Face-saving report

Print edition : May 31, 2013

P.C. Chacko, Chairman of the JPC on 2G spectrum scam. Photo: Kamal Singh/PTI

A. Raja, former Telecommunications Minister. He adopted the policy of allotting spectrum on a first-come first-served basis. Photo: kamal singh/PTI

Swan's September 2008 intra-circle roaming agreement with BSNL allowed it to use the latter's infrastructure. Photo: V.V. Krishnan

The JPC report on the 2G scam selectively uses information to arrive at conclusions in favour of the UPA government, indict the CAG for its "presumptive loss" estimates due to spectrum allocation, and blame the NDA for causing a loss to the exchequer.

THE draft report of the Joint Parliamentary Committee (JPC), set up in March 2011 on the 2G spectrum allocation scam, has raised serious questions about the independence and autonomy of consultative bodies constituted to debate and discuss policy decisions of the government. The report has triggered a political storm, with half of the committee’s 30 members rejecting it and expressing a lack of confidence in its Chairman, P.C. Chacko. The dissenting members are of various political hues—the Bharatiya Janata Party (BJP), the Janata Dal (United), the Communist Party of India (Marxist), the Communist Party of India (CPI), the All India Anna Dravida Munnetra Kazhagam, the Dravida Munnetra Kazhagam, the Biju Janata Dal and the Trinamool Congress. The opposition to the report comes at a time when the United Progressive Alliance (UPA) government is running out of ammunition to fight allegations of corruption in high places in the government.

It is important to note in this context that most of the commentary and reportage on the JPC draft report talk about the observations and recommendations in Chapter 10, which summarises the key arguments of the report. While this section is indeed significant, it is equally important to look at how key observations, figures and statistics quoted in the earlier portions of the report have been cherry-picked to arrive at conclusions in the final section. A scrutiny of the 334-page report and the annexures to it, compiled in Volume 2, reveals several acts of omission and commission and bureaucratic manoeuvring to work out a face-saver for the UPA. Interestingly, the report, seen in its entirety, contradicts itself with regard to the central argument about revenue generation for the exchequer vis-a-vis private players. The logic used to indict the National Democratic Alliance (NDA) government’s key policies is turned on its head when the report accuses the Comptroller and Auditor General (CAG) of “sensationalism” in its loss calculations with respect to spectrum allocation. The revenue implications of some significant aspects such as cross-licensing, mergers and acquisitions and intra-circle roaming, and the consequent loss to the exchequer, have not been analysed adequately. The clean chit given to the Prime Minister and the Finance Minister, despite the fact that on-record documentation is available to show that they were aware of the key policy decisions taken by the then Union Minister for Telecommunications, A. Raja, has raised doubts about the report’s objectivity and impartiality.

One of the highlights of the JPC report that has caused a political stir is that a key policy decision taken by the A.B. Vajpayee-led NDA government in 1999 resulted in a revenue loss of Rs.42,080.34 crore. Section 10 of the report indicts the NDA government for allowing private telecom players to migrate from a fixed licence fee model to a revenue-sharing model. Section 10.12 states: “The committee have, however, been informed that impact on licence fee and spectrum charges collection due to the migration package was to the tune of Rs.43,523.92 crore, which included the sum of revenue, that is, Rs.1,443.58 crore forgone on account of extension of effective date of licence by six months…. The committee, are, therefore, inclined to conclude that the government also had to forego revenue to the tune of Rs.42,080.34 crore in the course of offering migration package vide NTP-1999 [National Telecom Policy].”

It is interesting to note that this figure was cherry-picked in the final section without taking into account the detailed figures provided in Chpater 3 on the revenue earned by the government in the post-migration period. Section 3.44 of the report states: “The committee also called for details of revenue generated during the post-migration phase vis-a-vis the revenue that had accrued had the licencees continued in the remaining period of old regime, i.e, the end of the 10-year-period.” The figures provided by the Department of Telecommunications (DoT) indicate that there was a revenue increase of Rs.4,144.32 crore post-migration. A table in Chapter 3 provides a year-wise comparison between post-migration revenue and presumptive revenue, pre-migration, between 1999 and 2005.

