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Thursday, 20 November 2014 00:00
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Between oil and telecom, government doing a bad job

 

Even when Narendra Modi swept to power in May and tried to set right India’s investment climate, it was obvious two of the lowest-hanging fruit were petroleum and telecom—companies in both sectors had billions of dollars to invest, but unfavourable government policy was holding them back. In the case of gas, where the Rangarajan formula was dumped by the Modi government, the petroleum ministry is yet to come up with a formula on how to calculate the premium for finding gas in the deep waters where the bulk of India’s reserves are; as a result, billions of dollars of investment are on hold. In the case of crude oil, Cairn India’s completely justified proposal for an extension of its licence has been given a new twist with the law ministry saying the government can raise its stake in the Cairn JV in return for the extension. This is when Cairn has actually found more oil and wants time to be able to pump it out—not only does such an extension help the country since it encourages exploration firms to find more oil, 80% of Cairn’s earnings go to the government anyway by way of profit petroleum, taxes, royalty and profit-shares for ONGC which is a JV partner.

The telecom picture is even more alarming. Since the previous government had taken the inexplicable decision of not renewing the 900 MHz telecom licences of telcos—all licences are renewed as a matter of course, and the agreement provides for this—this set off a bidding frenzy the last time around. But this time, it is worse. In the last auction, bidders could bid for the 1800 MHz spectrum if they failed to retain their 900 MHz spectrum. This time around, there is no contiguous 1800 MHz auction to act as a fallback. The solution is getting more 2100 MHz spectrum, and that is what Trai had recommended. While getting extra 2100 MHz spectrum from the defence ministry isn’t that difficult—it involves a swap which works out better for defence as it will now have more consolidated spectrum—the telecom ministry is in favour of a two-stage auction with 2100 MHz spectrum being auctioned in only the second round; the first round will comprise spectrum in the 800/900/1800 MHz frequency bands.

Theoretically that sounds fine since, if a Vodafone say, fails to win back its 900 MHz spectrum at a reasonable price in the first phase of the bid, it needn’t keep bidding madly—it can always bid for the 2100 MHz spectrum in the second phase. But no telco bidding in the first phase can afford to take a chance as there is no guarantee as to when the second phase of the auction will happen, and how much of 2100 MHz spectrum will be put up for bid. So, telcos have no option but to bid astronomically in the first phase itself. Given how the telecom bureaucracy has been so obstructive in the past, telecom minister Ravi Shankar Prasad would do well to examine the issue in detail. The TDSAT judgment on 3G roaming, for instance, tells a sad story of the DoT’s high-handedness that has gone against most tenets of fair play, even contractual obligations—sadly, Prasad has fallen for his bureaucrats’ line and has gone and challenged the judgment in the Supreme Court. If the Modi government is looking for big investments, it is certainly going about it the wrong way.

 

 

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