Mumbai, Nov 2: Industrial Development Bank of India (IDBI), Industrial Credit & Investment Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI) will together formulate guidelines on assigning licences for basic telecom projects.

This is in response to a recent tripartite agreement between the telecom ministry, the basic telecom services operator and lenders, giving them "agent" status. This implies that in future, domestic institutions alone will decide whether the event of "default" has taken place in repayment of lenders, both Indian and foreign, by service operators.

"We are not much equipped to assess market value in case of defaults, and hence the need to evolve a comprehensive guideline on telecom project funding," industry sources said.

However, the financial institutions (FIs) feel their combined wisdom is better than a foreign tieup with expertise in telecom finance and repayment criteria.

But, they will have to consider legal opinion to decide whether telecom licences are assignable to a new operator in case of default by an existing promoter. The financial institutions will also need to assess the market value of operating licences in particular telecom circles (the country has been divided into 21 circles for the purpose of setting up a parallel private sector basic telecom services network).

The "agent" status for domestic institutions has been opposed by prospective foreign lenders, who feel they should not be left at the mercy of their competitors' approval to get their due -- the vital right to transfer the licence to a new service provider, who will take on the exposures of the original licensee.

However, according to an analyst, similar roles are played by foreign lenders in their respective countries.

"Basic telecom projects can be set up only through policy-oriented financing since such projects have very long gestation periods," sources said.

It is estimated that basic services will break-even only after 7-8 years, and FIs will have to deploy long-term funds for the sector.

FIs will also have to chip in a with 40 per cent of the total debt component, which may be difficult as they themselves are starved of long-term finances.

Although FIs have been allowed to tap long-term funds through external commercial borrowings (ECBs) beyond 10 years, the domestic ones are struggling to tie-up such overseas funds at competitive rates.

Though cellular services have taken off well in select circles, FIs wonder if the initial euphoria will last. "Since the initial demand for cellular services has almost been met, operators will have to identify second-rung users to push up sales. Besides, with all operators offering free airtime and concessional charges on hand-sets, their margins are being eaten into," sources added.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.