Audit exposes NSSA sleaze on Beitbridge hotel

via Audit exposes NSSA sleaze on Beitbridge hotel – Nehanda Radio Jan 15, 2016 by Shame Makoshori

An audit into the operations of the under-fire National Social Security Authority (NSSA) has exposed shocking evidence of potential sleaze on the construction of the Rainbow Beitbridge Hotel (RBH), whose cost went up a staggering 16,3 times to US$49 million at completion last year.

The initial budget for the project had been pegged at US$3 million in 2007.

There has been speculation within both the construction industry and the hotel and leisure sector of underhand deals in the project, which could have badly prejudiced long-suffering pensioners, who are getting paltry payouts from the compulsory pension scheme.

Auditors at Deloitte Advisory Services said some figures on the Beitbridge project were not adding up, although the auditors did not examine why the costs rose at a terrific pace at a time when the country had entered a period of sustained deflation.

In February 2007, NSSA and the Rainbow Tourism Group (RTG) entered a strategic partnership to construct the four-star hotel and a commercial centre in the border town but the costs suddenly started rising, first to US$17 million, then to US$33,4 million and US$44 million before finally hitting US$49 million in 2014.

The auditors said the NSSA board had in October 2014 said it was aware of the exorbitant overheads after the main contractor, CZL, had failed to pay workers and subcontractors, forcing the authority to intervene by directly paying the workers and the subcontractors.

There was no evidence of any punitive action by NSSA on CZL, which failed to honour commitments to subcontractors. Analysts said the payments made directly to workers and subcontractors could have been easily recouped from CZL.

The property also took seven years to complete, which is abnormal for such a small property. Government has failed to get to the bottom of what transpired, and appears to have taken a back seat amid indications of potential abuse of public funds.

Last year, the Financial Gazette reported on the debacle surrounding the project.
An earlier study by Deloitte, commissioned by RTG, which was passed on to NSSA’s management and board, had condemned the project as unprofitable.

NSSA controls 40 percent shareholding in RTG, which is listed on the Zimbabwe Stock Exchange. In the audit report, Deloitte said NSSA had pushed for the implementation of the project regardless of its lack of viability.

“Interim board in a meeting on October 22, 2014 informed that CZL, the main contractor, had raised the value of the project to US$49 million from US$33,4 million and that NSSA was fully aware of the project costs because the main contractor had failed to pay his employees and subcontractors hence NSSA was paying them directly,” said the report.

The report said a feasibility study conducted before the project was initiated had clearly spelt out “that the hotel would be loss-making.”

This view had forced RTG executives to decline management of the hotel, resulting in a fallout with the NSSA executives who were fired by the current board late last year.
Elementary estimates indicate that the cost of each room at the hotel ended up at a shocking US$360 000 after total expenses rose to US$49 million.

It would have cost a staggering US$242 000 per room if the hotel had been completed at US$33 million, which would still have been too high.

Had the project been completed at the initial cost of US$3 million, the cost per room would have ended up at a reasonable US$22 000 per room. But even at the eventual cost, the hotel was replete with poor workmanship.

This week, experts at the Real Estate Institute of Zimbabwe (REIZ) said to construct an entire suburb like Hatfield in Harare, about US$100 million would be required.

It means the US$49 million splurged on the four star hotel, with a malfunctioning sewer system and a myriad other problems, would have built decent, middle-income housing units in half of Hatfield.

“It defies logic. Government should relook at these costs,” one real estate expert told the Financial Gazette. NSSA is said to have rejected any counsel from RTG, which was arguing that operating RBH would push it into serious losses. RTG had asked NSSA to find another operator to run the hotel.

Although these were very expensive deals, the NSSA administration pressed on, ignoring the fact that it was splurging funds that could be used on other critically important projects and services for its membership.

The Deloitte audit confirmed that payments to contractors by NSSA were unnecessarily exorbitant and inappropriate after both RTG and the high spending authority’s executives lost millions in a space of one year.

After a disappointing performance by RBH, one of the cheapest four star properties in the country, the authority received only US$154 000 in rentals between January 1, 2014 and September 2014, instead of the projected US$355 000.

RTG had slashed rates to about US$49 per night to attract clients, which is a fraction of the average US$140 per night in some of RTG’s hotels. Rental yields averaged 0,5 percent, “which is way below NSSA and market averages”, according to the audit.

This was one of the many dodgy deals by NSSA in the past few years, according to the audit. While NSSA moved huge payments for the project, the audit revealed that there were disagreements between several stakeholders involved.

One stakeholder raised a claim of US$1,7 million but an arbitrator awarded him US$510 000 after NSSA raised issues.

A deadlock was then raised by former public service and social welfare minister, Nicholas Goche, on recommendations from NSSA’s interim board at the time, after another contractor, SDP Africa, who were engineers for the project, raised a US$92 000 claim.

Worse still, details of the project indicated that on August 6, 2013, NSSA went ahead and extended to RTG a US$4,4 million loan to purchase beds and other equipment to run the hotel, even as RTG chief executive officer, Tendai Madziwanyika, had advised against the transaction.

In its report last year, C&M said after being forced by the board to run the loss making hotel, Madzivanyika and his team had to divert clients from eight of its hotels to BRH in order to keep it running, but with dire implications on the group’s top line, according to people aware of developments at both NSSA and RTG.

By diverting people to the border town, the group lost as much as US$100 per client per night on current BRH rates of US$49 per bed per night.

“Clients booking at Rainbow Towers for example, at US$140 per night, have ended up at BRH for US$49 and this has had huge implications on turnover,” a source said.

“We have several correspondence from RTG management that the hotel was loss making.
In September, Madziwanyika took the NSSA board to the hotel with 36 concerns, but after the visit the list of concerns rose to 90. Pipes are bursting,” a source, who is a NSSA executive, told the Financial Gazette.

In September, RTG said revenues for the half-year to June 30, 2015 slumped by four percent to US$12,4 million after reaching US$13,5 million during the prior comparative period in 2014. But then, a private spat ensued between NSSA and RTG, with the authority seeking explanations over the losses.

In a 12-paged response to fired NSSA CEO, James Matiza, Madzivanyika directed him to their previous warnings, ending the exchanges.

Results of the NSSA directive have been disastrous.

South African tourists previously expected to sleep over in the border town before proceeding to other parts of the country have not been coming in through Beitbridge, where long queues at the border are permanent.

To highlight the predicament facing operators in Beitbridge, African Sun Limited (ASL) said in a joint statement with Legacy Hotels of South Africa that under a management contract deal signed recently, the Kingdom at Beitbridge Hotel’s fate was being considered.

The statement demonstrated that even Legacy Hotels, which will be running five of ASL’s top hotels in Zimbabwe, is uncertain of the viability of the location. Financial Gazette