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Arun Shourie on disinvestment in his times and the current CBI investigation

Written by Arun Shourie in The Indian Express| September 5, 2014 8:04 am

CBI move to investigate the disinvestment of Udaipur’s Laxmi Vilas hotel on the basis of an anonymous oral complaint, 12 years after the decision, holds a lesson for those who are trying to get the bureaucracy going.

Hindustan Zinc was privatised in April 2002. The privatisation was challenged on various grounds in the Supreme Court. In December 2012, after hearing counsel, the SC rejected the challenge.

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That did not deter the CBI. In February 2014 — TWELVE years after the disinvestment, and with HARDLY A YEAR having passed since the SC delivered its judgment — the CBI launched a new “investigation” into the disinvestment. 

When its officers came to me, I asked them about the complaint on the basis of which they had commenced the investigation. They said that there had been nothing in writing, just an oral complaint!

The same pattern has now been repeated in the case of the disinvestment of Laxmi Vilas Hotel in Udaipur. The hotel was disposed of in 2002. Of the ITDC’s 20-odd hotels, this one had distinguished itself by incurring the highest loss: to earn gross revenue of Rs 2 crore a year, the hotel spent Rs 3 crore — a loss of 51 per cent. The occupancy rate of the hotel had fallen to 26 per cent. Far from being a luxury palace, the place was in shambles — the plant and machinery were defunct, the furniture, etc were in the sorriest state that you can imagine. This will be evident from two elementary facts. ELEVEN parties expressed an initial interest in bidding for the hotel. FIVE of them carried out thorough due diligence. Such was the condition of the property that four of the five dropped out. I am informed that Bharat Hotels — the winning bidder — had to spend Rs 25 to 30 crore on renovating the place and getting its plant and machinery in working order. Furthermore, the quality of the staff was such that Bharat Hotels had to spend another Rs 3 to 5 crore on voluntary retirement schemes.

TWELVE years after the disinvestment, the CBI has registered an FIR — naming, among others, the then secretary of the disinvestment ministry and accusing him, among other things, of “dishonestly and fraudulently and with mala fide intention” doing this, that and the other. On what basis? The FIR itself states that it has been registered on the basis of “an anonymous complaint”. I will come in a moment to the utter indefensibles that mar the FIR, but the first point to consider is: Should any agency have the authority to harass civil servants for decisions taken 12 years ago? Should it have the power to ruin the reputation of civil servants and to put them to endless trouble 10 years after they have retired? Should it have the power to ruin people’s reputations on the basis of “anonymous complaints” and “oral complaints”?

One of the main objectives of the prime minister, and key to the other objectives he has in mind, is to energise the bureaucracy. Which is the civil servant who will take decisions, who will accept responsibility, who will stick his neck out, if 12 years from now, 10 years after he has retired, when he has no access to lawyers or records, he is going to be hauled up by sundry inspectors and SPs of the CBI?

Courts of no consequence

Nor does the parallel with Hindustan Zinc end there. That privatisation had been challenged and the challenge was rejected by the SC. The privatisation of this hotel too was challenged — and that challenge too was rejected, this time by the Rajasthan High Court. And the central ground on which the privatisation was challenged, and the ground that was decisively rejected by the high court, is the very ground on which the FIR focuses — a ground to which I shall revert in a moment. But first, the question that arises from that simple fact of rejection by the courts: when a high court has upheld a sequence of decisions, when the SC itself has done so, should an agency such as the CBI be able to open the matter yet again and start harassing officers and others?

And to open it TWELVE years after a decision has been taken? Shouldn’t there be a period of limitation?

Ruined reputations

Nor is it just a matter of harassment, though that is bad enough. No one who has not been put through the mill can imagine the strain and distress to which the person and his family are subjected by such inquisitions and “raids”. What about the irreparable damage to the person’s reputation? What bunkum did the CBI not put out just the other day about two distinguished civil servants, C.B. Bhave and P.C. Parakh? And what has it said now, while closing the cases against them? Should the CBI not be made to pay for the calumny it had hurled?

