Auditor was divided on 2G losses

Auditor was divided on 2G losses

New Delhi: The 65,000 crore to 1.76 trillion estimate for losses (from the improper allocation of spectrum to telcos in 2008) put forth by the government’s auditor, the Comptroller and Auditor General of India (CAG), appears to be based on a methodology that even the team doing the audit didn’t entirely buy.

Internal CAG documents reviewed by Mint indicate that R.P. Singh, director general of audit (post and telecommunications) and the man who headed a team that conducted the audit on the allotment of spectrum and licences, was of the opinion that the loss could not be quantified.

To be sure, the issue isn’t about whether there was wrongdoing in the grant of licences that favoured certain telcos—a matter that is being investigated by the Central Bureau of Investigation (CBI) and which is the subject of the case before a special court—but the magnitude of the losses involved.

It is likely, though, that the revelation of dissent within CAG on the methodology used to calculate the losses could affect CBI’s case.

One of the more serious charges levelled by the federal investigation agency is that the sale of equity in Swan Telecom (now Etisalat DB Telecom Pvt. Ltd) and Unitech Wireless Ltd (Uninor) resulted in a loss of 30,000 crore to the exchequer, a number drawn from CAG’s calculations.

CAG reported four figures as possible presumptive (or notional) losses arising from the way the government chose to allot spectrum to companies in 2008: 67,364 crore, 57,666 crore, 69,626 crore and 1.76 trillion.

The first was based on an offer by telecom operator STel Pvt. Ltd to the Prime Minister for a pan-India licence; the second and the third, a range, on the sale of equity by Swan and Unitech, and the fourth on the price at which third-generation (3G) spectrum was auctioned.

The numbers caused a huge stir and accelerated a CBI investigation that subsequently came under the purview of the Supreme Court. It also led to the resignation and arrest of former telecom minister A. Raja, and the arrest of 16 others, including senior executives at large companies and bureaucrats.

It now emerges that Singh, in a letter dated 8 July 2010 to CAG’s headquarters, said: “It will be difficult to establish a tenable link between the value of UASL and the net worth of foreign investments the licensees attracted." UASL refers to the Unified Access Services Licence.

An internal note circulated in Singh’s department and also dated 8 July said: “We are not on strong grounds in the argument made." The note added that “however, since the headquarters" wants a draft, “we may forward it".

In its report, placed before Parliament on 16 November, CAG displayed none of the doubt that Singh and his team seemed riven by, and said: “Such huge equity infusion by the investor company was a price that they paid for 2G spectrum."

Interestingly, the 8 July letter and internal note are similar to a letter sent on 31 May 2010 by Singh to the CAG headquarters, expressing difficulty over quantifying the losses. The letter mentioned that STel’s offer couldn’t be used as a basis for the calculation because the company withdrew the offer later (before the Delhi high court, and in controversial circumstances).

It added that the price used for 3G spectrum couldn’t be used to calculate the losses because “charging for 2G spectrum was never recommended by Trai (the Telecom Regulatory Authority of India) or the government has never contemplated any charges for the spectrum other than entry fee".

This is a position that Trai still maintains.

In its communication to CBI dated 20 August, Trai secretary R.K. Arnold said the regulator’s consistent view was “that telecom services and spectrum should not be treated as a source of revenue for the government. It is against this background that Trai did not recommend any increase in the entry fee for new players, by way of indexation or otherwise".

Singh’s team also appears to have found nothing improper in the investments by foreign companies in Swan Telecom and Unitech Wireless because these were in fresh shares and not shares of the promoters. Indeed, this is one of the arguments being made by the defence in the ongoing case before the special court. It wrote to the CAG headquarters that the investments “did not transgress the UASL guidelines" and “to attribute the foreign investments completely to UASL may not be appropriate because one of the major factors an investor would consider before venturing into any market would be its size…; finance ministry has concurred that it is a case of dilution of equity and not sale of equity by promoters".

The team, however, did finally venture to put a number to the losses to the government:Rs 2,645 crore. The number came from inflation.