Prime Minister Dr Lotay Tshering

PM denies any political intervention in MLCP controversy

The Prime Minister Dr Lotay Tshering denied any political intervention in the violation of the FDI rule in the Multi Level Car Park (MLCP) project.

As per Section 10 of the FDI Rules and Regulations 2019 it 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.

However, the main FDI partner CE Construction of Nepal holding 54 percent in the MLCP was allowed to withdraw from the project on 29th May 2020 while the three years would be completed only in July 2022. The proposal of the KCR Pvt limited which asked for withdrawal was initially rejected by the FDI division stating this clause.

However, KCR approached the minister and CE Nepal was allowed to withdraw from the project and the shares with the only condition being that the equity can be taken back at the end of three years.

The PM said that the matter was handled at the MoEA ministry itself as per their process and never came to the cabinet so there is no question of political intervention.

He said that the capital is still locked in and the Nepali investor had to be allowed to withdraw as he was unable to send US dollars due to some cross border transaction issues.

Lyonchhen said, “This is the first PPP (Public Private Partnership) project and there has been huge lapses from the investor, the government and the World Bank (IFC).”

He said that the project had been designed by the World Bank but design changes had to be made in the extra columns, beam size and rod size.

Lyonchhen said that it was his understanding that the Nepal investor could not send in US dollars and the MoEA felt that it made no sense to keep him by force. The PM said that technically the money is still here for three years and so there is no political intervention.

While the PM is right that the investment is still locked in the decision of the MoEA still violates the FDI rule as the person has been allowed to pull out and a new equity partner has stepped in.

On other issues around the project he said it is ultimately an issue of morality and fairness but as far as the government is concerned the dealing is zero.

The Prime Minister also came to the defense of the Thimphu Thrompon Kinlay Dorjee over the Centenary Farmers Market (CFM) issue. The PM said the Thimphu Thrompon has been getting a lot of flak on the issue, but it was actually his idea to shift the vendors from the CFM to the two MLCPs.

The PM said that he had called the Thrompon and given the suggestion due to the high risk of the virus spreading at the CFM and also how the two MLCPs were not even being used to 10 percent of their capacity.

He said that the KCR management had not met him and requested with him or colluded with the government.

The PM said that a lot of noise had been made about ordinary people being bullied in the CFM issue but he said that in the CFM the virus did not just have the potential to spread to 5 or 6 people but to 500 to 600 people.

When asked on why the more poorly ventilated MLCPs were being allowed to come up with around 270 vegetable stands which is around 57% of the better ventilated CFM the PM said that even if there is an outbreak in one of the places then the other places can go on. He also said that the MLCP arrangement is a temporary one until the local zone wise stalls are established.

He said that there is no link between the government or him and any of the controversial issues around the MLCP and if there is then he would not stay on as the Prime Minister anymore. He said that when there is no such relation then those people who point fingers are not correct.

On the issue of large loans being taken by the KCR project well beyond the original and even inflated construction cost with the only collateral being the Concession Agreement signed between KCR and the government, the PM said that the banks were not given any Kasho by the government to give any loans.

He said that the government is not involved in any of the banking related loans and any issues should be taken up with the respective banks who are financing the project or giving the loans.

The project cost estimated by International Finance Corporation (IFC) who advised the project was Nu 480 mn in 2014 while KCR bid for the project at Nu 478 mn.

However, after winning the bid KCR and Thromde contrary to the IFC’s advice did not hire an independent consultant to monitor the construction and cost escalations among other issues.

Thimphu Thromde asked for some design changes and the KCR claimed the project cost shot up to Nu 600 mn. A source familiar with the changes said only minor changes were made while an engineer said that the cost should not have escalated so high.

KCR based on this got a Nu 586 mn loan from a BoB led consortium. The project was completed in July 2019 and run commercially for more than a year. More than a year later KCR claimed the construction cost is Nu 850 mn and it asked the banks for Nu 439 mn more in loans.

The additional loans are mainly for enhancing the commercial space but the commercial space remains the same and mostly completed while the vegetable sheds are temporary structures that should not cost more than Nu 3 to 5 mn as per KCR’s own calculation.

The Nu 439 mn loan being sought, if approved, will take the total loan on the project to Nu 1.265 bn given the earlier Nu 586 mn loan and the Nu 240 mn loan interest.

The main concern here is that with the collateral being only the 22-year concession agreement of the government and with the project already claiming losses in its first year of operations such a huge loan may lead to the project being taken over by the banks causing a loss to the government.

If the bank cannot recover the amount, then the loss may extend to the banks as well.

KCR also citing the project cost has been asking for concessions like increasing the concession period from 22 to 30 years, non payment of one year’s operations revenue and increasing the commercial space from 20 to 35 percent.

The PM said that even if the project fails the government would not take any direct loss as the government had not put in any money and if the bank takes over the project there is still no loss to the government.

He said if there are any questions or issues over the loan then it is the business of the bank to deal with it.

He said if the project does not make revenue then there is no question of taxes being paid to the government on it. The cabinet had waived of Nu 8 mn in revenue owed for two years in delay by KCR this year.

He pointed out that in the cabinet even before the discussion could start he had said that the MLCP cannot be given an extension beyond the 22 years to 30 years right now as they do not know how the project will be doing 20 years later as if the business is booming then there will still be 10 years left. He said that the issue should be looked at by future governments in the 19th and 20th year.

KCR had applied to the cabinet through the Thromde to extend the lease period from 22 to 30 years.

The PM said that even the request for increasing the commercial space has not been considered by the government.

The PM said that there was a strategic mistake with the project from its very conception. He asked how come the project did not even know that the Nepal partner would not be allowed to send dollars.

The PM said that insinuations of corruption are being made in the media and social media around the project, but he said the government is not involved in the project at all and accusations to the contrary are akin to putting a black mask on a white person. 

MoIC Minister Karma Donnen Wangdi was one of the shareholders in KCR but he transferred his shares to his father in law before joining politics in 2018. Earlier the Finance Minister Namgay Tshering had said that as per the cabinet norms the minister had declared his conflict of interest and did not take part in the cabinet meeting to do with KCR’s request for extending the Concession Agreement, which was shot down.

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