Saturday, April 2, 2016

Top Investors Say Sayonara As Kabir Stalls 200-Million-Dollar Project - PLOT THICKENS!

  • Mr. Paint to get the chop as Minister Hashim promises bigger yield for Vauxhall Street land
by Nirmala Kannangara
At a time when Sri Lanka is seeking to attract large-scale investors, a situation has arisen where a couple of Japanese investors have been ‘kicked out’ due to an insane act of a senior government minister.
Minister of Public Enterprise Development Kabir Hashim has come under fire for ‘inspiring’ the two Japanese investors, who came to the country to invest in a US$ 200 million mixed development project in Vauxhall Street, Colombo, to leave the country last week. The investors are said to have decided not to come back and part of their investment amounting to a few million US Dollars, now lying at the Seylan Bank, will be withdrawn.
Mr. Paint Lanka (Pvt) Ltd., in collaboration with Procon Development (Hong Kong) Ltd., submitted a proposal to the Board of Investment (BOI) on March 21, 2013 to set up a US$ 200 million mixed development project. Hence Procon MAG Hong Kong (Pvt) Ltd. was established in 2013 and upon receiving all government approvals including cabinet approval, the Japanese investors deposited part of their investment on an Escrow Account (a temporary pass through account held by a third party during the process of a transaction between two parties) at Seylan Bank.
Despite having obtained all approvals, Minister Kabir Hashim’s recent letter to R. Paskaralingam, Advisor to the Prime Minister/ Ministry of Policy Development, requesting not to allow the Japanese investors to invest in the proposed mixed development project at 175, Vauxhall Street, Colombo 2, claiming that there are two parties willing to pay a higher price than the Japanese investors had prompted the investors to leave the country.
Hashim in his letter to Paskaralingam had stated that it is irregular to grant the said land at a price of Rs. 4.2 million per perch, as the two buyers are willing to buy at Rs. 8 million per perch.
“According to Minister Hashim, the buyers are willing to buy the land at a rate of Rs. 8 million per perch when our investors had obtained the land on a 99-year lease agreement where we have to pay JEDB Rs. 4.2 million per perch for 99 years. Obtaining this land on outright purchase is not a profit to the government but a loss as after 99 years the government still can lease the land,” a high ranking officer at Mr. Paint who wished to remain anonymous said.
The land in question is 253 perches in extent and is owned by the Janatha Estate Development Board (JEDB). In 2003, the Kandy Tyre House (Pvt) Ltd, the parent company of Mr. Paint Lanka (Pvt) Ltd. entered into a 30-year lease agreement (agreement No: 6952 dated April 1, 2003) with the JEDB at a value of Rs. 0.6 million per perch according to the then government valuation report.
However, in 2008, the Kandy Tyre House requested for leasehold rights of 99 years to undertake a mixed development project, agreeing to surrender the unexpired leasehold rights back to JEDB. The JEDB, in a letter dated April 3, 2013 extended their concurrence to the proposal subject to the Board of Directors approval. The 99-year lease was to be confirmed based on the then valuation determined by the government chief valuer with the approval of the cabinet of ministers.
The proposed mixed development project consists of a luxury centered high-rise building with shopping, office and residential apartments together with a vehicle park. Kandy Tyre House meanwhile gave its written consent to surrender the unexpired term of the leasehold rights back to JEDB on the specific understanding of obtaining the new 99-year lease to undertake the mixed development project in favour of its subsidiary, the new investor M/s Mr. Paint Lanka (Pvt) Ltd.
The Board of Directors of JEDB, on a resolution taken on April 11, 2013, decided to transfer the total extent of the 253-perch land to Mr. Paint by extending the leasehold period of 99 years subject to revision of the rental on government valuation. It was in this backdrop that the Ministry of State Resources and Enterprise Development and Ministry of Investment Promotion on October 3, 2013 submitted a cabinet memorandum on the proposal for the mixed development project.
The cabinet of ministers at the cabinet meeting held on November 29, 2013 decided to refer the proposal to the Standing Cabinet Appointed Review Committee (SCARC) for appraisal and based on its recommendation, to consider the transfer of the land concerned to the Board of Investment (BOI) for the proposed project.
