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SEZ Scam: ACB files charge-sheet, finally!

The Anti-Corruption Bureau has finally filed a charge-sheet against the companies involved in the Special Economic Zone (SEZ) scam in Goa. GoaChronicle.com brings to you details of the SEZ scam we had expose to continue to show our readers about the involvement of senior Congress ministers in this blatant sale of land in the guise of public-private partnership…

The Anti-Corruption Branch of the Directorate of Vigilance has received a written complaint of Mandar Shirodkar, Deputy General – Manager (Law), Goa Industrial Development Corporation in the matter of arbitrary and illegal allotment of land in Special Economic Zones (SEZ) in Goa during the year 2006-07 to Meditab Specialties, Peninsula Pharma, K Raheja Corporation, Paradigm Logistics and Distribution, Inox Mercantile, Planetview Mercantile, Maxgrow Finlease by hatching criminal conspiracy, manipulation of documents, cheating government in connivance with officials of the GIDC, thereby causing loss to the exchequer.

A criminal case and FIR under Indian Penal Code and Prevention of Corruption Act has been registered at the Anti-Corruption branch of the Directorate of Vigilance.

GoaChronicle.com readers may recall that details we had put forth during our expose on the SEZ scam through details revealed in CAG report and GC team investigations;

Even though the State did not have an SEZ policy at the time, that the areas requested were sizeable, and some of the applicants were companies that were un-registered, under-formation or new, the GIDC Board was nonetheless expeditious in processing the applications of the developers. Resolutions were passed, to allocate land to the SEZ developers, by the Board of Directors within days of receiving the applications: just one day in the case of Meditab Specialities and Peninsula Pharma. One week in case of K. Raheja, Paradigm Logistics, Planetview Mercantile and Inox Mercantile, and twelve days in case of Maxgrow Finlease.

On the issue of the land that was allotted to the SEZ developers, Meditab Specialities and Peninsula Pharma got lands that were entirely contiguous properties whereas land allotted to K. Raheja, Paradigm Logistics, Planetview Mercantile, Inox Mercantile and Maxgrow Finlease comprised of plots within Phase IV of the Verna Industrial Estate. Surprising though on the Verna Industrial Estate case; it is interesting to note that the Verna Industrial Estate was developed under the Inclusive Growth Centre Scheme (IGC) of the Union Government which intended to promote industries in backward areas by allotting land to small and medium scale units. Thus the decision to allocate land to five SEZs in the industrial estate was a deviation from the purpose for which land was originally acquired.

When considering the amount of land normally allocated by the GIDC the allocations made to the seven SEZs were sizable. From March 2003 to March 2008 the GIDC had allocated 1709.48 acres of land of which 949.13 acres were allocated to the SEZs. In other words, 55 per cent of the land which had been allotted over 5 years by the GIDC was allotted to seven SEZs in just five months.

In effect on account of the suspicious working of the GIDC in some cases on the instructions of the ministers in question namely the then Chief Minister of Goa Pratapsingh Rane and Minister for Industries Luizinho Faleiro including Alexio Sequeira who was the Minister for Power and a director on the GIDC Board; the Government of Goa suffered a deliberate loss Rs 86.65 crores.

In all seven cases where land was allotted to the SEZs land it was leased initially for a period of 30 years, renewable up to 95 years.

Two months prior to receiving the applications from the five SEZ developers who were allotted land in the Verna Industrial Estate the GIDC Board decided on 7th February 2006  to revise the premium rates of plots in all its 21 Industrial Estates ‘since there was tremendous increase in maintenance costs…’. Before this, the premium for plots in Phase IV of the Verna Industrial Estate was tentatively priced at Rs 600 per square meter. The agenda of the board meeting listed Phase IV for the said revision. The Board thereafter resolved to increase the premium rates in 18 of the 21 Industrial Estates citing that ‘…there is constraint of land and the rates in the vicinity of the estates are also quite competitive…’ However the Board did not change the premium in Phase IV of the Verna Industrial Estate. This could be construed as an irregularity when considering that the GIDC increased the premiums of all other Phases of the Verna Industrial Estate and given that Phase IV comprised of 94 per cent of the available land in the Industrial Estate. Further, after 69 per cent of the land in Phase IV had been allotted to the five SEZs, the GIDC in August 2006 revised the premium in Phase IV to Rs 750 per square meter. Incidentally the GIDC did not even state in the lease agreement that the premium of Rs 600 sqmts was tentative and open to review. The GIDC stated that given the lack of infrastructure in Phase IV the SEZ developers would have to themselves bear expenses to develop the same and therefore a lower rate should be charged.

According to the Comptroller Auditor General (CAG), the failure of the GIDC to charge the five SEZs a premium of Rs 750 per sqmts resulted in a loss of Rs 36.89 crore to the GIDC.

In case of the premiums charged to Meditab Specialities and Peninsula Pharma for land in Keri and Sancoale respectively, since these were not Industrial Estates, the GIDC used an approved formula for calculating the premiums. Using these premium rates for properties in Keri and Sancoale worked out to Rs 95.50 per sqmts and Rs 934.20 per sqmts respectively. However when executing the lease deeds in March/April 2006 the GIDC charged Meditab Specialities and Peninsula Pharma premiums of Rs 80 per sq.mts. and Rs 270 per sqmts. Once again the lack of infrastructure and ‘sloppy nature’ of the land in case of Peninsula were cited as reasons for charging lower premiums.

According to the CAG report the differential between premiums calculated using the approved formula and the premium actually charged by the GIDC to the two SEZs resulted in a loss of Rs 15.44 crore.

