Au Kam San: Galaxy land grant is “lawful but absurd”

Wednesday, November 11, 2009
Issue 866, Page 10 – 11
Word count: 1961
Published in: Macau Daily Times

By Poyi (Natalie) Leung

In Macau where land resources are particularly sacred, certainly the general public will be very much concerned about how a piece of 440, 248 square metre land is being used.

New Galaxy Entertainment Co., a subsidiary of gaming concessionaire Galaxy Casino S.A., is the “lucky” one being granted such a huge land parcel composed of four lots in Cotai for its mega resort project, at a total premium of 2,924,020,005 patacas.

Yet, criticisms from society and other gaming operators have been sparked shortly after the land concession contract was gazetted last month. As the SAR government allowed Galaxy to transfer the tenancy of each lot to a third party before being put to use, and after the land premium is paid in full.

Although the officials insisted that the approval was made after taking into consideration the scale of the investment project, the third parties cannot change the use of land and the tenancy transfer must have to be approved by the government, concern and doubts remain in society especially some lawmakers who have studied Macau’s land concession system for years.

Pro-democracy lawmakers Au Kam San, Ng Kuok Cheong and Chan Wai Chi have filed a motion to conduct a hearing at the Legislative Assembly, in order to question the government officials about Galaxy’s Cotai land grant face to face.

A plenary meeting will be held at the legislature tomorrow and lawmakers will vote on the motion. The hearing will only be made possible if it is supported by at least 15 votes.

“Certainly it won’t be passed,” Mr Au told the Macau Daily Times in an interview last week, “even if all the 12 directly elected lawmakers vote in favour of the motion, we are still three votes short.”

Nevertheless, it is still a means to stimulate more discussions in society and attract more public spotlight on issues concerning the public interest.

Reporter: What’s wrong with the Galaxy Cotai land grant that aroused so much controversy?

Au Kam San: This kind of land concession [at exceptionally low land premiums] actually didn’t start with Galaxy. Wynn, Venetian and City of Dreams are also facing the problem, but perhaps it’s a timing issue as the SAR government has already started to review the structure and scale of the gaming industry. Therefore at this moment when such a land grant was announced, undoubtedly more conflict would be stimulated.

For example the Venetian, I never harshly criticised them because they really had invested a lot of money [in Macau] unlike Galaxy.

The land concessions [without being put up for auctions] were all irrational over the past decade, although they were always legal.

The government has been insisting that it has the responsibility to make gaming operators fulfil their investment commitments and therefore land parcels have to be granted to them without auctions. I will never agree on this justification because all over the world once a company made an investment commitment it’s their business to implement it using their own resources and it is never possible that the government has to give privileges to a certain company to help finish the investment as its project is huge.

In Macau where land can be granted non-publicly and the land premium calculation method is relatively extremely low, the problems are even more prominent.

The incident highlighted the long-term problems in the land concession system which was the root of Macau’s corruption [Ao Man Long] cases.

Most importantly, the land value cannot be reflected in the land premium. Over the past decade Macau had only conducted two land auctions, and we all know that land auctions are an indicator of land value.

If we calculated the value of the 440,248 square metre land parcel based on the 2004 land auction [67,000 patacas per square metre], it should be nearly 29.5 billion patacas; and based on the 2008 land auction [300,000 patacas per square metre], it came to some 132 billion patacas.

Secondly, it is clear that the four land parcels were granted to a non-gaming company – New Galaxy Entertainment Co. – instead of Galaxy Casino S.A. which holds one of the gaming concessions.

New Galaxy Entertainment Co. was established specially to receive the land parcels, as we had never heard of it before. The problem here is first, the government’s justification is no longer valid because it’s not a gaming company; second, an independent company even though the boss is the same, will not be restricted by the gaming concession contract.

As we can see the current construction is only concentrated on one of the four land parcels, while the three other parcels are still vacant. Hence, after Galaxy pays the land premium in full, they can sell the three land parcels for profit whenever they want.

In normal circumstance, if a company has to transfer the tenancy of a government-granted land parcel to a third party, approval must have to be obtained from the government and the change in land ownership also has to be gazetted to let the public know. However, in this case New Galaxy Entertainment Co. isn’t restricted by the concession contract and its only asset is the four land parcels on the Cotai Strip, and therefore if they want to sell the land they simply need to transfer their equity to the buyer. As such, the land parcels can be transferred for more than once, as it’s a private company which is allowed to change its equity whenever they want without needing to report to the government.

