Ending days of speculation on the fate of Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), the Union Cabinet on Wednesday announced a bail out package that includes merger of the two companies, strengthening the finances through sovereign bonds, giving out voluntary retirement scheme (VRS) and providing 4G spectrum at administrative rates. The entire package would cost around ₹70,000 crore.

The package includes raising of ₹15,000 crore sovereign bonds to meet the immediate capital requirement of both the companies, 4G spectrum allocation worth ₹20,140 crore, ₹29,937 crore for VRS covering 50 per cent of their employees, and ₹3,674 crore for goods and services tax that will be levied on allocation of radiowaves.

“BSNL and MTNL are strategic assets of India. Neither they will be closed nor being disinvested. We want to make them competitive and bring professionalism. Some of the decisions taken by the Cabinet include ₹15,000 crore worth of sovereign bonds will be raised, 4G spectrum to be provided administratively at 2016 price and monetise their (BSNL/MTNL) assets of worth around ₹38,000 crore in the coming four years,” Ravi Shankar Prasad, Minister of Telecommunications and Information Technology, told reporters here after the meeting.

“We are also bringing out attractive VRS for the employees who are 53-and-a-half years and above age. Such an employee will be offered 125 per cent of their salary, gratuity, pension, etc all computed till the age of retirement (60 years),” he added.

BSNL and MTNL put together have employee base of around 1.90 lakh employees (1.68 lakh and 22,000), and around 50 per cent of the total employees eligible for the VRS.

However, Prasad clarified that the VRS scheme will strictly voluntary and no one will be forced for it.

Welcoming the steps taken by the government, industry bodies and analysts said such restructuring was required immediately if the government wanted to revive the companies.

"BSNL which was once a Navatna company became a sick company with accumulated losses of more than ₹90,000 crore. With a bloated workforce of BSNL, it is simply uncompetitive. Only a drastic restructuring with effective VRS stands a chance of revival for BSNL and MTNL. Whether the revival package will succeed, only time can tell,” VK Vijayakumar Chief Investment Strategist at Geojit financial services, said.

“This will pave the way to address the long pending payments of the MSMEs vendors from BSNL and MTNL. We urge the BSNL and MTNL to immediately obtain bank funding and release long pending payments of MSMEs vendors before Diwali,” DK Aggarwal, President, PHD Chamber of Commerce and Industry, said.

The total debt on both the companies stood at ₹40,000 crore, of which half of the liability is on MTNL alone which operates in Delhi and Mumbai.