Commerce min bats for Telenor, opposes AG line

Written by Anandita Singh Mankotia | New Delhi | Updated: Aug 31 2012, 07:01am hrs
Sigve BrekkeSigve Brekke, MD, Uninor India
In a move that might cause some embarrassment to the government and attorney general Goolam E Vahanvati, the commerce ministry has said that Norwegian telecom operator Telenor has a case to seek compensation for cancellation of its licences under the provisions of Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore.

The commerce ministry has said so in a recent note, which has the approval of the commerce secretary, to an inter-ministerial group (IMG) headed by department of telecommunications secretary R Chandrasekhar that is looking into the issue of foreign telecom firms seeking compensation for cancellation of their licences by the Supreme Court via its February 2 order. So far other members of the IMG, from the ministries of finance, external affairs and law and the department of industrial policy and promotion, have not taken such a view on the matter.

Telenor, which has a 67.25% stake in Uninor, lost all its 22 circle licences as a result of the judgment, which also cancelled the licences of eight other firms. Telenor, which has made total investments of around R14,000 crore in the country, subsequently sent a notice to the government under CECA (since its India operations are through its Singapore subsidiary) seeking an amicable resolution pending which it would seek compensation. Other foreign telecom operators that have joint ventures with Indian partners who lost their licences Russias Sistema, Capital Global and Kaif Investments, Mauritius, and Axiata Group, Malaysia have also sent similar notices under the bilateral investment promotion agreements with the government.

The commerce ministrys views stating that Telenor has a case to seek compensation on the grounds of expropriation under chapter VI of the CECA also runs contrary to the opinion of attorney general Vahanvati, who has opined that judicial pronouncements are outside the ambit of bilateral investment treaties. According to Vahanvati, the notices by the companies concerned to the government seeking compensation is erroneous since they do not understand the concept of division of powers between the legislature, executive and judiciary.

The licences have been cancelled by the court and not the government so there can be no case of claiming compensation from the government, Vahanvati has opined.

The IMG is now expected to hold another meeting to firm up its views on the notices it has so far received from foreign telecom operators in the aftermath of the cancellation of licences.

The commerce department has said that Telenors notice to the government seeking compensation does not have merit on the grounds of national treatment as the Supreme Court judgment has not made any distinction between the licensees on the basis of the nationality of their shareholder. However, the companys case of expropriation by the government is difficult to defend. The order of the SC appears to be a measure under the definition of the CECA as it is an action taken by the judiciary, which is a wing of the government. The cancellation of the unified access service licence has adversely affected its investment in terms of value of its shares, etc. Thus, it appears to be a case of indirect expropriation. It also appears that while Telenor Singapore has the remedy available of making claims against its joint sector partner, Unitech India, they also have a case against the government of India for compensation, the commerce department note states.

Welcome ringtone

* October 29, 2008: Telenor picks up a 60% stake in new telecom licensee Unitech Wireless for R6,120 crore, valuing Unitech Wireless at R11,620 crore

* March 17, 2009: Owing to the global economic downturn, Telenor revises the enterprise valuation downwards to R10,900 crore and picks up an additional 7.25% keeping investment constant at R6,120 crore, which later increases marginally to R6,135 crore

* The company subsequently raised loans worth R9,809 crore to roll out telecom services in the country

* August 20, 2012: Telenor, which had guaranteed the loans of Uninor, settled them by paying the creditors