Bambalapitiya Flats redevelopment project: Govt. taken for a right royal ride?

* Doubts about Indian investor’s involvement
* Champika expresses reservations 

An artist’s impression of the Bambalapitiya Flats Redevelopment Project after completion.

By C. A. Chandraprema-February 2, 2017

In 2014, a plan was floated to redevelop the ten-acre land on which the Bambalapitiya flats now stand. The land belongs to the National Housing Development Authority (NHDA). The plan to redevelop this property involved the demolition of the present blocks of flats and building six towers of 36 storeys each. The project would have a total of 3,762 residential apartments along with shops, offices and hotels. After the new project is completed, 285 apartments and 12 shops would be allocated to the present residents of the Bambalapitiya flats. It was a company called UTL Global Projects Pte Ltd registered in Singapore which brought up this proposal to redevelop the Bambalapitiya flats. At the initial stages UTL Global Projects Pte brought in as a partner, Patel Engineering Ltd, a listed company in India, which had extensive experience in real estate development and considerable financial clout.

A tripartite MOU was signed on 29 March 2014 between UTL Global Projects Pte Ltd, Patel Engineering Ltd and the NHDA for this project. Subsequently however, Patel Engineering Ltd backed out of the project. At that point UTL Global Projects Pte Ltd purported to bring in another Indian investor Engineering Projects India Ltd, a state owned entity in India, which, too, has extensive experience in construction and real estate and solid financial backing. This government owned Indian company is already involved in water projects in Vavuniya and Puttlam with the National Water Supply and Drainage Board.

The ‘consortium’ which was supposed to have been formed between UTL Global Projects Pte Ltd and Engineering Projects India Ltd applied jointly to the BOI on 12 September 2014 giving the address of the consortium as 151 Chin Swee Road, # 14-1 Manhattan House, Singapore. On the same day the BOI wrote to the NHDA and the Condominium Management Authority informing them that an application had been made to redevelop the Bambalapitiya flats at a cost of USD 250 million over a seven-year period and wanting to know whether they had any objections to such a project.

On 25 September 2014 one Vinoo Gopal The Director Projects of Engineering Projects India Ltd wrote to UTL Global Projects Pte Ltd that Engineering Projects India Ltd was ‘on principle’ agreeable to joining in a project to redevelop the Bambalapitiya flats. Gopal had requested UTL Global Projects Pte to send him the MOU signed with the NHDA to enable them to take further action in this regard. He also said that his company would send a delegation to Colombo to discuss the scope of the work before finalising the consortium agreement between UTL Global Projects Pte Ltd and Engineering Projects India Ltd. One thing that does not appear right is that this letter from Vinoo Gopal of Engineering Projects India Ltd is dated 25 September 2014 whereas the application to the BOI by the consortium that was supposed to have been already formed by UTL Global Projects Pte Ltd and Engineering Projects India Ltd had been made earlier on 12 September 2014.

Furthermore, Vinoo Gopal of Engineering Projects India Ltd wrote his letter of 25 September 2014 in reply to a letter that had been written to them by UTL Global Projects Pte Ltd on 12 September 2014. This means that an Indian government owned company agreed on principle to an overseas project in less than two weeks! Can any company, private or public make a decision involving a major overseas project that fast? Looking at the dates on these letters exchanged, it is clear that UTL Global Projects Pte Ltd wrote to Engineering Projects India Ltd making the initial proposal only on the day that they had applied to the BOI claiming that they were already in a partnership with Engineering Projects India Ltd and that they wanted to jointly execute a project to redevelop the Bambalapitiya flats!

On 30 December 2014 Vinoo Gopal of Engineering Projects India Ltd wrote to the NHDA that they were in principle ready to join UTL Global Projects Pte in the project to redevelop the Bambalapitiya flats and that they were now in the process of completing the required documentation. He also attached a letter from the Indian Overseas Bank certifying that Engineering Projects India Ltd had the financial resources to be able to execute the 300 million USD project to redevelop the Bambalapitiya flats if it was awarded to them. This bank referral from the Indian Overseas Bank was signed by the Chief Manager – his name is not mentioned in the letter. For an Indian government owned company to have received an initial proposal for an overseas project on 12 September 2014 and to be at the stage of preparing documentation to join the project by 30 December 2014 looks quite unusual.

After this point the government changed and the Bambalapitiya flats redevelopment project went into abeyance as the new government declared a moratorium on unsolicited proposals. Later, UTL Global Projects Pte Ltd managed to revive the proposal and it was approved by the Cabinet Subcommittee on Economic Affairs of the yahapalana government on 07 July 2015. Then the August 2015 parliamentary election intervened and the matter went into abeyance again. After the new government was formed, it was once again revived by the Cabinet Subcommittee on Economic Management by being approved again on 11 December 2015. Following upon that, on 14 December 2015, the BOI wrote to UTL Global Projects Pte Ltd that the BOI had approved the application they had made jointly with Engineering Projects India Ltd to redevelop the Bambalapitiya flats at a cost of 200 million USD. The project was also given a 15-year tax holiday.

On 17 February 2016, the Minister of Housing and Construction Sajith Premadasa submitted memorandum No: 08/2016 to the Cabinet seeking approval for this project and recommending among other things that a Project Steering Committee be appointed to supervise and guide the project through its implementation. Cabinet approval was duly granted. On 19 April 2016, the General Manager of the NHDA wrote to both UTL Global Projects Pte Ltd and Engineering Projects India Ltd that the Cabinet had approved their joint project proposal and that in terms of BOI requirements, the two partners in the consortium should incorporate a company in Sri Lanka for this project. Thereupon, a company called City Square Projects Pvt Ltd was duly incorporated in Sri Lanka but it is unclear whether Engineering Projects India Ltd is involved in this new company.

