BHAMY V. SHENOY writes: No major financial decision is taken today without developing an economic model, even in the case of the public sector, excepting in some banana republics where modern management practices are unknown.
Mysore has four reputed management institutes where students are regularly taught techniques to assess the economic attractiveness of projects. There are several renowned CPAs in Mysore.
Despite such intellectual capital, why has the Mysore City Corporation (MCC) failed to develop an elementary economic model to use and assess while negotiating with Makkaji Chowk investors?
(Makkaji Chowk is a 4-acre plot of land in the heart of Mysore, opposite the main palace, where a Garuda Mall is to come up in a Develop-Own-Operate-Transfer formula with MCC.)
Is Mysore a banana republic ruled by ignorant politicians and incompetent bureaucrats? Or is this a case of those decision makers just taking care of their selfish interests and ignoring the public interest?
Based on publicly available data, the Mysore Grahakara Parishat (MGP), a consumers’ body, has developed a reasonably sophisticated model to study the economic attractiveness of Makkaji Chowk.
This model takes into consideration the effect of inflation, land value, construction cost, rental revenues to the investors, lease value to the corporation, lease revenue escalation signed by MCC, lease escalation investors will demand while renting it out to retailers in Makkaji Chowk, escalation in property taxes, etc.
No responsible management today takes an economic decision without assessing the internal rate of return (IRR) generated by the project as well as the net present value (NPV).
Even under the conservative assumptions, investors in Makkaji Chowk stand to earn at least 19% to 22% rate of return. Under the most likely case, the investors are likely to earn between 30% and 40%.
These returns are based on assuming parking is provided free. If we consider parking revenues to the investors like in
Bangalore, the returns will be even better.
NPV, another measure to assess economic attractiveness of the project, is very attractive to the investors ranging between Rs 98 crore and Rs 257 crore whereas for MCC it is a puny Rs 35-43 crore, in the most likely scenario.
By any standards, these are extremely attractive rates of interest. If only MCC had taken the help of a competent consultant, they would have avoided giving such attractive terms to the investors and avoided the present controversy.
Of course, we are not raising here the more fundamental issue of retaining Makkaji Chowk as lung space, or the detrimental impact of increasing traffic in and around K. R. Circle.Here, we are dealing only with the financial issues and what MCC should have done to negotiate a good price. Not only has MCC fixed a low lease value of Rs 3.25 crore per year, but it has failed to consider the impact of inflation.
Incorporating a lease escalation of mere 1% per year when we have seen recently more than 10% inflation rate, is being totally ignorant or doing great injustice to public interest. One need not be an economist to figure this out.
Can the citizens of Mysore be mute spectators to such fiscal irresponsibility? Some smart and public spirited lawyer should be able to help MGP to file a PIL to prevent MCC from selling Makkaji Chowk at a throwaway price to the investors even at this late stage.
Bottomline: such fiscal irresponsibility could kill not just Mysore, but your city, too.