The chapter further states: “The committee have been informed through written information by the Department of Telecommunications that all outstanding dues in terms of the migration package were recovered from the licencees, who were allowed to migrate to NTP-1999.” It is significant that this important information was not factored in while calculating the revenue forgone by the exchequer during the NDA regime in the final sections of the report. BJP president Rajnath Singh called the report a “political vendetta” to drag the name of Vajpayee through the mud. The report points to the decision taken on January 31, 2002, for the allocation of additional spectrum beyond 6.2 MHz and up to 10 MHz to the existing cellular operators in the Mumbai and Delhi Metro Service Areas wherein only 1 per cent additional revenue share was charged from the companies. Section 10.22 says, “Additional spectrum charge was deliberately undervalued to favour some telecom operators, thereby causing revenue loss to the exchequer.”

The report also criticises the extension of time provided to companies while processing the applications received for Basic Service Licences. Section 10.14 says, “The committee feel that in the absence of modification of the guidelines pursuant to the decision taken to grant time for compliance with the Letter of Intent [LoI] there was scope for arbitrary exercise of power and favouritism.”

The report does not adequately address the issue of cross-over licence fees charged for dual spectrum from 2007 to 2008, which was based on 2001 prices. Cross-over licence fees were the fees payable by companies holding CDMA spectrum to get additional GSM spectrum in 2008. There were about 35 such dual technology operators who had applied for and received dual spectrum and were awarded the spectrum between 2007 and 2008 on the basis of spectrum prices prevailing in 2001. While coming down heavily on the NDA’s revenue-loss-causing policies, the report does not adequately factor in the losses incurred as a result of the pricing of cross-over licences.

Some of the observations made in the draft report point to this issue being raised by senior government officials and to the complicity of the then Finance Minister, P. Chidambaram, in the process.

Section 10.43 notes that the then Finance Secretary, D. Subbarao, in his letter dated November 22, 2007, addressed to Secretary, DoT, had raised the issues relating to the cross-over fee charged for dual spectrum, which was based on a price discovered in 2001. Section 10.43 states: “He [Finance Secretary] cited that in view of the financial implications, the Ministry of Finance should have been consulted before finalising the decision taken in the matter of dual spectrum. The Finance Secretary urged that the issues raised be reviewed and reported back to the Ministry of Finance.” In response to this, the Secretary of the DoT, in his letter dated November 29, 2007, stated that the entry fee was based on the August 2007 recommendations of the Telecom Regulatory Authority of India and that TRAI had not recommended any changes in the entry fee and the annual licence fee and hence no changes were considered in the existing policy. After this, there was no communication from the Ministry of Finance to the DoT on this issue.

Problematic conclusion

The conclusion arrived at by the report, however is problematic. In Section 10.43, it says: “From the sequence of events, the committee gather the impression that the Ministry of Finance was in agreement with the position explained by the Department of Telecommunications in respect of cross-over fee charged for allowing usage of dual spectrum technology by the existing licencees.”

This conclusion raises more questions than it answers. Does the fact that no official response was given by the Ministry of Finance imply that it was in agreement with the policy decision? In a note sent to the members of the JPC, Sitaram Yechury, CPI(M) Polit Bureau member, has raised some pertinent questions about the role of the Finance Minister. The note says, “Does the Finance Minister agree with the draft report that by not responding to the position as explained by DoT regarding licence fees, the Ministry of Finance had in effect given its consent? Why did the Finance Minister not press the issue of entry and spectrum fee being pegged to 2001 prices in 2008, especially as the DoT had referred to the Cabinet note where it was mandatory to have such an agreement between the Finance Ministry and the DoT as per Section 2.1.2 (3)?”

By not raising these probing questions, the report conveniently absolves the Finance Minister of any possible role in the process and glosses over the objections raised by government officials to this erroneous policy. Also, it does not outline the revenue implications of this decision for the exchequer.

Intra-circle roaming

A major policy decision taken during Raja’s stint as Telecommunications Minister caused a loss to the exchequer and encouraged the use of the well-built infrastructure of the public sector entity for private gains. In June 2008, Raja permitted intra-circle roaming whereby an operator could provide services in an area where it had not rolled out its network. The Frontline report titled “Auction Farce” (December 14, 2012) had pointed to the existence of an illegal 3G roaming pact between private operators and its larger implications for the exchequer. The genesis of this illegal practice was in the policy decision to allow intra-circle roaming in 2008.

