Author: V. Venkatesan
Publication: Frontline.in
Date: October 22, to November 22, 2011
URL: http://www.frontline.in/stories/20111104282201600.htm
P. Chidambaram's role in the pricing of 2G
spectrum when he was Finance Minister in 2008 comes under scrutiny in the
Supreme Court.
ON October 10, the Supreme Court Bench of
Justices G.S. Singhvi and Asok Kumar Ganguly, which is monitoring the Central
Bureau of Investigation's probe into the irregularities in the allocation
of 2G spectrum and grant of licences, reserved its orders on the plea for
a probe into the role of Home Minister P. Chidambaram in the issue. The CBI
did not name Chidambaram in its charge sheet filed before the Special Judge,
O.P. Saini, in the trial court. It sought to charge 17 of the accused with
criminal breach of trust, and the Special Judge is close to framing the charges
against them after hearing defence counsel at length.
The Bench heard two applications seeking a
probe against Chidambaram, who was the Union Finance Minister in 2007-08.
The Centre for Public Interest Litigation (CPIL), represented by senior advocate
Prashant Bhushan, and Janata Party leader Subramanian Swamy had filed the
applications. Both alleged a conspiracy between Chidambaram and A. Raja, the
then Telecom Minister, before the Letters of Intent (LoI) and the licences
were issued to ineligible firms in January 2008. The crucial question is whether
Chidambaram knew beforehand of Raja's design to issue 122 LoIs without following
the policy of auction. Raja's action, on January 10, 2008, allegedly caused
a huge loss to the exchequer.
Subramanian Swamy had filed with his application
an Office Memorandum (O.M.), issued by the Finance Ministry on March 25, 2011.
This note, procured from the Prime Minister's Office (PMO) by an activist
using the Right to Information (RTI) Act, was signed by Dr P.G.S. Rao, Deputy
Director, Infrastructure and Investment Division, and sent to Ms. Vini Mahajan,
Joint Secretary, PMO. The O.M. carried a copy of the basic facts on the allocation
and pricing of 2G spectrum with a specific noting that it had been seen by
Finance Minister Pranab Mukherjee. The O.M. caused acute embarrassment to
the Congress and led to a retraction from Mukherjee - that he had not endorsed
the inferences in it - in an attempt to remove the perception of a rift between
him and Chidambaram.
The O.M. became the basis for a fresh plea
in the Supreme Court for a probe against Chidambaram.
The facts stated in the O.M. (without taking
into account the inferences) reveal that Finance Ministry officials had pointed
out repeatedly that spectrum allocation could not be determined on the basis
of the entry fee of 2001 and that it should be done through a market-discovered
price.
Another issue was whether Chidambaram was
correct in sending a secret note to the Prime Minister on January 15, 2008,
wherein he recommended an auction-based mechanism for future allocation of
spectrum, while treating the past allocations made by Raja as a closed chapter.
Chidambaram admitted in the same note that spectrum was a scarce resource
and the price should be determined on scarcity value and efficiency of usage.
He further concluded that the "most transparent method of allocating
spectrum would be through auction and that the method of auction would face
least legal challenge…".
The CPIL's submissions in the Supreme Court
stated: "Despite Chidambaram recognising the above facts, he did not
stand by his own Finance Secretary and Additional Secretary who had fought
a valiant battle all the way till January 9, 2008. He chose to raise his voice
only five days after the scam had been perpetrated."
The memorandum
The O.M. reveals that the then Finance Secretary
D. Subbarao (now Governor, Reserve Bank of India) had "suggested to go
for auction for initial spectrum of 4.4 MHz in early February 2008".
But the Department of Telecommunications (DoT) was not keen to do so because,
it said, that would disturb the level playing field and that the then LoI
holders, who had already paid the entry fee, were likely to go to court.
