Telecom AGR Dispute Still Event Risk for GAIL, OIL and POWERGRID: Report

Moneylife Digital Team 19 February 2020

The demand notices sent by the Department of Telecom (DoT) following direction from the Supreme Court are still even risk for state-run GAIL (India) Ltd, Oil India Ltd and Power Grid Corp of India Ltd (POWERGRID), says Fitch Ratings.

The ratings agency says it continues to treat any payments that three India-based companies may have to make under a demand notice from the DoT as an event risk for the companies' ratings.

Fitch is not taking immediate rating action on the three companies, as the Supreme Court had allowed the companies to withdraw their clarification applications on 14 February 2020 and resolve their dispute with DoT outside the court. This is in stark contrast to the court's decision to demand immediate payments from the telecom companies that are also involved in the dispute.

"We expect the three companies to eventually resolve the dispute, although resolution timing is uncertain. A speedy solution is important to prevent disrupting the companies' investment plans and damaging their performance. The three companies are considering an appeal against the demand notices. We understand that they have the option to resolve the matter through alternate dispute-resolution mechanisms available to state-owned enterprises. This is in addition to the legal options available to telecom license holders in general," the ratings agency says.

Earlier, the DoT had issued demand notices to GAIL, OIL and POWERGRID for Rs1,831 billion, Rs480 billion and Rs220 billion, respectively. The notices include license fees on non-telecom revenue and additional interest and penalties on the license fees. However, the three companies' telecom-related revenue is insignificant, at around Rs0.5 billion, Rs0.01 billion and Rs23 billion, respectively, for the same period as the demand notices.

The three companies have created telecom infrastructure for internal use and have obtained national long distance and internet service provider licenses to rent out spare capacity. They maintain that their licenses differ from the unified access licenses held by telecom companies, hence, the court's decision on adjusted gross revenue for telecom companies does not apply to them.

These companies had been paying the DoT a telecom licence fee, which was a percentage of their telecom-related revenues. After the court ruling, DoT reassessed the licence fees based on their entire revenues, including that from their core businesses and added interest and penalties, in its demand notices.

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