Federal Palace Hotel has created green lawn within a large city
Federal Palace Hotel and casino, presently managed by the Sun International which is also a major shareholder, was built in the 1950’s. Today, with a great history behind it, and the hotel striving to retain its apex place in Nigeria’s hospitality business, it is now challenged on many fronts. In this interview, Mr. David Kliegel, the General Manager of the Hotel shares with Mr. Ikechi Uko, publisher of the African Travel News by Atq, the comparative advantages Nigeria’s hotels have as they can compete with other hotels all over the world, while he taps on intrigues that are playing out in the hotel business in the country which he blames on unfavourable policies; he touches on issues of harassment from some government agencies to ownership squabbles as main issues that pitch Federal Palace hotel’s existence and profitability on the brinks. Excerpts:
Please, could you give us a brief on your background?
My name is David Kliegel, I have been in the hospitality and leisure sectors of the industry for 30 years. My experiences range from running hotels, multifaceted business operations such as resorts, spas, game parks, theme parks etc. I have handled large companies in South Africa including Southern Sun and Protea Hotels and most recently I have spent time in China involved in property developments, building shopping centers, theme parks and hotels. And I was also involved in the Middle East, in Lebanon building theme parks. I was very involved in the development and opening of a theme park in South Africa. I am an hotelier by profession but I have been involved in all aspect of the business from property management to development, to operations.
Sun International currently manages the hotel. Tell us about that.
Sun International is a listed company on the Johannesburg Securities Exchange. Sun International is the oldest gaming company in South Africa; when I talk about gaming I am talking specifically about the casino business. So we are a casino company, we operate in very fine hotels and resorts in South Africa as well as in South America. We are now the single largest casino operator in South America. We just recently concluded a merger with a South American company called Sun Dreams , they operate hotels and casinos in Panama, Chile, Colombia and soon the expansion is going to take place in South America. Here in Nigeria, Sun International is a shareholder in Tourist Company of Nigeria, which is a holding company in Federal Palace. And Sun International has the management contracts in all the properties. So we are the single largest shareholder of the Federal Palace Hotel and Casino.
Among all Hospitality companies in Africa, how does Sun International differentiate itself?
Let’s put inperspectives; Sun International developed over the years by having some of the most beautiful and iconic hotels in Africa. So,if you want to talk about the Palace of the Lost City at Sun City, it’s a member of the leading hotels in the world, it is a spectacularly beautiful hotel, probably never to be recreated. If you look at the Table Bay Hotel in Cape Town, it is also a member of the leading hotels in the world and iconic. Most of our properties have some features in it, either they are resorts; they either have golf courses, game reserves or wonderful outdoor entertainment activity areas or a combination of all of them. For example if you go to Sun City, you will find that on that property there are four hotels , Cabanas, Sun City, Cascades and the Palace of the Lost City. There are two golf courses; there is the entertainment centre which host lots of banqueting. And on a good day, in the entertainment centre you could probably have three different functions taking place and accommodating two and a half thousand people in totality. So it is a very large venue for conferences. We cater for all the components;we cater for leisure which is purely resort breakaway centered towards the conference business which is mostly corporate associations, and we also cater for games because we have great casino approach in that environment.
So, you are in every spectrum of the value chain hospitality service?
Well, from a different side; yes. Over the past years, Sun International has had other support services that go with our operation. We used to operate our own travel agencies but the focus has now gone back to what we are good at doing, and what we are good at doing is running hotels and casinos.
There is this confusion about Tsogo Sun, Southern Sun and Sun International; how did it differentiate itself?
In the very beginning of Sun Hotels in South Africa; it was a gentleman by the name Sol Kerzner. Sol Kerzner,together with financing from the South African Brewery started a chain of hotels called Southern Sun. And Southern Sun Hotel is a very up market hotel, mostly four and five star hotels. And he developed very beautiful hotels. Then the need to establish casinos arose, so Sol Kerzner decided he was going to go into the casino business. Casinos already existed in Swaziland; they were owned and operated by Holiday Inns and they already existed in Lesothoand operated by Holiday Inns as well. So Sol Kerzner bought Sun City in Bophuthatswana; it was going to be the crown jewel of the Southern Sun Hotel Group. When Sun City opened and the power of the casino business in South Africa at that stage was understood, Sol Kerzner decided that he wanted to further expand only in the casino business. So he bought Holiday Inns, extracted the casino unit from Swaziland and from Lesotho and also the wild coast which was in the Transkel. And he formed a new company called Sun International and then bundled up Holiday Inns and Southern Sun, and Sun separated. So, it was then Southern Sun Holiday Inn and Sun International and they became separate companies. It operated like that for many, many years; only in the later years it now became known as Tsogo Sun and that was because of the new empowerment regulations in South Africa, and that has transformed. There is still a bit of confusion between the three, Sun International, Southern Sun and Tsogo Sun but we started as Southern Sun 35 years ago.
