While the government, according to media reports, is considering a proposal to waive the penalty and interest components of Adjusted Gross Revenue (AGR) dues that were levied on telecom players, following repeated rejections of relief by the Supreme Court, the question still remains – can government waive off the AGR dues? Per reports, the government is considering waiving 50 per cent interest and 100 per cent of penalties and interest on penalties on the AGR dues of telcos that make up a bulk of the AGR dues that were levied on telcos like Vodafone Idea and Bharti Airtel after the Supreme Court order of 2019. The possible move comes after the telecom operators had earlier sought interventions from the government. In September 2021, the Supreme Court had dismissed a curative petition filed by the telcos, which sought a recomputation of the AGR dues.
Per this media report that quotes sources, the waiver can provide potential relief of around Rs 1,000 billion to the telecom industry, of which around Rs 520 billion relief could come for VIL vs its total AGR dues of Rs 703 billion and Rs 380 billion for Bharti Airtel vs its total AGR due of around Rs 440 billion.
Can the government waive off the AGR dues?
Even as the government intends to ensure a ‘3+1’ player market, the Telecom Act, 2023 doesn’t explicitly empower the government to waive off the telcos’ dues. In an analysis report, JM Financial said, “Unless it amends the Telecom Act or comes out with any other legislative or executive measures, we believe the government cannot waive off the AGR liability decided by the SC. Therefore, telcos have been pleading with the SC for AGR relief since the last 4 years despite the government agreeing that the SC’s AGR decision is detrimental to its objective of having three healthy private telcos” It further added that in such a situation, the government might mostly agree to extend the 4-year moratorium, which ends in September 2025, on payment of AGR/spectrum dues or convert dues into equity.
What is the government doing to aid telcos?
According to press reports, the proposal to waive off the dues is being discussed at the highest level including the finance ministry, the telecom department and the Cabinet Secretariat with the intent to have three private telcos along with BSNL. Vodafone Idea and other telcos have been raising the issue of rectification of errors in calculation of AGR dues during their meeting with the Union telecom minister, and the minister has assured them that the matter would be examined by the Department of Telecommunications (DoT).
Earlier on 15th September, 2021, the Cabinet had approved the following key reforms in the telecom sector to improve sector health and ensure a ‘3+1’ player market: a) 4-year moratorium on both spectrum and AGR dues effective 1st Oct 2021 – however this is revenue neutral as the telcos would have to pay the interest rates for the intervening period, so that the government’s revenue is protected; b) rationalisation of the AGR definition; c) removal of spectrum usage charges (SUC) for future auction; d) increase in the payment period for the deferred spectrum dues from current 20 years to 30 years; and e) creation of a spectrum auction calendar, which should aid telcos to stagger their spectrum purchase.
Further, in Dec 2024, the government approved a waiver of bank guarantee (BG) requirement in respect of spectrum acquired in the auctions conducted in 2012, 2014, 2015, 2016 and 2021.
If govt succeeds, who will benefit the most?
The waiver of any AGR dues could be a huge positive for Vodafone Idea and a significant positive for Indus; it is also positive for Bharti Airtel and neutral for Jio, said JM Financial.
The curative petition filed by telcos in September 2021, Vodafone Idea said, was for the correction of base AGR dues of Rs 60 billion, which could result in potential AGR relief of Rs 240 billion (4x the base amount due to penalty and interest till CY19). Further, there was 36 per cent accrued interest added on this through Oct’19 till Mar’24 – potentially resulting in total AGR relief of around Rs 350 billion, out of VIL’s total AGR liability of Rs 703 billion and total debt of Rs 2,019 billion as of end-Q2FY25. Similarly, JM Financial said, this curative petition could have potentially also reduced Bharti’s AGR debt by Rs 150 billion- 200 billion vs. total AGR due of around Rs 440 billion. Earlier, DoT had estimated AGR dues of around Rs 583 billion for VIL and Rs 440 billion for Bharti against their respective self-assessed dues of Rs 130 billion and Rs 215 billion.
Notably, of the AGR liability of Rs 1470 billion on the telecom sector, approximately 75 per cent comprised only interest, penalty and interest on penalty. “Hence, the press-reported potential AGR relief of Rs 520 billion AGR relief will be a huge positive for VIL as it can reduce its net debt (of R 2,019 billion at end Q2FY25) by a similar amount and boost its equity value by Ra 7.5/share. This could lead to a reduction in VIL’s annual payment to the government, post end of the moratorium in Sep 2025, by Rs 120 billion (from Rs 430 billion to Rs 310 billion p.a. over FY27 till FY31), potentially improving its ability to do capex and subsequently arrest its subscriber decline,” JM Financial said. Hence, it added, it could be positive for Indus too as it improves its visibility: a) of ongoing revenue from VIL given the above-mentioned relief is likely to improve VIL’s survivability probability (Indus currently gets ~35 per cent of revenue from VIL); b) of recoverability of its remaining dues of around Rs 50-60 billion from VIL.
Separately, the brokerage firm said, this could also be positive for Bharti Airtel as around Rs 380 billion AGR relief could lead to reduction in debt and add to its current market cap (equivalent of around Rs 60/share). For Jio, however, this could be largely neutral.