Bambalapitiya Flats Redevelopment Project:NHDA consultant’s warnings ignored by govt.

Bambalapitiya Flats

By C. A. Chandraprema-March 5, 2017, 9:32 pm 

Over the past several weeks we have brought to the attention of the public the current situation in relation to a project to redevelop the 10-acre land on which the Bambalapitiya flats now stand. The idea is that the present residents would move out of their flats and give vacant position to the National Housing Development Authority (NHDA) and after the project is completed the 300 residents and 12 shop owners would be allocated new flats and shops in the new mixed development project that is to be built on the site.

If implemented properly this would certainly be a good project. The problem, however, is that serious doubts have arisen about the bona fides and the financial standing of the promoter who has come forward to do the project. The purported other partner in the development project, Engineering Projects India Ltd, which is the party that has the finances and the expertise to be able to complete a project of this nature, is not involved in the project in the manner the promoter of the project, UTL Global Projects Pte Ltd has led the government to believe.

Our argument was that the government should establish beyond doubt that Engineering Projects India Ltd was actually going to finance the project before any agreement is signed between the NHDA and the ‘special project vehicle’ called City Square Projects (Pvt) Ltd., which was formed to do the project. We revealed that Engineering Projects India Ltd was not a shareholder of this special project vehicle which was just a fully owned subsidiary of the promoter UTL Global Projects Pte Ltd., which in turn was owned by three Indian nationals - all members of the same family with no known experience in real estate development and construction or the financial resources to do a project of this nature. We revealed that Engineering Projects India Ltd had signed an agreement with the special project vehicle City Square Projects Pvt Ltd., but without making a worthwhile financial commitment except to say that they will look around for a third party to finance the project.

Yet this project had been taken through the process by the government of Sri Lanka due to the impression conveyed by both UTL Global Projects Pte Ltd and Engineering Projects India Ltd that the latter will be investing up to USD 300 million therein. In the agreement that Engineering Projects India Ltd has signed with City Square Projects Pvt Ltd, there is not even a trace of that anticipated USD 300 million. In fact, UTL Global Projects Pte Ltd has refused to show the purported ‘consortium’ agreement that their fully owned subsidiary City Square projects Pvt Ltd has with Engineering Projects India Ltd to the Sri Lankan government; it has said that the agreement is ‘highly confidential’. In normal circumstances, that refusal alone should have set the alarm bells ringing. But, the government seems blind to clear signs of a massive irregularity.

On 22 February 2017, the Cabinet Subcommittee on Economic Management had decided to recommend to c abinet that approval be granted for the NHDA to sign the agreement with City Square Projects (Pvt) Ltd., on the condition that within 4 to 6 weeks of signing the agreement the promoter has to bring in USD 10 million into the country, failing which the agreement will be null and void. The Minister of Housing and Construction Sajith Premadasa has been instructed to seek Cabinet approval for the agreement to be signed on that condition. The question that the government should be asking themselves is whether this is the way to go about a project of this nature? Minister Premadasa himself had described this project as being unique and something that had never before been tried out in Sri Lanka. It was his father R.Premadasa who had given the tenants of the Bambalapitiya flats ownership over their apartments.

Now his son is to invoke Article 2 of the Urban Development Projects (Special Provisions) Act No: 2 of 1980, which enables the government to evict anybody from any land that is needed for a development purpose with the evictee being barred by law from appealing to courts! Furthermore, Minister Premadasa will be doing that in a situation where it has been well established that the promoter does not have the finances to complete the project and even the partner they claim to have brought in, Engineering Projects India Ltd., has not made a worthwhile commitment to finance this project. In fact, the involvement of Engineering Projects India Ltd in any capacity at all in this project is just a pie in the sky because Engineering Projects India Ltd., which is an Indian government owned entity has not got the required clearances from the Indian ministry concerned, the Indian Cabinet or the Reserve Bank of India to get involved in this project.

