Pricey Puzzle

Murari Sharma

London embassy sale

The Nepali Embassy in London is in the news once again, this time for alleged corruption and the firing of two local staff. But in the past, the priciest property of Nepal overseas has frequently hit the headlines because of the controversy over its proposed sale.

The minimum going rate in Kensington Palace Gardens (KPG) is above 6,000 pounds per sq. ft. and the park side carries a further premium. It means the 12A KPG, which has more than 26,000 sq. ft. and which abuts Kensington Park, could sell for a whopping 156-180 million pounds.

KPG, a gated exclusive street, boasts the Kensington Palace, where Princess Diana lived after her separation from Prince Charles and where Prince William and Princess Kate will soon move in. It also hosts Saudi and Brunei royal families; residences of Indian, Japanese, French, and Russian ambassadors and Laxmi Mittal, the UK’s richest person for the last several years and third this year; as well as Russian, Israeli and Norwegian embassies. The British royal family owns all these properties, including the Nepali Embassy.

Such exclusivity attracts the super-rich from Eastern Europe, Asia, and Africa to buy properties for safe investment and last refuge. It makes house prices in KPG recession-proof, as witnessed during and after the devastating 2008-09 economic slump.

Almost every government of Nepal since 1990 has tried to sell the lease of 12A KPG. They have argued that by selling the lease they can buy freehold properties for the embassy, reduce the current high maintenance cost and prevent the potential loss from the expiry of the lease, which Nepal might have difficulty renewing.

While maintenance cost cannot be avoided for 12A or any other buildings Nepal may buy, other reasons are quite valid. Philippines had to vacate the building in KPG because the price demanded by the Crown Properties to renew the lease was exorbitant. It lost the money it could have made by not selling the lease on time. India renewed the lease at a stratospheric price only because, as the Indian High Commissioner told me, it became a prestige issue for their country.

Nepal will face either Philippines’s or India’s unpleasant predicament. It cannot expect a better deal than one given to India. India-UK relations are very strong due to their commonwealth connection, the influence of Indian lobby in London and growing economic relations between the two countries, while Nepal-UK traditional bonds are on the decline.

Nepal has abolished monarchy and the UK has been reducing the size of the British-Gurkhas gradually under its austerity and military downsizing programs. If Nepal cannot renew the lease due to a prohibitive price, it will have to leave the property empty-handed.

Even the Saudi Royal family has put up their lease on the KPG property for sale recently.

But the Nepali diaspora have fiercely opposed the sale. They know that governments sell their properties all the time without much opposition and controversy. The sale of Louisiana and Alaska to the United States did not generate any. Neither did the swapping of lands and drawing new borders in Europe after World War II. Even the British government has sold many of its buildings without any problem in the last couple of years. But why are the Nepali diaspora still opposed? It is because of misinformation and fear of corruption.

Some in the diaspora mistakenly believe that the property should not be sold because it is a gift from the British Queen. It is not. Some others have stood against the sale because they take pride in the embassy’s exclusive and prestigious address, which is understandable. But the overwhelming majority lobbying against the sale fear that much of the money will wind up in the pockets of politicians, bureaucrats and middlemen.

History gives ample ground to suspect that the proposed sale is as much motivated by public good as by private greed.

Here is why. An estate agent of Eastern European origin told me that he was involved in brokering two deals. In the first, the lease was to be sold for 30 million pounds, 20 million pounds going to the treasury to buy properties for the embassy and the rest to those actively engaged in selling it.

In the second deal, the building was to be disposed of for 60 million pounds: 45 million pounds posted in government accounts and the rest distributed among the key players. Both deals, he said, failed because of change in government.

This agent promised me, too, a nifty profit if I followed his advice. I told him frankly that while I was asked by the government to sell the lease, I would do so only if two conditions were met. First, the sale must fetch the highest possible price. Second, every penny from the sale must go to the treasury without malfeasance so I would not be a scapegoat for the corruption of somebody else to go to jail at the end of my clean and long career. The agent never showed up again.

The government, determined to sell the lease, constituted shortly a committee of several members under my chairmanship to recommend how and at what price it could be sold. I consulted two of the largest estate agents—Savills and Knight Frank—about the property’s market value and selling process. They informed me about the normal process and the estimated price—110-150 million pounds, even at the depth of the 2008 recession.

I was not satisfied with the process and price range. I told Savills and Knight Frank that I would float a competitive bid first and organize an auction among the five highest bidders subsequently in a completely transparent process to get the best price—150 million pounds or more. The two agents agreed that it could be done.

In its report, my committee recommended that the government should first repair the building, only a properly elected government should decide whether the property should be sold, and if the decision is taken to sell it, then the process must be transparent to prevent the leakage of resources and get the best price. Based on the report, the embassy could not be sold at that time.

The report did not serve the purpose of my political masters at the time—Prachanda, then Prime Minister, and Upendra Yadav, then Foreign Minister. So they fired me.

Early this year, the government set the process in motion again by forming another committee to sell the lease. As before, the Nepalis in the UK protested. Some local organizations have, I am told, even boycotted the ambassador for his inclination to sell. Some worried organizations in Nepal went to the Supreme Court and got the stay order. However, the Court cannot stop the sale forever, for it can only examine the process but not the government’s decision itself.

That said, the government should not ride rough shod over the diaspora’s objection. It should rather take the diaspora into confidence by convincing them that the sale is in national interest and that not a single penny will be misappropriated either in selling the lease or buying freehold properties subsequently. Transparency is the source of confidence. The government should make the process transparent, including by involving diaspora members in the decision-making process, and sell the vacant buildings in Bonn at the best price without any malfeasance to build such confidence.

While the issues of alleged corruption and firing of local staff are transient irritants, the sale of the London embassy’s remaining lease has become an enduring and major puzzle.Without transparency and mutual confidence, this priciest property puzzle will continue to make unpleasant headlines time and again.

Republica: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=59270
Published on 2013-08-11 01:45:13
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