The government on Tuesday approved a Rs 3,500 crore (Rs 35 billion) financial package for Bharat Sanchar Nigam Ltd, including reimbursement of licence fees and spectrum charges for 2003-04 and an extension of the moratorium on paying the principal and interest on a Rs 7,500 crore (Rs 75 billion) loan by a year to March 31, 2005.

The package has, however, fallen short of the communication ministry's demand for Rs 18,500 crore (Rs 185 billion) relief over five years.

Prithipal Singh, chairman and managing director, BSNL said: "We are happy. We will be able to roll out our network as per plan. We will be able to meet the requirement of putting up village phones and also expand our network in the rural sector."

BSNL executives, however, pointed out that the government had not reimbursed the Rs 1,500 crore (Rs 15 billion) licence fee paid by the company in 2000-03.

The package was earlier rejected by the finance ministry on the grounds that enough had been given to BSNL in the last three years to meet various social obligations.

Communications Minister Arun Shourie, however, took the proposal to the Cabinet.

Apart from meeting rural telephony objectives and additional expenditure after it was corporatised, BSNL said it was deprived of Rs 3,400 crore (Rs 34 billion) in extra revenue when the government forced it to roll back a hike in fixed-line telephone tariffs in May this year.

While extending the time for repayment of the Rs 7,500 crore (Rs 75 billion) loan by a year, the Cabinet today said the rate of interest would be re-examined. BSNL was supposed to pay a 12 per cent interest on government loans.

The government has also allowed BSNL to decide how much dividend to pay the government. This could result in BSNL saving Rs 300 crore (Rs 3 billion) a year.

"The ministry of finance and the department of telecommunications will also jointly examine means to ensure that BSNL does not suffer over rural telephony," a spokesperson said. after the Cabinet meeting.

Private operators, however, objected to the package, saying it would tilt the playing field.

They said it was unfair that BSNL, which was making profits of Rs 6,000 crore (Rs 60 billion) a year, was being reimbursed licence fees even as several telecom operators were struggling to break even.