The government's move to extend the licence fee period for non-metro cellular telephony to 15 years makes tremendous sense for the following reasons. First, for most cellular circles, the licence fee payable over a period of 10 years constitutes almost 40 per cent of the total project cost. Therefore any sops given to the cellular operators on this count are most welcome.

Second, loans to telecom projects being of a seven year maturity would have exerted tremendous pressure on the operators to reschedule repayment within three years. Moreover, delay in the realisation of projected revenues has affected cash flows thereby putting the lenders to these projects at a great risk.

The government's move would definitely help in releasing much needed funds to the cellular operators and go a long way in reducing the risks of lending. Also pegging the licence fee NPV ( net present value ) at current levels for a repayment period of 15 years would considerably reduce annualoutflow.

Third, the fixed cost per subscriber has been quite high initially, as a small subscriber base has made very little contribution for bearing licence fees, equipment costs, interest and developmental charges. This has put tremendous pressure to fund operating losses for the initial four to five years.

To provide some relief, the TRAI has recently acceded to the request from the Cellular Operators Association of India (COAI) and has proposed to increase the monthly service charges to Rs 600 from the current Rs 156.

The government has not accepted the cellular operators demand for a two-year moratorium on payment of licence fee possibly because the Committee of Secretaries ( CoS ) has expressed concern over the impact of moratorium on the budget, which has taken into account annual receipts of over Rs 2000 crore as licence fee from cellphone operators. In July, 1998 DoT had referred the whole issue to the TRAI and specified that operators seeking deferment on payment of licence fee, pending theTRAI decision, should furnish guarantees as security.

Till date, eight out of the thirteen operators have complied with this condition. Therefore, the government has also specified that the extension is only for non-defaulters and hence all operators would have to make sure that they comply with the terms and conditions of licence agreements.

Mangalore Chemicals & Fert

News reports quote the UB group chairman, Vijay Mallya, as having said that Mangalore Chemicals and Fertilisers has been doing well under the management of the group. The question that arises here is, if this is indeed so, why is it that the company is still a BIFR case?

True, the company had posted a net profit of Rs 17.33 crore for the year ended March 1998. Income from operations had increased by 44.41 per cent to touch Rs 451.60 crore. Operating profit had moved up by 74.43 per cent to Rs 44.20 crore and cash profit was up from a mere Rs 7.68 crore to Rs 25.48 crore. But this improved performance was mainly due to theinclusion of subsidy arrears of Rs 24.74 crore in the net sales for the year. If this were not taken into account, the company's performance would not have been much to talk about. n the first quarter of the current year, the company posted a loss of Rs 2.94 crore. Negative contribution from the DAP business resulting from a weaker rupee had been cited as the main reason for the poor performance. True, the depreciation of the rupee had resulted in a higher import bill for all DAP manufacturers as rock phosphate is not available locally. Also, though the input costs had gone up, realisation from DAP sales had not improved as the manufacturers were not allowed to increase prices.

However, unlike other urea manufacturers, the urea division of Mangalore Chemicals & Fertilisers urea division has not been faring well. In the first quarter, the company's performance was affected by incessant contract labour agitation. The agitation had resulted in a urea stock build-up of 13,000 tonnes in the silo, therebyaffecting income from urea sales. It also had an impact on DAP production which had fallen below target by 14,500 tonnes. As a result, operating profit for the first quarter had declined by 27.65 per cent from the previous corresponding period's figure of Rs 4.81 crore. The freeing of retail prices and the increase in government concessions for DAP from October is likely to result in better bottomlines for most DAP manufacturers.

Also, since urea prices have not been hiked and the subsidy on urea continues, urea manufacturers will continue to do well. Given the production problems, it is unlikely the firm's rerformance will improve in the near future.

GAIL

Reports suggest GAIL has suspended the supply of natural gas due to the submergence of the pumping station in the HBJ line. This has resulted in a serious loss to the user industry -- fertilisers, petrochemicals, power and sponge iron. While some plants can use naphtha as an alternate feedstock and so canavoid shutting down, the majority of theuser industry is likely to face closure in the absence of natural gas.

Sponge iron producers, for instance, have to stop production as alternate fuel cannot be used. As the natural gas cannot be supplied to the user industry, ONGC will have to flare it. This would be a sorry affair,as the hike in gas consumption after the commissioning of the pipeline had brought down the flaring from 40 per cent to less than 7 per cent.

To ensure continuous gas supply, the two bottlenecks in the pipeline -- the compressor stations at Hajira and Jhabua -- need to be taken care of. Hajira is more important as it is the starting point.

(With contributions from AG Krishnan, Sarad Saraf & M Saxena)