Indian firms may have a bigger say in telcos' mgmt

Law ministry suggests changes to licence agreement.

Following a request for its views, the ministry of law has said the word "consultation" in the 74 per cent Foreign Direct Investment guidelines in Press Note 5 (2005 series) does not mean mere opinion seeking.

"It implies meeting of minds, which has to be achieved through an integrated, participatory consultative process with Indian promoters," the ministry said.

The purpose of the clarification was the issue raised by Essar Teleholdings Ltd. The first query of the company was on the word "consultation" appearing in the guidelines.

The law ministry's opinion also suggests that as far the modality to enforce this requirement goes, this can be achieved by making necessary arrangements in the articles of association of the licensee company.

On the issue of the antecedents of foreign investors raised by Essar, the law ministry observed that the requirement of screening of investors in telecom service providers and Foreign Investment Promotion Board (FIPB) approval would take care of any issue.

The law ministry views, provided to the commerce ministry a couple of months ago, may prove to be important in the long run, especially in the event of any tangles between promoters of telecom service companies.

It may be recalled that when Orascom Telecom, an Egyptian company with substantial operations in both Pakistan and Bangladesh, purchased a 10 per cent beneficial stake in Hutchison Essar, the development was viewed with concern in many sections. Essar, an existing shareholder in Hutchison, sought clarifications on the move.

As a precursor to the law ministry opinion, Defence Minister Pranab Mukherjee also mentioned this issue in a letter to Prime Minister Manmohan Singh and sought various additional safeguards relating to foreign investment in telecom sector.

The matter has since been discussed repeatedly, with a key meeting of senior officials having taken place on June 3.

The meeting, chaired by the prime minister's principal secretary, also saw the assembled secretaries deciding that the National Security Council secretariat would prepare a paper taking into account the national interest in all its dimensions.

Following this, Communication Minister Dayanidhi Maran met the PM and said differential security conditions for companies with 49 per cent and 74 per cent FDI would be discriminatory.

This plan to have differential treatment had been arrived on at the June 3 meeting, but has now been dropped due to Maran's intervention.