‘Non-provisioning for AGR dues by telcos led to today’s crisis’

New Delhi: One of the reasons why telcos are under severe financial stress over meeting AGR dues is that they never made annual provisions towards this contingent liability, like the way banks provide for NPAs against loans stuck in NCLT cases, to act as a buffer, official sources said.

They (telecom companies) should have followed the basic principle of an outgo expected anytime even though the matter was sub judice, said the sources, adding that this would have protected them from a sudden financial burden as a large part of the dues would have been provided.

The banks are well-prepared for non-performing assets (NPAs) under the National Company Law Tribunal as they provide their exposures quarterly and if they get it back through the Insolvency and Bankruptcy Code, they write back the amount, they said.

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Telcos should have provisioned quarterly for this, official sources said adding it was miscalculation and over-sight that lead to the crisis now.

Faced with Rs 35,500 crore AGR dues in October after the Supreme Court verdict, Airtel posted a loss of Rs 23,045 crore on Rs 28,450 crore (principal Rs 6,164 crore, interest Rs 12,219 crore, penalty Rs 3,760 crore and interest on penalty Rs 6,307 crore) provisions.

Vodafone Idea, which owes the maximum Rs 53,000 crore, posted a loss of Rs 50,921 crore with provisions. “We have accounted for the estimated liability of Rs 27,610 crore related to licence fee and Rs 16,540 crore related to spectrum usage charges up to September 30, including the interest, penalty and interest thereon of Rs 33,010 crore,” the company had said.

Telecom operator Tata Teleservices (Maharashtra) Ltd, in Q2, posted a loss of Rs 2,335 crore on account of provisioning for liabilities after the Supreme Court ruling. It made provision of Rs 2,151 crore following the Supreme Court order on calculation of annual adjusted gross revenue (AGR) of telecom companies.

As per DoT’s July 2019 assessment, telecom companies’ unpaid licence fees amount to Rs 22,589 crore, while interest and penalties took the total liability to Rs 92,641 crore. The unpaid licence fees of Airtel were assessed at Rs 5,528.52 crore, Vodafone Idea at Rs 6,870.69 crore, of the Tata Group at Rs 2,321.31 crore, and of Telenor (now merged with Airtel) Rs 529.02 crore.

Among the PSUs, BSNL was at Rs 614 crore and MTNL at Rs 876.39 crore.

Besides licence fees, telecom companies owe Rs 55,054 crore in spectrum usage charges (SUC), as per estimates of the Department of Telecommunications (DoT).

Licence fee is the major component of the total AGR dues owed by both operational and non-operational telecom companies to the government till July 2019.

Airtel officials say its own estimate of dues is about Rs 23,000 crore, of which Rs 7,000 crore is the principal.

The already struggling telecom sector is facing a gigantic task of paying Rs 1.47 lakh crore to the DoT. The issue of the definition of AGR has now reached a point where it could even lead to shutting down of operations for one of telcos.

As per the 2014 order of Wireless Planning and Finance division, any delay in payment of license fee or any other dues payable beyond the stipulated period will attract an interest rate of 2 per cent above the PLR (Prime Lending Rate) and interest shall be compunded on a monthly basis. The same applies to SUC also.

If the total amount paid as quarterly SUC falls short by 10 per cent of payable SUC, it shall attract a penalty of 50 per cent of the entire amount of short payment.

The Indian government opened up the telecom sector under the National Telecom Policy in 1994. Under Indian Telegraph Act, 1885, telcos are required to pay a fixed annual licence fee. As the fixed licence fee was high, telcos often defaulted on their payments.

Keeping this in mind, the government in 1999 announced the National Telecom Policy, giving these companies an option to migrate from fixed licence fee to revenue sharing fee. As per the new policy, 15 per cent AGR was fixed as a licence fee under the revenue-sharing model, which was later reduced to 13 per cent and then 8 per cent in 2013.

The current dispute became visible in 2002 when the DoT claimed revenue share from all earnings under the AGR from the telecom companies, but telcos objected and filed a case in 2003 alleging DoT had included new elements in the definition of AGR, including installation charges, value-added services, interest income, dividend, forex gains, profit on the sale of assets, and insurance claims.

While regulator TRAI and TDSAT (Telecom Disputes Settlement and Appellate Tribunal) supported the telecom companies in their stand on AGR, and in 2015, TRAI excluded non-telecom revenue from AGR definition but the DoT challenged TRAI’s recommendations.

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