Even the purported ‘consortium’ agreement that Engineering Projects India Ltd. has with City Square Projects (Pvt) Ltd is conditional on the Indian government granting the necessary clearances. It was well over two years ago that Engineering Projects India wrote to the NHDA stating that they would be interested in this project and even providing a letter from the Overseas Bank of India confirming that they had the capacity to carry out the USD 300 million project if it was awarded to them. However nothing has happened since then in terms of getting Indian government clearance. It appears that Engineering Projects India Ltd has not even applied to the Indian government for the necessary clearance to invest anything at all in Sri Lanka. In the purported consortium agreement that Engineering Projects India Ltd signed with City Square Projects (Pvt) on 5 March 2016 the actual financial commitment they have made is not the expected USD 300 million— virtually nothing! Even this next to useless commitment has been made conditional on approvals being granted by the Indian government. The fact is that the signature of Engineering Projects Ltd is not worth a cent without the necessary approvals from the Indian government.

The very fact that the Cabinet Subcommittee on Economic Management has given the go ahead to sign this agreement subject to a proviso that the promoter should bring in USD 10 million within 4 to 6 weeks, failing which the agreement will be null and void, shows that they have been rattled by the expose made by this newspaper. They may have the sinking feeling that something is amiss, but they have no way of knowing the extent to which things have gone wrong because they have not seen the whole of the purported consortium agreement that City Square Projects (Pvt) Ltd has signed with Engineering Projects India Ltd. Even if the promoter comes up with 10 million USD, does that mean that they will be able to complete a project that is expected to cost over half a billion USD? In our last article we had revealed that UTL Global Projects Pte Ltd/City Square Projects (Pvt) Ltd had obtained a letter from a local bank agreeing to provide them with an overdraft of USD 25 million with the Bambalapitiya land as security which gives us a rough idea of the manner in which the USD 10 million would be raised.

It should be noted that The National Housing Development Authority has commissioned Lakshman Ramanayake Associates (Pvt) Ltd, Chartered Quantity surveyors and Project Management Consultants to review the proposed development agreement for the redevelopment of the Bambalapitiya flats and a report was sent by them to the NHDA on 4 January 2017 making among others the following observations.

The NHDA cannot enter into any serious development contract with City Square Projects (Pvt) Ltd because the latter does not have the necessary financial capability or track record to take responsibility for this USD 500 to 700 million worth project.

Therefore, any meaningful agreement can be entered into by the NHDA only with UTL Global projects Pte Ltd Singapore and Engineering Projects India Ltd jointly and the responsibility for the project should lie not with City Square Projects Pvt Ltd but with UTL Global projects Pte Ltd Singapore and Engineering Projects India Ltd.

The government should have documentary proof of Board of Directors approval for all three companies to enter into an agreement with the NHDA and the power of attorney for the directors to sign the agreement as well as reconfirmation of the financial commitment for this project from the board of directors of UTL Global projects Pte Ltd Singapore and Engineering Projects India Ltd.

The consultant, Lakshman Ramanayake Associates (Pvt) Ltd., commissioned by the NHDA had submitted their report in early January, before we took up the matter. Readers will note that the NHDA consultant has also placed emphasis on the same issues that we have highlighted. He has asked for a reconfirmation of the financial commitment from Engineering Projects India Ltd and for approval from the board of directors of that Indian government owned entity. This is because there are doubts whether even the board of directors of Engineering Projects India Ltd has actually approved this project. We learn that they have not and that is why Engineering Projects India Ltd does not appear to have applied to the relevant agencies of the Indian government to do this project in Sri Lanka. The most important question here is, why is the government ignoring the warnings issued by a consultant commissioned by the NHDA, which owns the land that will be allocated to the project?

If this project fails, the NHDA will have to hand over the most valuable property it owns to three Indian nationals for free, unknown local and foreign parties would be left holding mortgages over a 99-year lease over this land and the NHDA will end up with nothing. Besides, the NHDA will have to bear the additional burden of looking after the present residents of the flats who will have to be vacated.