How best to manage state land?

Recent scandals in the sale and management of state land have drawn attention to an area of ongoing public concern, says Ahmed Abu Ghazala

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While public concern over the management of state property has not appeared suddenly, years of stories of possible mismanagement or corruption have added to the current climate.

The case that has most grabbed the public's attention is the Higher Administrative Court's annulment of a contract between the Talaat Mustafa Group (TMG), the largest real estate developer in Egypt, and the New Urban Communities Authority (NUCA), the Ministry of Housing body responsible for managing real estate. Under the contract, 8,000 acres of New Cairo were to have been sold to establish Madinaty, a complete residential and business city, in return for seven per cent of the project's residential units. The court annulled the contract under the 1998 Public Tenders and Auctions Act, which stipulates that state land should be put up for competitive tender or auction, not direct sale, as was the case with the sale to TMG.

The case was filed by Hamdi Al-Fakharani, an engineer, who wanted to buy property from the NUCA. When this request was refused, he filed a lawsuit against the Madinaty development. As a result of the court's decision, prices of Madinaty shares have declined precipitously on the stock market, with foreign shareholders threatening to take the matter to international arbitration. The nearly 1,000 individuals who had reserved residential or business units, as well as the project's thousands of workers, are also considered plaintiffs in the case, and economists have warned that the court's decision, effectively halting work on the project, may also compromise other future projects. In response, the government has used its powers under Article 31 of the 1998 Act to assert the prime minister's right to sell or manage state property, making an agreement with the TMG to sell the land for at least LE9.9 billion, either in monetary terms or in the equivalent residential and business units.

LEGAL INCONSISTENCIES: While the TMG case illustrates possible mismanagement of state property, it is merely the latest in a series of scandals. While the statutes governing the NUCA and other government agencies responsible for managing state property allows for direct sales, the 1998 act prohibits them. Furthermore, the act stipulates that it "annuls any other rules in conflict with its provisions." This inconsistency has resulted in making some three million contracts signed between the government and private bodies after 1998 illegal. According to Hussein Sabbour, an Egyptian businessman, in an interview with the television talk show Al-Ashera Masaan, there are thousands of tourist, industrial, real estate and other projects either built or being constructed on land sold directly by the government to private investors after 1998. Sabbour's words have been borne out by the filing of a suit by MP Saad El-Husseini and lawyers Gamal Tageddin and Mamdouh Ismail with the prosecutor-general, asserting the illegality under the 1998 act of contracts signed by the NUCA. Al-Fakharani has also filed another lawsuit against Palm Hills Development, which bought large amounts of state-owned land in 2006.

A senior official at the National Centre for the Planning of State Land Uses (NCPSLU), an agency established in 2001 that reports directly to the prime minister, told Al-Ahram Weekly that the inconsistencies in the law could be traced back to 1983, when a first Public Tender and Auctions Act allowed government agencies to set their own rules in managing state property.

The official, who preferred not to be named, said that the 1998 act annuls these special provisions, creating confusion among lawyers about which law to apply. "Some applied the 1998 act, while others insisted that special provisions exempted certain agencies from the act's provisions," he said. Court rulings have also not been consistent. "Ten days after the Madinaty ruling, the Administrative Court instructed the minister of agriculture to sell 37,000 acres of state land to the companies Wadi Al-Washika and Lina," he added . The area involved is larger than that in the Madinaty case, but the sale has not received the same amount of public attention because of TMG's higher profile. In an effort to bring the laws into line with each other, the Irada Group, an association of legal experts in 11 ministries having responsibilities related to investment, have started working on a new statute that should resolve current legal problems.

According to Walid Hamza, a legal consultant and Irada representative at the Ministry of Agriculture, the group is working on identifying current problems. "If the current laws can provide the solution, we will recommend their activation. If not, we will seek new solutions," he said.

