Antrix stuck with $1-billion payout, but India’s busy building a Newspace

Elections rouse emotions. Especially one where 900 million people will vote to elect their leaders this month. That, to an extent, explains the timing and the ensuing chest-thumping after India demonstrated its ability to destroy targets in space by shooting down one of its own satellites late last month. It, however, doesn’t explain this under-the-radar activity: creating a new public sector company under the Department of Space (DOS), which already owns another public sector company, Antrix Corporation Ltd. Created 26 years ago, Antrix has since been the commercial arm of ISRO, selling its technologies and services.

On 19 February, a 9:30PM Press Information Bureau release said that the Union Cabinet chaired by Prime Minister Narendra Modi had approved setting up of a new company, “to commercially exploit the research and development work carried out by Indian Space Research Organization (ISRO) Centers and constituent units of DOS.”

Conspicuously, the news went unreported.

On 6 March, Newspace India Ltd was incorporated with D Radhakrishnan and Suma Devaki Ram as its two directors, according to the documents filed with the Ministry of Corporate Affairs. The two ISRO directors, of launch services and operations respectively, also serve on the management team of Antrix. On the face of it, Newspace looks no different from Antrix. Like Antrix, Newspace is attached at the hip to ISRO. This relationship has been awkward, thorny even, for industry partners and customers because it comes in Antrix’s way of independent and fair commercial operations. Nonetheless, it’s the timing of the new company rather than its ownership structure that is important. Is it a safety net for ISRO when Antrix stares at a liability payout of at least Rs 7,000 crore ($1 billion) in just one of the three arbitration cases that it has lost?

In 2011, the ISRO leadership unilaterally broke a commercial agreement between Antrix and Devas Multimedia Pvt Ltd, a newly set up communications services company. It was a decision that would go down in the history of ISRO as mysterious and irresponsible. One that would make India’s space establishment pay through its nose: all put together, close to $1.5 billion in penalties paid out of the Consolidated Fund of India.

Devas had signed an agreement with Antrix in 2005 to lease transponders on two of ISRO’s yet-to-launch communications satellites, GSATs, to launch hybrid satellite-terrestrial broadband services. It would use spectrum in the 2.5 GHz or S-band, then an unutilised resource. It was a unique business deal—ISRO would build customised satellites for a private company. Everyone was getting along with their business until India’s purported satellite, GSAT-4, failed in 2010 due to a rocket failure. Soon after, India’s 2G spectrum scam would consume everything telecom and communications, dragging the S-band project into controversy. A leaked CAG report hinted at irregularities, mostly procedural lapses, in the Antrix-Devas contract. Within days, ISRO officials rushed to cancel the commercial agreement.

“Did they not know that a commercial contract has arbitration clauses in it? The government mandates alternate dispute redressal mechanism. That is why we have Arbitration and Reconciliation Act,” says a lawyer, who also specialises in international space law. All commercial contracts are required to have arbitration so that the parties involved can choose to arbitrate or go to court. This contract also had such a clause. “After wasting some years [in lobbing the ball from one Indian court to another], Antrix, chided by the Supreme Court, allowed the case to go for international arbitration,” says the lawyer, requesting anonymity because of the sensitive nature of the case.

Antrix, and by extension the Government of India, lost the case, following which the International Court of Arbitration of the International Chamber of Commerce awarded $562.5 million in damages in September 2015 ($1=Rs 43.78 forex rate, as per the agreement). Adding interest from the date of cancellation in Feb 2011 and from the date of the damage award in 2015, the total payout has crept up to nearly $1 billion. Even as this payout clock ticks—every passing day is adding to the interest payable from the Indian taxpayers’ pool—India has lost two other cases slapped on it by the German company Deutsche Telekom and American investors Columbia Capital and Telecom Ventures, the three investors in Devas. The damages will be awarded any time now, say sources close to the matter. When that happens, Antrix might end up a shadow of its ambitious self.

Space and time bend, after all

The government dragged its feet then, in 2011; it’s dragging its feet now, in 2019.

In February, based on the Enforcement Directorate’s probe into the Antrix-Devas case, the Foreign Exchange Management Act Authority imposed a penalty of Rs 1,585.08 crore ($227.5 million) on Devas for an “illegal foreign investment of Rs 579 crore ($83.1 million)”. Separately, criminal proceedings have been initiated against Devas’ promoters based on an FIR registered by the CBI.

“Clearly, someone from the government would have initiated a process for a case and mark it to the ED. The entire machinery has been moved to achieve this. I’m flummoxed and saddened,” says the lawyer quoted above. This is dragging all over again because ED cases are never closed. “They simply languish.”

Has the criminal case been initiated to whip the Devas team even as the government fights investor lawsuits worth hundreds of millions of dollars? Because Devas may have won the international arbitration, but it needs to get the damage award implemented in India. Could the ED and CBI cases wear it down? For now, sources in the industry say, Devas has taken a stay order. However, if and when these cases go to court, Devas will incur a lot of expenses fighting them.

