One of the three formulae used by the Comptroller and Auditor General to calculate the loss to the government for selling 2G spectrum on a first-come-first-served basis was suggested by BJP leader and Parliament’s Public Accounts Committee (PAC) chairman Murli Manohar Joshi.
When the team conducting the audit said they “are not on strong ground” in basing the loss on the formula suggested, they were told by CAG headquarters that PAC members felt the calculation “could be directly attributed to spectrum allotted”, according to documents accessed by The Indian Express.
The formula in question was based on the equity infusion through FDI in two companies, Swan and Unitech, that had won 2G licences in 2008. This was extrapolated to arrive at a loss figure of Rs 57,666 crore and Rs 69,626 crore respectively in the controversial CAG report tabled in Parliament.
“Even a high school student can do it. We have been taught this. You sold me something at ‘x’ price. A part of it, I sold it at price ‘y’. ‘y’ minus ‘x’ is what I have gained. Now, say, this is a certain percentage of the total. Raise it to 100 per cent and I get the total amount which at that point of time is worth. That would have been the value which the government or the country would have received,” Joshi told then finance secretary Ashok Chawla during a PAC meeting on June 30, 2010.
Joshi’s explanation came after Chawla told him that the loss on account of not auctioning the 2G spectrum “cannot be assessed,” according to the minutes of the PAC meeting. The meeting was also attended by CAG Vinod Rai, deputy CAG Rekha Gupta, director general (report central) R B Sinha, principal director (report central) Shubha Kumar and DG post and telecommunication R P Singh, who was responsible for conducting the audit. Besides, other PAC members, including those from the Congress, were also present.
A CAG document dated July 8, 2010 says the audit team was instructed by Shubha Kumar to work out a loss based on the formula suggested by Joshi at the PAC meeting. The audit team, which did not approve of the formula, forwarded a report with its objections.
“As desired by PD (RC) a para on loss of potential revenue on issue of licences linking the prices to the FDI attracted by UAS licence is placed opposite for perusal. (In) this connection it is submitted that we are not on strong grounds in the argument made. However, since Hqrs has instructed for a draft we may forward it along with our comments (sic),” the report said.
In its report tabled in Parliament on November 16, 2010, the CAG had said it had followed three methods to calculate the loss in the range of Rs 57,000 crore to Rs 1.76 lakh crore: an offer by Stel Pvt. Ltd to the prime minister for a pan-India licence; the issue of equity by Swan and Unitech; and the price at which 3G spectrum was auctioned.
Speaking to The Indian Express on Friday, R P Singh said that even as the chief auditor of the 2G audit he had not agreed with the views of CAG headquarters on the methods used to calculate loss and was just asked to sign the final report. Joshi, he added, may have also tried to access the report while it was being prepared.
Even the draft report prepared by R P Singh did not mention the calculation based on equity infusion. Later, on July 12, during the peer review which discussed the objections by R P Singh and others, it was decided, “the calculations of loss as made by DG (P&T) were discussed and general view was that it should be retained if we have documents to sustain it and may be a range can be given rather than a figure”.
On using equity infusion as one of the basis to calculate loss, the DG (P&T)’s office led by R P Singh had pointed out that investments by foreign companies “did not transgress the UASL guidelines” and the finance ministry has concurred that “it is a case of dilution of equity and not sale of equity of promoters. Hence it will be difficult to establish a tenable link between the value of UASL and the net worth of foreign investments the licensees attracted.”
Yet, the peer review decided to retain the calculation based on equity infusion. “We have also used another method for projecting loss as all the PAC members felt in the meetings held in June-July 2010 which were attended by us and DG (P&T)’s officers, the huge capital infusion into the telecom companies could be directly attributable to spectrum allotted,” it said.
Joshi denied Friday that he had tried to access the CAG’s 2G report even before it was finalised. However, CAG documents show that Joshi made more than one attempt to access the report while it was being prepared. “He once again desired to know the audit findings arising out of our audit of the records of the Ministry of Finance, DoT etc related to the issue of licenses and allocation of 2G spectrum. I very politely made a request to him to speak to CAG on the issue,” says a internal note prepared by R B Sinha on July 14, 2010 , referring to Joshi.
Responding to this, Vinod Rai wrote on the same note: “As for the rest no further action need be taken till the chairman speaks to me.”