Bidding Process Fails To Keep Pace with Railways Hotel Plan

The Indian Railways’ ambitious plan to lease about 100 sites to hoteliers for budget hotels is going slow with bid terms and conditions being reworked just five months after it got underway.

P.K. Goel, the managing director of the Indian Railway Catering and Tourism Corp (IRCTC), who is overseeing the plan said the tender documents have been revamped twice since January. The IRCTC has also extended the bidding period, for the last round of 10 properties, by about two weeks.

Developers who have won licences to the site are required to build and operate hotels for 15-30 years, with at least 25% of rooms reserved at Rs1,000 or less per night. Conditions on the tender documents, though, have changed with each round of auctioning.

For example, most recently, the Railways said it will require four years of licence fees up-front from the one year previously.

A senior official with Zoom Developers Ltd, who did not wish to be named because he is not authorised to talk to the press, said different issues have cropped up in different properties. Zoom has been awarded 11 plots in a consortium with Royal Orchid Hotels Ltd. The tender documents are lacking in details, such as tight design specifications, and that has resulted in protracted negotiations between the Railways and the consortium. “There are certain grey areas… which we brought to their notice, and which they are considering,” he said without giving details. “As an infrastructure company, we’ve gotten used to these kinds of dealings with the government.”

The IRCTC has so far licenced 20 plots for hotel construction, with bidding now closed for another 10, said Goel. He added that eight to 10 additional sites have been identified for the next round of properties, but declined to announce when bidding would open.

The Railways hotel plan has been lauded by some industry observers as a model for how the government can foster hotel construction. Unlike many other land-owning agencies that are making plots available for hotels, the Railways are leasing, not selling their sites. The Railways’ income on the lands will come from licence fees and revenue sharing, making it more feasible for some hoteliers to construct hotels with lower room tariffs.

The ministry of tourism has pushed the Railways and other land-owning agencies in India to help build budget hotels. Its 2006-07 annual report says that about 56%, or 38,425, of the 68,000 or so rooms in hotels the Indian government has approved are in the four-star category or above, though this does not account for the unorganized sector.

With a shortage of quality budget accommodations, major hotel companies, such as Indian Hotels Co Ltd. and Accor SA have pledged at least $100 million in the lower-segment hotels. Meanwhile, HVS International, a consulting firm, reports that the average rate per night for three star hotels has increased more than 22%, from Rs1,669 in 2002-03 to Rs2,044 in 2005-06.