February 16, 2012

Chidambaram may not be out of 2G thicket yet
Shalini Singh In this News Analysis, Shalini Singh says a long-drawn legal battle is likely ahead.

Last week, the Congress party celebrated CBI Judge O.P. Saini's decision rejecting a petition that demanded Union Home Minister P. Chidambaram be named an accused in the 2G spectrum case. But a deeper reading of the judge's order, as well as of case documents with The Hindu, suggests those celebrations may be premature.

While letting Mr. Chidambaram off the hook, Judge Saini categorically states that he was a party to two critical decisions taken by jailed ex-Telecom Minister A. Raja. This, paradoxically, draws the Union Home Minister even deeper into the 2G vortex.

Saini contradicts Chidambaram For months now, Congress crisis managers and Mr. Chidambaram himself have been insisting that he had, as Finance Minister, opposed Mr. Raja's plans to give away spectrum in 2008 at 2001 prices. Simply put, their argument is that Mr. Raja acted alone.

In

October

2011,

Mr.

Chidambaram

told India

Today magazine: “Even after the 121 letters of intent were issued on January 10, 2008, the Ministry of Finance continued to argue that auction was legally possible, explored alternatives to auctions in view of DoT's objections and suggested updating the entry fee, adopting one of two methods that would yield an additional Rs. 3,028 crore or Rs. 3,400 crore per licence which could be charged

up front when the licensee applied for additional spectrum beyond the start-up spectrum.”

Yet, while exonerating Mr. Chidambaram, Judge Saini, in his February 4 Order, arrived at just the opposite conclusion: that “he [Mr. Chidambaram] agreed with Raja not to revise or revisit the entry fee or spectrum charge as discovered in 2001”. [Emphasis added].

The contradictions go deeper. Judge Saini's conclusion supports the Prime Minister, who, on February 24, 2011, told the Rajya Sabha that the two ministers had agreed on spectrum pricing. If there is indeed an agreement, when was it struck and is it on the files?

New questions on Swan, Unitech profits Judge Saini also finds that, “In the end, Mr. P. Chidambaram was party to only two decisions, that is keeping the spectrum prices at 2001 levels and dilution of equity by the two companies.” Concluding in the Home Minister's favour, he held: “These two acts are not per se criminal.”

However, the Supreme Court does not treat the Swan and Unitech transactions as mere equity dilution or capital infusion. Instead, it affirms that the Swan and Unitech transactions were windfall gains, stating: “This becomes clear from the fact that soon after obtaining the licences, some of the beneficiaries offloaded their stakes to others in the name of transfer of equity or infusion of fresh capital by foreign companies and thereby made huge profits.”

Official documents from January–May 2008 in the possession of The Hindu show that the government anticipated huge

spectrum-linked valuations and profits by way of “rent seeking” behaviour of companies involved in such M&A's, well in advance of the Swan/Unitech deals. In fact, within 20 days of the scam, in a meeting between Mr. Chidambaram and Mr. Raja on January 30, 2008, and attended by the Finance and DoT secretaries, it was agreed that these entities should be valued and the government must recover its share of premiums arising from “trade in spectrum.”

Against this backdrop, Judge Saini's finding that Mr. Chidambaram was party to the “dilution of equity by the two companies” raises a key question: Why did the Finance Ministry not insist the government get its “share of the premium” from the Swan and Unitech transactions, despite the “huge profits” being earned by the promoters?

Official memos, minutes of meetings, letters and internal notes with The Hindu written on February 8, 11, April 7, 8, 16, 21, 24 and May 28, 2008 reveal that while Finance Ministry officials initially fought Mr. Raja's illegal moves, they later progressively diluted their stance.

The Ministry first insisted that all spectrum — including start-up spectrum — can legally be auctioned. It then capitulated to the DoT's arguments, allowing 4.4 MHz of start-up spectrum to be given without any price revision. Not stopping at this, it then went on to concede up to 6.2 MHz of spectrum at the 2001 price.

The new documents reveal, but fail to explain why the Finance Ministry softened its stand in 2008, from January 10, the day of the scam itself, by backing off on market pricing for spectrum. This softening extended from the time the licences were issued in February/March, down to April, when the new M&A guidelines were announced and spectrum allocation began, all the way

till September/October 2008, when Swan and Unitech finally offloaded their equity for a huge profit. Each successive dilution by the Finance Ministry meant that North Block was acquiescing to additional hits to legitimate government revenue.

Other

questions

also

arise

from

the

contentious

Office

Memorandum from the Finance Ministry to the PMO of March 25, 2011 which shows the Finance Ministry first standing up to Mr. Raja and then backing off, only to later, on November 11, 2008 again seek revision of entry fee for all future licences given after January, 2009. The Finance Ministry's special accommodation only for spectrum awarded by Mr. Raja is unexplained. This document has been attacked for “inaccuracies” by Congress representatives in the JPC on 2G but the government has so far failed to explain its contents, save for a short statement from Pranab Mukherjee distancing himself from “the inferences drawn.” The contradictions between Judge Saini's Order, the public positions taken by Mr. Chidambaram and the Prime Minister, the Supreme Court verdict, and the revelations arising from these new documents all seem to suggest a long-drawn legal battle likely lies ahead.

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