But I do feel that in this regard others also are at fault — the press, civil servants as a group and even the victims.

Has the CBI not somersaulted a sufficient number of times for the press to realise that it must not swallow and propagate what such agencies put out?

And the civil servants — haven’t they seen a sufficient number of times how they have themselves behaved in the wake of investigations against their colleagues? The moment the CBI says it has commenced an inquiry against X, his erstwhile colleagues treat him as a leper. Till yesterday, he was your colleague and friend, and now you avoid him. Shame on such colleagues and friends! That is no way to be: on the contrary, we must be fortresses around the honest, and all the more so around one who has been a colleague and friend, and of whose competence and integrity we have had personal knowledge.

And the victims — they are so easily felled, most of all by the apprehension that their reputation has been ruined. Such agencies and their concocted FIRs can ruin our reputation. Being calumnised by the dishonest is actually a badge of honour! I address audiences once a week or so. On these occasions, as is custom, the hosts use superlatives to introduce me — the positions I have held, the awards that have been given me, the books I have written… When my turn comes, I always say, “But the organisers have left out my two main distinctions. First, I am the only editor who has been dismissed from his job, not once but twice. Second, I have what none of you have — I am the only one here who has three certificates of honesty from the CBI.” So: thicker skins and a little contempt for the calumners!

The hotel

And now a few points about the hotel that is the subject of the new FIR.

The CBI has put out that the actual value of the property was Rs 151 crore, and government sold it for Rs 7.5 crore.

To substantiate that Rs 151 crore figure, the CBI says that the Rajasthan government itself had asked Bharat Hotels — the company that won the bid — to pay Rs 15 crore as stamp duty. True to character, the CBI conceals the fact that this demand, made by the local officer, has been stayed by the courts!

Next, it says that the hotel has 29 acres of land. It conceals the fact that this land, being adjacent to the lake, falls within the Coastal Regulation Zone and that nothing can be built on it. I am told that Bharat Hotels sought permission to add some rooms. And that the municipality refused permission on the ground that the land falls within the Coastal Regulation Zone. I am told that a case is currently before the SC against establishments that have constructed or added to structures along the lakeshore. Bharat Hotels has NOT been arraigned in the case.

But assume for a moment that, in spite of the regulations and in spite of the refusal of permission by the municipality, Bharat Hotels has built additional accommodation.

In that case, Bharat Hotels and the persons with whose connivance it has built the additional accommodation should be arraigned — not the disinvestment process and those who were associated with it.

Moreover, such absurd figures were the gravamen of the grounds on which the disinvestment was challenged. While rejecting them, the court rightly pointed out that a buyer does not buy assets in the abstract. He buys them for their business potential, that in the instant case he was buying not assets but shares of a company considering their earning potential.

There is another telling point. I am not sure if the CBI investigators remember that 10 per cent of the shares of the ITDC, the government company that owned the hotel, were owned by none other than the Indian Hotels Company of the Tata Group. It was compensated for its equity at exactly the same rate that the government got from the disinvestment. Had the property been worth Rs 151 crore, would the Tata Group — a private company, answerable to its shareholders — have accepted Rs 70 lakh (10 per cent of the value for which the hotel was sold) and thereby sacrificed Rs 15 crore (the 10 per cent share that would have accrued to them if the value of the hotel had been Rs 151 crore)?

Contrary to what the CBI has insinuated, the asset valuer was jointly chosen by the financial advisors (Lazard) and the ITDC from among the list of government-approved valuers. Five or more valuers from the government-approved list were invited to make presentations. Their qualifications and experience were jointly examined, and then alone was the particular firm chosen for the task.

That care marked every other step also. As in every case of disinvestment, every single one of the prescribed procedures was meticulously followed. Every step of the process, including the setting of the reserve price and the acceptance of the final bid price, was taken with the explicit approval of the Cabinet Committee on Disinvestment. In particular, the shareholders agreement was cleared by the law ministry thrice over — at the draft stage, at the stage when it was frozen and finally when the bids were to be accepted. The then law minister is the one link between that cabinet committee and the present government: he was law minister then and a member of the Cabinet Committee on Disinvestment, and is in-charge of the disinvestment department in the present government. He has stated in an interview that he is well acquainted with every aspect of the disinvestment and that everything about the transaction was in order.

