The Comptroller and Auditor-General's audit para that says the government lost Rs 145.7 crore on the sale of the Centaur Hotel to the A.L. Batra group two years ago, doesn't hold up to scrutiny. | |
| The reported losses over a period of 28 years have just been totalled up, with no attempt to get a discounted net present value! Once this is done, the 'loss' falls to a far less exciting Rs 15-20 crore. |
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| While even this is a high figure, go into the assumptions made, and even this appears contestable. For a body whose reports are taken as the gospel, such lapses are unpardonable. |
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| About a third of the loss (Rs 58 crore) is based on the argument that while the government's standard lease rent agreements stipulate 10 per cent annual escalation, the Centaur agreement had an escalation clause of 20 per cent every three years. |
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| The original agreement between the Hotel Corporation of India (the Centaur's owners) and the Airports Authority of India (the owner of the land) was signed two years before the sale to the Batra group, so even the CAG is not alleging this was done to help the sale. |
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| In fact, this CAG para is not about the sale of the Centaur, it is about the manner in which AAI handled the land under its control. But, while a standard government lease rental may demand 10 per cent annual escalation, anyone who's rented property over the past five to six years knows rentals have been falling during this period. So, whether there was even a notional loss of rentals isn't certain. |
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| The other area where losses of Rs 86 crore are listed is in the decision to lower the revenue share the hotel had to pay to the government. |
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| While 6 per cent of the hotel's turnover was to be paid each year in this manner, the CAG has objected to this being reduced to 2 per cent at the time of selling the Centaur. But this figure too has not been discounted. |
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| Second, when the government invited bids for the hotel at the 6 per cent figure, it got just one bid, by the Batras, and this was rejected since at Rs 69 crore, it was lower than the reserve price fixed. |
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| Even when the figure was lowered to 2 per cent, and the Centaur put on the auction block again, only the Batras bid. Clearly the hotel was not a lucrative proposition. |
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| That said, the CAG report does raise issues. While the arbitrator between the Hotel Corporation and the AAI had ruled, in November 1999, that the lease rental should be based on 10 per cent annual escalation, there is no official explanation as to why the award was not implemented. |
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| Second, while reducing the revenue share to 2 per cent may have been done because there were no buyers for the Centaur, this put existing hotels at a disadvantage "" the other hotel run by the Batras, the Radisson in Delhi, pays a revenue share of 6 per cent! |
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| Essentially, while the CAG's report is about procedural lapses that need to be addressed, anyone using it to judge the disinvestment process should keep in mind the obvious caveats. |
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