EIGHTEENTH ANNUAL REPORT 2003-04

CONTENTS

Corporate Details ...... 2 Notice ...... 4 Directors’ Report ...... 6 Report on Corporate Governance ...... 20 Secretary Responsibility Statement ...... 30 Auditor’s Certificate on Corporate Governance ...... 31 Financial Ratios ...... 32 Auditors’ Report ...... 33 Balance Sheet ...... 36 Profit & Loss Account ...... 37 Cash Flow Statement ...... 38 Schedules ...... 39 Notes to the Accounts ...... 47 Section 212 of the Companies Act, 1956, related to Subsidiary Companies 58 Accounts of VSNL Lanka Limited ...... 60 Board of Directors ...... 74

Annual General Meeting on Thursday, 2 September 2004, at Birla Matushri Sabhagar at 11.00 a.m. As a measure of economy, copies of the Annual Report will not be distributed at the Annual General Meeting. Shareholders are requested to kindly bring their copies to the meeting.

1 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

CORPORATE DETAILS

BOARD OF DIRECTORS (As on 28 July 2004) Mr. R. N. Tata (Chairman) Mr. S. K. Gupta (Managing Director) Mr. N. Srinath (Director Operations) Mr. Rakesh Kumar (Government Nominee) Mr. Subodh Bhargava (Independent) Mr. Suresh Krishna (Independent) Mr. Ishaat Hussain Mr. Kishor A. Chaukar Mr. Vivek Singhal (Independent) Dr. Ashok Jhunjhunwala (Independent) Mr. F.A. Vandrevala Mr. Pankaj Agrawala (Government Nominee)

Mr. Satish Ranade Company Secretary & Vice President (Legal)

REGISTERED OFFICE Videsh Sanchar Bhavan, Mahatma Gandhi Road, Mumbai - 400 001.

CORPORATE OFFICE Lokmanya Videsh Sanchar Bhawan Kashinath Dhuru Marg, Prabhadevi, Mumbai - 400 028.

BANKERS Indian Overseas Bank HDFC Bank Bank of Baroda Canara Bank State Bank of India

LEGAL ADVISORS Messrs Little & Company Messrs Mulla & Mulla and Craigie Blunt & Caroe Messrs ANS Law Associates

STATUTORY AUDITORS Messrs S.B. Billimoria & Co., Chartered Accountants

REGISTRARS & Messrs Sharepro Services TRANSFER AGENTS Satam Estate, 3rd Floor, Above Bank of Baroda, Chakala Andheri (East), Mumbai - 400 099.

2 REVENUE EARNED 2003-04

Interest 4%

Other Income 2%

Other Traffic Revenue 2%

Internet 9%

Frame Relay 4%

Leased Channel 16%

Telephone 63%

DISTRIBUTION OF REVENUE 2003-04

Staff Cost 4%

Reserve 7%

Dividend 4%

Taxes 5%

Depreciation 5%

Operating & Other expenses 9%

Network Cost 66%

3 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

NOTICE NOTICE is hereby given that the Eighteenth Annual General Meeting of Videsh Sanchar Nigam Limited will be held at 1100 hours on Thursday, 2 September 2004, at Birla Matushri Sabhagar, New Marine Lines, Mumbai - 400 020 to transact the following business: 1 To receive, consider and adopt the Balance Sheet of the Company as on 31 March 2004, the audited Profit and Loss Account for the year ended on that date, the Auditors’ Report thereon and the Report of the Board of Directors. 2 To declare dividend for the financial year 2003-2004. 3 To appoint a Director in place of Mr. N. Srinath who retires at this Annual General Meeting and being eligible offers himself for reappointment. 4 To appoint a Director in place of Mr. Ishaat Hussain who retires at this Annual General Meeting and being eligible offers himself for reappointment. 5 To appoint a Director in place of Mr. Kishor A Chaukar who retires at this Annual General Meeting and being eligible offers himself for reappointment.

Special Business 6 To consider and, if thought fit, to pass with or without modifications the following Resolution as a Special Resolution: “RESOLVED THAT pursuant to Section 224 A and other applicable provisions, if any, of the Companies Act, 1956, M/s S.B. Billimoria & Co., Chartered Accountants be and are hereby reappointed Statutory Auditors of the Company to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to examine and audit the accounts of the Company for the financial year 2004-2005 on such remuneration as may be mutually agreed upon between the Board of Directors and the Auditors, plus reimbursement of service tax, traveling and out of pocket expenses.” “RESOLVED FURTHER THAT the Auditors of the Company be and are hereby authorized to carry out (either themselves or through qualified associates) the audit of the Company’s accounts maintained at all its branches and establishments (whether now existing or acquired during the financial year ending 31 March 2005) wherever in India or abroad.”

By Order of the Board of Directors Satish Ranade Company Secretary & Vice President (Legal) Dated : July 28, 2004 Registered Office : Videsh Sanchar Bhavan M.G. Road, Mumbai - 400 001. NOTES : 1. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER. THE INSTRUMENT APPOINTING A PROXY SHOULD, HOWEVER, BE DEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LESS THAN 48 HOURS BEFORE THE COMMENCEMENT OF THE MEETING. 2. Members who hold shares in dematerialized form are requested to bring their DP ID and Client ID numbers for easy identification of attendance at the meeting. 3. The statement of material facts pursuant to Section 173 (2) of the Companies Act, 1956, setting out the material facts in respect of the business under item No. 6 is annexed hereto. 4. This may be taken as notice of declaration of dividend for 2003-2004 in accordance with Article 93 of Articles of Association of the Company in respect of dividend for that year when declared. 5. Registers of members and transfer books of the Company shall remain closed from 16 August 2004 to 2 September 2004 (both days inclusive) for the purpose of ascertaining eligibility to dividend.

4 6. The dividend as recommended by the Board of Directors, if declared at this Annual General Meeting, shall be paid on or after Wednesday the 8 September 2004: (i) to those shareholders whose names appear on the Company’s Register of Members after giving effect to all valid share transfers in physical form lodged with the Registrar & Transfer Agents (R&T Agents) of the Company on or before Friday, 13 August 2004. (ii) in respect of shares held in electronic form, to those “deemed members” whose names appear in the statements of beneficial ownership furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) as at the end of business on Friday, 13 August 2004. In respect of shares held in demat mode, the dividend will be paid on the basis of beneficial ownership as per details to be furnished by NSDL and CDSL for this purpose. 7. Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, dividends for the financial year ended 31 March 1995 and thereafter, which remain unclaimed in the unpaid dividend account for a period of seven years from the date of transfer of the same, will be transferred to the Investor Education and Protection Fund established by the Central Government. Shareholders who have not encashed their dividend warrant(s) so far for the financial year ended 31 March1995 or any subsequent financial years are requested to make their claim to the R & T Agents of the Company. According to the provisions of the Act, no claims shall lie against the said Fund or the Company for the amounts of dividend so transferred nor shall any payment be made in respect of such claims. 8. Consequent upon the introduction of Section 109A of the Companies Act, 1956, shareholders are entitled to make nomination in respect of shares held by them in physical form. Shareholders desirous of making nominations are requested to send their requests in Form No. 2B in duplicate (which will be made available on request) to the R & T Agents of the Company. 9. Members are requested to notify any change in their addresses immediately, in any event not later than Friday, 13 August 2004, so as to enable us to despatch the dividend warrants at the correct addresses: i) In case of physical shares to the R & T Agents, M/s Sharepro Services, Satam Estate, 3rd Floor, Above Bank of Baroda, Chakala, Andheri East, Mumbai-400 099. ii) In case of shares held in demat form to their depositary participants (DPs).

Annexure to the Notice dated July 28, 2004 The Statement of Material Facts pursuant to Section 173 (2) of the Companies Act, 1956. In respect of Item No. 6 Section 224A of the Companies Act, 1956 provides that the appointment or reappointment of an Auditor or Auditors of the Company at each Annual General Meeting shall be by way of a special resolution if the company is one in which not less than 25% of the subscribed share capital is held singly or in combination thereof by the Central Government, public financial institutions, etc. The Central Government holds about 26.12% of the subscribed and paid-up capital of the Company; and hence, reappoinment of M/s. S. B. Billimoria & Co., Chartered Accountants, the Statutory auditors, is required to be made by way of a Special Resolution. As required under Section 224 of the Act, necessary certificates have been received from them to the effect that their appointment, if made, will be in accordance with the limits specified in Section 224 (1B) of the Act. The Board commends the resolution for acceptance by the members. None of the Directors is interested in this resolution. By Order of the Board of Directors

Satish Ranade Company Secretary & Vice President (Legal) Dated : July 28, 2004 Registered Office : Videsh Sanchar Bhavan M.G. Road, Mumbai - 400 001.

5 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

DIRECTORS’ REPORT

Dear Shareholders,

The directors are pleased to present the annual report and TABLE 1 audited accounts for the financial year ended March 31, 2004. Audited financial results for the year 2003-2004 (Rs. in Million) Description 2003-04 2002-03 % Change FINANCIAL PERFORMANCE International telephony & related services 27,177 41,189 (34.02) During the past year, competitive pressures reduced tariffs Other services 4,458 4,196 6.24 and settlement rates in the international telephony business. Other income** 2,076 2,740 (24.23) Further, the introduction in February 2004 of a new Total Revenue** 33,711 48,125 (29.95) interconnection usage charges (IUC) regime, with higher EBITDA margins 16.29 25.13 (35.18) access deficit charges (ADC), caused a major diversion of voice Depreciation 1,717 1,467 17.04 traffic to illegal “grey” routes, thus effectively reducing the Prior years adjustment (9) 136 (106.62) growth of the addressable market. Accordingly, VSNL’s Profit before tax*** 5,433 12,544 (56.69) revenues in this segment declined by 34%, from Rs.41.19 Tax 1,656 4,743 (65.09) billion to Rs.27.18 billion, while margins were under severe Profit after tax 3,777 7,801 (51.58) pressure. Nevertheless, the Company succeeded in Earnings per share (Rs.) 13.25 27.37 (51.59) maintaining traffic volumes at almost the same level as in Net worth 49,610 53,413 (7.12) the previous year. Dividend per share (Rs.) 4.50 8.50 (47.06) Meanwhile, revenues in the ‘other services’ segment, which * Previous year’s figures have been regrouped wherever necessary. includes businesses like national long distance (NLD) and ** Excluding profit on sale of investment in Inmarsat (Rs.941 Internet services, grew by 6.24% from Rs.4.2 billion to Rs.4.46 million). *** After exceptional items. billion. Other income was higher than in the previous year, Dividend due to profits from the sale of VSNL’s shareholding in Inmarsat Ltd., amounting to Rs.941 million. The Company continued The directors are pleased to recommend a final dividend at the rate of Rs.4.50 per share on every share of Rs.10 for the to pursue its profit enhancement programme with valuable financial year ended March 31, 2004. The directors propose results, resulting in better cost management and improved that profits be appropriated in the manner as given in Table debt recovery. Total expenditure for 2003-04 fell from Rs.35.58 2 below: billion to Rs.28.19 billion. However, as a result of the pressure TABLE 2 on both revenue and margins, the Company’s net profits (Rs. in Million) declined 51.58%, from Rs.7.8 billion in 2002-03 to Rs.3.78 DESCRIPTION Amount billion in 2003-04. Amount available for appropriation During the year, the Company revised the value of certain - balance carried forward 5,053.15 fixed assets based on their useful life and carrying value, - Profit for the year 3,776.56 8,829.71 which will help realign cost structures and improve pricing Less: decisions. VSNL consequently wrote down Rs.9.56 billion of - Dividend @ 45% on the paid- up capital of Rs.2,850 million. 1,282.50 assets and reduced the securities premium account by that - Tax on dividend 164.32 amount less deferred tax amounting to Rs.3.43 billion, as - Transfer to general reserve 378.00 approved by the shareholders and the Mumbai High Court Surplus carried to balance sheet. 7,004.89 in April and May 2004.

6 STRATEGIC OVERVIEW INTERNATIONAL TELEPHONY AND RELATED SERVICES The Company’s challenge is to address the significantly Under the ‘international telephony and related services’ increased competition in the ‘international telephony and segment, VSNL primarily offers international telephony, telex, related services’ segment. VSNL is de-risking its revenue telegraph, leased channel, frame relay and Inmarsat Services. model by accelerating growth in other business lines and International Telephony diversifying into related high-potential areas, while improving the voice business with new products and enhanced levels VSNL remains India’s top international long distance (ILD) of service. Therefore, while VSNL intends to maintain its services provider, offering telephone services to 237 current leadership in the international telephony market, this international destinations. The Government of India allowed segment will account for a progressively lower share of VSNL’s private players into the ILD business from April 1, 2002. overall revenues due to rapid growth in other businesses. Competition intensified during 2003-04, driving down During 2003-04, the share of the ‘international telephony and settlement rates and tariffs. During the year, ILD call tariffs across related services’ business fell to 86% of VSNL’s revenues from the industry declined by as much as 70% to certain 91% in 2002-03, while the share of ‘other services’ increased destinations. Both settlement rates (determining ILD services from 9% of revenues in the previous year to 14%. payments between telecom providers of different countries) and interconnect rates (determining VSNL’s revenues for VSNL also benefits greatly by being part of the US$12 billion international calls passed to or from other domestic telecom Tata group and is fully leveraging synergies with other Tata networks), also declined. Besides, from February 13, 2004, VSNL group companies in the telecom and software sectors, to give ceased to be the preferred carrier for outbound traffic from customers a broad range of end-to-end solutions. VSNL’s the public sector incumbent access providers BSNL and MTNL. services are now provided under the Tata Indicom name, an One of the Company’s biggest challenges in this sector is to umbrella brand for the Group’s various telecom service improve volumes, revenues and margins. Through the year, offerings. In the past year, VSNL has made significant progress VSNL explored and effectively used innovative methods to in implementing its overall strategy, as follows: reduce the cost of carrying traffic and improve margins. ● VSNL pushed ahead with a rapid rollout of national long Relationships with international carriers have become both distance (NLD) services. vital and significantly more complex. Settlement rates have become finer and are reviewed much more frequently, ● VSNL introduced both inbound and outbound calling changing at least monthly against annually before. cards. Settlement rates now vary for each carrier and for different ● The leased channels business grew substantially in both destinations, making it important to structure innovative revenue and volume terms and is likely to contribute an deals with various carriers. The Company is capitalising on increasingly significant share of future revenues. its long-standing relationships with about 80 international ● VSNL remained a leading Internet service provider, carriers, offering them flexible solutions. VSNL has also acquired the narrowband and broadband businesses of implemented a multicarrier billing system, which solves Dishnet’s ISP division through a slump sale, and laid the interoperability issues and does not require other carriers to groundwork for a large play in the retail broadband install their equipment at VSNL; this reduces both the delays business. and costs of commencing relationships with new carriers. ● In line with the Company’s globalisation plans, VSNL During 2003-04, VSNL took advantage of the technology shift began telecom operations in both Nepal and Sri Lanka. to the Voice over Internet Protocol (VoIP) for incoming voice termination, and tied up with ten new generation carriers ● The Company set up an international business group to that use VoIP. VSNL is building its ability to pick up traffic sell international bandwidth and drive its international overseas through points of presence in various countries, to expansion. VSNL also set up subsidiaries in the United offer more attractive packages to international carriers. VSNL States, Singapore, U.K and Hong Kong. has signed interconnect agreements with all domestic ● VSNL is adding to its excellent infrastructure by setting cellular service providers and private basic operators for up a submarine Tata Indicom India–Singapore (TIIS) cable direct termination and pick up of ILD traffic. landing at Chennai in India. During the year, VSNL signed a wholesale carriage agreement ● The Company has been assigned the crucial role of with BSNL to share infrastructure and carry BSNL’s inbound network administrator and the responsibility for running and outbound traffic. The agreement is effective for one year the network operating centre for the entire SEA-ME-WE4 from February 13, 2004. This agreement provides for VSNL to cable system, in which it is also investing. handle BSNL’s incoming and outgoing ILD traffic at a certain

7 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

cost per minute of traffic handled. BSNL has not yet started government controls the grey market to ensure a level its own ILD service and therefore this agreement is yet to be playing field, then legal ILD traffic volumes could rise, given consummated. In the interim, BSNL floated tenders to handle falling tariffs and increasing telecom penetration. its outgoing traffic. VSNL was awarded this tender after International Leased Line Circuits quoting aggressive rates in competition with other ILD operators. The leased line market in India has grown at an annualised During the year, the Company launched calling cards, an rate of 60%-70% per year during the last three years. important avenue to raise call volumes. VSNL established an Recognising the high potential of this business, VSNL formed intelligent network (IN) platform that allows multiple IN a dedicated unit in March 2002, offering a range of data services. It launched the inbound U.S card in January 2004, services across the value chain to all types of customers. These followed by cards for the U.K and the Gulf area. These cards, include international private leased circuits (IPLCs), mail and currently available both online and through a retail messaging services, virtual private networks (VPNs), managed distribution channel, target both Indian travellers and ethnic data centres and website hosting services with security back- Indian populations overseas. This year, VSNL hopes to cover up and database management services, network about 30 more countries with a global inbound card that can management and various managed applications. A major be used to call India and other countries. The Company will advantage is VSNL’s synergy with other telecom and software market the cards for corporate users and may introduce companies within the Tata group, which offers customers a variants like a post-paid option. strong, end-to-end value proposition for both voice and data and across software, hardware and network services. VSNL’s VSNL also launched an outbound calling card in April 2004, leased line business grew 83% in volume during 2003-04 and accessed through a toll-free number. However, these cards the Company expects it to remain a large growth driver. can currently be used only from Tata Indicom phones because other local service providers block calls from their network The IPLC segment is the flagship of the corporate business, to VSNL’s toll-free number. VSNL supports both compulsory offering point-to-point, high-speed, 24-hour connectivity for access to the IN platforms of all providers and free carrier transmitting integrated applications like voice, data and selection, so that customers can freely choose their own video. This business is driven by demand from the information providers. If those regulatory changes are made, outbound technology enabled services (ITES) sector, including business cards have a high growth potential. VSNL has also been process outsourcing and call centre customers. consistently pressing the DoT and TRAI to implement the To better serve customers, VSNL has launched various carrier access code (CAC) regime. This has already been important customer initiatives. In April 2003, VSNL joined significantly delayed, and the Company hopes this regime, hands with Tata Teleservices, Tata Internet Services and Tata essential to the survival of stand-alone ILD operators, and a Net to form the Tata Indicom Enterprise Business Unit (TIEBU). fair entitlement of subscribers seeking competitive service This unit provides specialised sales and marketing coverage options, will be implemented at the earliest. to the top 400–500 Indian corporate accounts, focussing on Another key regulatory concern is the large illegal market. seven industry verticals and offering integrated voice and The TRAI imposes interconnection usage charges (IUCs), data solutions under the Tata Indicom brand. TIEBU now which include access deficit charges (ADCs - for a fuller brings in over a third of VSNL’s leased line revenue. The explanation of various regulatory issues, please see Annexure Company also markets its services through corporate I). These IUCs are presently high, encouraging illegal traffic channels, with 67 partners in 19 locations. During the past through operators who offer cheaper services because they year, VSNL stepped up direct marketing, holding road shows avoid paying the appropriate IUCs. Besides, under the current in six cities as well as seminars. IUC regime, in certain cases, when traffic is exchanged VSNL has increased both pre-sales technical support and between cellular and ILD operators, the cellular operators solution development resources to understand and serve must pay BSNL an ADC on such traffic. Consequently, cellular customer needs. Apart from sales and marketing efforts, VSNL operators could benefit if the ILD operator under-declares is assigning separate customer relationship managers to the traffic, thus reducing the ADC payable to BSNL, giving an provide additional customer support, and its single sales and unfair advantage to those ILDOs who are willing to get marketing customer database escalates customer concerns involved in such an activity. quickly up the organisation. These and other anomalies have been brought to the notice OTHER SERVICES of TRAI, pointing out that the current ADC regime does not help to discourage grey market operators. TRAI recently VSNL is India’s leading player in ‘other telecommunication issued a paper discussing possible revisions of IUCs. If the services’, which are growing fast and also increasing their

8 contribution to VSNL’s revenues. This segment accounted for different Internet services, and need just one pack, user ID 14% of revenues in 2003-04 against 9% the previous year. and password for different services. The packs are available VSNL’s revenues from other services increased to Rs.4.46 in denominations between Rs.100 and Rs.3,000, across over billion during 2003-04 against Rs.4.20 billion in the previous 5,500 retail outlets in 34 cities in India. Customers can also year. These services primarily include national long distance buy or refill their accounts through the Internet or through and Internet services, as well as smaller business lines such over 1,675 ICICI Bank ATMs. as TV uplinking services. This integrated offering was made possible by a new billing National Long Distance (NLD) and email system, which will also allow VSNL to leverage its strong customer base for all future retail product launches. In September 2002, VSNL entered the NLD services market VSNL has also re-organized its network to provide better as a logical extension of its expertise in telephony services. bandwidth and superior connectivity, put in new mail servers By June 30, 2004, VSNL had received approval from the to provide faster email and value-added messaging features Department of Telecommunications for points of presence and upgraded its customer care services substantially. in 139 long distance calling areas (LDCAs), covering 18 out of India’s 21 telecom circles. VSNL has rolled out services in 100 Internet Telephony locations so far, well ahead of the year two rollout obligations of its NLD licence. The Company eventually plans a presence From April 2002, the Government of India permitted Internet in 322 LDCAs across the country. To increase its footprint and Service Providers to offer voice telephony over the Internet speed up rollout, the Company arranged for additional fibre using the Voice over Internet Protocol (VoIP). Unlike other optic capacity from Bharti, as discussed later. With this providers who act as franchisees of international net additional capacity, VSNL intends to cover over 200 LDCAs in telephony companies, VSNL has deployed a fully owned the current year, again well ahead of its rollout obligations. Internet telephony infrastructure. This self-managed network allows VSNL to offer enhanced features, flexibility in billing VSNL has signed interconnect agreements with all basic and and plans and superior voice quality. VSNL offers both cellular mobile service operators in the country including corporate and retail net telephony services, complementing BSNL and MTNL to carry NLD traffic to their networks. In line its voice business. Low tariffs in Internet telephony could with VSNL’s investment in Tata Teleservices Ltd. (see Annexure encourage usage and increase international call volumes. I for details), it is now offering its NLD services to all of TTSL’s growing subscriber base, filling an important gap in VSNL’s IP-VPN Services access to end customers. IP-based virtual private network (VPN) services are another focus area. In November 2002, VSNL became India’s first VPN National Private Leased Circuits (NPLC) vendor to provide international IP connectivity, and began In addition to using its NLD network to extend the domestic offering customised IP-based international VPN services to leg of IPLCs, as part of the NLD license, VSNL has started Indian enterprise customers through a strategic tie-up with offering NPLC to customers. As of June 30, 2004, VSNL had U.S.-based Gemplex, a global provider of business- approximately 200 NPLC customers networking services. In July 2003, VSNL took over Gemplex’s assets and network and has started providing IP-VPN services. Internet Services VSNL will now extend its reach through the main global Your Company is a leading player in Internet services such as markets to provide IP-VPN services. Internet access and Internet telephony and is planning a VSNL, in partnership with AT&T, also offers a range of major thrust in the retail broadband business. networking services for Indian corporate customers, VSNL is the market leader in the highly competitive pre-paid including MPLS-based ATM and frame relay services, secure Internet Service Provider (ISP) business, with an all-India ISP IP dial and MPLS-based IP-VPN services. (including Internet telephony) licence. In December 2003, The Company’s strategy is to protect and grow the existing your Company launched its retail net telephony services. product base, add value to existing products with Simultaneously, VSNL integrated its retail offerings under the differentiated offerings and create new products based on name Tata Indicom Total Internet. This product, the first of its extensive customer research and feedback. For example, in kind in India, allows customers to buy one pack, denominated May 2004, VSNL introduced an innovative new product for in rupees rather than hours, and use it for multiple services the first time in India, called Tata Indicom Bandwidth-on- like Internet access, net telephony and value-added email Demand. Designed to meet short-term urgent additional services. It offers customers better account manageability bandwidth requirements, it sells bandwidth on contracts as and convenience because they need not pay separately for short as seven days. It enables Tata Indicom’s Internet leased

