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DoS incurred loss of Rs 36.17 cr due to non-revision of transponder prices: CAG

MUMBAI: The Department of Space (DoS) has strangely not included price revision clause in its Ku-band transponder lease agreements for INSAT systems with the direct-to-home (DTH) service providers.

Pointing out this flaw, the Comptroller and Auditor General of India (CAG) said that the non-revision of prices have resulted in a pricing differential estimated at Rs 36.17 crore (Rs 361.7 million) to the disadvantage of DoS.

In its report on the management of satellite capacity for DTH service by DoS, CAG has noted that the period of lease committed in the DTH transponder lease agreements between DoS and the DTH service providers for satellite capacity from INSAT system ranged from five to 10 years. However, the transponder lease agreements entered by DoS did not include provision for revision of prices.

It observed that DoS had constituted a standing committee to fix minimum price for each type of transponder for different INSAT satellites in June 2002 to periodically review the marketing strategy to deal with any difference on account of rates. The committee was authorised to negotiate with individual DTH service providers.

Incidentally, INSAT transponder lease charges were fixed and approved in March 2008 by DoS for a period of three years, i.e. up to March 2011. As the INSAT Coordination Committee (ICC) was yet to finalise the prices as of April 2011 when the validity period expired, the validity of existing price of various transponder lease agreements was extended till December 2011.

DoS subsequently decided (April 2012) to raise its prices by 15 per cent. The CAG audit, however, found that ICC did not finalise the prices, due to which the revision was not carried out.

“As such DoS extended the validity of the existing prices up to September 2013 and stated (September 2013) that approval was being sought for further extension of the prices up to 31 March 2014. In contrast, the transponder lease agreements with foreign satellite operators in the case of back to back contracts were valid for one to six years only. At the end of the terms of the agreement, fresh contracts were entered with revised prices,” the report noted.

Revision of price CAG

“It is evident that prices of transponders leased from foreign satellite systems were increased by five to 33 per cent over a period of one to six years. In contrast, DTH service providers availing INSAT transponder capacity paid the same charges for six to ten years. Non-inclusion of price revision clause in the agreements signed by DOS with service providers for INSAT systems and non-revision of prices resulted in a pricing differential estimated at Rs 36.17 crore to the disadvantage of DoS,” CAG said.

CAG also took a note of the fact that while prices of the transponders on foreign-owned satellites upon revision ranged from Rs 4.86 crore to Rs 8.86 crore per transponder per year, the prices of INSAT transponders remained constant at Rs 4.40 crore to Rs 4.80 crore for over a period of six to 10 years.

“The poor marketing strategy of DoS to continue with the same prices, when foreign satellite providers regularly revised their prices resulted in loss of transponder charges and provided an extra advantage to the service providers who were allocated INSAT capacity,” CAG observed.

It also said that though prices were to be revised after March 2011, the same was not done on the pretext that the contract could not be terminated as the service providers were issued licences for 10 years.

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