The Mumbai Metropolitan Region Development Authority (MMRDA) has decided to slap a penalty of Rs 101 crore on Jet Airways for failing to carry out construction on a plot it had bought in Bandra-Kurla Complex (BKC) in August 2006.
Jet,which is carrying a debt burden of nearly Rs 13,500 crore,has appealed to MMRDA to waive the penalty,citing a troubled aviation business and slump in the commercial realty market. The penalty amounts to a third of the original price of Rs 341 crore Jet paid for the 2.5 acre plot.
Under MMRDA rules,the winning bidder for a plot in BKC has to finish construction within four years of signing a lease. On expiry of this period,developers can get a maximum three-year extension provided they pay 10 per cent of the lands value for each of the first two years and 15 per cent for the third year,as penalty.
Since Jet has just about dug up the basement of the plot,we estimate that the project will take three years to be completed. According to our calculations,the penalty will add up to Rs 101 crore, said Deputy MMRDA Commissioner A R Wankhede.
Senior MMRDA officials say that the penalty clause is a safeguard against developers buying land in the prime commercial district of BKC and hoarding it until land values soar. Since MMRDA rules do not allow the winning bidder to sell the plot entirely,the airline is expected to soon sign a deal with Godrej Properties under which Jet will retain a 60 per cent stake in the project,sources said.
Milind Korde,Managing Director of Godrej Properties,however,said that he could not comment on the deal as it had not yet been signed.
MMRDA officials ruled out the possibility of granting Jet any relief. In the past,several others such as Punjab National Bank,Income Tax department,Oil and Natural Gas Corporation and Tata Communications have been made to pay fines for delay in construction. If we make an exception this time,it will set a bad precedent, said an official.
M Shivkumar,Senior Vice President for Finance at Jet,said that the penalty may not necessarily be Rs 101 crore. It depends on how fast we finish the project. If we finish it in two years,it could be Rs 66 crore, he said,confirming that the airline had appealed for a waiver.
He said the global economic crisis of 2007-08,when crude oil prices peaked to $147 a barrel,had hurt the airline industry badly. In such a situation,we couldnt have started construction,which the MMRDA should consider, he said.
The airline is already in trouble for its failure to pay the premium for another 1.5 acre plot in BKC for which it bid Rs 826 crore in March 2008. The payment was to be made within three months of the auction but three years and two extensions have lapsed. The delay is estimated to cost the airline an additional interest burden of 18 per cent per year. We have asked for another extension for that plot. If the MMRDA takes the plot back,it wont fetch them even Rs 500 crore in todays market, said Shivkumar.