The auction for a private mobile phone licence on 1 November was hailed as an unusually clean process, but questions are being asked about whether the winner of the bid used a loophole in the auction process to get away with the license.

The Nepal Telecommunica-tion Authority (NTA) was praised by all bidders for its transparency in pulling off what is perhaps Nepal's most transparent licensing auction ever. "I am envious, this is a totally open and honest process. I wish we had auctions like this," said one foreign bidder. However, the euphoria was short-lived as it became apparent that the winning bidder could have been gambling on opting out after ten years without paying the Rs 24.1 billion licence renewal fee.

Nepal's Khetan Group and India's Modi Telestra Ltd outbid five other business consortiums by offering to pay a total of Rs 9.08 billion ($122.6 million) as licence fees, royalty and the discounted renewal charges (Rs 20 billion in ten years). The licence fee was Rs 210 million and royalty Rs 3.9 billion. The unusually high third-round offer by Khetan and Modi-in the three-stage auction process-caught other bidders on the wrong foot. It was almost nine times the winning bids in both Round One, quoted by Turkey's Rumelli (Rs 1.32 billion), and Round Two winners India's United Telecom (Rs 1.34 billion).

"The licence renewal charge offered by Khetan and Modi (for years 11-15) does not make business sense," said a source in a consortium that lost the bid. "They have managed to use a loophole to their advantage. I don't think it is possible to pay the high renewal fees." The understanding is that renewal is optional, and comes 10 years down the road. It apparently only occurred to Khetan and partners that there would be little to lose by quoting high now, and keeping open the option of quitting after ten years.

But that is not what the NTA thinks. "I cannot imagine an investor quitting after putting in so much money and time in a project," Bhup Raj Pandey, NTC chairman told us. He dismisses concerns, and maintains that there will be laws to take care of contingencies. "We have acted in good faith and expect businesses to do the same.

" And that is precisely the question, are the parties acting in good faith? When we put it to Rajendra Khetan of the winning team, he said: "Ten years is too far away even to think about it right now. We're optimistic we'll run this business as a proper commercial venture. But we also have to remember there are many uncertainties ahead, such as new laws and policies."

The Khetans and Modi will now have to incorporate a joint venture and meet certain licensing requirements before actually getting their permits. One is the need to submit a detailed business plan. The group says it plans to sell 75,000 cell phones in 10 years.

The question then is: Can businesses the size of Khetan and Modi afford to default on renewal of licence without tarnishing their image? The winning bidder now has to pay 30 percent of the quoted licence fee before actually getting a licence. The remainder has to be paid not later than the third year of licensing, while the royalty is payable every year.

Six companies were short-listed for the financial bidding, which included joint ventures between Nepali and Indian, Singaporean and Turkish companies. The Nepali partners are required to own at least 20 percent of the equity in the new company to be set up to run the service.