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

“Sir,
you are well aware that India has been making rapid
strides in information and communication technologies.
Indeed, our Prime Minister has taken an inspiring lead and
has defined IT as ‘India’s Tomorrow’. Keeping in
line with this vision, Mr Speaker Sir, Railways has
decided to utilize its RoW covering 62,800 kilometres
passing through more than 7,000 stations, for building a
nationwide broadband telecom and multimedia network by
laying OFC. This will not only help in speedily
modernizing Railways’ own telecom infrastructure, but
also provide a much needed parallel nationwide telecom
infrastructure to various telecom operators and ISPs. The
unique advantage of the Railways is that our network
connects the distant corners of this vast country and also
covers much of the rural, backward and remote areas, which
are so far deprived of good telecom services. Indian
Railways is already taking steps towards developing an
attractive business plan to be implemented in
collaboration with suitable JV partners through the medium
of a professionally managed corporation. This venture
visualizes a concept of bringing the whole world together
as one country. Sir, our endeavour in this regard will
also generate considerable additional revenues for the
Railways to finance developmental projects and safety
related works. A suitable provision for this purpose has
been made in the Budget.”

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.

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