9 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

line customers to almost double their bandwidth capacity to India. In addition, the IBG will provide support to the within 48 hours through a fully automated online process. establishment of IP-based data and voice services in select countries. The IBG is being staffed with local employees who Broadband Business bring an understanding of local markets, and relationships The broadband business is a major thrust area for VSNL. The with key customers. Company plans to be a significant, large-volume, triple-play United Telecom Limited (UTL) broadband player, offering integrated voice, data and video services. VSNL is rolling out the infrastructure that will permit VSNL, MTNL and Telecommunications Consultants India Ltd. it to extend a range of information, entertainment and (TCIL), have set up a joint venture named United Telecom telecom services such as high-speed access, video on Limited (UTL), along with Nepal Ventures Private Limited demand, and other value added services. In addition to its (NVPL). While NVPL holds 20% in the consortium, the other strong international and domestic infrastructure, VSNL is also partners hold 26.66% each. UTL began offering CDMA-based investing in building local, metro area networks in key cities. basic services in Nepal in October 2003 and has also started operating ILD services. UTL is also allowed to operate NLD Dishnet Acquisition services. VSNL’s managing director Mr. S.K Gupta represents In March 2004, VSNL took over the narrowband and VSNL on the board of UTL as its current chairman. broadband businesses of Dishnet’s ISP division for a VSNL Lanka Limited (VLL) consideration of Rs.2.70 billion, adding momentum to VSNL’s broadband plans. The transaction included the acquisition In June 2003, VSNL Lanka Ltd., a wholly owned subsidiary set of all Internet assets, employees and customers of Dishnet’s up by VSNL in Sri Lanka, received an External Gateway ISP division. The acquisition brought in a presence across 38 Operator (EGO) licence. The EGO licence, acquired against a cities and 200 towns, close to 150,000 dialup subscribers, 70- licence fee of US$60,000, allows VSNL to offer ILD voice and odd company owned cyber cafés and 600 franchisee cyber data services, which it began providing in February 2004. The cafés; around 30,000 broadband customers and 3,500 Sri Lankan market, growing at an estimated 20%-25%, allows corporate clients. VSNL to increase its sub-continental presence and extend clubbed offerings in the region to international carriers. VSNL VSNL now offers Internet access to 55 cities, and serves an has now been permitted to offer Internet services under the expanded subscriber base of about 750,000 customers. same licence and is also exploring opportunities in other During the current year, the Company hopes to grow its telecom services in Sri Lanka. Mr. S.K. Gupta is the chairman presence to a total of 100 cities, particularly in cities where of VLL’s board. Mr. Satish Ranade, Mr. V. Govindasamy, Mr. K.P. VSNL has an NLD infrastructure. Tiwari, Mr. Arun Gupta and Mr. Sandeep Mathur are directors Through the acquisition of the Dishnet businesses, VSNL on VLL’s board. acquired broadband assets with the capacity to serve over VSNL America Inc. (VAI) 50,000 customers in key cities. These use the Digital Subscriber Line (DSL) Broadband access technology that In June 2003, VSNL formed VSNL America Inc., a wholly owned provides high-speed, always-on broadband Internet access subsidiary in the U.S., to provide IP–VPN solutions. This to customers by transmitting data signals even over standard venture will allow end-to-end management of VSNL’s Internet copper telephone lines. bandwidth from India all the way to the U.S., providing improved service to its Internet, data and IP–VPN customers. International Initiatives On May 24, 2004, VSNL signed security agreements with U.S VSNL is further globalising its operations and capitalising on security agencies, which are a pre-requisite for obtaining the liberalisation of emerging telecom markets. To drive the section 214 authorisation to provide telecom services out of Company’s international expansion, VSNL set up an the U.S. VSNL expects to receive this authorisation shortly. international business group (IBG) on April 1, 2004. The new Mr. Satish Ranade is the president of VAI’s board and Mr. Vinod division, headquartered in Singapore, aims to create a Kumar is a director. proactive, customer-facing organization in select countries VSNL Singapore Pte Limited (VSPL) and to develop new revenue streams for VSNL in both the wholesale and corporate market segments. The Company is VSNL set up VSPL in January 2003 as a wholly owned currently establishing a direct operating presence in the U.S, subsidiary in Singapore. VSPL will own and maintain the U.K, Hong Kong and Singapore. The IBG will initially promote landing station for the TIIS cable that VSNL is setting up (as VSNL’s new TIIS cable (discussed a little later) to both discussed a little later.) The company will also acquire and enterprise and carrier customers who require connectivity sell other cable capacity through the Asia Pacific region and

10 will serve as the headquarters for VSNL’s international During the past year, VSNL has made rapid progress in expansion. VSPL has obtained the required FBO license from implementing TBEM. The Company has appointed a corporate the Singapore authorities to own and operate facilities used quality head, set up quality management councils chaired by in the provision of telecom services. VSPL recently regional and branch managers, introduced a continuous commenced marketing and sales activities in the Singapore improvement system, appointed business excellence market. Mr. Subodh Bhargava is the chairman of VSPL’s board champions and leaders, trained a number of auditors in and Mr. Girija Prasad Pande, Mr. N. Srinath, Mr. Govind different quality systems and created the VizNet, a real time Sankaranarayanan and Mr. Vinod Kumar are directors. CRM system to gather data on customer transactions. VSNL UK Limited (VUL) In April 2004, VSNL became the first telecom service provider globally to achieve TL 9000 – Quality Management System VSNL UK Ltd., a subsidiary of VSNL America Inc., was Certification, a set of quality system requirements and metrics purchased as a shell company, which was formed in May 2003 designed specifically for the telecom industry, encompassing to provide telecom and value added services to the UK and ISO 9001 and other best practices. VSNL has also received European markets. This company will start operations shortly. various other awards and certifications including the ‘Top Mr. Satish Ranade is the chairman of VUL’s board and Mr. Vinod International long distance (ILD) Operator’ and the ‘Top Kumar is a director. Internet Service Provider’ awards at the Voice & Data 100 VSNL Hong Kong Limited (VHL) annual awards. VSNL Hong Kong Ltd., a subsidiary of VSNL Singapore Pte. Profit Enhancement Ltd., was formed in July 2004 to provide telecom and value added services in that region. This company will apply for VSNL successfully continues with a major cost reduction the requisite licenses and will then start operations. Mr. Satish exercise that began in September 2002. The exercise is part Ranade is the chairman of VHL’s board and Mr. Vinod Kumar of a broader profit enhancement programme that aims to is a director. increase efficiency and productivity; cut costs; optimise traffic, equipment and infrastructure; and improve debt recovery VSNL continues to explore further opportunities abroad in and timely collections. The Company is attacking its cost base, telecom markets that are deregulating and opening up. VSNL including legacy costs, through a combination of measures. also has several joint ventures with domestic and foreign partners. Please see Annexure I to this directors’ report for a A major focus area is saving bandwidth charges -that discussion of these initiatives. contribute a sizeable share of VSNL’s operating expenses- by optimising bandwidth capacity utilisation through re- INTERNAL INITIATIVES grooming cables, surrendering excess bandwidth and Your Company continues with various internal initiatives such identifying lower-cost suppliers. VSNL’s revenue assurance as organisation restructuring, profit enhancement, asset function minimises revenue leakages, in line with industry optimisation, quality, customer care and information best practices. Various assets, notably earth station technology initiatives to compete effectively, improve equipment, are also being redeployed for maximum organisational flexibility and respond quickly to customers. utilisation. Some other important initiatives are as follows: Customer Care Quality Over the past two years, VSNL has completely reoriented itself Over the last two years, your Company has been re-inventing to become a customer-facing organisation. The customer its business model and transforming itself in the light of rapid service function addresses the complete customer lifecycle industry and regulatory changes, increased competition and including order fulfilment, complaint management, new business imperatives. To help drive that transformation, relationship building, segmented service and customer VSNL is implementing the Tata Business Excellence Model retention. VSNL has developed and installed a professional (TBEM), which is a model framework for practicing business customer relationship management system to improve excellence. TBEM lays down best practices for Tata Group service levels and put in place back-end processes and teams companies focusing on areas like strategy development and to manage last-mile issues, seamless order processing and deployment, managing for innovation, planning and commissioning. Relationship managers service key corporate processes, customer service and social responsibility. Over customers, while a structured customer retention the next few years, VSNL intends to use TBEM as a framework management programme ensures minimal customer churn. to match industry and global best-practice benchmarks in VSNL is now putting in place a segmented service strategy these areas. to customize service for various customer segments.

11 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

Apart from helpdesks at all its branches, VSNL now has two SEA-ME-WE4 intracity Tata Indicom call centres at Pune and Hyderabad VSNL is one of the founding members of SEA-ME-WE4, a covering retail customers across all VSNL locations. VSNL also consortium of 16 parties that is setting up a cable system has a centralized Tata Indicom call centre in Mumbai for between France and Singapore with India as one of the corporate customers across all cities. VSNL performs external landing points. The cable has a system capability of 1.28 audits to check call centre quality and has set stringent terabits. In addition to its investment of US$40 million in this standards for service delivery after continuous benchmarking system, VSNL has also been assigned the responsibilities of with international operations. External customer satisfaction network administration and the running of the network surveys help VSNL to continuously monitor customer operating centre for the entire system. feedback to improve processes. Information Technology Infrastructure The Company has upgraded its information technology (IT) VSNL has a robust network built up over many decades and systems with an emphasis on billing systems and an the unique advantage of diversity and multiple connectivity integrated network management system. During the year options internationally. The Company operates 11 VSNL consolidated its diverse dialup Internet billing systems international gateway switches at seven locations in India into a single, centralized system, enabling the launch of and 10 ILD PoP switches. VSNL also has 58 earth stations, has various new services for retail customers. The Company has been a founder signatory to six submarine cable systems and implemented an Oracle CRM solution for the retail business presently holds bandwidth on a number of additional and a customized, integrated inventory management, order submarine cable systems globally. The Company also has four management and trouble ticketing solution for corporate data centres and is building a fifth. VSNL presently has over customers. To integrate critical enterprise support processes, 10 GBPs of bandwidth on its four operational submarine cable the Company had implemented SAP ERP in the finance systems that include SAT3/WASC/SAFE, SEA-ME-WE3, SEA- function and is now extending that to HR, payroll and material ME-WE2 and FLAG. VSNL continues with a substantial capital management. A comprehensive Intranet system was also and operational expenditure programme to drive both deployed during the year, facilitating internal information inorganic and organic growth. sharing. Critical IT hardware has been upgraded and Tata Indicom India Singapore Cable System (TIIS Cable) consolidated into a data centre at Vashi, improving both security and availability. In November 2003, VSNL commenced setting up of a 3,100 km submarine cable system between Chennai and Singapore, FIXED DEPOSITS which will be operational by the end of 2004. The state-of- VSNL has not accepted nor does it hold any public deposits. the-art system will be VSNL’s first self-owned undersea cable and will have an initial capacity of 320 GBPs that can be scaled HUMAN RESOURCES up to an ultimate capacity of 5.12 Terabits. With an estimated As a result of voluntary retirement schemes completed during life of 25 years, the new cable aims to significantly enhance the year, there were 1,736 people employed as on March 31, India’s connectivity into the Asia-Pacific region and the U.S, 2004 as against 2,752 on March 31, 2003. Your Company via the Pacific. It will connect Chennai to Singapore, a strong further strengthened the customer service function and telecom hub for traffic across the world, which readily offers various other business groups with specialists. In addition, as a extension to U. S. and other significant geographies at highly result of acquisition, 394 employees from Dishnet and 107 competitive prices. This cable will extend VSNL’s bandwidth employees from Tata Indicom Enterprise Business Unit (TIEBU) infrastructure significantly and, along with VSNL’s NLD joined VSNL on March 31 and April 1, 2004 respectively. backbone, will enable the Company to offer excellent service To continue its focus on people and culture, the Company enlisted at reasonable tariffs to customers in India and abroad. the Gallup Organization to conduct an employee satisfaction NLD Backbone from Bharti survey in VSNL. There was an overwhelming response of about 92%, across all locations. After receiving the survey results, the In April 2004, VSNL signed a Right to Use agreement with Company will prioritise areas for improvement. Bharti for 23,000 route kms capacity on an existing advanced fibre optic domestic long distance backbone countrywide. During the year, the Company conducted in-house training This captive bandwidth will eliminate the cost of leasing programmes and programmes with the help of external additional domestic bandwidth and support growth in the faculty, covering functional, behavioural and technical areas. voice, corporate data and upcoming broadband businesses. To facilitate communication among employees, members of A self-managed domestic backbone will also give VSNL the senior management team periodically interact with greater control on quality, reliability and uptime of services. employees through videoconferencing.

12 EMPLOYEE RELATIONS CORPORATE GOVERNANCE VSNL has introduced Employee Relations Committees at all Pursuant to Clause 49 of the listing agreements with the stock major locations, to proactively handle employee concerns. exchanges, a Management Discussion and Analysis, During the year, harmonious relationships were maintained Corporate Governance Report and Auditors’ Certificate with the employee representative bodies. Implementation regarding compliance of conditions of Corporate Governance of various new initiatives and many employee concerns were are made a part of the annual report. amicably resolved through mutual discussions with employee representative bodies. CORPORATE SUSTAINABILITY INITIATIVES VOLUNTARY DELISTING FROM CERTAIN STOCK As a member of the Tata family, VSNL is committed to the EXCHANGES Group’s philosophy of improving the quality of life in the communities we serve. To institutionalise corporate The ordinary shares of the Company have been delisted from sustainability initiatives at VSNL and to synchronise them with the Stock Exchanges of New Delhi and Chennai. The Company’s those of the Tata Group, VSNL declared its Corporate Social application for delisting is pending with the Kolkata Stock Responsibility (CSR) Policy on November 18, 2003 as follows: Exchange. The shares of the Company are compulsorily traded in dematerialised form in the Mumbai Stock Exchange, the “Videsh Sanchar Nigam Limited believes that the primary National Stock Exchange and the Kolkata Stock Exchange. purpose of a business is to improve the quality of life of people and that a corporate entity exists to serve society from STATUTORY INFORMATION AND DISCLOSURES where it sources its customers and other stakeholders. Hence Information in accordance with the provisions of Section 217 it is important to address the needs and concerns of the (2A) of the Companies Act, 1956, read with the Companies society in pro-active manner. (Particulars of Employees) Rules, 1975, as amended, regarding VSNL will discharge its Corporate Social Responsibility employees is given in Annexure ‘II’ to the Directors’ Report. through contributions to disaster relief, supporting There are no particulars to be disclosed pertaining to the year sustainable development and corporate philanthropy. under review, in respect of R&D, technology absorption and so on as required under Companies (Disclosure of Particulars VSNL will actively pursue the Triple Bottom Line Reporting in the Report of the Board of Directors) Rules, 1988. For the initiatives (i.e economic bottom line, environmental bottom purpose of Form ‘C’ under the said rules, foreign exchange line and social bottom line), to demonstrate its commitment earnings were equivalent to Rs.13,955 million and foreign to be a good corporate citizen”. exchange outgo was equivalent to Rs.7,090 million. VSNL joined the Tata Council for Community Initiatives (TCCI) There are no qualifications contained in the report of the in 2003-04. Since then the Company has been taking steps statutory auditors for the year 2003-04. to foster an internal culture of volunteerism. The CSR establishment is driving the managerial and technical THE BOARD OF DIRECTORS competency of employees, for the socio-economic The constitution of the Board of Directors remained the same development of the communities the Company operates in. as reported in the last year’s Annual Report except for Mr. Y.S. Bhave, the government nominee director, resigning from the During 2003-04, VSNL sponsored street children for computer post of director of VSNL with effect from December 8, 2003 education, gave financial assistance to physically and Mr. Pankaj Agrawala joining the VSNL Board as handicapped persons and financially assisted non- government nominee director with effect from January 21, governmental organisations (NGOs) working for leprosy 2004. For details about the directors, please refer to Point 2 education, rehabilitation and treatment. It is engaged in of the Report on Corporate Governance below. creating health awareness against cancer in partnership with NGOs like the Cancer Patients Aid Association (CCPA). VSNL In accordance with the provisions of the Companies Act, 1956 has promoted the cause of reputed NGOs like Child Relief and the Companies Articles of Association, Mr. N. Srinath, Mr. and You (CRY) by buying their products and by encouraging Ishaat Hussain and Mr. Kishor A. Chaukar retire by rotation at employees to participate in their ventures. VSNL employees the ensuing annual general meeting and are eligible for are always encouraged to participate in blood donations and reappointment. in 2003-04 the Company received a certificate of honour from None of the Company’s directors are disqualified from being the then Union Minister for Health & Family Welfare, for appointed as directors as specified in Section 274 of the tirelessly promoting voluntary blood donation. VSNL has Companies Act, 1956 as amended by the Companies given generous financial grants to employees residents (Amendment) Act, 2000. associations for celebrating national festivals like

13 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

Independence Day and Republic Day and has been consistently and made judgements and estimates that are maintaining public gardens and bus-stop shades across India. reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the To address CSR as a sustainable business activity, VSNL has financial year and of the profit of the Company for that formalised an annual CSR action plan for 2004-05. As a Tata period; Company, VSNL is also proactive in addressing environmental, ecological and biodiversity concerns arising out of its ● They have taken proper and sufficient care, to the best of operations, integrated with its social responsibility approach. their knowledge and ability, for the maintenance of As a step in that direction, VSNL is working towards ISO14001 adequate accounting records in accordance with the environmental management standard certification. M/s UL provisions of the Companies Act, 1956, for safeguarding India Pvt. Limited has been hired to facilitate the certification. the assets of the Company and for preventing and detecting fraud and other irregularities; MANAGEMENT OF BUSINESS ETHICS (MBE) ● They have prepared the annual accounts on a going Consistent with the Group’s policy, VSNL is systematically concern basis. implementing the Tata Code of Conduct. VSNL has put in place an organizational structure and a process to implement ACKNOWLEDGMENTS and improve ethical standards and practices. The directors would like to express their thanks for the hard Though VSNL began implementing the Tata Code of Conduct work and dedication of every employee. The directors only in 2003-04, it has performed well, according to a survey appreciate the support of various ministries and departments conducted by Tata Quality Management Services (TQMS) on of the Government of India, the DoT, BSNL and MTNL. the management of business ethics, through an independent The directors are also grateful to the Company’s stakeholders agency. and partners including its customers, shareholders, bankers, VSNL conducts regular seminars, quiz competitions and solicitors, suppliers and foreign telecom administrations for workshops to sustain the momentum and to strengthen their support. ethical values and practices among various stakeholders. VSNL also carries out ethics awareness campaigns in a continuous and systematic manner to further improve and refine the MBE process. DIRECTORS’ RESPONSIBILITY STATEMENT On behalf of the Board of Directors Pursuant to Section 217(2AA) of the Companies Act, 1956, the directors, based on the representations received from the operating management, confirm that— Ratan N. Tata ● In the preparation of the annual accounts, the applicable Dated: July 23, 2004 Chairman accounting standards have been followed and there are Registered Office no material departures; Videsh Sanchar Bhavan ● They have, in the selection of the accounting policies, Mahatma Gandhi Road, consulted the statutory auditors and have applied them Mumbai - 400 001.

14 ANNEXURE 1: MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY BACKGROUND subscriber numbers are expected to rise from 35 million in Until the mid-1980s, India’s telecommunications sector was March 2001 to about 85 million in 2006, with a compounded a public sector monopoly controlled by the Government of annual growth rate of 40% in mobile users and 16% in fixed- India (GoI) through the Department of Posts and Telegraphs line users. India’s fixed-line teledensity is at a low 4%, and is of the Ministry of Communications. In the mid-1980s, the projected to rise to 11.5% in 2010, against the NTP 99 target Government of India began reorganising the sector to bring of 15%. By 2006, telecom is expected to be a Rs.660 billion in new technology in order to stimulate growth in the sector. sector, contributing 5.4% to India’s GDP. Accordingly, the Department of Posts and Telegraphs was According to the latest figures from the TRAI, during 2003- divided into the Department of Telecommunications (DoT) 04, telecom services grew rapidly. The mobile subscriber base and the Department of Posts. increased by 160% from 13 million to over 33.5 million, while As part of the reorganisation, VSNL was incorporated on the fixed subscriber base increased 3% from 41.48 million to March 19, 1986 as a wholly owned GoI Company. On April 1, 42.58 million. During the year, the subscriber base for Internet 1986 VSNL took over the control and management of all Services grew 15%, from 3.6 million to 4.2 million. Tariffs in international telecommunication services from the Overseas most segments also fell substantially: Long distance tariffs Communications Service, a department of the Ministry of fell by 25%, domestic leased line charges fell by 50-70% and Communications. Mahanagar Telephone Nigam Limited international private leased circuit charges fell by 20%. The (MTNL) was established at the same time to operate local rapid growth in subscribers combined with falling tariffs telephone and telex services in Mumbai and Delhi, while the offers great potential demand for VSNL’s various services. DoT remained responsible for providing telecommunication IMPORTANT HISTORICAL EVENTS AT VSNL services through the rest of India. The DoT also assumed regulatory authority over VSNL, MTNL and other public sector Termination of Monopoly and Compensation enterprises and acted on the Government of India’s behalf The Government of India (GoI) allowed private players into as the sole shareholder of such entities. the ILD business from April 1, 2002, terminating VSNL’s The Telecom Commission was established in 1986 as an exclusivity two years ahead of schedule, and compensated executive body under the Ministry of Communications to VSNL with a package of benefits. These included a licence to make and implement policy decisions. In 1997, the Telecom operate NLD services, reimbursement of NLD licence, entry Regulatory Authority of India (TRAI) was established to and revenue sharing fees for five years, and a category ‘A’ provide adequate safeguards to ensure fair competition and Internet Service Provider (ISP) licence. The package specified protection of consumer interests. As part of the latest National that if a detailed review after the entry of competition Telecommunication Policy (NTP) 1999, the Government of established the need for additional compensation, the GoI India separated and corporatised the services function of the would consider this. VSNL has made several representations DoT as Bharat Sanchar Nigam Limited (BSNL), leaving DoT to the GoI on the issue of inadequate compensation and has with its regulatory role. Through various policy initiatives and sought settlement of this longstanding issue through successive NTPs in 1994 and 1999, the Government of India arbitration. reaffirmed its commitment to take India to international standards in telecommunications by 2010. Privatisation INDUSTRY PROSPECTS VSNL ceased to be a government Company on February 13, 2002 when the Government of India, which owned 52.97% The Indian telecom industry has changed significantly over of VSNL’s equity, divested a 25% stake to the Tata Group as a the last decade as all its segments have now been opened strategic partner along with the right to manage the up to competition. This market is now highly competitive, Company. Following its subsequent open offer for a further complex and evolving rapidly, with numerous service 20% of VSNL’s equity, the Tata Group is now the Company’s providers of different kinds, including fixed-line, cellular and biggest shareholder with a share of over 46%, while the GoI wireless-in-local-loop (WLL) providers, operating in different is VSNL’s second-largest shareholder with a 26.12% stake. combinations of service segments such as local, ILD and NLD services. Investment in TTSL India’s telecom market is currently underserved and offers For voice and corporate data services, VSNL was entirely high growth potential. According to estimates, telecom dependent on the public sector incumbent access providers

