In an unusual move, Communications Minister Arun Shourie will take before the Union Cabinet a proposal seeking a Rs 18,515 crore (Rs Rs 185.15 billion) financial relief package for Bharat Sanchar Nigam Ltd.

While the finance ministry had earlier rejected it, the proposal had found favour with the Planning Commission.

The proposed package, to be spread over five years, includes reimbursement of licence fees and spectrum charges, and extension of the moratorium on repayment of principal and interest on government loan, and concessions on dividend.

The finance ministry had earlier suggested that BSNL be allowed to charge cost-based tariffs and the government not allow subsidised telephones, which was making the business unviable.

When the department of telecom services was corporatised at the end of 2000, the government transferred assets valued at Rs 63,000 crore (Rs 630 billion) by balancing them against government equity of Rs 5,000 crore (Rs 50 billion), preference share capital of Rs 7,500 crore (Rs 75 billion), a loan of Rs 7,500 crore, with the rest being treated as reserves.

While the tenure of the loan was 15 years, BSNL was granted a moratorium on repayment of principal and interest up to March 2004. It was also exempt from payment of dividend on preference shares up to March 2004.

The Cabinet note prepared by the communications ministry has justified the extension of the moratorium till 2007 on the ground that BSNL was suffering annual losses of Rs 4,000 crore (Rs 40 billion) in maintaining phones in rural areas, apart from an outflow of Rs 5,000 crore (Rs 50 billion) due to corporatisation.

The ministry has said other revenue streams like licence fee from VSNL and dividend from MTNL of around Rs 1,000 crore (Rs 10 billion) retained earlier by the department of telecom were now finding their way into the Consolidated Fund of India. The Plan assistance for BSNL, it pointed out, was only at Rs 1 crore (Rs 0.01 billion) a year for the Tenth Plan period.

The communications ministry has said denial of financial support will force BSNL to give up economically unviable services in rural areas.

The finance ministry, however, had said the responsibility of rural telephony should not be on BSNL alone. Private operators should be forced to fulfil their obligation, it pointed out.

The ministry had suggested that future losses in providing rural phones should be met from the Universal Services Obligation Fund.

Owing to the steep reduction in tariffs, BSNL's profits have come down to Rs 6,000 crore (Rs 60 billion) and its revenues have been hovering around Rs 20,000 crore (Rs 200 billion).

The company has a workforce of over 400,000 employees across 21 telecom circles. BSNL offers the entire range of telecom services, including fixed line, cellular, WLL limited mobility, STD and ISD services. It also offers data services like broadband, DSL and leased lines.

BSNL's share in the Indian telecom market has been coming down since private companies were allowed into the sector. Even then, it controls nearly 80 per cent of the telecom market.

While its fixed-line business has been on the decline, BSNL has notched over 3 million cellular subscribers in eight months to become the second largest mobile operator in the country.