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Fraud or Freeway?
An overview of the controversial BMIC project.
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November 2002:

The Bangalore Mysore Infrastructure Corridor Project has been conceived as massive infrastructure/urban development scheme, (BMIC) promoted by M/s Nandi Infrastructure Corridor Enterprise Ltd. (NICE).

Update, Nov 2002
According to a Deccan Herald report dated Nov 5, 2002, the State Cabinet has issued comfort letters to NICE to enable it to achieve financial closure for a revised Rs.800 crore first phase. Under a "revised framework agreement" NICE will construct a 65km 2-lane highway between Bangalore and Bidadi as well as peripheral roads connecting Hosur with NH4 and Tumkur with NH7, in two years. The 2-lane highway would be tolled and would be built under a the BOOT system (Build-Own-Operate-Transfer) and NICE is not taking up township development according the report.

Project overview - as originally conceived
The legal, environmental, financial and social issues surrounding the Bangalore Mysore Infrastructure Corridor Project (BMICP) are extensive, however in the interests of brevity, this note attempts to provide a background, and, highlight key issues that should be of concern to potential investors and the general public.

The BMICP envisages the construction of a 4-lane (expandable to 6) walled, toll expressway and 5 townships between Bangalore and Mysore. A schematic view of the proposed expressway and townships, and existing road is available at: http://www.nicelimited.com/project.htm

The BMIC Project requires its townships to cross-subsidise the expressway, for the latter is not financially viable on its own and the townships are viewed as a captive source of expressway tolls, for they will mainly be accessible via the expressway. A major justification for the project is the need to de-congest Bangalore, but without demonstrating by detailed analysis the willingness of people to pay and live in the proposed townships, or pay for travel on the expressway. Furthermore viable alternatives for development of existing urban centers exist but have not been considered. The project has been touted as being modeled on the City of Columbia in the State of Maryland, USA. However, it is difficult to compare the economic and demographic profiles that support the Columbia experience and make this a model for the Bangalore-Mysore corridor. It must be highlighted though that admittedly the Columbia, Maryland model is not as ideal and successful as claimed or envisioned.

Project Promoters
In 1995, a Memorandum of Understanding (MOU) was signed between the Government of Karnataka (GoK) headed by Sri. J.H. Patel and, Nandi Infrastructure Corridor Enterprises (NICE), a consortium consisting of Kalyani Group (Pune), SAB Engineering (Pennsylvania, USA) and Vanasse Hangen Brustlin (VHB) (Boston, USA). In March 2001 however upon inquiries as to his company's involvement in the project, VHB Board Chairman, Richard Hangen, denied VHB was involved in the BMICP since 1995 and that he did "not know of the existence of any scope defining a future role for [VHB]." This while project documents dated 1999 include VHB as a member of NICE, and NICE continues to claim on its website that VHB is the "lead engineer" for the BMICP. Clearly a fraud is being perpetrated upon the people of Karnataka and potential investors, a fraud that 3 different state governments have perhaps chosen not to uncover. SAB Engineering appears to be a small enterprise headed by Mr. Ashok Kheny (also Managing Director of NICE) and it is unclear what experience it brings to large projects such as BMICP or what its role would be. It is not clear why the GoK is risking its credibility by engaging such companies and such fraudulent practices.

Financial Irregularities
The BMICP will reportedly cost upwards of Rs.2000 crores (US$400,000,000). For several years it was unclear who would be financing the project, however, in a 13th June 2002 Economic Times report, Ashok Kheny, Managing Director of NICE claimed that he "expect(s) the consortium of financial Institutions led by ICICI to release funds to the 2000 crores project upon receipt of the comfort letter allaying their reservations over various aspects to facilitate early financial closure." Apart from ICICI, HUDCO, Life Insurance Corporation, Punjab National Bank and Bank of India are reported to be financing BMICP. Unit Trust of India and General Insurance Corporation may also be involved in the consortium financing the project. In August 2002, the Reserve Bank of India filed a case against ICICI for its potential violation of an RBI directive on "Financing of Infrastructure Projects" . It instructs not only financing institutions to be wary of project viability, but also State Governments, that their guarantees (or comfort letters) are not a substitute for reliable appraisal of viability.