15 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

and other cellular and basic service providers to route their such as a private placement, although Intelsat has not made traffic through VSNL. It became imperative for VSNL to acquire any formal proposal in this regard. Neither the IPO nor the an end-customer base of its own. The VSNL board accordingly size of the secondary offering are matters of certainty and decided to invest in Tata Teleservices Ltd. (TTSL), which is not would depend on Intelsat’s perception of market conditions. in conflict with VSNL’s business interests. At the time the VSNL will continue to review the possibility of offering its investment was approved, TTSL was present in crucial own shares for sale accordingly, at the appropriate time. telecom circles across India that yielded over 65% of the Inmarsat country’s telecom revenues. TTSL has subsequently taken additional licences that will give it nation-wide coverage. The International Maritime Satellite Organisation (Inmarsat) VSNL’s investment in TTSL will now give the Company was an Inter-Governmental Organisation (IGO) providing substantial access to attractive end customers across the satellite mobile communication services. It was converted entire country. into a National Law Company (UK) on April 15, 2000 and VSNL’s investment in the new structure remained the same, A committee constituted by the VSNL board decided that at 2.02%. In 2003, Inmarsat offered its existing shareholders VSNL would invest up to Rs.8.35 billion in TTSL’s equity over the opportunity to sell their ordinary shares in a private a seven-year period and that the investment should be made placement. Accordingly, VSNL has sold its entire holding of at par, based on various valuations. Accordingly, during 2002- 2,022,190 shares in Inmarsat at a price of US$ 15 per share, 03, VSNL invested Rs.2.80 billion and picked up 19.9% of TTSL’s and has received a total consideration of US$ 30,332,840 equity. VSNL’s total investment in TTSL’s equity as on March equivalent to Rs.1,393.5 million. 31, 2004 stood at Rs.6 billion. TVC India Private Limited (TVCL) Demerger of Surplus Land TVCL is a joint venture company formed by VSNL, IL&FS and Under the terms of the share purchase and shareholders’ Telstra, with investment equity in the ratio of 40:40:20 at the agreements signed at the time of VSNL’s privatisation, time of formation. Currently, VSNL holds Rs.92 million out of Panatone Finvest Ltd. agreed that certain land that the the Company’s total paid up capital of Rs.314 million. TVCL Company owns at Pune, Kolkata, New Delhi and Chennai, undertakes turnkey VSAT projects for large organisations would be demerged into a separate company. The shares of besides providing consultancy and facility management this resulting company would be distributed pro-rata to services. As a result of Telstra’s exit from the joint venture, the VSNL’s existing shareholders. As part-consideration for its company is being restructured and a new partner, Essel purchase of the Government of India’s (GoI) shares in VSNL, Shyam, has been inducted. As a part of the re-organisation Panatone Finvest Ltd. also agreed to transfer to the GoI, of TVCL, VSNL is to receive shares of Essel Shyam Limited in without further consideration, a portion of the shares of the lieu of its holding in TVCL. However, in view of the difficult resulting company that it receives. No time period was financial position of TVCL, VSNL wrote off Rs.92 million during specified in the agreements for the demerger. VSNL, Panatone 2002-03. Finvest Ltd. and the GoI are currently discussing the best way to accomplish the demerger or sale of the land, while also New Skies Satellite N.V. (NSS) ensuring the most beneficial income tax and stamp duty treatment as also equitable treatment of all shareholders. A Netherlands-based spin-off company called New Skies Satellites N.V. was carved out of Intelsat in 1998 with a number STATUS OF JOINT VENTURES AND ASSOCIATED of Intelsat satellites transferred to NSS. VSNL’s total holding COMPANIES in NSS as of March 31, 2004 stands at 3,442,150 ordinary shares out of a total of 130,570,241 shares issued and Intelsat outstanding, a percentage holding of 2.6%. NSS also plans to VSNL was a founder member of Intelsat, a consortium formed offer its existing shareholders the chance to dispose of their in 1964 that owns and operates satellite communication shares and is exploring options including a private placement systems. When Intelsat was privatised on July 18, 2001, VSNL to this end. However, the details of the offering are not a was allotted a shareholding of about 5.42% shares in Intelsat matter of certainty and VSNL will continue to review the Limited. As required under applicable law in the U.S., Intelsat possibility of offering its own shares for sale accordingly. now intends to make an initial public offering (IPO). Intelsat VSNL Seamless Services Limited (VSSL) has offered its initial shareholders the chance to place their shares for sale in a post-IPO secondary offering. The U.S VSSL was a private limited company until November 21, 2002, government has extended the deadline for the IPO to when the VSSL board decided to make it a wholly owned December 31, 2005. Intelsat is also exploring other options subsidiary of VSNL. On May 29, 2003, the VSNL board decided

16 to liquidate VSSL, since it was not an active company. On the origination/termination of a call and an inbuilt access deficit same date, the VSSL board decided on a voluntary liquidation. charge (ADC), which makes up for below-cost monthly rentals VSSL is now in the hands of the official liquidator and will be and local call charges for fixed telephones. Currently, the IUC wound up shortly. for an ILD call is as high as Rs.4.55 to Rs.5.65 per minute including an ADC component of Rs.4.25 per minute. For NLD RISKS AND CONCERNS traffic, the IUC ranges from Rs.0.80 to Rs.2.20 per minute including an ADC component of Rs.0.30 to Rs.0.80 per minute, Like all companies, VSNL is exposed to certain risks and depending on the distance traversed. concerns in the course of its business:

Lack of End Customers These high IUCs have inadvertently encouraged grey market ILD services, especially in the larger cities. Illegal international An important concern for the Company was VSNL’s lack of route operators offer cheaper services since they need not direct access to end customers. VSNL is dependent on cellular pay IUCs. According to various market estimates these and basic telecommunication service providers to route the operators take a share of as much as 30%-40% of the national long distance and international calls of their incoming international long distance traffic into India. These customers through VSNL. Some of these operators are even illegitimate operators take away the business of licensed competitors of VSNL. It would be a serious disadvantage to providers and deprive the government of income since VSNL not to have access to a large base of customers in order licence fees are revenue based. to protect its business. VSNL has now ensured such access through its investment in TTSL, as discussed above. The TRAI is currently reviewing the IUC system. VSNL has suggested to the TRAI that the ADC should be reviewed yearly Tariffs and Government Regulation and eventually be phased out. Meanwhile, if the ADC must be imposed, it should be based on uniform principles for ILD Most of VSNL’s services including ILD services are operated and NLD calls and should vary depending on the distance under a licence from the DoT that came into effect from April the call travels in India. Thus, the ADC for ILD traffic could 1, 2002, and the Company is subject to the terms and range between Rs.0.50 and Rs.2.00, similar to the current ADC conditions included therein. for NLD traffic. Further, the component of the ADC applicable The tariffs charged by telecommunications service providers to cities should be low enough to ensure that illegal operators in India including VSNL are subject to TRAI regulations. have no advantage or arbitrage opportunity. Therefore, in these areas VSNL does not have complete Delay in Implementation of CAC Regime freedom. VSNL periodically renegotiates interconnect agreements The carrier access code (CAC) regime was to have been with various domestic mobile service operators and basic implemented in phases for different segments of the long telecom service providers; and settlement rates with distance sector, with the final implementation of carrier pre- international carriers. The consequent revisions could have a selection (CPS) by December 2003. Carrier selection gives material effect on VSNL’s operations and financial condition. subscribers the option to either pre-select a long distance carrier for all ILD calls, or choose a provider for each call by Exchange Rate Parity dialling a carrier access code before making a call. Customers can then freely choose their long distance carrier based on A significant portion of Company’s revenues are received in competitiveness and quality, rather than that choice being foreign exchange. Similarly, a large portion of its costs are made by access operators, as is the case at present. However, incurred in foreign exchange. Hence, the rupee to US dollar implementation of the CAC regime has been delayed due to parity and SDR to US dollar can have significant impact on technical and other issues. the Company’s revenues. Therefore, the Company partially hedges its foreign exchange risk. BSNL and MTNL, who almost completely control access to The grey market and the IUC regime the end customer, in the wireline access market are presently the two principal customers for VSNL’s international voice On January 24, 2003, the Telecom Regulatory Authority of telephony business. With ‘most favoured customer’ status India (TRAI) decided to introduce the interconnection usage having expired in February 2004, early implementation of the charge (IUC) regime to govern inter-operator settlements for CAC regime is required for VSNL to be able to develop its calls passed between different networks; it implemented the own customer base. The delay in implementation of the CAC system from May 1, 2003. The IUC includes the cost of the regime is a serious cause of concern for VSNL.

17 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

Increased Competition INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The de-regulation of the Indian telecom market exposes the VSNL has a well-developed internal control system and has Company to increased competition: also implemented the SAP system for accounting. Financial powers of various executives are clearly defined in the ● Since April 1, 2002, VSNL no longer has a monopoly in ILD delegation of powers. Technical and financial operations are services and new players have entered the business. controlled by state-of-the-art technology. The accounts of the ● The Internet Service Provider (ISP) business is intensely Company are subjected to statutory audit. competitive and has a large number of players. CAUTIONARY STATEMENT ● ISPs are allowed to provide Internet telephony calls Statements in the directors’ report and management overseas, and now compete with VSNL’s ILD business and discussion and analysis describing the Company’s objectives, the Company’s own Internet telephony services. projections, estimates and expectations may be ‘forward- ● VSNL has entered the national long distance business, looking statements’ within the meaning of applicable where there are several potential and existing securities laws and regulations. Actual results could differ competitors. substantially or materially from those expressed or implied. Important factors that could make a difference to the Economic Conditions Company’s operations include economic conditions affecting The general slowdown in regional economies and in India demand/supply and price conditions in the domestic and has resulted in slower growth in the volume of traffic handled overseas markets in which the Company operates, changes by VSNL. Sustained or deepening global economic in government regulations, policies, tax laws and other downturns could have a material adverse effect on the incidental factors. Further, the Company retains the flexibility Company’s short-term business and prospects. Given the to respond to fast-changing market conditions and business overall downturn in telecom businesses worldwide, VSNL’s imperatives. Therefore, the Company may need to change operations could be affected by adverse developments in any of the plans and projections that have been outlined in the operations of some of its key overseas associates. this report, depending on market conditions.

✡ ✡ ✡ ✡ ✡ ✡ ✡

18 Chairman Ratan N. Tata N. Ratan ead CS & Operations ommunications Ltd. ommunications Employment - Designation Head HR, On behalf of the Board of Directors 5,098,800 Director, Managing 4,224,046 Executive Chief 3,295,769 H 4,205,926 (Delhi Circle), COO ompany’s contribution& Superannuation to the Provident funds ompany’s ommunication Engg., 12 ech (Mechanical), 26 ost Graduate in Banking 12 PGDBM from XLRI – 1990 & Finance and& Finance Hotel Management C BPL Mobile BSC from Lucknow, (Electrical)BE from ITS. Roorkee University, 12 PG Diploma in Mgmt. TAS(Mktg.), International Institute ofManagement Development,GenevaXLRI, Jamshedpur VSNL Internet Tata Officer, diploma inPost-Graduate Services Tele Tata Finance. President from Business Mgmt. Services IIM-Ahmedabad Limited Mahindra BT Limited TTSL (Yrs) Worked Remuneration 01.10.2002 39 13.02.2002 1509.06.2003 B.T 2303.06.2002 from MBA CA, 2014.11.2002 15 in PM & IR fromDegree PG 10.04.2003 10 12 P 18 3,732,699 3,214,404 23.03.2002 C in BE Vice Executive 14 MS (Mech.) from BE 12 2,469,222 Internet Tata ANNEXURE II TO DIRECTORS’ REPORT 2004 DIRECTORS’ TO ANNEXURE II all cases is contractual. Business Baroda, University, Limited ises salary, allowances, monetary and commission to the Directors of perquisites value and the C allowances, ises salary, ompr Statement Pursuant to Section 217 (2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975 (Particulars Rules, of Employees) 1956 and the Companies to Section Pursuant Act, Statement 217 (2A) of the Companies but does not include reimbursements and perquisite of the Car. value No Name of the Employee Designation Age of joining Date Experience Qualifications Months Gross Previous Mumbai, 23 July 2004 2. The nature of employment in 3. None of the employees mentioned above is a relative of any Director of the Company. 1. c Gross remuneration 1 SK Gupta2 Srinath N Managing Director3 Amitabh Khanna 62 Director Operations Officer Chief Financial 4 Radhakrishnan Nair 41 47 5 Head - HR Madhumati Lele6 Head - Customer Service Rajiv Kataria 46 44 7(North)Head Regional VS Shridhar 46 Head - Corporate 39

19 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

REPORT ON CORPORATE GOVERNANCE FOR THE YEAR 2003-04 (In accordance with clause 49 of the listing agreement with Indian stock exchanges)

1. CORPORATE GOVERNANCE PHILOSOPHY AND this a high level Corporate Governance Council has been PRACTICE formed which meets regularly to ensure that the best practices of Corporate Governance are adopted. As an established international telecom company, VSNL has always held itself to high standards of accountability, auditing, VSNL’s operations and accounts are audited at three levels: disclosure and reporting. The Company has transformed itself an internal audit; a statutory audit by Indian accounting firms from a fledgling government department, to a wholly owned under Indian accounting requirements and their restatement government Company, to its present status as an NYSE-listed, by an internationally recognised accounting firm according widely-held and professionally managed company, adding to US GAAP. The company communicates regularly with its new private and international shareholders along the way. shareholders through bulletins, presentations and meetings That internal transformation was mirrored externally as India’s with analysts and investors. telecom industry moved from a highly regulated and closed 2. BOARD OF DIRECTORS environment to an era of significantly enhanced competition and new emerging technologies. The company has a non-executive chairman. Ten out of twelve directors are non-executive directors, forming over Through these transformations, VSNL’s corporate governance 50% of the total number of directors. VSNL has four philosophy has been consistent and transparent. The independent directors and two executive directors. Company believes that total business risk elimination is never possible but can be minimized by consistently developing None of the directors holds directorships in more than the and following the Best Practices of Corporate Governance. permissible number of companies under the applicable To this end, the Company focuses on developing and provisions. Similarly, none of the directors on the board’s sub- implementing robust control systems and procedures to committees holds membership of more than ten committees enable optimum returns to all stakeholders. The company is of boards, nor is any director a chairman of more than five also installing new state-of-the art systems including committees of boards. integrated financial accounting and budgeting systems, and has increased the number and quality of its financial and The names and categories of the directors on the board, their accounting personnel. attendance at board meetings during the year and at the last annual general meeting, and the number of directorships Corporate Governance in substance rather than form is what and committee memberships held by them in other the Company believes in and actively implements. To ensure companies as of 31 March 2004 are given below:

Attendance Board Meetings at the last AGM No. of Directorships No. of Committee Positions Name Category during the tenure (02.09.2003) in other Public Companies held in other Public Companies

Held Attended Chairman Member Chairman Member

Directors in Office

Mr. R.N. Tata Not Independent 8 8 Yes 10 1 NIL 6 Non Executive

Mr. S.K. Gupta Not Independent 8 8 Yes NIL 1 NIL NIL Executive

Mr. N. Srinath Not Independent 8 8 Yes NIL 2 NIL NIL Executive

Mr. Rakesh Kumar1 Not Independent 8 5 Yes NIL NIL NIL NIL Non Executive

Mr. Subodh Bhargava Independent 8 6 Yes 1 6 2 6 Non Executive

20 Attendance Board Meetings at the last AGM No. of Directorships No. of Committee Positions Name Category during the tenure (02.09.2003) in other Public Companies held in other Public Companies

Held Attended Chairman Member Chairman Member

Mr. Suresh Krishna Independent 8 4 Yes 6 3 2 3 Non Executive

Mr. Ishaat Hussain Not Independent 8 8 Yes 2 12 4 6 Non Executive

Mr. Kishore A. Chaukar Not Independent 8 7 Yes NIL 13 3 6 Non Executive

Mr. Vivek Singhal Independent 8 3 Yes NIL 7 1 NIL Non Executive

Dr. Ashok Jhunjhunwala Independent 8 6 Yes NIL 8 NIL 1 Non Executive

Mr. F.A. Vandrevala Not Independent 8 7 Yes 2 12 NIL 3 Non Executive

Mr. Pankaj Agrawala 1 Not Independent 3 2 Not NIL 1 1 NIL [Joined w.e.f. 21 Non Executive Applicable January 2004]

Director/s who retired during the Year

Mr. Y.S. Bhave1 Not Independent [Resigned w.e.f. Non Executive 5 3 Yes NIL 1 NIL NIL 8 December 2003]

1 Nominee director of the Government of India. Notes : (a) None of the directors is related to any other director. (b) None of the directors has any business relationship with the company. (c) None of the directors received any loans and advances from the company during the year. (d) The information as required under annexure I to clause 49 is being made available to the board. (e) The company did not have any pecuniary relationship or transactions with non-executive directors during 2003-04. (f) The detailed resume of each director is published in a separate section in the annual report. (g) The gap between two board meetings did not exceed four months. The dates on which the 8 board meetings were held are as follows: 29 May 2003 30 July 2003 2 September 2003 30 October 2003 1 December 2003 21 January 2004 20 February 2004 4 March 2004

3. AUDIT COMMITTEE necessary and sufficient financial and accounting The audit committee of the board was first constituted on background. During the year Mr. Pankaj Agrawala was December 15, 1998. It was subsequently reconstituted several inducted into the audit committee in place of the outgoing times in accordance with the changing legal and other Mr.Y.S. Bhave, who was a member of the audit committee and requirements. The present audit committee consists of five had resigned from the Board of VSNL. members. The Chairman of the committee is Mr. Subodh The other members of the committee are Mr. Ishaat Hussain, Bhargava, an independent director, who earlier served as the Director (Finance), Tata Sons Limited, Mr. Vivek Singhal, Chairman and Managing Director of Eicher Motors and has Chairman, Electronic & Software Export Corporation,

21 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

Dr. Ashok Jhunjhunwala, Professor, Electrical Engineering 1 An agreement was entered into with Mr. S.K. Gupta as managing Department, IIT Madras, and Head, Telecommunications and director for a period from February 13, 2002 valid till September Computer Networks (TeNeT) Group and Mr. Pankaj Agrawala, 30, 2002. Thereafter Mr. S.K. Gupta has been reappointed as the government nominee director. Mr. Satish Ranade, Company MD of the Company on deputation to VSNL from Tata Services Secretary and VP (legal) is the audit committee’s Secretary. Limited for a period of up to two years with effect from 1 October 2002. Accordingly, a new agreement was signed under the At the Annual General Meeting held on September 2, 2003 applicable provisions of the Companies Act, 1956. This agreement the Chairman of the Audit Committee, Mr. Subodh Bhargava is effective from 1 October 2002. was present. During the last financial year, the Audit Committee held seven meetings. 2 Either party, giving the other party six months’ notice or the company paying six months’ salary in lieu thereof, may terminate The audit committee has adequate powers and detailed the agreements with the whole-time directors. terms of reference to play an effective role as required 3 Severance fees for Mr. S.K. Gupta and Mr. N. Srinath under the under the provisions of the Companies Act, 1956 and contracts is NIL. clause 49 of VSNL’s listing agreement with the stock exchanges. The company pays sitting fees of Rs.5,000 for every board and committee meeting to all non-executive directors, Attendance at the Audit Committee Meetings except the nominee directors of Government of India. Name No. of Audit Committee Meetings during 2003-04 5. INVESTOR GRIEVANCE COMMITTEE Held during Attended This committee was reconstituted on May 29, 2003 to have Dr. the tenure Ashok Jhunjhunwala as its member. On February 20, 2004, Mr. Mr. Subodh Bhargava 7 7 Pankaj Agrawala was inducted in to the Committee in place of the outgoing Mr. Y. S. Bhave who was a member of the Mr. Y.S. Bhave (Resigned w.e.f. committee and had resigned from the Board of VSNL. Now, 8 December 2003) 4 2 the committee consists of three members. The Chairman of Mr. Vivek Singhal 7 4 the Committee is Mr. Kishor A. Chaukar who is the Managing Mr. Ishaat Hussain 7 5 Director of Tata Industries Limited. The other members are Dr. Dr. Ashok Jhunjhunwala 7 6 Ashok Jhunjhunwala, Professor, Electrical Engineering Mr. Pankaj Agrawala [Nominated w.e.f. Department, IIT Madras, and Head, Telecommunications and 7 February 2004] NIL NIL Computer Networks (TeNeT) Group, Chennai and Mr. Pankaj Agrawala, nominee Director of the Government. Mr. Satish 4. REMUNERATION COMMITTEE Ranade, Company Secretary & VP (Legal) is the Investor The Remuneration Committee consists of three members. Grievance Committee’s secretary. During the last financial year, The Chairman of the Committee is Mr. Suresh Krishna, the Committee held three meetings. Independent Director who is the Chairman and The details of grievances received from the shareholders during Managing Director of Sundram Fasteners Limited. The the year and their status on March 31, 2004 is given below: other members are Mr. Ratan Tata and Mr. Subodh Bhargava. Mr. Satish Ranade, Company Secretary and VP Sr. Nature of Complaints No. of Complaints (Legal) is the Remuneration Committee’s Convenor. The No. Received Pending second meeting of the Remuneration Committee was 1. Non-receipt of held on 22 June 2004. Dividend Warrant 611 0 The details of remuneration to the whole-time directors during the year 2003-04 is as follows: 2. Non-receipt of Share Certificates 19 0 (Amount in Rs.) 3. SEBI/Stock Exchange Name Salary Perquisites & Commission* Allowances Complaint 16 0 Mr. S.K. Gupta 21,91,200 14,07,600 15,00,000 4. Miscellaneous/Other Complaint 172 0 Mr. N. Srinath 21,89,646 8,34,400 12,00,000 TOTAL 818 0 Total 43,80,846 22,42,000 27,00,000 This committee has been delegated the powers to approve * Commission payable will be paid only after 2 September 2004 i.e. after the the issue of Duplicate Share Certificates and approve transfer/ date of the Annual general Meeting. transmission of shares exceeding 500 shares per folio. The

22 Registrar and Transfer Agents have been authorised to issue 7. COMMITTEE OF THE BOARD Duplicate Share Certificates and approve transfer/transmission VSNL Board at its 137th Meeting held on 1 December 2003 up to a maximum of 500 shares per folio, limited only to routine had advised that it was necessary to ensure focus on new day-to-day work. As the shares of the company are under projects and initiatives that were necessary to increase the compulsory dematerialized trading for all investors, this revenue and profitability of the Company. The Board then delegation is considered adequate. All the shares received for felt it advisable to appoint a Committee of the Board to go transfer till March 31, 2004 have been duly processed. through the detailed plans and make recommendations to 6. ETHICS AND COMPLIANCE COMMITTEE the Board. Accordingly a Committee of the Board was formed to go through the detailed plans of the projects undertaken In accordance with the Securities and Exchange Board of and make recommendations to the Board. India (Prohibition of Insider Trading) Regulations, 1992, as amended, the Board of Directors of the Company adopted The committee consists of six members. The Chairman of the “VSNL Code Of Conduct For Prevention of Insider the Committee is Mr. R. N. Tata. The other members are Mr. Trading and Code of Corporate Disclosure Practices” to be Subodh Bhargava, Mr. Kishor A. Chaukar, Dr. Ashok followed by “Directors”, “Designated Employees”, “Designated Jhunjhunwala, Mr. F.A. Vandrevala and Mr. S.K. Gupta. Persons” and “Insiders”. The code is based on the principle Secretary of the Company acts as the Secretary of the that Directors, Designated Employees, Designated Persons Committee. and Insiders should not have undue advantage over other In May 2004, Mr. S. K. Gupta, Managing Director was inducted shareholders, in their personal security transactions, due to into the Committee. During the last financial year, the their advance knowledge of Price Sensitive Information. The Committee held one meeting. code, therefore, seeks to ensure timely and adequate disclosure of Price Sensitive Information to the investor Attendance at the meeting’s of the Committee of the community by the Company to enable them to take Board informed investment decisions with regard to the Company’s securities. Name No. of Meetings In terms of the said code, an Ethics and Compliance Committee during 2003-04 has been constituted last year. The committee consists of three Held during members. The Chairman of the committee is Mr. Kishor A. the tenure Attended Chaukar and Dr. Ashok Jhunjhunwala and Mr. Pankaj Agrawala are the members. Mr. Satish Ranade Company Secretary and Mr. R. N. Tata 1 1 VP (Legal) is the convenor of the Committee. Mr. Subodh Bhargava 1 1 During the year Mr. Pankaj Agrawala was inducted into the committee in place of the outgoing Mr.Y.S. Bhave, who was a Mr. Kishor A. Chaukar 1 1 member of the committee and had resigned from the Board of VSNL. Dr. Ashok Jhunjhunwala 1 1 Three meetings of the committee were held during the year Mr. F.A. Vandrevala 1 1 2003-04. Mr. S.K. Gupta (inducted Attendance at the Ethics and Compliance Committee w.e.f. 21 May 2004) — — Meetings

Name No. of Meetings 8. DISCLOSURES during 2003-04 There were no significant related-party transactions of the Held during company with its promoters, directors or management, the tenure Attended their subsidiaries or relatives that may have potential Mr. Kishor A. Chaukar 3 3 conflict with the interest of the company at large. Note Mr. Y.S. Bhave (Resigned no. 14 of the Notes on Accounts may also be referred to in w.e.f. 8 December 2003) 2 1 this respect. No non-compliance notice has been issued and no penalties or strictures have been imposed on the Dr. Ashok Jhunjhunwala 3 3 company by SEBI, any stock exchange or any statutory Mr. Pankaj Agrawala (appt. authority on any matter related to capital markets during w.e.f. 20 February 2004) NIL NIL the last three years.

23 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

9. GENERAL BODY MEETINGS The location and time at the last three general body meetings are as follows: Meeting Date Location, Description and Type of Resolutions Voting

2-April-2004 An Extraordinary General Meeting was held at 1500 hours Both the resolutions were put to vote at Birla Matushri Sabhagar, New Marine Lines, Mumbai - by show of hands and were carried 400020. There were two resolutions, both of which were unanimously. Special.

2-September-2003 The 17th Annual General Meeting was held at 1100 hours at All the resolutions were put to vote Birla Matushri Sabhagar, New Marine Lines, Mumbai - 400020. by show of hands and were carried There were ten resolutions (2 special and 8 ordinary). unanimously.

20-August-2002 The 16th Annual General Meeting was held at 1100 hours at All the resolutions were put to vote Birla Matushri Sabhagar, New Marine Lines, Mumbai - 400020. by show of hands. Thirteen There were 14 resolutions (3 special and 11 ordinary). Out of resolutions were carried out three special resolutions one was passed through Postal unanimously and one through Postal Ballot, result of which was declared at the AGM. Ballot was passed with the requisite majority.