PROBLEM OF SQUATTERS: Another problem in the use of state land has been how to deal with illegal occupation, with squatters using land illegally for agricultural or residential purposes. The most famous case of this kind came with the sentencing of Medhat Barakat, one of Egypt's best-known businessmen, to three years in prison for illegally occupying more than 2,000 acres of state land and building a residential compound on it. Residential units built on the land were subsequently sold to 85 individuals at high prices, with victims including some well-known names like actors Yehia Al-Fakharani and Sawsan Badr. In the light of the Barakat case, the public was asked to be careful when buying any piece of land in order to avoid possible fraud. Yet, important though the Barakat case was, the lion's share of abuse of state land is undoubtedly the illegal use of land for agricultural purposes. According to Minister of Agriculture Amin Abaza, some 1.3 million acres of state land had been illegally occupied and planted before 2006, with press reports saying that the true figure is in excess of two million acres. Under Law 143/1981, anyone illegally occupying state land can be fined or jailed and their land seized. The law stipulates that those wishing to acquire agricultural land from the government must lease it for a three-year period from the General Authority for Reconstruction Projects and Agricultural Development (GARPAD) before buying it.

According to Omar El-Shawadfi, director of NCPSLU, this law has not been properly implemented. Further legislation was passed in 2006 to allow squatters to legalise their situations, setting a limit of 100 acres per family. Recently, Abaza has allowed those illegally occupying state agricultural land to make a petition legalising their situation until the end of this year. Under the minister's new instructions, anyone occupying and planting fewer than 100 acres of state land before 2006 will now be allowed to own it, while those planting the same amount after 2006 will be allowed to use it under a usufruct system, which allows persons or companies to use or derive income from state property for a given period.

However, El-Shawadfi for one argues strongly against the minister's guidelines. "We should eliminate the tradition of squatters in this country, and we should not reward those who have encroached upon state land in this way," he commented. The country has more than enough laws as it is, he said, the problem being that they are not implemented. "Claims that squatters contribute to Egypt's agricultural resources should not be accepted either. Mismanagement of land is destructive, and the land should be under the proper control of the government." The Irada Group is due to recommend a solution to the problem of agricultural squatters within the next two months.

DIVERTING LAND USE: Another problem affecting the use of state land is that land bought by some businessmen from the state for certain stated purposes has in fact been used for other purposes instead, commonly to build residential compounds. According to El-Shawadfi, since the 1980s GARPAD has sold many desert sites to private-sector investors at cheap rates, on condition that these be used for agricultural purposes. The idea behind this policy was to increase the country's agricultural area and to encourage private-sector development of desert areas. However, real estate developments are quick to build and the profits are often very high. "How can a businessman buy an acre for LE100 and sell it for LE1 million," El-Shawadfi asked rhetorically. "Where is the state's responsibility in this process?" Reducing state revenue from the sale of land is a consequence of overlooking the regulations in such cases, and investors have made a habit of buying up land cheaply from the government, saying that they intend to use it for agricultural purposes, rather than buying land earmarked for residential purposes from NUCA, the Housing Ministry body, at 1000 times the price, El-Shawadfi said. According to Hamza, contracts signed with GARPAD stipulate that land be used for agricultural purposes only. "If the other party infringes that condition, the contract should be considered terminated," he said.

He added that the GARPAD contracts only allow investors to build on two per cent of the land, though some of them have increased this percentage. "The GARPAD board, which represents the ministries and agencies responsible for managing state land, therefore decided that anyone exceeding this figure would have to pay heavy fines for any additional building over and above the two per cent figure." The maximum area that could be built upon stands at seven per cent, and the rest should be used for agricultural use. However, there have been many abuses, one famous case taking place in 2004, when the Al-Solaymaneya development, which bought some 755 acres from GARPAD in 2004, diverted the area to build a residential compound instead.

The Al-Solaymaneya development lies off the Cairo- Alexandria desert road, which according to official statements already hosts some 22,000 acres of previously GARPAD land diverted for residential projects . Al-Solaymaneya itself is a luxurious residential compound with villas, a mosque, a shopping mall, a sports club and lakes, and it is planted with palm trees and flowers. The company defends itself by citing Abaza to the effect that the KM47-87 area on which the development is located does not have sufficient groundwater for land reclamation to take place. Building residential compounds on land earmarked for agricultural use is therefore justifiable, it says. However, the ministry has not yielded, and the case is currently being considered by the Investments Conflict Resolution Committee, a body created to settle such disputes. One senior official at GARPAD, speaking under condition of anonymity, said that Al-Solaymaneya's version of the situation was not the case. "Aren't there other agricultural projects in the area on reclaimed desert land," he asked.