Especially given the use of public assets to finance this project (for instance, HUDCO financing and the giveaway of government [public] land to NICE at Rs.10/acre/year), this RBI case against ICICI assumes importance.

Clearances and Legal Violations
On August 1, 2000, the Karnataka State Pollution Control Board (KSPCB) issued a No Objection Certificate to the project, contingent upon NICE's compliance with several conditions. Several of these conditions are yet to be met. On August 8, 2001 the Ministry of Environment and Forests (MoEF) issued a conditional environmental clearance for the expressway component of the project. Several of these conditions are also yet to be met, and the MoEF is investigating this matter. Clearances accorded have been based on faulty Environmental and Social Impact Assessments and farcical Public Hearings.

For instance, one socio-economic assessment asked just 3 questions: the name of the respondent, the address of the respondent and the name of the surveyor, and another was based on faulty statistical sampling. Such "studies" clearly do not present a picture of the social and economic conditions of the affected population, and, do not even satisfy the guidelines of the MoEF's Environmental Impact Assessment Manual. The Public Hearings, in particular, were marked by human rights abuses, a matter that was raised before the National Human Rights Commission.

Basic public domain documents and studies about the project have been kept confidential, on grounds that they compromise corporate interest. In such a situation, the public has little or no opportunity of making a reasoned assessment of the costs and benefits of the BMIC project. For a project that has such significant and wide impacts, there clearly is no responsibility attached in terms of public accountability, an approach that may well become a liability for potential customers.

Social and Environmental Aspects
Total land acquisition for the project will amount to about 21,000 acres, consisting of agricultural wetlands, and forest land, and according to various reports, the project will affect almost 200,000 people, mostly agricultural laborers and farmers. Of these, only those owning land and who can show proof of title will be eligible for cash compensation, and these constitute a minority of the total affected population. Environmental surveys are based on out-of-date records and out-of context reasonings. For instance, what was once termed "wasteland", may have been developed by local farmers into productive agricultural lands. Yet the BMICP Environmenal Impact Assessment continues to retain the claim to such land as "wasteland" without actually verifying the quality of land presently. Furthermore, government land (i.e. public land) is being given away to NICE at Rs. 10/acre/year for 30 years, yet this land yields more than this amount to those now cultivating it. Many of the farmers whose lands would be acquired were not informed of the acquisition by government authorities. For some whose land will be sliced by the expressway, they will be forced to walk additional distances to reach the other side of their land (as underpasses are proposed every 500 metres).

Water: a major limiting factor
The issue of water is critical, and presents a major limiting factor in this region. With the ongoing disputes between Karnataka and Tamil Nadu over Cauvery River water supply, and with Bangaloreans suffering from erratic and insufficient supply, it is unclear on what basis the GoK has in the BMICP Framework Agreement (1997) permitted NICE "to draw 2 thousand million cubic feet of water per annum from the Cauvery River allocation." A recent statement by Law and Parliamentary Affairs Minister D.B. Chandre Gowda that "Bangalore will go without water if we release additional water to Tamil Nadu" is further evidence of the present dire situation.

