Govt got it wrong by blindly accepting Trai view
Given that India buys 30% of all Russian defence exports, and that Russia actually leased India a nuclear attack submarine (INS Chakra) for a 10-year period, it’s not surprising the ties between the two countries remain deep. While India inked a $3 billion deal for 42 Sukhoi-30s to be put together by HAL from Russian kits and for 71 Mi-17V5 helicopters (in 2010, the original deal was for 59 such machines) when Russian President Vladimir Putin was in the capital on Monday, the ties extend to the $2.3 billion INS Vikramaditya, to cooperation in developing a nuclear ballistic missile submarine, cruise missiles, working on joint development of a fifth generation fighter aircraft and building more nuclear power plants. The ties may have come under some strain with India buying non-Russian weapons systems, but that seems to have been overcome since there is enough ordering being down.
Which is why it is unfortunate that the Sistema telecom licence cancellation has got entangled with ONGC Videsh Limited’s (OVL) request for tax concessions on its Russian investments. While OVL invested in Russia when there were no tax concessions for work in western Siberia, it found the much lower than anticipated recoveries meant it would make losses, especially given the high 35% mineral exploration tax and the 50% corporate tax—hence the request for a 10-year tax holiday along with a waiver of the mineral exploration taxes. Not surprisingly, the Russians have brought up the issue of the Supreme Court cancelling Sistema’s CDMA-mobile telecom licences. Sistema’s argument is that it was not to know the licensing process was flawed and that the licences were valid ones issued by the government; it also argues, and validly, that while there may have been a great demand—and therefore a high price—for GSM licences, there were no takers for the CDMA licences Sistema applied for. To cap it all, Trai decided to arbitrarily recommend using the high prices from the 3G auction in 2010 as the base price for the 2G auction in 2012—it came to a completely unviable R18,000 crore base price for 5 MHz of 1800 MHz spectrum and then said the CDMA spectrum would have a base price of 1.3 times this. The failure of the 2G GSM auctions showed just how flawed this principle was—and there wasn’t even one bidder for CDMA spectrum. While the government cannot just give Sistema its licences back at the original price it paid, it needs to do some realistic pricing, and then work on a compromise with Sistema. Till then, ONGC’s shareholders will have to keep their fingers crossed.