Tag: Not Just an Accountant

17 September, 2014

2G scam: Time to stop portraying Vinod Rai as the villain when politicians are to blame

Vivek Kaul

In a blog on The Economic Times website TK Arun writes that “Former CAG[Comptroller and Auditor General] Vinod Rai does a far better job of drumming up publicity for his book than he did of auditing the government’s accounts.”
This is a very serious charge and needs to explored in detail. Arun further writes that “The New Telecom Policy identified, in 1999, the goal as maximizing the spread of telecom, so as to accelerate the pace of social and economic development.” True.
But there are certain details that one needs to look into. The National Telecom Policy of 1999 had set a teledensity target of providing 15 telephone connections per 100 of population. The teledensity in 2001 had stood at 3.58. In September 2007, a teledensity of 18.22 had been reached.
It was only in September 2007 that the shenanigans of the then communications minister A Raja started. In a press release put out by on September 25, 2007, applications were invited for telecom licenses. The last date was set to October 1, 2007, a week later. In total 575 applications for 22 service areas were received by the communications ministry.
There wasn’t enough telecom spectrum available to allocate to so many applicants. So what was the way out? In fact, the tenth plan document clearly mentions this, when it comes to spectrum allocation: “pricing needs to be based on relative demand and supply over space and time in a dynamic manner, [with] opportunity cost to reflect relative scarcity of the resource in a given situation.”
So yes, the goal of the National Telecom Policy of 1999 was to maximize the spread of telecom, but there were other factors to consider as well. Interestingly, Manmohan Singh wrote a letter to A Raja on November 2, 2007. In this letter Singh said “In order that spectrum use efficiently gets directly linked with the correct pricing of spectrum, consider (i) introduction of a transparent methodology of auction, wherever legally and technically feasible, and (ii) revision of entry fee, which is currently benchmarked on old spectrum auction figures.”
The telecom licenses were to be given away by following the first-come-first-served process, with an entry fee being charged. An entry fee of Rs 1,651 crore, set in 2001 was being charged. The Indian telecom sector had totally changed in the meanwhile. As mentioned earlier the teledensity in 2007 was at 18.22 per 100 of population, having exploded from 2001 onward when it was at 3.58.
Taking these factors into account, the telecom regulator TRAI had also pointed out in August 2007 that “In today’s dynamism and unprecedented growth of telecom sector, the entry fee determined in 2001 is also not the realistic price of obtaining a license. Perhaps it needs to be reassessed by a market mechanism.”
As Rai points out in his book Not Just An Accountant—The Diary of the Nation’s Conscience Keeper: “It is obviously no one’s case that we need to sit back once a target is achieved, but surely revenue mobilization, in lieu of a scarce national resource being made available for private commercial exploitation where tariff is not fixed, cannot be totally overlooked.” If nothing else, at least the rate of inflation had to be taken into account while charging an entry fee.
The National Telecom Policy of 1999 aimed at maximizing teledensity, nevertheless there were certain ifs and buts built into it. As Manmohan Singh pointed out to Raja in the letter cited earlier: “The DoT [department of telecom] has received a large number of applications for new licenses in various telecom circles. Since spectrum is very limited, even in the next several years all these new licensees may never be able to get spectrum. The Telecom Policy that had been approved by the Union Cabinet in 1999 specifically stated that new licenses would be given subject to availability of spectrum.”
So, it wasn’t just about maximizing the spread of telecom, as Arun wants us to believe. Other practical issues needed to be considered as well.
Arun further goes on to write “As for Rai’s criticism of Manmohan Singh, it would be fair to ask: has he estimated the cost that would have been inflicted on the nation by the political turmoil and uncertainty caused by the then-PM refusing to yield to coalition compulsions?”
