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Friday, 06 April 2012 00:00
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SC gives government one more chance to argue for discretion instead of transparency. Pity

SC rejection of review petition gives telecom sector a chance to make a brand new beginning, and the government to reconsider its attempts to hold on to its powers of discretion

With the Supreme Court rejecting the review petition filed by the telecom companies whose 2G licences were cancelled last month, the sector has got a second chance to set things straight. Not only will spectrum-starved telcos get a lot more spectrum (the amount released by the 122 licences equals to more than twice what a Bharti-Airtel has), it is clear all future spectrum will only be given through auctions—in other words, the scope for discretion has been vastly reduced. Not entirely, since Trai/government can still try and play favourites, like deciding to have, one of the options Trai has listed in its consultation paper, a separate auction window only for the companies whose licenses have been cancelled—in which case, why even go through the whole exercise of cancelling the licences? But, despite this, the scope for favouritism has been dramatically reduced.

But the biggest loser in the entire episode, even more than the 9 companies whose 122 licences were cancelled, is the government. After all the scams that have hit the government over the last year or so, the government seemed to be wanting to fix things and began talking of auctions as the natural way out, leaders like Sonia Gandhi talked of the need to reduce discretionary powers—very curiously, while the government talked of wanting to auction natural resources, the report of the Ashok Chawla committee on this is still not public! If, for some reason, perhaps coalition politics, the government wasn’t able to tread the right path, the Supreme Court offered it the perfect way out, by coming down on the first-come-first-served (FCFS) rule and other variants of it.

Take a look at the government’s review petition—while rejecting the others, the Supreme Court has given the government a chance to argue its case on April 13—and you realise just how determined the government is to retain its powers of discretion while allotting scarce and precious natural resources. Many, including this columnist, don’t agree with the CAG’s numbers on the coal allocation scam, but there is no doubt those who have got the allocations have made a killing on this.

What takes the cake, of course, is the government argument that it is not challenging the cancellation of the licenses but only the Supreme Court’s view that FCFS is a bad way to dispose off natural resources and that auctions should be the preferred method. It is true the Supreme Court has cited many reasons for cancelling the licences, such as A Raja’s bringing forward of the cutoff date, but the problems with the FCFS method—it benefits only a few at the expense of others—was an integral part of the judgment.

Apart from this issue of being too clever by half, the real problem with the government petition is that it distorts the Supreme Court judgment by over-emphasising parts of it. So, apart from saying the Supreme Court does not have the power to examine ‘policy’ (!), the petition objects to the Supreme Court saying auctions are the only way to distribute natural resources.

At the outset, it has to be pointed out that FCFS is not a ‘policy’, it is an administrative decision of how to select firms/allow spectrum; deciding to allow the private sector in telephony is a ‘policy’ which is why, as the government’s petition says, the Supreme Court ruled it could not examine this when the Delhi Science Forum challenged it in 1996.

But, more important, the Supreme Court has not said only auctions are to be used, it has said this was preferred. Indeed, while the government petition quotes Sachidanand Pandey vs State of West Bengal (1987) to argue the Supreme Court has recognised auctions cannot be the only policy, last month’s Supreme Court judgment also quotes the same ruling to make the same point! “One of the methods of securing the public interest, when it is considered necessary to dispose of a property, is to sell the property by public auction or by inviting tenders. Though that is the ordinary rule, it is not an invariable rule. There may be situations where there are compelling reasons necessitating departure from the rule but then the reasons for the departure must be rational and should not be suggestive of discrimination.” In other words, if you’re departing from the rule, just say why you are doing so. When the government never got bids for several ‘C’ category circles, it decided to allot them to whoever came for them later at the base price—it recorded the reasons, and no one challenged it. But recording decisions means they can be challenged and are open to scrutiny!

Similarly, while it is actually possible to auction water franchises while keeping a tight control over water tariffs by proper auction design (‘Yes, you can auction water’, FE, February 13, http://bit.ly/HuImaI), the Supreme Court judgment is quite clear it is not talking of all natural resources, it is only talking of those which have great commercial value and where that value is being extracted by a handful of private firms. This is also what CAG said in the case of coal blocks where the government is trying to fix things (albeit half-heartedly) by cancelling some allotments and by asking firms to bid for power projects that use this coal (‘Unscrambling coal scam’, FE, April 4, http://bit.ly/HXNf0n)—given the CAG report on the losses in the coal sector, hopefully the government won’t use the MMDR argument (its petition says the mining act allows for FCFS, so the 2G judgment is impinging on policy passed by Parliament) while arguing its case!

And when the petition says the Supreme Court wants natural resources to go to the highest bidder and that this will cause ‘arbitrary consequences to the detriment of the public’, it is being dramatic (this, by the way, was part of the presentation made to the prime minister while clearing the review petition). Apart from the fact that consumer tariffs haven’t risen after the 2001 auction or the Vodafone purchase of Hutch’s India operations for $11bn (where’s the detriment to the public?), a properly-designed auction will mean only technically qualified persons win a bid, not just those bidding high prices. In the Delhi airport bid, while financial bids were called for, these were only opened for the companies who passed the technical tests.

Perhaps Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi would keep this larger perspective in mind while government nominees go on to battle for what they feel is the sovereign’s inalienable right to decide winners.


 

 

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