liabilities, March 2013

remained to be done. The water- and sanitation-related assets are managed by the ISO 9001–certified Nairobi City Water and Sewerage Company (NCWSC), a legally independent utility that the NCC fully owns and leases most of the fixed assets to, although it has no reliable asset inventory either. One reason behind this lack is a complicated governance framework established for the water sector that combines watershed management, irrigation, and rural and urban water development. Water-sector assets and liabilities are under unclear and often disputed control by the Water Services Regulatory Board (WASREB) despite legal ownership by NCC as mandated in the Kenya Constitution 2010.

WASREB is a public state corporation established in March 2003 as part of the comprehensive reforms in the water sector. The mandate of the institution is to oversee the implementation of policies and strategies relating to the provision of water and sewerage services; mandates were redefined by the Water Act 2016. WASREB also regulates water and sewer tariffs that are supposed to cover the full cost of services, including operation, development, and debt service (see WASREB 2020). In practice, tariffs hardly cover the cost of operation, which undermines the solvency, strategic development, and asset management of water companies, including NCWSC. This underscores the urgency to complete the asset handover-takeover process from national to county entities and devolve tariff setting.

Asset takeover by the power of law, 2017

Gazette Notice no. 858 (Notice 858) transferred the assets and stipulated workout of liabilities of the defunct local governments by law on January 27, 2017, and set a framework for validation, verification, and valuation of the assets and liabilities by the counties via CALCs under the guidance of and control by the Intergovernmental Relations Technical Committee (IGRTC). Notice no. 2701 of March 24, 2017 (Notice 2701), reconfirms and replaces Notice no. 858 and rules that the unaudited inventories of assets and liabilities developed by the TA, which was closed in March 2017, serve as the basis and reference for the verification, validation, and valuation of the assets under CALCs’ management.

According to IGRTC and TA files handed over to counties in 2017, NCC inherited assets worth K Sh 89 billion accounted in current assets (figure 6.3),

FIGURE 6.3

Nairobi City County and 47 counties combined inherited current asset and liabilities, March 2013

160

140 143

K Sh (billions) 120

100

80

60

40 89

45 68

20

0

Assets Liabilities Nairobi City County All counties

K Sh 5.2 billion assets accounted under ongoing projects, and K Sh 45 billion in liabilities (measured by the TA as the 2013 estimated value, and therefore a symbolic number in 2017). The estimated values of inherited assets reflect largely the value of current assets as of 2013, since the TA did not estimate market values of the fixed assets such as land (about 653 parcels, of which 362 had an estimated area of 1,355 hectares), 831 buildings without an estimated book value, and 165 large machines, equipment, and plants. Infrastructure networks had not been even listed in the TA’s preliminary asset inventory. Of these, the most problematic element is the missing land sizes and values, because of their presumed substantial wealth, which has substantially appreciated from 2013 to 2017. Thus, the verification and valuation of land is among the most urgent tasks the county faces.

NCC has a special status due to its size and share of assets; its current assets of K Sh 89 billion represented about 62 percent of the estimated combined current assets of the 47 counties. NCC total liabilities that amounted to K Sh 45 billion represented about 65 percent of total liabilities of 47 counties (figure 6.3). Therefore, good management of assets, timely completion of the asset takeover, resolution of disputed inherited assets and liabilities, and development of reliable asset registers with updated market valuation in NCC would substantially change the asset management picture of the entire country.

Progress by 2019

The NCC County Asset and Liability Committee (CALC) held its induction meeting on May 9, 2017. The committee had 14 steering members and eight appointed (“co-opted”) members and assigned a secretariat (AMDR) to consolidate and submit report(s) as necessary. The committee adopted working principles and processes, and its early achievements included the following:

• Developed a work plan with milestones to be accomplished and set aside resources, both financial and nonfinancial, required for the asset verification and inventory • Identified 80 team members within the county with relevant technical skills to help the committee identify, record, and verify assets and liabilities within their sectors • Obtained the Transitional Authority’s record of inventory from IGRTC for use as the basis for the verification exercise • Developed data capture methodology at the sector level • Developed templates for data collection with reference to IGRTC guidelines • Embarked on compiling lists of the various assets and liabilities that existed as of

March 27, 2013, and comparing them with inventory captured in the TA report

CALC was mandated to lead and undertake the verification exercise, but it delegated many tasks to AMDR, which worked in collaboration with the NCCG secretariat to form the asset identification and verification teams for seven work clusters: (1) land and buildings; (2) plant, machinery, and equipment; (3) vehicles; (4) projects or works in progress; (5) furniture and fittings; (6) computers, electronics, and electronic equipment; and (7) current assets, liabilities, and investments. CALC teams started fieldwork in May 2017 and completed the identification, verification, and validation work by early November; the CALC final report was drafted and sent to IGRTC at the end of November 2017. The results presented below are from the NCC CALC report 2017 and cross-checked with the IGRTC summary report (IGRTC 2018).

The report represents a great improvement in information compared with the TA preliminary inventories, but it remained incomplete; for instance, it states that “the land inventory is about 70 percent complete” (NCC CALC 2017, 13). Nevertheless, it provides a reasonable basis for further development of a reliable asset database and management system. The report not only identifies assets but points to numerous gaps, weaknesses, and a need for follow-up actions to be completed to resolve outstanding issues and eventually achieve a reasonably clear asset and liability inventory.

The CALC report sent to IGRTC in November 2017 was considered final even though the verification and validation was not fully completed due to time constraints. Some information in the report was based on desk review instead of field survey. There was still a need to verify that all assets that had documents, for example titles and logbooks, existed; such verification remained incomplete. Upon completion of the report, the CALC secretariat passed it on to the chairman of CALC, who signed it together with the two CALC secretaries: the internal auditor from NCCG and the external auditor from the National Treasury. The report was then submitted to IGRTC.

By the time the report was ready, CALC was inactive in the wake of the upcoming local government elections, after which a landslide replacement of local officers made CALC dysfunctional, because most former members left office. The 600-page CALC report included a statement dated November 2017 that reads: “The CALC committee has not reconvened since July 2017 to receive updates and deliberate on the way forward” (NCC CALC 2017, 11). The incoming NCC government has not reinstated CALC since November 2017.

IGRTC has collected, reviewed, and streamlined all CALC reports and prepared a consolidated national report on asset takeover and verification discussed in part I (IGRTC 2018). IGRTC returned the revised and reviewed report to each county and requested the governors’ follow-up actions. NCCG had not formally discussed the CALC report received from IGRTC until late 2019; but important steps toward establishing a reliable asset management system can be considered adequate follow-up actions. Details will be discussed in the following sections. First, we summarize NCCG’s specific findings and experiences in CALC procedures by main asset classes.

Land and buildings Land. The teams assigned to verify land parcels and buildings did heroic fieldwork. They identified 993 land parcels (table 6.5), of which 97 percent had a land record or other identification numbers and 82 percent had estimated land areas. (Interestingly, neither the national landmark Uhuru Park nor City Stadium has a land record or other identification numbers.) The CALC team identified 50 percent more parcels and two-and-a-half times more estimated land area (3,364 hectares versus 1,355 hectares) than the TA inventory, in part, because the TA excluded an inventory of assets managed by NCWSC, while NCCG included the latter as a rightful owner.

About two-thirds of land is under NCWSC, but references suggest that the company leases from NCC instead of owning the land and buildings. These results strongly underscore the importance of the internal identification and verification of assets and also provide a good basis for future development of a reliable asset database, especially important for land and buildings. It also underscores the importance of valuation of land that could and should play a