INDIAN RAILWAYS: There Is a Way

RRomantic,

idealistic, impractical.. columnists minced no word to criticize

the Railway Budget of Mamata Banerjee. When everyone, including

the finance minister was talking of a hard budget, the Railway

Budget was seen as not conforming to the prevailing sense of

political correctness. Few felt convinced about her repeated

assertions that the Railways would raise revenues from

"non-conventional" sources.

But as the events so far

have proved, the firebrand lady seems serious about what she

wants to do. One non-conventional source of money that she has

been explicitly and extensively mentioning is utilizing the

Railway’s Right of Way (RoW) for building a nationwide Optical

Fibre Cable (OFC) network and lease it out to make some money.

Her estimates in the Budget: Rs 500 crore in the first year

(2000-2001) itself.

That is certainly quite an

amount, considering the fact that what the Railways has as of

now is less than 2,000 kilometres of OFC actually laid. However,

what it has, as the minister pointed out, is 62,800 kilometres

of track. Meaning RoW for 62,800 kilometres. With Domestic Long

Distance (DLD) communication services opening up, it is a

potential goldmine. So what, if it has still to extract the gold

out of the mine?

On the Fast

Track

The

minister’s agenda is clear. As a leader who has risen from the

grassroot, she is convinced that she has no right to hike rail

fares when the Railways cannot provide minimum facilities. So

where will the money come from? RoW seemed the perfect answer.

Hence this big plan. And when you are going to raise money, what

stops you from maximizing it?

And what is a better way

for maximizing the money than to open the whole thing for

bidding? Barely 10 days after the Railways Budget was

tabled in the Parliament, the Indian Railways came out with a

half page advertisement in major newspapers inviting consultants

for developing a business plan for building a nationwide

broadband telecom network, as promised by the minister in the

Budget.

But what happens to the

plans of Rites and Ircon, the Railways subsidiaries, who in

partnership with private companies like BPL had started working

on building the OFC network and were in the process bringing

more private



partners?

The fate of these plans

has already been decided.

"Our contract has

been cancelled and the ministry of railways is going to refloat

bid," says Ramesh Rao, general manager (signaling and

telecommunication), Rites, speaking to Voice & Data.

And even he has decided his new plans. "We are going to bid

again," says he. Ditto with Ircon. The

company had been allotted the 1,500 kilometre long Delhi-Mumbai

sector to lay cables. According to reports, it was in the

process of selecting a technical partner from among the major

players like British Telecom, Telstra, and the Tatas. As of now,

about 300 kilometre of optic fibre has been laid on the

Ahmedabad-Vadodara stretch. "The ministry of railways will

review the whole project in the light of the current

development," told Satya N Gupta, Ircon International’s

project coordinator (OFC). Reports confirm that they have been

asked to stop work immediately. It is learnt, the existing

assets including those routes in which the fibre has already

been laid, will be transferred to the corporation proposed to be

set up by the Railways to implement the work. The transfer will

be done through a legal arrangement.

The New Plans

The

Indian Railways, according to the notice calling for

consultants, aspires to develop a business plan, to be

implemented in collaboration with appropriate JV partners. The

ministry of railway aims to supplement the national telecom and

IT infrastructure and facilitate the growth of telecom,

Internet, and IT-enabled services. It has decided to utilize its

RoW covering 62,800 route kilometre long rail track passing

through more than 7,000 stations. The ministry, in order to

speed up the whole process, has also set up a task force to

oversee the entire process of setting up the network. According

to the plan, the appointment of the consultant for preparation

of business plan would be completed in April and it is supposed

to get cabinet approval by July. The new corporation is expected

to be set up soon after that and begin the work of providing

contracts for all sectors.

The network is expected to

help modernize Railways’ own telecom infrastructure and also

provide the much-needed parallel nationwide telecom

infrastructure to various telecom operators and ISPs. This will

in turn automatically link rural, backward and remote areas,

which are so far deprived of good telecom ser- vices. This

network envisages to bridge the gap between rural and urban

India.

Railways, in its

representation to TRAI, had contended that infrastructure owners

be permitted to become service providers as well, if they so

decide purely on commercial considerations. This incentive is to

encourage utilities to further invest in consolidating,

expanding, undertaking technology upgradation of the

infrastructure. It is also not clear whether Railways will be

deploying its own transmission equipment or just lay dark fibres.

The latter option seems more likely.

So What Now?

It

is good news for Indian Railways. But is it good for the Indian

telecom industry? Views differ. While many feel that Railways’

commercial outlook will definitely make things costlier, there

are others who feel that a commercial venture, by its very

nature, will be more professional, minimizing the bureaucratic

delays. That will save implementation time, which will result in

cost saving as well.

The next important

question is what will be the most suitable method for the

Railways to select a partner? In India, so far every tender has

been a closed bid. But with her "non-conventional"

outlook, Banerjee might well go for an open auction. An open

auction bid amount is always closer to real price.

The

Minister''''s Voice

Mamata

Bannerjee, the Minister for Railways in her Budget

speech

The other question is

how many such partners is the Railways looking for. The

officials concerned still do not have a clear answer, but the

thoughts are that first routes will be decided on a sector

basis and then each sector/route will be opened for bidding. A

simple thumb rule: More licences means more one time money,

but more difficult to sustain. Even the TRAI, in its

consultation paper released in July 1999, had hinted that

economies of scale are important.

The most important

question, however, is what kind of money will be thrown to

this game. It is difficult to guess that, as that is clearly

based on certain assumptions which depend on factors like the

licence conditions of Railways, the DLD licence conditions,

and the perception of the investors about India’s market

potential. To make a beginning somewhere, Ministry of Surface

Transport (MOST) charges Rs 50,000 per kilometre for RoW. But

in a bidding, this will definitely go up multiple times.

All this will definitely

raise the cost of bandwidth. That means the business plans for

DLD have to be reworked on. But the telecom industry should

feel good that things are likely to happen faster and in a

more professional manner, if not for the fact that they are

actually paying a little premium to provide safe drinking

water and cleaner toilets to rail passengers of India.