This argument doesn’t make any sense to me. It has been well established by now that Manmohan Singh was aware of what Raja was up to, but chose not to do anything about it, after writing a couple of letters to Raja. Singh responded on November 21, 2007, by sending what former CAG Rai calls a “template response”. In this letter Singh acknowledged that he had received Raja’s recent letter on the recent developments in the telecom sector. Raja wrote to the prime minister again on December 26, 2007. Singh again responded with the same templated response on January 3,2008.
Raja had dismissed Singh’s suggestion of considering an auction. And Singh had not done anything about it. In fact, he went on to distance himself from the decisions being made by Raja. Joint secretary Vini Mahajan recorded that the prime minister “does not want a formal communication and wants PMO to be at arm’s length.” As Rai asks “How can the office of the prime minister distance itself from such major decisions? Arm’s length from the action of his own government?”
The straightforward answer here that Singh was just trying to run a coalition government. But as Rai put it in a recent interview to Outlook “Does good politics mean just staying in power? Integrity is not just financial; it is intellectual integrity; it is professional integrity. You have an oath of allegiance to the constitution and that is important.”
Hence, what is clear here is that Singh was more interested in continuing to be PM rather than making what he thought was the right decision.
Arun further writes ” In estimating a notional loss to the exchequer of Rs 1,76,000 crore from not holding auctions to allocate 2G spectrum, Rai erred on multiple counts.”
The CAG report on the 2G scam had four computations of the loss to the country. These numbers were Rs 67,364 crore, Rs 1,76,645 crore, Rs 69,626 crore and Rs 57,666 crore. The CAG did not put out only one estimate. The media of which Arun is a part of picked up the highest number and splashed it all over. That was clearly not Rai’s fault.
On February 2, 2012, the Supreme Court cancelled all the licenses that had been issued by A Raja. These licenses had to be auctioned again. The two rounds of auctions that happened netted the government Rs 78,505 crore. This number is more than the three out of the four options of losses that the CAG calculated.
As T N Ninan wrote in the Business Standard “As it happens, the CAG has more than one figure of revenue loss. Several commentators have also come up with numbers, which run into tens of thousands of crores. And because of the aberrant manner in which Mr Raja handed out these substantial gifts, it became the largest scam in our history.”
Arun further writes “[Rai] failed to take into account the additional revenues the government earned from allocating spectrum in the manner in which it did, instead of holding auctions.”
This is a basically using the end to justify the means and in the process advocating crony capitalism as well. When the press release inviting applications for telecom licenses was put out, the potential applicants were asked to apply between September 25, 2007 and October 1,2007. In a letter written to Manmohan Singh on November 2, 2007, Raja had informed him that he had decided to advance the cut off date for licenses to September 25,2007, the date on which the press release was issued for the allocation of licenses, instead of October 1, 2007.
Raja did not offer any reasons for the same. Singh did not ask. What is interesting nonetheless is that thirteen applicants seemed to have known of this change in date, in advance. How else do you explain the fact that certain applicants appeared with demand drafts amounting to thousands of crore, which had been issued even before the press release inviting applications for telecom licenses was put out on September 25, 2007.
Given these reasons, I guess its time that certain sections of the media stop portraying Rai as the villain of the piece. The real villains were the politicians starting with Manmohan Singh who let A Raja to carry out the 2G scam. As Rai writes “The MPs tore into the CAG’s findings. Congress MPs walked up to me…and said ‘We have to ensure that the prime minister’s name does not get dragged into this,’ adding, ‘What you people presented appears so reasonable, but what do we do?’ Such are the ways of parliamentary democracy practised by some.”
To conclude, as far as Rai drumming up publicity for his book is concerned, what is wrong with that? It’s a book that needs to be read by every thinking Indian who wants to “really” understand how the politicians of UPA took India for a ride, over a period of ten years.
The article originally appeared on www.FirstBiz.com on Sep 19,2014
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

