NEW DELHI, June 9: The Department of Telecommunications (DoT) has presented a proposal to the finance ministry seeking relaxation of the norms restricting external commercial borrowings by cellular operators to two times foreign equity.

The move follows repeated requests from cellular operators who contended that projects in telecom circles are being bogged down because of the ECB norms stipulated in the licence document.

The department wants private operators to be allowed to freely negotiate more foreign loans to fund their projects. It has also called for doing away with the condition of restricting foreign commercial borrowings to only fund imported equipment.

The licence document has a condition limiting the foreign currency debt to twice the foreign equity for projects. This has been a serious lacuna, particularly at a time when rupee resources in the country have dried up.The department feels that external commercial borrowings-backed supplier credit will be the largest source of funding the projects. The ministry of finance guidelines limiting such borrowings to $15 million for an average tenure of fewer than seven years has posed additional problems to cellular operators.

Operators say that the debt-equity ratio of 1:1 is too high for telecom projects. Operators bid high licence fees based on aggressive leverage assumptions, while debt has the advantage of being a tax-deductible form of licensing. The operators committed higher licence fees to the government on the assumption that they would derive the returns from tax deductibility. A debt equity norm of less than 2:1 would translate into a kind of double taxation for the operators.The government will now allow telecom operators to raise their finances in a ratio of 2:1, as is the practice in the case of power projects. In such a situation, FIs will be inclined to fund the projects and give serious consideration to a 2:1 ratio.

Listing the rationale for relaxing the guidelines, it says dollar-denominated funding is critical to the success of cellular operations. The estimated requirement for funding cellular projects in the country over the next three years is estimated at $4 billion. Of this, $1.3 billion will be utilised as licence fees payable to the government.

The Department of Telecommunications has asked the ministry of finance to extend telecom the same status accorded to other capital-intensive infrastructure projects.The cap on foreign commercial borrowings is too low given the capital-intensive nature of telecom operations. Industry sources say that upfront payment of high licence fees and non-funding of licence fees by financial institutions have imposed additional burden on the operator.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.