The Centaur Hotel Robbery

<div class="section1"><div class="Normal"><span style="" font-weight:="" bold="">CAG raises issues of valuation, procedure</span><br /><br />The UPA government has decided to inquire into the privatisation of two Centaur hotels in Mumbai during the NDA regime, following a report by the Comptroller and Auditor General (CAG) highlighting irregularities.The Bharatiya Janata Party (BJP) calls this an act of political vendetta. Party spokespersons justified the sale saying that the government had no business to run hotels.<br />Former disinvestment minister Arun Shourie claims the CAG has not alleged any impropriety on his part. But the facts <br />tell a story.<br />Properties once owned by the people of India were undervalued and sold without competition to single bidders to enable them to earn windfall profits. The valuation methodology followed was suspect and the bidding process lacked transparency.<br />NDA spokespersons — notably the two Aruns, Shourie and Jaitley — have argued that "the best strategy to oppose privatisation is to oppose the valuation methodology". Jaitley has written that a "valuation is not what the CAG, five years later, hallucinates the valuation should be". He goes on to cite examples of former public sector companies that were privatised whose current share values are below the prices which bidders had paid for them.<br />It is convenient to attack the CAG when its report does not suit one''s political needs. For the BJP, the same constitutional authority was a crusader against corruption in the Bofors deal. Quoting share values prevailing in a shallow stock market, where prices are largely influenced by foreign institutional investors, is one part of the story.<br />The other is to trash everyone who is unhappy with the questionable manner in which public properties were valued by <br />labelling them anti-reforms.<br />Let us take the case of Airport Centaur. In November 2001, a senior official of the finance ministry walked out of a meeting of the inter-ministerial group on disinvestment to finalise the programme for privatisation of the hotel. He wanted to register his protest against the arbitrary manner of valuing public properties. Earlier, during an official meeting that month, the chief executive of the Hotel Corporation of India (the original owner of the two Centaur <br />hotels) had hauled up the global advisor appointed for disinvestment for not including 25 deluxe rooms in Airport <br />Centaur in his presentation before a committee of officials.<br />No bid above the reserve price was received in the first round of bidding. Thereafter, the government persuaded the Airports Authority of India (owner of the land) to sweeten the deal by reducing the "turnover levy" from 6 percent to 2 percent. This changed the rules of the game. But the original bidders were not invited to bid again. Only so-called "interested parties" were. In this instance, there was only one — Batra Hospitality Pvt Ltd.<br />The hotel was purchased for Rs 83 crore. Four months later, the ownership changed hands; Sahara group became the new owner for a consideration of Rs 115 crore. The value of the property jumped by 35 percent or Rs 32 crore in a few months. Was the "reserve price" correctly arrived at, or was the hotel undervalued? It does not require a person of Jaitley''s legal acumen to answer that.<br />The CAG argues that the government incurred a notional loss of over Rs 145 crore on the deal. Shourie thinks the valuation methodology followed by the CAG was "idiotic". As for the RSS links of the original promoter of Batra Hospitality, these are merely incidental.<br />Now, some facts about the Juhu Centaur sale. Ajit Kerkar, promoter of Tulip Hospitality Services that purchased the hotel for Rs 153 crore in March 2002, served on the subcommittee set up by Air-India (of which Hotel Corporation is a subsidiary) that recommended divestment of the Centaur properties. The day after this was decided, he quit the panel and set up his own company that later bid for the Juhu Centaur. Kerkar perhaps hopes to sell this hotel at a substantially higher price.<br />Would all the original bidders for this property have walked out of the bidding process leaving the field wide open for one player if they knew they would be granted at least three extensions of the deadline for payment and the disinvestment ministry and the minister would persuade a consortium of public sector banks to loan funds to facilitate the purchase? This is not a hypothetical question for Shourie. Nor does the opacity with which the deal was struck have anything to do with whether the government should remain in the hospitality business.<br />In April 2002, the parliamentary standing committee on finance noted that "the asset valuation guidelines are inadequate and vague especially on the issue of land valuation." A closer examination of the manner in which a number of public properties were privatised — notably hotels once owned by the India Tourism Development Corporation, Paradeep Phosphates, Hindustan Teleprinters, Videsh Sanchar Nigam and others — could reveal a lot. Are we just seeing the tip of iceberg?<br /><br /><span style="" font-style:="" italic="">The writer is director, School of Convergence.</span></div> </div>