16 September, 2014

Vinod Rai has had the last laugh on Coalgate. Here’s why

Vivek Kaul

In an interview with the Business Standard in September 2013, Jairam Ramesh was asked why the Congress party was losing ground so badly in urban India. “Because of the bhumihar from Ghazipur,” Ramesh replied. He was referring to the former Comptroller and Auditor General (CAG) of India, Vinod Rai, who had retired from his post in May 2013. The CAG in a series of reports had exposed the wrongdoings of the government.
As Rai writes in Not Just an Accountant—The Diary of the Nation’s Conscience Keeper “Jairam Ramesh was a regular visitor to the CAG headquarters for discussions on the audit of the national rural employment guarantee programme. His discussions did indeed lend value. In one of the conversations with me, he asked why N.K.Singh, the Rajya Sabha MP representing the Janata Dal(United), used to refer to me not only as a bhumihar but as a ‘bhumihar from Ghazipur’. I told him I did know what it meant.” Rai further writes that even his caste was brought into prominence, “and this after sixty-seven years of independence.”
Ramesh’s quip against Rai was a part of a series of statements made by leaders of the Congress party to discredit him. This after, the CAG had meticulously gone about exposing wrongdoings of the government in the telecom, coal, sports and aviation sectors.
Manish Tewari, the Congress leader who can speak on just about anything, said that the “R-virus has infected the Indian growth story. The R-virus stands for a phenomenon were responsible individuals decide to become loose cannons.” On another occasion Tewari said “When individuals decide to go rogue, institutions suffer. That possibly has the most detrimental effect on the India growth story.” Sharad Pawar, who is a part of the UPA, and was the food and agriculture minister in the UPA government said “CAG has taken certain decisions that have created a different atmosphere in the country… I haven’t seen anything like this in the forty-five years of my career as a politician.” Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, went on to claim that “untrained staff [is] auditing CAG reports.” The business lobby ASSOCHAM even went to the extent of releasing advertisements which said that CAG reports were sending wrong messages. The advertisement went on to state “The CAG’s conclusions over the 57 coal block allotment appear to have been arrived at without taking all facts into consideration. Only one of the 57 blocks has gone into production.”
The then finance minister P Chidambaram even went to the extent of saying that the government had faced no loss from giving away coal blocks free to private and public sector companies. “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,”Chidambaram had said.
In order to understand this statement we need to go back to the early 1990s. The government at that point of time realized that enough coal was not being produced. The Coal Mines(Nationalisation) Act was amended with effect from June 9, 1993. This was done largely on account of the inability of Coal India Ltd (CIL), which produces most of India’s coal, to produce enough coal.
The coal production in 1993-94 was 246.04 million tonnes, up by 3.3% from the previous year. This rate was not going to increase any time soon as newer projects had been hit by delays and cost over-runs, as still often happens in India. As the Economic Survey of 1994-95 pointed out “As on December 31, 1994, out of 71 projects under implementation in the coal sector, 22 projects are bedevilled by time and cost over-runs. On an average, the time over-run per project is about 38 months. There is urgent need to improve project implementation in the coal sector.”
The idea, as the Economic Survey of 1994-1995 pointed out, was to “encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973, was amended with effect from June 9, 1993, for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector.”
The amendment to the Coal Mines (Nationalisation) Act 1973 allowed companies which were in the business of producing power and iron and steel, to own coal mines for their captive use. Hence, the coal that these companies produced in these mines was to be used to feed into the production of power and iron and steel. Any excess coal was to be handed over to the local subsidiary of the Coal India Ltd.
Between 1993 and 2011, 195 coal blocks were given away for free to public and private sector companies for captive use. Most of these free coal blocks were given away between 2004 and 2011. Nevertheless even by 2011-2012, these coal blocks produced only 36.9 million tonnes of coal. This amounted to around 6.8% of the total production of 539.94 million tonnes during the course of that year.
And because very little coal was being produced in these captive mines, this led Chidambaram and the industry lobby Assocham to put forward the argument that since coal was not being mined how did the government face any losses? This was a really stupid argument to make. The government handed over a natural asset free to private and public sector players. They, in turn, were not able to mine coal from it quickly enough. How does that mean that the government did not face any losses? It does not change the fact that coal blocks were essentially handed over for free.
As Rai puts it in his book: “I thought any prudent and concerned industry body would have questioned the urgency to allot when the allottees had not even commenced mining. But then, since every person who wanted to display his loyalty to the government was hastening to take potshots at the CAG, why not an industry body?”
