The proposed tariff revision by the Telecom Regulatory Authority of India (TRAI) has raised some pertinent questions. First, the long-distance telephony rates are likely to be brought down to more realistic levels.

TRAI has proposed slashing tariffs on calls to the United States and the Americas to a maximum of Rs 39 per minute from the prevailing rate of Rs 84 a minute. The regulator has also proposed cutting the call charges for Europe, Asia and Africa to a maximum of Rs 30 a minute from the current rate of Rs 70 a minute. Till now, long-distance telephony has been subsidising local telephony to a large extent. The move would reduce the subsidy to some extent. Moreover, it would give the subscriber a higher incentive to use long-distance telephony.

Second, monthly basic-telephone rental is proposed to be revised upwards from the existing Rs 50 to Rs 120 for rural areas, Rs 75-190 slab for semi-urban areas and Rs 160-310 for urban areas.

Moreover, the number of bi-monthly free calls of 150 in urban areas and 250 in rural areas has been proposed to be brought down to 120 irrespective of the area. The residential or the so called marginal subscribers would be hard hit by the proposal. This means a subscriber would be bearing a higher fixed cost per month, while having access to lesser free calls. In an era when basic telephony all over the country is being privatised, the move seems to be a retrograde step.

If basic services are supplied in a competitive environment, then a price cap, rather than a specific price level, should be used. TRAI should only be bothered about fixing a price cap. This means any private operator should be free to charge lower rentals to lure subscribers from an existing monopoly player. To put it simply, market forces should be allowed to takeover. The decision on the extent of free calls should also be left to the operator. The real rural poor actually cannot afford an independent phone. At best, he uses the PCO to make calls in the event of necessity.

Third, the call-charge structure has been proposed to be revised from Rs 0.60-1.40 in rural areas and Rs 0.80-1.40 in non-rural areas per five- minute call to Rs 1.30 per three-minute call uniformly. This means the subscriber would have to shell out a higher charge for calls over and above the ambit of free calls. Logically, a subscriber making the maximum use of the network should be paying less on a slab basis.

Fourth, TRAI has also proposed raising rentals on cellular telephones to Rs 600 a month from Rs 156 and slash the maximum tariff to Rs 6 a minute from the current rate of Rs 16.80 per minute. The proposed increase in the service charges for cellular services would prove to be a boon for the beleagured cellular operators. Though per-minute call charges would be drastically reduced, most of the prospective subscribers are likely to shy away due to the higher fixed costs. But hardcore subscribers would benefit from lower air-time charges and free incoming calls.

Fifth, the pulse rate being pegged at Rs 1.30 might marginally reduce the licence-fee burden for the metro cellular operators, with the licence fee payable per subscriber being linked to the pulse rate.

Indian Oil Corporation

Reports suggest that Indian Oil Corporation (IOC) has refused to give guarantees to lift production of the Reliance and Essar refineries. Although Essar denied that there was any rift between Essar and IOC, and Reliance did not furnish any information in this respect, the fact remains the fortunes of both the private refineries are tied to marketing of their products.

Additional refinery capacity to the extent of 61.7 million tonnes is projected by 2001, but this is unlikely to happen. Regional imbalances are likely to remain. Under a deregulated scenario, freight charges would determine the viability of refined product acceptance. The north and west would turn into a surplus once new refineries of IOC, Essar and Reliance go on stream. IOC would definitely like to see its throughput go up and not source these products from outside.

According to Essar Oil's web pages, the MoU with IOC says that the agreement will be in force for a period of 10 years. Essar, in consultation with IOC, will prepare a production schedule on an annual basis, which shall be reviewed every month. Based on the agreed production schedules, IOC shall place indents on Essar Oil for supply to it of the required quantities of the products. The obligation of IOC to place indents on Essar Oil will be restricted to the quantities of the products required by the oil-marketing companies for domestic consumption. To the extent that IOC does not require the products produced, Essar Oil shall be free to market the products as per the prevailing policy of the government.

Going by the MoU, it looks unlikely that IOC would pick up more than its requirement. Essar is banking on its sales through IOC and individual efforts through the product-exchange arrangement. But how far the product- exchange arrangement will be successful in a decontrolled environment in India is questionable. The same holds true for Reliance.

Both the companies claim that they have captive-consumption requirement, but it is unlikely that captive consumption would exceed 33 per cent. Many new LPG storage projects are also in the pipeline, using imported LPG. These projects would alter the demand-supply dynamics of refinery products in India.

Under such a scenario, it may be difficult for new private refineries to achieve optimum product mix and still run the plant at breakeven levels.

(With contributions from AG Krishnan & Manish Saxena)