Finance ministry blames Chidambaram in 2G mess

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    NEW DELHI: The finance ministry in a note sent to the Prime Minister's Office has faulted former finance minister P Chidambaram for several actions, and inactions, on the controversial 2G spectrum allocation, which is now under investigation by multiple agencies.

    The March 25, 2011 note says the telecom department would have been forced to cancel the 2G licences if the ministry of finance (MoF) had stuck to its original demand for auctioning the initial spectrum of 4.4 MHz. The MoF recommendation that all spectrum including the startup spectrum of 4.4 MHz be auctioned was overruled by Chidambaram, the note says.

    "DoT could have invoked this clause (5.1 of the UAS license) for cancelling licences in case MoF had stuck to the stand of auctioning the 4.4 MHz spectrum," the note says.

    "It may be mentioned that while the UAS licenses were signed between February 27 and March 7, 2008, spectrum allocations were done starting only in April, 2008, almost 4 months after the LoIs were issued. However, these were not charged (beyond the normal spectrum usage charges) since there was consensus, at the levels of the Ministers concerned, that spectrum beyond the 'start up' levels only should be charged," the note says.

    The finance ministry under Chidambaram "implicitly agreed to imposition of same entry fee as that prevailing in 2001 for licences allotted up to December 31, 2008." The 2G allocation in early 2008, at the 2001 rate, caused a loss of anywhere between Rs 50,000 crores and Rs 176,000 crore, according to various official estimates. Former telecom minister A Raja, former telecom secretary Siddarth Behuria, several telecom honchos and DMK MP Kanimozhi are in Tihar jail, arrested for the conspiracy to allot 2G spectrum to select companies.

    The note prepared by the department of economic affairs under the finance ministry is signed by Dr PGS Rao, deputy director, infrastructure and investment division. It "has been seen by the Finance Minister" Pranab Mukherjee, says the covering letter to the 11-page document sent to Vini Mahajan, joint secretary in the PMO, on March 25, 2011. The letter was provided by PMO to RTI activist Vivek Garg on an RTI request.

    In a meeting held on January 30, 2008, 20 days after the controversial 2G spectrum LoIs were issued to companies, between Chidambaram and Raja "it was noted by the finance minister that he was for now not seeking to revisit the current regimes for entry fee or revenue share." The portion from 'Not Seeking' is underlined to highlight its significance.

    The secretary (finance) had suggested auction for initial spectrum of 4.4 MHz in early February, 2008, the note says. Dot was opposed to it, and on February 8, 2008 told DoE that the initial entry fee for licence may be construed as the de-facto price of initial spectrum i.e., Rs 1650 crore for pan-India licence. "Based on the DoT letter, an internal note on the subject was prepared in DEA on February 11, 2008, wherein the entire range of spectrum was proposed to be charged for both new and old operators." However, on April 21, 2008 Chidambaram sent a "non paper" to Raja conveying that "in principle" decision may be taken to price the spectrum beyond 4.4 MHz, as had been suggested by DoT, the note says.

    Though the stand-off between MoF and DoT goes back a long time, it was on November 22, 2007 that the DEA wrote to the telecom department raising questions about the rate of Rs 1600 crore paid for the three crossover licenses by CDMA operators. "DEA had argued that it is not clear how the rate of Rs 1600 crore determined as far back as in 2001, has been applied for a license given in 2007 without any indexation, let alone current valuation," the note says. DEA also argued that all further action to implement the three licenses be stayed. DoT replied on November 29, citing a cabinet meeting and a TRAI recommendation to justify the decision.

    In response to the DoT note, additional secretary (economic affairs) put up a note recommending revision of the entry fee as well as adoption of auction for determining spectrum usage charges. She prefaced her note saying that she has been directed to attend the full telecom commission meeting, originally slated for January 9, 2008 but now postponed to January 15.

    "This position paper was used by the then FM (Chidambaram) as a basis of his 'secret note' to the Prime Minister on January 15, 2008 wherein, an auction based mechanism was recommended for future allocation of spectrum (beyond the "start up" spectrum). "The licenses allotted in 2007 and 2008 only carried the 'start up' spectrum embedded with them. The note of the finance minister did not deal with the need, if any, to revise entry fee or the rate of revenue share," the note says.

    But crucially, Chidambaram told the PM that the "spectrum allocation having been made in the past to be treated as a close chapter. The recommendation was in the context of spectrum usage charges and not with regard to the entry fee," the note says.

    "The DoT response of November 29, 2007 was brought to the notice of the then finance minister on 9.1.2008, along with suggestions to argue for revision of the entry fee and adoption for auction with spectrum usage charges as the bid parameter; the fact that a telecom commission meeting on the issue was scheduled on January 15, 2008 was also mentioned; no response, however, was sent by DEA to DoT either on the issues raised by DoT in the communication dated November 29, 2007, or with reference to the impending meeting of the telecom commission; no intervention on entry fee were suggested in this meeting by DEA representatives.

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