In spite of a relaxation in certain conditions in the second tender floated by NDMC in April, a number of hotel companies did not qualify. Some said the responses to queries raised by prospective bidders in pre-bid meeting were not satisfactorily answered. Companies said the tender conditions were too ‘restrictive’. Take the issue of bid security amount for instance. The tender said if a bidder is found to have failed to meet the eligibility conditions specified in the tender documents the security amount shall be forfeited by NDMC as ‘liquidity damages’. This bid security amount is Rs 250 million.
Some companies also said the financial demands of NDMC from the winner was on the higher side. The next operator of this property will have to assure a minimum revenue share of 17.25 per cent and a minimum guarantee fee of Rs 29.64 million per month, with a clause for escalation. There is also an upfront non-refundable fee of Rs 533 million. NDMC is seeking a performance security of Rs 355 million as well. The lease period for the property was kept at 33 years, the same duration awarded to IHCL over four decades ago, in 1976. This was also seen as a short duration by some industry players.
The winning firm will have to start paying money to NDMC from day one even though the actual hotel operation and income may take multiple months to begin. The hotel needs a complete renovation and it may take more than a year during which the regular guests of Taj Mansingh would have shifted to other hotels, said an industry executive.
Tata group-owned IHCL had signed a lease agreement with the NDMC in 1976 and the 292-room hotel was inaugurated two years later. In 2011, the 33-year-old lease ended. When NDMC decided to auction the property, IHCL challenged the decision in the Delhi High Court. After several lease extensions, the Supreme Court approved the auction last April.