Prabir Purkayastha, a member of the Delhi Science Forum, pointed out that Raja did not heed the objections raised by TRAI. “TRAI had objected to the DoT’s amendment of licences on various counts, including imbalance in spectrum utilisation, implications for additional spectrum entitlements and security issues with subscribers not being easy to track.”

On September 13, 2008, the public sector telecom behemoth Bharat Sanchar Nigam Limited (BSNL) entered into an intra-circle roaming agreement with the telecom company Swan, which allowed Swan to use all the infrastructure of BSNL, including its mobile towers and optical network, in all the circles.

This significant issue is not raised in the JPC report.

The report absolves the Prime Minister and the Finance Minister of any responsibility for the auctioning of the spectrum on a first-come first-served basis to telecom operators, the policy adopted by the DoT under Raja.

Section 10.45 says the Prime Minister “was misled about the procedure decided to be followed by the Department of Telecommunications in respect of the issuance of UAS [unified access services] licences”.

In arriving at this conclusion, the report overlooks the official correspondence between Raja and the Prime Minister, which is mentioned in Section 10.44.

In a letter dated November 2, 2007, the Prime Minister urged Raja to look at “processing of large number of applications” in the backdrop of inadequate spectrum, introduction of a “transparent methodology of auction” and the “revision of entry fee, which is currently benchmarked on old spectrum auction figures”. In response to the Prime Minister’s letter, Raja wrote that “it will be unfair, arbitrary and capricious to auction spectrum to new applicants”. Further, on December 26, 2007, he informed the Prime Minister about the procedure of issue of new licences following a three-stage process on a first-come first-served basis. This would include the issuance of a letter of intent (LoI), following which licences would be issued on a first-come first-served basis on compliance with the terms and conditions of the LoI. This letter outlines the procedure to be followed: “…a large number of LoIs are proposed to be issued simultaneously. In these circumstances, an applicant who fulfils the conditions of LoI first will be granted the licence first although several applicants will be issued LoI simultaneously. The same has been concurred in by the Solicitor General of India during the discussions.”

It is clear from Raja’s letters that the Prime Minister was apprised of the process followed in giving out new UAS licences. Hence, it is not clear how the report has come to the conclusion that the Prime Minister was misled about the process. Sitaram Yechury, in a note to JPC members, has raised doubts about the conclusions of the draft report: “The draft report shows that indeed he [Raja] wrote three letters to the PM prior to 10th January, 2008, when the LoIs for the 120 licences were issued. The draft report also states that the PM asked the PMO to prepare a note on Shri Raja’s letter dated 26th December, 2007, wherein he details the various steps he was proposing to take.”

Also, the depositions before the committee show that Chidambaram was consulted about the process of auctioning of licences. The report notes that there was a meeting between the Finance Minister and the Minister for Communications and Information and Technology on January 30, 2008. As per the minutes recorded by the then Finance Secretary, issues concerning the allocation of spectrum were discussed in the meeting. The gist of the meeting as recorded by the Finance Secretary indicates that “we are not seeking to revisit the current regimes for entry fee or for revenue share”.

While these meetings were on, there was still scope for the procedure of granting licences to be altered to adopt a fair and transparent mechanism. The LoIs were issued to 121 operators on a first-come first-served basis on January 10, 2007. The UAS licences were finally given out only between February 27 and March 7, 2008. The Prime Minister and the Finance Minister could have stepped in during the intervening period, but they did not, despite the number of meetings held in between.

It is significant to note that a concept paper of the Department of Economic Affairs of the Ministry of Finance, dated January 9, 2008, also raised questions about the policy of spectrum allocation. This paper, a copy of which is available with Frontline, states: “Given the fact that there are reportedly over 575 applications pending with DoT (including 45 new applicants) there is a case for reviewing the entry fee fixed in 2001. This is an administratively fixed fee. Therefore any change should be governed by transparent and objective criteria applicable uniformly to all new entrants.” The paper further states that auction would be the most transparent method of allocation of spectrum and any other method would be “economically inefficient”. This concept paper yet again highlights how the views of senior government officials in the Ministry of Finance were disregarded in going ahead with the procedure of auctioning of UAS licences.