Interestingly, Manmohan Singh explained the inability of the private coal producers to start producing coal quickly enough by saying “it is true that the private parties that were allocated captive coal blocks could not achieve their production targets. This could be partly due to the cumbersome processes involved in getting statutory clearances.”
This Rai says is a defeatist argument. As he writes “This does appear to be a defeatist argument; if the government is aware that the processes are cumbersome and accords the process urgency, it is incumbent on the government to take steps to ensure speedy clearances.”
The CAG came in for heavy criticism for coming up with a loss figure of Rs 1,86,000 crore for these coal blocks being given away free by the government. In his book, Rai explains with great clarity how this number was arrived at. The CAG worked with most conservative estimates while coming up with this number. While calculating the loss the CAG did not take into account the coal blocks given to the public sector companies. Only blocks given to private sector companies were taken into account.
The total geological reserves of the coal blocks given away for free amounted to around 44.8 billion tonnes. The total amount of coal in a block is referred to as geological reserve. But not all of it can be extracted. Open cast mining of coal typically goes to a depth of around 250 metres below the ground whereas underground mining goes to a depth of around 600-700 metres. Beyond this, it is difficult to extract coal.
The portion of the geological reserves that can be extracted are referred to as extractable reserves. The CAG worked with fairly conservative estimates on this front as well. Typically extractable reserves are around 80-95% of geological reserves. As Rai writes “Audit based its computation on [the] conservative estimate of 73 million tonnes for every 100 million tonnes given in the GR [geological reserve]…Can audit be faulted if its computation was based on a conservative estimate of 73 per cent?…The extractable reserves…based on the aforementioned method, was found by the CAG to be 6282.5 million tonnes, which is mentioned in the report.”
So only 6282.5 million tonnes of the 44.8 billion tonnes of geological reserves was assumed as extractable reserves while calculating the losses of the government due to giving away coal blocks for free.
After establishing the extractable reserves the CAG needed to establish the price at which this coal could be sold as well as the cost of production of this coal. For establishing the price at which the coal cold be cold, the CAG considered three possible options.
“The first was by imports. The average import price of non-coking coal sourced from Indonesia during 2010-2011 was Rs 3,678 per tonne (Indonesia supplied most of our non-coking coal imports). The second source was the coal sold in e-auction by Northern Coalfields Limited, a subsidiary of CIL [Coal India Ltd] based in Singrauli. The third and major source of coal supply in the country was that which was mined and supplied by CIL. Audit utilized the only creditable data available in the public domain—that of CIL. CIL is regularly audited by the CAG, so its accounts and other details can be taken as authentic. From the audited accounts of 2010-2011, the average sales price of all grades of coal sold by CIL was taken as Rs 1,028 per tonne. This was the most conservative price too,” writes Rai.
After this, the cost of production of coal needed to be established. For this, the CAG again went back to CIL, which produces most of the coal in the country. As Rai writes “The average cost of coal mined by CIL was found to be Rs 583 per tonne. The MoC has indicated, after due verification, that the financing cost ranged from Rs 100 to Rs 150 per tonne. To be on the safe and conservative side, audit assumed it to be at Rs 150. Thus, while the average sale price was Rs 1,028, the average cost was Rs 583 plus Rs 150, namely Rs 733,” writes Rai.
Manmohan Singh later criticized this calculation by saying “the cost of production of coal varies significantly from mine to mine even for CIL due to varying geo-mining conditions, method of extraction, surface features, number of settlements, availability of infrastructure etc.”
By taking the average cost of production these are exactly the factors that CAG was taking into account. And this left Rs 295 per tonne (Rs 1028 minus Rs 733) as the financial benefit. So Rs 295 of financial benefit per tonne was multiplied with 6282.5 million tonnes of extractable reserves and a loss figure of close to Rs 1,86,000 crore was arrived at.
As you can clearly see the most conservative estimates had been used to arrive at a loss number. If the CAG had not used these conservative estimates it could have easily put out a much bigger number for these losses.
Another criticism that the CAG came in for was that the loss calculation did not take the concept of net present value(NPV) into account. “Even if discounting had been done to arrive at the NPV, we would have possibly projected an annual increase of 10 per cent in cost/sale price, and we would then have discounted, at, say, a discount factor of 10 per cent. We would have got to an NPV of financial gain of Rs 2.40 lakh crore, at 11 per cent of Rs 1.86 lakh crore and at 12 per cent of Rs 1.49 lakh crore. There is no substantial difference. Hence, why all the ire?”
In the end, Vinod Rai has had the last laugh. The Supreme Court in a recent decision deemed the allocation of coal blocks to be illegal. And for those who are still not convinced about the way Rai operated as the CAG, it is time they read his book.
The article appeared on www.FirstBiz.com on Sep 16, 2014

