Bhupesh Bhandari: 2G and Coalgate - parallel scams

There is an eerie similarity in the loss to the exchequer in the 2G spectrum scam and Coalgate: Rs 1.76 lakh crore (worst-case scenario) and Rs 1.86 lakh crore, respectively, as calculated by the ever-so-active Comptroller and Auditor General. For any scam to now grab the nation’s attention, it will have to be of a similar size. Anything less would be so unexciting. Bofors, where the alleged payoff was Rs 64 crore, would have been a baby scam by current standards — something the newspapers take note of in the inside pages.

That apart, if you compare the 2G-spectrum and coal-mine scams, some other similarities will occur to you. One, both airwaves and coal mines were underpriced because these were meant for the national good – increasing teledensity and availability of power – and not for filling the government’s coffers. Revenue considerations were secondary. So, spectrum was handed out on a first come, first served basis and coal mines were allocated by a screening committee. In each case, private entrepreneurs saw a tremendous opportunity for arbitrage – buy cheap and sell expensive – and there was no urgency to use these resources for business. That’s why most of the companies that got inexpensive spectrum simply sat on it – perhaps with the exception of Unitech Wireless – just like most of those who were allocated coal blocks didn’t bother to mine them. Two, since the whole system was opaque, lobbyists had a field day in the corridors of power.

Three – and this is where it gets really interesting – there was a set of people that wanted opaque allocations to be replaced by a transparent and efficient system of bidding, but they were overruled by the status quoists. In Coalgate, we know that Coal Secretary P C Parakh pushed hard to replace allotments with bidding in mid-2004, but his superiors insisted that the ministry couldn’t wait for bidding norms to evolve while the country was facing a power crisis — addition to the country’s power generation capacity had fallen short of the target in the 8th, 9th and 10th Five-Year Plans. Coal-bearing states like Chhattisgarh, West Bengal and Rajasthan felt that auctioning mines would raise the commodity’s price and the power thus produced would be very expensive. And they had their way.

In the 2G spectrum scam, the finance ministry had for long been demanding a discussion on spectrum pricing, but all its attempts were stonewalled by the telecom ministry. Finance Secretary D Subbarao (he subsequently became the governor of the Reserve Bank of India) wrote to Telecom Secretary D S Mathur on November 22, 2007 “to confirm if proper procedure has been followed with regard to financial diligence”. Two days earlier, Mr Mathur had made a presentation to the Cabinet secretary, K M Chandrasekhar, on the spectrum policy. Mr Subbarao was present during the presentation. In his letter, he said that it wasn’t clear how “the rate of Rs 1,600 crore, determined as far back as in 2001, has been applied for a licence given in 2007 without any indexation, let alone current valuation. Moreover, in view of the financial implications, the ministry of finance should have been consulted in the matter before you had finalised the decision”. He ended the letter with a request for a reply as soon as possible. “Meanwhile, all further action to implement the above licences may please be stayed.” The telecom ministry, under Andimuthu Raja, did not agree with Mr Subbarao and conveyed as much in its reply on November 29, 2007.

Four, and most important, Prime Minister Manmohan Singh’s office wasn’t assertive in both the episodes and allowed itself to be guided by others’ opinion. In Coalgate, it has come to light that in a meeting held on July 25, 2005, chaired by T K A Nair, principal secretary to the prime minister, and attended by the representatives of the finance, coal, power and steel ministries, Planning Commission and the coal-bearing states, the Prime Minister’s Office (PMO) decided to press on with the system of allocations after it was pointed out that auction of coal blocks would result in expensive power. The minutes of the meeting were approved by Dr Singh in his capacity as the coal minister.

All this will sound very familiar if you followed the 2G spectrum scam. On February 15, 2006, the PMO had communicated to the Cabinet Secretariat that a group of ministers on telecom should be set up. Its terms of reference, as approved by the prime minister, were: identify spectrum for big users like mobile service operators and defence forces; find out how the defence forces could vacate their current spectrum and move to another band; and suggest a spectrum pricing policy. The Cabinet Secretariat issued the notification on February 23, 2005. Five days later, on February 28, Dayanidhi Maran, the telecom minister at the time, wrote to Dr Singh that some of the terms of reference impinged upon the normal work of his ministry. He followed it up with another letter, with similar content, on November 16, 2005. On November 27, 2005, the PMO sent a fresh set to the Cabinet Secretariat. Conspicuously missing was the spectrum pricing policy. On December 7, 2005, the Cabinet Secretariat made the necessary modifications in the group’s terms of reference.

Of course, Prime Minister Singh and Mr Raja, Mr Maran’s successor, exchanged over a dozen letters on the issue. But we all know who finally had his way.