The Hindu Business Line : CAG raps MTNL on `improper' investment — Outlines steps to speed up cellular services growth

THE Comptroller and Auditor General (CAG) has rapped Mahanagar Telephone Nigam Ltd (MTNL) for investing Rs 250 crore of its surplus funds in contravention of the guidelines issued by the Department of Public Enterprises (DPE).

The company had invested its surplus funds in 10-year bonds of a loss-making State Government enterprise - Maharashtra Krishna Valley Development Corporation (MKVCD) - although the DPE guidelines bar investments in any debt instrument that does not have highest credit rating or newly issued instruments whose final maturity period exceeds one year.

"This decision to invest ignored the principles of financial propriety as MKVDC was a financially weak and loss-incurring enterprise. These bonds did not have the highest credit rating and the maturity period was 10 years," the CAG noted in the latest report on the company.

"The investment was also not fully secured as it was covered only under a guarantee from the State Government but no tangible asset was hypothecated in favour of MTNL. Therefore, the investment was not based on sound commercial judgement and ignored the principles of financial propriety."

MTNL has also suffered interest loss of Rs 55.44 crore due to delay in formation of Gratuity Trust and non-investment of funds of the Trust in eligible securities.

The company needs to have better funds management if it is to keep itself abreast of its competitors, the report said.

The CAG has also pulled up the company for slow growth in cellular services in Delhi and Mumbai.

"The overall performance of cellular mobile services of MTNL has not been satisfactory. MTNL failed to achieve its own targets for growth in subscriber base, generation of revenue as well as other physical and financial parameters owing to failure in obtaining licence for adjoining areas in Delhi and Mumbai at the right time, delays in procurement, installation and commissioning of system/equipment, delay in commencement of services, poor quality of services, and deficient billing system.

"The growth rate of its subscriber base is much lower than that of other private cellular operators, and at times negative. MTNL has been incurring recurring losses on the operations of its mobile services."

The company needs to review and strengthen its planning mechanism, improve the coverage of its cellular services and make the latest add-ons in facilities and quality of services along with efficient subscribers' complaint redressal system and install a complete flawless and best billing system.

Against the projected revenues of Rs 1,119 crore for the three years since it launched services, the revenue earned has been only Rs 244.29 crore.

Deficiencies in the billing system, frauds, fraudulent booking of connections by franchisees, delays in disconnection due to non-payment, etc., led to huge accumulation of debtors amounting to over Rs 75.43 crore, with 71 per cent of them becoming doubtful of recovery, the CAG observed.

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