The stage has been cleared for the entry of Rs 20,000 crore (Rs 200 billion) PowerGrid Corporation of India to enter into the telecom networking business.

The Union Cabinet has cleared the proposal for creating a 320 gbps backbone by laying 13,000 km optic fibre cable, using right of way enjoyed by PGC's high voltage transmission lines across the country, at an estimated cost of Rs 1,100 crore (Rs 11 billion).

The decision would enable PGC to raise institutional finance. The company has estimated that a minimum of 6 per cent share of the telecom business would ensure PGCIL a 25 per cent internal rate of return.

Officials from PGCIL confirmed the development and said that preparatory ground work had been completed even before the Cabinet nod was received.

"We are at present working on bid validity for fibre optics," explained PGC officials. The company will lease the bandwidth to telecom operators and will connect 56 cities including all metros, major cities and towns.

The power major was also trying to get Asian Development Bank to fund a portion of the project with a $117 million loan. ADB had withdrawn from the project because of a delay in clearance by the Centre. Originally planned to be set up in 1999 with World Bank assistance, the proposal was cleared by the Union power ministry and Public Investment Board. However, it faced stiff resistance from some private telecom operators.

The proposal had been stalled till the former minister for communication and information technology, Pramod Mahajan, cleared the telecom backbone project days before the Cabinet reshuffle in which he lost his portfolio.

Having received the formal approval of the group of ministers early last month, the Union power ministry has requested the World Bank to consider funding the project afresh. Meanwhile, PGC had already created about 6,000 km backbone worth over Rs 600 crore (Rs 6 billion) using internal accruals. This has bought down its institutional finance requirement to less than Rs 500 crore (RS 5 billion).

The project will be the first step in PGC becoming a national long distant telecom operator. The diversification will also allow it to optimise investments in creating power transmission networks and generate additional resources to support its Rs 80,000 crore (Rs 800 billion) investment plan for creating a national power grid.