The Cabinet on Wednesday took a clutch of measures to give a leg up to infrastructure firms and investors. It allowed telecom operators to liberalise their 800 MHz spectrum in circles where auctions were not held in 2015 by paying the reserve price proposed by the Telecom Regulatory Authority of India for the upcoming auction, with the condition that after the auction concludes, telcos have to pay the final winning price. This principle will be extended in all cases where operators want to liberalise their administratively allocated spectrum but a market-determined price is not available.
The Cabinet also approved a proposal to overhaul the process of crude oil purchases by government-owned refiners Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Mangalore Refinery and Petrochemicals, a move aimed at curbing India’s oil import bill and making these refiners more competitive vis-à-vis private-sector peers such as Reliance Industries and Essar Oil. Further, it allowed American Tower Corporation (ATC) to pick up a 51% stake in Viom Networks for R5,856.51 crore.
Also, acceding to the recommendations by the 14th Finance Commission for the 2015-20 period, the government approved a fiscal deficit target of 3% for states.
The immediate beneficiary of the new policy on 800 MHz spectrum would be Reliance Communications, which has already liberalised its 800 MHz spectrum in 17 circles by paying R5,384 crore and can now do the same in the remaining four circles. As a result, it can extend its spectrum sharing and trading pact with Mukesh Ambani’s Reliance Jio on a pan-India basis. The two companies had on January 18 entered into a pact to share and trade spectrum in the 800 MHz band across 17 circles. Apart from the sharing, RJio is to acquire 33.75 MHz of spectrum from RCom across nine circles. The four circles are Kerala, Karnataka, Rajasthan and Tamil Nadu. Based on the reserve price, RCom’s outgo comes to around R5,193 crore but since it needs to pay only for the balance period of the validity of its licence (2021) after making some adjustment in lieu of the entry fee paid, the final amount comes to Rs 1,290 crore.
With this go-ahead by the Cabinet, both RCom and RJio can now offer 4G LTE services across the country.
The idea behind the new crude procurement process is to give the PSU boards the power to decide on spot purchases of oil, without resort to the long-drawn tendering mechanism and let them benefit from such spontaneous buying.
Communications and IT minister Ravi Shankar Prasad said, “This will provide a more efficient, flexible and dynamic policy for crude procurement, eventually benefiting consumers.”
The new model, already employed by global energy firms and private Indian refiners, could help in buying crude oil cheaper by nearly $3-5 a barrel, say analysts. Given the existing capacities of PSU refiners, their combined savings could be $3 billion per annum.
The tender route approach for spot procurement currently adopted by PSUs restricts opportunities for quick decision-making on buying and selling cargoes. In the new mechanism, buyers and sellers would directly negotiate on the platform of integrated trading desk. The approach involves traders continuously talking to market participants during the entire day; as and when opportunities arise, the traders can finalise deals without calling for tenders.
IOC, BPCL, HPCL and MRPL buy nearly 70-75% of their crude oil requirement via long-term deals, while the remaining 25-30% is sourced from the spot market.
While the 14th Finance Commission had suggested additional headroom to a maximum of 0.5% over and above the normal limit of 3% in any given year to states that have had a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years, the Cabinet said that since 2015-16 is already over, the states will not get any benefit of additional borrowings for 2015-16. However, the implications for the remaining period of the FFC award, ie, 2016-17 to 2019-20, would depend upon respective state’s eligibility based on the criteria prescribed by the FFC. It may be noted that in order to facilitate the states taking over the most of the debts of their electricity boards under the UDAY scheme, the Centre had said that these liabilities won’t be counted for fiscal deficit in 2016-17 and 2017-18.
The commission had suggested additional headroom to a maximum of 0.5% over and above the normal limit of 3% in any given year to states that have had a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years. States will get additional space to raise borrowings which may result in much needed government expenditure for capital projects/ infrastructure. If a state is not able to fully utilise its sanctioned fiscal deficit of 3% of GSDP in any particular year during the 2016-17 to 2018-19 of the FFC award period, it will have the option of availing this unutilised fiscal deficit amount only in the following year but within the FFC award period. Any additional borrowings availed beyond the state’s entitlements would be adjusted from the net borrowing ceiling of the following year.
In October 2015, ATC had announced to buy 51% in Viom, which owns and operates about 42,200 towers and has another 1,000 mobile phone masts under construction, from Tata Teleservices and SREI Infrastructure Finance. “Yesterday, chief of ATC James Taiclet came to meet me. He has assured me that they will invest $2 billion more because India in terms of communications is a very big emerging market,” Prasad said.
Under the agreement, ATC may also acquire or be required to acquire all or a portion of the remaining 49% ownership stake in Viom. Also, as a precondition for the deal, ATC’s existing 14,000 telecom mobile masts will be merged with Viom.
To improve bilateral trade between India and Iran, the Cabinet more than tripled the funding for exports to Iran to Rs 3,000 crore through the Export Development Fund of Exim Bank. The approval is for increasing the framework agreement between Exim Bank of India and a consortium of Iranian banks led by Central Bank of Iran for financing the purchase of goods and services from India to Rs 3,000 crore, from Rs 900 crore.