Touria Prayag: Heritage city is the project that the government is about to embark on. It involves huge expenditure as well as moving away ministries, parliament and the Prime Minister’s Office to Ebène. This project will, according to the government, cost about US$820m, that is Rs29 billion. How do you feel about this project?

Tim Taylor: I understand that the government is going to own this project through some special kind of Special Purpose Vehicle (SPV) because they do not want to increase national debt. I think that the technical term for this is ‘colourable device’ because frankly, it is a way of keeping something off a balance sheet. So, from a financial point of view, I am not sure it is a very wise path to take.

TP: Eric, Tim says it’s a colourable device. Do you agree with that?

Eric Ng Ping Cheun: Yes, I think that any project has to be very transparent financially. The government should not hide expenses outside the national budget. This sort of practice is a bit like a Ponzi scheme.

TP: Are you saying this project is a Ponzi scheme?

EN: (Laughs) A little bit of a Ponzi-like scheme if you want. Expenses should not be hidden as off-budget items. They have to be earmarked in the national budget so that the future generations know how much they’ll have to pay in terms of taxes later. No matter how we finance the project, we will have to find the money to pay back with interest and in dollars. Many factors are involved, not just the interest and rate, but also the depreciation of the rupee. If the rupee depreciates sharply against the US dollar in the coming years, by Rs2 or Rs3 more than its current exchange rate, then obviously the debt will increase in rupee terms. It is the future generations that will have to repay that money back in the form of taxes.

TT: Can I just add that I think the other thing that we have to understand is that in any project, there are risks and rewards. And, as I understand that in the first formula that they’ve proposed, the risk and reward are basically for the government because the government is actually putting in the equity and it is the equity holder who has the risk and reward. So, to say that they are going to build 1,000 flats and 400 houses etc. and that these will be sold at a remunerative price is risky. Le Merritt up by Trianon, for example, is today two abandoned towers and there are many, many other large buildings going up in the Plaine Wilhems area and I understand that the demand is actually not very strong. So, one has to be very cautious when saying we will build apartments, sell them and that’s what’s going to give the return. You know, feasibility studies are always positive. But when you look at the reality, sometimes it doesn’t go according to the feasibility study.

TT: “Civil servants won’t leave their environment for ‘karo kann’”

 

AC: “I don’t see anything that justifies the cost of building a new city.”

 

EN: “Expenses should not be hidden as off-budget items.”

TP: Is reality different Abbas?

Abbas Currimjee: Yes. First, I must qualify that my financial knowledge and expertise are certainly limited compared to my two friends here but it has been assumed that the raison d'être of this project is that the civil servants will be able to live where they work. So, that is assuming that the bulk of the market for these housing units will be these civil servants and the people who work there. That is a big assumption.

TP: But wouldn’t you, as a civil servant, want to live next to your workplace?

AC: Well, it depends where my home is. Besides, a large majority of civil servants probably have their own homes. So, they will have to be prepared to sell their homes first to be able to live in Heritage City.

TP: The government’s idea is that if they don’t manage to sell the housing units, they won’t build them.

AC: The idea is not to build a housing scheme. The idea is to have a composite project: work, live and play. So if the living part is to be amputated or left out, then I think the validity of the project diminishes.

TT: You know, I think we need to understand how the average Mauritian acquires his dwelling.  The first thing you do is buy a piece of land. Then you look for a small contractor because itis always going to be cheaper than the big guys. Heritage City flats will not be cheap. They say they are going to be luxury, so they are going to be expensive. So, I imagine that they will not appeal to a lot of the civil servants, who already have a full budget: they are saving to educate their children and have a whole lot of day-to-day expenses and they probably live in a family environment in Beau-Bassin, Rose Hill or Curepipe. They are not going to leave that for caro cannes (sugarcane fields)!

AC: Why can’t the government do a sample survey which will determine what would be the reaction of the targeted market?

TP: You mean, it hasn’t been done, according to you?

AC: Well, I presume it hasn’t been done because everything happened so quickly. If it has, then it is worthwhile knowing the figures. 