Here in Nigeria, we have Southern Sun; we have Sun International managing Federal Palace Hotel, how do we differentiate Federal Palace as a hospitality brand. What makes you stand out?
Federal Palace, first and foremost, is an iconic property and it is a property of heritage in Nigeria. This hotel is built in the 1950s and it has been extensively refurbished. I think it was a privately owned hotel. It was formerly known as Victoria Hotel. It was built by a Greek company; I think it was AG Leventis.And at the time of the formation, Nigeria signed the declaration of independence in 1961, and the ball that took place after the signing of the declaration of independence happened here in this hotel. This hotel became known as the Federal Palace. Federal Palace was government owned; it was a parastatal.And in 1992, it went through a privatization process and it was bought up by private enterprise and it became listed on the Nigeria Securities Exchange. On the property of the Federal Palace Hotel is a second hotel which is not operational at the moment. It is 220 rooms, 16 floor structures and that hotel was specifically built for the summit of that African Unity, African Union in 1977 and then the property became known as the Federal Palace Hotel and Suites. When the Federal Palace Hotel closed down for refurbishment and this hotel was closed for almost 10 years, the name of the Federal Palace just transferred to the towers or to the suites. But in Nigerian terms, they referred to it as the new wing and the old wing. The new wing being the 16 storey structure and the old wing which is the one we are in now. The 16 storey structure was very dilapidated and old; it doesn’t have a very good reputation for the quality of the building and the maintenance.The facilities, yes! But it was still referred to as the new wing. When we opened the Federal Palace after extensively refurbishing it, when people walked inside here and they saw what it was, they naturally called it the new wing. So when you talked to somebody that hasn’t been here and you say the new wing, they are still thinking about the dilapidated building next door. So we have a big identity issue with what are the new and the old. For us we like to make it very simple, this always was the Federal Palace Hotel, it is now the Federal Palace Hotel and we refer to that derelict structure as the towers.
So, how we differentiate ourselves from other city hotels? We are a city hotel absolutely, but we are one of the few city hotels that have big gardens around!They are maintained and we created green lawn within the congested city. We have beautiful swimming pool which has the facilities such as water slides, and tennis courts and other wonderful facilities. We also have a casino which none of the hotels have! And interesting enough the Lagos State legislation for casinos which is promulgated in 2008 says that a casino can only exist in a Five Star Hotel with 100 or more rooms. So, we like to think that we are running a legitimate and only legalized casino in Lagos. We meet all the legal requirements and we have paid for our casino license.
Is there any other facility that qualifies to be a casino in Lagos with such a law?
I am not sure what the star rating is but as long as it is in a hotel it has 100 rooms or more and it is regarded as a Five Star. The law is very specific, it says a casino only exist in a Five Star hotel, so if you go to any of these other casinos that are housed in other buildings, they are in contravention of the law.
Is there any Five Star hotel in Nigeria?
There are a few because under the new Lagos State government rating council, they do all of the inspections for hotels. I think it was two years ago now, I understood that they have seen 15, 000 hotels in Lagos. So, I need to first register for my hotel because the hotel weren’t registered, which I think is a great step. And then they went about grading having looked at the quality of the hotels. But grading is always a contentious point because you would have perception. One of the things we had a problem with is that the graders that came here said your furniture is all scratched and looks old. And they talked about the tables in the hotel; those tables were custom made to look like that.It is part of the interior architectureaesthetic design for that purpose. So, there are a number of various components that makes up a Five Star hotel. For example, people may come inside and say, ‘This can’t be a Five Star hotel because it hasn’t got a Spa in it’. You can’t have a Spa in every single Five Star hotel; it is not a requirement to have a Spa in a Five Star hotel. I could take you to a hotel that has a Spa, and it doesn’t have a tennis court and we believe a Five Star hotel should have a tennis court. So, it is a very subjective issue.
Considering the standards in South Africa cum Dubai, do you think a Five Star hotel in Nigeria can qualify to be a Five Star in Cape Town, Dubai or Hong Kong?