27-September-2001 The 15th Annual General Meeting was held at 1100 hours at All the resolutions were put to vote by Birla Matushri Sabhagar, New Marine Lines, Mumbai – show of hands. Five resolutions were 400020. There were six resolutions (all ordinary). carried out unanimously and one was passed with requisite majority.

10. SECRETARIAL AUDIT 12. SHAREHOLDER INFORMATION A qualified practicing Company Secretary carried out DATE AND VENUE OF THE AGM secretarial audit quarterly to reconcile the total admitted The eighteenth annual general meeting of Videsh Sanchar capital with National Securities Depository Limited (NSDL) Nigam Limited will be held at 1100 hours on September 2, and Central Depository Services (India) Limited (CDSL) and 2004, at Birla Matushri Sabhagar, New Marine Lines, the total issued and listed capital. The audits confirm that Mumbai – 400020. the total issued /paid-up capital is in agreement with the total number of shares in physical form and the total FINANCIAL CALENDAR number of dematerialised shares held with NSDL and Fiscal year ending : March 31, 2004 CSDL. Annual General Meeting : September 2, 2004 11. MEANS OF COMMUNICATION KEY FINANCIAL REPORTING DATES FOR THE FINANCIAL VSNL’s quarterly results are published in the Indian Express YEAR 2004-05 and Loksatta among others, and are also hosted on VSNL’s website: www.vsnl.com. The company’s press releases, details First quarter ending : July 30, 2004 of significant developments and investor updates are also June 30, 2004 made available on the website. The company generally holds Second quarter ending : On or before October 31, 2004 a press conference/investors’ meet after the half-yearly results Sept. 30, 2004 are taken on record by the board relating to the period ending September 30th and March 31st every year. Third quarter ending : On or before January 31, 2005 Dec. 31, 2004 The management discussion and analysis forms part of the directors’ report and is included in the annual report for the Fourth quarter ending : On or before April 30, 2005 or year 2003-04. Segmental information may be referred to in March 31, 2005 if audited, on or before June Note No. 8 of the Notes on Accounts. 30, 2005.

24 BOOK CLOSURE DATES FOR THE PURPOSE OF DIVIDEND DEPOSITORY BANK FOR ADR HOLDERS VSNL’s register of members and share transfer books will The Bank of New York, 101, Barclays Street, 22nd Floor West, remain closed from Monday, August 16, 2004 to Thursday, New York, NY 10286, Telephone: +1 (212) 815 8128, Facsimile: September 2, 2004 (both days inclusive), to determine the +1 (212) 571 3050 entitlement of shareholders to receive the final dividend as may be declared for the year ended March 31, 2004. Local Address : The Bank of New York, Express Towers, 12th DIVIDEND PAYMENT Floor, Nariman Point, Mumbai 400 021, Telephone: (022) 2202 4941/43, Facsimile: (022) 2204 4942. Dividend on equity shares as recommended by the directors for the year ended March 31, 2004, when declared at the CUSTODIAN FOR THE DEPOSITORY IN INDIA meeting, will be paid on or after September 8, 2004: (i) to those members whose names appear on the company’s ICICI Bank Limited, Securities Markets Services, ICICI Towers, register of members, after giving effect to all valid share Bandra Kurla Complex, Bandra (East), Mumbai 400 051, transfers in physical form lodged with M/s.Sharepro Services, Telephone: 91-22-2653 6238, Facsimile: 91-22-26531164. R&T agent of the company, on or before Friday, August 13, STOCK CODE 2004. Bombay Stock Exchange : 500483 (ii) in respect of shares held in electronic form, to those “deemed members” whose names appear in the statements National Stock Exchange : VSNL of beneficial ownership furnished by National Securities New York Stock Exchange : VSL Depository Limited (NSDL) and Central Depository Services ISIN No. for equity shares : INE151A01013 (India) Limited (CDSL), as at the end of business on Friday, ISIN No. for ADRs : US92659G6008 August 13, 2004. CUSIP No. for ADRs : 92659G600 BANK DETAILS In order to provide protection against fraudulent encashment Reuters codes of dividend warrants, members are requested to provide, if VSNL.BO (BSE) they have not already provided, their bank account numbers, VSNL.NS (NSE) bank account type and names and addresses of bank VSNLq.L (LSE). branches, quoting folio numbers, to the R&T agents M/s Sharepro Services (in case of physical shareholding) to enable SHARE TRANSFER SYSTEM them to incorporate the same on the dividend warrants. In case of dematerialised holding the bank account details Share transfers in physical form can be lodged with M/s. should be intimated to the shareholder’s DP. Sharepro Services, the R&T agents of VSNL. The transfers are normally processed within 15 days from the date of receipt if LISTING ON STOCK EXCHANGES IN INDIA AND LISTING FEES the documents are complete in all respects. The Investor The company’s shares are listed on the stock exchanges at Grievances Committee is empowered to approve the share Mumbai (BSE) and National Stock Exchange (NSE) in India. transfers beyond 500 shares per folio. Upto 500 shares per Annual listing fees as due to each of the above stock folio the R&T Agents have been empowered to approve the exchanges for 2004-2005 have been paid. As per the share transfer. resolution passed at the Annual General Meeting of the Shareholders held last year on September 2, 2003, the Any queries relating to financial statements of the Company has voluntarily delisted its share from the Delhi Company may be addressed to: Stock Exchange Association Limited and The Madras Stock Investor Relations Cell Exchange Limited. The formalities for voluntary delisting from Videsh Sanchar Nigam Limited The Calcutta Stock Exchange Association Limited have been Lokmanya Videsh Sanchar Bhavan duly completed and confirmation of the same is awaited from Kashinath Dhuru Marg, the Exchange. Opposite Kirti College, Prabhadevi, LISTING ON STOCK EXCHANGE OUTSIDE INDIA Mumbai - 400 028. The company’s ADRs are listed on the New York Stock Tel : +91 (22) 2432 0621 Exchange (NYSE) and have been traded on the NYSE since Fax: +91 (22) 2432 0283 August 15, 2000. The annual listing fee payable to the NYSE Email: [email protected]; is being paid regularly. [email protected]

25 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

STOCK MARKET DATA RELATING TO SHARES LISTED IN INDIA Monthly high and low quotations and volume of shares traded at BSE & NSE for 2003-2004 are: Month BSE Share Price NSE Share Price High Low Volume High Low Volume Apr’03 78.90 68.00 893770 78.90 68.50 3612546 May’03 92.15 75.05 2032416 93.30 74.90 6407236 Jun’03 131.40 91.00 3356583 131.40 91.50 11473180 Jul’03 142.00 109.05 3073539 142.10 109.00 7897183 Aug’03 133.55 112.00 3892617 133.50 113.20 10436884 Sep’03 127.50 113.40 2139131 126.90 112.00 5013839 Oct’03 137.00 116.80 1935142 134.00 109.05 4980586 Nov’03 145.00 118.55 1485963 143.80 118.75 4083565 Dec’03 161.00 127.50 3293811 161.75 122.15 6935155 Jan,04 188.60 148.00 4705890 188.90 148.90 8900590 Feb’04 190.00 156.00 2683808 189.00 155.15 6015284 Mar’04 210.80 176.15 2582189 210.40 177.20 6292740 Total 32074859 82048788

Percentage of volume traded on BSE & NSE to shares available in Indian Market 250.80%** ** Out of the total 285 million outstanding shares, the number of shares available in Indian markets, as of March 31, 2004, has been considered to be 45503561 only, which has been arrived at after deducting 128250000 shares held by the strategic partner M/s. Panatone Finvest Limited, 74446885 shares held by the Government of India and 36799554 shares as underlying shares for ADRs. PERFORMANCE OF VSNL’S SHARE PRICE ON THE BSE IN COMPARISON TO THE BSE SENSEX 250 7000

6000 200 5000

150 4000

3000 100

BSE SENSEX

2000 BSE CLOSING PRICE (in Rs.) BSE CLOSING 50 1000

0 0

02-Jul-03 14-Jul-03 24-Jul-03

12-Jan-04 22-Jan-04

10-Jun-03 20-Jun-03

10-Apr-03 24-Apr-03 07-Apr-03

01-Oct-03 14-Oct-03 24-Oct-03

05-Feb-04 17-Feb-04 27-Feb-04

09-Sep-03 19-Sep-03

08-Dec-03 18-Dec-03 31-Dec-03

11-Mar-04 23-Mar-04

04-Nov-03 14-Nov-03 25-Nov-03

05-Aug-03 18-Aug-03 28-Aug-03

19-May-03 29-May-03 BSE Close (Rs.) BSE SENSEX

26 DISTRIBUTION OF SHAREHOLDING Number of Shareholders

Number of ordinary shares held 31.03.2004 31.03.2003

1 to 500 62020 87764

501 to 1000 1568 2179

1001 to 10000 2171 4025

Over 10000 75 156

Total 65834 94124

Dematerialisation of Shares and Liquidity Approx 99.86% of the company’s share capital available in the market is dematerialised as on March 31, 2004. The company’s shares are regularly traded on the Stock Exchange Mumbai and the National Stock Exchange, as is evident from the table containing stock market data. Outstanding ADRs 18399777 ADRs (each representing two ordinary shares of the company) are outstanding as of March 31, 2004. In respect of these ADRs, the option to convert into shares is alive. CATEGORIES OF SHAREHOLDERS AS OF 31 MARCH

Category Number of Voting Strength Number of Shares Held Shareholders (Percentage)

2004 2003 2004 2003 2004 2003

Panatone Finvest Limited 2 2 45 45 128250000 128250000

Central Government including Nominees of President of India 1 1 26.12 26.12 74446885 74446885

Indian Public Financial Institutions 29 24 9.44 7.39 26909110 21028907 Indian nationalised banks 7 10 0.02 0.03 67030 102344 Foreign Financial Institutions 23 32 1.01 1.99 2891817 5661873

Foreign companies (shares held by The Bank of New York as depository for ADRs) 2 2 12.91 10.63 36799554 30310704

Non-resident individuals / Overseas Corporate Bodies 267 358 0.04 0.06 134855 176970

Other Indian Bodies Corporate 1414 2336 1.97 2.80 5615280 7990354

Others 64088 91358 3.46 5.97 9883234 17029707

In transit demat shares 1 1 0.00 0.00 2235 2256

Total 65834 94124 100 100 285000000 285000000

27 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SHARE CAPITAL HISTORY Details of share capital history since incorporation is as follows: Dates Particulars of Issue Number of Total Number Nominal Value Shares of Shares of Shares (Rs.) 19.3.86 Allotted as Purchase consideration for assets 126 126 126,000 & liabilities of OCS 1.4.86 Allotted as Purchase consideration for assets +599,874 600,000 600,000,000 & liabilities of OCS March’91 Shares of Rs.1000/- each subdivided into shares of NIL 60,000,000 600,000,000 Rs.10/- each 06.02.92 Bonus of 1:3 issued to Government of India. +20,000,000 80,000,000 800,000,000 Jan-Feb 92 12 million shares disinvested in favour of Indian NIL 80,000,000 800,000,000 Financial Institutions by GOI @ Rs.123/- per share 1994-95 2,382,529 Shares transferred to disinvested parties NIL 80,000,000 800,000,000 as bonus shares 27.03.97 VSNL raised its share capital by way of GDR Issue, +12,165,000 92,165,000 921,650,000 and also GOI Divested in GDR markets @ US$13.93 per GDR equivalent to Rs.1000 per share. 04.04.97 VSNL raised its capital by way of GDR Issue Green Shoe option +2,835,000 95,000,000 950,000,000 @ US$13.93 per GDR equivalent Rs.1000 per share. Feb. 1999 10,000,000 shares divested by GOI in GDR markets NIL 95,000,000 950,000,000 @ US$9.25 per GDR equivalent to Rs.786.25 per share. May 1999 396,991 shares Divested by GOI by way of offer of shares NIL 95,000,000 950,000,000 to employees of VSNL @ Rs.294 per share locked in for a period of 3 years. Sept’99 10,00,000 shares Divested by GOI in domestic markets NIL 95,000,000 950,000,000 @ Rs.750 per share. 15 August Listing of ADRs on New York Stock Exchange NIL 95,000,000 950,000,000 2000 24.11.2000 Bonus shares in the ratio of 2:1. +190,000,000 285,000,000 2,850,000,000 Book Closure: 16-18 November 2000 Ex-bonus dates: BSE : 25 October 2000 NSE: 1 November 2000 27.9.2001 VSNL declares dividend @ 500% i.e. Rs.50/- NIL 285,000,000 2,850,000,000 per share at 15 AGM. Ex dividend: BSE : 3 Sept 2001 NSE: 5 Sept 2001 Record Date: 16 to 30 Sep 2001 January VSNL pays special interim Dividend of 750% NIL 285,000,000 2,850,000,000 2002 i.e. Rs.75/- per share Record Date: 28 January 2002 13.02.2002 25% of VSNL Stake transferred to Tata Group’s NIL 285,000,000 2,850,000,000 investment vehicle Panatone Finvest Ltd. Govt holdings reduced to 27.97% from 52.97%. VSNL ceases to be a Government of India Enterprise 21.02.2002 5264555 shares Divested by GOI by way of offer of shares to NIL 285,000,000 2,850,000,000 employees of VSNL @ Rs.47.85 per share locked in for a period of 1 year. 10.04.02 Open Offer by Panatone Finvest Limited in accordance with NIL 285,000,000 2,850,000,000 SEBI guidelines to acquire upto 57 million shares @ Rs.202/- per share 08.06.02 Open offer complete with Panatone holding total of NIL 285,000,000 2,850,000,000 128249910 shares including 57 million shares as above.

28 Locations of Other Offices Regional Offices : Mumbai, Chennai, Kolkata and New Delhi. Branches : Ambattur, Arvi, Bangalore, Bhubaneswar, Chandigarh, Coimbatore, Dehradun, Ernakulam, Gandhinagar, Goa, Guwahati, Hyderabad, Indore, Jaipur, Jalandhar, Kanpur, Patna, Pondicherry, Pune, Thiruvananthapuram.

Any shareholder complaints/queries may be addressed to: Compliance Officer Registrar and Transfer Agents Mr. Rishabh Nath Aditya M/s. Sharepro Services Assistant Company Secretary Unit : Videsh Sanchar Nigam Limited Videsh Sanchar Nigam Limited Satam Estate, 3rd Floor, Above Bank of Baroda, M. G. Road, Chakala, Andheri (East), Mumbai - 400 099. Mumbai 400 001. Tel : (022) 2821 5168 Tel : +91 22 5657 8765 Extn. 2031 Fax : (022) 2837 5646 Fax : +91 22 5659 2354 E-mail : [email protected] Email : [email protected]

Address for Correspondence

Registered Office Corporate Office Videsh Sanchar Bhavan (VSB) Lokmanya Videsh Sanchar Bhavan (LVSB) Mahatma Gandhi Road, Kashinath Dhuru Marg, Mumbai - 400 001. Prabhadevi, Mumbai – 400 028. Tel : +91 22 5657 8765 Tel : +91 22 5657 8765 Fax : +9122 5639 5162 Fax : +9122 5639 5162 Email : [email protected] Email : [email protected] Website : www.vsnl.com Website : www.vsnl.com

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29 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SECRETARY RESPONSIBILITY STATEMENT

The Company Secretary & Vice President (Legal) confirms that the company has: (i) maintained all the books of account and statutory registers required under the Companies Act,1956 (“the Act ”)and the rules made thereunder; (ii) filled all the forms and returns and furnished all the necessary particulars to the Registrar of Companies and/or authorities as required by the Act; (iii) issued all notices required to be given for convening of board meetings and the general meeting, within the time limit prescribed by law; (iv) conducted the board meetings and annual general meeting as per the Act; (v) complied with all the requirements relating to the minutes of the proceedings of the meetings of the directors and the shareholders; (vi) made due disclosures required under the Act including those required in pursuance of the disclosures made by the directors; (vii) obtained all the necessary approvals of directors, shareholders, the central government and other authorities as per the requirements; (viii) effected share transfers and dispatched the certificates within the statutory time limit; (ix) paid dividend amounts to the shareholders and transferred unpaid dividend amounts, if applicable, to the general revenue account of the central government or the investor education and protection fund within the time limit prescribed; (x) complied with the requirements of the listing agreement entered into with the stock exchanges in India and the requirements of the New York Stock Exchange. The Company has also complied with other statutory requirements under the Companies Act, 1956 and other related statutes in force.

Satish Ranade Company Secretary & Vice President (Legal)

30 AUDITORS’ CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCE UNDER CLAUSE 49 OF THE LISTING AGREEMENTS

To the Members of VIDESH SANCHAR NIGAM LIMITED

We have examined the compliance of conditions of the Shareholder/ Investor Grievance Committee has not corporate governance by VIDESH SANCHAR NIGAM LIMITED, maintained records to show the investor grievance pending for the year ended on March 31, 2004, as stipulated in clause for a period exceeding one month against the Company, 49 of the Listing Agreement of the said Company with stock the Registrars of the Company have maintained the records exchanges. of investor grievances and certified that as at March 31, 2004 there were no investor grievances remaining The compliance of conditions of corporate governance is unattended/pending for more than 30 days. the responsibility of the management. Our examination has been limited to a review of the procedures and We further state that such compliance is neither an implementation thereof, adopted by the Company for assurance as to the future viability of the Company nor the ensuring compliance with the conditions of the certificate efficiency or effectiveness with which the management has of Corporate Governance as stipulated in the said clause. It conducted the affairs of the Company. is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and For S. B. BILLIMORIA & CO. according to the explanations given to us and the Chartered Accountants representations made by the directors and the management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated N VENKATRAM in Clause 49 of the above mentioned Listing Agreement. Partner Membership No: 71387 As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we have to state that while Mumbai, 22nd June, 2004

31 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

FINANCIAL RATIOS 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Profitability ratios EBIDTA Margin 24.69 24.07 22.85 25.13 16.29 Cash Profit Margin 20.03 23.85 21.62 19.26 16.30 Net Profit Margin 11.64 22.33 19.79 16.21 11.20 Return on Average Capital Employed 16.00 29.14 25.15 15.29 9.00 Return on Net Worth 14.49 27.87 24.20 14.73 7.05 Total Expenditure/Total Income 72.44 67.70 70.83 73.93 83.62 Figures are in %

BUSINESS CHARCTERISTICS Debt to Equity Ratio 0.00 — 0.11 0.06 0.01 Tax rate (%) 32.82 31.94 32.14 37.81 30.48 Revenue to Capital Ratio 1.17 1.21 1.21 0.77 0.64 Income/Debtors ratio 2.84 4.40 4.78 5.76 7.19 Income/Avg Assets Ratio 3.56 3.22 2.59 1.56 1.12 Net Working Capital as part of TCE % 68 65 66 61 37 Current Ratio 2.12 2.17 2.90 3.37 1.77 Quick Ratio 2.12 2.17 2.90 3.37 1.77 Cash and Equivalents/Total Assets Ratio 45.45 73.46 42.96 37.89 19.99 Depreciation/Gross Block % 4.09 4.37 4.60 4.46 7.31

GROWTH(% OVER PRECEDING YEARS) Growth in Turnover 0.65 10.30 (10.72) (32.33) (29.95) Growth in FE Earnings 1.68 1.04 (14.16) (31.79) (51.45) Growth in PBIDT (excl other income) 4.80 7.54 (15.25) (29.81) (54.81) Growth in PAT (37.23) 113.88 (20.88) (44.57) (51.58) Growth in Cash Profit 2.96 31.37 (19.07) (39.74) (40.72)

PER SHARE DATA Earnings (Rs.) 88.45 # 62.42 49.38 27.37 13.25 Dividend % 80 # 500 875 85 45 Book Value (Rs.) 649.92 #231.18 176.98 194.75 181.30 P/E (as of Year End) 21.34 4.68 3.79 2.67 15.46 # During the year, the Company issued Bonus Shares in the ratio of 2:1. Without Bonus issue these values would be three times the value depicted above.

32 AUDITORS’ REPORT TO THE MEMBERS OF VIDESH SANCHAR NIGAM LIMITED

1. We have audited the attached Balance Sheet of VIDESH (iv) in our opinion, the Balance Sheet, Profit and Loss SANCHAR NIGAM LIMITED as at 31st March, 2004, and Account and Cash Flow Statement dealt with by also the Profit and Loss Account and the Cash Flow this report comply with the accounting standards Statement for the year ended on that date both an- referred to in sub-section (3C) of Section 211 of nexed thereto. These financial statements are the re- the Companies Act, 1956; sponsibility of the Company’s Management. Our re- (v) on the basis of written representations received sponsibility is to express an opinion on these financial from the directors, as on 31st March, 2004, and statements based on our audit. taken on record by the Board of Directors, we re- 2. We conducted our audit in accordance with auditing port that none of the directors is disqualified as standards generally accepted in India. Those standards on 31st March, 2004 from being appointed as a require that we plan and perform the audit to obtain director in terms of clause (g) of sub-section (1) of reasonable assurance about whether the financial Section 274 of the Companies Act, 1956; and statements are free of material misstatement. An audit (vi) in our opinion and to the best of our information includes examining, on a test basis, evidence support- and according to the explanations given to us, ing the amounts and disclosures in the financial state- the said accounts give the information required ments. An audit also includes assessing the account- by the Companies Act, 1956, in the manner so ing principles used and significant estimates made by required and give a true and fair view in confor- the Management, as well as evaluating the overall fi- mity with the accounting principles generally ac- nancial statement presentation. We believe that our cepted in India: audit provides a reasonable basis for our opinion. (a) in the case of the Balance Sheet, of the state 3. As required by the Companies (Auditor’s Report) Or- of affairs of the Company as at 31st March, der, 2003 issued by the Central Government of India in 2004; terms of sub-section (4A) of Section 227 of the Com- panies Act, 1956, we enclose in the Annexure a state- (b) in the case of the Profit and Loss Account, of ment on the matters specified in paragraphs 4 and 5 the profit for the year ended on that date; of the said Order to the extent applicable. and 4. Further to our comments in the Annexure referred to (c) in the case of the Cash Flow Statement, of in paragraph 3 above, we report that: the cash flows for the year ended on that date. (i) we have obtained all the information and expla- nations, which to the best of our knowledge and belief were necessary for the purposes of our au- dit; For S. B. BILLIMORIA & CO. (ii) in our opinion, proper books of account as re- Chartered Accountants quired by law have been kept by the Company so far as appears from our examination of those books; N VENKATRAM Partner (iii) the Balance Sheet, Profit and Loss Account and Membership No: 71387 Cash Flow Statement dealt with by this report are in agreement with the books of account; Mumbai, 22nd June, 2004

33 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

ANNEXURE TO THE AUDITORS’ REPORT (Referred to in paragraph 3 of our report of even date)

(i) (a) The Company has maintained proper records register maintained under Section 301 of the showing full particulars including quantitative Companies Act, 1956 have been so entered. details and situation of fixed assets. (b) In our opinion and having regard to our (b) As explained to us, physical verification of a comments in paragraph (iv) above, and major portion of fixed assets as at 31st March, according to the information and explanations 2004 was conducted by the Management during given to us, transactions made in pursuance of the year. In our opinion, the frequency of physical contracts or arrangements entered in the verification is reasonable. Having regard to the register maintained under Section 301 of the size of the operations of the Company and on Companies Act, 1956 and exceeding the value the basis of explanations received, in our opinion, of Rupees five lakhs in respect of any party the net differences found on physical verification during the year have been made at prices which were not significant. are reasonable having regard to prevailing (ii) (a) As explained to us, the stocks of stores and market prices at the relevant time, where such spares have been verified during the year. In our market prices are available. opinion, the frequency of verification is (vi) In our opinion and according to the information and reasonable. explanations given to us, the Company has not (b) In our opinion and according to the information accepted deposits from the public to which the and explanations given to us, the procedures of provisions of Section 58A and 58AA of the Companies physical verification of stocks followed by the Act, 1956 are applicable during the period covered Management are reasonable and adequate in by our audit report. relation to the size of the Company and the (vii) In our opinion, the Company has an internal audit nature of its business. system commensurate with the size and nature of its (c) In our opinion and according to the information business. and explanations given to us, the Company is maintaining proper records of inventory. The (viii) We have broadly reviewed the books of account and discrepancies noticed on verification between records maintained by the Company relating to the physical stocks and the book records were telecommunication activities pursuant to the Rules not material having regard to the size of the made by the Central Government for the operations of the Company. maintenance of cost records under Section 209 (1) (d) of the Companies Act, 1956 and, are of the opinion (iii) The Company has not taken or granted any loans that prima facie, the prescribed accounts and records during the year to parties covered in the register have been made and maintained. We have not, maintained under Section 301 of the Companies Act, however, made a detailed examination of the records 1956. with a view to determining whether they are accurate (iv) In our opinion and according to the information and or complete. explanations given to us, there are adequate internal (ix) (a) According to the information and explanations control procedures commensurate with the size of given to us, the Company is generally regular in the Company and the nature of its business with depositing with appropriate authorities regard to purchases of inventories and fixed assets. undisputed statutory dues including provident During the course of our audit, we have not observed fund, investor education and protection fund, any major weakness in the internal controls. income tax, sales tax, wealth tax, customs duty, (v) (a) To the best of our knowledge and belief and excise duty, cess and other material statutory according to the information and explanations dues applicable to it. The Company has received given to us, we are of the opinion that the exemption from the operation of Employees’ transactions that need to be entered into the State Insurance Act, 1948.

