Was Chidu note on spectrum to PM a covert nod to Raja?

A note from then Finance Minister P Chidambaram to the PM suggests that he did not raise any objection to Raja's telecom licence allocations.

Raman Kirpal September 21, 2011 13:45:20 IST
Was Chidu note on spectrum to PM a covert nod to Raja?

A note from P Chidambaram to Prime Minister Manmohan Singh dated 15 January 2008 - exactly five days after Andimuthu Raja made his controversial award of 122 new telecom licences -seems to suggest that the two, willy-nilly, accepted Raja's decision as a given and did not question his decision to keep entry fees and spectrum charges at 2001 levels.

Chidambaram's 15 January "Note on spectrum charges" to Manmohan Singh says that "the past may be treated as a closed chapter..." and, instead, recommended the allocation of additional spectrum through auction in future, as this "method of auction will face the least legal challenge." Those who already held additional spectrum above the start-up spectrum would pay for it through auction-determined prices.

Was Chidu note on spectrum to PM a covert nod to Raja

Chidambaram's note assumes significance in the light of Janata Party President Subramanian Swamy's petition in the Supreme Court.AFP Photo

The reference to "legal challenge" implies that Chidambaran knew Raja's method of giving licences and spectrum could face legal hurdles, but he still preferred to treat it as a "closed chapter".

The 15 January note of Chidambaram, who was finance minister at the time, was obtained by Firstpost through an application made under the Right to Information Act. The note suggests that both Chidambaram and the Prime Minister knew what Raja was up to, and they had no problem - at least on record - with the 2001 entry fee or the spectrum. The note remains 'mum' on Raja's allocation of spectrum. Chidambaram only advocates auctions for the future. (Under the norms, the entry fee included "free" start-up spectrum, but additional spectrum had to be paid for).

PM-Chidambaram Note

Both Chidambaram and Manmohan Singh were in position to stop Raja from signing the deals as the latter had only issued 122 letters of intent (LOIs) on 10 January 2008. The licences were still to be given. But given the silence of the Prime Minister, Raja went on signing licence agreements on the basis of the 122 LOIs even a month after Chidambaram's note to the Prime Minister.

Chidambaram's note assumes significance in the light of Janata Party President Subramanian Swamy's petition in the Supreme Court saying that the Central Bureau of Investigation (CBI) should investigate Chidambaram's role in the 2G scam. Swamy alleges that Chidambaram "fixed" spectrum rates along with Raja. The note shows that even if the two didn't collude to fix the prices, Chidambaram wanted to treat it as a "closed chapter".

While elaborating on the pricing of spectrum, Chidambaram's 15 January note reads: "At this point of time, the following three charges were levied":

1)Entry fee: The present entry fee is based on the highest bid received in 2001 or 2002, namely, Rs 1,651 crore, if operating over the entire country. DoT (Department of Telecommunication) has taken the stand (that) the entry fee is not in the nature of spectrum charges or licence fee.

2)Charges for spectrum: Currently, spectrum charges are fixed at 2%, 3% or 4% of adjusted gross revenue (AGR) depending upon the spectrum bandwidth...It is also provided that additional spectrum may be considered after ensuring optimal and efficient utilisation of the spectrum allocated.

3)Revenue share (also described as licence fee): With effect from 1.4.2004, the share is 10% for category A, 8% for category B and 6% for category C (telecom circles).

Chidambaram further says: "This note does not deal with the need, if any, to revise entry fee or the rate of revenue share. This note deals with spectrum charges for 2G spectrum."

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The controversial issue of entry fee (as fixed in 2001), thus, faced no opposition in Chidambaram's note. He did not oppose the fact that Raja sold off spectrum in 2008 at 2001 entry rates. Chidambaram, in fact, made it clear that his note doesn't deal with revision of entry fees and even licence fees. The note overshadows all the earlier claims that his ministry, through former Finance Secretary D Subbarao, had opposed Raja's attempts to sell spectrum at 2001 rates. Even if the attempts were made, Chidambaram's note reflects that he was finally on the same page with Raja.

Chidambaram only tells Manmohan Singh the way the UPA Government can avoid legal hassles in future.

"Spectrum is a scarce resource. The price for spectrum should be based on its scarcity value and efficiency of usage. The most transparent method of allocating spectrum would be through auction. The method of auction will face the least legal challenge. If government is able to provide sufficient information on availability of spectrum, that would minimise the risks and, consequently, fetch better prices at the auction. The design of the auction should include a reserve price," Chidambaram wrote in 'bold letters' to Manmohan Singh.

Chidambaram then goes on elaborating on the nature of the auction. It could be a "one-time payment" for the additional spectrum or "an annual rent" for the additional spectrum, etc.

Interestingly, Chidambaram's note to the PM also pointed out that spectrum once allocated to a licensee may be sold to another person. In such cases, "it could be stipulated that the licensee should share with the government a part of the premium/profit gained through the sale."

This, in fact, is what happened with Swan Telecom and Unitech Wireless. Raja had allocated spectrum to Swan in 13 circles at the price of Rs 1,537 crore and to Unitech in 22 circles at Rs 1,658 crore. Swan and Unitech had not even rolled out 2G spectrum services, when Swan offloaded 45 percent of the company to a UAE-based company Etisalat for Rs 4,200 crore. Unitech offloaded 60% of its share in the licence to a Norway-based Telenor for Rs 6,100 crore.

The CBI, in its FIR, had estimated a loss of Rs 7,105 crore to the government by grant of licences to these two companies alone. On a pro-rata basis, the CBI FIR says, the estimated loss for all 122 circles is more than Rs 22,000 crore.

Winding up his note to Manmohan Singh, Chidambaram says:

"This leaves the question about licensees who already hold spectrum over and above the start-up spectrum. In such cases, the past may be treated as a closed chapter and the payments made in the past for additional spectrum (over and above the start up spectrum) may be treated as the charges for spectrum for that period."

"However, prospectively, such licensee should pay for the additional spectrum that he holds, over and above the start-up spectrum, at the prices discovered in the auction. This will place old licensees, existing licensee seeking additional spectrum and new licensees on par so far as spectrum charges are concerned."

Chidambaram's note legitimises Raja's allocation of spectrum to new licensees like Swan, Unitech and Loop. He only advises that in future the government should auction additional spectrum to them.

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