FDI in reverse: 'Return our money', says 2G order victims

When global investors start asking for their money back, it’s time to ask whether India is a great foreign direct investment (FDI) destination.

In the last three weeks, telecom has been a major heart-burn zone for foreign investors after the Supreme Court cancelled 122 licences issued by Andimuthu Raja on 2 February.

Two investors have already said they are leaving (Batelco and Etisalat), and two others - S Tel and Sistema - are asking uncomfortable questions about their money and the safety of investments already made in the sector.

[caption id=“attachment_229727” align=“alignleft” width=“380” caption=“When global investors start asking for their money back, it’s time to ask whether India is a great foreign direct investment (FDI) destination. Reuters”]  [/caption]

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Batelco, which had invested in S Tel, has already taken back the $175 million it had invested in the company - though this exit was financed by its partner, C Sivasankaran.

S Tel was among those who protested Raja’s arbitrary decision to advance the cut-off date for issuing licences under his flawed first-come-first-served (FCFS) policy. It is asking for a refund, according to a report in Hindustan Times, since the error was in the way the licences were issued.

In a letter to the PM and the Communications Minister, S Tel said: “We are ready to submit to an independent audit to validate our claims for return of our investments. This would also make the process easier for the government to decide in providing succour to an operator who has been consigned to the bin for espousing the illegality of the cutoff date.” S Tel had 3.5 million subscribers in six states who are being migrated to other service providers.

More aggressive has been the response of Sistema, which runs the MTS mobile service under the corporate umbrella of Sistema Shyam Teleservices (SSTL). It has demanded protection for its investment under the India-Russia bilateral investment treaty (BIT). If it does not get justice, it will seek international arbitration.

A PTI report quotes Sistema President and CEO Vsevolod Rozanov as saying that India had no right to “expropriate” their investments amounting to about $3.1 billion in MTS. He said: “Cancellation of SSTL’s licenses following Sistema’s investment of billions of dollars into the Indian cellular sector is contrary to India’s obligation under BIT, including obligations to provide investments with full protection and security and obligations not to expropriate investments.”

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Since the PMO has confirmed that other injured investors have made similar claims, it is now clear that the government will have no option but to move court to get the 2G licence decision reviewed. While it may not challenge the cancellation of the licences, it will seek to assert its right to follow its own policy, which is not the court’s domain. It may also seek to give priority to those with cancelled licences to bid for spectrum to contain the damage.

It’s over to court once more. But needless to say, if the government does not fix the telecom mess quickly, FDI could soon become FDD - foreign direct disinvestment.