NEW DELHI: New Delhi's municipal body has appointed a financial advisor to select a partner for operating a hotel on the property that currently houses the iconic Taj Mahal Hotel in the heart of the city even as the Tatas have sought a long-term extension of their licence agreement to manage the hotel.
The Tata-owned Indian Hotels has been in charge of the marquee property on Mansingh Road since 1978 under a 33-year agreement with the New Delhi Municipal Council (NDMC), the body that owns both the land as well as the building. The lease expired in October 2011 and was renewed in favour of Indian Hotels on a short-term basis.
"The Indian Hotels Company Ltd has sought an extension of the collaboration agreement and licence deed between NDMC and IHCL in respect of the Taj Mahal Hotel. IHCL has enjoyed a cordial and beneficial association with NDMC over the past three decades. They look forward to continuing this business relationship in a mutually beneficial manner," said a person close to the Tatas.
NDMC has tasked the Mumbai-based Infrastructure Development Finance Company (IDFC) with the responsibility of developing a private-public partnership structure that would optimise revenues for the municipal body and assist it in finalising a private sector partner.
An IDFC spokesman said it was yet to start formal work on its mandate and it would be premature to comment on the process it would follow. "Best practices would ensure maximising both competition and transparency in the bidding for selection of the O&M (operation & maintenance) partner," said the spokesman.
The eventual outcome of this process is far from clear. The Taj Mansingh, as it is popularly known, is arguably Indian Hotels' most prized possession after the fabled Taj Mahal Hotel in Mumbai and the company is expected to try its best to retain it. A person close to the company said Indian Hotels had enjoyed excellent relations with NDMC and hoped to renew the agreement.
A government official, who did not wish to be named, said NDMC had the right to renew Indian Hotels' licence but could not give it the right of first refusal in case of an auction.
NDMC Chairman Archana Arora said the municipality had extended the agreement with Indian Hotels for one year. "We had appointed advisers for the property after the contract with Taj was renewed in October. We will explore the future course of action later," she said.
Another person close to the Tata Group said its hotel arm would be willing to participate in the bidding process if one were to take place.
Under the current agreement, Indian Hotels pays 10.5% of its annual gross revenues to NDMC as revenue share. The eventual outcome could be that this figure would go up substantially, industry officials said.
"In case this property goes for bidding on a revenue-share model, the operators may bid upward of 40% share for the government," said Kishor Ostwal, CMD of CNI Research, pointing to Delhi's Indira Gandhi International Airport, where GMR Infrastructure agreed to a gross revenue share of 45.99%.
Taj Mansingh is one of the capital's top hotels and an auction, if one were to take place, is likely to attract bids.
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