YANGON—Serge Pun, the CEO of the controversial New Yangon City project on Saturday partially disclosed the terms of a deal with a Hong Kong-listed Chinese firm that could see it provide infrastructure for the first phase of the development.
The revelation came amid a question and answer session at a public meeting organized by the New Yangon Development Company (NYDC) to discuss and hear the public’s views about the new city to the west of the Yangon River. Property mogul Serge Pun is also the vice chairman of the NYDC, the government body established to oversee the project.
NYDC plans to develop 20,000 acres of land in the first phase of the project. This will include five village townships, two bridges, power plants, water and wastewater treatment plants and a 10-square-kilometer industrial estate generating 2 million jobs. The company says the cost of initial infrastructure work in the first phase is expected to exceed US$1.5 billion.
During the meeting on Saturday in Yangon, audience members and panelists raised concerns about the project’s nature, financing and risk, and sought details of China Communications Construction Co. Ltd (CCCC)’s involvement.
The NYDC was formed in March and the Chinese firm became the first company to sign the framework agreement one month later. The press release about the signing ceremony included few details of the contents of the agreement. Serge Pun at the time said the framework agreement itself doesn’t give CCCC the right to carry out infrastructure work. Rather, the firm agreed to submit a set of Pre-Project Documents (PPDs) including technical specifications, a financial proposal and a business model for NYDC to review, as part of the first stage of a fair competition.
On Saturday, Serge Pun said that according to the framework agreement NYDC will provide land needed for CCCC, which will invest in building six infrastructure works including bridges, roads, and power and water treatment plants.
“Out of the six, only three will generate income,” he said.
He didn’t say how many acres of land were offered, adding that the land-leasing price will be the same as that offered by the government to investors in Thilawa, an SEZ project in Thanlyin Township.
He said the agreement includes a joint venture between the NYDC and the CCCC that would allow the NYDC to own a 25-percent share of the investment without putting any money down.
“But we don’t have money for 25 percent. So we will invest land worth 10 per cent [of the whole investment] and CCCC has to invest 90 per cent,” he said.
To make it fair, Serge Pun told the audience, the NYDC will guarantee the CCCC a 13-percent rate of return on the investment.
He added that the NYDC will let the CCCC take 95 percent of the income from the three infrastructure works that will generate revenue upon completion, while it will take 5 percent, despite its 25 percent holding in the joint venture.
“We will let them take it until they have covered the capital as well as the profit. For us, we will make it in a short time, as our investment is just 10 percent,” he explained.
“After that, we will go with a 75-25 percent deal. By doing so, NYDC will own 25 percent of the investment.”
He said the Chinese company agreed to the deal as it is economically fair.
When the framework agreement with the CCCC was signed in May, the NYDC said it marked the first stage of the NYDC Challenge Model, an adaptation of the global model of the Swiss Challenge for fair competition and transparency.
As part of the NYDC Challenge, should a second party challenge with a lower bid, CCCC will be allowed to match the offer or forego. If CCCC chooses to forego, the second party will be awarded the contract and will have the obligation to reimburse all costs incurred in connection with the preparation and submission of the PPD. Those costs will be agreed between NYDC and CCCC prior to the initiation of the tender process.
Once the PPD is submitted and approved by NYDC, it will be made public to allow any qualified party to challenge the agreement with better terms on the basis that it strictly adheres to the terms and conditions of the tender assessment criteria, the NYDC said.
During the meeting on Saturday, panelists and audience members also questioned whether or not the government should be involved in the business, as the NYDC is fully owned by the Yangon government. U Khine Win, one of the panelists, said if the NYDC is doing business it would be against the National League for Democracy’s 12-point economic policy, which encourages the vibrancy of the private sector.
“I want every step the NLD government takes to be correct,” he said.
But Serge Pun said the NYDC is responsible for bringing in the investors needed to make New Yangon City happen.
“That’s the NYDC’s business,” he said.