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 Resort Auction Fiasco  04.10.2007 back
A government auction for a piece of land due to become a new luxury tourist resort ended in fiasco when none of the bidders could keep their promises.

Two months ago, the government succeeded in selling by auction the land and hotel buildings of Ain Sukhna Hotel on the Gulf of Suez for an unprecedented price. The deal also included adjacent land of the sulphur water spring, but the transaction reached a deadlock when bidders showed reluctance in continuing with purchase procedures. Since then, the area which was supposed to become a first-class tourist resort specialising in therapeutic treatments that depend on the sulphur water springs, has remained desolate.

On 9 July, nine companies competed to win an auction held by the Holding Company for Tourism and Cinema (HOTAC), the Egyptian General Company for Tourism and Hotels (EGOTH) and the governorate of Suez. They were bidding to buy 112 feddans owned by HOTAC (466,000 metres) which overlook the sea and are site of the hotel, and also have rights to use the 58 feddans (243,000 metres) belonging to the Suez governorate which include the sulphur water spring.

The winner, Al-Sukhna Resorts Company, was a company under establishment at the time of the auction, and consisted of investors from the 10th of Ramadan City, Faisal Islamic Bank and a group of Italian investors. Its bid came in at LE801 million, in addition to LE21 million to be paid annually to the governorate of Suez, with a five per cent increase every 10 years.

Other bidders were Ramco for Tourist Villages, Emaar Misr, The International Group for Real Estate Investments and Urban Development (Al-Hazeq), Egypt's Sons for Tourist Investments in partnership with Travco Resorts and Hotels, Al-Ahly for Real Estate Development and Co, Mountain for Tourist and Real Estate Investments, Marina D'Or, and Al-Khaleeg Misr for Hotels and Tourism.

While Al-Sukhna Resorts should have paid 25 per cent of the total price within 10 days of winning in accordance with the auction terms, the company asked for more time since it was still under creation. But the request was turned down by HOTAC and EGOTH, who moved to terminate the company's LE3 million letter of guarantee. "According to the law and auction rule book, we had to look at the company which came in second place," revealed a source at EGOTH. "Ramco for Tourist Villages had offered LE1,715 per metre, lower than Al-Sukhna Resorts' LE1,716. But they made unreasonable requests such as ownership of land in an adjacent mountain and the rear, as well as paying in instalments."

As a result, Ramco was also dismissed and Emaar was next in line with an offer of LE1,491 per metre. However, the mega construction company withdrew its bid and left authorities to negotiate with the fourth best contender, Al-Hazeq. "We will wait and see what happens," said the source, who spoke on condition of anonymity.

Yasser Assem, the consultant architect for Al-Sukhna Resorts, described the attitude of HOTAC and EGOTH towards his company as "aggressive", adding that Al-Sukhna was very serious about the project and hasn't withdrawn its bid. "We were a company under establishment and EGOTH requested the advance payment of LE200 million to be paid at once," Assem told Al-Ahram Weekly. "We issued several letters stating that our capital is still being collected and asked for the 60 days provided by law to establish the company, especially that it was August and our Italian partners were on vacation."

But apparently officials didn't want to wait and terminated the letter of guarantee after only two weeks. "These same officials in HOTAC and EGOTH gave Emaar a grace period of two months for its 'Marasi' project at Sidi Abdel-Rahman," Assem pointed out. "The capital for that project was also paid some nine months later."

Samir Aref, representative of Al-Sukhna Resorts investors, said the company began bidding with a specific ceiling for price and didn't expect bids to soar as much. "When investors won the auction at the price of LE822 million, they wanted to know what facilities and privileges they would get for such a high price," Aref explained. These included queries about building codes, permitted heights, the ratio of buildings to land, the possibility of purchasing adjacent land in the rear owned by the Tourism Development Authority (TDA) at the official price of $1 per metre. "They needed facilities to make their project profitable, but nobody bothered to answer their questions," according to Aref.

He believes that if HOTAC and EGOTH officials had sat with Al-Sukhna investors, listened to them and discussed these issues comprehensively, the problem would have been easily resolved. "We abide only by the terms and conditions which govern the entire sale," countered the source in EGOTH, namely that 25 per cent of the cost will be paid within 10 days of the sale. "The terms didn't mention 'rear' land to be included in the transaction, and thus no requests were considered." He added that bidders should have undertaken comprehensive feasibility studies before participating in the auction and decided their limit. "They entered the auction, raised the price drastically and then withdrew," he accused. "There is no explanation for what they did, except that they bid for the sake of bidding."

Hussein Sabbour, head of Al-Ahly for Real Estate Development and Co, agrees with this assessment. Sabbour told the Weekly that when the nine bidding companies sat together, they began raising the price unreasonably just to outbid each other. "They surpassed the correct price and inflated the price of land excessively," he disclosed, drawing parallels between a metre of land at Sidi Abdel-Rahman priced at LE150, while at Ain Sukhna it soared to LE1,716 per metre. "This is nonsense," Sabbour exclaimed. Based on studies and research, his company offered only half the price of other bidders, and withdrew when prices began skyrocketing.

Sabbour's explanation for the fiasco is that organisers were careless about choosing contenders at the auction. "In previous transactions, whether those held by the Ministry of Tourism or the Ministry of Housing, all projects and companies are exposed to technical and financial assessment by a technical committee," Sabbour noted. "In the end, only three are selected to bid." The seriousness, technical and financial ability of bidding companies are always examined beforehand, according to him, but for the Ain Sukhna project any company which showed interest was allowed to bid regardless of its qualification.

"The government wanted to get the highest price and forgot it was a tourist developmental project and not a land bid for the highest price," critiqued Sabbour. "This resulted in the participation of non-professionals. Naturally, when payment was due, each company searched for a reason to withdraw."

Source: Al-Ahram Weekly

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