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McKinsey moots JV route for Railtel projects

Hema Ramakrishnan

NEW DELHI, Nov. 22

MCKINSEY & Co -- the consultant appointed to prepare a business plan for the newly-formed RailTel Corporation -- has recommended that the Railways rope in joint venture partners for implementing its nationwide broadband telecom and multi-media network pr oject.

In its interim report, McKinsey & Co had indicated that lack of expertise in marketing would make it difficult for the Railways to go solo on this venture.

The interim report was discussed at a meeting of the inter-ministerial task force, comprising representatives from the Prime Minister's Office and the Ministries of Railways, Communications, Finance and Law, Justice and Company Affairs, earlier this week . The final report would be submitted in the first week of December.

McKinsey's recommendation in the interim report, if accepted, may require obtaining a fresh Cabinet clearance. While giving the go-ahead for the Railways' new telecom venture, the Cabinet had clearly specified that the corporation should be a 100 per cen t Railways-owned company.

The Railway Ministry had, on the other hand, proposed that the Corporation would be initially set up as a 100 per cent Railways-owned company. It would enter into collaboration with strategic partners -- who would be selected on a transparent process -- to implement the scheme.

The Ministry had also proposed that the dilution of Government equity in the corporation would be in two stages -- first to 51 per cent and eventually to 26 per cent through strategic divestment in accordance with the Government's prescribed procedure fo r divestment.

Some of the financial institutions had, in January this year, approached the Railways seeking equity participation in the telecom venture.

A seed capital of Rs 15 crore had been provided for the Corporation during the current year. While RailTel would have an authorised capital of Rs 1,000 crore, a decision of the paid-up capital for RailTel would be taken after the evaluation of existing o ptical fibre cable (OFC) micro-wave assets and right of way (RoW) was done by McKinsey.

The Indian Railways had an extensive telecom network comprising 20,000 route km of microwave radio systems, 12,000 route km of trunk cables, 4,500 route km of OFC and 43,500 km of overhead line wires.

The Railways would transfer its RoW to the corporation on a long-term lease and the latter would raise resources from the market on the basis of asset valuation.

The corporation had to pay around Rs 500 crore to the Railways during the current fiscal as part-costing of the existing OFC and microwave assets and upfront lease charge for RoW.