“Assuming the ED case is not out of a vindictive purpose, then ultimately it will come to the Supreme Court and we will hear [the real story], like the Nambi Narayanan case. It took the man down; it took the ISRO programme down. One of the accused even died; Nambi Narayanan survived and was awarded the Padma Bhushan this year,” says a space industry veteran.

To back up a little, in 1994, Nambi Narayanan, a distinguished rocket scientist, was embroiled in a space espionage controversy and branded a ‘spy’. He was charged with transferring confidential documents related to India’s space programme to Russia and Pakistan. After a long legal battle, the Supreme Court exonerated him in 2018, asking the Kerala police, which had led the country and the investigation down the espionage path, to pay Rs 50 lakh ($72,000) as compensation.

For this, it’s important to keep the two strands of the Devas saga separate. One, there is a breach of a commercial contract—Antrix and ISRO acted in poor judgment and have to pay the price. There’s no getting away from that.

Secondly, there are criminal proceedings against Devas and team for what was, at some point, admittedly a “procedural lapse” and has now morphed into a “money laundering” case. At its simplest, it’s like Indian telcos Bharti Airtel or Reliance Jio renting transponders from ISRO satellites to provide broadband services, where they’d have to take licenses and permissions from the Department of Telecom (DOT) and Wireless Planning Commission (WPC). Except, in this case, the government, that is ISRO and Antrix, were to provide the S-band spectrum, orbital slots and transponders. At the end of it, Devas would provide wireless broadband services, for which it was already field testing its technology by 2011.

Did the three parties—DOS, DOT, WPC— back in 2005, not know that S-band spectrum was reserved for strategic purposes? It’s a question the public has no answer to; a question that has haunted Antrix and ISRO, putting several of their programmes in a demotivated, delayed orbit.  

Newspace, old ways?

In the last two-three years, ISRO and Antrix have tried to engage with industry partners, startups in particular, for more lucrative and technology-licensing deals. In its 2018 annual report, Antrix said, “A separate vertical was formed last year for the manufacture and marketing of Small Satellite Launch Vehicle (SSLV). This is the first time Antrix is considering a decision to venture into manufacturing. A consultant is appointed to analyse the market and business case. Costing exercises are also planned. The decision to invest will depend on the positive outcome of these analyses and Board clearance.”

In reality, things are far removed from these optimistic estimates. Some of the startups looking to participate in SSLV and small satellite manufacturing tenders say there’s “complete policy paralysis” in the wake of Antrix’s mounting liabilities.

The new company’s charter looks progressive on paper, though. From the PIB release:

  •     Small satellite technology transfer to industry, wherein the new company shall take license from DoS/ISRO and sub-license to industries
  •     Manufacture of small satellite launch vehicle (SLV) in collaboration with the Private Sector;
  •     Productionisation of Polar SLV through industry
  •     Productionisation and marketing of Space-based products and services, including launch and applications
  •     Transfer of Technology developed by ISRO Centers and constituent units of DoS
  •     Marketing of some spin-off technologies and products, both in India and abroad
  •     Any other subject which Government of India deems fit

Calls and emailed questions to Antrix and ISRO remained unanswered. But here are three possible reasons why DOS has formed a new company, a parallel to Antrix, as it were.

One, to make Newspace a truly independent company, free to license ISRO’s intellectual property and technology, form joint ventures and risky partnerships with the private sector. Stuff that space industry diehards have been clamouring for. This also allows Antrix to remain a marketing or a commercial arm to focus on transactions. Truth be told, Antrix was meant to license out (or license in) technologies, but it did not venture beyond captive manufacturing deals with the likes of Larsen & Toubro Ltd, Hindustan Aeronautics Ltd., Godrej & Boyce and scores of smaller enterprises. However, looking at the present structure of the company, and the fact that it is wholly under DOS, it’s hard to call it truly independent.

“If this is the structure of Newspace, then it’s fair to say ISRO has once again lost the opportunity to create a new public-private model that was under discussion. Like the [French] Arianespace group model, where the IP (intellectual property) and infrastructure come from the government; risk capital comes from private companies,” says the founder of a space startup that operates out of Bengaluru and Europe. In such a shared model, he says, the risks would be transferred to the private shareholders over time. He wished to remain anonymous because he doesn’t want to risk spoiling his relationship with the space agency.

The second plausible reason for creating Newspace is to replace Antrix, which could be later liquidated due to the Devas, Deutsche Telekom, Columbia Capital and Telecom Ventures liability claims. Some entrepreneurs working with ISRO say,  “Antrix is being hollowed out”. Since Antrix has no assets of its own, hollowing out may only mean shifting its business dealings to some other agency. For instance, two sources confirmed that those looking to strike geospatial data deals with Antrix are now being directed to the National Remote Sensing Centre in Hyderabad.

The final reason could be political. It’s quite likely that the Modi government and the new ISRO chairman K Sivan would like to leave a legacy—a brand new space company. That the former ISRO chairman, Madhavan Nair, who was at the centre of the Devas controversy and likely a victim of a massive witch-hunt, joined the Bharatiya Janata Party in 2018, makes the Devas post-arbitration plot more interesting. The closure may be nigh if the Modi government returns to power, but the hole in Antrix and the Indian government’s pocket will be hard to fill.

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