The Al-Solaymaneya development may not be the only project that has infringed the law either. "The Al-Gammal, Sabbour, Palm Hills, Emaar, Damac, Dorra, Wadi Al-Nakheel and other residential projects originally bought state land for agricultural purposes and then built residential compounds instead," an Al-Solaymaneya executive told the Weekly, adding that senior government officials themselves owned residential units in the compounds.

For his part, El-Shawadfi produced photographs and satellite images projecting how the land was to have been cultivated under the original agreements. However, instead of using the land for agricultural purposes, "the companies have dug lakes that waste the area's groundwater," adding that the compounds' sewerage systems have contaminated the groundwater used by nearby agricultural projects.

Legalising the encroachments on the Cairo-Alexandria desert road and in other similar areas is not a solution for El-Shawadfi. Such infringements could only be legalised by winking at corruption, he said.

Abaza has tried to alleviate media criticisms of the encroachments on the Cairo-Alexandria road by stating that they do not exceed three per cent of the reclaimed land in the area, which now stands at some 1.5 million acres. However, this statement has been rejected by many.

One of the reasons why such land is used for residential and not agricultural use is that GARPAD land may not in fact be arable. According to a study produced by El-Shawadfi, and done by the NCPSLU, the Desert Research Centre (a Ministry of Agriculture body), and the Cairo University Faculty of Engineering, some 26,000 acres of land in Al-Ayyat was sold to the Egyptian-Kuwaiti Company for Land Reclamation by GARPAD for agricultural purposes in 2002, but was subsequently used to build a residential city.

Company executives stated that they had been ready to use the land for agricultural purposes, but that the government had not provided the irrigation water stipulated under the contract. They would also have been willing to pay the difference in price between land used for agricultural or residential purposes to the government, they said.

The NCPSLU study seemed to bear out the company executives' point of view, since it indicated that arable land constituted only some five per cent of the total, meaning that the land was probably best used for residential purposes. Part of the site also stood on an archaeological area, which would have been badly affected by agricultural irrigation, the report said. However, despite the report GARPAD decided two weeks ago that the Agriculture Ministry should reclaim 16,000 acres of the site, provide irrigation water for the remaining 10,000, and allow the company one further year to prove its seriousness in reclaiming the land. If the company does not do so, the entire area will be taken back into public ownership. All these problems are simply the most visible of the many that have afflicted the sale and use of state land. El-Shawadfi provides further examples, such as the building of an airport in an area zoned for industry and of industrial areas in areas zoned as nature reserves. Land has been sold to companies having insufficient managerial capacity, or has been sold at knock-down prices. Court rulings have been ignored, allowing investors to sue the government. In one case, businessman Wagih Seyag received $64 million compensation as a result of non-observed regulations. Minister of Housing Ahmed El-Maghrabi recently admitted to the Shura Council, the upper house of parliament, that state land had been sold off without proper supervision in recent years. He criticised granting GARPAD 17 million acres to manage, since national targets only aimed at the cultivation of 3.4 million acres, given the country's water resources. Rachid Mohamed Rachid, minister of trade and industry, has also stated that the mismanagement of state land, and the plurality of agencies involved in the process, hinder investment. Future legislation should specify one government agency with the responsibility for managing all state land, he said.

Egypt-Gulf for Investment & Development

The Egypt – Gulf Company for Investment and Development, S.A.E. (formerly known as the Egyptian – Kuwaiti Company for Investment and Development, S.A.E.) was founded in accordance with the applicable laws of the Arab Republic of Egypt, the provisions of Law No. 8 of 1997 of issuing guarantees and investment incentives, and the provisions of Law No. 159 of 1981 of issuing joint-stock companies with a capital of 3.8 billion Egyptian pounds paid from 381 million Egyptian pounds.

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