(Vivek Kaul is the author of Easy Money. He tweets @kaul_vivek)

15 September, 2014

What Vinod Rai's book proves: History will not be kind to Manmohan Singh

Vivek Kaul

In January 2014, towards the end of his second term, Manmohan Singh spoke to the media for the third time in a decade. On this occasion he said “I honestly believe that history will be kinder to me than the contemporary media.”
While speaking to the media Singh also said “I feel somewhat sad, because I was the one who insisted that spectrum allocation should be transparent, it should be fair, it should be equitable. I was the one who insisted that coal blocks should be allocated on the basis of auctions. These facts are forgotten.”
If that was the case then why did the allocation of 2G(second generation) telecom licenses and coal blocks end up in a mess? This Singh did not elaborate on during the course of his interaction with the media in January, earlier this year. Neither has he chosen to elaborate on these points since then.
Vinod Rai, the former Comptroller and Auditor General (CAG), analyses both these issues and the role Singh played in them, threadbare, in his new book Not Just an Accountant—The Diary of the Nation’s Conscience Keeper. In this piece we shall look at the mess that the issuance of 2G telecom licenses ended up in and leave the discussion on what came to be called coalgate, for sometime later this week.
Rai in his book through a series of documented evidence shows how Singh was fully aware of what was going on, but still chose to not to do anything about it. Instead, he even went to the extent of distancing himself from the decisions made by the communications minister A Raja.
As Rai writes “You [Manmohan Singh] engaged in a routine and ‘distanced’ handling of the entire allocation process, in spite of the fact that the then communications minister A Raja, had indicated to you, in writing, the action he proposed to take. Insistence on the process being fair could have prevented the course of events during which canons of financial propriety were overlooked, unleashing what probably is the biggest scam in the history of Independent India.”
Before we get into the details of what probably led Rai to make such a strong statement, we need to take a brief look at how the Indian telecom sector evolved from the 1990s.
The telecom sector was opened up to the private players in a phased manner after the announcement of the National Telecom Policy (NTP) in 1994. Licenses were initially allotted to private companies in 1995, through the competitive bidding route. These licenses allowed private companies to launch mobile phone telephony in India.
The policy was revised in 1999 and existing mobile phone operators were allowed to migrate to a revenue sharing regime with the government. “The upfront payment was an entry fee, with the annual license fee to be paid separately. The entry fee was fixed on the basis of the highest bid received in the 2001 auction of licenses. It was Rs 1,651 crore for pan-India licenses,” writes Rai. The then prime minister Atal Bihari Vajpayee constituted a group of ministers on telecom in September 2003. The recommendations of this group were added to the National Telecom Policy of 1999. The existing system of issuing licenses were replaced by an automatic authorization regime.
A Raja took over as the communications minister in May 2007. He decided to continue with the first-come-first served(FCFS) policy for allocation of licenses to telecom companies. On September 25, 2007, a press release was issued and applications were invited for telecom licenses. The last date was set to October 1, 2007, a week later.
In total 575 applications for 22 service areas were received by the communications ministry. This led to the ministry of communications writing to the law ministry and sought its opinion on how to deal with the situation of so many applicants. The law ministry suggested that the issue be referred to the empowered group of ministers(eGOM). Raja did not like this suggestion and on November 1, 2007, wrote a letter to Manmohan Singh.
In this letter Raja complained that the suggestion of the law ministry “is totally out of context”. He then went on to coolly inform the prime minister that he had decided to advance the cut off date for licenses to September 25,2007, the date on which the press release was issued for the allocation of licenses, instead of October 1, 2007.
