March 31, 2020
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A Bailout That Could Kick Back

The PMO's package for telecom operators comes under close scrutiny in the face of stiff opposition

A Bailout That Could Kick Back
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THE bailout package pushed through by the Prime Minister's Office (PMO) for private telecom operators has all the trappings of a fin-ancial scam, threatening to stick with the BJP's caretaker regime. Riding roughshod over the reservations expressed in writing by the finance ministry and former communications minister Jagmohan, it took the PMO just over two weeks to offer an escape route to the telecom operators.

The undue haste in rushing through with the New Telecom Policy (NTP) has fuelled allegations that almost Rs 300 crore has been paid as kickbacks. "There is circumstantial evidence to suggest that those vocally endorsing this new deal had a definite role to play in the multi-crore scam," says a Left leader.

The swiftness in announcing the NTP in the face of several objections and warnings has raised many eyebrows giving growing credence to the kickback theory. Consider this:

  •  Jaswant Singh, chairman, Group on Telecommunications, forwards a note to the attorney-general enquiring if it would be legally and morally proper to ask the existing licence-holders to extend their guarantee till March 31. In it, he also spec-ifies that the "legal and moral issues pertaining to new concessionalities" raised by Jagmohan be kept in view.

  •  AG Soli Sorabjee's opinion of January 6 states that telecom operators' plea about an adverse market cannot absolve them from their obligations. "The plea of the operators about wrong calculations or projections of the market having taken an adverse turn does not absolve them from their obligation under the existing licence agreements and certainly does not in law entitle them to any extension of the licensee period to 15 years."

  •  Prime Minister Vajpayee's noting on AG's first opinion on January 9, spells out that the government should follow the AG's advice. Writes Vajpayee: "I agree that we should follow the advice of the attorney-general. The AG has himself outlined the safeguards."

  •  As communications minister, Jagmohan in his note, raises 11 basic queries with the critics of his drive to recover arrears from defaulting companies. He enquired not only about letting the telecom operators off the hook but also wondered whether it was "legally, constitutionally, financially, commercially and morally justifiable to sign legal agreements after giving competitive bids, and then not to observe contractual obligations".

  •  A supplementary note of the finance ministry dated July 6 to the cabinet does not give an all-clear to the bailout package and expresses its reservations. The note says "it would be better to permit the licensees to pay dues in instalments" and that "the proposed extension could also attract audit objection from the CAG (Comptroller and Auditor-General) as also criticism from the public". Litigation may defeat the very rationale of the migration package.

    Yet, the migration has gone through. The decision to migrate from the fixed licence fee regime in basic and cellular services to the new revenue-sharing arrangement will involve a revenue loss of Rs 1443.58 crore, which the government admits to. But what brings the NTP under close scrutiny is the tough stand taken by Jagmohan against the bailout package, necessitating his removal; the fundamentally different opinions given by the AG within a span of four months and the finance ministry's objection to waive Rs 1,400 crore dues of the telecom operators.

    With the Election Commission seeking a "comprehensive report" on the telecom package; the President wanting clarifica-tions on the policy and the opposition parties stoutly maintaining that kickbacks have been received for the new deal, the PMO's spin doctors are hard put to offer credible explanations. "Their (government's) biggest problem is the opposition within, which they have not cared to address," says a senior bureaucrat.

    Sensing the incendiary potential of these inquiries, the government has marshalled all resources at its command to launch firefighting operations. But that hasn't washed well with the opposition, especially the Left parties, who've blasted its defence.

    Among them is Nilotpal Basu, the CPI(M) MP, who was instrumental in releasing sensitive documents on the deal and who has now raised a series of objections on the tenability of the bailout package. "It is a totally misplaced fact that government revenues will actually exceed the budgetary provision of Rs 1,700 crore on licence fee arrears," he says. The onetime settlement of all arrears and all prospective payments for the entire licence period was being sought by the government to be shown as this year's receipt." But more importantly, the government has foregone a legally-bound contractual obligation from the private operators to the tune of Rs 50,000 crore," he adds.

    THE Left parties also argue that the bailout is actually a smokescreen to conceal the real beneficiary. There are primarily eight companies which operate cellular services in the four metros. "These companies got the licence for their services without any high licence fee commitment because the licence amount was unilaterally decided by the then government in 1993," says Basu.

    The clincher, however, is the finance ministry's July 6 supplementary note to the cabinet. The ministry had said in so many words that instead of waiving the Rs 1,400 crore, "it would be better that the licensees are permitted to pay the dues in instal-ments". The note also mentions that the NTP "did not elaborate on the genuineness or otherwise of the problems faced by the existing licensees". This goes against the PMO's claim that the new package was necessary to save the industry from collapse.

