Following the footsteps of Russia's Sistema, Norwegian telecom major Telenor may invoke a bilateral pact – the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) – to protect its investments in India's telecom sector.

This follows the Supreme Court's landmark order in February cancelling 122 spectrum licences granted during the then Telecom Minister, Mr A. Raja's tenure, on finding that their allocation was carried out “illegally”.

The cancelled licences included 21 licences of Sistema Shyam TeleServices Ltd, in which Sistema has a 56.68 per cent holding and 22 licences of Unitech Wireless (offering services under Uninor brand).

Telenor currently has a 67.25 per cent indirect ownership stake in Unitech Wireless held through Singapore-registered Telenor Asia Pte Ltd. The total investment is around Rs 6,135 crore in equity and over Rs 8,000 crore in debt through corporate guarantees. Uninor has around four crore customers in India.

Telenor's official spokesperson told Business Line that the company was “keeping all legal options including invoking the India-Singapore CECA provisions open. We have to look into it.”

Sistema had recently invoked the provisions of the India-Russia Agreement for Promotion and Mutual Protection of Investments in a bid to settle their dispute. Incidentally, Telenor had recently moved Company Law Board to secure its investments.

Like the India-Russia bilateral investment pact, the India-Singapore CECA has provisions on ‘expropriation' (which is a term used to describe confiscation and redistribution of private property – in this case Telenor's assets – by a public authority and it includes nationalisation) and compensation.

The CECA's investment chapter states that India and Singapore should not take any measure of expropriation against the investments of investors of the other country, unless they are taken on a non-discriminatory basis, for a purpose authorised by law, in accordance with due process of law.

Significantly, it states that ‘expropriation' should be made only against payment of compensation. The CECA mandates that the payment of compensation shall be prompt, adequate and effective.

Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation or impending expropriation became public knowledge, the pact adds.

Besides, it says, “compensation shall carry an appropriate interest, taking into account the length of time from the time of expropriation until the time of payment. Such compensation shall be effectively realisable, freely transferable and made promptly.”

In issues such as the one being faced by Telenor Asia Pte Ltd, the CECA states that if India expropriates the assets of an enterprise (for instance, Unitech Wireless) which is incorporated or constituted under Indian laws in force in any part of its own territory, and in which investors of Singapore (like Telenor Asia Pte Ltd) own shares, India should ensure that the provisions on compensation are applied to guarantee the specified compensation to such investors of Singapore who are owners of those shares.

Usually in such cases the parties try to resolve it through negotiations and consultations. However, the CECA also says that if it is not resolved within six months from the date of request for negotiations/consultations, the investor (in this case Telenor Asia Pte Ltd) can even take the dispute to the International Centre for Settlement of Investment Disputes (ICSID) for conciliation or arbitration or go for arbitration under the rules of the United Nations Commission on International Trade Law (UNCITRAL).

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Published on March 22, 2012