Hotel privatisation test for Modi govt

Doing business not our business: Minister

By Sumi Sukanya
  • Published 20.05.15
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New Delhi, May 19: The Union tourism ministry has decided to recommend a private role in seven government-owned and loss-making hotels, unwittingly or otherwise testing the Narendra Modi government whether it would bite the divestment bullet once bitten by its current critic Arun Shourie.

In a proposal to be sent to the cabinet soon, the ministry will recommend handing over seven of the 12 hotels managed by the India Tourism Development Corporation (ITDC) to private players, sources said.

The cabinet will decide whether the properties will be sold lock, stock and barrel - which will mean full privatisation - or whether the hotels will be handed over to private operators under management lease agreements for a certain period - which is different from privatisation or divestment.

In reply to a question from The Telegraph, Mahesh Sharma, the minister of state for tourism with independent charge, said: "The government has no business to do business. We believe that if the public enterprise ITDC cannot make money from these properties, they should be auctioned out."

If the Modi government, completing a year this month and under attack for dragging its feet on reforms, takes the privatisation plunge, it will be a replay of the hotel divestment drive undertaken by the previous NDA government a decade ago.

Shourie, who had launched a scathing attack on the Modi government's year in power, was the divestment minister then. Last time, hotel suitors were cherry-picked. Later, some sold them for higher rates to others, triggering a controversy.

If the Modi government summons the courage to go in for full privatisation, given the current climate in the country and against the backdrop of the telecom and coal allocations, the auction route might be the sole controversy-free option.

The seven hotels now under scrutiny are premium Ashok group hotels in Jaipur, Bhubaneswar, Jammu, Guwahati, Ranchi and Pondicherry and the Lalitha Mahal hotel in Mysore - all of which have been labelled "chronic loss-making hotels".

The seven hotels have incurred a total loss of about Rs 15 crore in 2014-15, apart from Hotel Ashok in Delhi which alone recorded a loss of Rs 13.63 crore.

"We will present data on how these hotels have been running up losses year after year and are thus best suited for the private sector which can probably turn them around," Sharma added.

The ministry, however, does not want to let go of what it considers its trophy property - the Delhi Ashok - as yet and wants to give it "one last chance".

"We have asked the (Delhi Ashok) management to make a business strategy to turn it into a profitable business within six months or it too would have to be disinvested," said a tourism ministry official.

A report from the ministry says that while the Ashok hotels in Patna, Bhopal and Itanagar are making profits, others have been suffering losses on account of extremely low room occupancy, high wage costs and poor business strategy as well as marketing plans.

A weakened global economy has also contributed to a mismatch between room supply and demand while the average room recovery has been affected because of high competition.

The average room occupancy in ITDC hotels last year ranged from 25 to 35 per cent - against the national band of 45 to 50 per cent, the report says.

As the Ashok hotels in Guwahati, Ranchi and Pondicherry are co-owned with the respective state governments, they will also have to be persuaded to support the course of action the cabinet chooses.

During its last tenure between 1999 and 2004, the then NDA government had divested 14 ITDC hotels, bringing down the number of government-owned hotels from 26 to 12.

Officials at ITDC said they were yet to be told of the plan to induct private players.

"We have not heard anything about this proposal from the tourism ministry so far," said Sujata Thakur, general manager, marketing and sales, ITDC.

THE SEVEN

The loss-making government hotels

♦ Hotel Kalinga Ashok, Bhubaneswar
♦ Hotel Jaipur Ashok
♦ Hotel Jammu Ashok
♦ Hotel Brahmaputra Ashok, Guwahati
♦ Hotel Ranchi Ashok
♦ Hotel Pondicherry Ashok
♦ Lalitha Mahal Palace Hotel, Mysore