The Telegraph
Since 1st March, 1999
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Bailout boost for BSNL

New Delhi, Sept. 2: The Union cabinet today cleared a financial package to strengthen BSNL by agreeing to reimburse the telephony majorís licence fee and spectrum charges for another year, estimated to result in a saving of Rs 3,000 crore.

The government also extended the moratorium on payment of principal and interest on a Rs 7,500-crore loan till March 31, 2005. The rate of interest that BSNL has to pay on this loan will also be slashed and the finance ministry has been asked to look into the matter.

The telecom giant takes a roughly Rs 4,000 crore hit in its bottomline every year in working towards the governmentís goal of providing basic telecom services at affordable prices to the nationís rural areas. Todayís decision was taken to help offset part of this expense. The issue has assumed further importance with the approaching elections.

The board of directors of the company have now been given the liberty to decide on the quantum of dividend that the company has to pay to its shareholders so that the cash flows are not brought under strain.

A joint examination will also be carried out by the finance ministry and the telecom ministry in order to ensure that rural telephony moves ahead and BSNL does not suffer either.

The new telecom policy introduced in 1999 has set a teledensity target of 9.91 per 100 by 2007 inclusive of rural density of 3 per 100. The policy commits the government to providing telecom services at reasonable prices by providing telephones on demand in urban and rural areas, voice and low speed data to all villages and internet access to all district headquarters.

However, in providing these services to rural areas, BSNL runs into operational losses. The package approved by the cabinet seeks to make the corporation economically viable.

The profitability of BSNL has also been adversely affected with the opening up of the telecom sector to private companies and the steep fall in international and national long distance tariffs. The implementation of regulation regarding cost-based tariffs and interconnect charges have also hit its cash flows. These factors have combined to erode the internal generation of surplus funds from operations.

As a consequence of corporatisation, BSNL has to make additional payouts to the tune of Rs 5,000 crore each year which it did not have to make as a government department earlier.

The establishment costs of the corporation have also gone up as it had to absorb over 3.4 lakh group C & D employees on industrial allowance pay scales.

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