Telling figures

A young analyst, well acquainted with valuations, draws my attention to a series of facts that show how way off the CBI’s imaginative figure of Rs 151 crore is. I will list just a few of them.

* Laxmi Vilas Palace was one of the 20-odd properties owned by the ITDC and amongst the smallest. Further, of its properties, it was the one that was making the highest losses.

* Between 1996 and 2001, the occupancy of Laxmi Vilas Palace came down from 41 per cent to 26 per cent and the hotel faced heavy losses.

Note that the overall occupancy in Udaipur was still 41 per cent in 2002.

* Given the abysmal performance, the net profit margin reduced from 34 per cent to a loss of 51 per cent; to earn gross revenue of Rs 2 crore, the hotel spent Rs 3 crore! At the time, the average hotel in India made Rs 4.5 crore in revenue and Rs 1 crore of net profit (assuming a 25 per cent margin).

* A valuation of Rs 151 crore for the property, as suggested by the CBI, would imply a valuation of over Rs 3,000 crore for the 20-odd ITDC hotels in 2001-02. Compare this figure with the valuation of the Tata Group’s Indian Hotels (one of the most efficient private operators, which owns the Taj Group of hotels and had at that time 65 properties with around 8,100 rooms). This latter chain had an equity valuation of barely Rs 800 crore in 2002.

* The full enterprise value of the Taj Group in 2002 was Rs 2,400 crore for the 65 hotels it owned; each Taj hotel had an average of 125 rooms. At that valuation, each Taj property was being valued at Rs 36 crore. Laxmi Vilas was and is a 55-room hotel; so, even on Taj benchmarks of valuation per room, it would be worth Rs 15 crore! At the Rs 3 crore a room that is implied in the CBI’s figure, Indian Hotels (with a portfolio of around 8,100 rooms) should have been worth Rs 24,000 crore in 2002 itself; that is, more than twice what the company is worth in 2014!

Other comparables also highlight the imaginativeness of the Rs 151 crore valuation:

* HVS are one of the leading consultants and valuation experts in the hotel space globally. They do a detailed assessment of hotel values by city. While they did not do a study for Udaipur, they did one for Jaipur. Their estimate for a hotel in Jaipur in 2002 was Rs 12 lakh per room for a medium-class hotel and Rs 30 lakh per room for a luxury property. Similarly, their range for Agra was Rs 9 lakh to Rs 12 lakh per room.

Udaipur was not part of the golden triangle and had lower occupancy rates and far lower rentals in comparison with both Agra and Jaipur. Based on their assessment and an average rate of Rs 12 lakh per room (accounting for the poor profitability of Laxmi Vilas), one gets a value of Rs 6.6 crore for Laxmi Vilas. Even at the high-end valuation of Rs 30 lakh per room, one gets a value of Rs 16 crore!

* In accordance with the HVS studies, even today a luxury hotel in Jaipur would be worth Rs 77 lakh per room; that implies a value of Rs 42 crore for a 55-room property, 14 years after the disinvestment of the Udaipur hotel!

* Lands End Hotel in Mumbai was purchased by the Taj Group at Rs 80 lakh a room in 2002. This was the highest prime property sold in India in that year. However, if we go by the CBI allegation of a value of Rs 151 crore for Laxmi Vilas (a 55-room hotel), we would have to place the value at Rs 3 crore a room in Udaipur. Udaipur had an occupancy rate of 41-42 per cent over 1999-2002 and room rates of Rs 1,900, as against Rs 3,500 for Mumbai.

* In 2011, Sinclair Hotels purchased Savannah Hotels in high-end Whitefield in Bangalore for Rs 38 lakh per room. At this 2011 valuation, Laxmi Vilas would be valued at Rs 20 crore.

