Thursday, April 5, 2012

BSNL’s Viability and the MoU Signed Between the Government of India and BSNL

Every year MoU (Memorandum Of Understanding) is signed between a PSU and the Government. It is a negotiated agreement. It specifies clearly the objectives of the agreement and the obligations of both parties. “The main purpose of the MoU system is to ensure a level playing field to the public sector enterprises vis-à-vis the private corporate sector.”(

The MoU for the year 2012-13 was signed between BSNL management and the Government (Department of Telecommunication). As per this MoU, the Department of Telecommunications (DoT) “ shall endeavour to assist the BSNL in the following manner”:

i.                     Reimbursement of deficit on account of commercially non-viable services.

ii.                   Refund of up front BWA spectrum license fee.

iii.                  Issue of a soft loan which has been requested by BSNL for an actual loan of Rs 15000 crores   for 10 years with a moratorium of 5 years.

iv.                 Center/State Governments and PSUs should give priority to BSNL for their telecom service requirement.

v.                   Pension Contribution is collected on the maximum of the scale in IDA instead of on actual pay drawn which is contrary to the procedure followed in respect of CDA scales.

vi.                 Funding Support for VRS.

Endeavour means an effort to attain some thing. Therefore as per this MoU, the DoT will try to achieve the above said support for BSNL and hence none of these are certain.

While the losses to BSNL on rural landlines are about Rs 10000 crores per year, the BSNL submitted to TRAI requesting for a subsidy of Rs 2580 crore only per year. But the TRAI already fixed the maximum ceiling of Rs 2000 crore per year and recommended for sanction of an ad-hoc amount of Rs 600 crore from USO fund, subject to its final recommendation to be made after consultation. Therefore after consulting the private telecom operators, the TRAI will give its recommendation for payment of this subsidy to BSNL which will not, in any case, be more than Rs 2000 crore. Thus even with the best recommendation to be given by TRAI, only one fifth of the losses incurred by BSNL on rural landlines would be subsidized.

The Rs 8300 crore BWA spectrum license fee has to be refunded to BSNL by the Finance Ministry since the amount was with the Finance Ministry. The Finance Ministry will not refund it. It already came in the news that the amount will be refunded to BSNL only after the auctioning of the BWA spectrum surrendered by BSNL. This process of auction has not yet started.

The proposal of payment of pension contribution by BSNL to DoT on the basic pay of the employees instead of the maximum of their pay scale was already rejected by the Government. Again DoT may approach the Government to review this decision.

The total number of employees in BSNL on 31-12-2011 was 2.71 lakhs. VRS is planned for 15% of the employees, i.e., to 40650 in 2012-13, as per this MoU. Besides, another 5420 employees are to be redeployed in 2012-13. The DoT, in this MoU, assured BSNL for funding support for VRS. While BSNL requested for a grant from the Government for implementing the VRS, no such grant is assured by the Government. As per the DPE rules on the subject, the management has to either meet the fund requirement from its own resources or must take loan from banks. When such rule is already there and when the Finance Ministry is not likely to grant the large amount of atleast Rs 5500 crore as VRS fund for BSNL, the assurance of DoT for funding support will only result in its’ support to BSNL for taking bank loan for meeting the funding requirement of VRS. Further, if 40650 employees are given VRS, it will increase the pension funding burden on BSNL  at least to the extent of Rs 1500 crore per year, since the rule is that the pension expenditure of DoT, if exceeds over and above 60% contributions of BSNL to the exchequer, the amount exceeded beyond 60% has to be paid by BSNL in addition to the pension contribution for each and every employee in service. Therefore taking loan for funding VRS will add more burdens on BSNL and it will impact its viability. Moreover it is also to be noted that BSNL management proposed to take a soft loan of Rs 15000 crore for purposes other than VRS, purposes necessary for the development of BSNL. Hence VRS is counterproductive.

 There is no necessity for VRS since there is no recruitment and the employees are retiring in large number every year. In fact, as per the data submitted by the CMD BSNL to the BRPSE (Board For Reconstruction of Public Sector Enterprises) on 21-12-2010, the number of employees in BSNL was 2,87,749. As per this MoU for 2012-13 the number of employees in BSNL as on 31-12-2011 was 2.71 lakhs. Thus in one year 2,87,749-2,71,000=16749 employees have either retired or died. Thus the attrition rate ( attrition is the reduction in the number of employees due to retirements and deaths) is 5.82 per cent. But the management wrongly shows in the MoU that the attrition rate is 0.5 per cent only (which means only 1355 employees will retire/die per year!) with the intention to create an impression in favour of VRS, ignoring the fact that such VRS is counter productive as explained above.

It is good that the DoT agrees to try with the Government so that preference is given by the Central/State Governments and PSUs to BSNL for their telecom services requirements.

The above measures proposed in the MoU are either not sufficient or counter productive for the viability of BSNL. To make BSNL viable and to see that it comes out of the losses,

a)      The management of BSNL and the Government should drop the objective of right sizing the man power i.e., the VRS.  The VRS proposal should be dropped since it is unnecessary in view of the large scale attrition without recruitment and since it adds more financial burdens on BSNL instead of reducing the burdens.

b)      The BSNL management should project the real losses on rural landlines and claim full compensation for such losses. The rules allowed/framed by TRAI for calculating the losses suffered by BSNL on rural landlines should allow BSNL to claim full compensation for the losses actually faced by it, without unnaturally reducing it. Similarly, full compensation has to be paid to BSNL for other services which are loss making, but socially necessary.

c)        The Finance Ministry should immediately refund the BWA spectrum license fee of Rs 8314 crore to BSNL along with interest, from the date of surrender of the spectrum by BSNL.

d)      The BSNL should be allowed to fully utilize the 2G spectrum it has in 900 and 1800 MHz bands and also the CDMA spectrum it has by allowing it to provide advanced services like wireless broadband on the 900 MHz band by liberalizing the rules. It also must be allowed to fully utilize the 3G spectrum it has. Since it is a PSU serving the cause of the nation no upfront license fee should be collected from it for the spectrum it has in any band.

e)      For the full utilization of the spectrum, the BSNL must be allowed to procure the required equipment without creating any hurdles. The equipment for providing high quality landline/broadband services should be procured immediately.

f)        The management should have a proper strategy to achieve the objectives mentioned in the MoU—(a) to provide quality and reliable fixed telecom service to customers and thereby increase customer confidence, and (b) to provide customer friendly mobile telephone services with focus on value added services and data services, of high quality and play a leading role as GSM operator in the area of operation. The DoT should encourage such a strategy.

g)      The BSNL, as mentioned in the objectives of the MoU, must be allowed to leverage its existing infrastructure for facilitating implementation of the government’s programmes and initiatives, particularly in rural areas.

h)      The Central/State Governments and PSUs must be immediately  instructed to procure their telecom services from BSNL only.

i)        Orders should be issued immediately by the Government for allowing payment of pension contribution by BSNL on the actual basic pay of the employees instead of on the maximum of the pay scale of the employees.

j)         The order requiring BSNL to meet the pension expenditure of DoT which is in excess of the 60% of the contributions of BSNL to the exchequer (other than the pension contribution under FR 116), should be withdrawn immediately.

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