DoT AGR Demand - Operator Impact

(This note has been edited after availability of actual numbers in DoT's application for modification filed on 16th March 2020)

A few months back I had done a note titled "AGR Issue: Operator Payment Options" predicting that possible resolution of this vexed issue will be a deferred payment option proposed by DoT in order to alleviate the pain of the operators and prevent the weakest operator to shut down. Based on yesterday's modification application of DoT (before the Supreme Court), one can see that DoT has requested the SC to permit more relaxed payment terms for the operators. The purpose of this note is to estimate by how much (percentage) the current payment obligation (dues of spectrum auctions) of Bharti and VodafoneIdea will increase if this proposal was to get finalized as a final settlement. While doing so I will also estimate the impact in case the DoT gets convinced of the operator's self-assessment calculations of estimating the dues emanating out of the SC judgment.

DoT's Demand

The following is the snapshot of the DoT's demand. This is based on DoT's application for modification filed before Supreme Court on 16th March 2020.

Yearly Outflow (AGR Demand)

Taking 20 years of deferred payment and 8% interest as offered by DoT in their modification application, I calculated a yearly outflow for Bharti as Rs 2646 Cr, and that of VodafoneIdea as Rs 5577 Cr. This is based on the balance payment as indicated in the last column of the table above. The formula used for calculation of the installments is embedded in my earlier note titled "Deferred Payment Calculation Formula".

If one compares with the existing deferred payment on account of spectrum auction the increase for Bharti will be 34.30% and that for VodafoneIdea will be 45.44%. But if Bharti and Vodafone are able to convince DoT of much lesser due (as per their self-assessment), then the yearly payment impact can get reduced substantially to 0 Cr for Bharti (actually Bharti will get a refund) and Rs 1837 Cr for VodafoneIdea.

Also, note the following:-

a) In case the self-assessment numbers of the operators go through then DoT will end up collecting only 31% of their total demand from the TSP under litigation.

b) DoT may not be able to collect 23% of the total dues of Rs 1.69 lakh Cr, as these pertain to operators who are under insolvency.

c) Also, it is not clear how will DoT collect Rs 10,791 Cr which mostly belongs to BSNL and MTNL (operators not under litigation).

In summary, if the operator's self-assessment goes through, then DoT might end up collecting only 22% of the total dues estimated in their demand (i.e Rs 36,954 Cr of Rs 1.69 Lakh Cr).

Conclusion

Even if these deferred payment terms get approved by the Supreme Court, the final resolution will defend upon settlement of AGR dues numbers which both DoT and the Operators are in agreement. Now the question is how long will it take? Will it lead to another round of litigation? How long will it last? And will the operators take the risk of further interest and penalties in case they lose? These are difficult decisions that still are in the air still to be resolved. Hence, looks like a settlement of payment conditions will not end this dispute unless DoT makes it a precondition for relaxing the payment condition.

(Views expressed are of my own and do not reflect that of my employer)

PS: Find the list of other relevant articles in the embedded link.