People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 47

November 30, 2008



'Scrap All Licences And Initiate Probe To Fix Responsibility'

CPI(M) Polit Bureau member and leader in Rajya Sabha, Sitaram Yechury, has urged the prime minister Dr Manmohan Singh to scrap all licenses and subsequent spectrum allotments made under the outrageous `first come first served’ basis at 2001 prices.

In a letter to the prime minister on November 18, 2008, Yechury called for a probe by an appropriate independent agency to fix responsibility for “one of the biggest financial scams of all times in the country” -- the total loss to the exchequer of giving away 2G spectrum in this way is over Rs 60,000 crore.

Below we give full text of the letter:

I AM constrained to draw your attention to the increasing evidence that the policy adopted for allocating the 4th license for 2G spectrum by government of India has caused a huge loss to the public exchequer – of more than Rs 60,000 crore and has all the appearance of grave financial wrong-doing.

In my letter dated February 29, 2008 with regards to the telecom sector, I had drawn attention to the following:

All the above apprehensions have now been substantiated. The policy pursued by your government under the stewardship of A Raja as the minister for communications, not only has been totally arbitrary, but has produced a public loot of the exchequer of unprecedented amounts.

For the release of the fourth license and the spectrum needed for operationalising the corresponding Universal Access Service License in January 2008, the communications ministry adopted a completely inexplicable principle of 'first come first served' as well as a license fee based on 2001 price. These 2G licenses were priced at 2001 levels allegedly to ensure that the spectrum should not become expensive, presuming that the benefit would be passed on to the consumers. However, this was nowhere ensured through the license terms and conditions. As a result, the parties who had secured these licenses have sold or are selling their shares at huge profits.

The deal between UAE’s telecom operator Etisalat and a Bombay-based builder’s Swan Telecom has brought out the magnitude of largesse being doled out. Swan Telecom bought a license for 13 circles along with the necessary 2G spectrum for a paltry Rs 1537 crore. Subsequently, it has sold 45 per cent of its stake to Etisalat for $900 million without putting up any infrastructure, let alone starting operations. Therefore, the market price for the spectrum is around $2 billion, as against the price of $300 milion Swan Telecom paid. With the present exchange rate, this would mean that Swan had got a value 5.9 times of what it had paid just eight months earlier in January 2008 without having spent a single paisa in operationalising its license. The government has actually got only one-sixth of what it should have got, had it gone through a fresh auction route – a loss of Rs 4500 crore to the exchequer.

But this is not all. Even this loss proves to be an underestimate when one finds the details about the latest Unitech-Telenor (of Norway) deal. Here, Unitech like Swan had not spent a single paisa for executing its license. It has sold a 60 per cent stake of the telecom firm which had paid Rs 1651 crore as license fee for all the 23 circles which it had applied for to Telenor. Obviously, Unitech got a better return on its sale because it has given away majority stake and had larger number of circles. Unitech has got Rs 6120 crore – and this is merely for spectrum. Since the debt component will be taken on by Telenor, Unitech has got a valuation which is seven times more than what it had paid. Based on this calculation, the loss to the government is about Rs 5500 crore.

There are also reports in the press of Turkcell, a leading Turkish telecom company and Europe’s third largest operator being in talks to buy 51 per cent stake in Datacom solutions.

For a number of these corporations, who were awarded the so-called 'first come first served' licenses, the promoters are either unknown or shadow companies. This further reinforces the doubts regarding the bona fides of these companies as also the intent of the policy.

The argument of the government for using `first come, first served’ basis and offering prices discovered in 2001 to issue licenses – an euphemism for scarce and costly spectrum, smacks of financial wrongdoing. The argument that the policy will ensure that the lower price that the new licensees had to pay will be passed on to the subscribers is clearly wrong. The deals which the new licensees and spectrum allottees have entered with the buyers makes clear that the benefit of low spectrum fees have accrued only to the licensees, who are fly-by-night operators securing spectrum only for speculative purposes. The total loss to the exchequer of giving away 2G spectrum in this way is over Rs 60,000 crore and must rank as one of the biggest financial scams of all times in the country.

I would urge that you take immediate steps to scrap all licenses and subsequent spectrum allotments from the new licensees under this outrageous `first come first served’ basis at 2001 prices. It will also be keeping with your claim of valuing 'probity in public life’ that an appropriate independent agency is assigned the task of fixing responsibility for this huge loss to the public exchequer.