The Center recently unveiled its Asset Monetization Pipeline (NMP), aimed at long-term leasing of basic infrastructure assets to private actors and generating Rs 6 lakh crore over a four-year period and helping finance projects new and ongoing investments. The pipeline was developed against the backdrop of unprecedented economic and fiscal shocks induced by Covid that require new avenues to generate resources.

Under this plan, infrastructure assets including roads, ports, airports, telecommunications, railways, warehouses, power pipelines, power generation, transmission of electricity, hotels and sports stadiums will be handed over to private sector players to operate on lease. In addition to these conventional infrastructure sectors, assets from the mining and housing redevelopment sectors have also been included in the NIP. However, the monetization of non-core assets such as land and buildings was not included in the NIP. In addition, the government’s divestment plan is separate from the monetization plan.

One of the most important sectors identified under the NIP is the transport sector. Almost 90% of the assets of the current pipeline belong to transport (roads 26.7%, rail 25.4%, airports 3.46% and ports 2.14%), followed by energy (electricity 14.17% and pipelines 7.83% cent) and real estate equipment (warehouses, urban real estate and stadiums).

explained | How will the Rs 6 lakh crore national monetization pipeline work; assets that will be monetized

Why such pipeline monetization? The government had announced its intention to invest a new crore of Rs 111 lakh to increase infrastructure and create jobs around the same time that Covid-19 hit the Indian landscape. While traditional sources of capital were to finance 83 to 85 percent of the capital expenditure envisaged in the plan, about 15 to 17 percent of the expenditure was to be covered through monetization of assets and long-term initiatives such as financing of the plan. development. Institution (IFD).

What is monetization? Is this new in India? Monetization, as opposed to privatization, where the government sells the majority of its stake in a company, seeks to transfer underutilized assets to private hands to release their value without transferring ownership. Monetization is not new to India. The nomenclature may have changed, but the concept dates back almost two decades when the Center proposed the road sector to private actors on the basis of O&M-transfer to private entities that would bid in advance for a period of time. time to collect the toll.

Since 2017, the National Highway Authority of India has monetized its brownfield road assets through public-private partnership (PPP) concessions based on toll-operate-transfer. Another method of monetization that has seen success in the recent past is the InvIT (Infrastructure Investment Trust) model. Many road assets have been monetized via InvITs by private actors. InvIT is like a mutual fund, which allows small amounts of money to be directly invested with potential individual / institutional investors in infrastructure in order to generate a small portion of the income in return.

Prior to this, in 2011, a policy framework for tariff-based tendering (TBCB) for projects was introduced for energy projects. Under the TBCB mechanism, projects are tendered under a construction, ownership, operation and maintenance (BOOM) model. Annual freight charges for a 35-year period are discovered as part of this tendering process. The NMP also involves a similar long-term lease only on assets built by the government but which do not achieve the desired return or which have become onerous and difficult for the government to manage. The private sector will be invited to bid for the operation of these assets and to prepay the government and return the asset after the lease expires. The government sees the monetization of assets as the key to creating value in infrastructure.

Asset monetization is not only limited to central government enterprises, but has also been extended to state government assets. As part of the NMP program, the Center intends to provide incentives to states for the monetization and divestment of assets, including that of state-owned enterprises. As an incentive, an additional allocation equivalent to 33 percent of the value of realized assets is envisaged to be deposited in consolidated state funds or into the account of the public enterprise that owns the assets. It depends on the condition that the amount raised through the monetization of assets is necessarily used for state capital spending.

Although the Center has identified infrastructure assets of states and urban local bodies with significant monetization potential, these have not yet been included in the monetization pipeline. Assets include national highways, power distribution infrastructure, intrastate transmission networks, urban transport, bus depots, water and sewerage networks, gas pipelines (in some states ), sports stadiums and sports complexes at district level.

The idea is akin to Australia’s asset recycling scheme in which the national government implemented a $ 5 billion incentive program in 2013 to provide state governments with an additional 15% of the capital raised from assets. recycled. According to Care Ratings, this will significantly increase the overall monetization opportunity available for existing operating assets in the country.

The opposition, however, maintains that the government is in fact trying to sell India’s “crown jewels” built with public money over a period of 70 years. He also argues that job losses will be rampant in monetized assets, as private parties would like their own skilled people to manage the assets they paid for. The opposition also argues that the rental process can be driven by foreign capital, as domestic retail investors may not have an appetite for such offers. They warned that slowly key infrastructure projects will be owned by foreign capitalists. Another area of ​​concern is that services in all areas of monetization are becoming increasingly expensive for end users. Tariffs will skyrocket and subsidies to the poor and needy may decline.

And, therefore, the opposition demanded that a broad discussion take place in Parliament. Congress is planning to speak to people against the decision to monetize government assets.

Read | National monetization pipeline: pipe dream or daring reform?

Attractive offers

Experts have however stated that these assets will be attractive deals as they are risk free being existing operating assets with proven income stream avoiding the risk of construction with proven production / capacity. But they warn about the implementation part.

According to Amit Kapur, Co-Manager, J Sagar Associates, “What is on offer is a set of concession formats allowing the concessionaire to build / renovate and operate the asset with defined risk and performance obligations, without any transfer of property. The government appears determined to update these targets with monthly follow-up by the cabinet secretary and quarterly follow-up by the finance minister on implementation. The success of the bid would depend on adopting an equitable distribution of risks and rewards, as well as the effectiveness of the bid process followed. “

The government, for its part, has said it will monitor in real time through the Asset Monetization Dashboard, as planned in the Union budget 2021-22. Details of the surveillance will be rolled out shortly. From now on, as part of a multi-level institutional mechanism for overall implementation and monitoring, a core group of Asset Monetization Authorized Secretaries (CGAMs) under the chairmanship of the Cabinet Secretary has been formed. .

The government maintains that the NPM is the culmination of ideas, feedback and experiences consolidated through multi-stakeholder consultations conducted by NITI Aayog, the Ministry of Finance and relevant ministries. But many experts believe that such a huge job may require in-depth discussion on the floor of Parliament.

The Centre’s ambitious Rs 2 lakh crore divestment target this year has yet to take off significantly amid the pandemic-induced economic slowdown and loss of investor appetite. The much-vaunted privatization of Air India is also on hold. In this scenario, what is the guarantee that the monetization plan will kick in, especially when the private sector is aware that the assets must be returned to the landlord after the lease expires?