Grand Regency Hotel Saga: Here are the facts of the sale, the verdict is yours

Embattled Finance Minister Mr Amos Kimunya is a man facing a stack of odds. Parliament last week passed a motion of censure against him in the wake of the controversial sale of the Grand Regency hotel, one of the assets linked to the never-ending Goldenberg scandal.

Since the news of the sale, which was made public by Lands minister Mr James Orengo, the finance minister has taken hit after hit with his parliamentary colleagues demanding that he step down.

A cabinet sub-committee was appointed to look into the sale. A version of its verdict leaked to the media recommended that the minister step aside.

The heaviest blow to Mr Kimunya came from parliament on Wednesday when the house voted by voice to censure him.

The vote weighs heavily on treasury and the government as it contains a threat to stop finance ministry business in the house, which may ultimately paralyse government operations.

This threat was calculated as a means of forcing the minister out of office. Mr Kimunya has insisted that he has done nothing wrong and vowed to continue discharging his duties.

Did Mr Kimunya do something wrong?

The Case Against

The whole deal was conducted in secret. Officials, including Mr Kimunya, made conflicting statements about the status of the sale of the Grand Regency Hotel.

Mr Kamlesh Pattni, of Goldenberg fame, was offered amnesty in exchange for the hotel.

The Central Bank gave valuers the wrong instructions. It asked them to value the land and buildings rather than the Grand Regency as an ongoing business, together with its current and prospective profits.

The Attorney-General and the Kenya Anti-Corruption Commission were not consulted as directed by the board of directors of the Central Bank of Kenya.

The Central Bank of Kenya never met and never negotiated with the Libyan government in regard to the transaction.

The hotel was public property, and its sale through a private deal was against the Privatisation Act, the Public Procurement and Disposal Act and the Government Lands Act.

The clearance given by the Public Procurement and Oversight Board to the Central Bank of Kenya through a private deal was based on “false representations” and “a deliberate misapprehension of the law” on the part of CBK. In other words, CBK obtained permission to sell by giving false information.

A cabinet committee called the transaction a fraud and said the stated purchase price was too low for a five-star hotel.

CNK became the owner of the property on April 29, 2008 after an agreement was reached between KACC and Mr Pattni; therefore CBK’s claim that it was exercising its rights as a debtor was “false, fraudulent and designed to deceive”.

The transfer was altered by hand in violation of regulations and nullifies the transaction.

The Governor of the Central Bank of Kenya and the Secretary to the Board of the Directors of the Central Bank had no authority whatsoever granted by the Board of Directors of the Central Bank of Kenya to transfer the Grand Regency Hotel to the purchasers.

The transfer was not signed by Libyan African Investment Company Limited, which holds the majority of shares (993 shares out of the total 1,000) in the Libyan Arab-African Investment Company Kenya Limited, the purchaser.

The government was defrauded of stamp duty.

The case for

The Central Bank of Kenya, in a secret briefing paper, says Mr Kamlesh Pattni has engaged it in “fruitless, protracted and costly” web of court cases. It wanted a quick clean deal through which it would recover its money, avoid more court cases and protect the jobs of the workers at the Grand Regency Hotel.

The CBK and KACC dropped all civil cases against Mr Pattni and he did the same. No immunity or amnesty was given.

The CBK had a charge on the property and premises and no debenture on the business. In other words, only the land and buildings were used to secure the Sh 2.5 billion Mr Kamlesh Pattni owed to the CBK. The business continued to be owned by Uhuru Highway Development Ltd, which had a receiver-manager who took care of its interests.

A detailed secret briefing was sent to Mr Justice Aaron Ringera to which he replied on April 22, 2008. The CBK further wrote to him on April 29. KACC was therefore fully in the picture as was Attorney General Amos Wako, who met lawyers acting in the case seven times.

The Grand Regency was one of six projects discussed at a meeting in Sirte, Libya on June 5, 2007. According to documents signed on that day, the Libyans “expressed an interest to the Kenyan authorities to purchase the hotel” and “the Kenyan authorities agreed to consider the request”.

The Grand Regency was not public property, it was private property used to secure a debt and therefore not subject to the normal public procurement and privatisation procedures. Its disposal by a private deal was okayed by the Commissioner of Public Procurement Oversight authority, Mr Robert Hunja, in an April 30 letter. The Central Bank of Kenya Act, Section 52, prohibits CBK from engaging in business and can therefore not own a hotel. Besides, assuming ownership of the hotel also meant taking over its debts.

The CBK insists where the Grand Regency is concerned, it was not acting as a custodian of public property but like any other institution owed money and having a security against it. Its options were to sell it either by private treaty or public auction.

CBK was not part of the consent deal between Mr Pattni and KACC and did not sign it. The effect the deal had was to remove Mr Pattni’s claim to the immovable assets of the hotel. Because the CBK was not party to the consent, its legal rights and relationship with the hotel remained the same – that of a chargee rather than owner.

CBK said it updated its board “of all developments”, it informed the Finance Minister and other “relevant authorities” and briefed “higher authorities including the prime minister”.

CBK says the whole deal was done “as required by the law after all formalities at the Lands offices were observed”.

CBK says the purchasers paid Sh 80 million stamp duty, based on valuation of the land given by the Chief Government Valuer.

In February this year, CBK instructed three firms to value the hotel and advice on the current open market values. The values are as follows:

Value Zone – Sh 1.62 billion

Lloyd Masika – Sh 1.754 billion

Ark Consultants Ltd – Sh 2.175 billion.

Based on these valuations, CBK set the price at $45 million 9Sh 2.91 billion).

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One Response to Grand Regency Hotel Saga: Here are the facts of the sale, the verdict is yours

Anonymous said...

Just wondering why the central bank would use property or land valuers to value a going concern business. This could only mean that only the land and or buiding were independently valued.

This is something like using the same propery valuers to value Safaricom