34 (b) According to the information and explanations (xv) In our opinion and according to the information and given to us, no undisputed amounts payable in explanations given to us, the terms and conditions respect of income tax, wealth tax, sales tax, on which the Company has given guarantee for loans customs duty, excise duty and cess were in taken by others from banks or financial institutions arrears, as at 31st March, 2004 for a period of are not prejudicial to the interest of the Company. more than six months from the date they (xvi) In our opinion and according to the information and became payable. explanations given to us, no term loans have been (c) According to the information and explanations raised during the financial year covered by our given to us, details of dues of sales tax, income audit. tax, excise duty and service tax which have not (xvii) In our opinion and according to the information and been deposited on account of any dispute are explanations given to us, and on an overall given below: examination of the Balance Sheet of the Company, Particulars Financial years to which Forum where Amount we report that, other than the unutilized money from the matter pertains the dispute is in Rs. ‘000 pending GDR proceeds amounting to Rs.5,972,069 thousands Income Tax 1998-1999 Commissioner 22,316 held in fixed deposit with banks and amounts of Income Tax temporarily invested in current investment pending (Appeals) utilisation for capital projects, no funds raised on Sales Tax 1989-1990 Appellate 100 Commissioner short-term basis have been used for long-term of Sales Tax investment and vice versa. Sales Tax 2003-2004 Tribunal 93,647 TDS on 2001-2002 High Court 2,757 (xviii) According to the information and explanations given Perquisites to us, the Company has not made any preferential TDS on 2003-2004 High Court 613 Perquisites allotment of shares to parties and companies covered in the register maintained under Section 301 of the (x) The Company does not have accumulated losses. The Companies Act, 1956. Company has not incurred cash losses during the financial year covered by our audit and the (xix) In our opinion and according to the information and immediately preceding financial year. explanations given to us, the Company has not issued any secured debentures during the period covered (xi) In our opinion and according to the information and by our report. Accordingly, the provisions of clause explanations given to us, the Company has not (xix) of the Companies (Auditor’s Report) Order, 2003 defaulted in repayment of dues to a financial are not applicable to the Company. institution, bank or debenture holder. (xx) During the period covered by our audit report, (xii) The Company has not granted any loans and the Company has not raised any money by public advances on the basis of security by way of pledge issues. of shares, debentures and other securities during the year. Accordingly, the provisions of clause 4 (xii) of (xxi) To the best of our knowledge and belief and the Companies (Auditor’s Report) Order, 2003 are not according to the information and explanations given applicable to the Company. to us, no fraud on or by the Company has been noticed or reported during the course of our audit. (xiii) In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Accordingly, the provisions of clause 4 (xiii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the For S. B. BILLIMORIA & CO. Company. Chartered Accountants (xiv) In our opinion and according to the information and explanations given to us, the Company is not dealing N VENKATRAM in or trading in shares, securities, debentures and Partner other investments. Accordingly, the provisions of Membership No: 71387 clause 4 (xiv) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company. Mumbai, 22nd June, 2004

35 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

BALANCE SHEET AS AT 31ST MARCH, 2004 Rupees ‘000 As at Schedule 31.03.2003 FUNDS EMPLOYED: 1 SHARE CAPITAL 1 2,850,000 2,850,000 2 RESERVES AND SURPLUS 2 48,821,767 52,654,188 3 TOTAL SHAREHOLDERS’ FUNDS 51,671,767 55,504,188

4 SECURED LOANS 3 — 3,540,000 5 UNSECURED LOANS 4 630,000 — 6 DEFERRED TAX LIABILITY 71,166 3,202,634 (Refer Note B9, Schedule 21) 52,372,933 62,246,822 APPLICATION OF FUNDS: 7 FIXED ASSETS:

(a) Gross Block 5 25,651,703 34,044,601 (b) Less: Depreciation 5,908,063 10,151,930 (c) Net Block 19,743,640 23,892,671 8 INVESTMENTS 6 20,891,446 6,558,687 9 A. CURRENT ASSETS

(a) Inventories 7 24,091 6,766 (b) Sundry Debtors 8 4,401,957 7,876,994 (c) Cash and Bank Balances 9 10,467,110 23,585,864 (d) Other Current Assets 10 857,687 520,215 15,750,845 31,989,839 B. LOANS AND ADVANCES 11 11,245,959 13,212,867 26,996,804 45,202,706 10 Less: CURRENT LIABILITIES AND PROVISIONS

(a) CURRENT LIABILITIES 12 13,341,390 10,171,350 (b) PROVISIONS 13 1,917,567 3,235,892 15,258,957 13,407,242 11 NET CURRENT ASSETS 11,737,847 31,795,464 12 TOTAL ASSETS (NET) 52,372,933 62,246,822 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 21 As per our report attached For and on behalf of the Board FOR S.B.BILLIMORIA & CO. RATAN N.TATA Chartered Accountants Chairman S. K. GUPTA N.VENKATRAM Managing Director Partner SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI MUMBAI DATED: 22nd June, 2004 DATED: 22nd June, 2004

36 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2004 Rupees ‘000 Schedule Year ended 31.03.2003 INCOME: 1 TRAFFIC REVENUES 14 31,635,439 45,385,451 2 OTHER INCOME 15 656,047 371,746 3 INTEREST (net) 16 928,893 1,832,698 4 INTEREST ON INCOME TAX REFUNDS 490,307 535,412 5 TOTAL INCOME 33,710,686 48,125,307 EXPENDITURE: 6 SALARIES AND RELATED COSTS 17 1,382,433 1,536,401 7 NETWORK COSTS 18 22,190,094 30,039,171 8 OPERATING AND OTHER EXPENSES 19 2,908,693 2,403,248 9 DEPRECIATION 1,720,734 1,470,179 Less: TRANSFER FROM CAPITAL RESERVE (3,534) (3,423) 10 PRIOR PERIOD ADJUSTMENTS 20 (8,614) 135,743 11 TOTAL EXPENDITURE 28,189,806 35,581,319 PROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS 5,520,880 12,543,988 12 EXCEPTIONAL ITEMS: (a) Expenditure on Voluntary Retirement Schemes (Refer Note B6, Schedule 21) (1,029,661) — (b) Profit from sale of long-term investment 941,399 — PROFIT BEFORE TAXES 5,432,618 12,543,988 13 TAXES (Refer Note B9, Schedule 21) (a) CURRENT TAX (1,356,408) (4,351,253) (b) DEFERRED TAX (299,650) (392,020) PROFIT AFTER TAXES 3,776,560 7,800,715 14 BALANCE BROUGHT FORWARD FROM PREVIOUS YEAR 5,053,150 4,775,318 AMOUNT AVAILABLE FOR APPROPRIATIONS 8,829,710 12,576,033 15 APPROPRIATIONS : (a) PROPOSED DIVIDEND 1,282,500 2,422,500 (b) TAX ON DIVIDEND 164,320 310,383 (c) GENERAL RESERVE 378,000 4,790,000 BALANCE CARRIED TO BALANCE SHEET 7,004,890 5,053,150

EARNINGS PER SHARE (EPS) 16 Basic/Diluted earnings per share (Rs.) 13.25 27.37 (Refer Note B11, Schedule 21) SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 21 As per our report attached to the Balance Sheet For and on behalf of the Board FOR S.B.BILLIMORIA & CO. RATAN N.TATA Chartered Accountants Chairman S. K. GUPTA N.VENKATRAM Managing Director Partner SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI MUMBAI DATED: 22nd June, 2004 DATED: 22nd June, 2004

37 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH, 2004 Rupees ‘000 Year ended 31.03.2003 CASH FLOW FROM OPERATING ACTIVITIES NET PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS 5,520,880 12,543,988 Adjustments for: Depreciation (including amount included under prior period adjustments) 1,728,083 1,499,240 Transfer from capital reserve (3,534) (3,423) Loss on sale of fixed assets 3,766 1,146 Investments written off 279 92,000 Interest income (918,951) (1,844,020) Interest expense 4,448 32,657 Fixed assets written down 263,046 218,255 Interest on income tax refunds (490,307) (535,412) Dividend income/gain on sale of current investments (465,024) — OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 5,642,686 12,004,431 Adjustments for: Inventories 1,916 (1,708) Sundry debtors 3,789,040 6,979,340 Other current assets (379,146) (253,383) Loans and advances 4,315 21,032 Curent liabilities and provisions 2,654,770 (3,000,606) Cash generated from operations before tax and exceptional items 11,713,581 15,749,106 Income tax refunds/(paid) 978,209 (9,168,716) Interest on income tax refunds 490,307 963,496 Cash generated from operations before exceptional items 13,182,097 7,543,886 Exceptional items Expenditure on voluntary retirement schemes (1,029,661) — 1 NET CASH FROM OPERATING ACTIVITIES 12,152,436 7,543,886 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (4,725,888) (2,817,825) Payment made for acquisition of DishnetDSL business (net of cash acquired) (2,359,255) — Proceeds from sale of fixed assets 59,775 3,297 Dividend income on current Investments 404,845 — Purchase of investments (3,343,661) (2,987,825) Sale of investment in Inmarsat Ventures Plc. 1,393,491 — Purchase of current investments (66,319,130) — Sale of current investments 54,937,840 — Interest received 960,624 2,326,188 2 NET CASH USED IN INVESTING ACTIVITIES (18,991,359) (3,476,165) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from secured loans 990,000 3,540,000 Repayment of secured loans (4,530,000) (5,751,401) Dividends paid (including dividend tax) (2,734,776) (3,576,572) Interest paid (5,055) (43,318) 3 CASH FLOW USED IN FINANCING ACTIVITIES (6,279,831) (5,831,291) 4 NET DECREASE IN CASH AND CASH EQUIVALENTS (13,118,754) (1,763,570) 5 CASH AND CASH EQUIVALENTS AS AT 1st APRIL, 2003 23,585,864 25,349,434 (see Note B 13, Schedule 21) 6 CASH AND CASH EQUIVALENTS AS AT 31st MARCH, 2004 10,467,110 23,585,864 (see Note B 13, Schedule 21) Note : Figures in brackets represent outflows. As per our report attached to the Balance Sheet For and on behalf of the Board FOR S.B.BILLIMORIA & CO. RATAN N.TATA Chartered Accountants Chairman S. K. GUPTA N.VENKATRAM Managing Director Partner SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI MUMBAI DATED: 22nd June, 2004 DATED: 22nd June, 2004

38 SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 1 SHARE CAPITAL AUTHORISED : [300,000,000 (2003: 300,000,000) Equity Shares of Rs.10/- each] 3,000,000 3,000,000 ISSUED, SUBSCRIBED AND PAID UP [285,000,000 (2003: 285,000,000) Equity Shares of Rs.10/- each, fully paid-up] 2,850,000 2,850,000 2,850,000 2,850,000 Notes : Of the above: 1) 60,000,000 Shares are allotted as fully paid up, pursuant to the contract without payment being received in cash. 2) 210,000,000 (2003: 210,000,000) Shares are allotted as fully paid bonus shares by capitalisation of General Reserve. 3) 15,000,000 Shares are allotted as fully paid up by way of Euro issue represented by 30,000,000 American Depository Receipts (ADRs) (2003: 30,000,000) SCHEDULE - 2 RESERVES AND SURPLUS (a) Capital Reserve Balance at the beginning of the year 2,090,943 2,094,366 Foreign Exchange Fluctuation adjusted against Fixed Asset (2,097) — 2,088,846 2,094,366 Less : Transferred to profit & loss account (3,534) (3,423) Less: Transferred to Securities Premium for reduction in carrying cost of gifted assets (23,555) — 2,061,757 2,090,943 (b) Securities Premium Account Balance at the beginning of the year 14,481,809 14,481,809 Less: Reduction in carrying cost of Fixed Assets, net of transfer from Capital Reserve (9,564,093) — (Refer Note B2, Schedule 21) Add: Deferred Tax Asset on reduction in carrying cost of Fixed Assets (Refer Note B2, Schedule 21) 3,431,118 — 8,348,834 14,481,809 (c) General Reserve Balance at the beginning of the year 31,028,286 26,238,286 Add: Transferred from Profit and Loss account 378,000 4,790,000 31,406,286 31,028,286 (d) Profit and Loss Account Balance carried forward 7,004,890 5,053,150 48,821,767 52,654,188 SCHEDULE - 3 SECURED LOANS Short-term bank loans — 3,540,000 (Secured against fixed deposits amounting to Rs. Nil thousands, 2003: Rs. 3,605,000 thousands) — 3,540,000 SCHEDULE - 4 UNSECURED LOAN Short-term loan from DishnetDSL 630,000 — (Refer Note B5, Schedule 21) 630,000 —

39 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004 (Rs. ‘000) (Rs. acquired on or after 31st March 2001 Rs. 336,896 thousands. acquired on or after 31st March 2001 Rs. 1,191,914 thousands telecommunication circuits in submarine cable Rs. 1,425,570 thousands as on 31.03.2003). (Rs. 29,061 thousands as on 31.03.2003). 7,349 thousands (Rs. and corresponding reduction in accumulated depreciation aggregating Rs. Net reduction respectively. 6,013,426 thousands, 15,577,519 thousands and Rs. 9,564,093 thousands has been debited to in carrying cost aggregating Rs. schedule 21). Securities note B 2, Account (Refer Premium a subsidiary. Inc., VSNL America, acquired pending to transfer 4 block Gross of buildings and plant and machinery include leasehold assets 5 and machinery Plant Rights includes Indefeasible of Use (IRU) international for 6 Included under prior year adjustments is depreciation expense amounting to Rs. 7 Deduction/adjustments for the year includes reduction in cost of gross block 8 20,804 thousands include plant and machinery Additions aggregating to Rs. 9 the previous year. in italics are for Figures 1,142,322 1,142,322 2,166,291 2,166,291 34,044,601 23,892,671 25,651,703 19,743,640 during Adjustments during Adjustments the year the year eement has not been executed/ SCHEDULES FORMING PART OF THE BALANCE SHEET OF SCHEDULES FORMING PART ------15,490 2 (314) 15,178 8,764 768 (304) 9,228 5,950 6,726 772,545 9,782184,239203,190 - 28,564587,057 30,733 782,327 151,484 (709) (1,607) 11,415 212,094 (427) 232,316 8,356 72,163 738,114 57,416 316,713 11,989 - 10,140 87,866 (155) 19,771 567 83,997 762,556 (242) 68,123 761,130 128,097 404,337 164,193 112,076 333,777 145,774 270,344 212,094 91,571 (4,136) 299,529 83,997 17,731 (1,573) 100,155 199,374 128,097 2,210,216 226,032 (2,265) 2,433,983 199,256 48,185 57 247,498 2,186,485 2,010,960 24,380,195 4,690,022 (581,950) 28,488,267 8,344,816 1,331,93628,352,932 (357,776) 5,136,619 9,318,976 (587,272) 19,169,291 32,902,279 16,035,379 9,010,543 1,499,240 (357,853) 10,151,930 22,750,349 32,902,279 6,510,200 (15,927,067) 23,485,412 10,151,930 1,728,083 (5,971,950) 5,908,063 17,577,349 22,750,349 28,488,267 4,748,323 (15,946,328) 17,290,262 9,318,976 1,479,799 (5,934,965) 4,863,810 12,426,452 19,169,291 respect of which the lease deed is not available. done and consequently, the land has not been in the name of transferred done and consequently, the Company. registered. formation. flats at Jallandhar in respect not thousands for of which agreements have registered. been executed/ (Including advances for capital for (Including advances 10,688 thousands, expenditure Rs. 22,506 thousands) Rs. 2003: (i) is not leasehold land in respect 2,558 thousands for of which conveyance Rs. (ii) Srinagar in Land at Leasehold (iii) 12,079 thousands in respect of which agr Rs. of decrease in liabilities consequent to fluctuationsthousands on account in rates. exchange foreign (iv) 1,772 thousands identified as surplus land. Rs. (i) leasehold office space. 67,858 thousands for Rs. (ii) Societies under 4,398 thousands being cost of flats in Co-operative Rs. (iii) 10,774 flats/ office space at Mumbai 335,181 thousands for and Rs. Rs. TES: SL.NO. FIXED ASSETS 01.04.2003 BLOCK GROSS Additions Deductions/ 31.03.2004 01.04. 2003 Depreciation Deductions/ 31.03.2004 31.03.2004 31.03.2003 DEPRECIATION ACCUMULATED BLOCK NET (c) PLANT AND MACHINERY (d) FURNITURE AND FIXTURES (i) WORK-IN-PROGRESS CAPITAL (b) BUILDINGS(e) OFFICE EQUIPMENTS 2,433,983(f) COMPUTERS 149,609(g) VEHICLES MOTOR 232,316 (6,811) 29,648 2,576,781 738,114 40,462 15,178 247,498 468,801 302,426 2,734 43,138 (9,316) 68,123 1,197,599 (938) (265) 17,257 404,337 16,974 290,371 2,286,410 143,825 4,926 2,186,485 9,228 (38,934) 90,306 1,089 509,228 212,120 688,371 164,193 (1,139) 333,777 9,178 7,796 5,950 (h) GOODWILL - 1,019,514 - 1,019,514 - 16,992 - 16,992 1,002,522 - (a) LAND 782,327 - - 782,327 19,771 8,252 - 28,023 754,304 762,556 NO 1 includes: This leasehold land. 638,340 thousands for Land includes Rs. 3 43,236 to plant and machinery/ Additions are net of Rs. Capital work in progress 2 block Gross of buildings include: SCHEDULE - 5

40 SCHEDULES FORMING PART OF THE BALANCE SHEET Number of As at As at shares 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 6 INVESTMENTS A. Trade - Quoted New Skies Satellites N.V. (Ordinary shares of common stock of Euro 0.05 each) 3,442,150 562,304 562,304 B. Trade - Unquoted (a) Tata Teleservices Ltd. 600,400,000 6,004,000 2,804,000 ( 320,000,000 equity shares of Rs 10 each susbcribed during the year) (See Note B4, Schedule 21) (b) New ICO Global Communications (Holdings) Limited 180,373 65 65 (Class A common stock of US$ 0.01 each) (c) Inmarsat Ventures Plc. — — 452,092 (2,022,190 shares of 10 pence each sold during the year) (d) United Telecom Limited 3,732,400 233,275 199,950 (533,200 shares of NRS 100 subscribed during the year) (e) Intelsat Limited 9,015,314 2,539,776 2,539,776 (Ordinary shares of US$ 3 each) C. Investment in Subsidiary Companies (Unquoted) (a) VSNL Lanka Limited 6,593,199 31,118 — (6,593,199 equity shares of SLR 10 each subscribed during the year) (b) VSNL Singapore PTE Limited 1,750,000 79,218 — (1,750,000 equity shares of US$ 1 each subscribed during the year) (c) VSNL Seamless Services Limited (under liquidation) 50,000 221 500 (Equity shares of Rs.10 each) 9,449,977 6,558,687 D. OTHERS No of Units INVESTMENTS IN MUTUAL FUNDS ( Unquoted) — (a) Liquid Dividend Plan (including dividend reinvestment) - Kotak liquid (Institution Premium) Daily Dividend 209,385,112 2,560,382 — - Principal cash management liquid option Dividend reinvestment Plan 36,063,462 360,660 — - Principal Deposit Fund -Dividend Reinvestment 15,000,000 150,000 — - Prudential ICICI FMP Quarterly Dividend series 20,000,000 200,000 — - Prudential ICICI Liquid Plan Daily Dividend option 276,201,408 3,273,401 — - JM High Liquidity Daily Dividend Plan 12,323,791 123,238 — - DSP Fund Daily Dividend 63,421,974 634,797 — - Birla Cash Plus Dividend Reinvestment Plan 28,718,154 287,182 — - Tata Liquid Super High Investment Daily Dividend Fund 46,177,826 513,489 — (b) Fixed Maturity Plan - JM Fixed Maturity Plan 75,000,000 750,000 — - Standard Chartered Fixed Maturity 20,000,000 200,000 — (c) Floating Rate Short- Term plan - Tata Floating Rate 25,250,705 252,509 — - Templeton Floating Rate Income Fund 127,933,475 1,280,000 — (d) Treasury - Templeton Treasury Management Account 566,026 855,811 — 20,891,446 6,558,687 (1) Book Value of quoted investment 562,304 562,304 (2) Book Value of unquoted investments 20,329,142 5,996,383 (3) Market Value of quoted investment 997,691 682,378 (4) All investments other than investments in Mutual Funds are Long-Term investments

41 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SCHEDULE - 6 (Contd.) (5) Current investments bought and sold during the year Scheme Name Face Value No of Units Purchase Cost (In Rupees) (Rupees ‘000) Short-Term Plans Birla Bond Plus- IP- Dividend Reinvestment 10 27,299,654 285,208 DSP ML Short Term Fund- Growth 10 115,394,162 1,247,399 DSP ML Short Term Fund- Weekly Dividend Reinvestment 10 306,164,440 3,075,414 Grindlays SSIF - Short Term-IP- Dividend Reinvestment 10 20,060,678 206,883 HDFC STP - Premium Plus Plan- Dividend Reinvestment 10 50,439,743 545,973 JM Short Term Fund-IP-Dividend Reinvestment 10 125,719,567 1,262,402 Kotak Bond Short Term Plan- Dividend Reinvestment 10 247,965,244 2,501,402 Prudential ICICI STIP- Growth 10 11,908,205 140,000 Prudential ICICI STIP- Fort Nightly Dividend Reinvestment 10 112,559,412 1,787,979 SBI Magnum Insta Cash Fund - STP –Dividend Reinvestment 10 33,592,520 341,297 Tata Short Term Bond Fund- Dividend Reinvestment 10 36,148,530 384,594 Templeton India STIP- Weekly Dividend Reinvestment 1,000 1,479,468 1,612,724 Liquid Dividend Plan (including dividend reinvestment) Birla Cash Plus- Institutional Plan-Daily Dividend Reinvestment 10 154,893,963 1,670,543 Birla Cash Plus- Institutional Plan-Growth 10 16,779,011 285,837 DSP Fund Daily Dividend 10 189,894,054 1,900,476 DSP ML Liquidity Fund – Growth 10 84,489,344 1,286,491 Grindlays Cash Fund- IP- Growth 10 17,335,496 203,909 Grindlays Cash Fund-IP- Daily Dividend Reinvestment 10 137,683,149 1,456,908 HDFC Cash Mgmt Fund-Savings Plan-Daily Dividend Reinvestment 10 135,834,568 1,444,791 JM High Liquidity Daily Dividend Plan 10 60,572,697 630,859 JM High Liquidity-IP-Daily Reinvestment 10 321,140,281 3,211,403 Kotak Liquid Institutional Plan-Daily Dividend Reinvestment 10 15,558,039 190,245 Kotak liquid (Institution Premium) Daily Dividend 10 126,143,882 1,542,500 Principal cash management liquid option Dividend reinvestment Plan 10 104,048,896 1,040,547 Prudential ICICI Liquid –Institutional Plus- Growth 10 45,726,489 711,341 Prudential ICICI Liquid – Institutional-Daily Dividend Reinvestment 10 62,459,600 740,116 Prudential ICICI Liquid Plan Daily Dividend option 10 16,875,501 200,000 Tata Liquid Fund – HIP-Daily Dividend Reinvestment 10 11,429,801 127,023 Tata Liquid Super High Investment Daily Dividend Fund 10 282,111,285 3,137,027 Templeton India TMA – Daily Dividend Reinvestment 1,000 3,008,349 4,548,512 Templeton India TMA- Growth 1,000 585,753 921,561 Income Funds Birla Income Plus- IP- Dividend Reinvestment 10 10,830,201 290,844 DSP ML Bond Fund –IP – Dividend Reinvestment 10 37,407,550 391,526 HDFC Income Fund - Premium Plus Plan- Growth 10 9,756,782 150,018 HDFC Income Fund - Premium Plus Plan- Dividend Reinvestment 10 66,934,875 723,924 JM Income-IP- Growth 10 47,862,198 1,254,952 Kotak Bond-Institutional- Dividend Reinvestment 10 140,159,171 1,492,398 PRINCIPAL Income Fund –IP-Dividend Reinvestment 10 37,666,385 383,216 Prudential ICICI Income Fund-IP- Quarterly Dividend 10 44,510,914 500,000 Templeton India IBA –Plan A- Growth 10 86,100,924 1,970,936 Templeton India IBA –Plan A- Monthly Dividend Reinvestment 10 296,153,099 4,470,094 Floating Rate Plans DSP ML Floating Rate Fund- Weekly Dividend Reinvestment 10 39,059,223 391,158 Grindlays Floating Rate Fund- Daily Dividend Reinvestment 10 993,155 10,001 Grindlays Floating Rate Fund- IP- Daily Dividend Reinvestment 10 25,205,345 253,825 Templeton Floating Rate Income Fund ST- Growth 10 94,578,170 1,069,839 Templeton Treasury Management Account 10 151,847,209 1,519,007 Dynamic Income Plans Grindlays Dynamic Bond Fund-IP-Quarterly Dividend Reinvestment 10 58,750,516 634,438 Prudential ICICI Flexible Income Plan- Quarterly Dividend 10 58,194,739 630,074 Tata Dynamic Bond Fund - Option B - Income 10 9,993,808 100,000

