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September, 1997


Let a borrower be

Telecom companies can borrow up to 50% of project cost overseas

The Cabinet has cleared the ministry of finance proposal to ease 'external commercial borrowing' norms for private telecom companies.

According to the new norms, a company is allowed an ECB of up to 50 per cent of the project cost. The earlier limit was only twice the size of foreign investment in the company. Approvals will be granted on a case-by-case basis by the finance ministry.

The change is expected to help companies who have lower foreign equity holdings compared to others which already have foreign holdings at the maximum permissible limit of 49 per cent.

While private telecom companies have welcomed the relaxation of norms, a company representative pointed out that while ECB clearance for companies in the power sector was for a period of one year, clearances for telecom companies were limited to six months. The representative pointed out that since both sectors have infrastructure status, there is no reason for the difference.

Agreements for assignability and transferability of licences were also cleared during the meeting. The agreements allow for the auction of a licence by lenders, should the original licensees default on payments.

While most operators welcomed the clearances, one of them pointed out that drafts of the agreements cleared needed to be vetted before any decisions could be taken.

A couple of basic letter-of-intent holders are, however, prepared to go ahead and sign the licence agreement and negotiate finer points later, if the need arises. "Without a licence in hand, we cannot finalise anything with lenders. So we will sign the agreement and continue to negotiate later on," one of them said.

Among the issues which are likely to arise are extension of the force majure clause under which extension of licence period and exemption from licence payment are permitted under certain conditions. While it was announced that the clause would cover war, natural disaster, acts of god, and even notifications from the statutory authority, the companies want explicit references to disruption caused by terrorist activities. This would be important for licensees (basic and cellular) for Punjab and some northern states.

Another point is regarding the mandatory 45-day notice to be given to the Department of Telecommunications for testing a network before it can be commissioned. Private telecom operators have raised doubts regarding the availability of DoT staff to carry out testing within the time period.

They pointed to the six to nine months taken to obtain cell site clearances by cellular operators as sufficient reason for their anxiety.

- Compiled from the Indian media

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