News Click: National: Sunday,
26 July 2020.
An RTI
response claims that an entity meant to provide digital delivery of public
services, which received huge contracts without competitive bidding, is a
government company. But, there’s evidence in the public domain that raises
serious doubts about whether this entity is indeed government-owned and how it
was awarded contracts on “nomination” basis without floating tenders. This is
the second in a series of exclusive articles for News
Click.
In
response to a question raised under the Right to Information (RTI) Act, it has
been claimed that a corporate entity, described as a special purpose vehicle
(SPV) and named CSC e-Governance Services India Limited (CSC-SPV), which has
been promoted by the government of India’s Ministry of Electronics and
Information Technology (MeitY), is a “government company” under the provisions
of the Companies Act of 2013 and other laws.
However,
there are compelling reasons to doubt this claim.
If this
entity is not a government-owned one, questions arise as to how it was awarded
large and lucrative contracts without floating tenders and inviting competitive
bids.
CSC
e-Governance Services is an SPV, which was setup in July 2009 to oversee the
implementation of the Common Service Centre (CSC) scheme, a “mission mode”
project that comes under the National e-Governance Plan. CSCs provide access
points for digital online delivery of a wide range of public utility services
and welfare schemes.
A GOLDEN
SHARE
The
writer of this article filed an RTI with MeitY, asking whether CSC SPV is a
government company, and if yes, under which sections of the Companies Act.
Instead of responding to the RTI, MeitY forwarded the questions to CSC SPV.
The
response sent under the RTI Act by the company states that MeitY has a “golden
share” in CSC-SPV which gives the Union ministry full control over the working
and management of the company. However, information available in the public
domain seems to indicate that the company is a private entity and not one that
can be described as a government company.
There is
no mention in the Companies Act of 2013 nor the act preceding it, the Companies
Act of 1956, about a golden share or its legal validity.
A golden
share essentially gives veto powers to a government body over other
shareholders in a corporate entity, should it wish to bring about changes in
the management of the company. The concept of a golden share was introduced by
the British government in the early 1980s to control the government utilities
companies when they were privatised. This concept is now considered illegal by
the European Union.
Section
617 of the Companies Act, 1956 and Section 2(45) of the Companies Act, 2013
defines a government company as one “in which not less than fifty one percent
of the paid-up share capital is held by the central government or by any state
government or governments, or partly by the central government and partly by
one or more state governments, and includes a company which is a subsidiary
company of such a government company.”
The
Ministry of Corporate Affairs defines a government company as one “where there
is a clear majority stake held by the state,”that is, “central and/or state
government(s).”
A letter
written by Shankar Aggarwal, then Joint Secretary of MeitY, to the Registrar of
Companies of the National Capital Territory (NCT) of Delhi and Haryana on June
24, 2009, explicitly mentioned that the government had no plans to make the
then new entity a government company. Incidentally, after his retirement in
2016, Aggarwal became the Executive Director of CSC-SPV.
There is
at present an entire ministry (MeitY) in the Indian government that is
dedicated to information technology. Interestingly, despite the claims made in
the RTI response, the MCA website shows CSC-SPV as a “non-government company”.
LLp
master data
According
to the latest financial details filed by the company with the Registrar of
Companies, as on March 31, 2019, almost 77% of the shares of the entity is with
banks, financial institutions and other private companies. The HDFC group is
the single largest shareholder in CSC-SPV, holding more than 16% of its shares.
CSC
In
October 2019, CSC-SPV allotted 50,000 shares to another private entity, NEC
Technologies India Limited, which further diluted the shareholding of
government entities.
CSC2
In the
first article in this series on CSC-SPV published on June 13 in Newsclick, it
was pointed out that the government is awarding business contracts worth
thousands of crore rupees to this company on a “nomination basis,” that is,
without inviting competitive bids and that this apparently violates Article 14
of the Constitution.
Article
14 provides for equality before law or equal protection of the laws within the
territory of India. It states: “The State shall not deny to any person equality
before the law or the equal protection of the laws within the territory of
India.”
The word
“person” includes; companies, statutory corporations, registered societies or
any other type of legal person.
A
UNIVERSAL SERVICE PROVIDER
In March
2017, the Department of Telecommunications (DoT) under MeitY appointed CSC-SPV
as a “universal service provider” (USP) for “setting up Wi-Fi Choupals at 5,000
Gram Panchayats for providing the internet services over Wi-Fi network” as a
pilot project. (A choupal is typically an open space in a village for public
meetings)
According
to the agreement signed between MeitY and CSC-SPV, the estimated capital
expenditure (capex) for one Wi-Fi Choupal with eight access points is Rs
2,00,000. The total capex for the pilot project is Rs 100 crore. The entire
amount was paid from the Universal Service Obligation Fund (USOF), which is
under the DoT, without inviting any tender.
