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Apex court weighs in on PSU issue; may allow operators to stagger AGR payments

12 Jun 2020

India’s Supreme Court has confirmed that Adjusted Gross Revenue (AGR)-related demands should not have been levied against public sector undertakings (PSUs, i.e. state-owned ventures) and has said it that it would consider allowing the nation’s private cellcos to pay their dues over a longer period if they are able to submit undertakings and guarantees worth around INR1.7 trillion (USD22.4 billion), the Economic Times reports. In the most recent hearing on AGR – the value upon which India’s telecom licence fees are calculated – the apex court has presented a glimmer of hope for cash-strapped operator Vodafone Idea but nevertheless continued to sow confusion regarding the implementation and scope of its ruling.

In the wake of the original October 2019 decision – which determined that revenue from non-telecom sources would be included in the calculation of AGR for licence fee purposes – the government had sought clarity on whether the ruling should be extended to PSUs. Several state-owned companies such as the Power Grid Corporation of India and RailTel operate telecoms networks alongside their other infrastructure and, although they do not offer services to the public, hold licences that would be affected by the AGR decision. The Supreme Court refused to make a judgement on whether the ruling should indeed be applied to such licensees. Whilst the government challenged the move to impose such penalties, officials noted that they were bound by the court’s decision and consequently the Department of Telecommunications (DoT) issued demands totalling around INR4.28 trillion to PSUs for AGR-related dues. In the most recent ruling the Supreme Court criticised the DoT for imposing the fees, saying that the demand was ‘wholly and totally impermissible’. The court argued that ‘it is apparent’ that the licences are different, that PSUs were not mentioned in its October 2019 decision, and requested that the regulator withdraw the demand. The DoT is now reportedly seeking legal advice on whether to withdraw the AGR demands on PSUs or to file a clarification with the court to explain why the demands were raised in the first place. The DoT came under fire from the court earlier this year for failing to collect AGR dues from private telcos within the allotted timeframe, and may be wary of facing a similar backlash if it does not follow the October 2019 ruling to the letter.

Meanwhile, the court indicated that it would reluctantly consider a proposal from the government to allow the cellcos to pay their AGR dues over a longer period. The judges were sceptical that the telcos would complete the payments over the 20 years requested, pointing out that as the litigation began in 1999, ’20 years have already gone’. As such, the court demanded that the companies provide details of potential guarantees that they would submit to ensure payment. When Vodafone Idea’s representative pointed out that the company does not have the funds to submit fresh bank guarantees – pointing out the cellco does not currently ‘have enough money to even pay our employees and meet our expenses’ – Justice Mishra remained unconvinced and reportedly suggesting taking the property of company directors into account. The Economic Times cites an industry executive as saying that Vodafone Idea may attempt to offer spectrum assets and tax refunds as security for the AGR payment. It faces an uphill struggle in convincing the apex court to accept such securities and even if successful analysts have noted that the ongoing payments may hobble the company and limit its prospects for future growth.

India, Department of Telecommunications (DoT), Vi (Vodafone Idea Limited, VIL)

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