Govt's five-star hotel plan for Pragati Maidan may find no takers

The Union commerce ministry’s plan to house a five-star hotel in the capital’s upcoming mega exhibition centre at Pragati Maidan may come a cropper.

Hospitality firms have said the reserve price of Rs 6.11 billion for the land alone makes the proposition unviable. The fund raised from the land is supposed to part pay the International Exhibition Cum Convention Centre’s (IECC’s) cost of Rs 34.47 billion. 

The India Trade Promotion Organisation (ITPO), which is under the commerce ministry, is the nodal agency in charge of completing the IECC and wants to lease 3.7 acres for 99 years for the hotel. The hotel has to be completed in three years. “The initiative is good but the government has to get realistic about the costs. The reserve price of this land is very high. One has to also pay a heavy stamp duty on the reserve price. We studied it but did not find it viable from a financial perspective,” J B Singh, president and chief executive officer at InterGlobe Hotels, told Business Standard.

InterGlobe Hotels is a joint venture of Indigo Airlines owner InterGlobe Enterprises and the French hospitality major Accor, which has built more than 16 hotels, all run under the ibis brand. A spokesperson for Lemon Tree Hotels said the company had no comment to offer because it had not yet explored this project. 

The ITPO floated the request for proposal for this project on December 6. Singh said the cost of setting up a 500-room hotel, together with the land cost and investment in connecting the hotel parking to the convention centre through a tunnel, could take the project cost to Rs 15 billion, involving a large interest cost. “We will not bid,” the spokesperson said.

An executive of a leading domestic hotel chain said the company was not interested because it had an asset in central Delhi. 

The New Delhi Municipal Committee’s plan to auction the Taj Mansingh hotel this year could not find more than two bidders. One of the two bidders was Indian Hotels Company, which has been running the hotel since inception. Even though the lease period was much shorter, at 33 years, the NDMC had not sought a large upfront cost for the 3.78-acre land in Lutyens’ Delhi. IHCL, which won the bid, will pay a licence fee of Rs 70.3 million per month, or 32.5 per cent of the hotel’s gross revenue, to the civic body.  The IECC has been pushed by Prime Minister Narendra Modi as a global exhibition space and envisions a mega convention centre with a 7,000-seat plenary hall, where the next G-20 summit is tipped to be held in 2022.

“We hope to recover a significant part of the cost of the IECC through the hotel project. The reserve price has been kept at Rs 6.11 billion,” said L C Goyal, chairman and managing director, ITPO. 

According to the ITPO tender, interested bidders will have to pay a non-refundable amount of Rs 100,000 plus the goods and services tax at 18 per cent as non-refundable processing fee. Also, a bid security of Rs 200 million has to be submitted. The payment specifications remain steep even once a proposal is cleared. This includes clauses that mandate 25 per cent of the bid value be paid within seven days after the letter of award is issued, with the remaining amount being paid within the next three months.

A performance guarantee of Rs 400 million has also been stipulated, and it will have to be paid up before the lease deed is executed. Finally, the hotel company will be required to pay the ITPO the ground rent for the 3.70 acres on which the property is set to come up.