NAPSA in US$50million Society House Re-Development Scandal

NATIONAL PENSION SCHEME AUTHORITY - NAPSA which started its operations in February 2000 following the transformation of the Zambia National Provident Fund ( ZNPF) has been caught up in what can best be described as a scandal. NAPSA which is charged with the responsibility of being the custodian and administer of the national pension has spent over ZMW491million ( about USD50million) of Pensioners funds on the development of society house in excess of the initially agreed contract sum.

This came to light in the Auditor General’s Report made to President Lungu and made available to the Zambian Business Times - ZBT for review and further analysis. Acting Auditor General Ron Mwambwa stated that NAPSA ‘contrary to standard engineering practice, the tendering and commencement of the project (society house re-development) was done without detailed designs resulting in understatement of bills of quantities which consequently resulted in an increase in contract sum’.

Mwambwa said that” the contract price was revised three (3) times resulting in an extra cost of K491,724,766 (about USD50 million) representing an increase of 104% of the initial planned contract cost.”

Details on how NAPSA has ended up spending double the initially contracted amounts using Zambian pensioner’s funds are that at inception, NAPSA in 2011 incorporated a wholly owned company called the Society House Development Company Ltd - SHDCL.

Then the SHDCL signed a Concession Lease Agreement with the Zambia National Building Society - ZNBS on 20th May 2011. Under this Agreement, ZNBS granted SHDCL leasehold interest in land on which the project assets are located an exclusive right to use, possess, construct, operate, manage and rehabilitate such assets for a term of twenty (20) years.

Six days later on 26th May 2011, SHDCL entered into a contract with Yangts Jiang Enterprise for the design, supervision, and redevelopment of Society House and Central Arcade in Lusaka. The contract included other parties in partnership with Yangts Jiang under a vehicle called Zambezi Consortium.

Apart from the contractor Yangts Jiang Enterprise, the members of the Zambezi consortium included Bicon Zambia Ltd the consulting engineers, Louis Karol and PJP Associates as Architects and Turner & Townsend Ltd and HB Chalwa Associates as Quantity Surveyors.

The contract price was set at the time K407,776,661 without Value Added Tax ( VAT) and at VAT inclusive price of K473,044,127 and the duration of the works was contracted as thirty-six (36) months starting on 8th June 2011 and ending on 9th June 2014.

On 8th April 2016, NAPSA signed a contract addendum with the receiver of Yangts Jiang Enterprise Ltd and African Brothers whose contact was listed as Zhou Wei under which African Brothers Ltd was engaged to take over the remaining works at an extra cost of K46,363,513

Yangts Jiang Enterprises Limited construction had problems with the national council on its poor quality of works which led to its certificate suspended earlier around December 12, 2013 by the National Construction Council - NCC for non-performance and failure to deal with outstanding defects in another contract with the Energy Regulations Board -ERB building. However, Four days later on 16 December 2013, the certificates were restored as announced by Dr. Stephen Mashamba, the then NCC Director.

By 31st December 2016, the contract price had been revised to K952,966,441 of which the Authority had paid cumulative amounts of K789,001,000. This cumulative costs had now reached 104% of the initially projected and contracted sum.

Justification for the escalated costs was fluctuations in the USD to Kwacha rate does not hold water as the contracting parties should have agreed upfront on how the fluctuations would be hedged, financiers of such contracts which involve foreign exchange exposure are expected as per standard business practice to include hedging provisions for any imported construction materials and works which questions the probity and competence in decision making, making this scenario scandalous.

A further review of the governance arrangement at NAPSA board level by officers of the Auditor General further revealed that the State Pension Fund has had a revolving door for appointed board of directors.

For instance, the board that was in office in 2014 was appointed on 1st April 2014 and was dissolved one year eight months later on 26th December 2015. Further, a caretaker Board was appointed on 26th February 2016 and served for three (3) months until it was dissolved on 10th May 2016.

The next board was appointed on 10th May 2016 and served for eight (8) months until it was dissolved on 18th January 2017. Thereafter, an interim board was appointed on 27th February 2017 and that lasted for three (3) months. At the time of audit in July 2017, a new board was in place which was appointed on 1st June 2017.

The frequent change of boards can lead to inconsistency in the long term planning and implementation of organization strategies as well as loss of credible institutional memory.

These frequent changes can also be used by the appointing authorities to put pressure on newly appointed board members to make irrational decisions to protect their appointments at the expense of the future viability of the pension fund and pensioners who are the most important stakeholders.