National Monetisation Pipeline

Introduction

  1. Union Minister for Finance and Corporate Affairs recently launched National Monetisation Pipeline.
  2. It has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22.
  3. NMP estimates aggregate monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.

About OBOR

  1. Union Budget 2021-22 has identified monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing.
  2. Towards this, the Budget provided for preparation of a ‘National Monetisation Pipeline (NMP)’ of potential brownfield infrastructure assets.
  3. NITI Aayog in consultation with infra line ministries has prepared the report on NMP.

Objectives

  1. Asset monetisation, based on the philosophy of Creation through Monetisation, is aimed at tapping private sector investment for new infrastructure creation.
  2. The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets.
  3. The modality of such unlocking is envisaged to be by way of structured contractual partnership as against privatization or slump sale of assets.

Institutional Mechanism

  1. In order to implement and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of the Cabinet Secretary has been constituted.

Framework

  1. The framework for monetisation of core asset monetisation has three key imperatives.
  2. This includes the selection of de-risked and brownfield assets with a stable revenue generation profile with the overall transaction structured around revenue rights.

Estimated Potential

  1. The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025, is indicatively valued at Rs 6.0 lakh crore.
  2. The sectors included are roads, ports, airports, railways, warehousing, gas & product pipeline, power generation and transmission, mining, telecom, stadium, hospitality and housing.

Instruments

  1. The assets and transactions identified under the NMP are expected to be rolled out through a range of instruments.
  2. These include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment Trusts (InvIT) and REITs among others.
  3. The monetisation value that is expected to be realised by the public asset owner through the asset monetisation process, may either be in form of upfront accruals or by way of private sector investment.

Implementation & Monitoring Mechanism

  1. 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 monetisation.
  2. These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency, among others.
  3. Real time monitoring will be undertaken through the asset monetisation dashboard, as envisaged under Union Budget 2021-22, to be rolled out shortly.

Significance

  1. Serve as a medium-term roadmap for identifying potential monetisation
  2. Paradigm shift in infrastructure operations
  3. New avenues for investment to common people through InvTS and REITs
  4. Broader and longer-term vision of ‘inclusiveness and empowerment of common citizens through best in class infrastructure’.
  5. Government finances are stretched, especially post the massive economic jolt dealt by Covid.
  6. Public welfare measures require funding, more so at the current juncture when the onus is on the government to prop up economic activity.
  7. With the fiscal deficit already stretched to its limits, the government needs to come up with alternative ways to shore up its budget.
  8. NMP helps realise value from idle assets, without the Centre transferring ownership of public sector assets to private parties for good.

Benefits to Stakeholders

Challenges

  1. Allegation of Crony capitalism
  2. Only a handful of industrial groups in India that can manage large infra assets
  3. Realisation of value from assets - higher pricing to get higher RoI – Higher user charges
  4. Lack of identifiable revenue streams in various assets,
  5. Lack of dispute resolution mechanism,
  6. Presence of regulated tariffs in certain sectors
  7. lack of independent sectoral regulators

Reforms Required for Effective Implementation of the Scheme

General Reforms

  1. Improving project preparation processes
  2. Enhancing execution capacity of private sector participants
  3. Robust enabling environment
  4. Optimal risk sharing
  5. Sanctity and enforcement of contracts
  6. Institutionalisation and efficiency of dispute resolution
  7. Improving capacity development of project execution agencies
  8. Strengthening infrastructure quality
  9. Promoting competition

Financial Market Reform

  1. Revitalising the bond and credit markets
  2. Strengthening the municipal bond market in India
  3. Revitalising asset monetisation
  4. Enabling user charges to finance infrastructure
  5. Long-term financing landscape

Conclusion

NMP is good in concept, but value lies in its execution.