Basic Services Licence Award May Be Delayed

The department of telecommunications' decision on award of the basic telecom service licence for the Rajasthan and Karnataka circles is likely to be further delayed by a month. Telelink Network and Hughes Ispat had bid for the circles in the first round of tendering late last year.

Sources say the delay is because the telecom commission finds itself caught in a dilemma over the award of the Rajasthan licence.

The reason is that Telelink Network has bid Rs 1100 crore for the circle, which DoT insiders say is a good price. We might not get such a quote if we go in for another tender, one official said.

 

But the problem in accepting Telelink's bid stems from the fact that former communications minister Sukh Ram had sought to hastily clear the bid before elections. Moreover, a technical flaw has made the commission hesitant in awarding the licence to Telelink.

During the financial bidding process, the company promised to pay a gross licence fee of Rs 1,110 crore as against a reserve price of Rs 1,700 crore set by DoT.

This, in itself, was not a violation of the tender norms as is being made out in some sections of the media. It was the net present (discounted at 16 per cent) which was the deciding factor and the NPV of Telelink's 15-year bid worked out to Rs 449.79 crore (see table), which was higher than the NPV of the reserve price.

However, Telelink erred in not sticking to a tender guideline that said a bidding firm should quote an annual payment schedule which is such that at the end of any year the sum of annual payments is not less than the corresponding sum of the datum schedule.

The datum schedule was the 35Y schedule of payments, according to which the gross financial bid is divided by 35 to yield an amount, say, Y. Then, the tender prescribed that the company would have to pay Rs Y in the first five years, 2Y in the next five years and 4Y in the last five years.

Therefore, in Telelink's case, it should have paid some Rs 32crore (Rs 1,110 crore divided by 35) for the first five years. But, in the licence fee stream that it quoted, the company said it would pay Rs 10 crore in the first year and Rs 150 crore in the second year (see table).

Clearly the first year's licence fee payment is less than that under the prescribed datum schedule. To further complicate matters, DoT asked Telelink whether it would be willing to increase its first year's payment to Rs 32 crore and the company agreed. It is this negotiation which the legal adviser to DoT has termed violative of the tender norms.

Telelink officials contend the tender guidelines only specify that the sum of payments at the end of any year should be more than the corresponding sum for the datum schedule.ude virtual="/incs/right.asp"-->