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Nov 20, 2012 09:39 AM IST | Source: CNBC-TV18

Govt was handicapped; need to reassess auctions, says Sibal

Reacting to the Supreme Court’s observations telecom minister Kapil Sibal told CNBC-TV18's Shereen Bhan the DOT secretary will file an affidavit. Sibal blamed the circumstances for the outcome of the 2G auction and said the government was handicapped over the issue of pricing.

The Supreme Court has come down heavily on the government over the 2G auction. The court slammed the centre for its "casual approach" to the sale of spectrum.

Reacting to the Supreme Court's observations telecom minister Kapil Sibal told CNBC-TV18's Shereen Bhan the DOT secretary will file an affidavit. Sibal blamed the circumstances for the outcome of the 2G auction and said the government was handicapped over the issue of pricing.

He feels the auctions should be designed as per the present situation and future needs. The government has garnered a modest Rs 9,407.64 crore from 2G spectrum bids, much less the Rs 40,000-crore (the target was later lowered to Rs 30,000 crore) the Centre had been hoping to raise from the 20-year lease-out of scarce radio waves.

The industry had complained that the reserve price of Rs 14,000 crore (for 5 MHz) for a pan-India licence fixed by the government was too high and that was what kept the bidders away. However, Sibal believes that lowering of the reserve price would not have netted more money. He had earlier said the outcome of the spectrum auction was a result of "market dynamics at play".

Sibal also "completely rejected" ex- BPL Telecom chief Rajeev Chandrasekhar’s views that "the minister and government did very little real work to revive the confidence of new foreign investors and operators in the sector post the scams and controversies of 2010".

"It seemed clear the auctions were going to end in failure. This may sound harsh, but the efforts of the ministry and reactions after are almost as if they wanted it to fail to score some points. In the weeks preceding the auction, there is ample evidence that the large existing telcos were talking down the auction, with open statements that the auctions would not go beyond the first day," Chandrasekhar told Business Standard newspaper.

Chandrasekhar said the new telecom policy didn't address any of the specific concerns of investors and that there was no attempt or effort to strengthen the independent regulatory framework, which he felt, was critical for long term investors especially when there is so little time left in this government’s term. "Bottom line, the failure of the auction is a sign of no-confidence in the political management and leadership of the sector," Chandrasekhar told the newspaper in an interview.

However, according to Sibal, Chandrasekhar's views have "no basis". "The government does not have roadshows when it knows they aren't necessary," he told CNBC-TV18 in the interview.

He said the government will assess if it needs to go to TRAI on reserve price recommendations. "We have talked to AT&T and Docomo to get them to invest in telecom," he informed. 

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Q: How would you react to Supreme Court Justice Sinhgvi statement,'We were not informed that the auction is being held only for a limited amount of spectrum. The (telecom) secretary did not make it clear that only 295 Mhz will be on auction. The government withheld almost one-third of the spectrum that the court had said should be put on auction.'

A: I am sure at an appropriate time, as directed by the Court; we will file an affidavit and explain.

Q: This is the second time he is asking you to explain the situation, so why this hasn't happened?  He also said that the government adopted a very casual approach when it came to spectrum?

A: I do not want to comment on what the Court said in the course of proceedings. When the Court asks us to explain, we will.

Q: Justice Sinhgvi also asked why an undersecretary was explaining matter to the Court. Isn't this was the second opportunity given to the government to explain its position on this matter?

A: The secretary will now file an affidavit. If he wants the secretary to file an affidavit, the secretary will do so. Why are you making such a big issue of it?

Q: I am not, the Court is...

A: The Court has not.

Q: The Court has said that the government adopted a very casual approach...

A: I do not want to comment on what you say the Court said, because I was not in Court.

Q: I am quoting to you what Justice Singhvi said.

A: You people have quoted that. Is there any order given by the Court with those observations? Is there an order by the court with those observations?

Q: There is no order.

A: Then why are you making me respond to oral observations? .

Q: You are now saying that the secretary of the department of telecommunications will respond with an affidavit in the next 48 hours?

A: Naturally, because the order of the Court is that the secretary should file an affidavit. The government will respond to that. All the other things that you are saying are not a part of any order.