The USOF
is meant to provide widespread and non-discriminatory access to quality
information and communications technology services at affordable prices to
people who live in rural India and in remote parts of the country.
CSC-SPV
GETS CONTACTS ON NOMINATION BASIS
The
2018-19 annual report of Bharat Broadband Network Limited (BBNL), a Central
government company, mentions how CSC-SPV is involved in implementing some of
its projects. From providing WI-FI access points to executing the work related
to maintaining incremental fibre optic cables and Gigabit Passive Optical
Networks (GPON) equipment in gram panchayats, CSC-SPV has been entrusted with
the responsibility of executing contracts valued at thousands of crore rupees.
It
appears that these contracts have been awarded on “nomination” to CSC-SPV
without inviting competing bidders just because MeitY has projected it as a
government company.
The BBNL
annual report shows that the company has extended an advance of Rs 274.13 crore
for capital expenditure to CSC-SPV by way of Viability Gap Funding (VGF) for
installing Wi-Fi hotspots. VGF is a one-time grant or a deferred grant by the
Central government or a state government for infrastructure projects which are
being built under a public-private partnership (PPP) model to enhance its
economic viability.
The
guidelines on VGF by the Department of Economic Affairs (DEA) in the Ministry
of Finance clearly states that such funding is allowed only for PPP projects.
Clause 3.3 clarifies that the “proposal shall relate to a Public Private
Partnership (PPP) project which is based on a contract or (a) concession
agreement between a Government or (a) statutory entity on the one side and a
private sector company on the other side…”
Clause
3.4 of the guidelines adds: “This scheme will apply only if the contract/
concession is awarded in favour of a private sector company in which 51% or
more of the subscribed and paid up equity is owned and controlled by a private
entity.”
Clause
3.5 states: “A private sector company shall be eligible for VGF only if it is
selected on the basis of open competitive bidding and is responsible for
financing, construction, maintenance and operation of the project during the
concession period.”
Clause
5.1 of the guidelines further adds: “The amount of VGF shall be equivalent to
the lowest bid for capital subsidy, but subject to a maximum of 20% of the
total project cost. In case the sponsoring Ministry/State Government/ statutory
entity proposes to provide any assistance over and above the said VGF, it shall
be restricted to a further 20% of the total project cost.”
These
guidelines indicate that VGF is applicable only if the project is implemented
as a PPP model and the ministry or department concerned has invited an open and
transparent two-stage bidding to select the implementation agency.
The
lowest bidder should be selected and the VGF should be equivalent to 20% of the
total cost projected by the bidder. VGF can be disbursed only after the private
company concerned has subscribed and expended the equity contribution required
for the project.
The
Guidance Note For PPP Projects by MeitY, too, categorically notes that VGF is
meant only for PPP projects.
Another
point to note about BBNL providing VGF to CSC-SPV is that the government
guidelines state that VGF is not applicable for information technology sector
projects. Evidently then, by providing Rs. 273.14 crore to CSC-SPV as VGF, BBNL
is contradicting the government's claim that CSC-SPV is a government company.
A senior
official in MeitY told this writer on condition of anonymity that in March
2019, the then Secretary, Telecommunications, Aruna Soundararajan, had pointed
out that infrastructure of the first phase of the BharatNet programme was
under-utilised and should be developed on the PPP model to enhance traffic. She
is understood to have said this during a meeting at the Prime Minister’s Office
(PMO).
The
entire project is being funded by USOF with the objective to facilitate the
delivery of e-governance to rural India.
APPROVAL
BY DIGITAL COMMUNICATION COMMISSION
The PMO
constituted a committee headed by NITI Aayog Chief Executive Officer Amitabh
Kant to look into the issue. The committee submitted its report to the Digital
Communications Commission (DCC)––earlier known as the Telecom Commission––in
the second week of May 2020 indicating that the PPP model is the best way
forward to implement the BharatNet Phase I project.
The DCC
is the apex body that approves the utilisation of funds from USOF. The
committee is headed by Secretary, DoT. There are four full-time time members of
the panel to deal with issues relating to finance, production, services and
technology. The committee also has part-time members who are Secretaries to the
Departments of Electronics and
Information Technology, Economic Affairs and Industrial Policy and Promotion,
besides the CEO of NITI Aayog.
The DCC
report recommended that the infrastructure for BharatNet should be handed over
to private service providers on long-term leases (up to 25 years) for
“integrated operation, management, upgradation and commercial usage” and that
MeitY should consider supporting the private players through the VGF route. The
committee suggested that its recommendations be submitted to the Union Cabinet
for its approval.
