Karim has 7 days to repay CHOGM cash
City tycoon Karim Hirji has seven days to repay $1.5m (about sh3b) he was advanced for accommodating delegates of the Commonwealth Heads of Government Meeting (CHOGM) in 2007.
By Vision Reporters
City tycoon Karim Hirji has seven days to repay $1.5m (about sh3b) he was advanced for accommodating delegates of the Commonwealth Heads of Government Meeting (CHOGM) in 2007.
On October 22, the Solicitor General wrote to Imperial Royale Hotel, owned by Karim, demanding that the money be paid within 14 days or legal action would be taken against the hotel. “Should you refuse, default, fail and/or neglect to pay the said sum together with our legal fees within the period specified, we shall be left with no alternative but to institute legal proceedings against you which may lead to your financial embarrassment and chagrin,†read the letter, signed by Margaret Apiny.
The Government, represented by the Ministry of Foreign Affairs, entered into an agreement with Imperial Royale Hotel in June 2007 to provide conference room facilities and room accommodation for CHOGM guests.
The hotel undertook to provide rooms for accommodation for paying guests. The Government on its part paid $2.6m (sh4.8b) as advance for all guaranteed conference facilities and room accommodation.
The hotel further undertook to collect all the money and payments made by the guests and remit it to the CHOGM revenue account.
However, the Solicitor General in his letter states that Karim failed to meet his obligations because the rooms were not ready.
“You failed and/or neglected your responsibilities to ensure that the guaranteed rooms for accommodation were ready for the paying guests by November 27, 2007 and thus failing to collect monies of the said guests,†the letter read.
A total of sh23b was advanced to eight CHOGM hotels for conference and accommodation facilities.
However, only sh1.6b has been recovered so far, according to information obtained from the Auditor General’s office.
The Government lost sh4.4b on advance payments for rooms of guests who either did not show up, only stayed for one day or left without settling their bills.
How other CHOGM hotels spent sh26b
At least sh370b was spent on the Commonwealth Heads of Government Meeting that took place in Kampala in November 2007. How was all this money spent? Did the Government get value for money? In the second of a series of articles, The New Vision looks into the expenditure for private hotels.
Apart from the sh38b spent on the Commonwealth Resort (see New Vision yesterday), an additional sh26b was spent on other private hotels, bringing the total cost for accommodation and conference facilities to sh64b.
Of this amount, sh3.4b was spent on construction works and sh6.1b on furniture and refurbishment.
Another sh617m was spent on decoration of hotels, over sh2b on electricity and water works, and about sh14b on hire of conference halls and advance payment for rooms.
Only $800,000 (sh1.6b) has so far been recovered from advance payment of rooms, while part of the furniture was also returned.
The Government risks losing the rest of the money since there were either no provisions for recovery or they were not followed.
Apart from questioning many of the agreements signed, the Auditor General has also queried the principle of advance payments for hotel rooms which were to accommodate paying guests.
“Under normal circumstances, delegates should have made their own booking and payments. There was a risk of delegates either not coming or attending fewer days than actually booked,†he stated in his report.
He further noted that all hotels had hiked their rates considerably – some by 150% - and that advance payments of such magnitude should have been backed by advance guarantees, as required by law.
“For all the advances paid, there was no advance payment guarantee made by the hotels. Advance payments which are not secured expose the Government to the risk of loss in case of non-performance by the service provider.â€
As a result, the Government lost $2.2m (sh4.4b) for guests who did not show up, did not settle their bills, or stayed only one day and then looked for cheaper accommodation elsewhere.
J&M Airport Hotel
The Government contributed sh2.2b to the construction of J&M Airport Hotel on Entebbe Road, owned by businessman Joseph Behakanira and his wife.
Under the agreement, the Government was supposed to become a shareholder in the hotel. The entire amount was paid on November 16, 2007, six days before CHOGM started.
“This was apparently done to assist the hotel get ready for CHOGMâ€, the Auditor General wrote in his report.
In anticipation of a high turn-up of delegates, the Government reportedly decided to support the hotel to complete 200 rooms to add to the pool of 5,000 rooms that were being prepared.
However, when the Auditor General verified records from the Venues Sub-committee, he found that J&M, locally known as Bwebajja Hotel, was not on the list of approved CHOGM venues.
