It was
an announcement that shocked even the overzealous Minister for
Disinvestment, who believes nothing can go wrong with his high profile
drive to sell public properties at a rapid pace. On October 18, 2002, Batra Hospitality Pvt Ltd announced that it had sold Centaur Airport
Hotel at Mumbai to the Sahara India group for a sum of Rs. 115 crore.
What was reported as a routine commercial transaction by A.L. Batra of
Batra Hospitality has triggered a controversy that is likely to prove
extremely embarrassing to the government. This was because the Airport
Centaur had been acquired by Batra from the Air India subsidiary Hotel
Corporation of India (HCI) for a sum of just Rs. 83 crore, barely six
months back. At that time, this sale of Airport Centaur (along with the
Centaur Hotels in Juhu and Rajgir) was presented as one more case of the
highly successful and transparent, accelerated disinvestment drive that
Arun Shourie had launched.
Since even Mr. Shourie cannot convince anyone that the property market
in Mumbai has changed dramatically for the better over the last six
months, this Rs. 32 crore profit made by Batra on a Rs. 83 crore
transaction, makes clear that the price at which the disinvestment took
place was way below the value of the property. Whether consciously or
otherwise the government had undersold public assets. This in itself is
cause for concern, since it provides material evidence to support the
allegation that virtually every one of the disinvestments made by the
government since the sale of Modern Foods was at a price which was
substantially below what the actual value of the assets warranted.
The underselling allegation is even more damaging because in most cases
in the recent disinvestments drive the government has gone out of its
way to mollycoddle possible buyers. Evidence of this had emerged earlier
in the Case of the Centaur Juhu, where Ajit Keskar, who had bid Rs. 153
crore to win himself the property in November 2001, did not pay up
within the stipulated time. Despite protestations from the Ministry,
which repeatedly held out the threat of encashing the Rs. 5 crore bank
guarantee and cancelling the offer, Keskar managed to hold out for
months together. At that time Shourie had gone on record as saying that
the government is unlikely to lose if it goes in for a new round of
bids, since in the case of some other HCI property, the government was
offered Rs.10-12 crore more when it called for fresh bids. What this
proved was that (i) the bidding process was flawed from the point of
view of arriving at an appropriate price from the point of view of the
government; and (ii) Shourie's decision to wait for Keskar to deliver
was clearly an effort to placate private buyers and keep them happy
under any circumstances.
The effort to give potential buyers special treatment has created a
number of unusual problems in the Centaur Airport case. For instance,
days before the sale was formally announced a controversy arose over the
actual ownership of a petrol pump which Batra claims was acquired as
part of the deal. According to him the property sold to him by the
government included three components: the Centaur Airport Hotel itself,
six flats in Andheri east and a petrol pump located across the hotel.
According to Batra Hospitality, the deal between it and
Sahara
India also involves the sale of these three components.
In preparation for the sale of the property, Batra claimed ownership of
the petrol pump on the grounds that the disinvestment ministry's
Information Memorandum on Centaur Hotel had said "the pump operated by
the hotel would be transferred to the new owner of Centaur". However,
Indian Oil Coporation disputed the claim on the grounds that neither the
Disinvestment Ministry nor the Hotel Corporation had the right to
"transfer" this "property", since neither of them were owners of the
same. According to the IOC, the pump was a company-owned,
dealer-operated facility being run on land leased out by the Airport
Authority of India. In this case the HCI was the dealer, and its role as
dealer had nothing to do with its ownership of the Centaur. This implies
that even if the dealership was transferable, there was no automatic
link between the sale of the Centaur hotel and the transfer of
dealership, since the HCI as an entity continues to exist even after the
sale of Centaur Airport, Mumbai. When Batra sought to challenge this
interpretation, as a prelude for his highly profitable sell-off, the IOC
stopped supplies to the pump and sealed it. That controversy is still
unresolved.
