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Arm-twisting firms doesn’t make for good govt policy PDF Print E-mail
Thursday, 26 July 2018 04:56
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Telcos are being asked to pay ‘dues’ in order to get M&As cleared, oilcos are being forced to change contracts arbitrarily

 

The Department of Telecommunications (DoT) forcing Vodafone and Idea to, together, pay it Rs 7,268 crore of ‘dues’ in order for their merger to be cleared is not just unfair, it seems to suggest that arm-twisting has become part of government policy, and not just in sectors like telecom. In the case of Idea, for instance, the telco has been asked to pay Rs 3,322 crore for what is called one-time-spectrum-charge (OTSC)—this is based on the argument that, while the Rs 1,651 crore telcos paid in the 2001 auction guaranteed only 4.4 MHz of spectrum, they had to pay for the ‘extra’ spectrum they got after that. While the government began examining this possibility in July 2008, it took a final decision in December 2012. There are two problems with the demand. One, it was being applied retrospectively since the telecom policy prior to this didn’t envisage an OTSC. Two, the government was, in any case, charging the telcos for the extra spectrum by way of higher annual licence/spectrum fees. At that point, when a telco’s spectrum holdings rose from 4.4 MHz to 6.2 MHz, for instance, the spectrum charge went up from 2% of revenues to 3%, and to 4% when it moved to 8 MHz—so if telcos now have to pay OTSC based on today’s market price, they should also be refunded all the extra license/spectrum fees they paid. Interestingly, since all telcos were in court against OTSC and the matter had been stayed, asking them to pay the money in case of an M&A was, in effect, negating a court-ordered stay. Amazingly, this policy of forcing telcos to pay the OTSC was sanctified by the UPA government’s M&A policy in February 2014.

Vodafone’s Rs 3,926 crore of ‘dues’ is based on something similar, but, unlike the OTSC, the telco had not challenged it in court, much less got a stay on it. In this case, the argument was that, if telco A and B merged, only one of them could keep the 4.4 MHz of spectrum allotted to them for Rs 1,651 crore; the other would have to pay the market price for the 4.4 MHz of spectrum it had. The problem with this argument, however, is that the Rs 1,651 crore price was not an administered one that was lower than the then market value; the price was arrived at in an open auction, so it was the market price. Asking Vodafone, or any other telco, to pay the difference between `1,651 crore and today’s market-determined price is patently unfair and, once again, also ratified by the UPA’s M&A policy. While the NDA didn’t junk the policy, possibly for the fear of being accused of being a ‘suit-boot-ki-sarkaar’, the policy doesn’t keep in mind that this is a hurdle to an M&A—at a time when, due to increased competition, telcos are shutting down and laying off workers, the policy should welcome M&As rather than discouraging them by asking for high one-time fees/levies.

 

In the oil sector, apart from forcing Vedanta to pay a 10 percentage point higher revenue share if it wanted its oil exploration license extended, the government also imposed new conditions to clear its takeover of Cairn Energy some years ago. Till then, as per the contract with the government, ONGC paid all royalty/cess on production from the Rajasthan fields—yet, when Vedanta bought Cairn, the government insisted that, since it would own 70% of the venture, it pay 70% of royalty/cess. And, last week, the government came out with a new policy that said all private sector firms had to, like Cairn, share the royalty/cess burden in pre-NELP exploration blocks. This will help ONGC/OIL but it penalises private sector firms that, due to a government diktat, had to, in the first place, give a 30% share to the PSUs for free; getting ONGC/OIL to pay all of the royalty/cess was a part of this deal.

 

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