Govt gives spectrum for peanuts. Unitech hits jackpot.

I normally read the business papers in the morning and the general newspapers in the evening. Yesterday, in the morning I read about Unitech selling 60% stake in its telecom venture for $1 billion to Telenor ASA and I started writing this post in the evening. Yesterday, none of the business newspapers had commented on the this story from the perspective of the tremendous loss to the government and the profit that Unitech made from this sale. So I started writing my post to comment on this yesterday evening but didn’t complete it. However, when I went home I found an interesting articles in Times of India by Shalini Singh on the similar lines that I was writing this post. I must praise Shalini for hitting the nail on the head. But what I still find surprising that none of the business papers have discussed the issue and none of the newspapers have made a hue and cry about the profit that Unitech has made at the expense of the government. Let me explain what I am talking about.

Unitech’s telecom venture, Unitech Wireless, does not do any business. It has no equipment or assets and also no revenue. But still its 60% share was sold for Rs. 6,120 crores. Why should a company doing no business be valued in billions of dallars? Well, you don’t have to be a rocket scientist to figure this out. Unitech Wireless holds the telecom licence and the allotted spectrum. Unitech Wireless paid Rs. 1621 crores to the government for the licence and spectrum and the company has been valued at Rs. 11,620. This means that the licence/spectrum has been valued at an astronomical value of Rs. 11,620 crores. In ten months, Unitech had made a profit of Rs. 9,999 crores. The reason is that the government has sold the spectrum to 14 companies dirt cheap. Now Unitech has been unlucky as the global financial meltdown would have certainly put downward pressure on valuations. I shudder to think what profit Unitech would have made under the normal circumstances. Now how could government let this happen is the million dollar question?

Let me add a few more issues here for discussion. It seems that none of the players have the financial or operational capability to compete in this business. In Unitech’s case, I think they even paid the licence fee by raising debt. Practically, everybody who has received a licence is interested in selling a stake to finance the building of network etc.

I was not aware that Swan has sold it stake till I read Shalini’s article. Unitech has sold its stake and Datacom is expected to sell its stake shortly. Why give licences to companies when they do not have the financial muscle. Also, the government knew that the licence holders would be tempted to sell their stake and they were mulling over some restrictions regarding the same. Why didn’t they come up with the restrictions or they should have given the licence subject to the companies not selling their stake till further guidelines were issued. The government knew that they were selling the stake dirt cheap and that the companies could end up making a lot of money with no effort. But they still did it. Why? We need to check the same with the telecom minister.

Swan and Unitech have made a combined profit of Rs. 18,232 crores. If one combines the profit that all the 9 companies will make if they sold their stake, by extrapolation, it would be Rs. 82,000 crores. Government only collected Rs. 9000 crores. Even if we discount this by 50%, we are still talking about Rs. 41,000 crores. This is a loss to the government as this is the price of the spectrum which is public property. It should not have been given away for peanuts.

I believe the government should not have given licence dirt cheap or should have put a condition that they will not sell their stake before 5 years of operations or ask them to give 75% of the profit they made on selling their to the government. I think the government can still ask Unitech to pass on 75% of the profit made to the government. Otherwise, we are back to the good old days when companies used to obtain licences to make money. Also, it should immediately pass guidelines and make sure that part of the profit on stake sale omes back to the government. The stake sale has still to be approved by the government and the government should miss the opportunity to come out with necessary guidelines to ensure that all the licence holders work to make money and not hit the jackpot sitting on their backside.

In fact, Unitech is lucky. By selling its stake, it was I think able to save itself from some serious financial trouble. If any of the licence holder cannot do this business on his own, he has no business getting the licence. In fact, I feel that the licence of such companies should be cancelled. Best policy would be to not allow any stake sale for 5 years. Profit made on any stake sale before this period has to be shared with the government with major part going to the government.

Is there some gol mal? I think so. I think the nexus between big business and government is still very strong.

I think this is a great opportunity for BJP to take up this issue strongly. Does anyone have access to BJP leadership?

Avinash narula

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Comments

Hey Avinash,

It’s like government selling real estate for cheap. But public understands if the same happens in real estate but they have no clue that what value a spectrum can have. I agree that it was a public property and private companies have made tons of money at the cost of tax payers. I am sure there have been some back-hand dealing between unitech and ministers / telecom adminsitartion officials. Do you know if somebody / some NGO is taking it up with gov? It should definitely be raised and public property/money should re-stored.

Regards,
Amit.

Reply

Avinash Narula Reply:

Amit hi!

A number of agencies are investigating it. I think even an NGO has filed a case. But we all know what happens when big money and big time politicians are involved.

I believe that whenevr the government wants to transfer any property (includes real estate licences etc), it should auction the same and NOT ALLOT. It is the allottment process that is the cause of all corruption. You can take the DDA flat scam, allottment of plots in Noida to Justice Sabharwal sons and even Maytas deals. In fact, auctioning is more relevant when you are not aware of the value of the property. It is transparent and both sides arrive at a price which is competitive.

Thanks for visiting my blog and for your comments.

avinash narula

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[...] licences were allotted to Unitech and other allottees made a bundle out of it.  A number of agencies are enquiring into the matter [...]

It’s like government selling real estate for cheap. But public understands if the same happens in real estate but they have no clue that what value a spectrum can have. I agree re-stored. EMF Necklace

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