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GOING, GOING... Kalinga, Bhubaneswar Rooms: 64 Built: 1989 Occupancy: 24% Losses (2000-1): Rs 1.4 crore Sales: Rs 98 lakh Wage bill: Rs 1.4 crore 2 guests in 64 rooms » Despite its vast lawns and spacious rooms, the Kalinga had all but two guests in June. While just next door, the private Hotel Shismo was doing brisk business, notwithstanding its smaller rooms and no car parking. » Since there are no window type air conditioners, Kalinga has to run its central AC plant at Rs 1,200 an hour even if it has a solitary guest. » The hotel hit the bottom when its former general manager, Biren Babu Singh Yumnam was suspended in April for illegally occupying suites for his family and hosting free parties.

The privatisation of ITDC has been hanging fire since February 1997 when the Disinvestment Commission (DC) first recommended sale of its hotels. In the following three years, the matter was caught in procedural wrangles with the Tourism Ministry in no hurry to move things along. That's unsurprising considering the hotel chain had become its fiefdom. During this period of uncertainty—and unbridled loot—no new investment was made, even as competing hotels were renovating aggressively.

The past year has been particularly bad. The hotels did not enter into any new business deal because their fate was uncertain. "Nobody wants to do business with us since we can't make any long-term commitment," complains an executive. Employee morale sunk to new lows with each passing month. Having applied for VRS, up to 90 per cent of the hotel staff lost all interest and loyalty. The moral of the story, says Disinvestment Minister Arun Shourie, is "privatise fast. The delay is neither good for the company nor for the country".

ITDC loyalists-and there are many-aver that if the shadow of disinvestment is removed and a permanent CEO appointed, the hotel chain, or what remains of it, can still be profitable. After all, ITDC never ran up losses till 1999-2000, they argue. But that is at best a half-truth because the corporation's profits used to be heavily subsidised. All its 26 hotels paid nothing or a negligible amount as land rent-this despite their prime locations and vast plots. Delhi's Ashok pays just Rs 25,000 a year as land lease for 16.11 acre of prime land in the capital's posh diplomatic area. When the hotel's management is privatised, the lease will go up to Rs 14 crore a year-an increase of 55,900 per cent. That is like the government gifting Rs 13.75 crore to the hotel every year. Similarly, most hotels in the states pay only a token amount as land lease, which will shoot up after privatisation. Despite such heavy subsidy, 13 ITDC hotels owe more than Rs 110 crore in dues to different local authorities.

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OF MISCHIEF AND MINISTER Indraprastha, Delhi Rooms: 558 Area: 2.5 acre Built: 1982 Sales: Rs 7.6 crore Wage bill: Rs 6.5 crore Losses (2000-1): Rs 3.4 crore Occupancy: 31% Peeping Toms » In the late 1990s theft of corridor lights in Indraprastha Hotel, formerly known as Ashok Yatri Niwas, reached shocking proportions. An informal inquiry revealed an embarrassing truth. Some hotel employees had made peepholes in virtually all the rooms to watch unsuspecting guests at night. Dark corridors "improved the view" and reduced the chances of their being caught. The hotel had to spend a fortune in plugging peepholes and fixing tamper-proof lights. » After Ananth Kumar's appointment as minister for tourism, the hotel's junior chef Kalidas was shifted to the minister's residence for two years. The hotel paid Kalidas salary of about Rs 2 lakh a year, including » 12 hours of overtime for some days, without his ever working for Indraprastha.

All this dampens the sale price as the buyer has to settle outstanding dues and account for the market rent of land. There are other value dampers. Most of the corporation's hotels don't have building plans, title deeds, and completion certificates. Some don't even comply with fire-prevention norms. Many hotels haven't made full provisions for gratuity payments of their employees and are involved in land disputes. Out of the estimated Rs 2.20 crore sale price of Khajuraho Ashok, the Government will get only about Rs 30 lakh. The rest-Rs 1.90 crore-will be used to settle unpaid liabilities of the hotel. The absence of such basic requirements in hotels is also a reflection of the incestuous relationship among government departments at the expense of the tax payer.

There are other fatal features of public-sector ownership, like prohibitively high employee cost. After its sale in February this year, the new owner of Ashok Beach Resort in Mamallapuram gave VRS to all the 58 ITDC employees and re-employed 25 per cent of them at a third of their earlier salary. The reason: as ITDC employees they were paid according to all-India grade which was three times higher than the local wages in Mamallapuram. Obviously, as an ITDC hotel it was uncompetitive in the region. The DC in its report also noted that being a public sector enterprise, ITDC could never match the quality of service its private competitors can offer. "Public sector is handicapped in providing quality services in the luxury segment," it commented. The corporation's decision making also reflects lack of business strategy. Inexplicably, the corporation had eight of its 26 hotels in Delhi, the most competitive hotel market with maximum number of 5-star rooms in the country. The entry of Radisson, Marriot, Grand Hyatt, Nikko and a host of budget hotels in the past three years has made ITDC's survival even tougher.