Be that it may, on 22 June 2016, a formal agreement was entered into between the BOI and City Square Projects Pvt Ltd. This agreement also states that Engineering Projects India Ltd is a partner in the project but this agreement with the BOI does not have to be signed by Engineering Projects India Ltd. Instead, it was signed by two directors of the local company City Square Projects Pvt Ltd that was incorporated for the project. In a further note to the Cabinet on 08 November 2016, Minister Sajith Premadasa recommended that in order to proceed expeditiously with this project, a gazette notification be issued immediately to acquire this site under the Condominium Management Authority law which provides for any condominium that is over 40 years old to be acquired. He had further recommended that the Bambalapitiya flats be declared a ‘Urban development Site’ under Section 2 of the Urban Development Projects (Special Provisions) Act No: 2 of 1980. This provision of the urban development law disallows appeals to courts regarding the acquisition of property for development projects.

There are 300 housing units in the Bambalapitiya flats and once the project begins, the residents will have to vacate their houses until the new flats are built and they are allocated new apartments. Until such time, they are to be provided with a monthly payment as rent assistance. Once the final project documents are signed, the land on which the Bambalapitiya flats stand will be transferred to City Square Projects Pvt Ltd on a 99-year lease. On 25 November 2016, Minister of Megapolis and Urban Development Champika Ranawaka filed a Cabinet Observation bearing Ministry Reference 2015/MPD/Obs 06 stating, among other things, that the financial credentials of the developers did not appear to have been checked and that a proper feasibility study had not been carried out to ascertain the viability of the project.

As of now, the Prime Minister, the Minister of Housing and Construction, the BOI, the NHDA and even the tenants of the Bambalapitiya flats appear to be under the impression that Engineering Projects India Ltd is involved in this project. Minister Premadasa has stated in his Cabinet memorandum on 17 February 2016 that ‘the redevelopment of the Bambalapitiya flats is a complex project which has to be undertaken with utmost care and expertise preferably by an investor/developer who has experience in similar work’. In his observations to the cabinet made on 08 November 2016, Minister Premadasa described the Bambalapitiya redevelopment project as ‘a novel and complex project the likes of which had never been undertaken in this country’. Hence, the involvement of Engineering Projects India Ltd is absolutely crucial.

It is Engineering Projects India Ltd that has the expertise and experience in construction and real estate development and the financial backing to be able to carry out a project of this nature. The other partner in the consortium, UTL Global Projects Pte Ltd, is a company that was incorporated in Singapore only in February 2011 and its owners are three Indian nationals, Koorapati Premalatha Rani, Meena Pooja and Prashanth Koorapati; they are members of the same family. They don’t have any known background in construction or real estate development and are not known to have the financial resources to be able to handle a project of this nature. The original partner they brought in to do this project Patel Engineering Ltd did have a suitable background and financial resources for this project.

But there are questions over whether Engineering Projects India Ltd has actually formed a consortium for this project with UTL Global Projects Pte Ltd. This has to be ascertained beyond doubt by the government of Sri Lanka before proceeding any further with this project. Because it is a government owned business undertaking, Engineering Projects India Ltd cannot invest any money overseas without the approval of the Indian Cabinet and other agencies such as the Reserve Bank of India. Have the necessary approvals been granted by the Indian government and is Engineering Projects India Ltd a shareholder of City Square Projects Pvt Ltd which has been formed to undertake the redevelopment of the Bambalapitiya flats?

Once all the approvals are granted, the land on which the Bambalapitiya flats is located will be transferred to City Square Projects Pvt Ltd on a 99-year lease. Some fear that Engineering Projects India Ltd which is the purported partner that has the expertise and financial resources to carry out this project is not actually in a consortium with UTL Global Projects Pte Ltd and that once the land is transferred to City Square Projects Pvt Ltd, the land may be used as collateral to raise the capital that UTL Global Projects Pte Ltd obviously lacks. The following questions need to be answered in relation to this project:

1. Is Engineering Projects India Ltd actually in a consortium with UTL Global Projects Pte Ltd?

2. If so where is the consortium agreement?

3. Who are the shareholders of City Square Projects Pvt Ltd which will be receiving the land on a 99 year lease?

4. Have any local or foreign banks been approached by UTL Global Projects Pte Ltd to raise funds by pledging the Bambalapitiya land as collateral?

5. Why hasn’t the Project Steering Committee appointed by the Cabinet looked into the very valid points raised by Minister Champika Ranawaka in his Cabinet Observation regarding this project?

It is up to the government of Sri Lanka and UTL Global Projects Pte Ltd to summon a press conference and explain matters to the public. If Engineering Projects India Ltd is actually involved in this project they, too, should be represented at any such press conference to allay public anxieties. We have heard how a primary dealer borrowed money from the Central Bank at low interest rates to buy high interest yielding bonds issued by the Central Bank itself. If we now have a so-called foreign investor who is trying to raise money for investment by mortgaging land owned by the government of Sri Lanka, how is that any different to the bond scam? If a vacant land is given by the government to a developer and the project fails, the government can take back the land and confiscate the deposit and neither party will be seriously affected. But, in this case, there are residents in about 300 flats who will have to vacate their houses for the project to commence. If it fails, they will all be left high and dry.