The Hindu Business Line : VSNL files suit, seeks Rs 2,560 cr from Govt — Compensation for early loss of ILD monopoly

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VSNL files suit, seeks Rs 2,560 cr from Govt — Compensation for early loss of ILD monopoly

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Mumbai , Jan. 29

VIDESH Sanchar Nigam Ltd has filed a suit in the High Court of Mumbai demanding Rs 2,560.72 crore from the Government of India as compensation for its early loss of monopoly in international long distance telephony.

This is the culmination of a series of efforts - including one requesting arbitration - made by VSNL over the last five years with the Government to settle the issue, according to the petition.

The petition follows a legal notice sent to the Government in November last year for payment of compensation.

After the Government disinvestment in VSNL, the Tata group is its majority owner, with the Government currently holding 26 per cent stake in it.

VSNL's petition, which was filed last Thursday, also urged that the Government pay VSNL interest at the rate of 18 per cent per annum on the amount of Rs 2,560.72 crore from April 1, 2002 (when the monopoly was taken away) till the actual date of payment/realisation.

The petition demanded that the Government be ordered to return for cancellation of the Performance Bank Guarantee for Rs 400 crore (with interest at 18 per cent p.a.) submitted by the company to the Department of Telecommunications for rollout of its national long distance operations.

According to VSNL, the bank guarantee requirement was supposed to have been waived by the Government as part of the compensation due to it for early loss of monopoly.

This is arguably one of the biggest compensation amounts that the Government has been taken to court for, said sources.

According to the petition filed by VSNL, the Government of India had, during its two overseas offerings in 1997 and 1999, raised money on the promise that VSNL would retain its monopoly on ILD services till March 31, 2004.

Also, through a letter in February 1994 from the then Chairman of the Telecom Commission, it was decided that VSNL would have a monopoly for 10 years in basic services starting April 1, 1994.

But in September 2000, the Department of Telecommunications informed VSNL of its decision to terminate its ILD monopoly on March 31, 2002.

There was also a proposed compensation package, which was approved at an EGM in May 2001.

This package consisted of a free national long distance (NLD) licence for VSNL, payment, by the Government of India, of a sum equal to the amount paid by VSNL as entry fee and licence fee for five years commencing April 2001, net of taxes, waiver of performance bank guarantee of Rs 400 crore for NLD rollout and grant of category A ISP licence to the company.

The package also stated, "The Government of India can also consider additional compensation if found to be necessary on a detailed review when undertaken."

In January 2002, the Government directed PSUs MTNL and BSNL to route their ILD calls for a period of two years through VSNL as a `most favoured customer' at `market rates'.

Later, in the same month, the Government sent another letter to VSNL stating that the above dispensation was "granted as full and final settlement of every sort of claim against advancing ILD demonopolisation of VSNL by two years."

VSNL would not accept this. It said since the balance sheet and the directors' report for 2001-2002 was adopted by the shareholders at the September 2002 AGM, the Government nominee directors had accepted the position that the compensation package offered by the Government was inadequate and the January dispensation cannot be regarded as full and final settlement.

VSNL wrote several letters to the Government asking for the issue to be settled, highlighting the fact that "the liability of VSNL's directors will arise on account of their fiduciary duty to the shareholders of VSNL to safeguard their interests and that of the company."

VSNL was readying for arbitration too, following letters to the Finance Minister in early 2004, and requisitioned the services of SBI Caps which submitted its report in July 2004 estimating the loss at Rs 2,560.72 crore, which is what the petition demands.

An SBI capital report this month pegs the compensation amount at Rs 2,980 crore. This estimate, according to VSNL, is close to that by Salomon Smith Barney's 2000 study which estimated the loss at Rs 2,936 crore.

It is also close to Credit Suisse First Boston's impact on EBIDTA in 2000, which pegged the compensation amount at Rs 3,579 crore.

Both these studies were done prior to the Government disinvestment in VSNL.

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