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July 25, 1997


DoT decision on defaulting service providers criticised

The proposed tripartite agreement over assignability of licence in the telecom sector has once again run in to rough weather as lenders demand more leeway from the Department of Telecommunications while selecting a replacement for the defaulting service providers.

Financial institutions and banks and suppliers who were involved in the discussion with the Department of Telecommunications for about a month, have raised objection to the clause in the draft agreement which empowers DoT to cancel the licence with just one month of advance notice to lenders.

The draft proposes that such a notice will entitle the lenders to cure the defaults of the operator within one month.

Dubbing the draft as a DoT plot to guard its interests at the cost of lenders, the foreign institutional investors and banks are said to be arguing for more time on this count as one month would not suffice to remedy the situation.

Besides, they have also argued that it be made mandatory for DoT to consult the lenders before embarking upon the extreme measure to cancel the licence. A financial institution official said "One month's time is not enough even to study the situation, let alone remedy it."

In other words, DoT simply wants the foreign institutions to implement its decision, he said.

The short time-frame poses more difficulty for the suppliers of equipment. In almost all the cases, the agreement between suppliers and operators envisages that network and switches will be provided on credit.

In case the replacement for the erring operator does not agree with the terms of supplier's credit it will be impossible for them to retrieve the investment.

Moreover, the lenders differ from DoT on the eligibility criteria for the replacement to the defaulting operator in basic services.

Though the recently circulated draft vests in lenders the power to find a replacement of their choice, it requires the new entrant to upgrade the bid to the level of previous operator. DoT has made it clear that under no circumstances the net present value of the previous bid will be diluted.

This is in addition to the other criteria such as 10 years prior experience in telecom services, 10 per cent of the services devoted to rural areas, submission of banks guarantee and performance guarantee.

This is being viewed by the lenders as a DoT design to maintain its upper hand in the telecom sector.

Banking sources say that any company taking over a failed venture will not be willing to match the bid of its predecessor.

If NPV remains the most important criteria it will be difficult to find a replacement.

- Compiled from the Indian media

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