legal creditors (Sh1.3 billion) and other creditors (Sh1.29 billion).

There have been questions whether the loan was utilised for the intended purpose and whether it was economically viable to transfer it to Kenya Commercial Bank.

County Finance Officer Jimmy Kiamba argued that the move was prudent as it was the only way the council could access the Local Authority Transfer Fund (Latif), which had been withheld due to the debts.

“The genesis of the loan was when the local authority was directed to clear the debts in 2010. The amount we used was approved by the Permanent Secretary (then Karega Mutahi),” said Mr Kiamba.

The auditors had to obtain the loan contract document from Equity Bank after Treasury failed to submit it. The Public Accounts Committee has also previously accused the county treasury of failing to provide the crucial documents.

At first, the auditors reported that Equity had declined to submit the papers, citing directives from the county government.

COUNTY ‘BROKE’

Last year, the cash-strapped county government was on the spot over Sh978,169,952 owed to Equity Bank.

The county sought to have the bank review the loan interest rates without success,  leading them to sign a contract with KCB to take over the loan.

In the contract, KCB is supposed to collect revenue on behalf of the county administration to repay the loan.

Currently, the Evans Kidero administration is owed Sh93.7 billion by various debtors while it owes others about Sh42.7 billion.