Paying SEZ promoters is not a good idea

This first appeared in the Herald

Just over two months ago, in April, when it began to get clear that the Special Economic Zone promoters had indeed sought that they be paid the amount they had spent to buy the land so as to free up the property that has been locked since the SEZ policy of the State government was scrapped, Herald had termed this as ‘nothing short of a farce’ that ‘must be rejected by the government, for the interest of the State’. We now learn that the government has not rejected this proposal of the SEZ promoters, but has in fact decided to go ahead and make the payment.

Goa Industrial Development Corporation (GIDC) chairman Glen Ticlo has announced that the Corporation at a board meeting has agreed to pay the SEZ promoters around Rs 300 crore to unlock the 38 lakh square meters of land that had been allotted to them more than a decade ago. The GIDC chairman said that the corporation has agreed to pay the promoters an interest of 9 percent as against their demand for 15 percent, as this is the interest it has earned. This decision of the GIDC will be conveyed to the Supreme Court during the next hearing in July, as the matter currently stands in court.

We cannot deny that this deal of the government with the SEZ promoters will free up some much-required land for industrial purposes in the State. Over the past few years the State has been struggling to make available suitable area for industries, and has even decided to reduce the open spaces in industrial estates to free up some of the land, but should Rs 300 crore of public money be paid out to the SEZ promoters to get back the 38 lakh square meters? Especially since the promoters paid the State approximately Rs 108 crore for the land? What the State will be paying back is close to three time the amount it was paid by the promoters.

Before answering the questions above, we need to look back at the allotment of the land as even a decade after the SEZs have been scrapped, the State is yet to be free from them. The then Congress government, following massive public protests, had scrapped all the SEZs and withdrawn the State SEZ Policy in 2008, though three of the seven SEZs had already been notified by the Union Trade and Commerce Ministry. The promoters had approached the High Court that in 2010 set aside land allotments to all SEZ promoters and said the allotment had been ‘illegal’. The latter then approached the Supreme Court that stayed the High Court decision and directed the State government and the SEZ promoters to find a solution. That is when the promoters of the SEZs put up the proposal, which GIDC has now agreed to meet.

Herald, in this column in April had also said, “If unlocking means getting back land illegally allotted, by paying the allottees Rs 200 plus which included over Rs 100 crore of interest payments, when the State is reeling under a financial crunch, then it is not a good deal.” It reiterates this now by stating unequivocally that this is not a good deal and GIDC should reconsider its decision. There is still time for GIDC to change its decision.

GIDC Board Needs Support

This 1st appeared in the Herald

First, I have to apologise for saying GIDC was going to pay the SEZ promoters 15% interest, the rate agreed is simple interest earned on the FD’s made out of SEZ funds less tax paid. This appeared in my column “Not Again GIDC dt 21^st August 2018”. This error was pointed out to me in a healthy discussion on the functioning of the GIDC board by an industry colleague.

However, that was not the only error, the impression given in the news reports was that the GIDC Board had decided to pay the promoters the principal and interest, however it was a decision apparently taken by the Council of Ministers sometime in July 18 and the job of GIDC was to organise the funds which at present are non existent. Unfortunately, the GIDC board was not given complete information. GIDC management gave Government information with mistakes without approval of the GIDC Board.

Assuming the SEZ promoters funds were parked in FD’s and earning interest, it should be quite easy to believe that the principal is available. That is not available is evident from the fact that GIDC is considering auctioning part of the SEZ land in Verna, proceeds of which will be used to pay the promoters. This itself will cause problems because GIDC already has a policy as to how much land can be allocated to utilities, which is the land that can be auctioned. GIDC proposes to auction 50% of the land available post allocation to open spaces and IPB, this is against the existing policy where utilities can be only 10% of available land. They also missed the fact that today as per GIDC policy only 7.5% needs  to be allotted to open space. Whoever prepares documents which Board members rely on to take decisions should be careful and through so that Directors can make a good informed decision.

However GIDC policy could not be considered by the GIDC board as they got instructions from GoG.. The GIDC policy as notified, is very clear that interest cannot be paid on land that is surrendered to GIDC. This fact though mentioned clearly seems to have been missed in the decision making process both at the cabinet level and GIDC board level. More over, the fact that the High Court of Mumbai at Goa has declared  “allotment of lands made to the companies is illegal, the possession of the lands will have to be restored to the GIDC”, was not highlighted to the decision makers. Was such an important aspect/fact left out by mistake or deliberately?

Another argument in favour of paying interest and getting the land back quickly was the analogy of the tenant and landlord. Landlords will agree to settle tenants quickly so that they can get back their land and make a killing rather than be stuck in litigation. If this logic were true we would not see so many landlords and tenants battling it out in the courts. The point is GIDC surely behaves like a landlord more and a development body less normally. In this case, because of the lack of information and veiled political expediency to get the land back and make it plots, the board lost the plot. Why should you pay interest for something illegally allotted in the first place. Why has the Board not demanded any action against those responsible. The money for the land auctioned/leased today or tomorrow will always be increasing given the fact that land is a finite commodity and not perishable. Time is on the side of GIDC.

Focussing on the interest component, it is a figure which should be constant. Meaning simple interest for Rs 100/- at 8.5% p. a. should be Rs 8.5 every year. In GIDC most of these calculations are done historically by the Estates department and not by the accountants. This leads to a situation where there is almost 23 crores difference between what is reported in the balance sheet and what is calculated by the Chartered Accountant. There are four different interest calculations and each arrives at a different answer. Should this not raise eyebrows? Also, there is a difference between what GIDC has calculated ie 256.19 crores and what was submitted to the SC by the AG on behalf of Government of Goa/GIDC ie 256.56 crores. Approx Rs 37 lacs, since it is public money should these figures not be accurate and if there are difference should they not be reconciled and corrected before submitting to Cabinet/ Supreme court? Or does it not matter as no one asks questions? If anyone has questioned, there appears to be no record.

The Congress has demanded withdrawal of this payment or settlement but they fail to mention the fact that the Leader of the Opposition Babu Kavlekar who was Chairman of GIDC during the allotment of SEZ has been let off the hook by the same cabinet decision. So is the Congress making a noise for the sake of making a noise? Can we be sure that there is no quid pro quo. The Congress who is threatening to hold liable all current board members who are party to this new decision but are silent on the greed of those who belong to their own party who created this mess in the first place.

Going forward, apart from taking a better decision based on facts with reference to paying interest, GIDC agendas minutes and information presented to the Board must be considered a serious activity and if there are half truths or omission, someone must be held responsible so that every decision taken by the GIDC Board reflects the commitment of the board members. Lets hope one day GOA FIRST will be the operating policy.