Sources said legal advice has not been sought till now.

The relief package worked out by the government for the telecom sector does not address the structural issues but only focuses on providing an interim cash flow relief to the financially stressed operators. Here too, clarity is needed whether the cash flow relief proposed with regard to the payment of AGR dues can be provided to the operators without approaching the Supreme Court. Sources said legal advice has not been sought till now.

On the adjusted gross revenue (AGR) dues, of which the biggest chunk of over `58,000 crore is to be paid by Vodafone Idea, the Department of Telecommunications (DoT) has proposed that the payment be deferred for a period of four years. However, the net present value (NPV) of amount due as per the SC order will be fully protected and recovered in the subsequent five years. This means no relief on interest, penalty, etc; only the instalments due in the next four years will be deferred, but added equally over instalments due in the subsequent five years.

The SC, in its order last year, had said that the companies need to pay 10% upfront and the remaining dues over the next 10 years in equal instalments. Since prior to the order, the companies had paid more than 10%, they did not pay anything this year in March, so they now have nine years left to pay the balance amount beginning March 2022.

Legal observers said if the government decides to provide a deferment of four years towards this payment, it needs to approach the apex court. Officials said so far the matter has not been discussed with the law ministry.

Similarly, on the deferred spectrum payment, where a two-year moratorium comes to an end in March 2022, operators would just be given an additional two-year extension with NPV protected. Any additional relief on spectrum-related matters will only be considered for future auctions. Same is the case with spectrum usage charge where operators currently pay between 3% and 5% of their AGR. On spectrum already acquired, the current charges will continue and relief either in terms of reducing it or scrapping it, as demanded by the operators, will only be considered for spectrum acquired in future auctions.

On the much-talked about equity conversion, the proposal is that operators will have an option, within a specified timeframe, to convert only the additional government dues on account of NPV interest protection as a result of the four-year deferral into equity. This amount has been quantified in the proposal at approximately `16,000 crore for Vodafone Idea, `9,500 crore for Bharti Airtel, `3,000 crore for Reliance Jio and `1,500 crore for Tata Teleservices.

The exact amount will vary slightly depending upon the date of completion of the equity issuance, if the option is exercised. For listed companies, the Sebi preferential allotment guidelines will be followed, adopting the ‘relevant date’ as 30 days prior to the date of the Cabinet decision, and with minimum issue price at a par value of shares.

For Vodafone Idea, if the option is exercised, it will mean an issue price of `10 per share, translating into 1,600 new shares to be issued, an increase of more than 50% in its free float. The proposal also states that the detailed modalities of the equity conversion are likely to be complex with several operational issues, and will be worked upon jointly by the finance ministry, DoT, and Sebi.

Even if it works out, the amount for possible equity conversion is too low and will not provide any meaningful financial relief. For instance, for Vodafone Idea, the equity or preference share conversion option has been determined at around `16,000 crore, which amounts to less than 10% of its total liabilities to DoT of over `1.7 lakh crore.

On bank guarantees too, there’s no proposal for providing any immediate relief as the existing BGs, including performance BGs for securitisation of payment instalments of past auctions, and those relating to disputed demands covered by court orders, already held with DoT will not be returned or reduced. The relief will only be for the future.

The only meaningful relief is that the definition of AGR – what revenues will go towards its calculation – will be streamlined so in future companies will need to pay the licence fee and SUC only on telecom revenues and not on non-telecom revenues like interest, dividends, capital gains, etc. However, since this will also be from a prospective date, it will not bring any immediate relief to the operators.

There’s no mention of reduction in licence fee from the current 8% of AGR to 6% or extending the lease period of auctioned spectrum from the current 20 years.