“In fact, no CHOGM activity was held at the hotel. Although the funds were purportedly to be used for CHOGM preparedness, by November 20, 2007, two days before the event started, the company had not yet opened for business.â€
The Auditor General also questioned the agreement, calling it unfavourable to the Government.
The contract is silent about payment of dividends. In addition, it states that at any time within two years the hotel can refund the money at the same price. “The implication is that the Government advanced an interest-free loan to a private company.â€
Moreover, the hotel did not fulfill its part of the agreement. It was supposed to call an extra-ordinary general meeting within seven days of receiving the funds to create the shares and change the articles of association.
It was also supposed to call a board meeting to allot the shares to the Government; and share certificates were supposed to be issued.
Up to now, none of this was done. “The matter has been referred to the Solicitor General for further actionâ€, said James Mugume, the Permanent Secretary of Foreign Affairs, the ministry which was in charge of CHOGM accommodation.
Asked for a reaction, the acting Solicitor General, Billy Kainamura, said: “We are studying the matter to see what action to take.â€
Hotel Africana
The Government paid almost sh1.2b to Hotel Africana for the construction of the People’s Space.
This involved paving of 5,800 square metres, three platforms, a gate house and steel gates, electrical fittings, the construction of 16 semi-permanent shelters and VIP toilets.
According to the Auditor General, the agreement signed with the Government only mentioned a block figure without a breakdown and without provisions showing how the Government would recover the money.
“Without a contractor or memorandum of understanding, it is not clear how such funds spent on permanent structures will be recoveredâ€, the report said.
Hotel Africana was paid an additional sh2b for hire of conference facilities and advance bookings for accommodation.
The hotel charged $11,700 (sh23.4m) per day for a conference hall for 1,500 people.
This is four times Africana’s normal rate of $2,800 and more than four times the rate Speke Resort Munyonyo charged for a bigger conference hall (2,000 people).
“The hotel charges were not in consonance with their grading. A three star graded hotel was charging higher than the others,†the Auditor General noted.
For a smaller hall of 60 to 80 people, the hotel hiked the rate from the normal $280 to $2,000. This is more than double a similar hall at Imperial Royale ($650) and Speke Resort ($500).
Africana also considerably hiked the prices of its rooms. A deluxe room more than doubled in price, from $150 to $385, while an executive room went up to $433 – the highest of all CHOGM hotels.
The Auditor General noted that the negotiation teams did not do any price bargaining and that even the teams themselves had not been approved.
Mugume argued that the hotel owners took advantage of the big events syndrome and had formed a cartel which made negotiations difficult.
Africana, which housed the People’s Forum prior to CHOGM, also received sponsorship from private firms, such as Standard Chartered, UTL, British Council and Bell Lager. “There is, however, no record of how much was received in sponsorship and how funds were subsequently utilised,†the Auditor General stated.
Imperial Royale
The Imperial Group of hotels, owned by Karim Hirji, housed the Commonwealth Youth Forum, as well as the CHOGM media centre.
The two hotels, Imperial Royale and Imperial Botanical (Entebbe), received a total of sh8.1b for hire of conference halls and advance payment of rooms.
Like the other hotels, the Imperial Group took advantage of the event to hike its rates.
Imperial Botanical almost doubled its normal rate for deluxe rooms, from $100 to $180, whereas the just completed Imperial Royale charged $384 per room, higher than Serena and Speke Resort.
It also charged $1,250 for a conference hall of up to 150 people, 50% more than the same hall in Speke Resort.
In addition, the Auditor General found that Imperial Royale charged an amount of $743,400 (sh1.5b) as “compensation for loss of businessâ€.
“The basis upon which management accepted the charge remained unclear,†he noted.
Not only were the charges inflated, the rooms were also not ready, according to the Government, something Karim has disputed.
Imperial Royale has to pay back $1.5m (sh3b) for guests who settled their bills and for rooms that were not ready.
The Solicitor General in a letter last week gave the hotel’s management two weeks to repay the money or face legal action. In addition, the Government provided money for three transformers for Imperial Royale, costing sh263m.
It also refunded sh21m to Karim for money spent on the purchase of a metering unit.
“It is not clear why such expenditures were incurred by the Government yet this was the responsibility of the hotelâ€, the report said.
“The funds were paid directly to the hotel instead of the service provider.â€
Serena Hotel
Serena Hotel, the venue for the opening of CHOGM, owned by the Aga Khan Group, received sh1.8b for hire of conference facilities and advance payment for rooms.
