There are growing concerns that that the government is providing too much concessions and resources to the Education City at a time when the country is facing severe cost saving measures.
Also, there is also concern on the viability of the multi-billion Education City project, especially since till date the project has not been able to attract even a single school or college at the site.
The Education City is estimated to be a Nu 22 bn project with a Nu 1 bn first phase to be completed in the next five years with the bulk of the work being completed in the second phase of 10 years. It aims to attract the best educational institutes in a 1,000 acre site located near Chunzom.
In 2012 the bid for the Education City was won by Infrastructure Leasing and Financial Services (ILFS) and the Infinity Group who bid as a consortium as they were the sole bidders.
Too many concessions?
A February 17, 2010 cabinet website press release has said, “The cabinet has approved giving about 1,000 acres of land to DHI to be used as equity grant in the proposal to build a knowledge city in Bhutan.”
However, this paper has found that the government will no longer be taking any shares or equity in the project on the basis of it leasing the land to the project. Instead the government will only be charging a nominal annual rent of Nu 10 mn for the 1,000 acre project.
By contrast in Dubai and Malaysia the respective governments own the education city projects.
Bhutan’s Education City will be owned at 51% by the Infrastructure Leasing and Financial Services while the 49% will be owned by the Infinity Group.
At a time when government budgets across the board have been mercilessly slashed the government approved Nu 479 mn to construct ancillary infrastructure for the project in the form of a approach road, bridge and water supply. The money will be spent over three years with this year’s budget spending allocating Nu 144 mn.
The government has agreed to take 2.01 percent of the revenue of the project. However, at the same time the project and the institutions in it have been granted a 100 percent tax holiday till 2030. By contrast Special Economic Zones in India give only a five year complete tax holiday with a 50% tax holiday for the next 10 years.
While most construction project face labor limitations the Education City will get special consideration on the large number of skilled and unskilled manpower.
The Jigmeling Industrial Estate is planned on the similar lines as a SEZ like Education City. However in Jigmeling of the 733 acres the developer has to hand back around 300 acres to the government for free while in the Education City of the 500 acres to be developed the government will only get 50 acres.
A key reason why many bidders did not come for the Education City bid was because of the refusal to change the 30% commercial and 70% institutional ratio of the project. Potential bidders wanted a higher commercial space of 40% to 50% and more to make shops, hotels etc but were refused.
However, the latest agreement signed between the ILFS/ Infinity consortium and the government gives space to the Bhutan Education City Board comprising of government secretaries, local government and headed by Lyonpo Yeshey Zimba to increase the commercial space in the future.
In the recent past critics of the project including the Opposition Leader have alleged that the involvement of the Prime Minister’s family members have led to a special status being extended for the project.
The Prime Ministers nephew and son work in Infinity which had originally brought up the idea of a 1,000 acre Education City project.
However, DHI Infra’s General Manager of project, Dr Karma, who is currently managing the project said that both the Prime Minister’s nephew and son had submitted a letter to DHI Infra stating that they are only employees of Infinity and do not own any shares in the company.
He explained that the government could not take equity on the basis of the 1,000 acre land as the government along with the project developers would have to pump in additional money which the government did not have and also raise loans on the project.
He said since the government would not have to invest in the project through equity and loans there would be no risk to the government even if the project did not do well.
Dr Karma also clarified that it is normal practice for governments to provide ancillary facilities like road, water and power facilities to SEZ projects like Education City.
DHI Infra CEO Kinga Tshering said, “Road and bridge will not only open up the 1,000 acre Education City but the entire local community and the facilities built with government money will be owned by the government.”
Dr Karma said that the government could take 300 acres back from Jigmeling as it is an entirely commercial project while the Education City is also an educational project and not entirely commercial.
He explained that of the 1,000 acres the developers could develop only 500 acres as they would have to leave 500 acres as green areas.
He also said that it was the international norm to give long tax breaks in SEZs.
Viability of the project
The failure of the IT Park, a project similar to the Education City, to attract investors and generate profit has renewed fresh concerns on the viability of the Education City project.
The project which is aimed at attracting numerous top notch universities and schools till date has not even been able to attract a medium grade college or school to the project.
As evidence that there is interest in the project the government has pointed to and cited Memorandums of Understanding (MoU) signed with IIM Ahemdabad, Columbia University, Rafels Institution and TERI.
However, these two or three page MoUs are not legally binding documents and focus mainly on establishing short term courses in Bhutan.
For example as per the MoU IIM Ahemdabad will have annual two week management training programs in Bhutan.