In 2008, an 8,100 square metre land parcel next to the Governor Nobre de Carvalho Bridge opposite to Lisboa was granted to a company at 146 million patacas land premium. After the company got the land it sold 75 percent of its equity to a Hong Kong company for 1.46 billion patacas. Nowadays many land transfers are done through this trick in Macau.

Therefore, it’s very hard for us to monitor the situation because changes in equity will not be gazetted and even the government won’t know if the land has been transferred to another party.

R: Do you think the government’s explanation was justified?

Mr Au: Absolutely not. They said that the transfer of land tenancy was because Galaxy’s investment is big. But the investment should be a reasonable speculation of the company.

The government used to say that residential land must be put up for auctions because apartments would be sold immediately after being built, yet hotel and resort projects concerned massive investment and it may take a long time to achieve a full return of investment, and thus land parcels would be granted to companies non-publicly.

But can’t hotels be sold as well? Grand Waldo Hotel was sold to another company once after it was built.

In addition, is it a really massive investment? The land areas given to Galaxy are far more than they actually need to complete their mega resort.

If all the four land parcels are being put to use eventually, about 1.4 million square metres are to build hotels. Does Macau really need so many hotels? At present Macau’s hotel industry is already quite saturated by logging 20 to 30 million visitors, it’s impossible for us to receive 50 or 60 million of tourists. Macau already has enough hotels and other facilities to cater for more than 30 million tourists, more hotels in the future may just lead the industry to race on the road of vicious competition.

R: What’s the difference between Galaxy and other gamin operators? Why Galaxy has been given the approval to transfer the land tenancy?

Mr Au: In the newsletter published by the New Macau Association back in January 2007, it showed that I was already keeping an eye on the land parcel granted to Galaxy.

Venetian got the Cotai land parcels in the early times after the gaming industry was liberalised. At that time Cotai was deemed as wasteland and thus the public didn’t discuss much when the Venetian was granted the land there. That’s why I just said that it was a timing issue. If Galaxy’s land concession contract was done some years ago, we might see fewer criticisms in society now.

Look at the Venetian, the hotel resort was built rapidly and has already been in operation for two years. I don’t know if it was because Galaxy didn’t invest a lot or didn’t have sufficient capital, all I can see is that its construction in Cotai has been going very slowly even before the financial crisis hit the world late last year. The quickest construction it ever had was StarWorld, after that they have lost the strength in other projects. And so in this condition why do they still need so much land?

The negotiation of the land concession contract lasted for a long time and during which amendments had been made for many times. In fact, if the government was ‘smart enough’, when the land was granted to an independent/private company, there was no need to mention the right to transfer the land tenancy to third parties in the contract. I suspect that the government and Galaxy might have made the ‘mistake’ in the process of multiple amendments in the contract, because it was meant to grant the land to Galaxy Casino S.A. in the beginning of the negotiation.

R: Is there any circumstance in which such kind of land tenancy transfer could be acceptable?

Mr Au: Yes, when the land parcels are obtained at reasonable/market prices, that is through open auctions. It could never be justified if a gaming operator, due to its business nature, is granted land at very low prices and then allowed to sell it for a much profitable amount.

Land transfer is actually a normal commercial activity around the world, but the prerequisite is that the land should not be acquired from the government at unreasonably low prices.

In the revision of the Land Law, we have been pushing for the removal of land grants without going through auctions.

The calculation method of land premiums is also very outdated and has been used during the Portuguese administration. It was set and doesn’t change according to the market prices. Some people had said that the land premiums nowadays only equal to five to 10 percent of the actual market values. We can say the entire land premium system is rotten.

R: Does the entire land concession system lack transparency?

Mr Au: Yes, very low [transparency]. As I said it’s very hard for us to monitor the situation. I already saw the draft of Galaxy’s Cotai land concession contract in 2006, and only this year the public were aware of the land grant when it was gazetted. The whole process was very slow and completely not publicly known. The Venetian also had its land concession completed three months before the opening in August 2007.

R: Do you think the Commission Against Corruption (CCAC) should investigate the incident?

Mr Au: This involves the interests of some principal officials in the SAR government and thus the CCAC may not be able to interfere. Even if it really wishes to investigate into the matter, it will be difficult. As Ao Man Long had said, all the things he did were legal. The land premiums were calculated based on the relevant regulations and the Chief Executive has the right and power to waive land auctions. The prosecutors and judges at that time also criticised government officials for having abused discretion, which should be exercised only based on the public interest. It is certain that there is collusion between businessmen and government officials by taking advantages of the loopholes in the law. Therefore, the most urgent and fundamental solution to eliminate this situation is to revise the Land Law.

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