National Monetisation Plan: A challenging, complex task

How the implementation of the programme is done in different sectors is key

The Centre recently unveiled its asset monetisation pipeline (NMP), aiming at long-term lease out of core infrastructure assets to private players and generating Rs 6 lakh crore over a period of four years and help fund new and ongoing capital projects. The pipeline has been developed in the backdrop of the unprecedented Covid-induced economic and fiscal shocks that require fresh avenues to generate resources.

Under the plan, infrastructure assets including roads, ports, airports, telecom, railways, warehousing, energy pipelines, power generation, power transmission, hospitality and sports stadia will be handed out to private sector players to operate on lease. Besides these conventional infrastructure sectors, assets from mining and housing redevelopment sectors have also been included in the NMP. However, monetisation of non-core assets such as land and buildings have not been included in the NMP. Also, the disinvestment plan of the government is separate from the monetisation plan.

One of the largest sectors identified under the NMP is the transportation sector. Close to 90 per cent of the assets in the present pipeline belong to transportation (roads 26.7 per cent, rail 25.4 per cent, airports 3.46 per cent and ports 2.14 per cent), followed by energy (power 14.17 per cent and hydrocarbon pipelines 7.83 per cent) and real estate-based facilities (warehousing, urban real estate and stadia).

Explained | How Rs 6 lakh crore-National Monetisation Pipeline will work; assets that will be monetised

Why such a pipeline monetisation? The government had announced its intent to invest a fresh Rs 111 lakh crore to augment infrastructure and create jobs just about the same time when Covid-19 hit India’s landscape. While the traditional sources of capital were expected to finance 83–85 per cent of the capital expenditure envisaged under the plan, about 15-17 per cent of the outlay was expected to be met through asset monetisation and long-term initiatives such as Development Finance Institution (DFI).

What is monetisation? Is it new to India? Monetisation, as opposed to privatisation, where the government sells majority of its stake in a company, seeks to transfer under-utilised assets to private hands to unlock their value without transferring ownership. Monetisation is not new to India. The nomenclature may have changed but the concept is nearly two decades old when the Centre offered road sector to private players on operate-maintain-transfer basis to private entities who would bid upfront for a certain period of time to collect toll.

Since 2017, the National Highway Authority of India has been monetising its brownfield road assets through toll-operate-transfer (TOT)-based public-private-partnership (PPP) concessions. Another method of monetisation that has seen traction in the recent past is the InvIT (Infrastructure Investment Trust) model. A number of road assets have been monetised through InvITs by private players. InvIT is akin to a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of income as return.

Prior to that, in 2011, policy framework for tariff-based competitive bidding (TBCB) for projects was introduced for power projects. Under TBCB mechanism, projects are bid for under a build, own, operate and maintain (BOOM) model. The annual transmission charge for a 35-year period is discovered through this bidding process. The NMP also involves a similar long-term lease out of only those assets that are built by the government but are not fetching the desired return or have become unwieldy and difficult for the government to manage. The private sector will be asked to bid for operating such assets and pay upfront to the government and, return the asset after the lease expires. The government looks at asset monetisation as the key to value creation in infrastructure.

Asset monetisation is not only restricted to Central government undertakings, but has also been extended to state government assets. As part of the NMP programme, the Centre intends to provide incentives to states for asset monetisation and disinvestment including that of state government undertakings. As an incentive, additional allocation equivalent to 33 per cent of value of assets realised is envisaged to be deposited in the state consolidated funds or the account of state government undertaking owning the assets. It depends on the condition that the amount raised through asset monetisation is necessarily used for capital expenditure by states.

Though the Centre has identified infrastructure assets of states and urban local bodies with significant monetisation potential, these have yet not been included in the monetisation pipeline. The assets include state highways, energy distribution infrastructure, intrastate transmission networks, urban transport, bus depots, water supply & sewerage networks, gas pipelines (in certain states), sports stadium and district-level sports complexes.

The idea is akin to Australian asset recycling plan where the national government of established a $5 billion incentive programme in 2013 to provide state governments with an additional 15 per cent of the capital raised from recycled assets. According to Care Ratings, this will significantly boost the overall monetisation opportunity available for the existing operating assets in the country.

The Opposition, however, maintains that the government is actually trying to sell India’s “crown jewels” built with public money over a period of 70 years. It also contends that job losses will be rampant in the monetised assets as private parties would like to get their own skilled people to run the assets they have paid for. The Opposition also holds that the lease process may be driven by foreign capital as domestic retail investors may not have appetite for such offers. They have cautioned that slowly, the key infrastructure projects will be owned by foreign capitalists. Also of concern is the services in every sector of monetisation is getting costlier to end users. Tariffs will soar and subsidies to the poor and needy may diminish.

And, therefore, the Opposition has demanded that a wide-ranging discussion be held in Parliament. Congress has planned to go to people against the government’s assets monetisation move.

Read | National Monetisation Pipeline: Pipe dream or bold reform?

Attractive offerings

Experts have, however, said these assets will be attractive offerings since they are de-risked being existing, operating assets with proven revenue stream, avoiding construction risk with proven output/capacity. But they caution on the implementation part.

According to Amit Kapur, Joint Managing Partner, J Sagar Associates, “What is on offer is a clutch of concession formats permitting the concessionaire to build/refurbish and operate the asset with defined risk and performance obligations, without any transfer of title. The government looks determined to actualise these targets with a monthly monitoring by cabinet secretary and quarterly monitoring by the finance minister of implementation. The success of the offering would depend on adopting fair risk and reward allocation, as also efficiency of the bid process followed.”

The government on its part has said it will undertake real time monitoring through the asset monetisation dashboard, as envisaged in Union Budget 2021-22. The details of the monitoring will be rolled out soon. As of now, as part of a multi-layer institutional mechanism for overall implementation and monitoring, an empowered core group of secretaries on asset monetisation (CGAM) under the chairmanship of cabinet secretary has been constituted.

The government contends that the NMP is a culmination of insights, feedback and experiences consolidated through multi-stakeholder consultations undertaken by NITI Aayog, Ministry of Finance and line ministries. But many experts are of the view that such a huge work may require a thorough discussion on the floor of Parliament.

The Centre’s ambitious disinvestment target of Rs 2 lakh crore this year is yet to take off in a significant way amid the pandemic-induced economic slowdown and loss of appetite among investors. The much-touted privatisation of Air India too is hanging in balance. In this scenario, what is the guarantee that the monetisation plan will kick off, especially when the private sector is aware that the assets have to be returned to the owner after the lease expires?