Calling CAG report on Centaur coloured, Shourie fires a rebuttal

The CAG’s report has alleged that there was ‘‘inadequate scrutiny’’ of the financial health of the bidder, Ajit Kerkar’s Tulip Hospitality Services Ltd, repeated extensions to the bidder, no encashment of bank guarantee despite breach of terms, no interest charged on delayed payments and that the Ministry had intervened to ‘‘facilitate’’ financing of the deal.

Speaking to The Indian Express tonight, Shourie said: ‘‘The CAG’s report dissects technicalities…One feature which stands out is that the point about which so much was made—that the hotel had been valued at Rs 246 crore and this was mysteriously brought down to a reserve price of Rs 101 crore—finds no mention at all. Even though the report’s observations deal with technicalities and procedures, and it does not allege impropriety, I reiterate my offer to face any inquiry that the Prime Minister or Finance Minister may deem fit.’’

Following are the key CAG observations and Shourie’s rebuttal:

• CAG: Because there was only one bidder, the benefit of competition could not be obtained.

Shourie: CAG itself records that while 20 parties expressed interest in the transaction in the initial stage, 16 withdrew. CAG says there is no written record why these parties withdrew. The decision of each bidder to continue or not continue is a commercial decision. In fact, the Ministry of Disinvestment, after one and a half to two years of effort, had to return 11 cases to the Ministry of Heavy Industry as no bidder was left in the end.

The policy question—what should be done if there was only one bidder—was considered by the CCD. The CCD had then decided that the process must proceed even if there is only one bidder. This is exactly what was done in the cases of hotels.

• CAG: No written record of why bidders had withdrawn.

Shourie: Making a written record of the formal reasons bidders may give for withdrawal makes no difference whatsoever. In fact, it will be another factor that will dissuade potential bidders from entering the process at all.

• CAG: The surcharge of two per cent on corporate tax was not taken into account; this lowered the tax rate and raised the cost of debt in the calculation.

Shourie: The CAG report itself gives the reasons why Advisors did not build this surcharge into the calculation. The report notes that this surcharge has varied from time to time from 15 to 2 per cent. It will be impossible for the Government to prescribe a particular figure and a particular way for calculating the cost of debt irrespective of the sector and the borrower.

• CAG: Financial strength of the bidder was not adequately scrutinized.

Shourie: The fact is that the bidder paid the entire amount and the Government got every paisa of the bid price of Rs 153 crore. Secondly, eight different banks (Bank of India, Punjab National Bank, Lord Krishna Bank, Union Bank of India, Canara Bank, LIC, UTI Bank and Indian Bank) independently assessed the strength and creditworthiness of the bidder. Each of them came to the conclusion that the bidder was creditworthy and the transaction was viable.

• CAG: Extensions were given to the bidder by which time he had to make the payment.

Shourie: The fact is that had extensions of a few days not been given, the Government would not have received Rs 153 crore. And the bidder would have got out of the transaction in which he had bid 53% more than the reserve price.

• CAG: Interest was not charged for late payment.

Shourie: Financial closures usually take two to six months. In this case the hotel was not handed over to the bidder till he paid the required amount and all transaction documents were completed. Where was the question of charging him interest when he had not been given possession of the hotel?

• CAG: The reserve price was taken at the lower end of the band.

Shourie: CAG report sets out the reasons on page 45-46 why the Evaluation Committee (headed by the Joint Secretary and Financial Adviser, Ministry of Civil Aviation and comprising senior officers of Ministry of Disinvestment, Ministry of Finance, Department of Public Enterprises and Managing Directors of Air India and Hotel Corporation) chose the reserve price which it did. Government found these reasons valid. It is important to remember that each of the judgments had to be made by officers and Government in circumstances prevailing at a particular time. In any event, the CAG has not alleged any wrong doing or impropriety even in regard to this decision.

• CAG: Government facilitated the financing of this transaction.

Shourie: The evidence he gives for this “finding” is that officials and I met officials of banks. This is strange indeed. We met officials of the banks precisely because we did not take the word of the bidder at face value.