Alternatives
Recent press reports (June/July 2002) have indicated that the GoK is pursuing expansion of the existing Bangalore-Mysore State Highway (SH-17) and doubling the railway track. The former is estimated at Rs. 331 crore (US$ 66,200,000) and reportedly requires acquisition of only 65 acres of land , and the latter is estimated at Rs. 276 crore (US$ 55,200,000) and requires minimal land acquisition as most of the land required is railway land. Both these options are considerably cheaper and involve a great deal less land than the BMICP. Furthermore, reviving the shelved HUDCO-Southern Railways proposal of developing housing at existing railway stations and towns in the Bangalore Mysore region, will surely meet the growing demands of Bangalore, provided all sections of society affordable housing and safe travel options, rather than the urban sprawl proposed by BMICP. Furthermore, in what may be a cannibalistic move, HUDCO is not only financing BMICP but also reportedly financing the expansion of SH-17. Given the more equitable and financially sound options available, it is unclear why the GoK and financial institutions continue to support the BMICP. Furthermore, a key justification for the BMICP was that SH-17 could not be expanded , which as has turned out was an absolutely incorrect assumption. Given the ongoing work by GoK to expand SH-17 with HUDCO financing, it raises questions whether BMICP is required; and more fundamentally if it is viable at all.

In conclusion
Potential investors (some of whom are NRI diaspora) have complete and accurate information about all aspects of their investment. Given the large-scale adverse social, environmental and economic affects of the BMICP, when viable and less damaging alternatives exist, BMICP stands out as an extremely controversial project not only in the eyes of residents of Karnataka, but also of people around India and the NRI community. Seven years have passed and yet the project as originally concieved and pushed is nowhere near financial closure, if that is some evidence. But for a large section of potential investors who would perceive the project as only an investment opportunity, the likelihood of seeing their money grow seems rather remote presently. Probably the best evidence for this would be the fact that the 6-lane expressway of the BMICP is unlikely to take off, as the Minister for Public Works of GoK has confirmed lately that only 2 lanes would be developed presently, and not all the way to Mysore. The issue of whether the townships will ever take off hangs fire.

Key issues of public interest
  • Why is the Government of Karnataka supporting BMICP when more equitable options for development of this corridor exist, from both transport and housing angles?
  • Why does the Government of Karnataka continue to support the project despite its violations of the Environmental Protection Act (1986)? For instance, public hearings were not conducted as per the provisions of the Act and Environmental Impact Assessment and Socio-economic Assessment were not conducted satisfactorily.
  • Why is the Government of Karnataka promoting high risk and flamboyant investments, particularly by questionable companies? (VHB claims non-involvement while NICE claims VHB is "lead engineer"; SAB Engineering is a very small enterprise which may not have experience of large projects such as BMICP)
  • If VHB is, as it claims, not involved in BMICP, then the Memorandum of Understanding signed in February 1995 is null and void, thus how can the project go ahead?
  • Why is the Government of Karnataka giving away public land at Rs. 10/acre/year? Where this government land is under cultivation by local farmers, the income earned by them would be greater than the rate charged to NICE.
  • Has the Government of Karnataka considered that it may be violating a binding RBI directive by wrongly issuing comfort letters in lieu of satisfactory assessment of financial viability?
  • Has NICE considered that as per a binding RBI directive, financiers cannot fund BMIC based on comfort letters (State Guarantees)?
  • Why are public funds being used (HUDCO is a public sector enterprise) for a private project for which public domain documents have not been released?
  • How can the Government of Karnataka guarantee (as per the Framework Agreement) 2 thousand million cubic feet of Cauvery water to the proposed 500,000 people in BMICP townships while 6,000,000 Bangaloreans have an erratic and insufficient water supply, particularly in the context of the ongoing imbroglio over Cauvery waters?
  • Why is the GoK committing so much land to this project, when NICE Ltd. has been unable to even deposit the small security amount required per the land acquisition process?
  • Also, why is this projected exempted from providing rehabilitation to affected families?
  • Finally, is BMIC required now given the alternatives?

    Leo Saldanha, Nagni Prasad
    November 2002

    The authors are with the Environment Support Group, Bangalore. They may be reached at: Environment Support Group , S-3, Rajashree Apartments, 18/57, 1st Main Road, SRK Gardens Bannerghatta Road, Jayanagar, Bangalore 560041. Telefax: 91-80-6341977/6531339. Email: esg@bgl.vsnl.net.in

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