BMIC promoters made NICE gain, says new report

Nandi Infrastructure Corridor Enterprise Ltd (NICE) got undue benefits and realised an exorbitant internal rate of return (a measure of profit considering future values) that was 650% more than the approved rate, says a study conducted by the Institute of Socio Economic Change.

The study titled ‘The Political Economy of Rent Seeking and Fiasco of Bangalore-Mysore Infrastructure Corridor Project’, says a combination of institutional failure and poor governance helped NICE. The company realised an internal rate of return (IRR) of 135% at the completion of Bangalore-Mysore Infrastructure Corridor Project as against the approved rate of 17.52%.

The “undue benefits” were accrued through imposition of exorbitant toll (“342% higher” than basic rates of National Highways) and leveraging of excess land for real estate, even as the “non-implementation of Resettlement and Rehabilitation in project-affected villages has seriously compromised the well being of project affected families in 60 villages”, the report notes.

Krishna Raj, associate professor, Centre for Economic Studies and Policy said the purchase of land on peripheral and link roads under a supplementary agreement was made at a later stage.

Besides the collection of toll, he said, the increase in IRR could also be attributed to illegal extraction of minerals at site. Quoting from a study by the Mines and Geology Department, he said the company made an estimated Rs 240 crore through the illegal extraction of minerals at Gollahalli.

The compilation of the findings of the report submitted to the House Committee has now been made available on the public domain. Some parts of the report, including the financial analysis and study of the termination of the agreement, that were not submitted to the House Committee have been added in the book, they said.

The report notes that NICE sold farmers’ land at a high rate of Rs 5,000 per sq ft whereas only Rs 8 lakh was paid as compensation per acre during acquisition, which puts the profit margin at Rs 21 crore per acre.

“The actual land required for peripheral road, link road and eight interchanges is 1,497 acres. As per the Frame Work Agreement and High Court judgment, the total land claimed is 2,471 acres. An excess of 974 acres was allocated. Further, KIADB has handed over excess land of 605 acres. So, the total excess land with NICEL is 1,579 acres,” the report notes.

Stating that the company has already recovered the project investment at higher IRR, the report notes that the next 24 years of the concession period will bring it enormous profit.

Responding to the report on IRR, NICE has said that there was no such estimate or condition in the framework agreement it signed with the state government. This is one of the main contentions raised in the public interest litigation filed by Somashekar Reddy in 1998 and Madhuswamy in 2005 and the same were not only categorically rejected but costs were imposed on litigants, it said.

A spokesperson for NICE also said that the supplementary agreements were signed as per the framework agreement and as per law. “The issue of the alleged increase in lands was also rejected by the honourable courts. The supplementary agreements were also part of the litigation in PIL and the honourable courts have upheld the validity of these agreements,” they replied. They also said that there was no merit in the allegations pertaining laying of roads and toll collection.