Gail sources told The Financial Express that it has already signed a memorandum of understanding with PowerGrid, Bharati Telecom, BPL and Shyam Telecom in this connection. It proposes to interconnect 90 cities spread over 11 states by 2003.

Gail, which has received the category-II infrastructure provider licence, proposes to commission the 140 km long OFC between Patan on the boarder of Gujarat and Rajasthan and Mumbai with an investment of Rs 60 crore. The Patan-Mumbai OFC line is part of the Gail's project to lay OFC over 1,250 km between Delhi-Jamnagar along its liquified petroleum gas (LPG) pipelines.

Gail, which earned a profit of Rs 861 crore during the last fiscal, may float a subsidiary to carry out phase-II and III for the completion of OFC.

"A decision on setting up an arm will be taken only after taking into account the need and demand for leasing out OFC," sources said.

Although Gail has approached the Maharashtra government for the completion of Patan-Mumbai link in October, it is yet to complete negotiations on the issue of offering 5 per cent cashless equity to a state undertaking. Gail, being a state undertaking, has expressed its inability to offer such an equity, and has offered to pay a "one-time revenue" to the state government for laying 140 km OFC link.

However, the state government has been insisting upon its demand to Gail for offering 5 per cent cashless equity. Mantralaya sources said if Gail is exempted from this condition, private sector players such as BPL and Reliance, which have been allowed to lay OFC across the state, will be taking a strong objection.

Gail team is meeting the state chief secretary and officials from the information technology department to sort out this issue next week. Gail has accepted state government's condition to offer a bandwidth of 2 Mbps free of cost.

According to Gail, the completion of phase-I would promote growth of software parks and information technology hubs in this region, encourage growth of private basic and cellular services and make available capacity on demand for various service providers on Delhi-Jamnagar-Mumbai route.

As far as phase-II is concerned, Gail plans to consolidate its position in the western part of the country by creating a "redundant, reliable network by setting up an alternate path for the network created in the first phase."

The company proposes to upgrade the DMW network along its HBJ pipeline network to OFC. This phase would cover Punjab, Haryana, Rajasthan, Gujarat, Uttar Pradesh and Madhya Pradesh.

During phase-III, Gail plans to connect major commercial and political centres in the southern India by following the route connecting its planned LPG pipeline network with the network set up till phase-II. It would cover Pune, Osmanabad, Solapur, Bidar and Gulbarga from Maharashtra as well as Hyderabad, Secunderabad which have come into limelight as the IT hub. In addition to this, Gail would cover Bangalore, Mysore, Belur, Hassan, Mangalore from Karnataka and Madurai, Chennai, Vellore, Erode and Dindigul, Tiruchirapalli, Coimbatore from Tamil Nadu.