Contingency Mechanism: Vodafone Idea gets Rs 1,530 crore from Vodafone Plc

Vodafone Plc on Wednesday said it has accelerated a payment of $200 million (about Rs 1,530 crore) to Vodafone Idea, due in September 2020, under the terms of the ‘contingent liability mechanism’. This is not any fresh equity infusion in the company but part of contingent liability mechanism entered between Vodafone and Idea Cellular at the time of merger, wherein Vodafone Group needed to pay for adjusted gross revenue dues if the amount paid exceeded that of Idea Cellular.

Vodafone Group said that following the decision of Supreme Court on the definition of adjusted gross revenue (AGR) in October 2019, India’s telecom operators became liable for licence fees, penalties and interest dating back over 14 years. “Vodafone Idea has made payments to the government of India in relation to its AGR liabilities. Under the terms of CLM, Vodafone Group is obliged to make payments to Vodafone Idea where amounts paid pursuant to the contingent liabilities of Vodafone Idea exceeded those of Idea Cellular. The CLM took effect at completion of the merger of Vodafone India and Idea cellular in August, 2018,” the company said.

“Vodafone Group has accelerated this payment to provide Vodafone Idea with liquidity to manage its operations, and to support the approximately 300 million Indian citizens who are Vodafone Idea customers as well as the thousands of Vodafone Idea employees during this phase of emergency health measures, taken as a result of the Covid-19 pandemic,” Vodafone said in a statement.

As reported earlier, Vodafone Idea on Tuesday paid around Rs 1,367 crore to the department of telecommunications (DoT) towards its licence fee and spectrum usage charge for the January-March quarter. Operators generally pay their licence fee and SUC to the DoT on a quarterly basis and this payment of the January-March period was supposed to be paid between March 20-25. While other operators like Bharti Airtel and Reliance Jio had paid on time, Vodafone Idea had sought more time from the government citing the disruption due to coronavirus pandemic but the government did not agree to make an exception for a single operator.

Operators pay 8% of their adjusted gross revenue as licence fee while SUC ranges between 3-5%. The payment and the dues made by Vodafone Idea on Tuesday is different than the one of AGR dues which is currently before the Supreme court but nevertheless it has dwindled its reducing cash reserves.