The aim is to enable ‘Infrastructure Creation through Monetization’ wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth.
The opposition has raised the stakes against the government over its asset monetization pipeline programme claiming that it is going to sell off the country’s assets built over the last 70 years in the name of a policy. Last month, the government launched a Rs 6 lakh billion four-year National Monetization Pipeline (NMP). There are reports that the strategy intends to increase the value of brownfield assets by involving the private sector, giving
rights rather than ownership of the projects to them and repurposing the funds for infrastructure development across the country.
This piece analyses the NMP which was launched by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman. The asset monetization pipeline of Central ministries and public sector entities: National Monetization Pipeline has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetization’ under Union Budget 2021-22. The NMP estimates aggregate monetization potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from year 2022 to year 2025.
The report on NMP includes under the pipeline — Roads, Transport and Highways, Railways, Power, Pipeline and Natural Gas, Civil Aviation, Shipping Ports and Waterways, Telecommunications, Food and Public Distribution, Mining, Coal and Housing and Urban Affairs. The Finance Minister claimed, “The Asset Monetization programme has taken shape because of the vision of the Prime Minister who has always believed in universal access to high-quality and affordable infrastructure to the common citizen of India. Asset monetization, based on the philosophy of Creation through Monetization, is aimed at tapping private sector investment for new infrastructure creation. This is necessary for creating employment opportunities, thereby enabling high economic growth and seamlessly integrating the rural and semi-urban areas for overall public welfare.”
The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital, which can thereafter be leveraged for further public investments as per the NITI Aayog. The NMP is envisaged to serve as a medium-term roadmap for identifying potential monetization- ready projects, across various infrastructure sectors. It is aimed at creating a systematic and transparent mechanism for public authorities to monitor the performance of the initiative and for investors to plan their future activities. Asset Monetization needs to be viewed not just as a funding mechanism, but as an overall paradigm shift in infrastructure operations, augmentation and maintenance considering the private sector’s resource efficiencies and its ability to dynamically adapt to the evolving global and economic reality.
New models like Infrastructure Investment Trusts and Real Estate Investment Trusts are likely to enable not just financial and strategic investors but also common people to participate in this asset class thereby opening new avenues for investment. 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. As part of a multi-layer institutional mechanism for overall implementation and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted.
Union Budget 2021-22 had identified monetization of operating public infrastructure assets as a key means for sustainable infrastructure financing. Towards this, the Budget provided for preparation of a ‘National Monetization Pipeline (NMP)’ of potential brownfield infrastructure assets. NITI Aayog in consultation with infra line ministries has prepared the report on NMP. The NMP aims to provide a medium term roadmap of the programme for public asset owners; along with visibility on potential assets to private sector.
Monetization through disinvestment and monetization of non-core assets have not been included in the NMP. Further, currently, only assets of central government line ministries and CPSEs in infrastructure sectors have been included. Process of coordination and collation of asset pipeline from states is currently ongoing and the same is envisaged to be included in due course. The framework for monetization of core asset monetization has three key imperatives. This includes selection of de-risked and brownfield assets with stable revenue generation profile with the overall transaction structured around revenue rights. The primary ownership of the assets under these structures, hence, continues to be with the Government with the framework envisaging hand back of assets to the public authority at the end of transaction life. Considering that infrastructure creation is inextricably linked to monetization, the period for NMP has been decided so as to be co-terminus with the balance period under National Infrastructure Pipeline (NIP).
The aggregate asset pipeline under NMP over the four-year period, financial years 2022-2025, is indicatively valued at Rs 6.0 lakh crore. The estimated value corresponds to 14 per cent of the proposed outlay for Centre under NIP (Rs 43 lakh crore). This includes more than 12 line ministries and more than 20 asset classes. The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.
Sector wise monetization
The top five sectors (by estimated value) capture 83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%). In terms of annual phasing by value, 15% of assets with and indicative value of Rs 0.88 lakh crore are envisaged to be rolled out in the current financial year (FY 2021-22). However, the aggregate as well as year on year value under NMP is only an indicative value with the actual realization for public assets depending on the timing, transaction structuring, investor interest etc.
The assets and transactions identified under the NMP are expected to be rolled out through a range of instruments. These include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment
Trusts (InvIT) among others. The choice of instrument will be determined by the sector, nature of asset, timing of transactions (including market considerations), target investor profile and the level of operational/investment control envisaged to be retained by the asset owner etc.
The monetization value that is expected to be realized by the public asset owner through the asset monetization process, may either be in the form of upfront accruals or by way of private sector investment. The potential value assessed under NMP is only an indicative high level estimate based on thumb rules. This is based on various approaches such as market or cost or book or enterprise value etc. as applicable and available for respective sectors.
As an overall strategy, a significant share of the asset base will remain with the government. The programme is envisaged to be supported through necessary policy and regulatory interventions by the Government in order to ensure an efficient and effective process of asset monetization. These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency, among others. Real time monitoring will be undertaken through the asset monetization dashboard, as envisaged under Union Budget 2021-22, to be rolled out shortly.
The end objective of this initiative is to enable ‘Infrastructure Creation through Monetization’ wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth and
quality of life to the country’s citizens.