Multi Level Car Park 2 & Multi Level Car Park 1

Govt violated FDI rule to allow MLCP FDI partner to pull out, waives off Nu 8 mn in penalty and Thromde asks govt to waive off millions more in Concession Fees

Space being created for 270 vegetable vendors from CFM will accommodate 57% of CFM vendors and push up commercial space from current 20 % to 38 %

The two Multi Level Car Parks (MLCPs) run by the KCR Private Limited has been in the news of late over the closure of the Centenary Farmers Market (CFM) and the government and Thimphu Thromde’s plans to move a chunk of them to the two MLCPs over COVID-19 fears.

There have already been questions over why the better ventilated CFM is being closed and chunks shifted to the more enclosed MLCPs.

FDI rule violated

It now emerges that the government in violation of the FDI Rules and Regulations 2019 has allowed the main FDI partner, which is the Nepal based CE Construction Private Limited owning 54 percent of the project, to withdraw from the project before the stipulated three-year lock in period.

Section 10 of the FDI rules which is titled ‘Lock-in-Period,’ says, ‘The FDI company shall retain 100% of the foreign equity invested in the company for a minimum of three years from the date of the start of the commercial operations of the FDI Business.’

This clause is there in the FDI policy to prevent speculative FDI investment where fickle investors put in money and pull them out as soon as there are any issues or they change their mind.

In the case of the MLCPs this rule is even more pertinent as this is a Public Private Partnership project (PPP) where government land and concessions has been given to the private party.

Given that the MLCPs started commercial operations from August 2019 as per the rule the only way for the foreign partner to pull out was from July 2022.

The KCR Pvt Limited had applied to the FDI Division in the Ministry of Economic Affairs to allow its FDI investor to pull out, but this was first rejected by the division in a letter sent by the FDI Division in January 2020 which pointed out to Section 10 and said this cannot happen before the three-year lock in period ends.

However, subsequently KCR applied to the political leadership and the initial decision and letter of the FDI Division was overruled and the Ministry on 1st June 2020 through the same FDI Division said the pull out of the FDI partner had been approved on 29th May 2020 and the FDI company KCR is now allowed to be converted to a domestic company.

The only condition imposed was that the FDI partner can take its equity injection of Nu 107 mn upon the completion of the lock-in period of three years in in July 2022.

When the paper enquired with the FDI Division on how this was allowed an official from the division pointed to section 12 of the FDI policy 2017 titled ‘Exceptions,’ which says. ‘The Royal Government reserves the right to permit FDI under terms and conditions that may be different from those specified herein. When such exceptions are made the nature of the exceptions and the rationale for making them will be made public at the time they are granted.’

However, the intent of this section is to allow in special FDI investments which would be in the national economic interest and may not come under the purview of the FDI policy.

The MLCPs on the contrary is an old FDI project from 2014 that already came under the existing FDI rules. Also, contrary to the section while the ministry allowed the pull out on 29th May 2020 this decision or the rationale was not made public.

The KCR CEO Namgay Penjore said that the Nepal FDI partner had to withdraw as the company could not send money from 2017 onwards due to new forex restrictions.

Nu 8.153 mn in revenue waived off by cabinet and Thromde applies to waive off millions more

As per the Concession Agreement signed between Thimphu Thromde and KCR Pvt Ltd, KCR is supposed to pay Nu 12,345.67 per parking slot per annum in the two MLCPs. In the first year this is supposed to be 65 percent of the total with 3 percent added every year till it reaches 100 percent.

A Royal Audit Authority (RAA) report on the MLCPs done from February to June 2019 using the above calculation found that up to June 2019 the Thromde was deprived of Nu 8.153 mn in terms of revenue loss due to the delays in the completion of the project which was supposed to be done in 2017. RAA noted that while the Thromde had written to the KCR Pvt Ltd to deposit the money the amount was yet to be received.

However, the Thimphu Thrompon Kinlay Dorjee told The Bhutanese that subsequently Thromde had submitted the matter to the MoF which in turn put it up to the Cabinet which in June 2020 waived off the above Nu 8.153 mn as the reason for the delay was found to be genuine.

However, with commercial operations starting from August 2019, KCR, until August 2020, owes Thimphu Thromde Nu 4.413 mn. This is based on 550 parking slots into Nu 12,345.67 coming to 6.790 mn a year of which 65 percent comes to Nu 4.413 mn.

The Thimphu Thrompon said that the Thromde will be writing to the MoF to also waive off this amount given the poor occupancy and also the availability of a lot of free parking spaces that were used by people in the core area.

The KCR CEO said that the current 20 percent commercial space of the two MLCPs are supposed to generate Nu 2.5 mn in rent per month but due to COVID and some areas being empty the actual rent being collected now is Nu 500,000.

The KCR CEO said that in his understanding KCR need not pay the concession fees as though the commercial operations had started from August 2019 the construction was still not complete.

He said the cabinet waiving off the 8.153 mn revenue  for delay in the construction is an endorsement that the construction is not complete and so KCR would not have to pay the concession fees.

When asked what specifically was not complete he said that the order to construct vegetable vendor stalls would qualify as ongoing construction, and some site development needed to be done though he did not specify the details of it.

He said the issue of paying the concession fees is also linked to the fact that while the company built the two MLCPs Thimphu Thromde could not ensure vehicles could come and fill the MLCPs.

