Relief package for BSNL likely

NEW DELHI AUG. 26. The Union Cabinet will shortly consider a relief package for the country's largest phone company, Bharat Sanchar Nigam Limited (BSNL), to prevent it from going sick due to the estimated additional financial burden of Rs. 40,000 crores over the next five years as a result of telecom liberalisation.

The Communications Ministry is keen on an early decision since the BSNL's financials have been affected in the current fiscal leading to cutbacks in developmental plans. The Ministry is negotiating with the Finance Ministry for a commonality of views on reduction in taxes which, along with wages and pensions, forms a substantial chunk of the financial burden. Subsequently, a Cabinet note on the proposed financial package will be prepared by the Department of Telecommunications (DoT) which has thrown its weight behind the BSNL.

The BSNL's additional financial burden is the legacy of its changeover from a department to a corporation two years ago. The conversion has put it on a par with other competing telecom companies but has also thrown up a number of issues including compensation for its social functions — half its urban and all the crore plus rural phones are loss-making. A fund formed from contributions by all phone companies does not provide enough compensation and the BSNL fears it may end up contributing more than it will receive from the Universal Social Obligation (USO) fund.

The Communications Ministry would persuade North Block to agree on a tax-free grant in aid to enable the BSNL carry on with modernisation and expansion of network in the hinterlands where private companies are unlikely to extend their operations. It would also seek reimbursement of the spectrum and licence fee charges and transferring of pension liabilities to the Consolidated Fund of the Government of India till March 31, 2007, the terminal year of the Tenth Five-Year Plan. Another proposal doing the rounds is to provide budgetary support to the BSNL so that the problem is solved for all times to come.

If the Government is unable to provide any relief, an alternative would be to approach the financial markets. This approach, combined with the new Government debt of Rs. 7,500 crores introduced in the BSNL's capital structure when it was converted into a corporation, will place a heavy repayment burden on the BSNL. In view of the dwindling revenue per telecom connection (due to pressure on tariffs, competition and addition of marginal customers) and the heavy loss-making network, it will be difficult for the BSNL to repay the debt.

Officials reiterate the need for a speedy decision. The fiscal squeeze has already impacted the plan size for the current fiscal by Rs. 2,500 crores and a further reduction could be in the offing.

The BSNL also plans to borrow Rs. 1,341 crores during the current year from the market through various instruments, especially bonds.

Pension is another sore point with BSNL officials and a matter of grave concern for its staff. While the Union Finance Ministry wants the BSNL to be responsible for pension-related obligations, the company points out that the Government should shoulder the burden. The burden due to pension works out to Rs. 4,600 crores.

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