Saturday, 21 May 2011

Details of CAG report on 2G Spectrum Scam

Details of CAG report on 2G Spectrum Scam


The Supreme Court of India has rapped the premier investigating agency, Central Bureau of Investigation (CBI), for conducting a slipshod investigation into the 2G Spectrum Scam. The Apex court took the CBI to task by stating that the agency was dragging its feet in the investigation.

The SC is hearing two petitions in the matter. The first was filed by an NGO, Centre for Public Interest Litigation (CPIL), and the second filed by Janata Party chief Subramanian Swamy. Swamy had challenged the Delhi High Court order that rejected his plea to direct the PM to grant sanction to prosecute Telecom Minister A Raja.

CPIL has placed before the Supreme Court two draft reports of the Comptroller and Auditor General (CAG), which pointed out that the 2G scam has caused a loss of over 1 lakh crore to the exchequer. Canary Trap brings you some important extracts of the CAG draft reports, which directly points a finger of suspicion towards Raja for alleged irregularities and favoritism in the allotment of spectrum.

* Despite all agencies having full knowledge of scarcity and under pricing of spectrum, the entry fee for issue of licenses continued to be pegged at 2001 rates even in 2007 without delinking and independently pricing spectrum through a market mechanism, when the entire scenario in the telecom sector had transformed in the meanwhile.

* Ignoring the advice of the Prime Minister, and the Law Ministry, Raja went ahead with arbitrarily deciding that the cut-off date for issue of LoI would be advanced to September 25, 2007 and the applications received would be decided on first-come-first-serve (FCFS) basis.

* The CAG report states that “it was amply demonstrated between September 2007 and December 2008 that its (spectrum) demand in view of its scarcity was at its peak and thus would have fetched the market determined price at a much higher level than that of 2001 entry fee. If price is calculated at 3G rates, which also be taken as one of the indicators for assessing the value of 2G spectrum allocated to UAS licensees in 2008, the value works out to Rs 111,511 crore against Rs 9,012 crore realised by DoT. Similarly, for spectrum allocated under the dual technology as referred in earlier para the value would have been Rs 40,526 crore, as against Rs 3,372 crore collected. The total difference in value worked out to Rs 139,652 crore.”

* It was evident that at the time of applying for UAS licence the substantial equity of M/s Reliance Telecom Ltd in M/s Swan was 10.7%. Since M/s Reliance Telecom Ltd. were operating in all the service area for which M/s. Swan Telecom Ltd. has applied for USAL, their application was not in conformity with clause 8 of UASL Guidelines, and hence was not eligible to be considered. DoT did not have any mechanism to verify the correctness of the shareholders pattern of the applicant and hence the matter should have been referred to the Department of Company Affairs as was advised by the Finance Wing of the Department. No Reference, however, was made to the Department of Company Affairs and instead M/s Swan Telecom was given an opportunity to resubmit a revised stake holding pattern in December 2007 i.e. 9 months from their date of application which declared that M/s Reliance Telecom had divested their entire stakes. This was accepted by DoT and M/s Swan Telecom was given the benefit of seniority form the date of their initial application i.e. March 2007. As M/s Swan did not meet the eligibility criteria on the date of application, its application, its application should have been rejected by the department and the company should have been asked to apply afresh. Even if it is was to be considered eligible on the basis of its old application, the date of priority based on FCFS basis should have been revised from March 2007 to December 2007 in order to ensure fairness. Had it been so, the company would have been out of the race as the department processed only those applications which were received up to 25.09.2007.

* It was noted that the priority list was adjusted in Punjab and Maharasthra service areas to give under advantage to M/s Swan Telecom Pvt. Ltd. in allocation of spectrum. In Punjab service area, 15 MHz GSM spectrum was available in September 2008 which was sufficient to meet the demand of only first three applicants in the priority list i.e. M/s HFCL, Idea Cellular Ltd. and Unitech Wireless Pvt. Ltd. The request of M/s Idea Cellular Ltd. who was at the second place in the priority list was, however, not considered on the grounds of its merger with M/s Spice who were offering service in Punjab service area. By keeping out M/s Idea from the priority list, spectrum was allocated to M/s Swan Telecom who was at the 4th position on the priority list. In identical situation in Maharashtra service area, M/s Spice Communications was not allocated start-up spectrum citing its merger with M/s Idea Cellular Ltd. Here too, the resulting beneficiary was M/s Swan Telecom Pvt. Ltd.