Attacking the CAG

The most conspicuous aspect of the draft report is its criticism of the CAG. It questions the concept of calculation of “presumptive” loss in the allocation of licences. In doing so, the report turns on its head the same logic that it had used to calculate the revenue forgone by the NDA government as a result of policy decisions. The total amount of revenue forgone is cited in the initial sections (Chapter 3) as well as in the final section (Observations and Recommendations) of the report to discredit the NDA government. It is revealing that the same yardstick is not used to judge the policy decisions of the UPA government in granting licences. The bias of the report becomes clear.

The report has raised several questions about the methodology adopted by the CAG to calculate the presumptive loss figures. However, in criticising the CAG’s methodology, the report seems to echo the UPA government’s stance without taking into consideration the counter-arguments.

It questions how 2G losses were calculated by the CAG on the basis of prices discovered for the 3G spectrum in 2010. It uses the testimony of R.P. Singh, former Director General, Audit, Post and Telecommunications, who had said that he had not consented to the use of this methodology. Singh’s logic has been widely rebutted and countered. A statement issued by senior retired officers of the Indian Audit and Accounts Service on December 8, 2012, clarified the CAG’s position and refuted Singh’s logic. “The report does not claim that this is the right or definitive figure. It is only one of the three numbers arrived at on the basis of different assumptions and methodologies. The intention was to bring out the seriousness of the flaw in the decision-making process of allocation of the 2G spectrum. That the decision-making in this case was flawed is amply proven by the facts that a Cabinet Minister has been in jail and is only out on bail, the CBI [Central Bureau of Investigation] is investigating possible corruption cases, and the Supreme Court has cancelled 122 licences,” it said.

Besides, the over-reliance of the report on Singh’s testimony results in ignoring the fact that the vast organisation under the CAG works as a team and assists it in discharging its constitutional responsibilities.

The draft report also states that infusion of foreign direct investment by means of fresh equity carried out by telecom companies is “untenable” as a method of calculating losses incurred by spectrum allocation. It, however, ignores the fact that windfall gains were made by companies as a result of the sale of shares and that the revenue generated thereof was not shared with the government.

In April 2008, an order issued by the DoT facilitated mergers, leaving out the word acquisition. This helped Unitech merge all its licences and also helped it bypass the mandatory three-year lock-in period for the sale of shares. In October 2008, Swan sold 45 per cent of its shares to the United Arab Emirates-based company Etisalat for Rs.4,500 crore, whereas it got a licence for Rs.1,530 crore. Unitech sold 60 per cent of its shares to the Norway-based telecom company Telenor for Rs.6,200 crore, whereas it got a licence for Rs.1,621 crore. The draft JPC report refers to the sale of shares as “normal practice in corporate world to bring investment into the company for rolling out or expansion of business”. However, it does not take into account the revenue implications of this for the government, given the fact that the licence was obtained at very low fees by the private players.

The overall thrust of the arguments against the CAG seeks to reiterate the UPA government’s accusation that the CAG had exceeded its brief. Section 10.59 slams the CAG for causing widespread “disrepute to the nation” by projecting “astronomical figures” in its report. It says the figures “could have been more realistic deriving out of proven facts”. These observations question the constitutionally mandated role of the CAG as an audit institution to oversee and comment on the financial implications of policy decisions.

Selective appropriation of information

The selective appropriation of information to arrive at conclusions in the draft JPC report illustrates the need to protect the autonomy and independence of consultative parliamentary bodies. The commentary on the fallout of the 2G scam has been focussed on the role of individuals in high positions of power. However, the bias in the JPC report also needs to be looked at from the perspective of systemic corruption leading to the erosion of institutions that are meant to hold the government accountable to Parliament. The rejection of the report by 15 members and their expression of a lack of confidence in the committee represent a crisis in the process of consultation, debate and discussion that is the hallmark of parliamentary democracy. At the time of writing this report, the Lok Sabha extended the term of the JPC to the last day of the monsoon session of Parliament. It remains to be seen if the dissenting voices will be factored into the final report or smothered by smart political manoeuvring.

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