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Unfolding of a Saga~II

Govind Bhattacharjee |

In large part, the confusion arises from the fact that few people have read or understood the CAG report ~ Report No. 19 of 2010 on the “Performance Audit of Issue of Licences and Allocation of 2G Spectrum of Union Government, Ministry of Communications and Information Technology” tabled in Parliament in November 2010. All we know about it is from the media that was interested more in sensationalisation than dispassionate, factual reporting. The facts and the supporting evidence are all available in the CAG report which is accessible to every citizen in the CAG website.

Let us recall the circumstances leading to this audit. 0n 10 January 2008, the Department of Telecommunications (DoT) issued 120 new licences for Unified Access Services on the same day at prices determined in 2001, far below what would have been the correct market price in 2008, which drew widespread criticism. It was in this context that the CAG had felt that there was sufficient justification to review the entire process of issue of licences, award of Spectrum and the implementation of the Unified Access Service Licence (UASL) regime.

A DoT press release on 24 September 2007 had given a week’s time to companies to apply for licences; this had set off a mad scramble among prospective applicants and by October 1, as many as 575 applications were received from companies big and small, aspiring for a share in the booming telecom market of India. Licences were to be issued following the DOT’s First Come First Serve (FCFS) policy to eligible applicants.

But on January 10, 2008, DoT added a twist by issuing two press releases in the afternoon, first to advance the cut-off date to September 25 from October 1, 2007. Later the same day, it posted another release on its website asking companies to complete their paperwork, including submission of demand drafts pertaining to bank guarantees, between 3.30 and 4.30 pm that day itself, and giving them less than an hour to collect the Letter of Intent (LoIs).

In the subsequent investigation, it was found that some of those who had paid the money had got their bank drafts prepared weeks in advance. Obviously they knew about the change in the date, and were ready with all paperwork. In gross violation of the FCFS policy, the applications submitted between March 2006 and 25 September 2007 were issued LoIs on a single day ~ 10 January 2008. While the DoT press release had mentioned “inter se seniority” based on the date of application, Raja also changed this. Thus Swan Telecom, which had applied on 2 March 2007, got Spectrum for Delhi while Spice Communications which had applied in August 2006 didn’t. Altogether 122 new licencees and 35 Dual Technology licences were issued in a process that entirely lacked transparency and objectivity.

The CAG report found a plethora of irregularities and gaps in policy implementation. The Telecom Commission was not consulted, views and concerns of Ministry of Finance were overruled, the advice of Ministry of Law and Justice was ignored, and even the suggestions of the Prime Minister were not followed by the telecom Minister Mr. Raja. In November 2007, the former PM had written to Raja, expressing concern that in the backdrop of the inadequate spectrum and the unprecedented number of applications received for fresh licenses, spectrum pricing through a fair and transparent method of auction for revision of entry fee, which was benchmarked on an old figure, needed to be reconsidered.

Raja replied twice on the same day that sufficient 2G spectrum was available, that more operators will increase tele-density and bring down the tariff while justifying the decision to amend the cut-off date and rejecting the suggestions of Ministry of Law and Justice as ‘out of context’. He further informed that it would be unfair, discriminatory, arbitrary and capricious to auction spectrum to new applicants as it would deny them a level playing field. Thus he justified the allotment of spectrum in 2008 without reconsidering the 2001 prices, ignoring the advice of the Prime Minister.

The process followed by the DoT for verification of applications to determine their eligibility also lacked due diligence, fairness and transparency leading to grant of licences to ineligible applicants ~ 85 of the 122 licences were issued to ineligible companies. They had suppressed facts, disclosed incomplete information and submitted fictitious documents. Among these were Unitech and Swan Telecom, both of which had authorized capital on the date of application far less than the requirement of Rs 10 crore (Rs 5 lakh for Unitech and Rs 4 crore for Swan), both had submitted false certificates in respect of paid up capital and misrepresented other facts.