In June
2019, CSC-SPV submitted a proposal to USOF, seeking its permission to utilise
the BBNL network. The company gave an assurance that it would manage the
operations and maintenance of BharatNet’s infrastructure. On June 13, in the
DCC meeting, the proposal by CSC-SPV was submitted as a “special item” and the
committee approved it the same day.
On June
27, 2019, the USOF, under MeITY, issued a Letter of Intent (LoI) to CSC-SPV for
First Line Maintenance (FLM), operation and management of the incremental
Optical Fibre Cable (OFC) network and the installation of two Wi-Fi access
points at every gram panchayat under the BharatNet Phase I programme, on
nomination basis. The total contract value mentioned in the LoI is Rs1,903.5
crore. How USOF evaluated the technical capabilities of CSC-SPV for a project
with technical complexities that fast, is still a mystery.
BBNL’S
TENDER AND USOF
Bharat
Broadband Network Limited had invited a tender on behalf of USOF “for the
“Selection of Implementing Agency for provisioning of Last Mile Access and
Broadband Services through Public Wi-Fi Access Point or through any other
suitable broadband technology at the Gram Panchayat level.” Four Central PSUs
(public sector undertakings) and four private companies had submitted their
bids.
This
tender was an extension of an earlier tender floated on June 22, 2018, with the
same terms and conditions. On June 28, 2019, a day after USOF issued a LoI to
CSC-SPV, BBNL cancelled the tender due to “administrative reasons as per (the)
instruction of (the) competent authority.”
Two
weeks after issuing the LoI to CSC-SPV, the USOF signed an agreement with the
company awarding it the contract worth Rs1,903.5 crore broken up under the
following heads: the setting up of two Wi-Fi access points in 90,000 gram
panchayats worth Rs1,440 crore, first line maintenance of the equipment of
1,25,000 panchayats for one year worth Rs103.5 crore; and
the
operation and maintenance of optic fibre cables of BBNL in the panchayats for a
year worth Rs 360 crore.
The
contract document mentions that CSC-SPV has been awarded contracts to operate
two Wi-Fi access points each in 5,000 gram panchayats across India. Later, it
was awarded similar work for an additional 25,000 panchayats in Uttar Pradesh
and 3,243 panchayats in Himachal Pradesh, each worth Rs 1.6 lakh, adding Rs 452
crore to the total contract.
Moreover,
the entire capital expenditure of CSC-SPV was allowed at a rate quoted by it.
It is not clear whether the rates submitted by the company were independently
verified as being responsible.
The
2017-18 report of the Parliamentary Standing Committee on Information
Technology stated: “On 19.07.2017, the Union Cabinet approved a modified
implementation strategy for BharatNet under which, the last mile connectivity,
through Wi-Fi or any other suitable broadband technology, is to be provided to
cover all the (approximately 2,50,000) gram panchayats… in the country. The
last mile connectivity for all the panchayats is to be provided through
Viability Gap Funding (VGF) in (the) Public Private Partnership (PPP) mode by
BBNL by floating a tender for its implementation.”
AGAINST
GOVERNMENT NORMS
The USOF
released half the amount earmarked for capital expenditure in advance to
CSC-SPV. This was evidently against established government norms because no
bank guarantee was taken in advance. The norms specify that such a bank
guarantee must be furnished by the private company concerned in a PPP project
where mobilisation advances are disbursed.
Over and
above a bank guarantee, a private contractor has to submit a performance bank
guarantee which may be encashed by the government if the performance of the
contractor is not up to the mark, or if the contractor defaults on implementing
the project. However, in the case of CSC-SPV, it seems these established norms
were not appliable.
CSC-SPV
is a company that was formed for rolling out the National e-Governance Plan. It
was formed as a 100% subsidiary by the name of CSC Wi-Fi Choupal Pvt Ltd in
2017 when it received the first contract with 100% capex support to roll out
5,000 Wi-Fi Choupals.
It
appears that CSC-SPV offloaded these new contracts to its subsidiary to avoid
public scrutiny. Its website claims that it has covered 32 states, 450-plus
blocks, 1,25,000 gram panchayats and deployed approximately 1,65,000 rural
Wi-Fi hotspots.
While
the company has responded to this writer through his application under the RTI
Act, claiming that it is a “government company,” there seems to be much more
than meets the eye.
Detailed
questionnaires were sent on July 20 to the Secretary, MeitY, Ajay Prakash
Sawhney, the USOF administrator Anshuli Arya, USOF’sAdditional Administrator
(Finance) Manoj Anand, its Joint Administrator Pankaj Kumar (who handles the
BharatNet and CSC related projects), the Chairman of BBNL Sarvesh Singh and
CSC-SPV’s CEO Dinesh Tyagi.
There
were no responses till the time of publication. This article will be updated as
and when they choose to respond.
.JPG)
.JPG)