42 SCHEDULES FORMING PART OF THE BALANCE SHEET

As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 7 INVENTORIES Equipment and tools 19,241 — Consumable stores and spares 4,935 6,851 Less: Provision for obsolescence (85) (85) 24,091 6,766 SCHEDULE - 8 SUNDRY DEBTORS (a) Over six months (unsecured) Considered good 294,029 1,494,375 Considered doubtful 1,892,670 1,740,233 2,186,699 3,234,608 Less: Provision for doubtful debts (1,892,670) (1,740,233) 294,029 1,494,375 (b) Other debts (unsecured) Considered good 4,107,928 6,382,619 4,401,957 7,876,994 SCHEDULE - 9 CASH AND BANK BALANCES (a) Cash in hand 2,506 537 (b) Remittances in transit 16 337 (c) Current accounts with scheduled banks 184,685 270,979 (d) Deposit accounts with scheduled banks 10,279,903 23,314,011 10,467,110 23,585,864 Notes: i) Deposit accounts include an amount of Rs. 5,972,069 thousands (2003: Rs. 6,257,729 thousands) representing unutilised monies raised during GDR issue ii) Deposit accounts include fixed deposits amounting to Rs. Nil thousands (2003: Rs. 3,605,000 thousands) secured against short-term bank loans. SCHEDULE - 10 OTHER CURRENT ASSETS (a) Interest receivable 176,458 218,131 (b) Service tax recoverable 270,315 — (c) Pension contributions recoverable from Government of India 259,284 251,082 (Refer Note B7, Schedule 21) (d) Government of India current account 19,056 39,968 (e) Others 132,574 11,034 857,687 520,215

43 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SCHEDULES FORMING PART OF THE BALANCE SHEET

As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 11 LOANS AND ADVANCES (a) Unsecured - Considered good (i) Staff Advances 150,272 273,895 (ii) Deposits with Public bodies 37,492 36,595 (iii) Inter - Corporate Deposit 100,000 — (iv) Other Deposits 125,061 23,303 (v) Other loans and advances 488,619 106,199 (vi) Prepaid expenditure 538,335 632,078 (vii) Advance payment of tax (net of provision for tax) 9,806,180 12,140,797 11,245,959 13,212,867 (b) Unsecured - Considered doubtful Other loans and advances 38,109 — Less: Provision for doubtful debts (38,109) — 11,245,959 13,212,867 Note: Advances include: (i) Loans due by an officer of the Company Rs. 199 thousands (2003: Rs.221 thousands)

SCHEDULE - 12 CURRENT LIABILITIES (a) Sundry Creditors: (i) Traffic creditors 3,501,659 1,769,599 (ii) Unearned income and deferred revenues 3,664,423 3,033,006 (iii) Others 3,267,029 3,800,553 (b) Interest accrued but not due — 606 (c) Liability towards Investors Education and Protection Fund under Section 205C of the Companies Act 1956 not due Unpaid dividend 12,215 14,108 (d) Other liabilities (Note 1 and 2) 2,896,064 1,553,478 13,341,390 10,171,350 Notes: 1) Includes Rs 150,000 thousands payable for purchase of ISP business (Refer Note B5, Schedule 21) 2) Includes Rs 1,184,260 thousands overdrawn book bank balance 3) Dues to small scale industial undertakings Rs. 122 thousands (2003: Rs. 122 thousands) Amount due to M/s. Enertech Electronics, a small - scale industrial undertaking, has been outstanding for more than 30 days and is in excess of Rs.100,000. 4) Dividends are not outstanding for a period exceeding seven years. SCHEDULE - 13 PROVISIONS (a) Provisions for employee benefits 470,747 503,009 (b) Provision for proposed dividend 1,282,500 2,422,500 (c) Dividend tax 164,320 310,383 1,917,567 3,235,892

44 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 14 TRAFFIC REVENUES (a) Telephone 21,325,940 37,158,188 (b) Telex 74,966 95,891 (c) Telegraph 17,632 22,246 (d) Leased channel 5,514,915 4,231,004 (e) Frame Relay 1,276,425 1,061,500 (f) Internet 2,881,531 2,250,518 (g) Other traffic revenues 544,030 566,104 31,635,439 45,385,451 SCHEDULE-15 OTHER INCOME (a) Other income (note 1 and 2 below) 548,348 138,184 (b) Rent 38,472 17,266 (c) Other provisions written back (net) 69,227 94,124 (d) Exchange gain (net) — 122,172 656,047 371,746 Notes: (1) Dividend from current investments 404,845 — (2) Profit on sale of current investments (net) 60,179 — SCHEDULE-16 INTEREST (a) Interest- i. Bank Deposits 918,951 1,844,020 (Gross, inclusive of tax deducted at source Rs. 202,971 thousands, 2003: Rs. 387,177 thousands) ii. Other Deposits and Advances 14,390 21,335 (Gross, inclusive of tax deducted at source Rs. 1,010 thousands, 2003: Rs. 75 thousands) (b) Less: i. Interest paid on short term bank loan (4,146) (32,400) ii. Other Interest (302) (257) 928,893 1,832,698

SCHEDULE - 17 SALARIES AND RELATED COSTS (a) Salaries including bonus 992,207 1,077,751 (b) Contribution to provident and other funds 89,661 179,343 (c) Staff welfare expenses 300,565 279,307 1,382,433 1,536,401

SCHEDULE-18 NETWORK COSTS (a) Rent of satellite channels 1,721,726 2,425,562 (b) Rent of landlines 3,553,497 3,318,732 (c) Administrative lease charges 136,171 86,757 (d) Royalty and licence fee to Department of Telecommunications 2,839,725 4,248,935 (e) Charges for use of transmission facilities (i) Telephone [net of excess provision written back Rs 732,911 thousands (2003: Nil)] 13,128,626 19,056,115 (ii) Telex 22,393 59,133 (iii) Telegraph 14,791 13,276 (iv) Leased channel 64,509 33,003 (v) Internet 383,327 465,478 (vi) Others 325,329 332,180 22,190,094 30,039,171

45 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 SCHEDULE - 19 OPERATING AND OTHER EXPENSES (a) Consumption of Stores 7,206 8,998 (b) Light and power 299,077 301,992 (c) Repairs & Maintenance: (i) Buildings 38,357 47,728 (ii) Plant & Machinery 817,897 936,880 (iii) Others 70,151 26,464 (d) Bad Debts Written Off 112,301 121,077 (e) Provision for Doubtful Debts 152,437 70,308 (f) Provision for Doubtful Advances 38,109 — (g) Rent 25,443 16,405 (h) Rates and taxes 120,793 45,038 (i) Travelling expenses 112,357 54,813 (j) Postage 7,351 7,438 (k) Telephone and telex 31,575 18,971 (l) Printing and stationery 20,995 9,861 (m) Security expenses 35,942 29,893 (n) Computer software and maintenance 18,041 40,742 (o) Legal and professional fees 196,326 84,788 (p) Advertising and publicity 254,778 116,602 (q) Commonwealth Telecommunication Council Contribution 5,043 4,920 (r) Water charges 13,741 11,692 (s) Insurance 26,957 37,222 (t) Donations 50 — (u) Loss on sale of fixed assets (net) 3,766 1,146 (v) Investment written off 279 92,000 (w) Exchange loss (net) 12,941 — (x) Other expenses 486,780 318,270 2,908,693 2,403,248 SCHEDULE - 20 PRIOR PERIOD ADJUSTMENTS INCOME: Traffic revenues (14,565) 43,639 Miscellaneous income (44) (7,139) EXPENSES: Provision for depreciation in respect of earlier years(net) 7,349 29,061 Charges for use of transmission facilities (2,350) 41,743 Operating and other expenses 16 1,249 Repairs and maintenance 980 27,190 (8,614) 135,743

NOTE : Figures in brackets are credits

46 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

SCHEDULE 21 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS A. SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared under the historical cost convention, in accordance with the accounting standards issued by the Institute of Chartered Accountants of India and in accordance with the applicable requirements of the Companies Act, 1956. 1. Revenue Recognition Revenues from long distance telephone services are recognised at the end of each month based upon minutes of incoming or outgoing traffic completed in such month. Revenues from leased circuits are recognised over the term of the lease based on contracted fee schedules. Revenues from internet services are recognised based on usage by subscribers/ customers. Substantial portion of revenues are on account of recoveries from Foreign Telecommunication Administrations for incoming traffic and recovery from domestic carriers for delivery of calls on foreign networks. 2. Operating Costs The principal components of cost of operations are network and transmission costs, licence fees paid to the Department of Telecommunications and other operating costs. Transmission costs include cost of delivering a call on domestic network payable to domestic carriers and cost of delivering a call on foreign network payable to Foreign Telecommunication Administrations. 3. Retirement Benefits a) Provision is made for unutilised leave due to employees at the balance sheet date and is determined based on independent actuarial valuation. b) Provision for gratuity is made on the basis of independent actuarial valuation. c) Pension contributions are charged to the profit and loss account based on actuarial valuation. Pension contributions mainly comprise the Company’s share of contribution relating to Overseas Communication Services (OCS) employees who were transferred to the Company in the financial year ended 31st March, 1990. d) The Company’s contributions to Employees’ Provident fund and Benevolent Fund are defined contribution plans and are recognised in the profit and loss account in the period when such contributions are made. 4. Foreign Currency Transactions a) Foreign currency transactions are converted to Indian Rupees at rates of exchange approximating those prevailing at the transaction date. Foreign currency monetary assets and liabilities are translated to Indian Rupees at the closing exchange rate prevailing on the balance sheet date. Exchange differences arising on settlement and translation of foreign currency monetary assets and liabilities are recognised in the profit and loss account, except in respect of liabilities for purchase of fixed assets, where such exchange differences are adjusted in the carrying cost of the fixed assets. b) Premium or discount on forward contracts is amortised over the life of such contracts and is recognised in the profit and loss account, except in respect of liabilities for purchase of fixed assets where such amortisation is adjusted in the carrying cost of fixed assets. Profit or loss arising on cancellation or renewal of forward exchange contract is recognised in the profit and loss account in the period of such cancellation or renewal, except in case of a forward contract relating to liabilities for purchase of fixed assets, in which case such profit or loss is adjusted to the carrying cost of such fixed assets. 5. Taxes on Income Tax expense for the year comprises current and deferred income taxes. Current tax is measured based on applicable tax rates and is computed in accordance with the Income Tax Act, 1961.

47 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

Deferred tax assets and liabilities are measured using the tax rates, which have been enacted or substantively enacted as at the balance sheet date. Deferred tax assets and liabilities are recognised for future tax consequences attributable to timing differences between the taxable and accounting income. Deferred tax assets in respect of unabsorbed depreciation and carry forward tax losses are recognised if there is virtual certainty that there will be sufficient future taxable income available to realise such losses. Deferred Tax Assets in respect of other timing differences are recognised if there is a reasonable certainty that sufficient future taxable income will be available to realise such assets. 6. Fixed Assets a) Fixed assets are stated at cost less accumulated depreciation. Cost includes freight, duties, taxes and all incidental expenses related to bringing the assets to their present location and condition. b) Fixed Assets received as gifts from other Foreign Telecom Administrations are capitalised and credited to capital reserve on the basis of notional cost (cost assessed by customs authorities). Cost includes freight, insurance and customs duty. c) Intangible assets in the nature of Indefeasible Rights of Use (IRU’s) for international telecommunication circuits in submarine cables are recorded as fixed assets. IRU agreements transfer substantially all the risks and rewards of ownership. d) Jointly owned assets are capitalised in proportion to the Company’s ownership interest in such assets. e) Goodwill included under fixed assets represents the excess of purchase consideration over the value of net assets of the business acquired. 7. Depreciation The Company with effect from 1st January, 2004 revised the estimated useful lives of plant and equipment resulting in an increase in the rates of depreciation from 5.28% to rates between 5.28% and 11.88%. The rates of depreciation are higher than the rates set out in Schedule XIV to the Companies Act, 1956. Depreciation on IRUs has been revised to write-off the cost of the IRUs over a period of 15 years. Prior to the revision, IRUs were depreciated over the period of the lease. All other fixed assets are depreciated at rates set out in Schedule XIV to the Companies Act, 1956. Goodwill is amortised on a straight line basis over a period of 60 months. Depreciation for the period 1st April, 2003 to 31st December, 2003 has been provided on the following basis which is consistent with the previous year: a) In respect of fixed assets taken over from OCS, depreciation has been provided for on a straight line method so as to write off the cost, at the rates stated in Circular No.1/86 dated 21.5.1986 issued by the Department of Company Affairs, read with Para 22 of the Guidance Note on Depreciation for Companies issued by the Institute of Chartered Accountants of India. b) On assets acquired during the period 1st April, 1986 to 31st March 1994, depreciation has been provided for on written down value method at rates specified in Schedule XIV of the Companies Act, 1956. c) On assets acquired after 31st March, 1994 depreciation has been provided on a straight line method at the rates prescribed in Schedule XIV of the Companies Act, 1956. d) Leasehold lands are amortised over the period of lease. e) Depreciation on notional cost of gifted assets is offset by transfer from capital reserve. 8. Investments Long-term investments are valued at cost less provision for diminution in value. Provision for diminution in the value is made to recognise a decline, which is other than temporary, in the value of such investments. Current investments comprising investments in mutual funds are stated at the lower of cost and fair value, on an individual investment basis.

48 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

9. Inventories Stores and spares are stated at lower of cost (weighted average basis) less provision for obsolescence. Inventories of equipment are stated at lower of cost (weighted average basis) and net realisable value. B. NOTES TO ACCOUNTS 1. The Company was incorporated on 19th March 1986. The Government of India, vide its Order No. G 25015/6/86-OC dated 27.3.1986, transferred all the assets and liabilities of the OCS (part of the Department of Telecommunications, Ministry of Communications) as appearing in the Balance Sheet as at 31st March 1986 to the Company with effect from 1st April 1986. As per the letter no. G-25015/6/86-OC dated 23.10.2001 of Government of India, Department of Telecommunications, there was no requirement to register a formal transfer deed or deed of sale in the matter of such transfer of assets. 2. The shareholders of the Company at the Extraordinary General Meeting held on 2nd April, 2004 approved, and the High Court Judicature at Mumbai vide its order passed on 6th May, 2004 confirmed the utilisation of Securities Premium Account in accordance with the provisions of Section 78 read with Section 100 of the Companies Act, 1956 towards adjustment of the reduction in the carrying values of certain fixed assets. The aggregate reduction of Rs. 9,564,093 thousands has been debited to Securities Premium Account. The related deferred tax asset of Rs. 3,431,118 thousands arising on such reduction has been credited to Securities Premium Account. 3. Capital reserve includes an amount of Rs. 2,052,161 thousands (2003: Rs. 2,052,161 thousands) representing foreign exchange gain on unutilised Global Depository Receipts (GDR) monies arising in previous years. 4. The Company has an investment of Rs. 6,004,000 thousands in Tata Teleservices Limited (“TTSL”) representing an equity interest of 19.88% in the issued and paid up capital of TTSL. The Board of Directors has approved additional investment in equity shares of Rs. 2,354,000 thousands by 30th June, 2004. TTSL has accumulated losses, which have significantly eroded its net worth. In the opinion of the management, having regard to the long gestation period inevitable in the nature of its business, there is no permanent diminution in value of the investment. 5. On 30th March 2004, the Company purchased the internet service provider (ISP) business from DishnetDSL Limited under a slump sale agreement. The Company acquired net assets of Rs. 1,680,486 thousands for a purchase consideration of Rs. 2,700,000 thousands. Consequently, an amount of Rs. 1,019,514 thousands has been recognised as goodwill and included under Fixed Assets. Net assets include a loan of Rs. 630,000 thousands extended by DishnetDSL Limited to the ISP business acquired. The loan is repayable in three bi-monthly instalments of Rs.210,000 thousands each, commencing immediately after the balance sheet date. The valuation of fixed assets amounting to Rs. 1,934,058 thousands acquired under the slump sale agreement has been determined by the management based on an independent valuation. Legal formalities relating to transfer of assets and contracts in the name of the Company are pending completion. In accordance with the terms of the agreement, an amount of Rs. 180,000 thousands would be payable by the Company for certain services to be rendered by DishnetDSL Limited in the conduct of ISP business. The amount is payable over a period of eighteen months from the balance sheet date. 6. During the year, the Company introduced two Voluntary Retirement Schemes (VRS) exercisable by eligible employees between 15th May, 2003 to 14th July, 2003 and 10th February, 2004 to 29th February, 2004. The expenditure of Rs. 1,029,661 thousands under these schemes has been charged to the profit and loss account. 7. Included under provision for employee benefits is an amount of Rs.302,797 thousands representing the actuarial liability in respect of pension contributions payable to erstwhile OCS employees transferred to the Company. The proportionate share of the Government of India in respect of these employees of Rs. 259,284 thousands is included under other current assets.

49 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

8. Business Segments

Management has reviewed and revised the reportable business segments to include international telephony, international private leased circuit, frame relay, telex and telegraph as a separate reportable segment “international telephony and related services” for the purpose of evaluating performance and to facilitate decision making on future allocations of resources. Previous year’s figures have been regrouped accordingly.

Year ended 31.03.2004 Year ended 31.03.2003 Rupees ‘000 Rupees ‘000 International Other Total International Other Total Telephony Services Telephony Services and related and related services services

Revenues 27,177,000 4,458,439 31,635,439 41,188,865 4,196,586 45,385,451 Segment Profits 6,850,176 3,046,390 9,896,566 12,938,275 2,823,882 15,762,157 Unallocated (expenses)/ income (net) — — (4,463,948) — — (3,218,169) Profit before taxes 5,432,618 12,543,988 Income Taxes 1,656,058 4,743,273 Profit after taxes 3,776,560 7,800,715

(i) Revenue and expenses, which are directly identifiable to segments are attributed to the relevant segment. The Company does not have any inter-segment revenues. Expenses on rent of satellite channels and landlines, and royalty and licence fee on revenues from operations are allocated based on turnover. Certain expenses such as staff costs, operating and other expenses, and depreciation are not allocable to segments and consequently have been classified as “other unallocable expenditure”. (ii) Segment total assets and liabilities have not been allocated, in the absence of a meaningful basis to allocate assets and liabilities between segments. Fixed assets are used interchangeably between segments.

Geographical Segment: The operations of the Company are in India and all the assets (other than certain cables) are located in India.

Segment Revenues by Geographical Market Year ended Year ended Name of the Country 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 India 17,823,688 16,911,741 United States of America 4,748,288 10,773,545 Saudi Arabia 1,445,273 3,199,423 United Arab Emirates 2,822,396 5,467,697 Other Countries 4,795,794 9,033,045

Total Revenue 31,635,439 45,385,451

50 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

9. Deferred tax liability Significant components of deferred tax assets and liabilities on account of timing differences are:- Particulars As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Deferred tax liability Difference between accounting and tax depreciation 4,507,502 3,986,695 Deferred tax assets Provision for doubtful debts 678,912 624,225 Reduction in carrying value of fixed assets 3,431,118 — Voluntary retirement scheme 300,630 7,890 Difference due to change in tax rate — 66,920 Other timing differences 25,676 85,026 4,436,336 784,061 Net Deferred tax liability 71,166 3,202,634 Tax expense for the year comprises: Income tax - Current Year 1,345,489 4,298,494 - Previous Years — (14,450) Wealth tax 10,919 67,209 1,356,408 4,351,253 10. Included in operating and other expenses: Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Auditors’ remuneration and expenses (i) Audit fees 4,500 4,500 (ii) Tax audit fees 1,000 1,000 (iii) Other professional services 1,500 1,000 (iv) Service tax 560 520 Auditors’ remuneration excludes fees of Rs 2,000 thousands (2003: Rs 2,000 thousands) payable/paid for professional services to a firm of auditors in which partners of the firm of statutory auditors are partners. 11. Earnings Per Share Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Net Profit for the year 3,776,560 7,800,715 Number of Ordinary Shares (in Nos.‘000) 285,000 285,000 Basic and Diluted Earnings (Rupees per share) 13.25 27.37 12. Managerial Remuneration Managerial Remuneration for Managing Director, Whole-time Director and Non-Executive Directors: Year ended Year ended 31.03.2004 31.03.2003 Nature of Payment Rupees ‘000 Rupees ‘000 i) Salaries 3,700 3,546 ii) Contribution to provident and other funds 681 653 iii) Estimated monetary value of perquisites 2,242 1,711 iv) Commission 2,700 2,700 v) Directors’ sitting fees 510 155 9,833 8,765

51 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

Computation of Net Profit in accordance with Section 349 of the Companies Act,1956 Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Profit before taxes as per profit and loss account 5,432,618 12,543,988 Add: Managerial Remuneration 9,833 8,765 Provision for doubtful debts 152,437 70,308 Provision for doubtful advances 38,109 — Net profit as per Section 349 5,632,997 12,623,061 Commission Managing Director and Whole-time Director 2,700 2,700

13. Cash and cash equivalents As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Cash on hand and balances with banks 187,207 271,853 Deposit accounts with banks 10,279,903 23,314,011 Cash and cash equivalents 10,467,110 23,585,864

(i) Cash and cash equivalents are stated after adjustments for foreign exchange rate difference amounting to Rs. 874 thousands (2003: Rs. 803 thousands). (ii) Included under deposit accounts with banks is an amount of Rs. 5,172 thousands (2003: Rs. 4,011 thousands) relating to deposits held for unpaid dividends. (iii) Deposit Accounts with banks amounting to Rs. 10,160,000 thousands (2003: Rs. 22,910,000 thousands) have maturity periods of more than three months from the date of such deposits. 14. Related Party Disclosures (a) List of related parties and relationship: Party Relationship Panatone Finvest Limited Investing Party VSNL Lanka Limited Subsidiary VSNL Singapore Pte Limited Subsidiary VSNL America Inc Subsidiary (registration of title of shares in the company’s name pending) VSNL UK Limited Subsidiary United Telecom Limited Joint Venture Tata Teleservices Ltd (TTSL) Associate Key Managerial Personnel Mr. S.K.Gupta Managing Director Mr. N. Srinath Whole- time Director

52 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

(b) Related party transactions (Rupees ‘000) Transactions Subsidiaries Associates Key Managerial Personnel Rendering of services - - - -42- Managerial remuneration - - 9,323 - - 8,610 Rental income – TTSL - 26,087 - --- Traffic revenue 538 289,081 - - 28,564 -

Network cost 987 200,811 - - 1,759 - Purchase of fixed assets and spares – TTSL - 234,426 - --- Sale/Transfer of Fixed Assets and spares 49,731 78,818 - --- Management contract for deputation of employees – TTSL - 21,708 - - 5,252 - Finance - equity contributions 110,336 3,233,325 - - 2,987,325 - Investments written off and reimbursement 367 - - of expenses for liquidation ---

Incorporation and registration expenses 205 - - Balances: -- Receivables 205 161,037 - 88 931 - Payables 464 183,933 2,700 - 640 2,700 Bank guarantee --- - 213,280 - Note: Figures in italic are in respect of the previous year.

