Time to budget for contingent liabilities

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Published: December 14, 2019 4:19:23 AM

The latest to join this list of companies approaching global arbitration benches on being unable to resolve disputes locally is South Korean state-owned power utility, Kowepo.

Bharti Airtel, Vodafone Idea, BSNL, MTNL, UPA , NDA, Cairn Energy Plc, Kowepo, Solar Energy Corporation of India , Solar Energy, PSU GailAnd while the government-owned Solar Energy Corporation of India (SECI) is not suing its owner for damages, it has Rs 276 crore of dues stuck in Andhra Pradesh.

It is ironic, but while senior government ministers blamed telcos like Bharti Airtel and Vodafone-Idea—they never spoke of BSNL-MTNL, curiously—for not provisioning enough to account for the likely AGR dues that they now have to pay, the boot is now on the other leg. Given the manner in which the government—the UPA first, and now the NDA—has hurt investor interests and the number of global arbitration cases, the government should perhaps think of making provisions in the Budget in case it loses some, if not all, of these cases.

The Vodafone arbitration against the UPA’s retrospective tax case doesn’t include any damages, but Cairn Energy Plc has asked for $1.4 billion of monetary compensation; the verdict was expected around now, but the global arbitration court has said it will be delivered next summer. If the verdict goes in favour of Cairn—it was taxed on capital gains arising out of its corporate restructuring prior to its listing, but it argues there were no outflows from India—and even if the energy major doesn’t press for damages, the government will still need to pay it $1.4 billion; one billion for its shares that the taxman confiscated and foolishly sold, and another $400 million of dividends that were appropriated by the taxman. The government has already lost the Antrix-Devas arbitration, and the only thing that is allowing the government to not pay $672 million award is the fact that it has challenged the award in court; a country hoping to become the global arbitration centre, ironically is challenging global arbitration awards!

The latest to join this list of companies approaching global arbitration benches on being unable to resolve disputes locally is South Korean state-owned power utility, Kowepo. Kowepo owns a majority stake in, The Economic Times reported, Pioneer Gas Power, a 388 MW gas-based power plant in Maharashtra. The power plant was delayed initially owing to lack of gas allocation by the central government, and when the government came out with a rescue package for stranded gas plants, it could not participate as the PSU Gail had not completed the pipeline to the plant. Kowepo has asked for $400 million in compensation and damages, and argued that the government portrayed a healthy gas industry while trying to attract investors; at that time, power plants were a priority sector for gas allocation.

And while the government-owned Solar Energy Corporation of India (SECI) is not suing its owner for damages, it has Rs 276 crore of dues stuck in Andhra Pradesh. At the time of a serious funds crunch in the power sector during the UPA period, the centre, the states and RBI had signed a tripartite agreement; if the state electricity board (SEB) defaults on its dues to central government utilities, RBI will deduct this from the state government balances with it; central tax transfers, for instance, are credited to this account. If other borrowers owed money by SEBs start doing the same as SECI and RBI starts deducting this from the state government balances, that too could end up in trouble if the states start resisting. It is not clear, how, but there is a possibility that this too could have repercussions on central finances; say, if central PSUs like NTPC don’t get paid and the states successfully resist RBI debiting their accounts. Several chickens, it would appear are coming home to roost.

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