The Bhutanese Leading the way.
In countries with poor regulatory checks and weak ethical systems, Public Private Partnership (PPP) projects often end up in controversy.
Bhutan’s first PPP, in the form of Thimphu Thromde’s Multi-Level Car Park (MLCP), has been mired in controversial decisions, unexplained ballooning figures, huge loans with questionable collateral, and clear attempts to unduly benefit private firms at the expense of the state and even banks.
In November 2014, Thimphu Thromde announced that the project to build the MLCP has been awarded to the KCR Private Ltd.
KCR would build the two MLCP structures for 550 cars, and Thromde would provide it on lease for up to 22 years with 20 percent commercial space with some shared revenue, and ownership to revert back to the Thromde after the time period expires. Thromde would also provide around 990 parking spaces in the core areas to KCR outside the MLCP.
From October 2020 onwards well on to October 2021, this paper did a series of stories to show irregularities and issues around the two MLCPs.
Unjustified Cost Increase of the Project and Suspicious Loans
The construction cost of the project shot up from Nu 478 million (mn) in 2014 to Nu 850 mn by July 2019, with a total cost of Nu 1.2 billion (bn) including loan interest when construction was largely complete. However, there was little to prove why the cost escalated by almost three times despite claims of design changes.
Experts the paper talked to, including one familiar with the project, said that even with design changes, the project cost should not have escalated as it did.
The completion cost estimate of the main adviser on the project was International Finance Corporation (IFC) was Nu 480 mn, and even KCR’s own estimate was Nu 478 mn cost.
The escalation was suspicious as Thromde and KCR had jointly decided against the IFC recommendation, to have an independent firm to monitor the construction and such cost escalation issues. The Thromde engineer was hardly at the spot to monitor the construction.
KCR had already taken Nu 586 mn in loans for the project and was seeking Nu 439 mn more, and the important thing was that the only loan collateral was the 22-year concession agreement.
The Nu 439 mn additional loan was being sought based on the cost escalation of the project, and also claims by the project that it needs to create commercial space including space for the vegetable vendors.
However, on the ground, the 20 percent commercial space has already been created including shops and a hotel in MLCP 1. As for the space for vegetable vendors, the structures created are mainly wooden partitions which KCR, itself, had told the paper that the cost of the wooden partitions would be around Nu 3 mn to Nu 5 mn.
The project already owes Nu 586 mn in loans and Nu 246 mn in interest to a Bank of Bhutan- led consortium coming to around Nu 826 mn. If the new loan of Nu 439 mn is approved, then the total loan and interest owed against the project would be Nu 1.265 bn.
Other Issues
The Thimphu Thromde attempted to Pedestrianize the Norzin Lam and remove parking near JDWNRH and Thromde office several times in 2016, 2018 and 2019, going against both the Ministry of Works and Human Settlement and even the Cabinet decisions, but the former and current Cabinets put a stop to it. The main aim was to benefit the two MLCPs.
This paper found the current government had violated the FDI rules to allow the Nepal partner to pull out of the shares, though the equity is still stuck here.
The Cabinet, on the basis of a request by Thimphu Thromde, waived off fines and revenue of Nu 8.153 mn from KCR to Thimphu Thromde last year from 2017 to 2019. Thimphu Thromde applied to the Cabinet again for KCR’s revenue from the MLCPs due to Thimphu Thromde from 2019 to 2020 coming to Nu 4.143 mn to also be waived off.
A Royal Audit Authority (RAA) report pointed to various irregularities and inconsistencies by Thimphu Thromde in the tendering of the two MLCPs.
RAA found that 1,460 parking slots, as per its calculation, generates around Nu 145.1 mn in revenue every year. However, the RAA said that Thromde got only Nu 20.14 mn from this, which is 13.88 percent.
The MLCP also came in for more controversy as the number of vendors in Centenary Farmers’ Market was reduced sharply, and vendors were moved to the MLCPs. However, it was found to be an unsuitable location, and vendors soon moved out.
ACC Moves In
Based on the series of investigative stories by this paper, the Anti-Corruption Commission (ACC) in October 2021 decided to investigate the project.
ACC is looking at how the cost of the project ballooned so much, and if all the loans taken against the project really went to the project or if it got diverted to other companies and areas.
An underlying concern is that the only collateral is a 22-year Concession Agreement by Thimphu Thromde.
Another aspect of the project being looked at is that the original FDI partner holding 54 percent of the project invested Nu 107 mn as actual cash equity, and it is understood that the Bhutanese partners used this money in construction. ACC will see how much was actually used for construction purposes and if there were any inflated costs that disadvantaged CE Construction’s investment.
CE Construction has already pulled put of the project and its shares have been allotted to other Bhutanese partners. However, CE Construction is yet to get back its Nu 107 mn equity, and it looks likely that it will not be getting back this full amount. The amount is stuck for three years in Bhutan under FDI rules.
Parking Fee Increase
On 30 March 2021, before the Thromde elections, the Thimphu Thromde announced a dramatic hike in parking fees within Thimphu Thromde areas saying it got approval from the Finance Ministry.
Given how the parking fee system is levied, what that means that even if you park your cars for around 5 minutes on Norzin Lam, you will have to pay Nu 20, and if you park around 33 minutes then you have to pay Nu 40.
The main beneficiary of this would be KCR, given it has around 1,000 parking spots in the core areas.
Shareholding of KCR
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 exit of the Nepal based FDI partne,r 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 MLCP case is currently under review by ACC.
