Urban Development Ministry had to ‘bail out' private developer
The fiasco of the Commonwealth Games Village construction, with its dirty toilets, unfinished plumbing, scattered debris and unsightly race to the finish line is an example of the dangers of Public-Private Partnerships (PPP) in such large projects with national interests at stake, highly placed sources at the Union Ministry of Urban Development (UD) told The Hindu.
They point out that the crash of the real estate market nearly resulted in a disaster situation where the Village would not have been ready in time for the Games. When the private developer Emaar-MGF found that its liquidity had dried up, with banks unwilling to make real estate loans, it wanted to terminate the contract and walk out of the project.
This would have left the government stranded just months before a global event, said a senior UD Ministry official. Therefore, the Ministry, through the Delhi Development Authority (DDA), agreed to what it calls a “buyback” — and what its critics call a “bailout” — paying Rs. 766 crore in return for half of Emaar's share of the flats.
With 711 flats now at its disposal in a recovering real estate market, the DDA is likely to make a profit of about Rs. 350 crore, resulting in what the Ministry calls a “win-win” situation. The Ministry has also taken action against the developer, directing the DDA to encash its Rs. 183 crore bank guarantee and take further legal steps. However, officials point out that even if the DDA had made losses through its deal with Emaar-MGF, it would have had no choice, as national prestige was at stake.
The solution may lie in avoiding PPP projects, which are at the mercy of ruthless marketplace vagaries, in favour of initiatives with national significance, said a senior Ministry official.
He admitted that the government's own builder — the Central Public Works Department (CPWD) — was not uniformly efficient. That is why, three years ago, the UD Ministry liberated government agencies from relying solely on the CPWD, by allowing them to select other builders if they so wished.
However, the advantage of using the CPWD or any other government outfit is that they have the backing of public funds and cannot simply walk out of a project.
While the CPWD has been facing flak for delays and defects in the construction and refurbishment of CWG stadia, the UD Ministry cannot be held accountable, say Nirman Bhavan officials.
If a stadium was not completed on time, or had leaky roofs, it was the responsibility of the Sports Ministry. If it felt the CPWD was deficient, the Sports Ministry in turn could have complained to the UD Ministry. “But no such complaint has come to us,” say UD Ministry officials, who insist that their ministry played only a small role in the actual execution of CWG projects.
The money trail backs up their argument. Central government funds for the five major stadia and other sports infrastructure were routed through the Sports Ministry, mostly to the Sports Authority of India (SAI), which owns these venues. The total allocation to the Sports Ministry amounts to Rs. 6,382 crore, with the SAI getting Rs. 2,474 crore of the pie. The SAI then paid the CPWD to do the job.
On the other hand, the UD Ministry was allocated only Rs. 827 crore — all intended for the DDA and the Games Village. This is the only amount for which the UD Ministry is accountable to Parliament, say officials.
By way of analogy, a senior official pointed out that while the Defence Research and Development Organisation was constructing the Revenue Bhavan, any defects in the building would be the responsibility of the Finance Ministry, and not the Defence Ministry.