The present residents of the flats would be given 285 apartments and 12 shops after the completion of the project. Until the project is completed, they would be given a monthly allowance to live in rented houses. If financed and implemented properly, this would be a good project. However, the promoter of the project UTL Global Projects Pte Ltd, is a company that was incorporated in Singapore in February 2011 and its owners are three Indian nationals, Koorapati Premalatha Rani, Meena Pooja and Prashanth Koorapati – all members of the same family, without any known background in construction or real estate development or the financial resources to be able to handle a project of this nature. When this project was first mooted in 2014, UTL Global Projects Pte brought in as a partner, Patel Engineering Ltd a listed company in India, without extensive experience in real estate development or considerable financial clout.
A tripartite MOU was signed on 29 March 2014 between UTL Global Projects Pte Ltd, Patel Engineering Ltd and the NHDA for this project. Subsequently, however, Patel Engineering Ltd backed out of the project. At that point UTL Global Projects Pte Ltd purported to bring in another Indian investor, Engineering Projects India Ltd, a state-owned entity in India, with extensive experience in construction and real estate and solid financial backing. UTL Global Projects Pte Ltd and Engineering Projects India Ltd, jointly submitted a project proposal to the BOI on 12 September 2014 to redevelop the Bambalapitiya flats at a cost of USD 250 million over a seven-year period. On Dec. 30, 2014 Vinoo Gopal the Director Projects, of Engineering Projects India Ltd wrote to the NHDA hat they were, in principle, ready to join UTL Global Projects Pte in the project to redevelop the Bambalapitiya flats.
He also provided the NHDA with a letter from the Indian Overseas Bank, certifying that Engineering Projects India Ltd had the financial resources to be able to execute the USD 300 million project if it was awarded to them.
Based on this application, on Dec. 14, 2015, the BOI wrote to UTL Global Projects Pte Ltd that they had approved the application they had made jointly with Engineering Projects India Ltd to redevelop the Bambalapitiya flats. The project was also given a 15-year tax holiday. On April 19, 2016, the General Manager of the NHDA wrote to UTL Global Projects Pte Ltd and Engineering Projects India Ltd that the Cabinet had approved their joint project proposal and that, in terms of BOI requirements, the two partners in the consortium should incorporate a company in Sri Lanka as a special project vehicle for this project.
BOI rules bent and twisted
Thereupon, a company called City Square Projects Pvt Ltd was duly incorporated in Sri Lanka, but Engineering Projects India Ltd was not a part of this special project vehicle – a violation of BOI rules. City Square Projects Pvt Ltd is a fully owned subsidiary UTL Global Projects Pte Ltd., masquerading as a joint venture with Engineering Projects India Ltd. On June 22, 2016, a formal agreement was entered into between the BOI and City Square Projects Pvt Ltd. On March 05, 2016, City Square Projects Pvt Ltd signed an agreement with Engineering Projects India Ltd. But, up to the point of writing, Engineering Projects India Ltd does not own any shares in City Square Projects Pvt Ltd. The agreement states that Engineering Projects India Ltd ‘may’ purchase some equity in City Square Projects Pvt Ltd if their board and the Indian government agencies involved grant them permission.
The promoter UTL Global Projects Pte Ltd has not revealed to the Sri Lankan government what exactly Engineering Projects India Ltd has undertaken to do in terms of this agreement with City Square Projects (Pvt) Ltd. The BOI and the NHDA granted the approval for the project on the assumption that Engineering Projects India Ltd had undertaken to invest USD 300 million in this project on the strength of the letter written by the latter to the NHDA on Dec. 20, 2014. The promoter has provided only a redacted version of the agreement between Engineering Projects India Ltd and City Square Projects (Pvt) Ltd to the Sri Lankan government, claiming that the rest of it was ‘highly confidential’. The reason why UTL Global Projects Pte Ltd is keeping the most important parts of this agreement secret is to conceal the fact that Engineering Projects India Ltd has not made any worthwhile financial commitment to the project.
