CAG slams sale of Govt-owned hotels

The report of the CAG pointed to serious irregularities in the sale of two state-owned hotels by the previous NDA government.

In what could become a major embarrassment for the opposition, India's audit watchdog on Friday pointed to serious irregularities in the sale of two state-owned hotels by the previous National Democratic Alliance (NDA) government.

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Interestingly, the report of the Comptroller and Auditor General (CAG) came a day after former disinvestment minister Arun Shourie challenged the United Progressive Alliance (UPA) government to initiate an inquiry into the alleged irregularities in the sale of the Centaur Hotel located at Juhu.

Referring to the sale of this hotel, as also another Centaur Hotel at the domestic Santa Cruz airport, the CAG report said: "Both transactions became sole bidder cases without the benefit of competition. In the absence of operation of the market effectively, the issue becomes central.

"It was observed that valuation of the properties and fixation of the reserve price were not consistent with the practice followed by the ministry in other cases."

The report, which was tabled in both houses of Parliament on Friday said: "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 also evident."

Earlier this week, Finance Minister P Chidambaram admitted that the previous government and Shourie had taken an "active interest" in the transaction. His statement came after the Left parties demanded a probe into the sale of Centaur Hotel, Juhu.

Chidambaram had also said the government could consider a Central Bureau of Investigation (CBI) inquiry after the CAG report was released.

The Juhu property was among five operated by Hotel Corporation of India Ltd, a subsidiary of state-run carrier Air-India. A decision to sell the hotel was taken on December 10, 1998.

Tulip Hospitality Services bought the hotel for Rs 1.5 billion.

However, Tulip made a series of representations to extend the date for concluding the deal. Three extensions were given, purportedly on the ground that the sale price was above the reserve price of Rs 1 billion.

"Various relaxations allowed to the bidder and interventions by the ministry to facilitate the sale indicated inadequate efforts to mitigate the risk of transactions in a limited competition scenario," the CAG report observed.

Reacting to Shourie's demand for an inquiry Communist Party of India-Marxist (CPI-M) leader Nilotpal Basu said: "He (Shourie) has dared the government to order a CVC inquiry. But he is forgetting that his own government had rejected a probe after a parliamentary standing committee demanded this."

The CAG also said expressions of interest were received in October 2000 from 20 parties for the Juhu property and 21 for airport property.

In the case of the Juhu hotel, three parties were disqualified and 16 withdrew, leaving Tulip Hospitality Services the solitary bidder.

In the case of the other hotel, four bidders were disqualified and 13 withdrew. Due diligence was carried out of the remaining four, but only one bidder - Batra Hospitality Private Ltd - submitted a financial bid.

Batra is reported to have resold the hotel soon after for a hefty profit.

Thus, from the point of financial bidding, both sales finally turned out as single bidder transactions, the CAG report noted.

The CAG also said the ministry did not charge interest on delayed payment by the Tulip and had also intervened to facilitate raising of finance to pay for the hotel.