Disclosure in respect of other material transactions during the year with Tata Teleservices Ltd.:

Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Traffic revenues 289,081 28,564 Network Cost 200,811 1,759 Sale of Fixed Assets 78,818 - Finance - equity contributions 3,200,000 2,804,000

53 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

15. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 7,520,765 thousands (2003: Rs. 7,819,729 thousands). 16. Contingent Liabilities As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Letters of Credit 71,007 238,757 Guarantee and Counter - Guarantee Outstanding 4,986,082 4,318,876 Claims against the Company not acknowledged as debts (i) Claims for taxes on income (see notes 1,2 and 3) (a) Income tax disputes where the department is in appeal against the Company 1,419,904 1,343,586 (b) Income tax disputes where the Company has a favourable decision in other Assessment year for the same issue 2,161,851 2,078,453 (c ) Income tax disputes other than the above 7,659,847 6,742,381 (ii) Claims for other taxes 221,880 84,343 (iii) Other Claims 256,301 241,423 Notes: Significant claims by the revenue authorities in respect of income tax matters are in respect of: (1) expenditure on licence fees for the Assessment Year 1995-96 disallowed by the revenue authorities. The Company’s appeal was allowed at the Tribunal stage, and the matter is now pending before the High Court. An appeal on similar grounds for the Assessment Year 1994-95 is pending before the Commissioner of Income Tax (Appeals). The Company has obtained favourable decisions in other assessment years, which have not been contested by the revenue authorities, and the Company is of the view that the claims will eventually be decided in its favour. (2) deductions claimed under Section 80 IA of the Income Tax Act from Assessment years 1996-97 onwards have been disallowed by the revenue authorities. The Company has contested the disallowance and has preferred appeals. (3) reimbursement by the Department of Telecommunications (DoT) of income tax paid by the Company on the DoT levy during 1994-95, that was taxed by the revenue authorities. The Company is in appeal. 17. Value of Imports on C.I.F. basis Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Stores and Spares 20,107 7,079 Capital Goods 531,838 276,359 18. Expenditure in foreign currencies Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 i) Charges for use of transmission facilities (gross) 4,528,089 6,635,149 ii) Rent of satellite channels 1,721,726 2,435,562 iii) Administrative lease charges 136,171 86,756 iv) Repairs and Maintenance 342,670 519,425 v) Advertisement 613 1,194 vi) Legal and Professional Fees 33,154 31,169 vii) Travelling Expenditure 15,526 11,002 viii) Others 196,836 39,101 6,974,785 9,759,358

54 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS

Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 19. Earnings in Foreign currencies i. Traffic Revenue (gross) 13,811,751 28,473,710 ii. Other Income 23,946 25,784 13,835,697 28,499,494

20. Value of imported and indigenous stores/spares consumed Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Value % Value % Imported 6,456 59.75 7,511 41.66 Indigenous 4,349 40.25 10,519 58.34 10,805 100.00 18,030 100.00

21. Net Dividend remitted to non-resident shareholders in foreign currency The Company has not remitted any amount in foreign currencies on account of dividends during the year and does not have information as to the extent to which remittances, if any, in foreign currencies on account of dividends have been made by / on behalf of non – resident shareholders. The particulars of final dividends for the year ended 31st March, 2003 payable to non–resident shareholders, for which dividends were declared during the year, are as under: Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 i) Number of non-resident shareholders 336 390 ii) Number of shares held by them 28,074,770 36,863,590 iii) Year to which dividend relates 2002-2003 2001-2002 iv) Amount remitted net of tax 238,636 7,541,574 22. United Telecom Limited (“UTL”) is a Joint Venture between the Company, Mahanagar Telephone Nigam Limited, Telecommunications Consultant India Limited and Nepal Ventures Private Limited. The Company has 26.6 percent equity ownership in UTL. UTL operates basic telephony services in Nepal based on Wireless-in-local loop technology. The Company’s share in income, expenses, assets and liabilities of UTL are as follows: Year ended Year ended 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Income 30,845 — Expenses 47,296 —

As at As at 31.03.2004 31.03.2003 Rupees ‘000 Rupees ‘000 Assets 404,328 241,169 Liabilities 190,443 70,877 23. Previous year’s figures have been regrouped and reclassified wherever necessary.

55 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

Balance Sheet Abstract and Company’s General Business Profile in terms of Part IV of Schedule VI to the Companies Act, 1956. I. Registration Details Registration No. 3 9 2 6 6 State Code 1 1 (REFER CODE LIST) Balance Sheet Date 3 1 0 3 2 0 0 4 Date Month Year II. Capital Raised during the year (Amount in Rs. Thousands) Public Issue Right Issue NIL NIL Bonus Shares Private Placement NIL NIL III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) Total Liabilities Total Assets 67631890 67631890 Source of Funds Paid-up Capital Reserves & Surplus 2850000 48821767 Secured Loans Unsecured Loans NIL 630000 Deferred Tax Liability 71166 Application of Funds Net Fixed Assets Investments 19743640 20891446

Net Current Assets Miscellaneous Expenditure 11737847 NI L Accumulated Losses NIL IV. Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure 33710686 28189806 + - Profit/Loss Before Tax + - Profit/Loss After Tax + 5432618 + 3776560 (Please tick appropriate box + for Profit, - for Loss) Earning per Share in Rs. Dividend 13 . 25 45%

56 V. Generic Names of Three Principal Products/Services of Company (as per monetary terms) Item Code No. (ITC Code) Product Description I N T E R N A T I O N A L T E L E C O M MUN I C A T I ON S S E R V I C E S Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description

* Note : For ITC code of products please refer to the publication Indian Trade Classification based on harmonized commodity description and coding system by Ministry of Commerce, Directorate General of Commercial Intelligence & Statistics, Calcutta - 700 001 ANNEXURE I Code List 1 : State Codes

State Code State Name State Code State Name 01 Andhra Pradesh 02 Assam 03 Bihar 04 Gujarat 05 Haryana 06 Himachal Pradesh 07 Jammu & Kashmir 08 Karnataka 09 Kerala 10 Madhya Pradesh 11 Maharashtra 12 Manipur 13 Meghalaya 14 Nagaland 15 Orissa 16 Punjab 17 Rajasthan 18 Tamil Nadu 20 Uttar Pradesh 21 West Bengal 22 Sikkim 23 Arunachal Pradesh 24 Goa 52 Andaman Islands 53 Chandigarh 54 Dadra Islands 55 Delhi 56 Daman & Diu 57 Lakshwadeep 58 Mizoram 59 Pondicherry

For and on behalf of the Board RATAN N.TATA Chairman S. K. GUPTA Managing Director SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI DATED: 22nd June, 2004

57 VIDESH SANCHAR NIGAM LIMITED Eighteenth Annual Report 2003-2004

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956, RELATING TO SUBSIDIARY COMPANIES

Name of the Subsidiary VSNL Lanka VSNL Singapore VSNL America VSNL UK Limited Pte Limited* Inc.** Limited** 1. Financial Year of the Subsidiary ended on 31-Mar-04 31-Mar-05 31-Dec-04 31-Mar-04

2. Share of the Subsidiary held by the Company on the above date:

a) Number 6,593,199 1,750,000 Nil Nil

Face Value SLR 10 US$1 — —

b) Extent of Holding 100% 100% — —

3. Net agregate of profits/(losses) of the subsidiary for the above financial year of the subsidiary so far as they concern members of the company (fig in ‘000) (SLR 7,488) — — —

a) Dealt with in the accounts of the company for the year eneded 31 March 2004 (fig in ‘000) Nil — — —

b) Not dealt in the accounts of the Company for the year eneded 31 March 2004 (fig in ‘000) (SLR 7,488) — — —

4. Net agregate of profits/losses for previous years of the subsidiary, since it became a subsidiary so far as they concern the members of the Company Nil — — —

a) Dealt with in the accounts of the company for the year eneded 31 March 2004 (Rs. Lakhs) Nil — — —

b) Not dealt in the accounts of the Company for the year eneded 31 March 2004 (Rs. lakhs) Nil — — —

* The first accounting year is ending on March 31, 2005. ** No transactions during the year For and on behalf of the Board RATAN N.TATA Chairman S. K. GUPTA Managing Director SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI DATED: 22nd June, 2004

58 SUMMARY OF FINANCIAL INFORMATION OF SUBSIDIARY COMPANIES

Name of the Subsidiary VSNL Lanka VSNL Singapore VSNL America VSNL UK Limited Pte Limited* Inc.** Limited**

In ‘000 SLR

Funds Employed Share capital 65,932 — — — Retained earnings (7,488) — — —

Total Shareholders’ Fund 58,444 — ——

Application of Funds Property, plant and equipment 105,326 — — — Intangible assets 4,455 — — — Other Assets — ——— Current assets Trade and other receivables 30,270 — — — Deposits prepayments and advances 7,304 — — — Cash in hand and at bank 7,021 — — — 44,595 ——— Current Liabilities Trade and other payables 95,932 — — — 95,932 — ——

Net Current Assets (51,337) — ——

Total Assets( Net) 58,444 — ——

* The first accounting year is ending on March 31, 2005. ** No transactions during the year For and on behalf of the Board RATAN N.TATA Chairman S. K. GUPTA Managing Director SATISH RANADE Company Secretary & Vice President (Legal) AMITABH KHANNA Chief Financial Officer MUMBAI DATED: 22nd June, 2004

59 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

ANNUAL REPORT OF VSNL LANKA LIMITED, SRI LANKA

DIRECTORS’ REPORT

Dear Members, shares in the company as a nominee of Videsh Sanchar The Directors of your Company present the First Annual Nigam Limited, India, the Parent Company. Report together with the audited accounts for the year Directors Shareholding ended 31 March 2004. Mr. S. K. Gupta 01 Share KEY MILESTONES: Mr. N. Srinath 01 Share Your company was incorporated on 12th June, 2003 as a Mr. Satish G. Ranade 01 Share Public Limited Company incorporated under the companies Act (No. 17 of 1982) of Sri Lanka. The company obtained Mr. Prateek Pashine 01 Share External Gateway Operator License (EGO) on 20th June, Mr. V. Govindasamy Nil 2003. The company commenced commercial operations on Mr. Satish G. Ranade and Mr. Prateek Pashine, being first 5th February, 2004. directors, are liable to retire and are eligible for re- OPERATIONS: appointment. The company had about two months of commercial DIRECTORS’ INTEREST IN CONTRACTS operations in the year. Messrs S. K. Gupta and N Srinath, who are directors of the FINANCIAL RESULTS: Company, are also Directors of Videsh Sanchar Nigam Limited, the Parent Company. The Net Profit/(Loss) before Tax for the year was Rs. (7,487,706). The company currently enjoys tax holiday in AUDITORS view of the agreement with Board Of Investment (BoI) of The Financial Statements incorporated in this Report were Sri Lanka. audited by Messrs SJMS Associates (Chartered Accountants) DIVIDEND who being eligible offer themselves for reappointment. In view of the losses the Board does not recommend any PERSONNEL dividend for the financial year ending 31st March 2004. The Company had employees on deputation from Videsh SHARE CAPITAL Sanchar Nigam Limited - India effective from March 2004. The Authorized Share Capital of the Company is Rs. ACKNOWLEDGEMENTS 500,000,000/- divided into 50,000,000 Ordinary Shares of The Directors of your Company acknowledge with thanks Rs. 10/- each, of which Rs. 65,931,990/- was paid up (divided the support received from Registrar of Companies, Board of into 6,593,199 Ordinary Shares of Rs. 10/- each) on 31st Investment, Telecom Regulatory Commission of Sri Lanka, March, 2004. Ministry of Communication. PROPERTY, PLANT AND EQUIPMENT The directors are also grateful to the company’s stake The movement of Property, Plant and Equipment is given holders including its customers, bankers, solicitors for their in the Note 7 of the Financial Statements for the year. support. The directors would like to place on record their appreciation for the hard work and dedication of the project POST BALANCE SHEET EVENTS team deputed from the VSNL, India for the project There were no significant events after the Balance Sheet implementation. date that require adjustments or disclosures in the financial For and on behalf of the Board statements. S. K. Gupta DIRECTORS’ AND THEIR SHAREHOLDINGS Chairman. The details of the Directors held office during the year under Place : Colombo, review is given in the table below. The Directors held the Dated : May 31, 2004

60 AUDITOR’S REPORT

To the Shareholders of VSNL Lanka Limited, # 60, 2nd Floor, Dharmapala Mawatha, Colombo 3.

1. We have audited the balance sheet of VSNL Lanka Limited, as at 31st March 2004, and the related income statement, changes in equity and cash flows for the period from 12th June 2003 to 31st March 2004, together with the accounting policies and notes as set out on pages 3 to 13.

Respective Responsibilities of Directors and Auditors

2. The directors are responsible for preparing and presenting these financial statements in accordance with the Sri Lanka Accounting Standards. Our responsibility is to express an opinion on these financial statements, based on our audit.

Basis of Opinion

3. We conducted our audit in accordance with the Sri Lanka Auditing Standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the said financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the said financial statements, assessing the accounting principles used and significant estimates made by the directors, evaluating the overall presentation of the financial statements, and determining whether the said financial statements are prepared and presented in accordance with the Sri Lanka Accounting Standards. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit.

Opinion

4. In our opinion, the Company has maintained proper books of account for the period from 12th June 2003 to 31st March 2004, and to the best of our information and according to the explanations given to us, the said balance sheet and related income statement, changes in equity, cash flows and the accounting policies and notes thereto, which are in agreement with the said books and have been prepared and presented in accordance with the Sri Lanka Accounting Standards, provide the information required by the Companies Act, No. 17 of 1982 and give a true and fair view of the Company’s state of affairs as at 31st March 2004, and its loss and cash flows for the period 12th June 2003 to 31st March 2004 then ended.

Directors’ Interests in Contracts with the Company

5. According to the information made available to us, the directors of the Company were not directly or indirectly interested in contracts with the Company during the period ended 31st March 2004 except as stated in Note 14 to these financial statements.

CHARTERED ACCOUNTANTS COLOMBO 31st May 2004

61 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

INCOME STATEMENT PERIOD ENDED 31ST MARCH 2004 2004 Note Rs. Revenue 3 1,754,587 Network costs (3,054,886) Administrative expenses (2,135,565) Pre-operational expenses (4,051,843)

Loss from operation / before taxation 4 (7,487,706) Taxation 5 — Net loss for the period (7,487,706)

Earnings per share 6 (1.14) The notes to the financial statements from pages 7 to 13 form an integral part of the financial statements.

BALANCE SHEET AS AT 31ST MARCH 2004 2004 Note Rs. ASSETS Non current assets Property, plant and equipment 7 105,325,736 Intangible assets 8 4,455,000 109,780,736 Current assets Trade and other receivables 9 30,269,867 Deposits prepayments and advances 10 7,303,583 Cash in hand and at bank 7,021,535 44,594,985 Total assets 154,375,721

EQUITY AND LIABILITIES Capital and reserves Share capital 11 65,931,990 Retained earnings (7,487,706) Total equity 58,444,284 Current liabilities Trade and other payables 12 95,931,437 Total equity and liabilities 154,375,721 The notes to the financial statements from pages 7 to 13 form an integral part of the financial statements. Approved on behalf of the board on 31st May 2004. V. Govindaswamy S. K. Gupta Director Director

62 STATEMENT OF CHANGES IN EQUITY PERIOD ENDED 31ST MARCH 2004

Retained Share capital earnings Total equity Rs. Rs. Rs. Issued share Rs. 10 each 65,931,990 — 65,931,990 Net loss for the period — (7,487,706) (7,487,706)

Balance as at 31st March 2004 65,931,990 (7,487,706) 58,444,284

The notes to the financial statements from pages 7 to 13 form an integral part of the financial statements.

STATEMENT OF CASH FLOW PERIOD ENDED 31ST MARCH 2004 2004 Rs. Cash flows from operating activities Net loss before taxation (7,487,706) Adjustment for Depreciation 619,196 Written off licence fee 405,000 Operating loss before working capital changes (6,463,510) (Increase) / decrease in trade and other receivables (30,269,867) (Increase) / decrease in deposits and prepayments (7,303,583) (Decrease) / increase in trade and other payables 95,931,437 Cash generated from operations 51,894,477 Cash flows from investing activities Purchase of property, plant and equipment (105,944,932) EGO licence fee (4,860,000) Net cash flow from / (used in) investing activities (110,804,932) Cash flow from financing activities Issued share capital 65,931,990 Net cash flow from financing activities 65,931,990 Net increase in cash and cash equivalent 7,021,535 Cash and cash equivalents at the beginning of the year — Cash and cash equivalents at the end of the year 7,021,535 Cash and cash equivalent comprises Cash in hand 70 Cash at bank 7,021,465 7,021,535 The notes to the financial statements from pages 7 to 13 form an integral part of the financial statements.

63 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

NOTES TO THE ACCOUNTS PERIOD ENDED 31ST MARCH 2004 1. Corporate information 1.1 Domicile and legal form VSNL Lanka Limited (“the Company”) is a private limited liability company incorporated and domiciled in Sri Lanka. The registered office and principal place of business of the company is located at # 60, 2nd Floor, Dharmapla Mawatha, Colombo 3. 1.2 Principal activities and nature of operations The company is engaged in the business of international telecommunications. The company was incorporated on June 12, 2003 and commenced its commercial operations during March 2004. 1.3 Parent company Videsh Sanchar Nigam Limited of India holds 99.9 % of the issued share capital of the company as at the balance sheet date. 1.4 The notes to the financial statements from pages 7 to 13 form an integral part of the financial statements. 1.5 All values presented in the financial statements are in Sri Lankan Rupees unless otherwise indicated. 2. Summary of significant accounting polices 2.1 Basis of preparation The balance sheet, income statement, changes in equity and cash flows, together with accounting policies and notes, (“ financial statements “) of the company as at 31st March 2004 and for the period then ended, comply with the Sri Lanka Accounting Standards. The financial statements are prepared under the historical cost convention in accordance with Generally Accepted Accounting Principles and accounting standards laid down by the Institute of Chartered Accountants of Sri Lanka. No adjustment is made for inflationary factors affecting these accounts. 2.2 Foreign currencies (a) Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the transactions. For practical reasons, a rate that approximates the actual rate at the date of the transaction is used. (b) Monetary items denominated in foreign currencies at the year end are translated into Rupees at the rates of exchange prevailing at the balance sheet date. (c) Gains and losses, other than those relating to liabilities incurred to acquire fixed assets on foreign exchange transactions are recognised in the profit and loss account. Exchange gains and losses on translation of liabilities incurred for purchase of fixed assets are recognised as part of cost of such assets. 2.3 Taxation (a) Current taxes Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance with the provision of the Inland Revenue Act No. 38 of 2000 and amendments thereto. (b) Deferred taxation Deferred taxation is provided on the liability method. The tax effect of timing differences which occur where items are allowed for income tax purposes in a period different from that when they are recognised in the financial statements is included in the provision for deferred taxation at current rate of taxation.

64 2.4 Property, plant and equipment (a) Fixed assets are stated at cost less accumulated depreciation. Cost includes freight duties, taxes and all incidental expenses related to bringing the assets to its present location and condition together with the cost of spares, if supplied with the assets. (b) Jointly owned assets are capitalised in proportion to the company’s ownership interests in such assets. Depreciation is calculated on the straight line method so as to write off the cost of each asset, over the useful lives. Useful lives of different classes of assets are as given below. Assets Estimated years Under sea cable 18 Land cable 15 Earth station 12 Switches 12 DCC, DCME and Multiplexes 8 Office equipment 20 Computers 6 Furniture and fittings 15 Gain and losses on disposal of property, plant and equipment are determined by reference to their carrying value and are taken into account in determining operating profit. 2.5 Intangible assets Intangible assets such as the cost of acquisition of business right by way of licence etc., are amortised over a period of 10 years, on a straight line basis. 2.6 Trade and other receivables Trade receivables and dues from related parties are stated at the amounts they are estimated to realise, net of provisions for bad and doubtful debts. Amounts payable to, and receivable from the same administration and the VSNL are shown on a net basis. These payable and receivables are intended to be settled on a net basis. 2.7 Cash and cash equivalents Cash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value. 2.8 Liabilities and provisions All material liabilities as at the balance sheet date have been included in the accounts. 2.9 Revenue recognition Revenues from long distance telephone services recognised at the end of each month based upon minutes of incoming or outgoing traffic completed in such month. Revenues from leased circuits are recognised based on contracted fee schedules. Revenue from internet services are recognised based upon usage by subscribers / customers. Majority of revenues are on account of recoveries from Foreign Telecommunication Administrations for incoming traffic and recovery from domestic carriers for delivery of calls on foreign networks. Estimates are made for revenues accrued, where statements of accounts or other information are awaited. 2.10Expenditure recognition Expenses are recognised on accrual basis. Expenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and maintaining the property, plant and equipment in a state of efficiency has been charged to income in arriving at the profit for the year. For the purpose of presentation of the income statement information, the nature of expense method is used.

65 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

2004 Rs. 3. Revenue IPLC revenue 1,444,920 Local link charges 309,667 1,754,587

4. Loss from operations is stated after charging/(crediting) the followings Audit fees 35,000 Staff costs (Note 4.1) 923,426

4.1 Staff cost Wages and salaries 923,426

4.2 The average number of employees employed by the company during the year 3

5. Taxation (a) No provision has been made in these accounts for income tax in view of adjusted tax losses of the company. (b) No provision has been made in these accounts for deferred tax in view of brought forward tax losses of the company. 6. Earnings per share Basic earnings per share The calculation of the earnings per share is based on the net profit for the period and the number of ordinary shares in issue as at the period end as follows: 2004 Rs. Net loss for the period (7,487,706) No of shares in issue for the period 6,593,199 Basic earnings per share (1.14)

7. Property, plant and equipment Cost Beginning Ending balance Additions (Disposals) balance Rs. Rs. Rs. Rs. Fixtures and fittings — 2,304,480 — 2,304,480 Plant and machinery — 85,509,280 — 85,509,280 Electrical installation — 4,195,228 — 4,195,228 Computers — 189,700 — 189,700 Office equipment — 285,698 — 285,698 Capital work in progress 13,460,546 13,460,546 — 105,944,932 — 105,944,932

66 Accumulated depreciation Beginning Charge for Ending balance the year (Disposals) balance Rs. Rs. Rs. Rs. Fixtures and fittings — 12,163 — 12,163 Plant and machinery — 561,884 — 561,884 Electrical installation — 41,515 — 41,515 Computers — 2,503 — 2,503 Office equipment — 1,131 — 1,131 — 619,196 — 619,196 Net Book Value — 105,325,736

2004 Rs. 8. Intangible assets 8.1 Expenditure during the year 4,860,000 Amount written off during the year (405,000) 4,455,000 8.2 Details of balance end of the year Details Basis of written off Amounts External Gateway Operator licence In 10 annual installment 4,860,000

2004 Rs. 9. Trade and other receivable Due from affiliate companies 1,754,587 Other receivables 28,515,280 30,269,867 10. Deposits, prepayments and advance Deposits 608,500 Prepayments 2,295,083 Advances 4,400,000 7,303,583 11. Share Capital Authorised 50,000,000 ordinary share of Rs. 10/- each 5,000,000,000

Issued and fully paid 6,593,199 ordinary share of Rs. 10/- each 65,931,990 12. Trade and other payables Trade payable 13,206,325 Due to affiliate companies - advance received against equity 82,119,192 Other payables 605,920 95,931,437

67 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

13. Commitments (a) Capital commitments There were no material capital commitments outstanding as at the balance sheet date. (b) Financial commitments The company has an annual commitment to pay Rs. 1,170,000/- towards rent. 14. Directors interest in contracts with the company Directors of the company, S.K. Gupta, S. Narasimhan, C.G. Ranade and P. Pashine are directors of VSNL India (Parent Company) with which the company has had the following transactions. Company Relationship Particulars of transactions VSNL India Parent Company The company has received following goods and services from VSNL India Limited. Property, plant and equipment Rs. 58,422,457 Sales Rs. 1,754,587 The balance due to VSNL Lanka Limited as at 31st March 2004 amounts to Rs. 1,754,587. V. Govindasamy Director Secretaries & Financial- Secretarial fees Rs. 107,082 Services (Pvt) Ltd Accounting fees Rs. 75,000 The balance due from VSNL Lanka Limited as at 31st March 2004 amounts to Rs. 137,082. 15. Related party disclosure There were no other related party transactions other than those disclosed in the note no. 14. 16. Post balance sheet events Material events, which occur between the balance sheet date and the date on which the financial statements are authorized for issue, are taken into consideration in the preparation of the balance sheet.