* In 2008, Mahindra Holidays & Resorts purchased Hotel Ooty Villa Park from PVP Ventures — a 100-room property — for Rs 33 crore (including all amenities and assets). This is in 2008 — six years after one of the fastest growing periods in terms of real-estate pricing in India.

* In 2014 (12 years after the Laxmi Vilas transaction), Royal Orchid sold its 155-room property in Hyderabad for Rs 175 crore. Even at this price of Rs 1.2 crore per room, the Laxmi Vilas property would be worth Rs 70 crore. How is the price for a five-star property in Hyderabad 12 years later still unable to justify the supposed Rs 151 crore valuation in 2002?

I can go on adding to the list. But the point will be obvious: we can be fairly certain that the CBI officials in Jodhpur would be innocent of such comparisons. There is a real problem here, and it holds a lesson. Even if one sets aside conspiracy theories, the problem is that the CBI staff, especially at the lower level, just do not understand valuation and other aspects of such transactions. I have had personal exposure to this innocence — when the CBI officials came to ask me about the disinvestment of Hindustan Zinc, for instance.

At the least, that holds one lesson for all who are today trying to get the bureaucracy going: among the reforms that are urgently required is to upgrade the domain knowledge of officials working in our investigating agencies. Otherwise, goaded by pep-talks, honest officers will take decisions on complex matters, only to be hauled up 10-12 years later by persons innocent, at least of considerations that bear on those decisions. 

NGOs, Kiran Bedi, The Media: Who’s The ‘Farest Of Them All?

By Farzana Versey

27 October, 2011
Countercurrents.org

Kiran Bedi is indeed wrong, but when media persons sit to judge her it is a bit of a laugh. Clearly, they do not look in the mirror.

Instead of seeing this as an opportunity to question all sorts of voluntary agencies and their modus operandi, we have a situation where a person is pinned down for wrongdoing without a backward glance at how the whole NGO business works, often with the media’s involvement.

Kiran Bedi has been fudging her bills, where she charged inflated amounts from her hosts. The main source was airline tickets. She would travel by economy class, that too at a discount because of her gallantry award, and charge business class fares. We now have these sanctimonious NGOs tell us that they took it at “face value”. Most NGOs send the tickets themselves. So, why did they let her use her travel agent? And what sort of auditing departments do they run? The reason for keeping quiet is not that they were afraid of Ms. Bedi’s wrath – they obviously did not mind shelling out Business Class fares – but because their finances will lead to many question marks.

This is my point. The media and certain activists have taken a convenient yo-yo stand on the Jan Lokpal Bill campaign. They propped him up and were completely besotted by Team Anna. After they were done with the photo-ops of the caps and the fasting and dancing, they realised that there were chinks in the armour. No one was interested in the deeper questions – it came down to superficial put-downs.

Let us get this fudging business clear. Kiran Bedi has admitted to it and says she will return the excess money that she wanted to use for her own NGO. Where do the NGOs get this kind of money that they can afford to invite people from different cities for seminars? I have often posed this query when we rubbish other institutions. Do you know that most of the activists themselves travel Business Class, stay at fancy hotels, and order the best food – for what? To gupshup about the state of the nation, the homeless, female foeticide, dowry, terrorism, communalism?

Check out the number of people who have left their high-paying corporate and bureaucratic jobs to “serve the nation” or “become useful members of society” or, “fight communalism”. They could do all of these by continuing to work. The reason is that activism has become a paying proposition. Have you seen the huge ads put up in newspapers inviting you to attend some conclave or the other? Is it affordable or even appropriate to shell out this kind of money on overheads? Besides government grants, there is a good deal of foreign sponsorship and donations from industrial houses. While the international ‘intervention’ often comes with some amount of side-effects (pushing of substandard products and services clubbed with the do-good, feel-good stuff), some of the Indian business black money that is not stashed away in banks abroad is routed to charitable organisation, with income tax exemption.

