2G Scam: The Story So Far

(Published in The New Indian Express, School Edition, dated 8 February 2012, retrieved from http://expressbuzz.com/school/2g-scam-the-story-so-far/361267.html)


NOTE: This is not an opinion piece. It's a summing-up of everything that's happened in the 2G case so far. Feel free to use.

Over the last week or so, the judgments in the Supreme Court and CBI trial court hearing the 2G spectrum allocation scam case have rarely left the headlines.

The Prime Minister’s office has been ticked off, the report of the Comptroller and Auditor General  (CAG) has been vindicated, then Finance Minister P Chidambaram has been let off the hook, then Telecom Minister A Raja has been taken to task and – most importantly – 122 telecom licences granted when he was in charge of the ministry have been revoked. Auctions will be held to sell the spectrum that is now available.

So, what are the events that have led up to this, and what will happen next?

The Background

In January 2008, the Telecom Ministry began licensing 2G spectrum to mobile telephony companies. However, instead of auctioning the spectrum or increasing prices, the government sold it at prices fixed in 2001, and on a first-come, first-served basis. This is believed to have caused a loss of Rs. 1.76 lakh crore to the treasury, as estimated by the CAG.

Later, it was found that two of the companies that bought licences – Unitech Group and Swan Telecom – sold stakes in their companies at huge profits to other corporate firms. This means the licences, which were supposed to be sold at market value, had actually been sold for much less.

The CAG report also found that up to 85 of the 122 new licences had been sold to firms that had no prior telecom experience, that had suppressed relevant facts or were otherwise ineligible. Among other charges, Raja has been accused of accepting bribes to grant spectrum.

The scam broke in 2010, when the Income Tax Department was investigating corporate lobbyist Niira Radia, and media houses got hold of taped conversations between her and ministers including A Raja and Kanimozhi, as well as between her and industry captains including Ratan Tata and representatives of Mukesh Ambani. Radia’s conversations with senior journalists Barkha Dutt and Vir Sanghvi set off a furore about the media’s role in the scam. The government has claimed in court that these tapes were doctored.

While the UPA government went on the defensive, with current Telecom Minister Kapil Sibal saying there was ‘zero loss’ to the exchequer because of the manner in which spectrum was distributed, there was speculation for some time that the government may collapse under the weight of the scams its ministers were responsible for – the 2G and the Commonwealth Games scandal among these.

What happened in the courts?

On February 2, the Supreme Court gave its verdict – all 122 licences were to be cancelled. The decision took everyone by shock, and could have far-reaching consequences for several telecom companies. The involvement of foreign investors could likely mean there will be a series of frantic meetings between the powers-that-be in the near future.

A few days earlier, the Supreme Court had ticked off the Prime Minister’s office for sitting on an appeal from Janata Party President and eminent lawyer Subramanian Swamy, to prosecute then Minister A Raja. The apex court stipulated a 3-month time frame for sanction to be given to prosecute a minister, after which permission will have been deemed granted. The court noted that Swamy had been pursuing the case for 3 years.

The SC also said the government only made a sixth of the amount it could have if spectrum had been auctioned. Swamy, who filed the case on behalf of his NGO, Centre for Public Interest Litigation, had also alleged that then Finance Minister P Chidambaram was complicit, with Raja, in allowing Swan and Unitech to offload their shares at a profit of seven to eight times to UAE based Etisalat and Norwegian firm Telenor respectively. However, the SC, which hadn’t indicted either Manmohan Singh or Chidambaram, left it to the trial court to decide on Chidambaram’s involvement. On Thursday, the CBI trial court dismissed the petition against Chidambaram.

The SC, however, came down heavily on Raja, saying he had not informed the Finance Secretary about meetings with the Telecom Regulatory Authority of India (TRAI), or got in touch with the Finance Ministry to finalise the pricing for spectrum, despite knowing the Finance Secretary was not in favour of selling spectrum at 2001 prices.

It also vindicated the report of the CAG, upholding that there were irregularities in spectrum allocation, and that it had been given out in an “arbitrary and unconstitutional manner”. The 122 licences had been sold for just about Rs 9000 crore, while a smaller number had fetched the government Rs 69,000 crore.

The court also imposed a fine of Rs 5 crore on three companies that offloaded their shares for profit. Seeking fresh recommendations from TRAI regarding auction, the apex court directed the government to take steps within a month to conduct auctions in a transparent manner within 4 months.

In response to Swamy’s demand that a Special Investigation Team (SIT) be constituted to look into the case, as the government agencies were not conducting a satisfactory probe, the SC appointed the Central Vigilance Commission  (CVC) as watchdog for the case. Acknowledging that the CBI had not been up to speed in the beginning, the Bench held that since December 16, 2010, the agency hadbeen thorough in its investigations. But taking into account “the large number of influential persons” involved, it asked the Enforcement Directorate and CBI to give all their status reports in sealed covers to the CVC.

The Impact

With several operators who have acquired licences already in business, there could be large scale use of the number portability provision. It isn’t clear yet what recourse existing customers of companies like Uninor, Docomo and Idea have.

The shares of several of the 9 companies whose licences have been cancelled have fallen sharply in the stock market.

In terms of economy, there are consequences for the banking sector and for Foreign Direct Investment (FDI) too.