68 STATEMENT OF EXPENSES PERIOD ENDED 31ST MARCH 2004 Rs. Network and transmission cost Local link charges 158,000 Radio link charges 422,759 EGO licence fee 405,000 Port charges 43,970 Annual fee - TRC of Sri Lanka 2,008,490 Earth station fee 16,667 3,054,886 Other operating cost Staff cost 956,778 Repair and maintenance 4,478 Administration expenses 1,139,309 Pre operational expenses 4,051,843 Audit fees 35,000 6,187,408 Staff cost Distribution and installation grant 285,894 Project allowance 223,529 Special project allowances 437,255 Wages 10,100 956,778 Repair and maintenance cost Transmission equipment maintenance 4,478 Total repairs and maintenance 4,478 Administrative expenses Bank charges 500 Computer expenses 24,000 Water charges 4,140 Debit tax 4,606 Rent 127,307 Depreciation 619,195 Travelling 99,208 Printing and stationery 4,877 Secretarial fee 15,000 Telephone 37,985 Office expenses 2,394 Internet and e-mails 50,000 Administrative expenses Accounting fee 15,000 Mobile phone charges 8,258 Entertainment 46,382 Foreign travel 75,160 Hospitality 5,297 1,139,309

69 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

STATEMENT OF EXPENSES PERIOD ENDED 31ST MARCH 2004 (Continued) Rs. Pre-Operational costs Annual fee - TRC of Sri Lanka 491,500 Conveyance 7,220 Courier charges 1,377 Debit tax 58,404 Entertainment 14,425 Gift and donation 44,946 Hiring of projector 14,200 Hospitality expenses 21,306 Import expenses 39,868 Internet and E-mail 547 Legal and professional charges 242,500 Office expenses 23,558 Other expenses 413 Printing and stationery 38,995 Processing and annual fee-BOI 396,750 Rent - stores 211,955 Rent Taj office 354,943 Residence visa fee 46,100 Incorporation expenses 15,555 Secretarial fee 90,000 Staff welfare 16,798 Telephone 131,702 Travelling 222,191 Wages 27,495 Allowances -VLL officers 699,897 Accounting fee 60,000 Mobile phone charges 904 Foreign travelling 121,200 Internet connection charges 27,500 Project lunching expenses 624,482 Bank charges 5,113 4,051,843 Audit fee Audit fee 35,000

70 SCHEDULES TO THE ACCOUNTS PERIOD ENDED 31ST MARCH 2004 Rs. 1. Trade and other receivables 1.1 Due from affiliate companies Name and address of balance over Rs. 200,000/- VSNL India Limited Videsh Sanchar Bhavan Mahatma Gandhi Road Mumbai-400 001 India 1,754,587 1.2 Other receivables VAT 12,984,189 LC Margin 15,357,900 Bank guarantee 173,191 28,515,280 30,269,867 2. Deposits, prepayment and advances 2.1 Deposits Building rent-Taj Samudra 585,000 American Water Premium 2,500 Container deposits 21,000 608,500 2.2 Advance Surath Wickremesinghe Associates Interior Work 1,400,000 IGTL Solutions Lanka (Pvt) Ltd 3,000,000 4,400,000 2.3 Prepayments Telecommunications Regulatory Commission of SL-Annual fee 2,211,750 Telecommunications Regulatory Commission of SL-Earth station fee 83,333 2,295,083 7,303,583

3. Cash in hand and at bank 3.1 Petty cash 70 3.2 Cash at bank Indian bank-A/C 1080326 7,021,465 7,021,535

71 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004 VSNL LANKA LIMITED

4. Name and address of the shareholders Name Addresses No. of shares Videsh Sanchar Nigam Ltd. Videsh Sanchar Bhavan 6,593,193 Mahatma Gandhi Road Mumbai-400 001 India

Mr. Shailendra Kumar Gupta Videsh Sanchar Nigam Ltd 1 Lokmanya Videsh Sanchar Bhavan Mahatma Gandhi Road Kashinath Dhuru Marg Mumbai-400 028 India

Mr. Narasimhan Srinath Videsh Sanchar Nigam Ltd 1 Lokmanya Videsh Sanchar Bhavan Mahatma Gandhi Road Kashinath Dhuru Marg Mumbai-400 028 India

Mr. Satish Gopal Ranade Videsh Sanchar Bhavan 1 Mahatma Gandhi Road Mumbai-400 001 India

Mr. Arun Kumar Gupta Videsh Sanchar Nigam Ltd 1 Lokmanya Videsh Sanchar Bhavan Mahatma Gandhi Road Kashinath Dhuru Marg Mumbai-400 028 India

Mr. Rajiv Kataria Videsh Sanchar Nigam Ltd 1 Lokmanya Videsh Sanchar Bhavan Mahatma Gandhi Road Kashinath Dhuru Marg Mumbai-400 028 India

Mr. Prateek Pashine Videsh Sanchar Nigam Ltd 1 Lokmanya Videsh Sanchar Bhavan Mahatma Gandhi Road Kashinath Dhuru Marg Mumbai-400 028, India 6,593,199

72 5. Trade and other payables Rs. 5.1 Trade payable Panalpina France Division ASB Air, 95707 Roissy CDG, France 13,206,325 5.2 Due to affiliate companies Name and address of balances over Rs. 200,000/= VSNL India Limited - Advance received against equity Videsh Sanchar Bhavan Mahathma Gandi Road Mumbai-400-001 India 82,119,192 5.3 Other payables Lanka Com Services 28,750 SKS Exports (Pvt) Ltd 5,970 Rajagiriya Tours 41,505 Secretarial & Finance Services 137,082 Audit fee 35,000 IGTL Solution Lanka payable 66,974 Payable to staff 290,639 605,920 95,931,437 6. Rent Name and address of the recipients Taj Samudra Hotel 482,250 Taj Samudra # 25, Galle Face Center Road, Colombo 3. MIT Cargo 211,955 # 400, Deans Road, Colombo 10 694,205 7. Foreign travels Designation Purpose Amount Director India Business 121,200 StaffIndia Business 75,160 196,360 8. Legal charges Name and address of the recipient D.N. Thurairajah & Company # 23, 1st Lane, Kirulapona, Colombo 5. 242,500 9. Name and address of the Managing Director Mr. S.K. Gupta # 4B, Sett Minar, Opp. Jaslok Hospital, # 752, Peddar Road, Mumbai 400026.

73 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004

BOARD OF DIRECTORS

Mr. Ratan N. Tata Ratan N. Tata was born in Mumbai on December 28, 1937. He Mr. Tata serves in important capacities in various received a Bachelor of Science degree in architecture from organisations in India, including as a member of the central Cornell University in 1962, and completed the Advanced board of the Reserve Bank of India (RBI). His foreign affiliations Management Program conducted by Harvard University in include memberships of the international advisory boards 1974-1975. of Mitsubishi Corporation, the American International Group, J.P. Morgan Chase, Booz-Allen Hamilton Inc., and of the board Mr. Tata joined the Tata Group in 1962. He was assigned to of trustees of the Ford Foundation. He also serves on the various companies before being appointed director-in- International Investment Council set up by the President of charge of The National Radio & Electronics Company Ltd. the Republic of South Africa, the Asia Pacific advisory (NELCO) in 1971. He was named chairman of Tata Industries committee to the board of directors of the New York Stock Ltd. in 1981, where he was responsible for transforming the Exchange, the board of governors of the East West Center, company into a Group strategy think-tank, and a promoter the advisory board of RAND’s Center for Asia Pacific Policy of new ventures in high-technology businesses. and the Programme Board of the Bill & Melinda Gates Foundations’ India AIDS Initiative. In 1991, Mr. Tata was appointed chairman of Tata Sons Ltd., the apex body of the Tata Group. He currently holds the Mr. Tata was honoured by the Government of India with the chairmanships of major Tata companies like Tata Steel, Tata Padma Bhushan on January 26, 2000. He is also a recipient of Engineering, Tata Power, Tata Tea, Tata Chemicals, Indian honorary doctorates in Business Administration and Hotels and VSNL. He is also chairman of two of the largest Technology from the Ohio State University and the Asian private sector-promoted philanthropic undertakings in India. Institute of Technology, Bangkok respectively.

Mr. Shailendra Kumar Gupta

Mr. Shailendra Kumar Gupta was born on September 9, 1942. switching telecom expert during 1982-83. He was also trained He earned a Bachelor of Science degree from Lucknow at Japan in C-400 cross bar systems and at the University of University. In 1964 he graduated with a gold medal in Essex, U.K., in computer software engineering. As VSNL’s electrical engineering from Roorkee University, where he was managing director, he has been closely associated with various immediately absorbed as a lecturer in electrical engineering. international telecom bodies including INTELSAT, the Commonwealth Telecommunication Organisation (CTO), Asia Mr. Gupta joined the Indian Telecom Service in September Pacific Telecommunications (APT), the International Maritime 1965 and held various responsible positions in the Satellites (INMARSAT), and the South Asian Association for Department of Telecommunications and Mahanagar Regional Co-operation (SAARC) telecom projects. Mr. Gupta Telephone Nigam Ltd. in the fields of planning, installation, was a member of INTELSAT’s board from 1999 to June 2003. maintenance, training and management of He was the chairman of the management committee of the telecommunication systems. SEA – ME – WE # 4 Cable consortium until March 2004. He is currently the chairman of VSNL Lanka Ltd. and a chairman of Mr. Gupta first took charge of VSNL as its chairman and the board of VSNL’s Nepali joint venture, United Telecom Ltd. managing director in September 1999. In August 2000, he helped make VSNL the first Indian public sector enterprise Mr. Gupta has travelled extensively to represent VSNL and to find listing on any US stock exchange, when its American raise its profile in various global forums, including in the US, depository receipts began trading on the New York Stock UK, Switzerland, Germany, France, The Netherlands, Hong Exchange. Mr. Gupta continues as VSNL’s managing director Kong, Malaysia, Ecuador, Ireland, Senegal, Bermuda, UAE, Saudi currently. Arabia, Oman, Bahrain, Singapore, Thailand, Italy, Egypt, Sri Lanka, Nepal, Belgium, Canada, Bangladesh and South Africa. Mr. Gupta has had extensive international exposure. He was deputed through the United Nations to Malawi, Africa as a Mr. Gupta received a national award for excellent

74 communication arrangements during the Maha Kumbh at Studies in January 2002, the Rashtriya Rattan Award for Allahabad in 1989. He also received the best chief executive outstanding individual achievements and distinguished (PSU) of the year 2001 award from the National Foundation services to the nation in January 2002, and the Transworld of Indian Engineers in August 2001. Mr. Gupta was honoured Gold Star award by the Institute of Economic Studies in with the Udyog Rattan Award by the Institute of Economic June 2002.

Mr. Srinath Narasimhan

Mr. Srinath Narasimhan was born on July 8, 1962. He received a He then moved to Tata Industries as executive assistant to degree in mechanical engineering from IIT (Madras) and the chairman, an assignment he handled till mid-1992. He completed his management degree from IIM (Calcutta), was part of the team that set up Tata Information Systems specialising in marketing and systems. (later Tata IBM). In June 1992 he moved into that company Joining the Tata Administrative Services in 1986 as a full-time for the next six years, during which period he probationer, Mr. Srinath has held positions in the project handled a number of assignments in sales and marketing. In management, sales and marketing, and corporate functions March 1998, he returned to Tata Industries as General in different Tata companies over the last 17 years. He has been Manager (Projects) and worked with Tata Teleservices in this responsible for setting up new projects in high-technology capacity for a year. In April 1999, he moved to Hyderabad as areas like process automation and control, computers and chief operating officer responsible for the operations of the telecommunications. After his probation, he was a project Tata Teleservices. In late 2000 he took over as chief executive executive in Tata Honeywell from 1987 to 1988, working on officer of Tata Internet Services, a position he held till February getting various approvals and the necessary project funding. 2002, when he moved to VSNL as director (operations).

Mr. Rakesh Kumar

Mr. Rakesh Kumar belongs to the 1968 batch of the Indian as considerable international exposure. He has undergone Telecom Service. He graduated in science from the University of specialized training in India and abroad including in the Allahabad and in mechanical engineering with honours from Netherlands and at the Center for Telecom Management at Varanasi. He holds an MBA (marketing) from the Faculty of the University of Southern California (US). He was deputed Management Studies, Delhi University. to assist the Nigerian PTT for three years. He had been Mr. Rakesh Kumar is a fellow of the Institute of Engineers; involved in business promotion in West Africa and the fellow of the Institute of Electronics and Telecom Engineers; Middle East while on deputation to Telecommunications and director, Quality Circle Forum of India, besides being a Consultants India Ltd. (TCIL). He was responsible for board member and trustee of several prestigious commissioning and popularising Internet services during his Organisations. He is also on the advisory panel of the Union tenure as chief general manager (data network) in Bharat Public Service Commission (UPSC) and a regular visiting Sanchar Nigam Limited. faculty at the Advance Level Telecom Training Centre of the He is presently the senior deputy director general (service Department of Telecommunications (DoT) at Ghaziabad. units) in the DoT where his main responsibility is coordination Mr. Rakesh Kumar has wide experience in the planning, and liaison with service PSUs namely MTNL, BSNL and TCIL for operations and management of telecom networks as well all operations and service matters.

Mr. Subodh Bhargava

Mr. Subodh Bhargava holds a degree in mechanical Mr. Bhargava has been a key spokesperson for Indian industry, engineering from the University of Roorkee. He started his as past president of the Confederation of Indian Industry (CII) career in 1962 with Balmer Lawrie & Co. Calcutta. He joined and the Association of Indian Automobile Manufacturers, and the Eicher Group of Companies in Delhi in 1975 as general as vice president of the Tractor Manufacturers Association. manager and retired as group chairman and chief executive in March 2000, to become the Group’s chairman emeritus and Mr. Bhargava was a member of the central boards of the advisor. State Bank of India, the Indian Institute of Foreign Trade,

75 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004

the Insurance Tariff Advisory Committee and several other and on the committee set up by the Ministry of Human government-appointed committees and task forces. He is Resource Department, GoI for policy perspectives for currently on the governing bodies of the Centre for Policy management education. He is a trustee of the India Brand Research; the India Trade Promotion Organisation; and the Equity Fund, the National Centre for Promotion of Technology Information Forecasting and Assessment Employment for Disabled People and the Bhartiya Yuva Shakti Council. Trust.

Mr. Bhargava has been closely associated with technical and Mr. Bhargava is chairman of Wartsila India Ltd. and is on the management education. He is on the boards of IIM, Indore; boards of Samtel Colour Ltd., Samcor Glass Ltd., Rane Engine the Entrepreneurship Development Institute of India, Valves Ltd., TRF Ltd. and Carborundum Universal Ltd. He is Ahmedabad; and other institutions. He is also on the senior also the mentor of two start-up companies -Autoparts Asia panel of the All India Council for Technical Education (AICTE); Pvt. Ltd. and Nicco Internet Ventures Ltd.

Mr. Suresh Krishna

Mr. Suresh Krishna was born in Madurai, South India, on Minister of India and the Chancellor of the Federal Republic December 24, 1936. He received a Bachelor of Science degree of Germany, to improve bilateral relations; and a member of from Madras Christian College in 1955 and an M.A. in the advisory council on trade and industry to the Prime literature from the University of Wisconsin in 1959. He did Minister. The Government of Tamil Nadu appointed him the his post-graduate work in literature in the University of sheriff of Madras for 1992 and 1993. Munich, Germany. Mr. Krishna has won numerous awards and honours, including Mr. Krishna is the chairman and managing director of the Sir Jehangir Ghandy Medal for Industrial Peace from XLRI Sundram Fasteners Limited, the leading company in high in 1991; Business India magazine’s Businessman of the Year tensile fasteners in India. He was the president of the award, 1995; the Qimpro Platinum Standard 1997 for being a Confederation of Engineering Industry (1987-88) and the role model for quality leadership; the Juran Quality Medal president of the Automotive Component Manufactures from the Indian Merchants Chamber, Mumbai; the national Association of India (1982-84). award for 2000 (for India) from the Asian Productivity He has been involved in several other public bodies set up Organisation, Japan; the JRD Tata Corporate Leadership by the central and state governments. He was a director on Award 2000 from the All India Management Association; and the central board of the Reserve Bank of India; a member of Ernst & Young’s Entrepreneur of the Year award for the Indo-German Consultative Group, set up by the Prime manufacturing for 2001.

Mr. Kishor A. Chaukar

Mr. Kishor A. Chaukar (56), currently the managing director Group executive office and the Group corporate centre, of Tata Industries Limited (TIL), is a post-graduate in which are engaged in strategy formulation. He is the management from the Indian Institute of Management at chairman of Tata Telecom Ltd., and is on the board of various Ahmedabad. Tata companies like Tata Honeywell Ltd., Information TIL is one of the two principal holding companies of the Tata Technology Park Ltd., Tata Teleservices Ltd. and Idea Group, acts as its diversification and new projects-promotion Cellular Ltd. arm, and spearheads its entry into the emerging high- Mr. Chaukar was previously the managing director of ICICI technology and sunrise sectors of the economy. Securities & Finance Company Ltd. (July 1993 to October As managing director of TIL, Mr. Chaukar is responsible for 1998), and a board member of ICICI Ltd. from February 9, 1995 enhancing TIL’s interests in the companies it promotes and to October 15, 1998. His other experiences include stints in adding value, especially by providing strategic direction to Godrej Soaps Ltd. and in Bhartiya Agro Industries Foundation, these companies. Mr. Chaukar is also a member of the Tata a public trust engaged in rural development.

76 Mr. Vivek Singhal

Mr. Vivek Singhal, born on June 26, 1940 in Agra, started his prestigious awards, including three awards from the own company Computronics India in 1971, and was among President and two from the Prime Minister of India. the pioneers of computer and software related activities. In 1993, he began another company, Biotech International Ltd., Mr. Singhal is a member of the governing councils of a pioneer in the field of biotechnology-based products for CSIR and the Indraprastha Mahavidyalay; a member of the agriculture and public health. Gujarat Council of Biotechnology, Govt. of Gujarat; the chairman (NR) of the Federation of Indian Exports Mr. Singhal is the founder-president of the All-India Biotech Organization; the former chairman of the Electronics & Association, a non-profit organisation established in 1994, Computer Software Export Promotion Council; and a director dedicated to the development of biotechnology in India. For of BSNL, Bharat Yantra Nigam Ltd. and HILTRON, as well as his contribution in bringing about computer consciousness the department of Electronics Accreditation Computer in India, and looking to his outstanding performance in CoursesSociety, under the Ministry of Information exports, social service and other fields, he has received various Technology, GoI.

Mr. Ishaat Hussain

Mr Ishaat Hussain joined the board of Tata Sons Ltd. as an also attended the Advanced Management Program at the executive director on July 1, 1999, and has been its finance Harvard Business School. He joined the board of The Indian director since July 28, 2000. Before joining Tata Sons he was Tube Company (a Tata Steel associate company) in 1981. senior vice president and executive director – finance at Tata He moved to Tata Steel in 1983 after Indian Tube was Steel for almost ten years. merged with Tata Steel.

Born on September 2, 1947, Mr Hussain completed his Besides being on the board of Tata Sons, he is the chairman schooling from the Doon School in 1963 and then of Tata Finance Ltd. and Voltas Ltd. He is also on the boards of graduated in economics from St. Stephens College Delhi. A several other Tata companies: Tata Steel, Tata Industries, Tata chartered accountant from England and Wales, Mr. Hussain Teleservices and Titan Industries Ltd.

Mr. Firdose A Vandrevala

Mr. F A Vandrevala, 53, has been the managing director of resulting in improvements at the shop-floor level including The Tata Power Company Ltd. since September 1, 2002. He production and quality improvements, and has successfully joined the company on November 1, 2001 as deputy implemented management practices of planning, organizing, managing director after a 29-year career at Tata Steel. Joining people management and customer focus in all business Tata Steel as a superintendent at its bar forging and tyre mill activities. in 1984, he rose to general manager (production), vice president (raw materials) and finally to executive director He has attended specialised training programs including a (marketing & sales) on the company’s board in 2000. visit to Malcolm Baldridge award-winning companies in the US, Strategic Marketing Management at Harvard Business Mr. Vandrevala graduated with a Bachelor of Technology School, US and a general management programme at CEDEP degree in electrical engineering (Hon) from the Indian INSEAD, France. Institute of Technology, Kharagpur, and subsequently earned a post graduate diploma in business management from XLRI, He is a director on the boards of several Tata companies. He Jamshedpur. has held various important positions in CII and was presently Mr. Vandrevala has spearheaded many change initiatives the chairman of CII, Western Region for 2003-04.

77 VIDESH SANCHAR NIGAM LIMITED Annual Report 2003-2004

Prof. Ashok Jhunjhunwala

Dr. Ashok Jhunjhunwala is a professor at the electrical ISRO; the boards of VSNL and BSNL; and as advisor to the engineering department, IIT Madras, and was a founder of Universal Service Fund. the Telecommunications and Computer Networks (TeNeT) Group there, which he now heads. Dr. Jhunjhunwala currently works closely with industry and venture capital funds to promote R&D and entrepreneurship. He graduated from IIT Kanpur and received his MS and Ph.D. He has incubated several companies including Midas from the University of Maine, USA. He worked as assistant Communications, Banyan Networks, NMS Works, Chennai professor at the Washington State University before joining Kavigal and n-Logue Communications. He is on the board of IIT Madras in 1981 as faculty. He was the head of the electrical various companies including Sasken Communications, Tejas engineering department from August 1998 to July 2001. Networks, Jataayu Software, Polaris Software, Shyam Telecom and HTL. Dr. Jhunjhunwala has led research in developing low-cost technologies. He has made significant policy contributions He was awarded the Padmashri in 2002 for distinguished as a member of various government bodies and councils service in science, engineering and telecommunications. His including the National Advisory Committee on other awards include the Vikram Sarabai Research Award Communications and Information Technology (NACCIT)- 1997, the Shanti Swarup Bhatnagar Award 1998, the Ministry of Communications and IT; Engineering Sciences Millennium Medal by CSIR-2000 and the H.K.Firodia Research Committee-CSIR, National Advisory Committee- Award 2002.

Mr. Pankaj Agrawala Mr. Agrawala was born on October 16, 1955. Since May 2002, Development, GoI in August 1991, and as director, Housing he has been the joint secretary to the GoI, Department of IT, Division, Ministry of Urban Affairs and Employment, GoI in Ministry of Communications and IT. Mr Agrawala belongs to July 1994. He was the secretary of the Indian delegation to the 1978 batch of the IAS (Uttar Pradesh cadre). He holds the Habitat II city summit, Istanbul. He then worked in degrees in public administration, development economics decentralised training for the Urban Development Project, and history and was the Mason Fellow at the Kennedy School an Indo-Dutch collaboration with the Institute for Housing of Government, Harvard University, USA. and Urban Development, Rotterdam. Mr. Agrawala has held various important U.P government From July 1998 to May 2002, he was secretary to the U.P positions. He has been chief development officer, Lucknow; government, in various departments, including the joint development commissioner, Bundelkhand; joint Department of Planning; the Department of Banking and secretary, Planning Department; collector and district Private Capital Investments; the Department of Externally magistrate, Basti and Azamgarh districts; special secretary, Aided Projects, where he was responsible for five World Bank power department; and collector and district magistrate, projects; the department of IT and Electronics, when India’s Saharanpur. He has also headed various District Rural first private-sector IT university was set up; and the Development Agencies. department of Small Scale Industries and Export He took over as director of the then Ministry of Urban Promotion.

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78 Registered office : Videsh Sanchar Bhavan, M.G. Road, Mumbai - 400 001.

EIGHTEENTH ANNUAL GENERAL MEETING - 2 SEPTEMBER, 2004 AT 1100 HRS.

ATTENDANCE SLIP

I, Mr/Mrs./Miss...... LF/Client ID. No ...... hereby record my presence at the 18th Annual General Meeting of Videsh Sanchar Nigam Limited at the Birla Matushri Sabhagar, New Marine Lines, Mumbai - 400 020.

...... Signature of the Shareholder or Proxy

Notes: 1. Please fill this Attendance Slip and hand it over at the entrance of the hall. 2. SHAREHOLDERS ARE REQUESTED TO BRING THEIR COPIES OF THE NOTICE DOCUMENT WITH THEM.

Registered office : Videsh Sanchar Bhavan, M.G. Road, Mumbai - 400 001.

PROXY

I/We ...... (LF/Client ID. No...... ) (Address)...... being a Member/Members of Videsh Sanchar Nigam Limited, do hereby appoint ...... of ...... or/failing him ...... of ...... as my/our proxy in my/our absence to attend and vote for me/us on my/our behalf at the 18th Annual General Meeting of the Company to

be held at 1100 Hrs on Thursday, the 2 September, 2004, and at any adjournment thereof.

IN WITNESS whereof I/We have set my/our hand/hands this...... day of...... 2004. Please affix 1.00 Re. Revenue Stamp (Signature of the Shareholder across the stamp) Note : 1. A member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself, and a proxy need not be a Member. 2. A One Rupee Revenue Stamp should be fixed to this and it should then be signed by the Member. ! 3. The instrument appointing the proxy and the power of attorney or other authority, if any, under which it is signed, or a copy of that power of authority duly certified by a notary or other proper authority, shall be deposited at the Registered Office of the Company not later than forty-eight hours before the time for the holding of the Meeting, in default, the instrument of proxy shall not be treated as valid.