Or else, its just business as usual.....
Parliament No: 11
Session No: 1
Volume No: 82
Sitting No: 16
Sitting Date: 2007-03-05
Section Name: BUDGET
Column No : 2635
Column No : 2635
ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR
1ST APRIL, 2007TO 31ST MARCH, 2008
(Paper Cmd. 2 of 2007)
Mr Low Thia Khiang: Mr Chairman, Sir, the report of the Auditor-General has revealed deficiencies in procedures for land sales. It is disturbing that the land sales by Sentosa Development Corporation through its subsidiary, SCPL, were not seen as transparent, fair and competitive.
The following instances were reported by the Auditor-General. In one tender in November 2004, 24 land parcels were sold to a sole tenderer significantly below valuation. The result of the tender was neither published nor was a required advice of the Chief Valuer obtained. In another sale, 33 land parcels were sold in August 2005 through a process in which the award criteria were not made known at the beginning to all 170 invited parties. Subsequent extension of deadline was only disclosed to a much smaller group. In a third case in December 2003, a former director of SCPL was allowed to tender for sales of land through a company he controls 33 days after he retired from the Board of the SCPL. Before his retirement, he was involved as Board Member in deliberating the land sales. SDC subsequently sought approval of the Ministry of Finance for exemption for breaching the financial code for reason of flexibility needed to market Sentosa Cove. MOF decided that no retrospective exemption will be given for the deviations from IM detected by Auditor-General for past Sentosa Cove's property sales.
Sir, these deviations are significant, given that one of the sources of building reserves is from sales of State land. I would like to ask the Minister for Trade and Industry:
(1) Who approves the sale of land parcels listed above?
(2) Was the Minister aware of the breach of the Government Land Sales procedure?
(3) What measures have been taken to ensure adherence to a principle of fair competition, maximising total returns to the Government and transparency in future land sales?
Mr Lim Hng Kiang: Mr Chairman, Sir, let me thank Mr Low Thia Khiang for raising the two findings raised by the Auditor-General's Office and giving me the opportunity to clarify.
First, on the Sentosa Development Corporation's land sales, let me explain the background. As we know, Sentosa Cove is a unique development, comprising not just condominium parcels but also individual bungalow lots, hotels, shops and even a marina. SDC had originally adopted the tender mode of sale for Sentosa Cove for the first and second sales of sites. However, the feedback from potential buyers was that this mode was rigid and too onerous. It was not flexible enough to cater to private developers as well as to individual final home-owners.
From our previous experiences, selling land in such a complex mixed development using the normal Government methods will not achieve the best value. SDC therefore set up a private company, SCPL, so as to position the sale of sites at Sentosa Cove as a commercial undertaking. It also enlisted the help of private sector people in the SCPL Board to contribute their market expertise and their business acumen. To better meet the market needs, SCPL decided to adopt alternative modes of sales and practices which are common in the private sector. These methods have been effective and Sentosa Cove has done very well.
However, Auditor-General found that these practices do not comply with the Government's Instruction Manual (IM) which SDC, as a statutory board, has to follow. Following Auditor-General's observation, SDC has reconciled its sale practices with the requirements of IM and obtained the Ministry of Finance's exemption from certain provisions. This allows SDC to meet the market needs while fully observing the principles of fair competition, transparency and maximising the returns to Government.
Let me now turn to the three specific instances which Mr Low Thia Khiang mentioned. First, the November 2004 case where it was the sole tenderer and the tender was awarded below valuation. The SCPL Board, in fact, had very long and deliberate discussions on whether to award this despite being only a sole tenderer and below valuation. As you know, the market situation at that time, in 2004, was still very fragile. We had just recovered from the 2003 SARS episode. And the Board decided that if they did not award this tender, it would send a signal to the market and cause the market to be more fragile. So they decided that in the interest of pursuing Sentosa Cove's development, to maintain the momentum, they decided to award to this tenderer.
Another reason why the tender price came below the valuation is because this was the first time we awarded based on an en-bloc development of the bungalow lots. Previously, we were selling the bungalow lots individually and selling to the highest bidder for each lot.
But the target catchment that we are looking for in Sentosa Cove high-end bungalows, many of them did not want to come in and tender individually. And some of these sales are to foreigners. So SCPL thought that en bloc sale through an intermediary, who is more able to respond flexibly to the final home buyer, would be a better approach. Therefore, there is a question of judgment by the valuer on how much to discount when we do an en bloc sale. That explains why there was a difference in the valuation.
2.15 pm
In the second case, Mr Low Thia Kiang mentioned that it was a limited tender. This was because SCPL decided to go for an approach called "Expression of Interest". This is something that is not in our Instruction Manual but, in the private sector, the developer will invite prospective tenderers through an Expression of Interest. So, in this case, SCPL asked all members of REDAS, the Real Estate Developers' Association of Singapore, whether they were interested in tendering for this particular project. As a result, a smaller group of people expressed interest. From then on, SCPL dealt with this smaller group. So there is nothing wrong in dealing with a smaller group after you have asked the huge membership of REDAS to first see whether they have any interest in the project.
On the third case of a former director tendering, this is not unusual. Many times, we invite private sector people on to our boards to make use of their expertise and for them to contribute. It is common corporate governance that when they join the board, they will declare their interest and they will excuse themselves from participation in individual cases, which is what happened in this case. The former director retired and, after his retirement, he participated in the tender.
