Loopholes let Reliance firm get spectrum: CAG

Draft report castigates govt for setting eligibility criteria

Loopholes let Reliance firm get spectrum: CAG

The Comptroller and Auditor General (CAG) has pulled up the Department of Telecom (DoT) for loopholes that allowed Reliance Jio Infocomm to get pan-India high-speed BWA spectrum at the cost of the exchequer.

The CAG in its draft report sent to the DoT for its comments, castigated the government for setting the eligibility criteria for bidders. Reliance Jio, a subsidiary of Mukesh Ambani-led Reliance Industries, acquired Infotel Broadband Services Pvt Ltd (IBSPL) in June 2010, soon after the little-known firm won nationwide BWA spectrum for about Rs 12,750 crore.

Interestingly, when BWA spectrum auction was held during A Raja was the telecom minister, the government did not fix the lock in period for winners.

"Due to the provision of inadequate eligibility criterion for the participation in the auction of BWA spectrum and deficient due diligence on the part of DoT officials, the promoters of IBSPL...made windfall gain of Rs 4,800 crore at the cost of public exchequer immediately after closure of BWA spectrum auction in June 2010," the CAG's draft report said.

The CAG said that while  DoT had barred promoters holding 10 per cent in a telecom company from selling their stake for three years after spectrum allocation, no such curbs were prescribed for the BWA auction.

"A non-participant company exploited the loophole left by the DoT officials in the eligibility criterion for obtaining BWA spectrum by acquiring a winning company without participating in the auction within hours of closure of auction process, thereby vitiating the sanctity of the auction process," it said.

However, Reliance Jio refuted all charges. It said in response to an e-mail query that the Telecom Regulatory Authority of India had emphasised that DoT should devise the scheme by which large and small ISP operators are permitted to deploy BWA networks.

Windfall gains

The CAG report said IBSPL changed from a private limited company to a public limited company, IBSL, on June 17, within a week of winning the spectrum, and on the same day decided to allot 94.96 per cent shares to Reliance, which led to windfall gains for the promoters of Infotel.

RJio, however, said there was no gain for Infotel's shareholders because it subscribed to fresh equity issued by the company. Also, the spectrum was procured at an auction-determined price, not an administered price."There was no question of any windfall gain," RJio said.

The CAG said DoT neither investigated nor questioned IBSPL's source of funds even though bank guarantees furnished by the company were disproportionate to its turnover.

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