Q: The question that the Court is raising today or the oral observation that the Court has made is why has the government not put up the entire spectrum for auction? Is this something that the telecom companies will be now arguing about as well?

A: The Court wants an explanation, we will give an explanation. But we will give that explanation to the Court, not to you.

Q: The court is also suggesting that you haven’t complied the letter and spirit of the order because it’s clearly saying that you withheld at least one third of the spectrum that was meant to be auctioned.

A: Around 55 percent of the spectrum has been bid on and 45 percent has not been bid. So, if we put the entire spectrum in the auction it would have been……

Q: That doesn’t answer the question.

A: It does answer the question. We need to design the architecture of our auctions in the context of the present and future needs. We will explain that to the Court in the affidavit, not on public television. So, please do not pursue this question  anymore.

Q: Let me now talk to you about the 2G auction. You said, you can’t extrapolate figures, sensationalise them and destroy the hen that laid the golden egg. Sensationalism took over and the government was limited in its policy prescription which resulted in what we saw a few days ago. Whom do you blame for what has happened as far as the 2G auction is concerned?

A: Nobody. but circumstances.

Q: What do you mean by circumstances? You are very clearly talking about figures which the CAG had put out. The finance minister and you were the part of that press conference and said that Rs 1.76 lakh crore figure was a myth. So, do you blame the CAG for sensationalising?

A: I don't blame anybody. The CAG had his views in mind when he put out that figure. He must be convinced with that figure. By taking that figure of presumptive loss, the media sensationalised the whole thing and resulted ultimately through a judgment of Court that caused the cancellation of licences.

This in turn resulted in a sector which was thriving to be under deep debt of almost Rs 2 lakh crore and destroyed the sentiment of the market and has lead to the situation that we are in today. We are trying very hard to revive the sector.

Q: So you mean the government became a hapless bystander?

A: We were bound by a final order from the Supreme Court and within the limited space that we had, we did what we could.

Q: Could you not have reduced the auction price?

A: Would you get more money by bringing it down to Rs 6000 crore? I think we wouldn't have got more money. We would have in fact sold this very valuable spectrum at a throw away price.

Q: Are you are saying today that if we had lowered the reserve price perhaps we wouldn't have got any more money than we currently have? What happens now? Are you then ruling out the possibility of reducing the reserve price now for when you start the auction process again?

A: What we will do in the next few weeks is something that we will decide. Hence, it’s not something that we are going to discuss on public television, whether we will reduce the price or not reduce.

Q: What will the parameters be?

A: Let me explain. In circles where the spectrum is already been sold at Rs 14,000 we can't change the price. This is because you can't have one part of the circle at Rs 14,000 and another part of the circle at another price. So, we are left with only option in circles where there has been no bid and basically in four circles and CDMA. We will discuss with the ministry and the EGoM what we want to do.

Q: What would the options be?

A: We will decide on the options.

Q: How soon will you come up with the options?

A: Very soon. Within a week we will have a meeting with the EGoM, hopefully.

Q: When do we actually expect the auction process to kickstart again?

A: We will tell you.

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Q: Did the government do enough to revive investor confidence?

A: Frist, let me tell you the boundaries within which we had to work. The Supreme Court had asked the government to seek the recommendations of the TRAI which suggested the setting the auction price at Rs 18,000 crore and the price for the CDMA auction at Rs 36,000. Which roadshow in the world would have brought us investors at that price? 

There was no need for a roadshow. This was enough for anybody interested in investing in India. We didn't do a roadshow when people came into the telecom sector in 2001 or 2008.

Q: But the circumstances are very different…

A: No roadshow would have brought us investments. We talked to all the international players- the Australians, AT&T and Docomo.

Q: Some legal experts say that the government capitulated in front of the Court. Can the government now look at a way out on the issue of cancelled licences?

A: We did not capitulate in front of the Court. The Court decided the matter after hearing all parties and naturally, those litigants and lawyers who are representing litigants in Court will have a view on the subject. The fact of the matter is that the government did what it could to defend its policy. In fact, the government went to the extent of ultimately seeking a reference from a Constitutional Bench of the Court if the government had capitulated. If the court gives a particular judgment, we have to abide by it.

