New Delhi: Homebuyers seem to have invested a lot of hope and faith in NBCC’s candidacy in the race to acquire debt-ridden Jaypee Infratech. After being left in the lurch by private sector companies, homebuyers are looking forward to the possibility of a public sector undertaking (PSU) stepping in and taking up half-completed projects as that would essentially mean that the onus of completing the work would be on the government. By and large, the belief is that private sector companies could be driven only by the idea of making profits, but PSUs are expected to keep social welfare in focus even as they seek profits.
However, can NBCC rise up to the occasion and save the day? Here’s a look at the facts of the case.
NBCC’s re-entry into the race to acquire Jaypee has been accompanied with a lot of drama. After the Committee of Creditors (CoC) rejected its bid on the basis that it needed too many approvals from the government, NBCC raced against time to get the approvals in place and re-enter the race. Homebuyers, too, on their part, wrote to the CoC to take a vote on NBCC’s proposal. The interim resolution professional (IRP) for Jaypee Infratech, Anuj Jain, then wrote to NBCC to revise its bid once again, saying that the bid was conditional and non-binding. The state-owned project management consultancy, has however, refused to dilute the conditions of exemption from income-tax liability as well as from taking consent of development authorities for transfer of businesses.
Experts say NBCC not taking any market risk
Experts are of the opinion that NBCC is like any other developer in the business outsourcing projects to contractors. However, the real issue pertains to funding. According to a real estate expert, even though NBCC has the capability to execute projects, the situation requires an entity that can steer Jaypee from problem areas to the coastline — a task that would require one to bridge the gap in terms of funding, regulatory and legal issues.
Experts say there are a bunch of questions that need to be answered before handing the project over to anyone — who will bring in the money if there is a shortfall? What will happen in the event of land banks not getting sold in a slow moving real estate market?
Treading with caution
In any case, NBCC will have to tread with caution as undertaking stalled projects may impact its balance sheets adversely. And there is also very little scope of demanding the escalation cost from homebuyers as they have already paid almost 90 percent of the amount.
NBCC cannot play saviour to all stalled projects
Experts are of the opinion that NBCC cannot be seen as an entity tasked with taking up all stressed projects of the country. Also, the government coming forward to take up stuck projects will set a bad precedent. NBCC functions like any other company in business and they cannot afford to take up unfinished projects as an act of charity, experts have warned.
It is also important to make the bidding competitive and not award projects unilaterally.
NBCC’s cost-overrun nil in comparison to CPWD
According to a real estate expert, the reason why NBCC is a preferred choice in comparison to other government-owned entities is that its time and cost overrun is nil compared to others like CPWD. While NBCC has a salary bill of Rs 300 crore against an annual turnover of around Rs 10,000 crores, CPWD has a salary bill of around Rs 2,000 crore.
PSU Watch is a business news brand of 27 Frames Communications LLP. It places the spotlight on PSUs, Governance, Bureaucracy, Defence and Public Policy as the sector traverses through a period of radical change.