The hotel dutifully paid back $246,000 (sh492m) considered recoverable, meaning the guests showed up and paid their bills.
In addition, Serena received sh2.2b for consultancy, refurbishment and remodelling of the hotel and the adjacent International Conference Centre.
“This expense should have been borne by the hotel since it is now a privately run companyâ€, the Auditor General noted.
Mugume explained that the Government was expected to recover this money through the annual concession paid by the Aga Khan Group. But by press time yesterday, the Auditor General had no knowledge of any money recovered.
Another almost sh1b was paid to Serena for furniture. According to Mugume, part of the furniture went to State House Entebbe, the President’s office and the Ministry of Foreign Affairs.
However, The New Vision was not able to see the inventory of all the furniture bought and verify their current location.
Sheraton and Golf Course
Sheraton Hotel received sh1.4b for conference and accommodation facilities, while Golf Course received sh409m. Both hotels paid back the amounts recoverable, sh238m and 90m respectively.
Sheraton Hotel also housed the Commonwealth Business Forum, which was mainly sponsored by Barclays, East African Breweries and Celtel.
Like with the People’s Forum, the Auditor General was not able to establish how much was received and whether it was used according to the guidelines.
Other expenditure
The Government paid an additional sh3b for water and electricity supply to private hotels.
This included a dedicated power supply line to Munyonyo at a cost of sh519m, a UPS system at a cost of sh43.2m paid to Umeme, and sh300m paid to the Water and Sewerage Corporation to provide a water extension.
“This should have been borne by the hotel. Alternatively, the Government should have used it as part of the capitalisation of the hotel,†the Auditor General said.
Another sh1b was paid to the water corporation to extend the water line from Bwebajja to an Akright housing estate in Garuga which was to host CHOGM delegates.
However, the line had not been extended by the time CHOGM was held.
Another obligation not met was the supply of furniture to the CHOGM secretariat at the foreign affairs ministry.
The supplier, Crest Diaries, had been paid sh278m for the contract but the furniture was delivered several months after CHOGM.
While money was paid for CHOGM services not delivered, others were delivered but were not paid for because there was no formal arrangement.
A consortium undertook decoration work for Serena and other venues without any contract or agreement, the Auditor General noted.
“They have since presented a bill of sh617m, which has been disputed by the (foreign) ministry.â€
More on CHOGM expenses in tomorrow’s paper.
City tycoon Karim Hirji has seven days to repay $1.5m (about sh3b) he was advanced for accommodating delegates of the Commonwealth Heads of Government Meeting (CHOGM) in 2007.
On October 22, the Solicitor General wrote to Imperial Royale Hotel, owned by Karim, demanding that the money be paid within 14 days or legal action would be taken against the hotel. “Should you refuse, default, fail and/or neglect to pay the said sum together with our legal fees within the period specified, we shall be left with no alternative but to institute legal proceedings against you which may lead to your financial embarrassment and chagrin,†read the letter, signed by Margaret Apiny.
The Government, represented by the Ministry of Foreign Affairs, entered into an agreement with Imperial Royale Hotel in June 2007 to provide conference room facilities and room accommodation for CHOGM guests.
The hotel undertook to provide rooms for accommodation for paying guests. The Government on its part paid $2.6m (sh4.8b) as advance for all guaranteed conference facilities and room accommodation.
The hotel further undertook to collect all the money and payments made by the guests and remit it to the CHOGM revenue account.
However, the Solicitor General in his letter states that Karim failed to meet his obligations because the rooms were not ready.
“You failed and/or neglected your responsibilities to ensure that the guaranteed rooms for accommodation were ready for the paying guests by November 27, 2007 and thus failing to collect monies of the said guests,†the letter read.
A total of sh23b was advanced to eight CHOGM hotels for conference and accommodation facilities.
However, only sh1.6b has been recovered so far, according to information obtained from the Auditor General’s office.
The Government lost sh4.4b on advance payments for rooms of guests who either did not show up, only stayed for one day or left without settling their bills.
How other CHOGM hotels spent sh26b
At least sh370b was spent on the Commonwealth Heads of Government Meeting that took place in Kampala in November 2007. How was all this money spent? Did the Government get value for money? In the second of a series of articles, The New Vision looks into the expenditure for private hotels.
Apart from the sh38b spent on the Commonwealth Resort (see New Vision yesterday), an additional sh26b was spent on other private hotels, bringing the total cost for accommodation and conference facilities to sh64b.
