CDA’s municipal bonds scheme raises concerns

ISLAMABAD: There are irregularities in the municipal bonds issued by Capital Development Authority (CDA) to balance their budget deficit for the year 2010-11. Municipal bonds are issued by governing bodies to raise funds and are usually repaid over a few years. CDA is the first civic body in the country to launch a municipal bond scheme to generate funds.

The CDA advertised municipal bonds two months ago but failed to specify where the raised funds would be utilised.

It did not mention details of intended projects or sectors of investment. It also did not elaborate how it would repay the borrowed amounts at a later date.

CDA Chairman Imtiaz Inayat Elahi had earlier announced that the municipal bond scheme would be launched with financial assistance from Habib Bank, Standard Chartered Bank and United Bank Limited. CDA will initially take Rs3 billion in loan from these banks at a mark up rate of Rs500 million per month.

Member Finance Saeed-ur-Rehman told The Express Tribune that the municipal bonds project was underway and that the authority would later disclose the area of utilisation.

“We should be able to generate between Rs8 billion and Rs12 billion through the sale of these bonds,” said CDA member Finance. He said that after collecting such a huge amount, the authority would be able to complete ongoing projects.

He further said that Rs800 million would be refunded to the applicants of Sector I-15 plots, Rs760 million would be spent on dualisation of Lehtrar road, Rs700 million on construction of Zero Point interchange, Rs600 million on developing Kuri Model Village and Rs300 on the development of Sector D-12.

Responding to a question, he said that CDA had engaged advisors for legal, financial and technical assistance to make the scheme successful.

He claimed that despite “unfavourable” conditions, the authority would start investing in the municipal bonds market within three months and that  the best consultant firm had been hired for this purpose.

CDA bosses are still uncertain about the success of the scheme. Some of the legislators were of the view that CDA should concentrate on its principal responsibility of development instead of investing in shares, particularly at a time when it is facing a financial crisis.

They said the situation was not favourable for CDA to invest the huge amount of Rs3 billion, as they were already in debts of billions of rupees. How the CDA intends to generate these funds for later repayment remains unclear.

Published in The Express Tribune, September 23^rd, 2010.