Drill oil but dial telecom

The telecommunication in­du­stry is headed for its watershed moment as companies prepare to pay dues raised by the department of telecommunication (DOT). Curiously, these dues are a portion of the adjusted gross revenue (AGR) which is used to calculate licence fees and spectrum usage charges. DOT, in compliance with a Supreme Court order, used all incomes of the companies to calculate the dues, whether that income related to telecom business or not.


While an official consolidated list for AGR dues of all companies is unavailable, a look at the amount conveyed by the department to


various companies will reveal the skewed approach that went into these calculations. GAIL India, the country’s largest natural gas marketing and transportation company, has to pay up Rs 1.83 trillion while Oil India Ltd (OIL), the government-owned crude oil producer, has a bill of over Rs 48,000 crore at its door for the years starting 2007-08 to 2018-19. Both these companies have telecom licences in various categories but do not provide telecom services and hence cannot be equated with full-scale service providers like Reliance Jio, Airtel and Vodafone.


The absurdity of the situation, however, lies in the fact that Airtel, the second biggest telecom operator, has been asked to pay around Rs 35,500 crore while another major operator Vodafone Idea owes the government Rs 54,000 crore. This means that oil and gas producers have to shell out more than the


telecom operators for holding telecom licences. Part of the reason for this strange approach could be the arrears and penalties and different years for which these companies hold the dues. So, an ill-prepared government will reportedly now ask for another assessment of some of the demand letters. A major contributor to these bills raised on non-telecom companies, however, is the high value sales of oil and gas of these companies that went into the calculations of AGR dues. So, production, marketing and transportation of oil and gas is paying for what the government thinks is its share in the corporate revenue since it distributed telecom licences as a public trustee. It also means that higher the oil price jumps, the bigger the AGR share of the government.


Even power transmission player Power Grid Corporation of India Ltd (PGCIL) has to cough up around Rs 22,000 crore of additional licence fee because AGR now constitutes non-telecom revenue also.


The inclusion of non-telecom re­venue in the calculations translates into an addition of around 90-98 per cent of the sales of these companies.


PGCIL holds national long distance (NLD) and internet service provider (ISP) licences. While the company had made AGR-based licence fee payments to the DoT earlier, it did not include non-telecom revenue. Now, DOT wants a share in its power business income too. PGCIL is of the view that the dispute is on the interpretation of AGR of telecom companies that hold Unified Access Service Licence and that have migrated from National Telecom Policy (NTP) 1994 to NTP-1999, and, since PGCIL was not a licensee prior to 2001 and has never held a unified access service licence (UASL), it needn’t pay.


When it comes to assessing the consequences, various analyst re­ports have noted that while the DoT is seeking Rs 1.8 trillion as dues for GAIL's IP-1, IP-2 and ISP licences, calculated as 8 per cent of total AGR with retrospective effect, the company's net-worth is one-fourth of this demand. Incidentally, the annual revenue for the company from telecom was only Rs 2.42 crore in FY19.

Moody’s Investor Service had earlier said that in a scenario where OIL has to pay the dues, any payment would immediately pressure OIL's ratings and take its leverage to unprecedented levels. The company does not have sufficient liquidity to pay the amount required through reserves and internal cash flow and would have to raise additional capital to fund the payment.


Such capital raising will be at the cost of other investment related to its core business. It must be noted that to take away a portion of what OIL earns from selling crude oil or what GAIL earns from natural gas or PGCIL from power transmission is akin to robbing Peter to pay Paul.


Why is the government letting the shadow of the telecom mess fall on companies that opted for various categories of telecom licences? All these companies wanted to do was use their spare capacities in a booming market after meeting their captive telecom needs. Their main businesses are not related to the telecom sector in any way.


The telecom sector has been fighting a slowdown outside of the AGR issue as well for some time, primarily because of the cut-throat competition in the sector. While their AGR woes need to be dealt with by the government separately, the non-telecom players need to be kept out of the mess even if that means a separate or amended interpretation of the licence agreement terms. Vigilance inquiry-wary bureaucrats may be reluctant to do so but they can take comfort from the fact that the changes will only help government-owned companies and any action to bail them out would not be called to question in the normal course. It is incumbent on the government to draw out a sensible claim instead of just focusing on collecting as much as possible in order to keep to its fiscal deficit target.

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