NEWS ANALYSIS Why did Chidambaram, as Finance Minister and member of GoM, not protest when spectrum pricing was being dropped from terms of reference in 2006?
The spectrum mess is returning to haunt Home Minister P. Chidambaram, who is battling uncomfortable questions from Arun Jaitley, Leader of the Opposition in the Rajya Sabha, over his role in the Aircel-Maxis deal during the former Telecom Minister, Dayanidhi Maran's term, in addition to ongoing litigation in the Supreme Court over his role during the tenure of jailed ex-Telecom Minister, A. Raja.
Alleging a link between the Foreign Investment Protection Board clearances given to Aircel-Maxis and the business transactions of Ausbridge — a company he said was earlier owned by Mr. Chidambaram's son, Karti — Mr. Jaitley claimed that in 2006, the e-mail and web address of Ausbridge Holdings and Investments and Advantage Strategic Consulting, which has shareholding in Maxis-Aircel, were the same. Mr. Chidambaram, however, denied that either he or any member of his family owned any share in any telecom company.
The Opposition's attack has reopened lingering questions about Mr. Chidambaram's own contrasting conduct during 2006-07, when the Maxis' takeover of Aircel was under way, new applications were being submitted, and the Group of Ministers (GoM) was forced to drop spectrum pricing from its original Terms of Reference (ToRs).
The record shows the Finance Ministry under Mr. Chidambaram maintained a temporary silence on the issue of spectrum pricing being dropped from the GoM between February 2006 and February 2007. This was the same period in which Maxis received two sets of FIPB clearances in January-March and September-October 2006, followed by 14 licences between December 5 and 14, 2006, along with the promise of linked 2G spectrum at 2001 rates on a first come, first served basis. Aircel paid Rs. 1,399 crore for these 14 licences which the CAG, in 2010, valued at roughly Rs. 13,000 crore.
In an interesting, and now damning twist, once Aircel had secured its licences — making it a pan-India operator — and initial approvals were in place for the Sun-Maxis deal, the Finance Ministry suddenly went back to arguing that spectrum pricing be included in the ToRs of the GoM on spectrum.
Within months, the Maxis group companies announced a joint venture with Sun TV and received FIPB approvals between March 2 and 19, 2007 to acquire a 20 per cent interest in Sun Direct, which is owned by the Maran family. The transaction was completed in December 2007 and further investments were made during 2008 and 2009. The Enforcement Directorate has filed a money laundering case against Mr. Maran and his brother for allegedly receiving Rs. 550 crore in payoffs related to the Aircel-Maxis transaction.
It is well known that as soon as Maxis approached Aircel for a buyout, Mr. Dayanidhi Maran, on January 11, 2006, approached the Prime Minister seeking the vacation of additional spectrum. The next day, Aircel applied for 4 new licences. On January 30, Maxis, through Global Communication, sought FIPB approval to enhance its equity in Aircel from 26% to 73.99%. The PM agreed to Mr. Dayanidhi Maran's demand and a GoM on spectrum issues was announced on February 23, 2006. The ToRs of this GoM included a Section 3(e) on spectrum pricing policy. This unexpected inclusion was a big blow to Mr Maran's plans to grant spectrum to Aircel at 2001 rates. Within 5 days, Mr. Maran approached the Prime Minister, seeking the deletion of spectrum pricing from the ToRs and submitting fresh ToRs. There is no evidence that Mr. Chidambaram, responsible for protecting exchequer revenue as Finance Minister and a member of the GoM, offered any resistance.
On March 3, Aircel applied for 3 new licences. Within 4 days, Maxis' application for FDI enhancement to 74% was approved by the FIPB. Approval by the Finance Minister followed on March 13, 2006 and a formal letter issued on March 20, 2006. Soon after, on May 26, 2006, Maxis stated in a filing in the Malaysian stock exchange, Bursa, that “with equity interest of 74% in Aircel (comprising of 65% direct interest and 9% indirect interest) and 100% subscription of cumulative, redeemable, non-convertible preference shares in Deccan Digital Networks Pvt Ltd, the JV company incorporated in India, this effectively gives the group 99.3% economic returns from the investment in Aircel.”
Again, on September 1, 2006, Maxis filed a fresh application for downstream investment through Global Com. Its approval by Mr. Chidambaram was conveyed to the company on October 20, 2006.
Suddenly, the Cabinet Secretariat, after a wait of 8 months, moved an Office Memorandum on November 10, 2006 to begin the process of modifying the ToRs for the GoM on spectrum. Mr. Maran, on November 16, 2006, submitted another version of the ‘revised draft of ToR' to the Prime Minister. Within 4 days, Mr. Maran started issuing LoIs to Aircel. On December 7, the Prime Minister approved the modification of the ToRs, dropping spectrum pricing — as had been sought by the Telecom Minister. Simultaneously, Mr. Maran converted Aircel's 14 LoIs into licences between December 5-14, 2006. Even at this stage, neither Mr. Chidambaram nor the Finance Ministry protested.
Following this, in March 2007, after the Maxis-Sun TV transactions were initiated and FIPB approvals received, the Finance Ministry suddenly started pushing for the re-inclusion of spectrum pricing in the ToRs of the GoM on spectrum. Two Finance Secretaries, Ashok Jha and Dr. Subbarao, wrote multiple letters — to the DoT on March 28, 2007, to the Cabinet on April 19, 2007, again to the DoT on May 18 and June 6, 2007. The DoT refused to budge both during Mr. Maran's tenure through a letter of April 2, 2007, as well as during Mr. Raja's regime — through a letter of June 15, 2007.
1. Why did Mr. Chidambaram, as the Finance Minister and a Member of the GoM, not protest when spectrum pricing was being dropped from the ToRs in 2006? Is there any letter or evidence that he did?
2. If it was appropriate to keep silent during 2006 when it was granting FIPB clearances and the DoT was granting licences to Aircel, then what changed after March 2007 for the Finance Ministry to write multiple letters for the re-inclusion of spectrum pricing in the ToRs for the GoM?
3. When the Finance Minister approved the FIPB application in March 2006 and Maxis made an announcement in the Malaysian stock exchange of receiving 99.3% of economic returns from investments in Aircel, why was this not immediately investigated, especially when the second application for downstream investment was placed on September 1, 2006?
4. It is alleged by Mr. Jaitley that Maxis, at that time, had spent over Rs. 5,000 crore directly and indirectly for 73.99% equity. But the Reddy family (owners of Apollo Hospitals) invested just Rs. 34 crore for their 26% share. At Mr. Jaitley's valuation of Rs. 5,000 crore for 73.99%, the Reddy family's Rs. 34 crore translates into a mere 0.7% equity share, justifying perfectly Maxis' claim of 99.3% returns. Why has this not been investigated?