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WHY SO CHEAP » Real-estate value of the hotels exceeds their business value, but the Government wants to sell them only as hotels. » Buyers pay for employees' VRS and host of other outstanding dues, thus lowering the sale price. » Heavy investment required in renovation since no renovation has been undertaken in the past five years. » Heavily subsidised land lease to rise several times after the privatisation, adding to the purchase price. CHECK IN FOR FAVOURS Instances of how politicians and officials milked ITDC » Former tourism minister Ananth Kumar shifted a phone line from Hotel Ashok Bangalore to his private office. Suites in the hotel were blocked for Kumar's weekend trips to the city for free. A room in the hotel was used by the BJP for months. » Dozens of Mercedes cars that were bought for Ashok Tours & Travels (ATT) in the 1980s have been sold for a pittance-as little as Rs 4 lakh-over the years. Employees made money on the sale and the income generated was used to hide ATT's operational losses. » All employees get 60 per cent discount on food and lodging and on their children's wedding at ITDC hotels. » General managers are entitled to stay in the hotel with their families. » Managers frequently host parties free of charge for family and friends.

With all these handicaps, the Government would still have got a better price if the hotels were sold as real estate and not as running businesses. Preliminary estimates show Ashok Kovalam Beach resort could have fetched up to five times more than its sale price of Rs 43.68 crore if the 380-room hotel, with 64 acres of prime beachfront, had been sold for its premises. The higher revenues would have benefited the employees (through a better VRS), and the Government. Admits Shourie: "The objective of privatisation should be the best possible use of the country's resources-land, labour, management and capital. That objective could have been better served if all hotels weren't sold as hotels."

As the curtains come down on the hotels, most of their remaining employees are bitter and disillusioned. Criticising the NDA Government, they nostalgically recall ITDC as the "mother of tourism in India", a hotel chain that "showcased Indian hospitality to the world". These claims may sound horrific or laughable, but they are from people whose jobs and future are at stake. All hotel employees, including the managers, have to either accept a VRS at the time of sale or work under the new management. The 90-odd labour unions in the hotel chain have been silenced and even courts have refused to grant any stay. While employees find such changes difficult to live with, it's a leap forward for the process of privatisation. In part, it was achieved by funding the VRS through sale proceeds of the hotels, which was acceptable to both the government and the employees. A brainchild of Teenu Sehgal, a representative of an ITDC officers' union, and his colleagues, this funding mechanism is the key to preventing labour unrest. "We are reconciled to our fate now," admits Sehgal.

Not Ashwani Lohani, the officiating chairman and managing director of ITDC. Despite the unenviable job of presiding over a crumbling empire, Lohani is confident there will be plenty left for ITDC to do after Messrs Shourie and company finish their job. "Our problem in the past was that we did not grow," diagnoses Lohani. Post-March 27, 2002, when the decision to privatise Ashok Hotel, Delhi, was dropped, Lohani claims to have cracked down on corruption and changed the face of the hotel. He is optimistic of turning the hotel profitable in one year. Lohani has awarded contracts for four new restaurants in the hotel and plans to open an art gallery and a discotheque in a few months. All these may be thorns in the flesh for the Disinvestment Ministry. It hopes to offer Ashok Delhi for private management lease yet again and finds these contracts value depleters. But the hotel management's logic is simple: it can't let the hotel sink while it waits for privatisation.

The ITDC has been broken up into six business units, each having ambitious sales and profit targets. Plans are under way to sell packaged food under Ashok brand through Mother Dairy outlets. ITDC's other two business divisions-duty-free shops and Ashok Tours and Travels-are also being expanded and restructured. Beginning from Delhi next month, duty free shops all over the country are being given a facelift and, more importantly, introducing flexible pricing. Delhi duty free is also planning an annual festival a la Dubai.

But industry observers don't envy Lohani. Admitting he is doing the best he can, they point at the imponderables. As for the hotel division, the debate on whether the government should run hotels is long over. Sure, ITDC did pioneer the concept of luxury hotels in many cities in the 1960s and '70s, but soon after private hotels outperformed the Ashok Group in hospitality and profitability leaving no rationale for ITDC to be in government hands. The duty-free division, a cash cow for the ITDC that helped the corporation hide losses of its hotels for years, has started bleeding (see chart). Decline in tourist arrivals, restriction on the number of liquor bottles a passenger can bring into India and a steep hike in the lease rental by the airport authority have squeezed its margins.

Amid such bleak prospects experts, like former tourism secretary M.P. Bezbaruah, see a silver lining. He foresees ITDC downsizing to a more focused role of tourism promotion which is what its name mandates it to do. "It is ITDC and not Hotel Corporation of India," reasons Bezbaruah. That's some realisation in the country where for four decades public hostility has been sold in the garb of public hospitality.

-with Ruben Banerjee, M.G. Radhakrishnan, Farzand Ahmed, Stephen David and Rohit Parihar