Railtel Corporation, the proposed broadband venture of the Indian Railways, has been exempted from having to cough up upfront Rs 700 crore as charges for the Railways' right of way (RoW). Instead, the payment is likely to be made as lease charges over the next 30 years for which the RoW has been transferred to the subsidiary.
Along with dividend on the investments being made by the Railways in the subsidiary, the annual lease charges over a 30-year period would translate into an amount of Rs 750 crore, Railway Board member (electric) N K Chidambaram told Business Standard on Wednesday. Chidambaram is also the ex-officio chairman of Railtel.
"If we take the money up-front, the child (Railtel) would be killed at birth. A better idea is to charge 7 per cent lease charges on the amount annually. Keeping in mind the value of RoW assessed by the consultant (McKinsey) at Rs 378 crore, the Railways would accrue an income of Rs 20 crore every year," he said.
A senior official associated with the project said that Railtel was in the process of appointing a merchant banker who would work out the exact modalities of lease rentals to be paid to the Railways. The formula would involve a fixed charge and a variable dividend payment so that the Railways are assured of both earnings and facilities from the corporation.
"We were not even consulted when the then minister Mamata Banerjee announced in her budget speech that Rs 700 crore would come from Railtel as the Railway's RoW lease charges. How were we expected to sell something which had been valued at Rs 378 crore for Rs 700 crore was not clear. We persuaded the new minister to abandon the idea of a one-time payment in favour of a regular annual income," the official said.
In the first phase, Railtel would create bandwidth over a 23,000 km track out of the total 68,000 route km of railway lines. The project cost is estimated at Rs 1,600 crore.
The Railways have committed to invest Rs 300 crore as equity in the paid up capital of Railtel. The authorised capital of the company was fixed at Rs 1,000 crore. The Indian Railways Finance Corporation (IRFC) made a special exemption for Railtel to raise Rs 200 crore for the company. In addition, a loan of Rs 450 crore has been tied up with a consortium of banks led by State Bank of India.
The asset transfer to Railtel, however, has not taken place till now and the Railways' have only given Rs 15 crore as their part of the equity in the form of seed capital when the corporation was set up.
The cabinet had allowed the Railways to off-load up to 49 per cent equity in the company in favour of a strategic partner. The Railways had decided to offer stake in Railtel to its own subsidiaries on first priority and to other telecom public sector undertakings in case its companies were not in a position to lift the entire 49 per cent stake on offer.
