Bengaluru Metro: CAG Flags ₹104 Crore Loss Over Lower Premium For IKEA Land Deal

A CAG audit has flagged a potential ₹104 crore revenue loss for BMRCL in its IKEA land deal near Nagasandra Metro Station. The audit also found ₹38.53 crore in lost lease income from vacant commercial spaces across 43 metro stations.

The Bengaluru Metro Rail Corporation Limited (BMRCL) has come under scrutiny after a Comptroller and Auditor General of India (CAG) audit flagged significant financial losses linked to its property management and land transactions. According to the report, BMRCL could have earned substantially more from a 14-acre commercial land parcel near Nagasandra Metro Station that was leased to IKEA. Vacant commercial spaces across metro stations also resulted in significant lost rental income.

The audit has raised concerns over BMRCL's approach to setting the Minimum Development Premium (MDP), property development and the management of commercial spaces created as part of its metro projects.

₹104 Crore Loss Flagged In IKEA Land Deal

The issue relates to a 14-acre plot near Nagasandra Metro Station. The CAG report flagged BMRCL's decision to set the Minimum Development Premium for the land at ₹240 crore, despite an increase in the land's guidance value and recommendations from consultants.

The consultants had reportedly suggested a premium ranging between ₹233 crore and ₹332 crore. The land was eventually leased to IKEA for ₹251 crore, while the CAG estimated that BMRCL could have earned up to ₹355 crore from the transaction.

The audit has therefore pointed to a potential revenue loss of around ₹104 crore.

BMRCL Revised Land Valuation Before IKEA Deal

The land was valued at around ₹320 crore in March 2015. Following a request from BMRCL for a review, the recommended premium was revised in March 2016 to a range of ₹213 crore to ₹304 crore.

Despite the revised assessment, BMRCL proceeded with a Request for Proposal (RFP) that set the MDP at ₹240 crore.

IKEA subsequently took the land on a 60-year lease. The transaction involved a ₹251 crore non-refundable advance payment and an annual payment of around ₹2 crore. IKEA officially announced its acquisition of the Nagasandra land parcel in May 2017.

BMRCL's Defence And CAG's Rebuttal

BMRCL defended its decision by claiming that the higher valuation was an overestimate and that the land was undeveloped. It also cited an alleged printing error in the guidance value quoted for the property.

However, the CAG did not accept the explanation. The audit body reportedly observed that comparing the prime commercial land with land acquired for basic infrastructure purposes was not appropriate.

The audit has raised broader questions about BMRCL's property valuation and management practices, particularly in relation to commercially valuable land and assets.

₹38.53 Crore Lost From Vacant Metro Spaces

The CAG report also highlighted another financial concern involving commercial spaces developed by BMRCL.

BMRCL had created around 2.46 lakh square feet of built-up area for property development. However, only 0.23 lakh square feet was utilised, leaving around 2.23 lakh square feet vacant for several years.

The vacant spaces across 43 metro stations resulted in an estimated loss of around ₹38.53 crore in lease income between 2019 and 2022, according to the audit findings.

BMRCL had floated tenders for retail outlets in 2018 but did not open the financial bids. Instead, it decided that a property management policy should be formulated before proceeding further.

However, as of March 2023, the policy had still not been finalised, according to the report.

The findings have highlighted concerns over BMRCL's management of commercial properties and the potential revenue that could be generated from its land and station spaces. The CAG's observations also underline the need for more effective property valuation, tendering and asset utilisation practices.