Agreement for Rs 60 bn housing project scrapped By Ansar Abbasi

[LahoreEstate]

Sunday, March 01, 2009
By Ansar Abbasi

ISLAMABAD: The government has scrapped an agreement for a Rs 60 billion project, awarded to a UK-based company known for shoemaking, under the Prime Minister’s Housing Programme.

The News recently broke the story of the Rs 60 billion housing scam, forcing the government to revisit the whole issue.

Secretary Housing and Works GM Sikandar confirmed to this correspondent on Saturday that the agreement was cancelled after it was found defective. The agreement was signed in an extremely hush-hush manner and without securing the interest of end-consumers. What was really strange is the fact that the agreement was inked between the Imperial Houses (Pvt) Limited (IHL) and the Pakistan Housing Authority (PHA) without inviting open bids. What The News had highlighted a few months back was verified by the secretary housing, who admitted that the agreement was faulty and concluded in an indecent haste without consultation with all official stakeholders.

Sikandar conceded that the agreement was signed first and then sent to the stakeholders, including the Infrastructure Project Development Facility (IPDF), which had clearly found the accord faulty and harmful for the government as well as the end-consumers. The secretary housing said that the government had asked the IPDF to evolve a workable model for such housing projects so that the interest of the government and consumers could be protected.

The agreement signed under political pressure was wholly in favour of the IHL and full of risks for the government and end-consumers (future buyers of the housing units). The bureaucracy was reluctant to sign it unless the ECC, the Planning Commission and other stakeholders approved the same but it was pressurised to do so. Following a government decision to launch the PM’s Housing Programme, the PHA had issued an advertisement and a letter of intent from the interested parties for projects based on the private-public partnership (PPP) as per the IPDF guidelines. Over 20 companies had evinced interest and MoUs were inked with 12-13 companies, including the IHL.

An MoU was signed between the IHL and the PHA on 18th September 2008. Subsequently, the IHL submitted its proposal for low-cost housing development in Pakistan on Oct 17, 2008. After this, the Housing Ministry requested the Ministry of Finance for issuance of a “sovereign guarantee” to the IHL. While the Finance Ministry’s response was awaited, the draft agreement was also forwarded for scrutiny to the Ministry of Law, which sent it back to the Housing Ministry after vetting. A day later on October 31, the minister for housing wrote on the file that the agreement be signed with the IHL as vetted by the Ministry of Law despite the fact the PHA managing director clearly reflected on the file that not only the Finance Ministry’s response was still awaited but the technical and financial analysis of the JV proposal was under way and that the case had already been sent to consultants for necessary action.

It was also noted that land ownership documents (of the IHL) had been forwarded to revenue authorities concerned for verification. The case file was put up for consideration and decision of the minister, who had noted: “Approved. Agreement to be signed as vetted by the Law Division and report compliance.”

The same day the agreement was signed between the two. The agreement not only included the provision of the government’s sovereign guarantee to the IHL but also a clause committing the PHA to payment of 15 per cent of the total project cost — Rs 60 billion to the IHL in advance. The agreement also envisaged that the land would be provided by the IHL for construction while the PHA would be responsible for marketing and sale of housing units to government employees and the general public.

Three days after the signing of the agreement, the Finance Ministry wrote to the Housing Ministry on the subject and said that the proposed JV arrangement to be concluded between the PHA and the IHL did not involve issuance of a guarantee for a foreign currency loan. Without knowing that the agreement had already been signed, the Finance Ministry added, “The Finance Division does not issue sovereign guarantee to ensure the successful completion of the project under the joint venture. We understand that these provisions should be covered in the appropriate section of the concern joint venture agreement. “Subsequently, the joint venture agreement, if required, may be got cleared from the competent authority.”

Later, the Finance Ministry set up a five-member committee to look into the issue of sovereign guarantee for implementation of the IHL project. On November 1, a day after the signing of the agreement, the PHA referred the IHL proposals to the IPDF, which clearly pointed out a number of serious drawbacks in the agreement and termed it “a nullity, void and unenforceable for want of equity of PHA.”

http://www.thenews.com.pk/daily_detail.asp?id=165042