Open auctions are the only way to deal with govt assets
The New Delhi Municipal Council (NDMC), of which Delhi chief minister Arvind Kejriwal is a member, has done the right thing by insisting that it will not only cancel the licence of the Delhi-based Le Meridien Hotel as it has unpaid dues of R523 crore, but also that the land on which the Taj Mahal hotel is located on Mansingh Road in south Delhi will be auctioned. The NDMC’s decision came after the Supreme Court—the Taj has petitioned it against an auction—asked the council whether it would like to reconsider its decision and perhaps give the Taj the Right of First Refusal (RoFR) for the land. While an RoFR and an open auction sound the same since, in both cases, the Taj will get a chance to beat the best bid, they are actually quite different. In an open auction, everyone including the Taj will bid aggressively—indeed, the Taj may be even more aggressive as it stands to lose its existing business. In an RoFR, since everyone knows the Taj is likely to retain the hotel, other interested parties may not even bid—which is why, the NDMC has said that the auction it is proposing has an implicit RoFR.
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One of the arguments being made by the Taj’s lawyers is that both the Attorney General (AG) and the Solicitor General (SG) had, in the past, ruled in favour of renegotiating with the Taj in place of an open auction. While there is a logic to allowing an existing business to continue operations—and that is possibly why the AG and the SG gave this opinion—the policy environment has changed dramatically. All government assets, from airports to roads, are being given out by way of bidding, not negotiated settlements. In the case of telecom, after their 20-year licences expired, telcos were not given an automatic extension or an RoFR and, so, had to bid very aggressively since the option was losing their entire business. It is true this ruined their financials and that is why the telecom industry is in the perilous financial position it is in today, but if a new policy paradigm is being worked on, it cannot be done by two lawyers of the government, albeit the top ones. And keep in mind that while continuity of business is a good thing, the policy regime can also end up shutting out new players from entering the business if, for instance, all spectrum is to remain with a Bharti Airtel or a Vodafone or all iron ore mines with a Sail or a Tata Steel. If, however, such a decision is taken, it cannot be done for one firm, it has to be done for everyone and ratified by the Cabinet, if not Parliament. Indeed, a special dispensation for the Taj can even open up officials in the Delhi government to charges of favouritism and enquiry by the CVC and the CBI. If the Taj gets to keep the land without an open auction, chances are other firms who have been asked—or will be asked—to participate in auctions to retain their assets will also line up asking for a review.