TT: I think there is something else we should consider and that is moving parliament, are they serious?   Can you imagine moving the UK parliament from London to Milton Keynesor Newcastle or I don’t know where?

EN: I agree with Tim. I think the parliament is very symbolic. It represents the country’s sovereignty. The parliament deserves to remain in the capital.

“The financing is a little bit of a Ponzi-like scheme if you want. Expenses should not be hidden in off-budget items. They have to be earmarked in the national budget so that the future generations know how much they’ll have to pay in terms of taxes later.”

“If the rupee depreciates sharply against the US dollar in the coming years, by Rs2 or Rs3 more than its current exchange rate, then obviously the debt will increase in rupee terms. It is the future generations that will have to repay that money back in the form of taxes.” 

TT: What about the congestion?

EN: I think if some ministries leave Port Louis, there will be no problem anymore.

TT: Everyone who has tried to get into Ebène knows that, clearly, congestion isn’t just in Port Louis. Getting into Ebène in the morning is very difficult. I think that there are real issues in how to manage traffic. Building Heritage City isn’t going to solve that. You have to feed in traffic to Port Louis from the mountain side rather than the seaside. I think you have got to have a better system of public transport. Perhaps bus lanes. Managing traffic is a different problem. Moving the civil service to Heritage City doesn’t necessarily solve it. It might help, but it doesn’t solve it.

AC: We are talking about creating a new city. I think that one has to have very clear-cut and valid reasons because it’s going to be done at great cost. Its efficiency and benefits to the nation have to be measured very clearly before taking such a step. What is the real reason to relocate government bodies and parliament? I don’t know. I am all for maintaining and managing Port Louis better and retrofitting the existing buildings. I am absolutely positive that if done by professionals after a proper audit of government office requirements and appointing, not architects or interior designers, but space planners for this exercise, Port Louis will live again. It’s about planning space. Open offices didn’t exist 30 years ago. Today, they work very well. Electronic communication will be the order of the day in the near future. The movement of people and the density of human traffic will decrease as most things will be done electronically.So I don’t see anything that justifies the cost of building a new city or the benefits that may accrue from it.

TP: The benefit is having a real smart city. Roshi Bhadain also talked about changing the mindset of the civil servants.

AC: I personally believe that the mindset of civil servants has to be changed through means other than just environmental or aesthetic. I’ve been to Ebène. It’s a den. It’s isolating. You feel alienated there. You are a human being amongst buildings. In Port Louis, you are a human being in an urban environment, it’s a bit of a mess but it’s a charming mess. Concurrently, one always has to remember that if one goes ahead with Heritage City, at what cost to Port Louis, our capital?

TP: The minister of finance talked about Rs50 billion rupees to be invested in Port Louis to make it also a smart city…

TT: “smart” is of course the word of the year. Smart city. You can’t make our government smart by moving it to Ebène or to the other side of the motorway. Smartness has got to do with processes. Many government processes are outdated. There are all sorts of hoops and hurdles you have to jump through and over. There’s a lot of work to be done to look at the services government should be providing. Once you have decided that, then you can have a look to see what processes you need to provide those services, what technology, what types of civil servants in terms of skill sets, how many etc. It’s only then that you can decide how much space you need. It’s not by moving people that you are actually going to change everything. There are civil servants, some are very good and some are less good but it’s also to do with leadership and how the minister behaves towards the civil servants. Does he support them? Does he give them confidence? All this is very important. If I were a senior civil servant in government today, I would be very wary. You have one government, then when another government comes in, you get arrested. This is not necessarily a way to empower people! Certainly not. And are you actually giving your workforce confidence and letting them grow? I don’t think so.

TP: What about the contribution that Heritage City will make to the Gross Domestic Product (GDP)? Apparently it will contribute 1.2 % during the first two years of construction.

(A round of repressed laughter)

EN: One can always inject new money into the economy to raise the GDP, but an economy thrives on an efficient allocation of resources. All these billion-dollar projects that have been announced are inflationist projects which will eat up resources in terms of labour, materials and equipment. Consequently, the price of resources will go up. These projects will contribute a bit to the GDP growth but, at the same time, the cost of construction will increase dramatically to the detriment of the middle class.