Raja further told Singh that “the procedure for processing the remaining applications will be decided at a later date, if any spectrum is left available after processing the applications received up to September 25, 2007.”
The rules of the game were changed after it had started. Singh responded immediately on the same day. In his letter, Singh seemed to be concerned over the fact that a large number of applications for new licenses had been received. Given the fact that the spectrum was limited, it would not be possible to give spectrum to all of them, even over the next few years, Singh wrote. He further pointed out that the National Telecom Policy of 1999 had specifically stated that the new licenses be issued subject to the availability of spectrum.
In this scenario, Singh suggested that the communications ministry consider the introduction of a transparent methodology of auction, wherever it was legally and technically feasible. This needed to be done in order to ensure that spectrum was used efficiently.
Also, the entry fee for these licenses was the same as in 2001, i.e. Rs 1,651 crore. Hence, Singh suggested that the entry fee be revised. This was a logical suggestion to make given that six years had passed since 2001 and if not anything at least inflation had to be taken into account.
Raja responded within hours of receiving this letter from Singh. He ruled out an auction stating that “the issue of auction of spectrum was considered by TRAI[the telecom regulator] and the telecom commission and was not recommended as the existing license holders..have got it without any spectrum charge.” Raja went on to add that the holding an auction would thus be “unfair, discriminatory, arbitrary and capricious”.
Meanwhile, Kamal Nath, wrote to Singh on November 3, 2007, and suggested that a group of ministers should be asked to comprehensively study all the issues facing the telecom sector. Raja responded to this on November 15, and said that the Indian telecom industry was doing very well and was adding seven million new customers every month. The shares of the telecom companies listed on the stock market were also doing very well. And given these reasons the suggestion of Kamal Nath of setting up a group of ministers was again “out of context,” as had been the case with the law ministry earlier.
Singh responded on November 21, by sending what former CAG Rai calls a “template response”. In this letter Singh acknowledged that he had received Raja’s recent letter on the recent developments in the telecom sector. Raja wrote to the prime minister again on December 26, 2007. Singh again responded with the same templated response on January 3,2008.
All that has been discussed till now raises a series of questions. As Rai writes “[Manmohan Singh] failed to direct his minister[i.e. A Raja] to follow his advice…Why under what compulsion, did the prime minister allow Raja to have his way, which permitted a finite national resource [i.e. the telecom spectrum] to be gifted at throwaway price to private companies—private companies that, going by the minister’s own admission, were ‘enjoying the best results […] which was also reflected in their increasing share prices?”
Also, why was the entry price fixed at Rs 1,651 crore, which was a price set way back in 2001. As mentioned earlier this price should have at least taken inflation into account. The telecom market had also expanded since 2001. The National Telecom Policy of 1999 had set a teledensity target of providing 15 telephone connections per 100 of population. The teledensity in 2001 had stood at 3.58. In September 2007, a teledensity of 18.22 had been reached. “Was this data not available with the government..to counter Raja’s consistent and constant refrain?” asks Rai.
Further, even if increasing teledensity was the main goal, given that the spectrum is finite, didn’t it call for a “balance between revenue generation and achieving social objectives?” In fact, the tenth plan document clearly mentions this, when it comes to spectrum allocation: “pricing needs to be based on relative demand and supply over space and time in a dynamic manner, [with] opportunity cost to reflect relative scarcity of the resource in a given situation.”
Also, why was the cut-off date for the last date to receive applications arbitrarily advanced from October 1, 2007 to September 25,2007? As Rai writes “Though Raja clearly indicated this to the prime minister in his letter of 2 November 2007, the PMO chose not to object. Why it chose not to, remains unclear.”
