The Bhutanese Leading the way.
The Anti Corruption Commission (ACC) is looking into the Multi Level Car Parks (MLCPs) which is Bhutan’s first Public Private Partnership (PPP) project between Thimphu Thromde and KCR Pvt Ltd after the cost of the project ballooned from an estimated Nu 480 mn in 2014 to Nu 850 mn in 2020.
The PPP project means that Thimphu Thromde signed a 22-year agreement with a private company called KCR whereby KCR had to build two MLCPs to accommodate 550 cars on Thromde land.
KCR would run this and get revenue for 22 years some of which it would share with the Thromde and then handover the structure to Thromde. KCR was allowed to use 20 percent of the space for commercial activities like a hotel, shops and offices.
A part of this deal was Thromde handing over 998 parking slots along the urban core areas of Norzin Lam, Chang Lam, Hong Kong market and other areas to KCR too for this period.
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
The project currently run by KCR applied for a new loan of Nu 439 mn in 2020 to BoB and if that loan is approved then the total loan and interest owed against the project would be Nu 1.265 bn.
Meanwhile, the only collateral for these huge loans is the 22-year Concession Agreement given to KCR by Thimphu Thromde.
Thimphu Thromde had earlier sent a letter to the banks saying that if the project fails in terms of not being able to pay back the total loans owed then the banks can have use of the two structures for 22 years.
ACC’s concerns
The ACC is doing a preliminary study on how the cost of the project ballooned so much and if the project is really worth this amount.
Another issue is if all the loans taken against the project really went to the project or if it got diverted to other companies and areas.
The ACC will also want to see if the lead bank which is Bank of Bhutan which has given the major chunk of the loans did its due diligence on the cost of the project and approval of earlier loans.
An underlying concern for the ACC is the fact that while KCR is taking huge loans on the project the only collateral is a 22-year Concession Agreement by Thimphu Thromde. The aim is to find out if this is a deliberate Non Performing Loan (NPL) being created for the benefit of a few with no reasonable hope to recover the money, and the project and bank taking the ultimate hit.
Another aspect of the project being looked at is the treatment of the foreign investor in the project CE Construction Private Ltd of Nepal as the original main FDI partner holding 54 percent of the project.
CE Construction had 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 was any inflated costs that disadvantaged CE Construction’s investment.
There is concern within ACC that the treatment of CE Construction could impact Bhutan’s image as an FDI destination.
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. This amount is stuck for three years in Bhutan under FDI rules.
The current CEO of KCR Namgay Penjore said everybody has to share the loss but a final decision on the amount to be returned will be taken only after three years.
The ACC is also looking at the role of the Thimphu Thromde which over the years has gone out of its way to support the project but was actually supposed to monitor it.
Various issues pointed out by the paper
The Bhutanese did a four-part series of investigative stories on the MLCPs between October and November 2020.
A source said that the ACC review of the project started after looking at the information in these stories.
The paper in its story pointed out how the main advisor in the project the International Finance Corporation (IFC) had estimated the total cost of the two MLCPs at Nu 478 mn in 2014.
The estimate by the IFC took into account the amount of steel, concrete, design, other inputs and the seismic zone of Bhutan and its requirements.
CE Construction of Nepal which has experience in such projects also did its own cost estimate on behalf of KCR and put an estimate of around Nu 480 mn.
However, later KCR citing design changes by Thimphu Thromde pushed the project cost to Nu 600 mn in 2014 itself and took Nu 586 mn in loans from BoB.
Experts the paper talked to said that the design changes by Thimphu Thromde should not have led to such cost escalations.
KCR successfully completed the two MLCPs and started commercial operations in in July 2019 but after around year of operations it applied for another Nu 439 mn in loans.
The paper pointed to how the 22-year lease agreement may not even be enough to recover the money, going by the dramatic cost escalation of the MLCP project and its current revenue.
According to a reliable source the Nu 439 mn additional loan being sought is 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 so it is not clear what additional commercial space was being created.
As for the space for vegetable vendors the structures created are mainly wooden partitions and KCR had told the reporter that the cost of the wooden partitions would be around Nu 3 to Nu 5 mn.
The paper found that IFC recommended to the Thimphu Thromde and KCR Pvt Ltd to hire a Monitoring Consultant to monitor the construction phase of the project.
This independent consultant using the Concession Agreement between the Thromde and KCR as its guide would ensure that the required inputs go in, look at design changes and would also look at additional costs among other things.
The recommendation by the IFC for the consultant was also made keeping in mind the limited capacity of an already overstretched Thimphu Thromde whose engineers have to monitor an array of projects and private constructions. Another factor was that this was Bhutan’s first PPP project including both public resources and private investment.
The consultant was supposed to be paid 50:50 by the Thromde and KCR.
However, both the Thimphu Thromde and KCR decided to not have the independent consultant.
A former employee of KCR on the condition of anonymity had said that there was only one thromde engineer for both the sites and that engineer was not at the site full time but only came occasionally to give certain approvals. “It was like a Thromde engineer occasionally monitoring a private construction,” the ex-employee said.
Namgay Penjore had 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.
The paper found that 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 had waived for fines and revenue due of Nu 8.153 mn from KCR to Thimphu Thromde last year from 2017 to 2019. Thimphu Thromde has applied to the cabinet again for KCR’s revenue from the MLCPs due to Thimphu Thromde from 2019 to 2020 coming to 4.143 mn to also be waived off.
The paper also did a story on a section of the ‘Performance Audit on Urban Planning and Development in Thimphu Throm,’ report by the Royal Audit Authority (RAA) which pointed to various irregularities and inconsistencies by Thimphu Thromde in the tendering of the two Multi Level Car Parks (MLCPs) and apart from that has also said that Thimphu Thromde is incurring a huge revenue loss every year from the parking fees collected by the two contracted companies.