TT: I agree that Heritage City is not going to be productive. Twenty-nine billion! Even more than the cost of BAI…

EN: More than the light railway system! The latter would have been more productive for the economy.

TT: Or water 24 hours a day across the island! There are obviously a lot of other things that you could do with the money. By investing it in Heritage City, you are giving up on the opportunity to invest in other things.

TP: What about the US$1.7 billion that it will bring to the country over the next 30 years?

(Another round of repressed laughter)

AC: (Incredulous) This project? The rate of return is estimated at 14-16%!

EN: It’s easy to put down a gross figure on paper. Any consultant can do that. You use an Excel sheet, make assumptions and input data. Can we really forecast the amount of foreign capital that will flow into the country in the next 30 years? It’s almost impossible.

TP: The return on equity I am made to understand is 30%. Is that realistic?

AC: I don’t think that it’s realistic!

TT: This is a dollar investment. The rate of interest today is about 1%. If you’re putting your money into real estate in dollars and you get between 4 and 8%, you have done well. There is a contradiction in the fact that it is such a good return and it is such a good scheme for Mauritius.

EN: As a rule of thumb, we can compare the rate of return of a project with the real GDP growth rate. How can we expect a 30% return on a huge investment project in an economy that is growing between 3% and 4%?

AC: I think in real estate development, to have that sort of return is highly unusual!

TP: The rental of office space will be at Rs41 per square foot. Will that not be a saving compared to what we are paying today?

AC: This is a very precise figure and it sounds like a constant. I presume that detailed plans, bills of quantities and contractual specifications have not yet been drawn up because we have not got the finance yet. Now, I find it, to say the least, a bit like putting the cart before the horse. Today, to say that this project will cost US$820 million, you have the uncertainty of the dollar exchange rate, you also have inflation which will come into play and legitimate accountable overruns may occur. Now, how can one work out a rent with a guaranteed rate of return on investment? It just does not make sense!  Maybe a lot of acrobatics will be needed to achieve this compatibility of a fixed rent.

TT: Just to take up on that. What does the rent include? One thing is for sure, if you move from one building that was built 30 or 40 years ago into a new building, it will cost you more. There is no other way. The reality of life is there.

TP: How much are we paying today in Ebène for example?

EN: Between Rs35 and Rs40.

TP: So we are not saving anything, are we?

EN: No. This figure of Rs41 does not seem to be realistic. Taking into account future inflation rates and a continuous depreciation of the rupee, I don't think we can apply Rs41 per square foot. It will be much more.

TP: But it is the government which is renting, so it is the government which decides...

EN: But it is the taxpayers who are going to pay for it.

AC: And you can't have a reasonable rent for increased costs because the rent must reflect the cost as a return on investment.

TT: “Moving parliament, are they serious?  Can you imagine if you moved the UK parliament from London to Milton Keynesor Newcastle?”

AC: “I am all for maintaining and managing Port Louis better and retrofitting the existing buildings”

AC:“Electronic communication will be the order of the day in the near future. The movement of people and the density of human traffic will decrease as most things will be done electronically.”

 “If we can’t even sell all the beachfront villas to foreigners, how will we be able to attract foreigners to Heritage City in the middle of caro cann?”

TP: The project, it is believed, will also bring in US$500 million of foreign direct investment (FDI). Is that also unrealistic?

TT: Let's have a look at the FDI. What they are saying is that they are going to sell flats and houses to foreigners. Are foreigners going to buy in the caro cannes (sugarcane fields) of Ebène? I am not too sure.

TP: It will not be caro cannesanymore, will it?

TT: OK, it will be modified caro cannes.But it is not exactly an interesting place. Most foreigners like to be near the coast. They certainly would not want to be in Plaines Wilhems. When you look at the whole integrated resort scheme (IRS) sector, the number of units sold is not huge. We are talking about a couple of thousand. And that took seven to eight years!

AC: I do agree with Tim. I don't think that Ebène is necessarily the ideal location for foreigners to buy. And then again, was that the leitmotiv or raison d'être of Heritage City? Heritage City was meant to have a 'work, live and play scenario', therefore it targets the civil servants and Mauritians more. You should also get your market right. Which market are you going for?