After the proposal was referred to the SCARC on March 5, 2014 (Ref: No: MSRED/4/5/Mixed.Dev.Pro), the SCARC on March 18, 2014, recommended the transfer of the said land to the BOI on free grant basis, enabling the BOI to lease the same to Mr. Paint Lanka on a 99-year lease subject to the upfront payment of the lease value to be determined based on the Chief Valuer’s valuation in terms of the Land Alienation Policy of the Government.
The upfront lease payment has to be made to the BOI and will be transferred subsequently to the JEDB in order to settle the long outstanding statutory liabilities of the JEDB. It was also recommended that in the event a condominium unit is transferred from lease basis to freehold basis by the project proponent, the difference of the value of the property shall be remitted to the JEDB.
Following cabinet approval and the SCARC recommendation, a government valuation was carried out in 2014 and the valuation for the entire land at 175, Vauxhall Street, Colombo 2 was Rs.1.15 billion at a rate of Rs. 4.5 million per perch.
However, after the present government came into power in 2015, they suspended all major projects involved with the government. This issue continued to be discussed at the cabinet sub-committee on economic management and they decided to call for a new valuation report and wanted the project proponent to pay on the latest value and not the 2014 value. According to G. S. Wijewardena, Provincial Valuer (Colombo) in the valuation report dated February 29, 2016 the present value of this land is Rs.1.4 billion which is Rs.5.6 million per perch.
“When the new valuation report was handed over, the project proponent agreed to pay Rs.1.4 billion as the outright price for the entire land. So how can Minister Hashim say that we have got an underestimated price? According to a valuation carried out on the direction of the Colombo District Court on the adjoining land in 2015, the value per perch was Rs.5 million. If we have got the government valuer to underestimate the land in question, then we could have got the valuation report for a lesser amount,” sources added.
It is learnt that at a Cabinet Committee on Economic Management, Prime Minister’s Advisor R. Paskaralingam had stated that the Japanese Ambassador was also concerned about the delay in implementing the project and had further stated that this project should go ahead as the project proponent had obtained all relevant approvals including cabinet approval.
When this newspaper contacted Chairman JEDB Prof. Kennedy Gunawardena to find out whether they have any investor who will pay Rs. 8 million per perch as he stated to the Cabinet Committee on Economic Management, Prof. Gunawardena said he cannot make any comment as he is new to the post and needed more time to study the issue. When asked whether he made a representation to the Cabinet Committee to speak about this land, Prof. Gunawardena said he has plans to go back to the University one day as a lecturer and did not wish to tarnish his name by getting embroiled in scandalous issues.
“After I took over office I removed all senior staff who were over 60 years of age and there is no one now for me to direct you to, to give a comment on this issue,” Prof. Gunawardena added.
However, when contacted, former Chairman JEDB, Dr. S. B. R. Rekogama said that the land in question has to be given to Procon MAG Hong Kong (Pvt) Ltd as per the 2013 cabinet approval and all other approvals.
“The JEDB is facing a financial crisis due to mismanagement over the years. There were many court cases against the JEDB for non-payment of gratuity, EPF and ETF and the court had issued warrants even to the Board of Directors. In order to settle these, I got cabinet approval to receive Rs. 1.2 billion but I was given only Rs. 350 million to make these payments. Since there were consultants and older staff, I gradually removed all of them and saved a lot of money which was used to pay the outstanding monies to a certain extent. As the JEDB is in debt, this is the best offer and if the JEDB wants more money, it would be difficult for them to settle their debts.”
All attempts to contact Chaminda Gunathilake, the local investor of Procon MAG Hong Kong (Pvt) Ltd. failed as he did not wish to make any comment to the media.
Although a message was left with Minister Kabir Hashim’s office seeking a comment, the Minister had not responded at the time of going to press.

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