Again, it depends on what the features are! I don’t think there is any reason why the Five Star hotels here cannot be graded as five star hotels there. The laws might be slightly different in terms of what they require. You might find that in Dubai or Hong Kong, they might say if you want to be Five Star hotel, you might need to have two or three restaurants. Let’s look at Nigeria: do you necessarily have to have a 140 rooms hotel with three restaurants, I don’t think so. You need to have a good quality establishment. Star rating is really about the quality of the service and what is provided more than the number of outlets that you may have. Again, it is subjective. I don’t believe that some of the hotels that have been graded as five star hotels here will have difficulty competing anywhere with what they have to offer.
Do they offer value for money for a Five Star property?
You cannot equate the operating cost in Lagos to the operating cost anywhere else in the world! People will say I can stay at the George Cinq in Paris for the same prices that I am paying for a hotel in Lagos. What is that got to do with it? It has to do with provision of the service in an environment that may not necessarily have the same applications as you would have in Paris. In Paris, you have tap water, you have electricity all the time; you have a whole lot of different services which are relatively inexpensive when you compare them to Nigeria. So, the cost of operating a hotel here is not that we can extort extremely high prices because at a point there was a server shortage of demand because people are paying high room rates; it is a factor of the operating cost. The $700 room then was certainly supplied; it was certainly a component of other business situation. But at the time when the $700 rooms existed there were also $300 quality rooms that existed that nobody really paid particular attention to and they were doing well. Having looked at the emergence of Protea Hotels in that year with the smaller hotels, some of them would probably qualify as three or four star hotel. They also have great occupancies and room rates that certainly weren’t anywhere near the $400 or $500 rate. There was this perception at that time as well that Nigeria is a dangerous place, people wanted to go do the security and the security always come with brand. But things have changed.There are small brands available, there is bigger choice, the market is soft worldwide, operating cost are high still and you have the emergence of new hotels and old hotels.
Sun International has just one property in Nigeria, and among all the other brands that came in they are the ones that we haven’t heard of any plan to go beyond a single property. Are there any future plans for Sun International in Nigeria, West Africa and other parts of Africa?
At one point it was a strategic imperative: Sun International was looking at expansion outside of the borders of South Africa and obviously West Africa was very attractive opportunity. We were already thriving in Namibia, Swaziland, Lesotho, Botswana, and Zambia. So from a Southern African market perspective, we already have geographical representation in all of those countries and growth was certainly going to be on West Africa. The view of the company has changed some worth since then and Sun International was disinvesting from its African portfolio and to pursue developments in Southern America.
What do you think are the biggest challenges for the industry in Nigeria today?
I think we share some of the industry pains that are common across the country at the moment. We have been through various fields that have influenced us since we’ve been here and these things have influenced the country. So, we have been through the global meltdown which slowed the economy; we have been through Ebola, which slowed the economy; we have been through elections which slowed the economy, and we have been through delayed elections which slowed the economy. We have also been through various negative publicities which hit Nigeria; from Boko Haram to MEND, to the twin bombings in Abuja.All these things have negative trends for the country, but the country still have resilience and still traded. What has happened now is the change of policy in terms of foreign exchange. It is a big problem as it is influencing the airlines which hotels are highly dependent on airlifting people coming in to trade. The price of oil has decimated the oil and gas sector of the economy which has had a big knock and affected the banking business. So, it is a whole lot of things which have really slowed the economy. There are some good things that have happened as well undoubtedly but at the moment business is fragile; very, very fragile. For us, specifically, we have touched on these things before: power is a big problem.But now, getting anything that we require to trade with, we are a manufacturing-concern. We are in the process of manufacturing food for sale. So we need more products; we need machinery and stuff which mostly is imported. So we battle in sourcing product, we battle in getting machinery.
So the total environment is virtually squeezing out the hotels?
It is squeezing hard on everybody!But we are a luxury commodity; we are not an essential item.So, we are the first to suffer. It is not like a super market that you have to buy groceries daily; people can avoid coming to hotels, they avoid dinning at our restaurants, they can avoid coming and drinking in our bars, they can avoid coming and gaming in the casino. The company is under pressure as private citizens are under economic pressure: the hotels suffer quickly.
Is there anything the government can do to improve some of these problems that are affecting the hotels now?
I think government is aware of what it needs to stimulate the economy and I think government is trying to stimulate the economy. You have two arms of government, the Federal and the local governments. And the federal government has issues and they are looking at it,and the local government also is looking at their own issues. But at the end of the day, we need good infrastructure, good power and water. And we need to have consistent supply.
In recent months there have been some stories about Federal Palace, issue of workers and recently you had issues with some government agencies. What exactly is the situation and what happened?
