The Cabinet this week agreed to permit Hotel Developers Limited (HDL), the owning company of Colombo Hilton to operate as a Fully Owned Government Company, and enter into a re-negotiated management contract with Hilton Worldwide that would cut the management fee from 33 per cent to 11.75 per cent in favour of the local company.
The Cabinet last week deferred a decision on the matter when Minister Sarath Amunugama raised objections, the Sunday Times learns.
Last week, the Sunday Times reported on its front-page that Environment Minister Anura Priyadarshana Yapa, who headed a Cabinet Sub Committee made recommendations to the Cabinet over the Colombo Hilton’s re-negotiations with Hilton Worldwide. Colombo Hilton was one of the ventures taken over under the Revival of Underperforming Enterprises and Underutilised Assets.
In terms of Wednesday’s Cabinet decision, the Chairman and the Board of Directors have been authorised to enter into a management agreement with Hilton Worldwide on the basis of payment of a management fee and group services fee. This would amount to 11.75 per cent of Gross Operating Profits, which was 33 per cent previousl, saving an estimated Rs. 171 million annually at current levels of operation. They have also been authorised to renovate and upgrade the Hotel in view of the upcoming Commonwealth Heads of Government Meeting (CHOGM) next year.
The re-negotiations were handled on behalf of Colombo Hilton by its Chairman, T. Nadesan, a spokesman for HDL said. He also said that the favourable terms included a clause to prevent any other hotel with the Hilton franchise to operate within 15 kilometres of the present Colombo Hilton in Colombo Fort, other than for the existing Hilton Residencies near Union Place in Colombo 2. He added that the hotel needed vast refurbishments and that several attempts to make improvements were blocked due to court cases.
According to the newly negotiated terms, the Hilton Worldwide appointed General Manager who had unfettered powers will now come under the new Companies Act of Sri Lanka and all material procurements for the hotel will come under the Government Procurement Guidelines as the hotel is a fully owned Government entity.
The Cabinet decided that the land where the main hotel is located be alienated to the HDL on a long term lease and the leasehold value to be capitalised and converted to equity. The balance land is to be leased out for a period of five years to facilitate the relocation. It was also decided that 40 per cent of the loan to the Government, as at December 31, 2011, be converted to equity and the balance be rescheduled for repayment.