Of this amount, sh3.4b was spent on construction works and sh6.1b on furniture and refurbishment.
Another sh617m was spent on decoration of hotels, over sh2b on electricity and water works, and about sh14b on hire of conference halls and advance payment for rooms.
Only $800,000 (sh1.6b) has so far been recovered from advance payment of rooms, while part of the furniture was also returned.
The Government risks losing the rest of the money since there were either no provisions for recovery or they were not followed.
Apart from questioning many of the agreements signed, the Auditor General has also queried the principle of advance payments for hotel rooms which were to accommodate paying guests.
“Under normal circumstances, delegates should have made their own booking and payments. There was a risk of delegates either not coming or attending fewer days than actually booked,†he stated in his report.
He further noted that all hotels had hiked their rates considerably – some by 150% - and that advance payments of such magnitude should have been backed by advance guarantees, as required by law.
“For all the advances paid, there was no advance payment guarantee made by the hotels. Advance payments which are not secured expose the Government to the risk of loss in case of non-performance by the service provider.â€
As a result, the Government lost $2.2m (sh4.4b) for guests who did not show up, did not settle their bills, or stayed only one day and then looked for cheaper accommodation elsewhere.
J&M Airport Hotel
The Government contributed sh2.2b to the construction of J&M Airport Hotel on Entebbe Road, owned by businessman Joseph Behakanira and his wife.
Under the agreement, the Government was supposed to become a shareholder in the hotel. The entire amount was paid on November 16, 2007, six days before CHOGM started.
“This was apparently done to assist the hotel get ready for CHOGMâ€, the Auditor General wrote in his report.
In anticipation of a high turn-up of delegates, the Government reportedly decided to support the hotel to complete 200 rooms to add to the pool of 5,000 rooms that were being prepared.
However, when the Auditor General verified records from the Venues Sub-committee, he found that J&M, locally known as Bwebajja Hotel, was not on the list of approved CHOGM venues.
“In fact, no CHOGM activity was held at the hotel. Although the funds were purportedly to be used for CHOGM preparedness, by November 20, 2007, two days before the event started, the company had not yet opened for business.â€
The Auditor General also questioned the agreement, calling it unfavourable to the Government.
The contract is silent about payment of dividends. In addition, it states that at any time within two years the hotel can refund the money at the same price. “The implication is that the Government advanced an interest-free loan to a private company.â€
Moreover, the hotel did not fulfill its part of the agreement. It was supposed to call an extra-ordinary general meeting within seven days of receiving the funds to create the shares and change the articles of association.
It was also supposed to call a board meeting to allot the shares to the Government; and share certificates were supposed to be issued.
Up to now, none of this was done. “The matter has been referred to the Solicitor General for further actionâ€, said James Mugume, the Permanent Secretary of Foreign Affairs, the ministry which was in charge of CHOGM accommodation.
Asked for a reaction, the acting Solicitor General, Billy Kainamura, said: “We are studying the matter to see what action to take.â€
Hotel Africana
The Government paid almost sh1.2b to Hotel Africana for the construction of the People’s Space.
This involved paving of 5,800 square metres, three platforms, a gate house and steel gates, electrical fittings, the construction of 16 semi-permanent shelters and VIP toilets.
According to the Auditor General, the agreement signed with the Government only mentioned a block figure without a breakdown and without provisions showing how the Government would recover the money.
“Without a contractor or memorandum of understanding, it is not clear how such funds spent on permanent structures will be recoveredâ€, the report said.
Hotel Africana was paid an additional sh2b for hire of conference facilities and advance bookings for accommodation.
The hotel charged $11,700 (sh23.4m) per day for a conference hall for 1,500 people.
This is four times Africana’s normal rate of $2,800 and more than four times the rate Speke Resort Munyonyo charged for a bigger conference hall (2,000 people).
“The hotel charges were not in consonance with their grading. A three star graded hotel was charging higher than the others,†the Auditor General noted.
For a smaller hall of 60 to 80 people, the hotel hiked the rate from the normal $280 to $2,000. This is more than double a similar hall at Imperial Royale ($650) and Speke Resort ($500).
Africana also considerably hiked the prices of its rooms. A deluxe room more than doubled in price, from $150 to $385, while an executive room went up to $433 – the highest of all CHOGM hotels.
The Auditor General noted that the negotiation teams did not do any price bargaining and that even the teams themselves had not been approved.