EN: If we can’t even sell all the beachfront villas to foreigners, how will we be able to attract foreigners to Heritage City in the middle of a caro cann?The government is investing in the real estate sector, which is not really a productive sector.

AC: And it entails a big risk because getting US$500 million of FDI is not in itself virtuous. It is only virtuous and makes sense if it generates income and is also productive in the longer term.

EN: If we invest US$500 million in factories, hotels and business services and create jobs, then it is a good thing because we are creating sustainable wealth and employment. Not in real estate.

TT: If we want growth and employment in Mauritius, we need to have investment that comes from the private sector and we have to identify why the private sector is not investing.

TP: Why are they not investing?

TT: If you look back several years, under Sithanen, (although I am not allowed to mention him anymore!) government had set up a series of joint public/private sector working groups to look at the bureaucracy and they did a lot of good work tackling a number of hurdles. But since then, the red tape has been building up again.

TP: If we go back to Port Louis, what measures need to be taken to decongest it?

AC: Port Louis is not a big city. I think the maximum population of Port Louis during the day is 200,000 or a little over. It’s very small. Port Louis was extremely well planned by Mahéde Labourdonnais. Unfortunately, we have neglected our planning since. Why has the ring road to Port Louis been halted for so long? Get it ready. When the Terre Rouge/Verdun motorway was working, you could feel the difference. I got to my office in half an hour. Before, it took me 45 to 50 minutes. If you get the ring road going, you are going to bring the travelling time down. You rationalise parking and traffic management in Port Louis. I’m not saying the police are not good but maybe not good enough in this discipline. Then look in detail at the traffic management planning including parking zones. Sometimes parking creates problems rather than solves them.

TT: Can I just take up parking a moment? All cities in the world now have privatised parking. The municipality gets the money, but they appoint a company to manage the on-street parking. They could double, triple or quadruple the money they make from parking just with better management.

AC: Thanks Tim. Now, one of the things that were considered in the old man’s day – I mean Chacha Ramgoolam’s – was relocation of warehousing etc. from Port Louis. I mean, have we seen warehouses in Oxford Street, Bond Street or Regent Street in London? The logical place would be Terre Rouge, Riche Terre etc. Take out all the non-essential warehousing and trading from Port Louis and regulate very strictly the timings of service vehicles, lorries and others. I have never seen a lorry or container truck in Oxford Street, London. That’s a management issue. It’s all to do with working hour vehicular circulation. Other administrative measures are also needed to rationalise and to render more efficient vehicular and pedestrian circulation. Everybody agrees with this but nobody has done it. Stop talking about it and do it! Apply the law, not brutally but with discipline. Generally improve the management of Port Louis at the administrative level. I’m going to say it very bluntly: the municipality of Port Louis has not excelled at managing the city. As Tim was saying, who are the biggest contributors to the finances of the city? It’s the private sector. The businesses finance maybe 90% of the budget of Port Louis and yet they do not have a representative on the council! Why do we not have the civil players who are active and contributing, represented in the affairs of the city? And I insist again on retrofitting these buildings, which are buildings of a certain epoch, well built and structurally still valid.

TP: What about the cost implications Abbas?

AC: I can assure you that as finances will be spread over different agencies and timeframes, this will be more economical to manage.

TP: And Port Louis remains the capital as we know it?

AC: And it remains the capital. Without increasing the debt our children will have to pay.

EN: Yes, the public debt will increase, and obviously it will be the future generations that will pay it back in a context where the government is aiming to reduce the public sector debt to 50% of GDP by 2018.

TP: Where does the public sector debt currently stand? Sixty four per cent or 55% of GDP?

EN: Sixty four per cent.

TP: Last time we had a disagreement with the minister of financial services who was saying that it was 55% of GDP.

EN: The discounted public sector debt with respect to the objective set is 55% of GDP. However, the public sector debt as per the international definition is 64% of GDP.

TP: None of you has mentioned the light rail transit (LRT) system as a solution. Is it because you don’t think it will solve the problem or because it has become a taboo?

