Is CSC E-Governance Services Really a Government Company?

New Delhi: 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”.

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.

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.

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.

(To be continued)

Inputs and writing assistance: Sourodipto Sanyal and Paranjoy Guha Thakurta

The writer is an independent journalist. He can be contacted @t_d_h_nair