12 September 2017

Zimbabwe: Beitbridge Investment Not Recoverable - NSSA

The National Social Security Authority (NSSA) might never fully recover millions of dollars worth of investment into Beitbridge Hotel, now a white elephant after former tenant Rainbow Tourism Group vacated citing recurrent losses, the authority's chairman Robin Vela said. Mr Vela in an interview, said that the investment was a bad decision that could have been avoided.

The authority is now pursuing alternative use for the property to recover some value.

"Beitbridge is a bad investment, which could have been done far much better and the ($49 million) investment put into the Beitbridge Hotel will not be recovered," he said.

However, he said efforts to find alternative use for the vacant property were ongoing.

The construction contract for hotel was first awarded at $17,4 million, but the cost ballooned, as the contractor, Costain, struggled to pay suppliers and workers and requested NSSA take-over the responsibility, which the social security authority was obliged to.

Inordinate delays in completing the project, which took 26 instead of 16 months, endless bungling of the tender process and obscure payments to contractors and service providers contributed to the unjustifiably inflated cost of building the hotel.

While Mr Vela would not say what NSSA planned regarding alternative use for the property, which RTG dumped in May last year after a $2 million loss over two years, the authority has previously said it intends to convert the hotel into residential flats.

Mr Vela said that there were many alternative uses to which the hotel property could be put to, but he was unequivocal about the fact that the investment was certainly money thrown down the drain.

RTG closed the hotel on May 31 last year, citing depressed occupancies, low margins and high operating costs as the major reasons for exiting Beitbridge Hotel, as that situation made it unviable.

But Mr Vela reckoned that while NSSA sought alternative use for the hotel, including retail and office space, the investment might never be fully recovered.

NSSA general manager, Elizabeth Chitiga, is on record saying options being considered included redeveloping the hotel property into conference rooms, shops, offices and residential accommodation by converting some rooms into one-bedroom flats.

The property sits on about 15 000 square metres of land and comprises a total of 144 rooms, casino, conference room, gym, resident banking hall and swimming pool among other facilities.

In February 2007, NSSA and RTG entered a strategic partnership to construct the four-star hotel and a commercial centre in the border town, but the costs rose dramatically from the initial budget of $3 million 2007 to $49 million on completion in 2014.

A forensic report on what transpired with regard to the failed project said NSSA had different reasons for investing in Beitbridge.

The reasons for investment, according to the report, included regular large transit traffic, an average of 3,5 million people using the border post every year; the busiest port of entry south of the Sahara; backed by sound banking institutions, reasonable financial returns and high demand for housing, entertainment and shopping facilities customised to suit the demand dynamics of the town.

The report also concluded that it was close to impossible for NSSA to generate any meaningful return from the hotel as it might take the authority close to 278 years to recoup its investment.

The payback period of 278 years was arrived at based on the average room rates of $50 per night per room, which was being charged for NSSA Beitbridge Hotel.

Mr Vela also said while the State pensions authority once faced similar challenges with regard to Celestial Park, it seemed the problems had been overcome, as the property was now performing with occupancy reported rising to 52 percent from 23 percent in 2016.

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