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Centaur hotels: "sale finalised on the basis of single bids"

Saturday 7 May 2005

Special Correspondent

Strictures come after Shourie’s call for an open probe

- Transaction finalised on the basis of single bids

- Fixation of reserve price of Airport Centaur not consistent

- Repeated extensions were allowed to the bidder of Juhu Centaur

NEW DELHI: The Comptroller and Auditor-General (CAG) has passed severe strictures on the entire process of privatisation of the two Mumbai-based Centaur Hotels by the previous NDA Government, just a day after the former Disinvestment Minister, Arun Shourie, sought an open enquiry into the whole affair.

Among the key findings of the CAG are that the sale transactions of the Juhu Centaur and Airport Centaur, originally owned by the Hotel Corporation of India (HCI), an Air India subsidiary, were finalised on the basis of single bids without the benefit of competition. It has pointed out the difference in the approach to the sale of Centaur hotels to that of the other public sector companies being privatised by the Disinvestment Ministry.

``Assumptions made during valuation of the properties and fixation of reserve price of Airport Centaur were not consistent with the practice followed by the Ministry in other cases,’’ it has stated.

In a report submitted to Parliament on Friday, the CAG says ``repeated extensions and relaxations were allowed to the bidder of Juhu Centaur to facilitate the sale.’’ Finance Minister P. Chidambaram had only two days ago noted in the Lok Sabha that Mr. Shourie seemed to have taken an ``active interest’’ in the sale of the Juhu hotel to Tulip Hospitality at a price of Rs. 153 crores. This had prompted Mr. Shourie to call for an open probe into the sale of the two Centaur hotels.

Lack of competition

Highlighting the lack of competition in the disinvestment process, the CAG has noted that both transactions became ``sole bidder’’ cases without the benefit of competition. It described the issue as becoming ``central,’’ in the absence of effective operation of the market. Various relaxations allowed to the bidder and interventions by the Ministry to facilitate the sale indicated what the report felt were ``inadequate efforts’’ to mitigate the risk of transactions in a limited competition scenario. The efforts made to balance the need and urgency to sell the properties and to obtain the best possible price from the sale were not evident, it said.

Commenting on the lack of full documentation, it said the Ministry should adequately and transparently document every stage of the disinvestment process and adopt a consistent approach with regard to the assumptions made during valuation and fixation of reserve price in the light of previous experiences.

The CAG stressed that it was not possible to check the adequacy of competition generated, as the Government’s efforts to generate such competition and maintain the competitive tension was not evident from records. ``In case of disinvestments, competition cannot be relied upon to emerge unless positive steps are taken by the seller to encourage bidders to come forward.’’

"Hotel was making profits"

The CAG has also made a critical comment on the Ministry’s statement that the Juhu Centaur had begun making losses. The hotel was making profits until the decision to sell it was taken in 1998. ``Its financial condition deteriorated after the disinvestment process started and its future status became uncertain; a large part of the hotel was under major renovation and this unit of HCI was in possession of potential tangible assets.’’

"Not a good practice"

The report says that the fact remains that due to inadequate initial scrutiny of financial strengths of the bidder, the Ministry had to relax several conditions and make interventions at a later stage to ensure conclusion of the sale, "which cannot be viewed as a good practice."

The report details the entire privatisation process from the time that expressions of interest were received in October 2000 for the two hotels till the Juhu Centaur was sold in March 2002 for Rs. 153 crores and Airport Centaur in April 2002 for Rs. 83 crores. It states that Expressions of Interest were received in October 2000 from 20 parties for Juhu Centaur and 21 parties for Airport Centaur. In the case of Juhu Centaur, three parties were disqualified and 16 withdrew, leaving a solitary bidder, Tulip Hospitality Services Private Ltd in the fray.

In the case of Airport Centaur, four were disqualified, 13 withdrew and the remaining four carried out due diligence exercise. However, only one bidder, Batra Hospitality Private Ltd, submitted the financial bid. ``Thus, from the point of financial bidding, both sales finally turned out as single bidder transactions,’’ the CAG has said.

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