Mugume argued that the hotel owners took advantage of the big events syndrome and had formed a cartel which made negotiations difficult.
Africana, which housed the People’s Forum prior to CHOGM, also received sponsorship from private firms, such as Standard Chartered, UTL, British Council and Bell Lager. “There is, however, no record of how much was received in sponsorship and how funds were subsequently utilised,†the Auditor General stated.
Imperial Royale
The Imperial Group of hotels, owned by Karim Hirji, housed the Commonwealth Youth Forum, as well as the CHOGM media centre.
The two hotels, Imperial Royale and Imperial Botanical (Entebbe), received a total of sh8.1b for hire of conference halls and advance payment of rooms.
Like the other hotels, the Imperial Group took advantage of the event to hike its rates.
Imperial Botanical almost doubled its normal rate for deluxe rooms, from $100 to $180, whereas the just completed Imperial Royale charged $384 per room, higher than Serena and Speke Resort.
It also charged $1,250 for a conference hall of up to 150 people, 50% more than the same hall in Speke Resort.
In addition, the Auditor General found that Imperial Royale charged an amount of $743,400 (sh1.5b) as “compensation for loss of businessâ€.
“The basis upon which management accepted the charge remained unclear,†he noted.
Not only were the charges inflated, the rooms were also not ready, according to the Government, something Karim has disputed.
Imperial Royale has to pay back $1.5m (sh3b) for guests who settled their bills and for rooms that were not ready.
The Solicitor General in a letter last week gave the hotel’s management two weeks to repay the money or face legal action. In addition, the Government provided money for three transformers for Imperial Royale, costing sh263m.
It also refunded sh21m to Karim for money spent on the purchase of a metering unit.
“It is not clear why such expenditures were incurred by the Government yet this was the responsibility of the hotelâ€, the report said.
“The funds were paid directly to the hotel instead of the service provider.â€
Serena Hotel
Serena Hotel, the venue for the opening of CHOGM, owned by the Aga Khan Group, received sh1.8b for hire of conference facilities and advance payment for rooms.
The hotel dutifully paid back $246,000 (sh492m) considered recoverable, meaning the guests showed up and paid their bills.
In addition, Serena received sh2.2b for consultancy, refurbishment and remodelling of the hotel and the adjacent International Conference Centre.
“This expense should have been borne by the hotel since it is now a privately run companyâ€, the Auditor General noted.
Mugume explained that the Government was expected to recover this money through the annual concession paid by the Aga Khan Group. But by press time yesterday, the Auditor General had no knowledge of any money recovered.
Another almost sh1b was paid to Serena for furniture. According to Mugume, part of the furniture went to State House Entebbe, the President’s office and the Ministry of Foreign Affairs.
However, The New Vision was not able to see the inventory of all the furniture bought and verify their current location.
Sheraton and Golf Course
Sheraton Hotel received sh1.4b for conference and accommodation facilities, while Golf Course received sh409m. Both hotels paid back the amounts recoverable, sh238m and 90m respectively.
Sheraton Hotel also housed the Commonwealth Business Forum, which was mainly sponsored by Barclays, East African Breweries and Celtel.
Like with the People’s Forum, the Auditor General was not able to establish how much was received and whether it was used according to the guidelines.
Other expenditure
The Government paid an additional sh3b for water and electricity supply to private hotels.
This included a dedicated power supply line to Munyonyo at a cost of sh519m, a UPS system at a cost of sh43.2m paid to Umeme, and sh300m paid to the Water and Sewerage Corporation to provide a water extension.
“This should have been borne by the hotel. Alternatively, the Government should have used it as part of the capitalisation of the hotel,†the Auditor General said.
Another sh1b was paid to the water corporation to extend the water line from Bwebajja to an Akright housing estate in Garuga which was to host CHOGM delegates.
However, the line had not been extended by the time CHOGM was held.
Another obligation not met was the supply of furniture to the CHOGM secretariat at the foreign affairs ministry.
The supplier, Crest Diaries, had been paid sh278m for the contract but the furniture was delivered several months after CHOGM.
While money was paid for CHOGM services not delivered, others were delivered but were not paid for because there was no formal arrangement.
A consortium undertook decoration work for Serena and other venues without any contract or agreement, the Auditor General noted.
“They have since presented a bill of sh617m, which has been disputed by the (foreign) ministry.â€
More on CHOGM expenses in tomorrow’s paper.