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Thomas K. Thomas

New Delhi , April 21

AN estimated outgo of Rs 2,000 crore is forcing the Government to look at options other than a direct merger between Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL).

Faced with costs relating to revising pay-scales, pension payouts and stamp duty payments in the event of a merger, the Government is favouring the option of BSNL picking up its stake in MTNL, which will give the larger company management control over the other.

"When MTNL was formed, the pay structure was disproportionately high. Similarly, after the formation of BSNL, the entire Pension Act was amended to provide for the compensation of BSNL. Therefore, in case of a merger, pay scale implications would be worth Rs 500 crore. "It would also be very difficult to give pensionary benefits in one form to approximately 58,000 employees of MTNL. Therefore, the indirect merger route seems to be the feasible and practical option in the medium term scenario," Government sources said.

The stamp duty implications in case of a direct merger would be worth Rs 1,200 crore to Rs 1,400 crore. The consultants, comprising ICICI Securities, ABN Amro Rothschild, A.F. Ferguson & Co, and Desai and Diwanji, had given a number of options to the Government. One of the option was to form a holding company with BSNL and MTNL as subsidiaries with common branding, common tariff and strategy.

This option has, however, not found much favour with the Government, and so the other option of BSNL picking up the 56 per cent Government stake in MTNL has emerged as the hot favourite.

This option will see the Government raking in a few thousand crore from the sale of stake. The consultants have also given their preference to this option. The two companies have been asked to give their comments to the two options.

A final decision is likely to be taken over the next three months, sources said.

The objective of the restructuring is to bring about synergy between the two companies. While MTNL has said that only a direct merger would make sense in the long run, BSNL's views are in line with that of the preference given by the consultants.

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As direct merger will cost Rs 2,000 cr — Govt favours BSNL taking stake in MTNL

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