CAG Findings Vindicate CPI (M)’s Charges on 2G Spectrum Allotment Scam

CPI (M) Charge
CAG Findings
Dimension of the Scam
Ø      “Loss due to 122 licenses for new entrants in 2008: Rs. 124,000 crore
Ø      Loss due to cross-over licenses permitted to CDMA operators (Dual Technology License): Rs. 36,000 crore
Ø      Loss due to excess spectrum occupied by the GSM operators beyond 6.2 MHz: Rs. 30,000 crore
Ø      Total Loss: Rs.190,000 crore
6.3 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. Though the correct value of 2G spectrum allotted to 122 licences in January 2008 and the 35 licences under dual technology, also in 2008 could have been determined only by a market driven process, if adopted. However, its presumptive value, based on various available indicators, as indicated in Chapter 5 ranged between Rs. 90000 crore and Rs. 140,000 crore. In addition, the value of additional spectrum allotted beyond the contractual amount to existing nine operators, based on 3G rates works out to Rs. 36729 crore.”
(Comment: Adding the components, the total loss to the exchequer is calculated as Rs 176,379 crore.)
Violations of TRAI Recommendations and Overruling the Advise of the Ministry of Finance and the Ministry of Law
“The Telecom Minister was given explicit recommendation by TRAI in August 2007 (Section 2.73) that the entry fee existing then based on 2001 prices was not realistic and there was a need to “reassess entry fee through market mechanism.” Further, the PMO (your letter), Finance Ministry, Law Ministry, and internal memos of senior officials of DoT had made it clear that instead of the dubious route of “first come first served” distribution of 2G spectrum/ licenses at 2001 prices, other routes for price discovery including auction or appropriate benchmarking should be adopted.”
“I cannot accept that the PMO, the Law Ministry, the Finance Ministry and senior officials in the DoT were all ignorant of the existing policy and TRAI provisions while advising the Ministry on entry fee/spectrum charges. Notwithstanding these recommendations, the Minister went ahead with this spurious first come first served principle claiming previous policy of 2003 and TRAI recommendations as the basis of his decision.”
4.2 Advice of the Hon’ble Minister of Law and Justice was ignored by DoT”
4.2.4 Concerns of the Ministry of Finance and Finance Wing of DoT on continuance of entry fee fixed in 2001 were overlooked
 6.4 The Hon’ble MoC &IT for no apparent logical or valid reasons ignored the advice 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 value on flexible criteria and procedures adopted to benefit a few operators. TRAI, the regulator also stood by as a helpless spectator when its recommendations were being either ignored or misused.”
Arbitrary Operation of First-Come-First-Served (FCFS) Policy
“There is now clear evidence that the first-come-first-served policy for award of licenses was further vitiated by entirely arbitrary operation of even this principle. The Delhi High Court Judgements of July 1 and November 24, 2009 struck down the September 25 cut-off date imposed by the Ministry on license applications as illegal, calling this change of cut-off date as “… a change in the rule after the game has begun”. Even more glaring was modifying first-come basis from the date of application for license to whoever deposits the money first with just a few hours’ notice. This was done well after the ranking of parties as per original criterion of first-come was known, and was nothing but a blatant attempt to change this ranking in favour of specific parties. This is now no longer a matter of inferences or media reports but stated in an Audit Report – P&T’s Audit Office report dated March 31, 2010. The entire exercise was nothing but playing favourites and awarding licenses to a hand-picked set of parties.”
4.3 Multiple Activities on 10 January 2008
On 10 January 2008 afternoon, DoT informed all eligible applicants who applied for UAS licences up to 25th September 2007 through the Press Information Bureau that they would be issued LoI. It was also mentioned in the press release that as per the policy of FCFS being followed for the grant of UAS licences, an application which is received first will be processed first and thereafter if found eligible will be granted LoI and then whosoever, complies with the condition of LoIs first will be granted UAS license. This stipulation took away the relevance of the date of application and the sanctity of the declared FCFS policy. Though the draft press release proposed to maintain the inter-se seniority of applicants based on their date of applications, if more than one applicant complied with LOI conditions on the same day, the same was withdrawn from the final press release. Thus DoT deviated from its declared FCFS policy though MOCIT maintained that it was continuing ‘with the policy (first-cum-first-served) for processing of applications’”
6.2 The process followed for spectrum allocation was also unfair, considering the fact that DoT did not follow its own guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of applications post facto and altered the conditions of the FCFS procedure it had been following, gave unfair advantage of certain companies over others thus creating an environment which can not be perceived as transparent and fair.”
Additional Issues that the CAG Report brings out:
1.                 Changing of the Terms of Reference of the EGoM by the Cabinet to keep out Spectrum Pricing.
3.2.1 Thus spectrum pricing issue was to be decided in consultation with the MoF. However, when a GoM was constituted in February 2006, its Terms of Reference (ToR) were modified at the instance of DoT to keep the issue of spectrum pricing outside its purview. Though MoF insisted for its inclusion in the Terms of Reference (ToR) for the GoM, DoT maintained that ‘spectrum pricing was within the normal work carried out by them’. The Department of Economic Affairs held the view that spectrum pricing is an issue which has far reaching consequences for the economy and needs to be debated, but this was not considered and the views of DoT prevailed in finalisation of ToR.
2.                 Parties who were Not Eligible for award of licenses were Given licenses.
4.4.2            Verification of the files of the DoT and public documents accessed from the Ministry of Corporate Affairs, Government of India, New Delhi, revealed that as many as 85 Licenses to 12 Companies, out of the 122 new licenses issued in January 2008 were granted to those which did not satisfy the eligibility conditions prescribed by DoT. While 72 licenses were given to companies which did not have the stipulated paid up capital at the time of application, 27 licenses were issued to companies who failed to satisfy conditions of main object clause in their Memorandum of Association and the share holding pattern declared by one Company did not meet DoT stipulations.”  
Issued by:
Sitaram Yechury