Clearly, in its eagerness to "find a buyer" for the property, the
Disinvestment Ministry did not even check the status of HCI's rights
over the petrol pump, and bundled it along with the hotel and six flats
when inviting bids. This practice of bundling assets that are in
themselves valuable, along with other properties, resulting in some loss
in the former's value is not uncommon for the Disinvestment Ministry.
Some time back the decision of the disinvestment ministry to bundle the
ITDC's profitable flight catering unit in Bangalore along with a hotel
in that city when inviting bids for privatisation and making the sale,
had resulted in a controversy between the ITDC and the ministry. Using
his clout, Shourie at that time overrode the objections of ITDC
officials, who had claimed that the sale price did not warrant inclusion
of the profitable flight catering unit in the deal. The Centaur episode
reveals that the ITDC officials were in all probability completely
right.
In the Centaur case, the Disinvestment Ministry's implicit concessions
to Batra Hospitality went even further. The land on which the Centaur
Hotel is located belongs to the Airports Authority of India (AAI) and
had been given to the public sector HCI on long lease at a nominal
rental. At the time of the disinvestment, the ministry is reported to
have persuaded the AAI to lease out the land to Batra Hospitality for 30
years at a low rental in order to render the property more attractive.
The AAI has now declared the sale of Centaur to Sahara illegal, since
Batra Hospitality had neither intimated it of the transaction nor sought
its permission. The AAI is under no compulsion to transfer the lease to
Sahara India, and even if it were to, it could change the terms of the
lease, which could upset the calculations on the basis of which
Sahara
decided to make its Rs. 115 crore offer.
These developments have raised the possibility that the deal may not go
through yet, despite the fact that the Ministry of Disinvestment had not
put in any lock-in clause into the sale agreement, in order to prevent
speculative bids from the likes of Batra. The agreement signed between
the Government and Batra, which transferred the Centaur property on a
"slump sale basis" (or transfer of the entire business to a new owner),
does not preclude the sale of the hotel to a third party. The ministry
itself claims that since this is not a case where the government
retained a stake, but amounted to a complete sale of the property, it
did not find the need to provide for any such clause. A ministry
spokesmen reportedly told the press: "When we have sold the property
lock, stock and barrel to a private party, how can you prevent him from
selling it to a new buyer? It's like selling your house to somebody and
telling him that he cannot sell it to anybody else." What was missed by
the naïve logic of the spokesmen was that the law does allow for a
variety of such clauses to be put into agreements of sale and purchase.
Adopting this attitude amounts to sending an invitation to speculators,
who would seek to keep bids low in order to make a quick profit, as
Batra clearly did. In the absence of other serious bidders, this could
force the government to divest at a low price, as seems to have happened
in this case.
But not everybody is likely to be convinced that the case is just one of
unconscious error. According to some reports, Mr. Batra is close to the
Rashtriya Swayamsewak Sangh, whose influence on the government is
obviously overwhelming. This raises the possibility that he was favoured
in the deal, rather than sold the property at a low price by mistake. In
either case the evidence is now clear: suspicions that public property
is being sold at low prices to private players are quite clearly valid,
as the "market" itself has shown. The state in India has for long been
the site for primitive accumulation of capital by private players. What
is appalling is that to make disinvestment or privatisation one more
means to such primitive accumulation, a propaganda war had been launched
to run down the public sector and establish that the sale of public
properties at any price is warranted. In some cases the evidence even
suggests that much-needed investments had been frozen consciously or
otherwise so that profits would fall, justifying sale at low price.
Unfortunately the media, especially the financial media, have had a
major role to play in pushing for privatisation at any cost and building
the ethos in which cronyism and corruption could combine to ensure the
transfer of surpluses from the state to ostensibly "more efficient"
private players. As the Centaur episode shows, some even if not all such
"efficient" players may be just efficient speculators. This is not just
true of relatively less known players like Batra Hospitality. We must
not forget that the controversy over the decision of VSNL, immediately
after acquisition of a strategic stake and management control by the
Tatas, to invest huge sums from its surpluses in start-up Tata
Teleservices, is yet unresolved.