More importantly land in addition to that amount resolved by the GIDC Board was allotted to the five SEZ developers in Phase IV of the Verna Industrial Estate at the time the lease deeds were executed. This was done by adding open spaces and roads to the allotments. In effect 5, 38,685 sqmts of land was given away free to the four SEZs. Following the protests against the SEZs it was almost a year later in May/July 2007 that rectification lease deeds were signed whereby a premium of Rs 100 per sqmts was charged.

According to the CAG since entire contiguous areas was allotted to the four SEZs the same should have been charged Rs 750 per sqmts. The discounted rate at which 5, 38,685 sqmts of land was allotted to the SEZs resulted in a loss of Rs 34.32 crore to the GIDC.

The GIDC levies an Annual Lease Rent (ALR) from all establishments that it leases out its plots/properties to. Since 2003 the GIDC has including relevant clauses in the lease agreement which allow it to revise the ALR as and when the premium rates of the plots/properties are revised. However in case of seven SEZs this clause was not included. The result being the ALR that was fixed at the time of the agreement would not be open to revision for the entire 30 year period for which the land was leased to the SEZs. The ALR charged from the SEZs is negligible vis-à-vis the land allotted to them, and it would these rates that would remain fixed for over 30 years.  The failure to include this clause would result in recurring annual losses to the GIDC.

Here is the lease per year each developer would have to pay for the next 30 years;

Meditab Specialities Rs 4,92,800, Peninsula Pharma Rs 2,74,928, K. Raheja  Rs 23,75,196, Paradigm Logistics  Rs 7,93,257, Planetview Mercantile Rs 3,96,000, Inox Mercantile Rs 14,54,496. A total 57, 86,677

The most important feature of the Goa SEZ Policy, 2006 is the fact that it was adopted after the State began the process of allocating and acquiring land for SEZs. Even the text of the land lease agreements contained clauses which reflected SEZ ‘principles’. The Congress-led Government, which came to power in the State in June 2005, notified the Goa SEZ Policy, 2006 on 13th July 2006 (Government of Goa Official Gazette 13th July 2006). There are no records listing the Goa SEZ Policy, 2006 for discussion in the Legislative Assembly. The policy was instead formulated and resolved upon by the State Cabinet during its 21st meeting held on the 5th June 2006. While the opposition did not get an opportunity to deliberate upon the SEZ policy the larger public were never informed that the state had adopted an SEZ policy.

The state Directorate of Industries, Trade and Commerce (DITC) received altogether 19 applications for setting up SEZs in the state. While one of the applicants, Meditab, submitted its SEZ application prior to the notification of the SEZ Policy, the remaining submitted it after the state formulated the SEZ policy – these included those whose requests for land were already being processed.

While it was up to the State to make recommendations to the Board of Approval (BoA) regarding the SEZs it wanted in the state, there was no selection criteria used by the government to assess the suitability of an SEZ application for the state. Instead, through a notice dated 3rd August 2006 the DITC ordered:

“where the applicant is in possession of land as per the requirement of SEZ Rules, 2006 and the land use is for “industrial purpose” and where the application has been made in the prescribed form and the applicant broadly fulfils the requirement of the said Rules, the state Government shall recommend all such cases to the Central Government for their consideration and approval”.

It was mandatory for the applicants to submit details regarding the type of industry, the employment potential, and the water and electricity requirements. None of these details, which were later furnished, were used to analyze the applications and only thereafter forward recommendations to the BoA. Instead it seems that the State specifically instructed its staff to forward all the applications so long as they were duly completed and that they fulfilled the requirements laid down by the SEZ, Rules 2006.

 

50 Per Cent Area for Malls, Multiplexes and Residential Buildings

According to the Goa SEZ Policy, 2006 SEZs were sought to be declared as industrial townships. By virtue of this the land use would automatically be changed to industrial – which is permitted a build-able area of 100 per cent Floor Area Ration (FAR). To add to this the SEZ Rules, 2006 permits that 50 per cent of the land could be used for the ‘Non-Processing Area’ in other words to be transferred for residential, leisure, entertainment, educational, business or hospital purpose. Thus by getting SEZ status the zoning of a particular property would automatically be changed to industrial wherein half of the land was permitted to be transferred for carrying out constructions in the ‘Non-Processing Area’.

After the process of allotting plots in the IT-Habitat had begun and after the notification of the SEZ policy the Government of Goa (GoG)  modified the Town and Country Planning by-laws pertaining to IT/ITES and biotech buildings by increasing the permissible FAR from 100 per cent to 150 per cent.

This was done after the GIDC, in referring to a previous discussion, requested the Goa Town & Country Planning Department (TCP) to increasing the FAR to 150 per cent and also requesting ‘minimum setbacks’ for IT and biotech buildings. The TCP then replied stating that the GoG approved the same and recommended adopting the Model Building By-laws, Nov 2004 prepared by the Town & Country Planning Organization (TCPO), GoI, New Delhi through which the FAR was increased to 150 per cent and the setbacks reduced to 5 meters for IT and Biotech buildings.

Notice that most of the SEZs were proposed for IT/ITES and biotech and these would stand to benefit from the modified building by-laws. Many of the SEZs proposed to build malls, multiplexes and residential buildings in the non-processing areas of their SEZs.

What SEZ status meant was that these private owners would be able to convert the land use of their properties automatically to ‘industrial use’ and thereafter divert half of it for non-industrial constructions. In other words land which may have been designated as private forest, or agricultural/orchard could by virtue of being designated a SEZ converted to industrial, settlement and commercial purposes.

The SEZ policy also envisaged that the SEZs would be outside the jurisdiction of the bodies of local government bodies, the Village Panchayats and Municipalities. The GoG had also begun initiatives to put in place a bureaucratic structure for SEZs which was placed under the command of the Development Commissioner (DC) and thereby outside the purview of the state government.

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