The O.M. points out that there was a way out
by invoking Clause 5.1 of the UAS (Unified Access Service) licence, which,
inter alia, provides for modification of the terms and conditions of the licence
at any time if in the opinion of the licensor "it is necessary and expedient
to do so in the public interest or in the interest of the security of state
or for the proper conduct of the telegraphs". The O.M. said the DoT could
have invoked this clause to cancel the licences in case the Finance Ministry
had stuck to the stand of auctioning 4.4 MHz spectrum. "Perhaps some
litigations would have arisen as a consequence", as the O.M. put it.
The O.M. also mentions that while the UAS
licences were signed between February 27 and March 7, 2008, spectrum allocation
started only in April 2008, almost four months after the LoIs were issued.
However, these were not charged (beyond the normal spectrum usage charges)
since there was consensus at the levels of the Ministers concerned that spectrum
beyond the "start-up" levels only should be charged.
For 2G scam-trackers, the O.M. has to be read
in two ways. One is to read it literally, and accept the facts therein as
incontrovertible. The resultant political crisis in the ruling Congress was
tentatively resolved with Pranab Mukherjee issuing a statement to suggest
that he did not suspect that Chidambaram could have stopped the scam from
unravelling. Mukherjee said the O.M. was based on facts and was made after
inter-ministerial consultations. It was an inter-ministerial background paper
that was sent to the PMO. "Apart from the factual background, the paper
contains certain inferences and interpretations which do not reflect my views,"
Mukherjee stated, seemingly satisfying Chidambaram, in order to achieve a
truce of sorts.
The other way of reading the O.M. is to identify
the real participants and understand their omissions and commissions in the
context of what has been revealed by other contemporaneous documents. The
CPIL's rejoinder submissions on October 10, made in response to the CBI's
reply in the Supreme Court, argued that since the Finance Ministry cannot
be overruled by a line Ministry (in this case, the Telecom Ministry), it was
impossible for Raja to move ahead without the concurrence of the then Finance
Minister, Chidambaram.
On January 9, 2008, Additional Secretary (Economic
Affairs) Sindushree Khullar put up a comprehensive concept paper on telecom
policy to Chidambaram, in which she referred to the exchange of letters between
the Finance Ministry and the DoT on November 22 and November 29, 2007. It
specifically recommended multiple options for pricing spectrum through a market-based
determination even in the absence of an auction. Chidambaram did not enforce
this methodology, which could have met the condition of market valuation and
still complied with the government's claim of following a first-come, first-served
(FCFS) policy, the CPIL claimed.
The CPIL interpreted Paragraph 13 of the O.M.
as follows: "On April 21, 2008, Chidambaram sent a non-paper to Raja
conveying the in-principle decision on the agreement that spectrum can be
priced only beyond 4.4 MHz. The pricing of spectrum beyond contracted amount
was also a part of the same recommendations by the TRAI [Telecom Regulatory
Authority of India]. He found it okay to go against the TRAI recommendations
beyond contracted amount, but not up to contracted amount (which is what the
Finance Secretary wanted to do). The TRAI's recommendations, dated August
28, 2007, did not distinguish between 2G spectrum till and beyond contracted
amount.
"It cannot be Mr. Chidambaram's case
that he was forced to follow TRAI's recommendations on DoT's advice till 4.4
MHz. If Chidambaram could have taken this stance for auctioning spectrum beyond
contracted amount, then he could have taken this exact same stance (consistent
with his Ministry officials) till the contracted amount and prevented the
scam."
The CPIL claims to have exposed another inconsistency.
The non-paper was dated April 21, 2008. On April 24, 2008, the Finance Ministry
abandoned the 4.4 MHz mark and instead agreed to price spectrum beyond 6.2
MHz. The implication is that the additional 1.8 MHz of spectrum when multiplied
by 279 UASL/CMTS (cellular mobile telephone service) licences equals 502 MHz
of 2G spectrum. At 3G rates, the Comptroller and Auditor General (CAG) estimated
the value of this spectrum at approximately Rs.63,000 crore. Chidambaram agreed
to change his stance from 4.4 MHz to 6.2 MHz within three days and forced
an additional loss on the exchequer, argues the CPIL.
