A Costly Fiddle

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In a hot spot Khanna has a lot to answer for in the Village deal
In a hot spot Khanna has a lot to answer for in the Village deal
Photo: Vijay Pandey

INFLATED COSTS. That’s been a recurring theme of the 2010 Commonwealth Games. Investigating agencies are now in the process of pinning blame for the Rs. 100 crore paid extra when Delhi Development Authority bought 250 Games Village flats from Emaar-MGF for more than Rs. 700 crore.

With the realty sector now booming, there is hope that DDA will make substantial profit on the premium flats located on the Yamuna riverbed. It purchased them for Rs. 11,000 per sq ft and expects to sell them at Rs. 13,500-18,000 per sq ft. But the purchase price seems rigged.

As ex-officio chairperson of DDA, Lt Governor of Delhi Tejinder Khanna set up a committee to recommend a price at which the apartments should be bought. This committee put the range at Rs. 9,382- 9,720 per sq ft. But Khanna, other officials of the DDA and the Ministry of Urban Development paid much more for the flats that had no buyers at that point of time, during the recession.

When TEHELKA sought clarifications from Khanna’s office, his OSD Ranjan Mukherjee said DDA’s Finance Member Nand Lal should be contacted. But Lal suggested Principal Secretary (CWG, DDA) Veena Ish would have the details. Ish, in turn, responded with an SMS that the DDA’s public relations officer should be contacted. A request for an interview with Khanna sent to his official ID brought the response that the matter should be taken up with senior DDA officials.

According to DDA documents available with TEHELKA, the story unfolded in February 2009 when the recession was still on and DDA-appointed developer Emaar-MGF stopped construction, sending an SOS that funds had dried up due to lack of buyers and banks were not touching realty projects.

Khanna constituted a fourmember committee of the Housing and Urban Development Corporation Ltd (HUDCO) with Executive Director RK Safaya, NBCC General Manager (Real Estate Division) HK Dhawan, CPWD Superintendent Engineer Shailendra Sharma and DDA Financial Adviser Pawan Kumar to evaluate the options.

The committee hired two independent consultants — M/s Garg Real Estate Consultant and M/s KN Goyal & Company Chartered Accountants — to determine the purchase price.

The Garg report said that the selling price should be Rs. 9,720 per sq ft, adding, “The contractor’s profit margin is not considered as the same is covered under CPWD plinth area rates,” which includes facilities, construction cost, land component and preferential location. Premium flats would command 35 percent higher value, thus the ‘achievable value’ would be Rs. 9,720 per sq ft.

The rate worked out by Goyal and Company was similar: Rs. 9,382 per sq ft of plinth area, not too different from that of the realty consultant.

The consultant later said that 15 percent profit margin for Emaar-MGF would be ‘just and fair’

Based on the consultants’ report, the committee noted, “DDA would be buying these apartments with associated risk of slowdown and peculiar market conditions.”

DEFYING THIS market logic, at a meeting on 24 April 2009 convened by Khanna at Raj Nivas, concern was expressed that the developer was not making any profit. Ministry of Urban Development Secretary M Ramachandaran, MoUD’s Joint Secretary MM Kutty, DDA vice-chairman Ashok Kumar, DDA Finance Member Nand Lal and DDA Engineer Member AK Bajaj were present in the meeting.

The trigger for this new line of thinking was a note submitted by the consultants three days earlier, “that they had not provided for the profit margin for the developer while working out the figure of Rs. 9,382 per sq ft. Further, it was felt that 15 percent margin towards overhead and developer profit as per industry practice on the total project cost would be a just and fair margin.” Khanna signed the deal at Rs. 11,000 per sq ft.

The questions that DDA needs to answer are:
1. M/s Garg, in its 27 March 2009 report, clearly states: “The contractor’s profit margin is not considered as the same is covered under CPWD plinth area rates.” How can this sentence be wished away?
2. Is there a copy of the supplementary report by the consultant?
3. If not, are consultants authorised to give ‘oral’ clarifications after they submit their report?
4. Why was the clarification given almost a month after the consultants had submitted their reports?
5. Why did DDA escalate the purchase price when it was warned about poor demand?

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