A four-decade-old inspection bungalow of the state road construction department in Jamshedpur's leafy Northern Town neighbourhood will soon make way for a swank four-star hotel, courtesy Ranchi-based Capitol Group.

The group, which owns the well-known Capitol Hill and Capitol Residency hotels in the state capital, has started the process of depositing Rs 17.5 crore with the road construction department ' a prerequisite for signing an agreement to develop the project.

Rs 5 crore was deposited on Saturday as part of the bid evaluation process and the remaining amount would be paid before a formal agreement is signed with the department by the end of this month.

The inspection bungalow is spread over 1.0825 acres, and according to the agreement, the proposed hotel will have to be built within three years.

Confirming the development, executive engineer of the department (Jamshedpur division) Anil Kumar said Capitol Group would be submitting a bank guarantee within a week, after which the agreement would be signed.

"They have proposed a four-star hotel and have agreed to pay an annual rent of Rs 5 lakh. The entire project is on private-public partnership mode and was envisaged by Jharkhand Infrastructure Development Corporation Limited, a 50:50 joint venture company set up by the state and Infrastructure Leasing and Financial Services (ILandFS)," said the executive engineer.

A clause in the agreement stipulates accommodation for officials of the state road construction department at subsidised rates in the hotel.

"Once the hotel is ready, they would have to keep 10 per cent of their capacity reserved for road construction department officials on any given day at a subsidised rate," said the official.

Capitol Group, which is the holding company of Dinanath Hotels Private Limited, would be handed over the inspection bungalow for 30 years, with a renewal clause of another 30 years.

As a developer, Capitol Group would operate, maintain and market the property during the time. And if this project is a success, the department would hand over all 14 inspection bungalows it owns around the state for development.

"The government's profit will be in crores as officials will enjoy discounted rates at the developed properties apart from one time revenue from unutilised buildings. The developer, who will have to spend crores to renovate and rebuild some bungalows that were lying in a state of neglect, will be able to recover costs as all the properties are strategically located in busy industrial areas," said a source in the department.

Of the 14 properties, only Jamshedpur and Chas are in the pipeline now for a makeover through PPP mode.

Financial adviser of Capitol Hotels Ajay Chhabra confirmed the payment made, but refused to divulge more details.