New Delhi: A battle royale is on the cards with the Comptroller and Auditor General of India (CAG) deciding to dig in its heels and publicly defend its findings being scrutinized by the Public Accounts Committee (PAC). This could snowball into more political trouble for the Congress-led United Progressive Alliance (UPA).

Without naming telecom minister Kapil Sibal, CAG said in a press statement: “Making public comments on the matter which is being considered by a parliamentary committee is highly improper and may even amount to contempt of the House."

Launching attack: PAC chairman Murli Manohar Joshi. Hindustan Times

On the same day, Murli Manohar Joshi, chairman of the PAC reviewing the findings of the CAG report dealing with the allocation of second-generation (2G) spectrum, backed CAG and condemned Sibal’s remarks.

Addressing a press conference, Joshi said that the minister’s remarks were improper and they questioned the integrity of CAG. “We will take steps to ensure such incidents do not happen again," he said.

Sibal could not be reached immediately over the phone and did not respond to text messages.

Shakeel Ahmad, Congress spokesperson, said, “Sibal has every right to counter the allegations, which were in the public domain even before they were tabled in the House. The report was leaked before it came to Parliament. The CAG report is not sacrosanct and it’s for public scrutiny."

Meanwhile, CAG has readied its counter argument to be presented before PAC at its next meeting, according to two persons familiar with the development, who spoke to Mint separately on condition of anonymity. It will be a point-by-point rebuttal of Sibal’s remarks on CAG’s findings.

The minister had questioned the methodology of the findings and claimed that the estimated loss of 1.76 trillion was highly exaggerated. This is because, he argued, operators had only been given spectrum of up to 4.4MHz, which is “start-up" spectrum. The start-up spectrum has always been allotted free of cost along with the licence, for which the firms paid 1,658 crore, he added.

Sibal also criticized CAG’s observation that government lost 36,993 crore because nine telecom firms were holding extra spectrum. He argued that this should not be termed as a loss since the government is yet to frame a policy on it.

On the defensive: Telecom minister Kapil Sibal. PTI

According to the CAG defence reviewed by Mint, the contractual agreement was only for 6.2MHz, and the technical committee appointed by the department of telecommunications in 2009 and the Telecom Regulatory Authority of India (Trai) in May recommended that operators should be charged for additional spectrum beyond 6.2MHz.

Sibal had further argued that new entrants only had 4.4MHz and not 6.2MHz of spectrum, which was used by CAG to project the loss. According to him, accounting for this, the total loss would have been 72,000 crore.

The CAG note argues that this is a mistaken assumption by the minister because its calculations are based on 4.4MHz as 1.8MHz is given out free to the telecom firms, as the contract has been signed for 6.2MHz.

Sibal, in his press conference held on Friday, said losses were based on 2010 rates though mobile permits were issued in 2008.

One of the two persons cited above said: “In that case, we will have to factor in the interest rate as well. So it balances out. So the argument that a 99,000 crore loss reduces to 56,000 crore is not fair. It won’t make that much of a difference in any case."

Similarly, they also propose to challenge Sibal’s argument that CAG had erroneously used the 3G (third-generation) spectrum auction rate to arrive at the presumptive loss accruing to the exchequer in giving out 2G spectrum on a first-come-first-serves basis.

“We used the comparison to demonstrate that the market value is manifold than the government valuation. 3G was valued at 3,500 crore, but sold out at approximately 1 trillion. Also, importantly, Trai in 2005, valued 3G only at 1,100 crore. So the efficiency and other related matters are debatable," the same person said.

CAG further proposes to challenge Sibal’s claim that the policy was a carry forward from the previous coalition regime led by the Bharatiya Janata Party, by saying that it is bound by the cabinet decision of October 2003. “The 2003 cabinet decision clearly spelt out that the spectrum should be allocated only through auction," it said.

“To say that no money was lost in 2G allocation is certainly not right. CAG has used several assumptions to arrive at what could have been the loss. CAG lacks the expertise to do this job, however, to be fair to it their estimate might be off the mark, but it is not incorrect," Mahesh Uppal, a regulatory expert and a director of Com First (India) Pvt. Ltd, said.