    The note also mentions that the proposed extension could also attract audit objections from the CAG.(The CAG had in fact in its 1997-98 report assailed the government for failing to recover amounts due from the telecom operators.) Also, extension across the board for the operators may operate unevenly for some service-providers, leading to possible litigation.

    BESIDES, the government's spin on the bailout package as spelt out in its letter to the Election Commission (EC) is that financial institutions (FIs) would have lost Rs 10,000 crore in NPAs (non-performing assets). But there are gaping holes in this estimate. For instance:

  •  According to the department of telecommunications' (DoT) official estimate, debts raised by telecom companies last year is only Rs 6,000 crore.

  •  The total input into the telecom sector by Indian FIs in '98-99 was less than Rs 2,500 crore. The break-up: The ICICI input to the telecom sector was Rs 986.82 crore, IFCI put in Rs 300 crore and IDBI had the highest input of Rs 1,200 crore.
  •  The bigger Indian banks did not support telecom projects.
  •  The bulk of the funds was provided by American FIs such as Morgan Stanley, ABN Amro, Citibank and Infrastructure Leasing and Finance Corporation (IL&FC) accounting for the lion's share of it. And they could have recovered the money lost by selling the promoter's equity pledged while bank guarantees were provided.

    Any commercial exposure, say portfolio managers, must have been securiti-sed. And in any case, the entire amount must have been invested in infrastructure which is, therefore, recoverable. So how did the telecom operators prise the bailout from the government? It is reliably learnt that the companies had launched a campaign a year ago in which sections of the media participated actively. The problems faced by the operators got coverage disproportionate to their lapses. The DoT and the ministry of communications were also put under tremendous pressure to offer sops. And following its announcement, the PMO was proactive in getting DoT to get private sector companies to sign up. "The PMO was always interested in the bailout package and one senior bureaucrat was the pointsman for the operators," says an IAS officer.

    There is yet another problem that's cropped up requiring urgent attention. The announcement of an interim 15 per cent of the gross for the revenue-sharing arrangements in the NTP without consulting the Telecom Regulatory Authority of India (TRAI) is violative of the TRAI Act passed in Parliament. Upset over the prospect of TRAI's role being heavily restricted to just fix-ing tariff, its chairman, Justice S.S. Sodhi, has moved the Delhi High Court. "The role and jurisdiction of TRAI stands severely undermined," says he.

    The clauses being objected to would literally deprive TRAI of its authority involving the grant of licences for phone services and consultations with it on policy matters. Under the TRAI Act which spells out its powers and functions, it's the Authority's duty to recommend the need and timing for introduction of new service providers as well as the terms and conditions for granting such licences. "With TRAI going to court, it will give the telecom operators the biggest excuse to carry on operating with impunity," says Basu. Also no reasons are advanced on why the bailout package scuttles the entry of DoT/MTNL as the third cellular operator in 17 cities for a period of two years.

    With its well spread-out basic phone network, DoT's cellular services will be a bigger threat to private companies. As a result, companies have always been eager to sabotage DoT's entry into the cellular service, which it could offer at competitive prices. "This ensures a free reign for the private operators," says a senior official.

    What has also irked the Opposition is that the NTP was never placed in Parliament after it was finalised by the government even while it had a majority in the Lok Sabha. Not only that, according to the CPI(M) politburo member Sitaram Yechuri, it was not even sought to be listed in the business of either of the two Houses though there was enough time between the framing of the policy and the Lok Sabha dissolution. "The parliamentary system is based on precedents and conventions which is valid as law itself. Earlier in '94, the Telecom Policy was placed in both the Houses on May 13, 1994," he said.

    It was this act which prompted President K.R. Narayanan to express reservations on the telecom package approved by the Union cabinet on July 6, barely hours before the EC announced the schedule for Lok Sabha polls, effectively barring the government from taking policy decisions. He wrote to Vajpayee asking that the telecom package be put in abeyance as it was improper for a caretaker government to take a decision entailing a revenue loss of Rs 1,400 crore. The PMO, in turn, wrote to the President stating that the changeover to the fin-ancially less-depleting income-sharing formula from August 1 was a follow-up of the cabinet-approved NPT. The new policy, it added, was needed to revive the industry.

    Irrespective of what the EC decides, the NPT will continue to hound the caretaker government at the hustings. As an opposition member put it: "The bailout stinks but the cover-up putrefies."

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