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AGR arithmetic is critical to the case PDF Print E-mail
Friday, 13 March 2020 04:38
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A Rs 100 difference in ‘revenue’ 12-13 years ago can, for instance, lead to AGR dues of as much as Rs 90-110 today!

Given the Rs 147,000 crore that the country’s telcos are supposed to owe the government by way of AGR ‘dues’—Rs 102,448 crore is owed by just Bharti Airtel, Vodafone Idea and Tata Tele—it is natural to believe the country’s older telcos have shortchanged the exchequer. Not surprisingly, there is considerable outrage within the government—and those members of the lay public who buy the government’s arguments—when these telcos put out much smaller self-assessment reports on the AGR ‘dues’. So, while the government had estimated that Bharti Airtel owed Rs 35,586 crore, the telco’s own estimate put the ‘dues’ at Rs 13,004 crore; for Vodafone Idea, the numbers were Rs 53,039 crore and Rs 21,533 crore, respectively, and they were Rs 13,823 crore and Rs 2,197 crore for Tata Teleservices.

A visibly irritated department of telecommunications (DoT) then asked the telcos to either deposit the difference between their own assessment and the DoT’s, or to provide documentary proof to back their claims. While both Bharti Airtel and Tata Tele paid what they had assessed as their dues—along with a bit more to cover contingencies—Vodafone just had Rs 3,500 crore, and couldn’t pay any more.

What makes the self-assessment figures even more suspect is that, initially, both Bharti Airtel and Vodafone Idea had themselves put out much higher estimates of AGR ‘dues’. Indeed, the very high losses they declared were the result of provisions made for these ‘dues’.

The telcos have given several reasons for this. While they were caught unawares and essentially extrapolated the DoT notices on AGR ‘dues’ initially, on doing detailed calculations, they realised they owed much less. And, this was for several reasons. For one, the DoT hadn’t given them complete set off for their expenses in several cases—under the law, telcos don’t pay licence fee (LF) or spectrum usage charges (SUC) on the interconnection fees they pay other telcos, but the DoT didn’t account for this as the telcos hadn’t submitted the full documents as proof. In some cases, like the money earned through international roaming, the DoT issued a final clarification only in 2018, even though the matter had been pending for more than a decade. The telcos claimed that there were incorrect calculations by the DoT as well as issues arising out of accounting differences and the year in which the earnings were to be recognised, and the AGR to be paid on this.

Since no telco has made its calculations public, we will have to await the results of an independent audit the DoT will get done of what the telcos have submitted; perhaps, the CAG will also do separate/concurrent audits. But, while we wait, it is important to realise just how sensitive the numbers are, in the sense that even a Rs 100 difference—between the assessment of the telco and DoT—in revenue can jack up the AGR ‘due’. Of Bharti Airtel’s ‘dues’ of Rs 35,586 crore, Rs 21,682 crore is on account of LF; of this, the principal amount is just Rs 5,528 crore, the interest is Rs 9,816 crore, the penalty Rs 2,407 crore, and the interest on this is Rs 3,929 crore. In Vodafone Idea’s case, too, the principal amount due is just a fourth of the LF ‘dues’.

In other words, the final calculation of ‘dues’ is very sensitive to what is included/excluded in the AGR calculations. After all, with every passing year, the amount ‘due’ is increased by the rate of interest payable—this has ranged from 12% to nearly 17% over the period for which the AGR is due. In fact, even the penalty rises in a similar fashion. Under the rules, the government levies a 50% penalty—on the principal amount—if the telco pays less than 90% of the amount due. Naturally, the higher the principal amount, the higher the shortage in what is paid, and the higher the chances of the 50% penalty being imposed.

An example should make this clear. Assume that, in FY07, by way of example, the DoT felt the telco understated revenues—or overstated expenses like interconnection charges—by Rs 100. Normally, based on the LF/SUC, the telco would have owed the government Rs 12 as AGR ‘dues’. But, because there was no final ruling—of the sort that happened when the SC ruled on AGR last year—the telcos didn’t pay based on the AGR notices sent by DoT. And, you can’t blame them either—like the government, and its supporters do—since even the PSUs MTNL, and BSNL never made the payments on DoT notices as they were disputed. Indeed, in 2006, 2007, 2011, and 2015, various courts set aside the AGR orders given by DoT (/bit.ly/2IKaxMo).

This Rs 12 that the telcos (see graphic) would have paid in FY07 had there been a final ruling on what comprised AGR, however, has gone up today to Rs 62 on account of LF, and Rs 32 on account of SUC. That is, the total ‘due’ for FY07 is nearly equal to the total revenue that the telco was accused of understating! If the same Rs 100 of understated revenue is assumed in FY08, the amount ‘due’ today should logically fall since there is one less year of compound interest to pay, but it is actually more since, in that year, the rate of interest charged by the DoT was higher.

For most of the period over which the AGR is ‘due’, thanks to interest and penalty payments, it turns out the ‘dues’ rise from 12% (8% LF, and 4% SUC) of the supposed understatement in revenues to around 65-70%!

Two issues, then, need to be underscored. One, given how the interest, and penalty get compounded every year, each rupee of the so-called understated revenue needs to be critically evaluated. Two, given there was no finality on what comprised AGR till last year, even those—in the government and the Supreme Court—who believe that including even interest earnings on bank deposits in the definition of AGR is correct should accept the amount payable has to be the principal, not the penalty and interest on the ‘dues’.

 

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