Well, the workers issue is the same; it was an aggressive drive by the unions to unionize hotels. It didn’t affect us, only it affected Southern Sun, Intercontinental, FourPoints. And the way it was done was not in accordance with the procedures set out in the labour relations act. And you know typical true form of unions, they will come with the same old rhetoric day in day out, it doesn’t matter whether it is here in Nigeria or anywhere else. You are always a slave trader, you are that and this, and you break the law… And we are a listed company; we comply with the labour legislation of the country. We pay everybody, we pay people more than the legislated minimum wages; we pay probably the highest in the industry and you come and accuse us of not paying employees and being slave traders. Have you looked at the government and look at the teachers and doctors that haven’t been paid for months and months? I challenge you, ask anybody within our organization if they have not been paid let alone not been paid on time and I can guarantee you, you will not find a single person that will be able to say that. So, it just union rhetoric and it is just tactics of trying to pressurize the management, we won’t be pressurized at all. We are not frightened of any rancor involved in hearing, arguing in the newspapers. We sit here and read what is being published in the newspapers and quite frankly it is an embarrassment that people have no moral conscience that they can say what they say. We are used to it; we are not worried about it. We believe that we have great processes here to look after our human capital we trained, we have paid. So we are fine!So these things will carry on. As regard to the government agencies, we are involved in a shareholders dispute which is currently in court. And in that dispute there were certain petitions that were made in terms of investigations into the criminality of some of the activities of other partners. And unfortunately Sun International has become caught up in that. We will continue to manage it until it comes to a logical conclusion. So, it is very unpleasant.It is certainly not the position that Sun International wishes to be; but it is one of those things that has to be managed.
Sun International is the highest shareholder?
Sun International is the single largest shareholder. We don’t provide the chairman of the company; there is a board, there is a shareholders agreement. The shareholders agreement governs the relationship between the shareholders in terms of the constitution of the board and directors and it is in accordance with the article of associations in the shareholders’ agreement.
There is a story that Sun International is pulling out of Federal Palace, how true is that?
I think it was very clearly stated by the Chief Executive in the six monthly results that came out from Sun International; the six monthly results that were published. And his statement was very clear that Sun International is considering the option with regard to Nigeria. So, I think if you read between the lines, it is certainly not a happy environment at the moment. In all the jurisdictions which we have traded over the last 45 years, the company has never been treated the way it has been treated here. And as a company of stature and standing, it has to be looked at from an investment perspective.Is it a good return on investment? Is the time and energy taken in managing this investment worth the returns? There has been no dividend coming out of this business for a long time and with the shareholders dispute that is going on, there is no future potential for expansion of the property. I will give you an example, at the AGM of November 2015, a USD$450 million development was approved for this property; that is now been taken off the table. So, what is the longevity of our investment here? I will say it is limited.
So, until the shareholders issue is sorted out, your options will still be considered?
Absolutely! I am very sure that if somebody comes now and says that,‘We will buy your shares from you’, Sun International will sell their shares without hesitation. That is my personal view; you need to clarify that with the Chief Executive. But my view is that it will be an exit.
Someone had said that you will be leaving Nigeria soon, is that correct?
I can’t leave Nigeria! I have a five billion naira bail and my passport is confiscated, so how can I be leaving Nigeria soon? The guys that killed 84 South Africans when Synagogue church collapsed got 20 million naira bail. The ex-Chief of Defense Staff is on two million naira bail. I am a hotel manager, I am on five billion naira bail, and you tell me this is an investor friendly environment. How can a hotel manager steal 40% of the company, where are the shares, is it in my back pocket? Where is the share certificate, where is the share transaction? You think it is a joke?It is an absolute joke. There is a lot of opportunity for this property. This property cannot make money for 140 rooms’ hotel; it needs the 220 rooms next door behind it. The opportunities are here but at the end of the day any listed organization has a responsibility to the shareholders. We are not here because we want to run a charity or be nice guys. Business exists to make a return for the shareholders and there are other components that go with it because you have your stakeholders, and the investment is owned by shareholders and they want a return on their money.
Where is your favourite destination, all-expense paid?
Probably, at this moment in time I will like to go to Queens Town in New Zealand. It is the most beautiful tranquil city.It has the most beautiful snow.It’ssituated up on the mountains; the grass is green and the steep are white.The air is clean and it is really nice and it is cold but it is the right place to go.
You have beautiful, bright-coloured peacocks on your hotel facilities, how come?
Yes, people like the peacocks! We had two and the first two didn’t survive, and got another two and that had two babies since then. The children love it; the adults love it. They create spectacular shows when it fans it feathers!