Q: The Supreme Court has said that the transparent common good should be above everything else and revenue maximisation need not necessarily be the government's aim as far as allocation of natural resources is concerned. Does this now leave the government more room to review and rethink the manner of allocating spectrum?

A: This is something that we have to consider now because on the sale of spectrum there is a judgment of the Court has been complied with. So, we have to decide what to do.

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Q: When the EGoM meets next week, what are the factors it will take into consideration to plan the road-ahead?

A: Once the EGoM’s agenda has been prepared, we will let you know.

Q: As the telecom minister today, by when do you actually think the Budgeted revenue estimate of Rs 40,000 crore from the sale of spectrum will come in as far as this particular fiscal is concerned?

A: We are yet to auction 900 Mhz and 800 Mhz in the CDMA.

Q: Are you even hopeful that CDMA will get any takers this time around?

A: Why don't you wait? You seem to be exceptionally thrilled by the fact that the auction has failed. You are smiling at the thought of my difficulty. Let’s not be gleeful.

Allow me to respond and explain. The government has to design an auction for 800 Mhz and it may have something up its sleeves that you are not aware of. So until the government takes that initiative, please wait. We are not going to reveal it on public television.

The government will auction the 900 Mhz and the balance 45 percent of this auction. There is enough space for the government to earn enough revenue before March 31, 2013.

Q: So you believe you will be able achieve the revenue target of Rs 40,000 crore?

A: I don't know. We will have to see how the market responds. The government can’t determine the dynamism of the market. This is a market which responds to circumstances and the circumstances are for all to see. A sector which was doing exceptionally well, a thriving industry for the country and a showpiece to the rest of the world has been put in this situation not because of the government's fault.  

Q: Could the government perhaps look at a higher revenue-sharing arrangement?

A: This for the Supreme Court to decide. If the Supreme Court has directed the government to auction we have no choice in the matter. The effect of the Supreme Court’s direction to auction spectrum is clear for all to see. Now, if the Supreme Court thinks of some other policy prescription is necessary, let it tell the government.

Q: But isn't it the government's prerogative to make policy?

A: But government has no choice. If it’s the final judgment of the Supreme Court, what can the government do?

Q: Will the government make the Supreme Court aware of the lack of room to maneuver while formulating policy?

A: The Court is aware of it. It is the Court which has passed the order. The Court symbolises public interest in this country and the results of Court’s determination of public interest in the telecom sector is now in the open.

Q: Constrained by an insipid economic and regulatory environment the environment that offers little of hope of improving and the Supreme Court prescribing to a large extent what the government ought to do and how it should do it, what can we really expect to change?

A: I don’t know. It’s the market that has to respond to the situation. We can’t determine that response. When the 3G auction was concluded, there was praise from all quarters. The government got revenue, but the consumer got nothing because there was no rollout.

How can you auction spectrum for the government to earn and for the consumer not to get the benefit? I don’t think that should be the end purpose of any policy prescription. Its ultimately the consumer who must benefit; the consumer must get an efficient service at reasonable prices. That must be the objective of every government policy.

The government took a big risk in lowering the price because it had an inkling that the market didn’t have enough liquidity to invest in the telecom sector.

Q: Are you going to go back to the TRAI in order to perhaps review the recommendations of the TRAI itself?

A: This is something for the government to decide. The government is constrained by the policy prescription and has very little choice. Within that choice, the government will try and deliver for the people of India.

Q: By when does the government actually hope to be able to put forward a policy prescription as far as the remainder of this spectrum is concerned?

A: As soon as possible. The government intends to finish the auctions before March 31. Obviously, it means the government must do everything as quickly as possible.

Q: What was industry's response post the auction?

A: They have not told us anything.

Q: Do you feel the CAG has done a disservice to the telecom sector?

A: Again, don't put words in my mouth. I have never said anything and I don’t think that I am permitted, constitutionally, to start talking about institutions not conducting themselves in the context of their responsibilities.

Q: Are you looking forward to start of the auction process again?

A: Absolutely. Why should I be disappointed? An auction is an auction. It discovers the price that the particular asset will get in the market. That price will differ from time to time, from spectrum to spectrum, If you start mixing up all this and start saying this should be applied here and that should be applied there, you are in real trouble. That’s why we are in trouble.

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