In reply to a query the CEO confirmed that the bid document of the project did not mention any plans to pedestrianize Norzin Lam.

998 parking slots outside the two MLCPs

Apart from the two MLCPs KCR Pvt Ltd has been given 998 parking slots in the core urban area as part of the total package. Here the KCR CEO said they pay around Nu 11.34 mn on an average to Thimphu Thromde.

Application to extend Concession period

Namgay Penjore said that the KCR with the support of the Thimphu Thromde has applied to the government to extend the Concession Period from 22 years to 30 years.

He said that the application was based on the main premise that the construction cost of Nu 478 mn had shot to Nu 1.168 bn and so it would take a longer period to recover the investment. He claimed that the construction cost had gone up as the Nepal based company who did the estimates had assumed that Nu 478 mn would be enough which was not the case.

Recently the Prime Minister in a press conference said that the cabinet had shot down that request.

However, the 23rd June, 2020  cabinet decision is not an outright denial. It instead says that regarding the extension of the concession period for the MLCP, Cabinet is of the view that it is too early to assess and conclude on the viability of the business of MLCPs and therefore decided to take it up at an appropriate time.

Increase in Commercial space due to CFM

The Prime Minister also claimed that since parking in the MLCP and Norzin Lam was run by the same company the MLCP would earn more along the Norzin Lam as it was Nu 15 for 30 minutes while it was Nu 10 at MLCP.

However, a MLCP official clarified that the company would earn more if cars are parked at MLCP as it is automated while parking collections along Norzin Lam is subject to a lot of pilferage and a large number of people also have to be paid monthly wages. Also the rate at MLCP has been reduced to Nu 10 for now just to promote parking in the MLCP.

The pedestrianization of Norzin Lam would also enormously increase the commercial value and hence rent of the business outlets in the MLCP as people would be able to park there and shop. 

The KCR CEO told the paper that KCR has also applied for the commercial space to be increased from the current 20 percent to 35 percent given the huge investment and also the poor utilization of the parking space which he said is 2 percent at MLCP 1 and 5 percent at MLCP 2.

Here the Thimphu Thrompon said increasing the commercial space would be difficult as it would mean redoing the Concession Agreement so it would be unlikely as the space is meant for parking.

He said one of the reasons people are not parking in the MLCPs is partly due to people using free parking space along the road in the core town area. He said all of these would now be marked as parking areas and handed over to KCR.

The KCR CEO said that recently in just a 30 minutes’ driver he had counted around 174 such free parking space in the core Thromde area.

However, while the commercial area remains 20 percent on paper, in reality, the decision of the cabinet and the Thromde to shift a large part of the CFM to the MLCPs has significantly increased the actual commercial space well beyond 20 percent.

The KCR CEO said that they have been instructed by the Thromde and government to create slots for 270 vendors with 107 slots in MLCP 1 and 163 slots in MLCP 2 near BoD.

CFM has a total of 515 stalls with currently 470 active vendors with the numbers fluctuating.  This means that the MLCPs will be hosting around 57 percent of the CFM vendors.

As per the KCR CEOs own back of the hand calculation this increases the commercial space in MLCP 1 by 15 percent making it now 35 percent and 17 to 18 percent MLCP 2 making it 37 to 38 percent. The CEO, however, pointed out that the vegetable vendors are only a temporary arrangement while the KCR was requesting for a permanent increase.

The CEO said that around Nu 3 mn had been spent in creating the wooden vegetable vendor sheds and he said the company hoped this would be refunded. The Thrompon said it cannot be refunded as it is part of their cost.

The Thrompon said that KCR has been told to charge the same rent as the CFM to the vendors. As per the KCR CEO he said if the CFM rent is applied they would get around Nu 500,000 to Nu 600,000 per month from the 270 vendors.

This would come to around Nu 6 mn to Nu 7.2 mn a year above the Nu 4.413 Concession Fees it has to pay.

KCR also expects parking to pick up once the vendors move. The expectation is a chunk of the CFM parked vehicles moving to the MLCPs which would generate its own additional revenue.

Shareholding of KCR Pvt Ltd

In terms of the shareholding of the KCR company it started with three partners with CE Construction of Nepal holding 54 percent equity share, KNG Pvt Limited holding 46 percent with K standing for the current MoIC Minister Karma Donnen Wangdi holding 23 percent and N standing for the former NC Thrizin Namgay Penjore holding 23 percent and the third partner has Shacha of Rinson Construction Company who at the time held no share but was supposed to construct the two MLCPs.

With Karma Donnen Wangdi deciding to join politics in 2018 and to avoid any office of profit he handed over his shares in KCR to his father-in-law.

With the recent exit of the Nepal based FDI partner the new shareholding is that Rinson Construction now holds 65 percent of the shares while KNG holds 35 percent of the shares (divided equally between Namgay Penjore and Lyonpo Karma Donnen’s father-in-law).

The KCR CEO meanwhile denied any rumors of the Thimphu Thrompon owning shares in KCR. He in fact said he had joked saying that he had requested the Thrompon to invest since there was some speculation to that count.

The RAA in a report pointed out issues in bidding out of the two MLCPs and said that Thimphu Thromde is getting only a fraction of the revenue from overall parking fees (see separate story on pg 1).

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