The O.M. also reveals that as Finance Secretary,
Subbarao had opined to the DoT that "auctioning was legally possible
for initial allotment of spectrum beyond 4.4 MHz". The DoT opposed this
view. "Despite the fact that F.S. had taken such a strong view, which
had been recorded in the DoT's approach paper (dated February 8, 2008), Mr.
Chidambaram chose to side with Mr. Raja on the issue of pricing," the
CPIL said.
Chidambaram met Raja on January 30, 2008 -
20 days after the issue of the LoIs, but before the licences or spectrum had
been allocated. The minutes of this meeting have been filed by Subramanian
Swamy in his application. Chidambaram forecast the scam accurately in that
meeting, suggests the CPIL. In this meeting, in which both the Finance Secretary
and the Telecom Secretary were present, Chidambaram emphasised that the allotment
of licences and allocation of spectrum must be based on solid, legal grounds.
Both Chidambaram and Raja agreed that consolidation of the number of operators
per circle should happen in a healthy way without any rent-seeking.
Raja announced modified M&A (Mergers and
Acquisitions) guidelines on April 22, 2008, even before the spectrum allocation
began. This was seen to be in violation of the TRAI Act. He modified the TRAI
recommendation of August 28, 2007, that any proposal for mergers and acquisitions
should not be entertained until rollout obligations were met. The CPIL alleged
that by virtue of this illegal action, Raja violated the decision he reached
with Chidambaram to ensure safeguards against rent-seeking through spectrum-trading
owing to M&A. Chidambaram, it alleged, did not raise any objection to
the modification of the TRAI recommendation and the violation of the minutes
of the January 30, 2008, meeting.
The CPIL claimed that it was on record that
Chidambaram had approved the deals between Swan and Etisalat and between Unitech
and Telenor. "If Chidambaram had enforced the agreement he had reached
with Raja with regard to the rent accrued to the government and the premium
from such spectrum trading, then even at this late stage, the scam could have
been partially prevented by ensuring that windfall gains were accrued to the
public exchequer and not to companies such as Swan and Unitech, etc. Chidambaram
did no such thing and ignored what he had already forecast. Instead, he ignored
the illegally modified M&A guidelines of April 22, 2008, and later approved
the Swan and Unitech equity infusions, which, according to the CAG, indicate
a massive loss to the exchequer," the CPIL alleged.
The CAG concluded in its report dated November
16, 2010, that the high value paid by Telenor was primarily for spectrum and
not for other inputs claimed to have been infused by Unitech. "Such large
equity infusion by investors was a price they paid for 2G spectrum which was
allocated to Unitech, a company with no experience in telecommunications sector,
at a throwaway price by DoT. The value which should have accrued to the public
exchequer went as a favour to the new licensees in form of huge capital infusion
for enriching their business," the CAG noted.
Both the issue of spectrum pricing and sale
of licence were part of the CBI's first information report. Therefore, the
CPIL argued, the CBI had given a clean chit to Chidambaram, ignoring the overwhelming
evidence without even investigating the same.
On October 10, during the hearing of the 2G
case before the Supreme Court, both the CBI and the government opposed the
CPIL's and Subramanian Swamy's pleas for a probe into Chidambaram's omissions
and commissions. Their reasons were that the facts cited by the CPIL and Swamy
were incomplete and investigation on the basis of such facts might destabilise
the system. The government criticised the Supreme Court's so-called power
to continue monitoring the case as it is the Special Judge who has to examine
the evidence against a person not named as an accused in the final charge
sheet (in this case Chidambaram). The CBI also opposed the CPIL's plea to
appoint two independent persons to assist the court to monitor the CBI investigation.
The Bench's final orders will show how the court resolves the seemingly intractable
positions of the parties before it.
