NSSA to recoup hotel investment:
. . . as shocking details of criminal incompetence emerge
MIND-BLOWING details on the scandalous amount of pensioners’ money spent particularly on the construction of Beitbridge Hotel indicate that it might take the National Social Security Authority (NSSA) close to 278 years to recoup its investment.
Essentially, it means it is almost impossible to generate any meaningful return from the property unless it is disposed to interested suitors.
Findings of a forensic audit compiled by Grant Thornton also raised concern on the seemingly inflated cost of acquiring another property, Celestial Park in Harare’s Borrowdale suburb.
The 668-report seen by The Sunday Mail Business points to a sloppy tendering process in engaging an out-of-sorts contractor for the project, Costain Zimbabwe; inordinate delays in construction, which negatively impacted on the cost; and endless alterations to the terms of the contract between NSSA and the contractor.
The scope of the project also changed while the project was underway.
All these anomalies had the adverse effect of hitting NSSA where it hurts the most — in the pocket.
It is estimated that NSSA could have been prejudiced over US$30 million through inflated project costs.
Messy tender process Beitbridge hotel is the brainchild of Government’s 2006 push to redevelop Beitbridge as a major town.
While NSSA was tasked to take the lead role in actively developing the border town, which is also the gateway to Southern Africa, Rainbow Tourism Group (RTG) was subsequently roped in to construct the hotel.
Estimates that were made at the time suggested that a 140-room hotel could be constructed at a cost of US$3 million.
However, the forecast was based on incomplete drawings and architectural designs.
But when the initial tender to identify the major contractor was floated on October 30, 2009, NSSA put the pre-tender estimate at US$18,9 million.
Though quantity surveyor (QS) engaged for the works, TN Zunzanyika, settled on Donhe Construction and Murray Roberts, the tender had to be re-floated in February 2010 after the bidders were deemed to have failed to meet the specifications of the tender.
But again, the QS shortlisted Murray Roberts for being the most compliant to specification at a tender sum of US$17,5 million.
On March 12, 2010, NSSA’s internal tender committee also agreed with the evaluation and recommended the bidder.
But on April Fools Day - April 1 - the following month, the State Procurement Board (SPB) pulled what seemed to be a prank at the time. It inexplicably awarded the tender to Costain for US$17,4 million.
Auditors, however, found an anomaly in the decision that was made by the SPB.
At the time the tender was awarded, Costain not only did not have a valid tax clearance, it also did not submit its litigation history as well.
Despite these limitations, SPB’s decision carried the day, and on August 3, 2010 Costain began work.
Troubling signs began to crop up exactly five months into the works after the contractor requested NSSA to make payments directly to its suppliers in order to avoid delays.
The request meant that the nature of the contract was naturally being altered from a fix-and-supply contract to a labour-only contract, contrary to the terms of the original tender.
Both NSSA and SPB acceded to the request. Then on April 4, 2011 Costain advised NSSA that Costain had rebranded to CZL after a management buyout.
But auditors say there was no evidence of a name change with the Registrar of Companies at a time the letter was written.
In fact, CZL was only incorporated on February 8, 2013.
This, however, did not deter NSSA from continuing to make payments to a company that was not registered.
In addition, SPB was not duly informed that Costain had been reconstituted.
Overall, NSSA ended up paying US$44 million for the project, of which US$2,6 million was paid out from a loan that had been advanced to RTG.
A further US$7,5 million was paid to
project consultants.
But CZL is claiming an additional US$14,4 million. Had Costain done a reasonably proper job, its additional claims — which make the project 100 percent more expensive than originally budgeted for — could have been valid.
But the civil works that it was also responsible for were characterised by costly endless delays.
Though the company was on site for the civil works on June 30, 2008, it only began work in July.
There were reported frequent equipment breakdowns, and in November 2008 the site was indefinitely closed after a cholera outbreak.
Costain subsequently failed to re-establish on site, which resulted in another contractor — JR Goddard — being roped in in August 2009.
Though JR Goddard was expected to complete bulk earthworks in October 2009, it only finished its task on May 21, 2010 after it emerged that the proper approvals had not been sought from the Environmental Management Authority (Ema).
Its bill also increased from US$743 280 to US$924 166. In all, about 750 variations were made to the project.
“750 variations show the absence of co-ordinated and or detailed drawings from consultants and the absence of input from RTYG at the time of the tender as noted by the then architect Mr Daniel Mandishona,” observed the auditors.
But notwithstanding its failure to meet the expectations of the investor, Constain is making a financial claim of US$49 million, which is US$14,4 million over and above the US$35 million final statement of account prepared by Quantity Surveyor TN Zunzanyika Associates.
For a project that was supposed to be completed within 16 months, it took the contractor more than 26 months as construction was only completed in October 2013.
Mimicking the NECI report
The new audit findings by Grant Thornton serve to reinforce investigations that were earlier made by the National Economic Conduct Inspectorate (NECI), a department under the Ministry of Finance and Economic Development.
In essence, NECI established that when NSSA took over the hotel construction project, it inherited the project managers and architects (DMA Project Managers and Daniel Mandishona, respectively).