Parliament No: 11
Session No: 1
Volume No: 82
Sitting No: 16
Sitting Date: 2007-03-05
Section Name: BUDGET
Column No : 2635
Column No : 2635
ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR
1ST APRIL, 2007TO 31ST MARCH, 2008
(Paper Cmd. 2 of 2007)
Mr Low Thia Khiang: Mr Chairman, Sir, the report of the Auditor-General has revealed deficiencies in procedures for land sales. It is disturbing that the land sales by Sentosa Development Corporation through its subsidiary, SCPL, were not seen as transparent, fair and competitive.
The following instances were reported by the Auditor-General. In one tender in November 2004, 24 land parcels were sold to a sole tenderer significantly below valuation. The result of the tender was neither published nor was a required advice of the Chief Valuer obtained. In another sale, 33 land parcels were sold in August 2005 through a process in which the award criteria were not made known at the beginning to all 170 invited parties. Subsequent extension of deadline was only disclosed to a much smaller group. In a third case in December 2003, a former director of SCPL was allowed to tender for sales of land through a company he controls 33 days after he retired from the Board of the SCPL. Before his retirement, he was involved as Board Member in deliberating the land sales. SDC subsequently sought approval of the Ministry of Finance for exemption for breaching the financial code for reason of flexibility needed to market Sentosa Cove. MOF decided that no retrospective exemption will be given for the deviations from IM detected by Auditor-General for past Sentosa Cove's property sales.
Sir, these deviations are significant, given that one of the sources of building reserves is from sales of State land. I would like to ask the Minister for Trade and Industry:
(1) Who approves the sale of land parcels listed above?
(2) Was the Minister aware of the breach of the Government Land Sales procedure?
(3) What measures have been taken to ensure adherence to a principle of fair competition, maximising total returns to the Government and transparency in future land sales?
Mr Lim Hng Kiang: Mr Chairman, Sir, let me thank Mr Low Thia Khiang for raising the two findings raised by the Auditor-General's Office and giving me the opportunity to clarify.
First, on the Sentosa Development Corporation's land sales, let me explain the background. As we know, Sentosa Cove is a unique development, comprising not just condominium parcels but also individual bungalow lots, hotels, shops and even a marina. SDC had originally adopted the tender mode of sale for Sentosa Cove for the first and second sales of sites. However, the feedback from potential buyers was that this mode was rigid and too onerous. It was not flexible enough to cater to private developers as well as to individual final home-owners.
From our previous experiences, selling land in such a complex mixed development using the normal Government methods will not achieve the best value. SDC therefore set up a private company, SCPL, so as to position the sale of sites at Sentosa Cove as a commercial undertaking. It also enlisted the help of private sector people in the SCPL Board to contribute their market expertise and their business acumen. To better meet the market needs, SCPL decided to adopt alternative modes of sales and practices which are common in the private sector. These methods have been effective and Sentosa Cove has done very well.
However, Auditor-General found that these practices do not comply with the Government's Instruction Manual (IM) which SDC, as a statutory board, has to follow. Following Auditor-General's observation, SDC has reconciled its sale practices with the requirements of IM and obtained the Ministry of Finance's exemption from certain provisions. This allows SDC to meet the market needs while fully observing the principles of fair competition, transparency and maximising the returns to Government.
Let me now turn to the three specific instances which Mr Low Thia Khiang mentioned. First, the November 2004 case where it was the sole tenderer and the tender was awarded below valuation. The SCPL Board, in fact, had very long and deliberate discussions on whether to award this despite being only a sole tenderer and below valuation. As you know, the market situation at that time, in 2004, was still very fragile. We had just recovered from the 2003 SARS episode. And the Board decided that if they did not award this tender, it would send a signal to the market and cause the market to be more fragile. So they decided that in the interest of pursuing Sentosa Cove's development, to maintain the momentum, they decided to award to this tenderer.
Another reason why the tender price came below the valuation is because this was the first time we awarded based on an en-bloc development of the bungalow lots. Previously, we were selling the bungalow lots individually and selling to the highest bidder for each lot.
But the target catchment that we are looking for in Sentosa Cove high-end bungalows, many of them did not want to come in and tender individually. And some of these sales are to foreigners. So SCPL thought that en bloc sale through an intermediary, who is more able to respond flexibly to the final home buyer, would be a better approach. Therefore, there is a question of judgment by the valuer on how much to discount when we do an en bloc sale. That explains why there was a difference in the valuation.
2.15 pm
In the second case, Mr Low Thia Kiang mentioned that it was a limited tender. This was because SCPL decided to go for an approach called "Expression of Interest". This is something that is not in our Instruction Manual but, in the private sector, the developer will invite prospective tenderers through an Expression of Interest. So, in this case, SCPL asked all members of REDAS, the Real Estate Developers' Association of Singapore, whether they were interested in tendering for this particular project. As a result, a smaller group of people expressed interest. From then on, SCPL dealt with this smaller group. So there is nothing wrong in dealing with a smaller group after you have asked the huge membership of REDAS to first see whether they have any interest in the project.
On the third case of a former director tendering, this is not unusual. Many times, we invite private sector people on to our boards to make use of their expertise and for them to contribute. It is common corporate governance that when they join the board, they will declare their interest and they will excuse themselves from participation in individual cases, which is what happened in this case. The former director retired and, after his retirement, he participated in the tender.