Why does the media not raise a voice about this? Has the media ever questioned journalists who attend these same seminars? Oh yes, the same journalists who give inflated bills to their accounts departments for their travels and hotel stays and “related expenses”. Journalists who sit at the desk and make phone calls but charge taxi fare for the quotes. Journalists who try to get tickets and freebies because they think they are in a position to ‘arrange something’. Journalists who do not have to spend a paisa at restaurants and spas because they just might mention it, in passing, in their next column. Journalists who give us scoops that are fed to them by interested parties or who conduct sting operations that are again paid for by interested parties.

Of course, it is not only the media at fault, but also those who host such talks. Corporate India’s ladies who lunch get a big high when they invite a person who can indeed talk and add to their resume. They flash such people as trophies to display their own worth as ‘aware citizens’. That some media people are doing their evening show with this group should be an eye-opener rather than a can-opener.

If, as some commentators wish to know, why people from public office enter the fray late in the day to become part of NGOs, then one might wish to ask them why they have timed their queries now and not for all these years. Do they ponder about it when they go on government-sponsored junkets?

The problem is that this whole Anna Hazare campaign has been a sham, and revealed more shams both on the inside as well as on the outside. It showed us how the ruling party and the opposition got to pay politics; the arrests also reveal a lot about those who got away without a scratch to their reputations. It is rather disingenuous of Digvijay Singh to say that if Kiran Bedi can offer to return the money, then every bribery case can be closed by saying the bribe-taker will return the money, including, A. Raja.

This is some gumption. A minister in the government of India is caught in a scam of frightening proportions and another government person uses this as an analogy. He is also quite gung-ho about such a thing happening at the highest level. The 2G Spectrum scam is not just about bribes, but also about how the nation was taken for a ride with the government, big industrialists and lobbies involved. It is about how the government functions and not merely who took how much. This case has come under scrutiny; many others do not.

If political agencies get a chance, they try to co-opt the activist groups. Most are willing to go along because it is the easy option. In some cases where they need the government to act, it does become a crucial mutual involvement. Therefore, if a political party invites activists, and they fudge figures about travel expenses, then what will the political parties do? Why not question the complete lack of balance by media groups? One can understand individual commentators taking a particular position, but why do they blatantly follow the newspaper/TV channel line? Where is their independence? Those who talk about objectivity should really look in their own backyards. There is favouritism everywhere and the media indulges in it as much as politicians, and the ‘activist’ role of the media should also come under scrutiny.

Tavleen Singh, Indian Express columnist, while raising some important points, makes a rather shocking comment: “My own observation is that many NGOs working in India appear to be funded by organisations bent on ensuring that India never becomes a developed country… In order for India to become a halfway developed country, we need new roads, airports, ports, modern railways and masses more electricity. In addition, according to experts, we need 500 more cities by 2050. The odd thing is that the NGOs who oppose steel plants, nuclear power stations, dams and aluminum refineries in India never object to the same things in China.”

Is this the definition of development, and the only model? As I have already said, many NGOs do have an agenda, but not only if they are funded by organisations that do not wish to see a developed India. By this logic, Gujarat should have no NGOs. And why must Indian NGOs object to what happens in China? Has the Indian government opposed the self-immolation of Tibetan monks and nuns in support of the Dalai Lama’s return? Has the BJP done so? Has the media done so?

Forget the NGOs for a while. Think about how these plants were to come up, who was to be uprooted and how it would affect the environment. If this development is only for those setting up factories and making India technologically advanced, then why are we still the hub of western-powered outsourcing? Are the NGOs involved here?

Why absolve the fat cats of business only to hit out at the NGOs unless they are specifically playing dirty? How many media people have taken free jet rides, attended fancy wedding functions abroad and written glowing accounts of them? Will they be sanctified as the facilitators of development? Or do they need to get closer to the seats of such power or perhaps such development? These are trick or treat queries. Ask them we must, for there is much beyond Kiran Bedi, whose banshee persona was in fact given a boost by the media when they needed her sound bytes. They were birds of a feather, until she was grounded.

The still-feathered ones have taken wing and are giving us a bird’s eye-view.

Farzana Versey is a Mumbai-based writer.