The redacted version of the agreement states that Engineering Projects India Ltd will ‘endeavour’ to find a third party to provide the working capital for the project. While this project proposal was being evaluated by the BOI and the NHDA, there was no talk of a still unknown and undiscovered third party who would be providing funding for the project. Furthermore, there are many ‘IFs’ in the agreement between Engineering Projects India Ltd and City Square Projects (Pvt) Ltd. The wording in the agreement is such that even if Engineering Projects India Ltd gets all the necessary clearances from the various agencies of the Indian government, they would still invest in equity in City Square Projects (Pvt) Ltd only at their discretion. Even if Engineering Projects India Ltd joins City Square Projects (Pvt) Ltd it will be playing only a limited role as per the agreement. The Sri Lankan government has no inkling of how limited this role is because it has not seen the full agreement entered into between these two entities.
If however, Engineering Projects India Ltd does not get permission from the Indian government, it will not be able to participate in this project even in that limited way. Now that the Cabinet has granted approval for the NHDA to sign an agreement for the project with City Square Projects (Pvt) Ltd, the land on which the Bambalapitiya flats stands will be transferred free of charge, on a 99-year lease to City Square Projects (Pvt) Ltd., which is wholly owned by three Indian nationals. If Engineering Projects India Ltd fails to join City Square Projects (Pvt) Ltd, three Indian nationals will hold a 99-year lease on ten acres of the best land in Colombo! Even if Engineering Projects India Ltd joins City Square Projects (Pvt) Ltd, that too means nothing because they have undertaken only a very limited role and the three Indian nationals who own UTL Global Projects Pte Ltd will still be calling all the shots.
Land to be mortgaged to third parties
We have incontrovertible proof that what UTL Global Projects Pte Ltd intends doing once they get their hands on the land is to mortgage it to third parties. What will happen after that is anybody’s guess. UTL Global Projects Pte Ltd has obtained a letter from a local bank expressing its willingness to provide an ‘overdraft facility’ of USD 25 million to City Square Projects (Pvt) Ltd for the construction of residential towers in Colombo 4. The security that the bank will retain against the money advanced will be a mortgage over the ‘project assets’ which is, in effect, the Bambalapitiya land, which is to be transferred to City Square Projects Ltd. The government has imposed the condition on City Square Projects (Pvt) Ltd that within 4 to 6 weeks of signing the agreement with the NHDA, they will have to bring in USD 10 million to the country. This will not be difficult because City Square Projects (Pvt) Ltd will be able to use that very agreement to obtain money by pledging the land as collateral.
Everything about this whole project smacks of a giant scam. The promoter has all made misrepresentations to the BOI and the NHDA and concealed information from the government without revealing the exact extent of the financial commitment made by Engineering Projects India Ltd. That can’t be the way a bona fide property developer goes about its business. Anyone can see from a mile away that this is not a project that is ever going to be completed. There is still no feasibility report for the project. The fact that the government has not shown any interest in seeing the full agreement signed between City Square Projects (Pvt) Ltd and Engineering Projects India Ltd indicates that powerful figures in the government are in on the deal along with the promoter UTL Global Projects Ltd. This is the kind of major project which should have solid financial backing by a developer as in the case of the Port City project, where the developer pumps in all the money and takes the subsequent profit as his reward.
The 300 odd families living in the Bambalapitiya flats should have the confidence that once they leave their apartments to make way for the project, they will get their rent allowance until the project is completed and they get their flats in the new development. The land on which the Bambalapitiya flats stand is a ten-acre rectangular block in a prime location, the likes of which cannot be found anywhere else in Colombo. As things stand now, the government is poised to give this prime land to a company which does not have the financial clout to be able to handle a project of this nature. This family owned company with no history worth talking about has brought in a reputed state owned Indian Company mainly for purposes of display. The government has shown no interest in finding out what Engineering Projects India Ltd has undertaken to do in relation to this project. Experience tells us that such governmental nonchalance can only be the result of massive kickbacks sloshing around.