These companies were new entrants to the Indian market without any foothold and did not have the requisite capacity to toll out the allocated spectrum. But subsequent to the allocation of UASL, their stakes rose astronomically and they could attract significant foreign investments. Unitech paid Rs 1658 crore for the licences and sold 67 per cent of their equity at Rs 6120 crore soon afterwards, making its full equity, Rs 5 lakh a few months ago, worth at Rs 9100 crore; Swan Telecom paid Rs 1537 crore and sold 45 per cent of its equity at Rs 3217 crore later, making its total equity worth Rs 7192 crore. These figures were the basis of CAG’s calculations for estimating the presumptive loss.

Taking the value of a new company without any previous experience in the sector, reflective of the worth of the licence and access to spectrum, CAG estimated that the cost of a pan-India licence would range between Rs 7758 crore and Rs 9100 crore, against Rs 1658 crore charged by DoT. As a result 122 licences and 35 dual technology approvals issued in 2008 could have fetched revenues ranging from Rs 58,000 crore to Rs 68,000 crore to the Government, against Rs 12,386 crore actually collected. The scam actually lay here, irrespective of the loss worked out by the CAG, for which the latter gave four figures based on different assumptions which were clearly explained in the report, ranging from Rs 58000 crore to Rs 176,000 crore. It was the media that picked up the highest figure which it sensationalised.

CAG concluded that “The entire process of allocation of UAS licences lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner”, by flouting every cannon of financial propriety, rules and procedures, and even its own guidelines on eligibility conditions. DoT “arbitrarily changed the cut-off date for receipt of applications post facto and altered the conditions of the FCFS procedure at crucial junctures without valid and cogent reasons, which gave unfair advantage to certain companies over others.”

This was crony capitalism at its worst, and even the Supreme Court concurred with this when it had to cancel all 122 licences, while observing that the telecom minister had “virtually gifted away natural resources”, that he “wanted to favour some companies at the cost of the public exchequer…” and that his FCFS procedure was grossly distorted to favour a few.

The Bench of Justices G S Singhvi and AK Ganguly said: “The exercise undertaken by the officers of the DoT between September 2007 and March 2008, under the leadership of then Minister of C&IT, was wholly arbitrary, capricious and contrary to public interest, apart from being violative of the doctrine of equality.” The court found that “the manner in which the exercise for grant of LoIs to the applicants was conducted on 10 January 2008 leaves no room for doubt that everything was stage-managed to favour those who were able to know in advance the change in the implementation of the first-come-first served principle”.

It imposed fines of Rs 5 crore each on Tata Teleservices, Unitech Wireless Group and Etisalat DB Telecom and Rs 50 lakh each on 4 other companies as they “benefited  by a wholly arbitrary and unconstitutional action taken by the DoT for the grant of UAS licences and allocation of spectrum in 2G band and who off-loaded their stakes for many thousand crore in the name of fresh infusion of equity or transfer of equity.”

The CBI judge did not find anything irregular in any of these, neither did he refer to the SC judgment. Nor did he ask for more evidence to be procured and submitted to arrive at the truth. On the allegation of entry fee charged in 2008 at 2001 rates, he even justifies the lower fee using a queer logic, “There is no material on record to indicate any insistent assertion or objective analysis by anyone for the need of revision of entry fee. It is all general talk. There is no evidence on record that telecom companies were rolling in or wallowing into wealth warranting revision of entry fee.” So the bidders’ wealth, and not the intrinsic worth of the licences, should have determined the value of the bids!

One must not forget that but for the scam exposed by the CAG, India probably would not have moved away from the opaque system of spectrum allocation so decisively towards a transparent system of auctioning of the spectrum, which has earned us more than Rs 3.56 lakh crore in the six telecom auctions conducted since 2010. Raja’s utterances about unfolding of the 2G Saga wouldn’t therefore cut any ice with a perceptive public. As regards his criminal intent, one will have to depend on the outcome of the appeal process that is likely to follow.


The writer is a commentator and the views expressed are personal.