As regards to the Education City the MoU with IIM Ahemdabad says, “ IIM Ahemdabad and DHI Infra are to consider collaborating in setting up a program/college or an IIMA branch institute in the upcoming Bhutan Education City.”
Dr Karma also admitted that the MoUs so far only showed potential interest with no concrete assurances. “They will see how the City comes up, maybe do a few pilots and then decide,” he said.
Another area of concern is the lack of interest shown by the numerous companies approached by DHI Infra in its road show.
DHI Infra had approached around 18 major companies like HCC, Tata, Lanco Infrastructure, Ambuja, Mahindra, Everon, Simplex, Gammon, L&T, Jaypee, Kapel, ILFS etc.
In the end it was only a consortium bidder of ILFS and Infinity which took up the Education City project.
According to project officials many CEO’s of prospective bidder companies said no when they saw the site or learnt that it was a 30 commercial and 70 institutional area project.
Dr Karma said that there was poor interest due to several reasons.
He said this was Bhutan’s first Public Private Partnership project and bidders did not know what to expect. The investors also found no legal legislation for the project. The Bhutanese market was also found to be too small for an Education City. The nature of the project with only 30% commercial area was also a deterrent. He also said that the world economic recession also made investors hesitant.
Recently National Council Deputy Chairperson Dasho (Dr) Sonam Kinga had cited the poor viability of the project as one of the main reasons as to why he did not vote for the Education City Bill.
However both Dr Karma and the CEO Kinga Tshering said that the project would be feasible.
“Back in 2010 there were 4,000 to 5,000 Bhutanese students studying in colleges in India. In Bhutan there are in total around 200,000 students with a gross annual enrollment of 30,000 students but the Royal University of Bhutan has capacity for only 5,000 students which means there will be 25,000 students who cannot be served,” said Tshering.
He said that many of the students who studied in various colleges in India got questionable quality of degrees and education spending as much as 15,000 USD a year. He clarified that the Education City could give these students a quality education especially as the Bhutan Accreditation Council under the Education Ministry would ensure uniform quality of courses in the Education City.
Dr Karma, said that the Education Institute would not only look at getting reputed colleges and schools but also institutes that played on Bhutan’s strength like Buddhist Studies, Environment, Hydropower, GNH, etc.
He also clarified that the Education City would target the mass demand for quality education in India. He said that currently due to lobbying, restriction on profit making and lack of a law in India foreign Universities were not able to invest in India. He said the Education City in Bhutan could attract these Universities who in turn could get access to the Indian market.
When the project was first announced by the government in 2009 it was estimated that Education City would bring in 15 to 30 top universities along with 40,000 students. The investment would be a USD 1 bn or Nu 47 bn and 100,000 mainly Bhutanese jobs would be generated. It was also estimated that Bhutan would generate foreign exchange of USD 500 mn a year.
However, today the project will see Nu 10 to 22 bn in investment depending on the Detailed Project Report bringing in 12,000 students. The jobs created also have been estimated to be a more realistic 4,000 to 5,000 jobs. Though the project is expected to get revenue of Nu 4 to 5 bn once complete after 15 years the government’s share will only be Nu 100 mn a year.
Many critics of the projects including MPs in Parliament have expressed concern on the social and cultural impact of bringing in large numbers of foreign students.
The project which was first proposed by Infinity in 2009 ran into controversy as critics including the Opposition leader alleged that the project was not being properly and transparently handled especially since the Prime Ministers family members were involved.
It was alleged that the Royal Education Council which had first come up with the idea saw it being shot down by the same government who agreed to it when Infinity proposed it later.
Infinity was also found to be a midsized company that neither had experience in any Education City nor had handled a job of that scope before.
In early 2010 the government had said it would have a detailed framework of private participation in infrastructure (PPI) for establishing such cities and for soliciting interest from firms. But the cabinet decision to award the 1,000 acres land to DHI in February 2010 based on a proposal from Infinity was done before the framework came out.
There was also controversy in a major change made in the PPI which is supposed to govern how SEZ’s, Education Cities etc are handled. The change made in the cabinet was insertion of clause 11 of the PPI which said, “The government may accept proposals that are unique, innovative, ecologically sound, socially responsible, and that boost and support the development philosophy of the royal government. Such proposals will not be required to go through a bidding process.”
It was considered by many to be a backdoor entry for the Education City and also to allow the government an invisible hand in selecting project developers.
After the controversy the government eventually asked DHI to go for a road show and also international tendering.
However, when only one bidder was left with ILFS/Infinity consortium similar PPI provisions allowed a single bidder to win the project instead of going for a rebid with better terms and conditions.