Interestingly, thirteen applicants seem to have known of this change in date, in advance. How else do you explain the fact that certain applicants appeared with demand drafts amounting to thousands of crore, which had been issued even before the press release inviting applications for telecom licenses was put out on September 25, 2007.
Then there is the question of first-come-first served. It essentially means those who applied for a license first, would be given a license first. But that wasn’t the case. “One would be surprised to learn that even this procedure, which was repeatedly reiterated to the prime minister by Raja, was given the go-by, and all applications submitted between March 26 and 25 September 2007 were considered together,” writes Rai.
Pulok Chatterjee, a bureaucrat known to be close to the Gandhi family, was an additional secretary in the prime minister’s office at that point of time. In a note that was presented to prime minister Singh on January 6, 2008, Chatterjee concluded that “ideally in a situation where the spectrum is scarce it should be auctioned”. But by that time the licenses had already been issued.
Joint secretary Vini Mahajan recorded that the prime minister wanted Chaterjee’s note to be only “informally shared within the Dept”. She further noted that the prime minister “does not want a formal communication and wants PMO to be at arm’s length.” As Rai asks “How can the office of the prime minister distance itself from such major decisions? Arm’s length from the action of his own government?”
Also, it needs to be noted here that Raja suggested that TRAI was against auction of telecom spectrum. This is untrue. In August 2007, the telecom regulator had clearly stated that: “In today’s dynamism and unprecedented growth of telecom sector, the entry fee determined in 2001 is also not the realistic price of obtaining a license. Perhaps it needs to be reassessed by a market mechanism.”
The companies which got these licenses cheap, cashed in on it almost immediately. “In case of Unitech, which had no previous experience in the telecom business, Telenor, a Norwegian company, agreed to acquire 67.25 per cent stake for Rs 6,120 crore. Tata Teleservices sold 27.31 per cent stake to NTT Docomo at a value of Rs 12,924 crore. Even Swan Telecom sold 44.73 per cent stake to Etisalat International at Rs 3,217 crore. Is that not clearly indicative of the value the market attached to the 2G spectrum license. Even a cursory back-of-the-envelope calculation will indicate that licenses which could have fetched between Rs 8,000 to Rs 9,000 crore were priced at Rs 1,658,” writes Rai.
On February 2, 2012, the Supreme Court cancelled all the licenses that had been issued by A Raja.
On a slightly different note, Rai also points out it was a ruling party MP (Rai does not give out his name in the book) who seems to have first suggested that losses that the government faced from giving out licenses cheaply, needed to be calculated.
As Rai puts it “He [i.e. the MP] went on to reiterate that it was obvious how much the government of India could have secured by transparent bidding and asserted that even a section officer in the government would be able to make this computation.” In a recent interview Rai revealed that the name of the MP was KS Rao, who has since quit the Congress protesting against the bifurcation of Andhra Pradesh and joined the BJP.
Rai writes that this was one of the reasons why the CAG decided to compute a loss figure arising out of the 2G telecom licenses being issued cheaply. As he writes “Now if an MP, and of the ruling party, makes such a strong assertion, obviously the audit department has to take cognizance of that parameter for computation.”
The CAG used various methods to compute a loss figure and arrived at a four numbers ranging from Rs 57,666 crore to Rs 1,76,645 crore. All this could have been avoided only if Singh had chosen to respond differently and instead said to Raja that “I have received your letter…Please do not precipitate any action till we or the GoM[group of ministers] have discussed this.”
To conclude, on an earlier occasion I had written that if he wants history to treat him kindly, Singh needs to write his autobiography and put forward his side of the story as well. Whether he does that or not, remains to be seen. But Vinod Rai’s thoroughly researched book makes me now believe that whatever Singh might do, history will not be kind to him, his hopes notwithstanding.
The article appeared originally on www.Firstpost.com on Sep 15, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)