It was however, later discovered that DMA Project Managers and Daniel Mandishona were practically the same company that was allegedly split in order to maximise profits. SPB later tasked NSSA through a resolution in their meeting No. 33 of 2010 to recover the money from the companies.
Nothing was recovered, prejudicing the Authority of more than $86 000.
While such developments represent the scale of leakages from NSSA, it also indicated the gross incompetence of management at the Authority.
Experts say it could have helped if NSSA had established an independent investment appraisal committee and also seconded its staff to be directly involved in the management of the project.
RTG withdrawal
Even after the hotel was completed, it hasn’t been easy for NSSA as its lessee RTG closed the hotel on May 31, 2016.
Another client is yet to be found, and management continues to be criticised for failing to pin down RTG to a contract that could have made it liable to penalties for breaching the 10-year contract it signed on May 14, 2014. The Authority is now counting its loses. Auditors have since concluded that using the US$50 per night per room rate that was being used by NSSA, it would have taken 278 years to recover its investment.
“Based on the average room rates of US$50 per night per room as was being charged for NSSA Beitbridge Hotel, the payback period . . .could be about 278 years.
“Assuming an average rate per room of US$275 was to be charged at Beitbridge Hotel, the payback period would be about 51 years,” said the auditors.
Rates between US$200 and US$300 are typically charged by five-star hotels.
Controversial purchase of Borrowdale property
The former NSSA bosses seem also to be in the cross hairs of investigators after it emerged that the recent purchase price of Celestial Park at US$32 million could have been inflated.
Initially, BARD Real Estate Company did a valuation report for the property on May 27, 2014 and put a market value of US$24 million. Another valuation done by GreenPlan Limited — a company owned by a director who used to do business with NSSA before — put the market value at US$36,5 million as at June 15, 2014.
Curiously, the GreenPlan report had been compiled 19 days later. It is only the GreenPlan report that found its way to both the management and investment board committees.
Auditors believe management could have used the BARD report to negotiate a much favourable price. Current NSSA chair Mr Robin Vela indicated in a fourth-quarter report released on January 24 this year that the matter had been reported to law enforcement agents.
He also indicated that the board is presently reflecting on the audit report.
History of suspicious property investments
The current controversies are not new to NSSA. Its dealings in property investments, especially after dollarisation, have raised even more stench.
Before the multi-currency system, it had always been NSSA’s long-stated commitment to establish a NSSA Park that comprised of buildings between the area bounding Samora Machel to Herbert Chitepo and between Park Lane Street and Sam Nujoma.
Such pursuits led the Authority to purchase Survey House and Chibuku House in the capital. Both transactions raised eyebrows.
In what was predominantly a buyers’ money, where the buyer had the power to dictate the value of the property under consideration, NSSA ended up submitting to the whims of the sellers.
In some of the instances, it even paid the sellers prices that were more than the value of the properties as stated by real estate agents.
For Survey House, for example, an evaluation by Mabikacheche and Associates established a forced sale value of US$450 000 and recommended the upper limit of US$600 000.
Inexplicably, NSSA ended up buying the property for US$650 000 and, contrary to the norm where the seller pays commission to the real estate agent, it also paid US$20 000 commission, losing about US$70 000 in the deal.
It was the same when Chibuku House was purchased from Total.
While Bard Real Estate had recommended an offer price of US$2 million, the investments director Mr Vera ended up offering US$3 million. NSSA was potentially prejudiced more than $600 000 from the deal.
In all the contentious property deals, the same excuse that a competing bidder had emerged was always suspiciously raised.
But no deal raises the potential of corrupt dealings than NSSA’s controversial purchase of Ballantyne Park and Bard House, which was superintended over by the then board chairman Mr Albert Nhau.
In the first place, it was the owner of the property, Mr Dennis Green, who approached NSSA in order to sell his property for US$2,2 million.
His asking price was premised on rentals of US$5 600 per month.
An evaluation of the property done by Iwe Neni Real Estate (INRE) priced the property between US$1,4 million to $1,5 million based on average rentals of US$8 300 per month.
Again, as in the case of the purchase of Survey House and Chibuku House, another “rival bidder emerged” and NSSA opted to buy the property for US$2,2 million.
Unhappy with the time that NSSA was taking to consummate the deal, Mr Nhau convened a “sunset meeting” at his house at No 18 Chamberlain Road, Greendale on August 18, 2009.
Mr Matiza and Mr Vera both attended the meeting and the deal was subsequently concluded at a price consideration of US$2,2 million.
But it is the trail of transactions between the property seller Mr Green and Mr Nhau after the deal was signed that is worrying.
NECI discovered that after the sale of the property, Mr Green was paid varying amounts into his Barclays and Stanbic Borrowdale accounts.
The funds were transferred by the Greens into their offshore accounts “under unclear circumstances”.
It was established that from these accounts, NSSA’s board chairman received US$29 478 and Ms Diane Nhau — his daughter — received US$25 500 into their Bank of America accounts.
In total, the two received more than US$103 697 directly from proceeds of the sale of the inflated property.
NECI argued that NSSA could have easily used valuation reports it got from real estate to downwardly negotiate prices in a market that was considered illiquid.