PSUs still not safe, AGR disputes to rise

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Published: February 18, 2020 4:45:47 AM

As SC has laid out the principle, Tdsat-relief won’t be easy & as telcos challenge DoT on AGR dues, more litigation likely

Around 5-10% of the AGR dues of telcos like Bharti Airtel and Vodafone Idea are also on account of NLD and internet licences.Around 5-10% of the AGR dues of telcos like Bharti Airtel and Vodafone Idea are also on account of NLD and internet licences.

The government, and the management of PSUs like Gail and Powergrid are probably breathing a little easier now that the Supreme Court (SC) has told PSUs that they can challenge the Rs 3 lakh crore of Department of Telecommunications (DoT) notices at the Telecom Dispute Settlement and Appellate Tribunal (Tdsat). While the problem of what happens to the country’s investment climate and the Rs 2.2 lakh crore Vodafone Idea owes the government (and the Rs 49,000 crore it owes to banks) remains—with the telco tottering on the brink of insolvency—at least the PSUs are safe for now. Powergrid has been given a bill of Rs 1.3 lakh crore by DoT, Gail has one for Rs 1.7 lakh crore, and the Delhi Metro for Rs 33,000 crore. If all goes to plan, the Tdsat will rule that the SC verdict on adjusted gross revenues (AGR) doesn’t apply to the PSUs, and since the government won’t challenge the verdict, the PSUs will no longer have to pay the money; if they had to, they would have been wiped out.

Yet, it is not clear whether it will be easy for Tdsat to make this ruling as the general principle of all revenues being considered while calculating AGR—subject to the usual deductions of payments for using other telco networks, infrastructure, etc—has already been sanctified by the SC. There is, however, an escape clause as most of the PSUs have a national long-distance (NLD) licence, and what was once called an IP-II licence. Unlike the ‘access’ licence—jargon for wireless, wireline, and internet services—that the telcos have, the NLD and IP-II licences are clear that ‘revenue’ is to be defined as that “that accruing to the licencee by way of providing the SERVICE under this LICENCE”. In other words, the non-telecom revenue can’t be considered for the AGR. If the Tdsat accepts this view, the government will be quite relieved; the DoT, though, will be in serious trouble since this makes it clear there was absolutely no application of mind before the notices were sent—these were sent out long before the SC verdict came out. And, if these notices were not well thought out, this would probably also apply to the notices sent out to the telcos (more on this in a bit).

There are related problems that arise should Tdsat give relief to the PSUs. Around 5-10% of the AGR dues of telcos like Bharti Airtel and Vodafone Idea are also on account of NLD and internet licences. Logically, then, if the PSUs are given this relief, it needs to be extended to the telcos, too. Ideally, the telcos should be allowed to challenge the Tdsat verdict, but even if they are not, it is unfair that one lot of companies should get relief for one type of service while the same is denied to another lot.

It gets even messier. While the NLD or internet licences only talk of revenues from that particular service, the licences also have a format for reporting revenues, and that format has a section for ‘miscellaneous revenue’! It is this ‘miscellaneous revenue’ provision in the access licences that allowed the SC to rule that all telco revenues would be included for the purpose of calculating the AGR dues. So, what is the Tdsat to use to decide whether all revenues will be added to the AGR—the definition in the text of the licence, or that in the format for reporting the revenues?

Interestingly, the definition of revenues in the access licences doesn’t include the revenue from phone calls, wireless or wirelines! In other words, the licences haven’t really been given that much thought despite the SC being of the view that they had.

There is also the issue of the DoT calculations that is going to lead to a lot more litigation. While DoT has its own calculations of the AGR dues, several telcos dispute this since the DoT, they allege, hasn’t made the relevant adjustments for interconnection charges. Part of the revenues a telco earns from its customers is paid to the telco to whom its subscribers talk—this is the interconnection usage charge, or IUC. The telcos are arguing that DoT has double counted here, having added the IUC a telco has got from another while calculating revenues but not deducing the IUC it paid out.

There is no official statement on this as yet, but Vodafone Idea’s official release to the stock exchanges on Saturday offers a clue. Vodafone is supposed to pay Rs 53,039 crore to the DoT while it has, at most, Rs 10,000-15,000 crore of cash with it, and yet, after its press release, many felt the telco had said it would pay the entire amount. What its statement said was “the Company is currently assessing the amount it will be able to pay … the Company proposes to pay the amount so assessed in the next few days”. In other words, there were possibly two conditions here: the first was Vodafone Idea’s assessment of how much it could pay, and the second, its assessment of what it actually owes.

The larger issue of what happens to the banks and the government dues if Vodafone Idea folds up—as is very likely now—remains unresolved; certainly, the government stands to lose much more than it can possibly get even if Vodafone Idea pays the entire Rs 53,039 crore. The impact of a firm which has invested $55 bn having to fold up due to bad government policy and faulty regulatory/court rulings is going to be quite severe as investors will be scared of the impact of capricious policy in the country. Both telecom minister Ravi Shankar Prasad and prime minister Narendra Modi have their work cut out.

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