* Deviation from a Cabinet decision should normally be with the approval of Cabinet. However, in the present case, such a crucial decision to permit service providers to offer access services using combination of technologies (CDMA, GSM and/or any other) under the same license with the dual spectrum allocation was taken without the matter being referred to Cabinet.

* DoT has given a list of operators who could attract foreign investments, consequent to the grant of UAS licenses in January 2008 as in the Table below (Table not included in the post). Out of the above six, three companies viz M/s Swan Telecom, M/s S Tel and M/s Unitech were new entrants in the telecom sector. The fact that these operators could draw huge foreign investment, even before establishing a foothold in the Indian Telecom market would suggest that acquiring UASL and with it, allotment of 4.4 of GSM spectrum for rollout, was the main factor which attracted the foreign investment.

* The Unitech Wireless Services, claimed in their letter to DoT on November 4, 2008 that M/s Telenor was partnering with them at a stage when about 6 months of effort and Rs 2,100 crore expenses had already been put in and the entity’s value was not only that of spectrum. However, considering that Telenor is an established international provider of a high quality telecommunications, data and media communication services and one of the Norway’s largest companies owned 54% by the Norway Government what they would have required to run their business in this country was, primarily access to the spectrum. Considering its trained manpower strength in 12 countries, its long standing technical expertise and international experience of dealing in telecom business, it can be convincingly concluded that, the high value paid by them was primarily for the spectrum and not for other inputs claimed to have been infused by Unitech. Such huge equity infusion by the investor company was a price that they paid for 2G spectrum which was allocated to Unitech, a company with no experience in telecommunication sector, at a throw away price DoT. The value which should have accrued to the new licensees in the form of huge capital infusion for enriching their business.

* The entire process of spectrum allocation was undertaken in an arbitrary manner. The Hon’ble prime Minister had stressed on the need for a fair and transparent allocation of spectrum, and the Ministry of Finance, and the Ministry of Law and Justice had sought for the decision regarding spectrum pricing to be considered by an EGoM. Brushing aside these concerns and advices, the Development of Telecommunications, in 2008, proceeded to issue 122 new licenses for 2G spectrum at 2001 prices, thus flouting all rules and procedures to be followed for spectrum allocation was also unfair, considering the fact that DoT introduced in artificial cap, arbitrarily changed the cut-off-date for receipt of applications post facto and altered the conditions of the FCFS procedure it had been following, thus creating an environment which cannot be perceived as transparent and fair.

* Dual Technology was introduced by DoT in a manner, which was in contravention of the Cabinet decision of 2003, resulting in additional spectrum being allotted to certain operators at 2001 price. Also by introducing unfair adjustments in the priority list, DoT favoured certain operators. Given its scarcity value and increasing demand, a comprehensive evaluation of available spectrum was required which was not done. With the UAS policy and its subsequent amendments being implemented in a weak and indeterminate manner and with the reluctance on the part of DoT to address the issue of pricing of 2G spectrum, it was only natural that 2G spectrum was allocated at much below its value.

* The Hon’ble MoC&IT for no apparent logical or valid reasons ignored the advise of Ministry of Law, and Ministry of Finance, avoided the deliberations of the telecom Commission to allocate 2G spectrum, a scarce finite national asset at less than its true values on flexible criteria and procedures adopted to benefit a new operators. TRAI, the regulator also stood by as a helpless spectator when its recommendations were being either ignored or misused.

The CAG draft report also mentions a note (Dated: January 15, 2008) sent to the PM by the Finance Ministry, which says that the “previous issues of licences be treated as a closed chapter and henceforth price of spectrum be discovered through an auction process.” This reveals the casual approach within the UPA Government towards this mega-scam, which resulted in a loss of Rs 139,652 crore to the exchequer.

Despite mounting evidence (from CVC, CAG, CBI) of blatant corruption A Raja still presides over the Telecom Ministry. While Prime Minister Manmohan Singh — heading one of the most corrupt governments in our country post-Independence — seem helpless in taking action against Raja because of the electoral considerations for the assembly polls in Tamil Nadu due to take place in 2011.

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