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

Zambian Business Times - - FRONT PAGE -

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.

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