TT: There has been talk about the LRT for the last 25 years. Numerous studies have been done by numerous consultants and some of these are no doubt sitting in some drawer in the Ministry of Public Utilities.  What I don't know is what brief has been given to each consultant. The recommendations in a report will depend on the brief given. To my mind, the correct brief to give a consultant is 'taking today's traffic flows and those predicted over the next 20 years, what are your recommendations as regards public transport for Mauritius'. The consultant could then look at the alternatives, light railway, bus lanes etc. and cost them. Government could then make a decision about what system to choose in the presence of all the facts. The problem has improved with the Terre Rouge/Verdun new road. But a proper study needs to be done. That has not been done.

AC: I tend to agree with Tim and I think a bus highway could be a more economical way of alleviating the traffic problem and generating enough money to pay for itself as people can buy special passes. We could incrementally grow our fleet of top class buses. You can’t do that with the LRTs. If it packs up, how many do you have in stock? Whereas if you have a fleet of 200 buses, if three or even five or more pack up, it is not a major disaster. Besides, it also gives us an alternative. I agree with Tim, don’t study just one option but do a comparative analysis of different options.

TP: What are the options to decongest Port Louis?

AC: There are several. Road ways, better management and relocation of certain functions.  I am not a town planner but it seems to me that Les Casernes, for example, is underutilised. Also, it is time we looked carefully and dispassionately at Les Champs de Mars. Does horse racing have to be in Port Louis? These are ways to optimise the utilisation of underutilised space in the public interest. Les Casernes right now is not in the public interest as regards urban space utilisation.

TT: It is in fact in the public disinterest as there are driving tests taking place in the streets around there, which adds to the congestion. It is madness!

AC: Porlwi By Light was just one of the great opportunities to show what the capital is capable of in terms of potential. There is the Citadel, the theatre, the Old Prison, Fort George and many other buildings which could be restored to revive Port Louis’s cultural heritage and give it its true dimension. It can be a wonderful cultural place. Can you imagine the effect this would have internationally in terms of brand image for Mauritius? Offices with deep-water technology for air-conditioning, to start with! Probably a world first – what a scoop!

EN: We could also make all the streets in Port Louis one-way and have large pavements.

TT: (Laughing) That would invite more street hawkers…

EN: The street hawkers have to be taken out of Port Louis, and the bus stations moved out of the city.

AC: Also, if we embark on very good schemes and do them well, we could be recipients of substantial financing on very favourable terms from international organisations.

TP: Talking about financing, do you see the projected financing of Heritage City by Saudi Arabia as favourable for Mauritius?

EN: The proof of the pudding is in the eating. As long as everything is done in full transparency, and we know where the money is coming from, it is fine. However, Saudi Arabia has a bad reputation when we know that its government has given a personal donation of more than US$550 million, supposedly as a gift, to the prime minister of Malaysia. Moreover, Saudi Arabia is in economic difficulty following the drastic fall in the international price of petrol. The most important thing is that the financing is done in a transparent way.

TT: (Laughing) We could perhaps insist that it is done under sharia law as under the sharia law you can’t charge interest.

TP: Heritage City in one sentence?

TT: More haste, less speed. I think this is going much too fast. We need to understand the alternatives and the true cost. We can’t just dump Port Louis. We really need to look at how to make Port Louis live and how we can be proud of it.

AC: I share Tim’s view clearly and unequivocally. I think one can’t look at Heritage City in isolation. There is a purpose for Heritage City which is to transfer the government offices from where they are to Ebène.Let’s do a comparative study and I am confident that it would be much better to revive Port Louis and provide for the quality accommodation which everyone aspires to. It will firstly upgrade the capital, which is a great benefit and, secondly, it can be done incrementally, whereas Heritage City can’t. So, the financial burden of Heritage City will be heavier and more onerous. 

EN: In the name of efficient allocation of human, technical, material and financial resources, I would much rather have an LRT system of Rs29 billion than a Heritage City of Rs29 billion.

This article appeared in the Weekly edition of the 11th of February 2016.
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