Former NSSA general manager James Matiza
GOVERNMENT is said to be reviewing information related to costs involved in the construction of a 136 room hotel in Beitbridge, whose initial budget had been US$3 million.
Sources indicated that the spotlight was on the National Social Security Authority (NSSA), suspected of sleaze which pushed the eventual construction bill to US$33 million and construction costs per room to a staggering US$242 000.
The Financial Gazette’s Companies & Markets (C&M) can exclusively reveal that as NSSA general manager James Matiza and four other executives were dramatically sent packing on Tuesday last week, dossiers were being prepared for Public Service, Labour and Social Services Minister, Prisca Mupfumira, exposing how bad investment decisions led to the loss of public resources through the Rainbow Beitbridge Hotel (RBH).
RBH was constructed by NSSA and handed over to Rainbow Tourism Group (RTG) last year, even after management had warned that it would drain the ailing leisure chain.
Unimaginable budgets had been prepared for the hotel, with State media reporting last year that the final cost of RBH was as high as US$50 million, which translated to an average US$440 000 spent on the construction of a single room.
NSSA boards have not queried these figures.
But government sources said crack investigations were now underway to establish how costs had suddenly ballooned, and the role of boards and management in the deals that are bringing fresh spotlight on the authority described by new chairman, Robin Vela, as pregnant with “related party and governance issues”.
“Following a forensic audit of the authority, tighter controls and closer oversight mechanisms will be instituted to urgently improve investment performance,” Vela said in a statement.
“Among the new regulations, board members, executives and management or indeed their connected persons…are barred from doing business directly or indirectly with the authority,” he said.
The NSSA chairman spoke after people aware of developments at both the State-run NSSA and BRH claimed extensive “self interest deals” had triggered delays in the project, which was started in 2007 in time for the 2010 World Cup in South Africa.
At the centre of ongoing project reviews were reports that NSSA bosses, after being advised by RTG management that RBH would be a drain to the group and public resources, pressed ahead to offer a lease agreement to the ailing hotel chain, where it controls about 40 percent shareholding.
Effectively, RTG, the country’s second largest hotel group listed on the Zimbabwe Stock Exchange (ZSE), is majority controlled by government.
British tycoon, Nicholas van Hoogstraten, is the second largest shareholder with about 34 percent shareholding.
C&M understands that after the Tendai Madziwanyika-led RTG executive was appointed in 2012, and as part of its turnaround strategy, it commissioned Deloitte to investigate the viability of running RBH, with results showing that it would be a loss maker.
Joseph Kanyekanye
NSSA then had an option to lease the hotel to a South African operator who had expressed interest.
But after initially agreeing to release BRH, the Joseph Kanyekanye-led board is said to have turned around and directed RTG to lease the property.
RTG is said to have then suggested running RBH under a management contract after sensing how the deal proposed by NSSA would drain millions of public funds.
But it was told that the hotel had been constructed after a “presidential directive” which they were not expected to turn down.
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 been shunning the town, 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 sign 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, was not sure of the viability of the location.
RTG has 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.
BRH rates are at about US$39 per room, which is a fraction of over US$140 per night in some of RTG’s hotels.
By diverting people to the border town, the group could be losing as much as US$100 per client per night.
“Clients booking at Rainbow Towers for example at US$140 per night have ended up at BRH for US$39 and this has had huge implication 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,” the source, a trusted NSSA executive, told C&M.
RTG has had to divert clients from eight of its hotels to Rainbow Beitbridge Hotel (pictured) in order to keep it running, but with dire implications on the group’s top line.
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.
The group reported a US$1,9 million loss during the period, after reporting a US$0,1 million profit the previous comparable period.
In an exchange of letters gleaned at NSSA this week, Matiza demanded explanations but responses pointed among other issues, to the crisis at BRH, where van Hoogstraten is reportedly losing US$0,32 for every dollar that RTG was losing.
Last week, the new NSSA board, which was appointed in July, cracked down on mismanagement at the authority and questioned a range of investments and related party deals.
Vela promised to return “ownership of the authority to the contributors and pensioner”.
“The board also understands the valid concern of stakeholders in relation to transparency at the authority, particularly in relation to questionable investments made in the past,” Vela said in his statement.
NSSA has investments in 53 of the 59 companies listed on the ZSE, where it controls about 10 percent shareholding in 12 of the counters.
Combined investment is valued at about US$77 million.
These include the short-term insurance giant, NicozDiamond Insurance, RTG and FBC Holdings Limited.
“The board is concerned about this historic investment performance, both in terms of capital loss and the lack of market related investment income. There is recognition that capital must be protected at all costs and there must be a marked improvement in investment income so that the funds under management can grow with investment income utilised to meet current fund liabilities, principally to pensioners and potentially have the capacity to then increase payments to a ‘living pension’ level.
“For years, NSSA has been dogged by governance deficiencies that have negatively impacted its capital base and eroded public and investor perception and confidence in the authority. The board understands that resetting the relationship with all stakeholders and earning back the trust requires urgency, transparency and a clean slate.
“In looking to hold investee companies’ boards fully accountable for their decisions, the board has resolved and withdrawn executives of NSSA from all boards of investee companies. The historic trend of investee company management teams to disregard long term, long suffering, and supportive shareholders such as NSSA, in favour of the potential promise of new capital, in the form of rights issues, at deep discounts to market value let alone net asset value will be viewed by this board with disdain. In such circumstances, NSSA will not hesitate to call for reconstitution of the board and management of such flat footed and failing companies,” Vela said.
“We have moved to curb related party transactions which have prejudiced NSSA in the past. To win back the confidence of members and the public, NSSA must hold itself up to the highest standards of corporate governance, as outlined in the national governance code.”
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