Is it the beginning of the end of the Sistema tangle?

Is it the beginning of the end of the Sistema tangle? Source: Press Photo

Is it the beginning of the end of the Sistema tangle? Source: Press Photo

While an Indian Supreme Court order has not given as much relief to Sistema as desired, it keeps the Russian company’s hopes afloat till February 4 and allows more elbow room to the Indian government to put in place some fire-fighting measures.

The Indian Supreme Court passed an order on Monday which gives both good and bad tidings to Russian telecom company JSFC Sistema.

The good news for Sistema is that the two-judge bench agreed to give relief to telecom operators (including the Russian company) whose licences were cancelled by its February 2, 2012 order and allowed them a brief extension to continue their services till February 4, 2013.

The bad news is that the court has abundantly made it clear in the course of hearing that all those telecom service providers who had not participated in the auction of the cancelled licences would not be allowed to continue and take advantage of the situation. Sistema had not participated in the fresh auctions held by the Government of India on November 12 and 14 last year.

The court’s order came on an application from the Department of Telecommunications (DoT) which prayed that the existing licence holders be allowed to continue operations till the next auction scheduled for March 2013 is completed. Thus affected companies like Sistema have got just a breather.

Further hearing in this case will take place on February 4 by when the DoT has been asked to give the names of the successful bidder companies in the November 2012 auctions. The Supreme Court has also asked the DoT to indicate the reserve price that it would fix for the upcoming auction in March.

In-Chamber Hearing of Curative Petitions

 Monday’s order has come close on the heels of some forward movement that has taken place in the past few days in judicial and politico-administrative spheres on the row over Sistema, the Russian company which has invested about $4 billion in the Indian telecom sector and has reportedly been suffering a daily loss of $1.5 million for no ostensible fault of its own. This is months after Vladimir Evtushenkov, chairman of Russia’s JSFC Sistema, wrote to Indian Commerce Minister Anand Sharma and National Security Advisor Shivshankar Menon in late September 2012, demanding to know why India wanted international arbitration proceedings postponed.

Several telecom companies, Indian and foreign, including Sistema, have filed individual curative petitions before the Indian Supreme Court after the court struck down on February 2, 2012 as many as 122 2G spectrum licenses, including the license of Sistema.

Sources tell RIR that the matter was heard by the judges in the chamber, not in the open court, on January 10, 2013. Since the matter was heard inside the chamber nobody knows what transpired. No order was passed by the court after its in-chamber hearing. Even the individual curative petitions of the companies are not in the public domain.

The Sistema issue is a politico-legal labyrinthine and a challenge for the Indo-Russian bilateral relations. Legally, the solution is tough and elusive because the court is well aware that providing relief to a bunch of companies could set a wrong precedent and would inevitably open the floodgates of similar curative petitions, now in the 2G case and for all such disputes in the future.

A political solution to the vexed issue seems to be a better and safer bet. This is precisely where the Government of India is making efforts and if all goes well such a solution may come up within this month.

The Political Solution

India’s Empowered Group of Ministers (EGoM) on spectrum pricing met on January 7, 2013 and worked out a formula that should resolve the Sistema tangle. The EGoM has recommended up to 50 percent reduction in the base price of the CDMA spectrum in the 800 MHz which did not see any participation in the auctions held in November 2012.

A defiant Sistema deliberately kept itself out from the recent auctions for a variety of reasons, including the “too high” base prices for CDMA spectrum which was 1.3 times that of GSM spectrum in the 1,800 MHz band.  Because of the high reserve prices, the Indian government cut a sorry figure with the last round of spectrum auctions which fetched just about which fetched just $1.7 billion, less than one-third of the government’s expectation ($4.9 billion).

The financial matters in this context are not very complicated and the Sistema had a point about the “too high” CDMA prices considering that the pan-India base price of GSM spectrum was pegged at $2.6 billion. Since the CDMA base price was 1.3 times of the GSM spectrum, the figure for the CDMA was set at $3.3 billion.

Now the next hurdle is that the Indian cabinet has to deliberate on the EGoM recommendations. There are two possible ways in which the union cabinet can react. Either the cabinet entirely accepts the EGoM’s suggestion of a 50 percent cut, or it prunes the suggested cut down to 30 percent. In case the cabinet accepts the 50 percent cut then Sistema Shyam will have to pay around $529 million after adjustment for 2.5 MHz spectrum as against around $292 million it paid in 2008.

Implications of the Supreme Court’s Latest Order

While Monday’s order of the Indian Supreme Court has not given as much relief to Sistema as the company would have desired, it certainly has kept the Russian company’s hopes afloat till February 4. Also, it allows more elbow room to the Indian government to put in place some fire-fighting measures urgently in the mean while and leaves scope for some back-room channels of discussions with the Russian company.

Russian ambassador in New Delhi, Alexander Kadakin, had last month openly criticised the Indian government over the Sistema issue and described it as “more political than judicial”. Probably the brief window pushed open by the Supreme Court on January 14, 2013 will enable the Indian government to expedite political resolution of the Sistema row that may not be resolved to Russian satisfaction through the judicial route.

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