Banks, including the government-owned State Bank of India and Punjab National Bank, as well as several private banks, had given loans to the tune of 28,000 crore to operators against the spectrum that comes bundled with licence. As the licences have been revoked, these loans cannot be repaid, and will become ‘non-performing assets’ or ‘bad loans’.

The sudden revocation of licences could also make foreign investors more cautious about investing in telecom in India. From April 2000 to March 2011, FDI has amounted to about Rs 48,000 crore.

Politically, a rather amusing blame game is being played out. Sibal has reversed his ‘zero loss’ stance, and has blamed the previous NDA regime for fixing the prices in 2001 and formulating a first-come-first-served policy. The opposition BJP, which was a key constituent of the NDA, has been making noises against the UPA’s corrupt policies, while Anna Hazare’s team and Baba Ramdev have taken to addressing rallies about the corrupt government with renewed zeal.

What will happen now?

Swamy has said he will file an appeal in the Supreme Court against the verdict in favour of Chidambaram in the trial court.

Several high-profile lawyers have been hired by the firms whose licences have been cancelled. Tata has hired Harish Salve as consultant, while Idea has brought in C S Vaidyanathan, and Loop Telecom is using the services of Aryama Sundaram.

Diplomatic talks are likely to begin soon, as Norwegian firm Telenor and Russian firm Sistema are involved. Telenor has a 67.25 stake in Uninor, and the rest is with real estate major Unitech. The Norwegian government, in turn, has a 55 percent stake in Telenor, and its IT and Government Administration minister Rigmor Aasrud, who is scheduled to visit India anyway, has sought a meeting with Kapil Sibal. Russian embassy officials have said their politicians will speak to India shortly, as Sistema has invested $ 600 million in the project.

It is estimated that up to 300 megahertz of spectrum is likely to be auctioned by the middle of the year. Of this, 98 megahertz is from the operators whose spectrum was cancelled. The remaining could come from the spectrum that is available with Defence and other departments.

WHO LOST OUT?
Company	Licences Cancelled In
Uninor	22 circles
Loop Telecom	21 circles
Sistema-Shyam	21 circles
Videocon	21 circles
Etisalat-DB	15 circles
Idea Cellular	9 circles
S Tel	6 circles
Spice	4 circles
Tata	3 circles

TIMELINE
May, 2007	Raja takes over as telecom minister
August, 2007	Department of Telecom begins spectrum allotment and licensing process
September 25, 2007	Telecom ministry sets October 1 as application deadline
October 1, 2007	575 applications received from 46 companies
November 2, 2007	PM sends his recommendations to Raja, most of which are not taken into consideration
November 22, 2007	Finance Ministry writes to Raja, asking for a review of the spectrum allocation procedure, but this is unheeded
January 10, 2008	Telecom ministry changes cut-off date to September 25, and announces licences will be given on a first-come-first-served basis
January 14, 2008	Swan Telecom, Unitech and Tata Teleservices sell off part of their stakes at higher rates to Etisalat, Telenor and Docomo respectively
November 29, 2008	Subramanian Swamy writes to PMO, seeking permission to prosecute Raja under the Prevention of Corruption Act
May 4, 2009	CVC directs CBI to probe spectrum allocation after receiving a complaint from NGO Telecom Watchdog
July 1, 2009	Delhi HC overrules advancing of cut-off date
October 21, 2009	CBI lodges FIR against several DoT officials
October 22, 2009	CBI raids DoT offices
March 31, 2010	CAG submits report, citing “gross irregularities” in spectrum allocation.
May 6, 2010	As a phone conversation between Raja and Niira Radia is leaked, Swamy moves Delhi HC for a probe by SIT or CBI
May 25, 2010	Delhi HC dismissed Swami’s petition
August 10, 2010	Swamy appeals in SC
August 18, 2010	Delhi HC turns down Swamy’s appeal to direct PMO to sanction prosecution of Raja
September 13, 2010	SC gives notice to Centre and Raja, asking them to reply to allegations that there was a Rs 70,000 crore scam, within 10 days
September 24, 2010	Swamy appeals to SC to direct PMO to sanction prosecution of Raja
November 10, 2010	CAG submits a report, pegging loss to exchequer due to spectrum allocation at Rs 1.76 crore
November 11, 2010	Telecom ministry files affidavit in SC, protesting against CAG’s questioning of a policy decision
November 14, 2010	Raja resigns as Telecom Minister
December 8, 2010	SC sets up a special court to try the 2G scam case; a report by the ED traces money trail to 10 countries
February 2, 2011	Raja, his aide R K Chandolia  and former telecom secretary Siddartha Behura arrested
February 8, 2011	Swan Telecom promoter Shahid Balwa arrested
May 20, 2011	Kanimozhi and several others arrested
August 23, 2011	Swamy moves SC to make Chidambaram accused
September 15, 2011	Swamy moves special CBI court to make Chidambaram co-accused
September 22, 2011	CBI defends Chidambaram in SC, puts blame on Raja
October 22, 2011	CBI special court frames charges against Raja and 16 others
November 28, 2011	Kanimozhi gets bail
December, 2011	Essar and Loop promoters listed as accused
January 31, 2011	SC  ticks off PMO for taking too long to respond on request for sanction for prosecution of Raja, sets 4 month deadline in future
February 2, 2011	SC cancels 122 licences granted during Raja’s tenure
February 4, 2011	Special court turns down Swamy’s appeal to direct CBI to probe Chidambaram’s role in the scam