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Years of delay doubles project cost
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Completion expected in 1Q'22
By Zahida Rizvi
[caption id="attachment_134613" align="alignright" width="257"]
Ministry of Urban Development Secretary Nimal Perera[/caption]
The completion of the Grand Hyatt project, which has been delayed for years, is facing further uncertainty, as several foreign investors are demanding a total compensation of € 9 million from the Government for kicking them off from the construction project, The Sunday Morning Business learns.
Speaking to us, Ministry of Urban Development Secretary Nimal Perera said that this is because these investors had been removed from the project by the previous Government without issuing any prior notice. Reportedly, the former Government entered into agreements with new investors, which had angered the investors, who are now requesting compensation.
Perera further noted that to complete the Grand Hyatt project, the cost initially escalated to Rs. 60 billion, although now the Urban Development Authority (UDA) has negotiated and reduced the cost to Rs. 45 billion.
“The Grand Hyatt project is projected to be completed at the beginning of the first quarter of 2022, whilst launching a new branch in Switzerland as well,” he stated.
The Grand Hyatt is a 47-storey five-star hotel in Colombo, with 475 guestrooms and 84 serviced apartments. The project was implemented by Sino Lanka (Pvt.) Ltd., a subsidiary of the Sri Lanka Insurance Corporation, Employees’ Provident Fund, and Litro Gas Lanka Ltd.
However, last year the Cabinet approved an investigation probe committee to investigate the irregularities in the Grand Hyatt Project. The investigation was carried out to analyse whether the Government has incurred financial losses from the Grand Hyatt project due to alleged irregularities committed by the previous management of Sino Lanka (Pvt.) Ltd.
Perera claimed that the investigation is still underway to analyse the irregularities in the Grand Hyatt project following the delay, which had doubled the project cost from Rs. 30 billion to Rs. 60 billion.
However, the Department of Government Information claimed that the board members of the Sino Lanka (Pvt.) Ltd., who were appointed following the 2015 presidential election were unjustifiably terminated by the new board of directors, which subsequently drew up agreements with new contractors.
The agreements entered into with new investors for the completion of the project went against the legal procedures, resulting in the companies initially under contract initiating legal action against Sino Lanka, over compensation estimated at Rs. 1.8 billion.
In 2018, Interna Contract Spa, an Italian contractor that obtained the Interior Package 2 of the Grand Hyatt project by the previous management, went on to file an arbitration in Singapore against Sino Lanka Hotels and Spa (Pvt.) Ltd., which is a subsidiary of Canwill Holdings (Pvt.) Ltd. for unlawfully terminating the contract they had entered into on 7 January 2015 – the day before the change of Government.
Meanwhile, Sino Lanka filed an appeal in November 2017 against the arbitration awarded by the High Court of Singapore.
In 2003, Ceylinco Insurance PLC obtained the land from UDA for a 99-year lease and the Grand Hyatt project was to be completed by them in 2008. However, the project was defunct as a result of the change in political power following the acquisition the property was given back on a 99-year lease to Sino Lanka (Pvt.) Ltd. by the UDA.
Grand Hyatt Hotel project in Colombo, which allegedly involved financial fraud amounting to billions in taxpayer money in the past, was extensively offered tax concessions by the Government for the project, including a waiver on Value Added Taxes, the Ports and Airport Development Levy, and Customs Duty.
An additional exemption of income tax was granted for a period of 10 years from the first year of earning profits, or three years after beginning commercial operations, based on how the project was set to yield profits.
Accordingly, exemption on withholding taxes was further granted under the grounds of certain conditions for foreign loans, technical fees for consultants, and any other payments made to the Hyatt Hotel Corporation in the US, or its subsidiaries.