This article is written by Gyaaneshwar Joshi, from the Faculty of Law, Jamia Millia Islamia, New Delhi. This article deals with the National Monetisation Pipeline Scheme under which the government is aiming to collect Rs. 6 lakh crores revenue as a means to raise innovative and alternative financing for the infrastructure of the country.
Table of Contents
Introduction
Infrastructure is critically linked to the growth and economic performance of the country. For this purpose, the Finance Ministry introduced the Union Budget 2021-22 with an over-reliance on infrastructure investments and economic growth. The budget was introduced to create an overall institutional structure, to enhance the share of capital expenditure in central and state budgets, and most importantly for asset monetisation.
National Monetisation Pipeline (NMP) is a pioneering initiative of the Government of India to establish a medium-term pipeline along with a roadmap for ‘monetisation-ready’ assets. It is kind of a ‘fund generation exercise’ introduced in the backdrop of the unprecedented COVID-induced economic and fiscal shocks. The stagnant economy during the lockdown hugely impacted the government’s revenue, therefore the NMP was introduced to boost capital infrastructure to keep the economy on track and further on growth.
Asset monetisation : the concept
Monetisation refers to the process of making money from a non-revenue generating item. Similarly, asset monetisation is about utilising the existing asset base for creating new infrastructure. It is a process of converting unused part of the government asset (building, land, property) into economic value, and spending generated income from those assets to create infrastructure and grow the economy of the country.
Asset monetisation consists of the limited period transfer of performing or non-performing assets by the central government to a private entity and further reinvesting the selling income in other projects or investments for infrastructure growth of the country. For instance, the rights can be transferred to a private entity for a certain period of time under which the owner is independent to generate money from the purchased asset, and the money earned by the central government after selling can be used to build new infrastructure assets, and boost economic growth.
Generally, asset monetisation involves the creation of new sources of revenue from unutilised or underutilised public assets. These exercises are largely done at the international level, where monetising certain assets which are under Government’s control, is held to be very important for managing public resources. Many public assets are monetised to create greater financial leverage and to maintain the equity that the government has invested in them. Therefore, the Government’s main objective behind asset monetisation is to unlock the value of investment from the public assets that have not yielded appropriate or to create unexplored sources of income for the company or shareholders and allow them to contribute to a more accurate estimation of public assets. This exercise helps in the better financial management of government and public resources over that period of time.
National Infrastructure Pipeline : an approach to NMP
The Finance Minister unveiled the National Infrastructure Pipeline (NIP), which is a Rs. 102 lakh crore infrastructure project to be implemented over the next five years (2019-25). The NIP is an initiative that will provide world-class infrastructure across the country to improve the quality of life of all citizens. It includes economic and social infrastructure projects in which roads, urban, education, health railways, power, and irrigation sector comprise approximately 80% of them.
Prime Minister Narendra Modi, in the 2019 Independence day speech, announced the government’s plan to invest Rs. 100 lakh crore on infrastructure over the next five years, including social and economic infrastructure projects. To achieve this objective, a task force was constituted to draw up the National Infrastructure Pipeline (NIP) for each of the years from Financial Year 2019-20 to 2024-25 with the approval of the Finance Minister. The NIP Task-force headed by Atanu Chakraborty submitted its final report in May 2020. The important recommendations by the committee were:
- A total of Rs. 111 lakh crore is needed over the next five years (2020-25) to build infrastructure projects and drive economic growth.
- Around 70% of the estimated account shall come from energy, roads, railways and urban projects.
- The centre (39%) and state (40%) are expected to have an almost equal share in implementing the projects, while the private sector has a 21% share.
- The monetisation of infrastructure assets.
NIP will serve as a tool for inclusive growth by creating jobs, improving ease of doing business & providing equitable access to infrastructure. It would eventually contribute to the Sustainable Development Goals (SDG) 2030 agenda, to which India is a signatory. It also emphasises ease of living and improving the physical quality of life, i.e., safe drinking water, access to clean and affordable energy, healthcare for all, modern transportation, and world-class educational institutions.
National Monetisation Pipeline
The National Monetisation Pipeline (NMP) was launched by the Union Minister of Finance Nirmala Sitharaman through which the government aims to raise Rs. 6 Lakh crore ($ 81 Billion) by leasing out state-owned infrastructure assets over the next four years, from FY 2022 to FY 2025. The Government will encourage both foreign and private investment to utilise and redevelop these Government and PSUs owned assets to unlock economic value.
According to the plan laid out in NMP, the Government is aiming to raise Rs. 88,000 crores through asset monetisation in the current fiscal FY 2021-22, Rs. 1.6 lakh crore in FY 2022-23, Rs. 1.8 lakh crore in FY 2023-24, and 1.6 lakh crore FY 2024-25. With the target of Rs. 88,000 crore of asset monetisation is expected to be completed in FY 2022. As an incentive for asset monetisation by states, an additional allocation equivalent to 33% of the value of assets envisaged to be deposited in State Consolidated Funds or accounts of state public sector enterprises owning the assets. The allocation and disbursement are subject to the realised amount being necessary used for capital expenditure by states.
The Centre decided to hand over 13 identified sectors- airports, railways, highways, among other assets to private firms on a long-term lease to fulfill the objective. However, the ownership of these assets (after monetisation) shall remain with the government and the owners will have to give it back to the government after a certain time. The current objective of the central government is to identify these assets, find the most appropriate way to unlock the value, and do it in a time-bound manner.
Sector-wise Monetisation pipeline over FY 2022-25
The pipeline of assets has been phased out over four years, from FY 2022 to FY 2025. The total indicative value of NMP for core assets is estimated at Rs. 6 lakh crore over four financial years till FY 2025. The proceeds will be used to finance the Rs. 110 lakh crore national infrastructure pipeline to turn India into a $5 trillion economy by 2024-25. The NMP will constitute 14% of the Centre’s outlay of Rs. 43.39 lakh crore under National Infrastructure Plan (NIP). Some global players such as Blackstone and Macquarie are interested in participating in the monetisation process. The assets to be monetised are spread across 20+ assets, which includes national highways and power grid pipelines, etc., and more than 12 line ministries and departments. The top five sectors by value under the Government’s asset monetisation program are roads (27%), railway (25%), power (15%), oil and gas pipeline (8%) and telecom (6%).
Asset Monetisation Pipeline
Under asset monetisation, the Central Government is planning to garner a certain amount of money from the sale of different assets as mentioned below:
| Asset(FY 2022-25) | Value(in lakh crore rupee) | |
| Roads | 26,700 km of highways | 1.60 |
| Railways | 400 stations, 150 trains | 1.52 |
| Power transmission lines | 42,300 circuit km of transmission lines | 0.67 |
| Natural Gas Pipelines | 8000 km of GAIL pipelines | 0.24 |
| Power generation | 5000 MW of Hydro, Solar Wind assets | 0.32 |
| Oil pipelines | 4000 km of pipelines of IOC, HPCL | 0.22 |
| Telecom | Towers of BSNL, MTNL | 0.39 |
| Mining | 160 coal mining projects | 0.32 |
| Airport & Ports | 21 AAI projects and 31 ports project | 0.34 |
| Stadiums | 2 sport stadiums | 0.11 |
Under NMP, the government has announced to monetise only brownfield assets, i.e., those assets which are complete but languishing, not fully monetised, or underutilised. Therefore, a central government through NMP is trying to make a strong pipeline of attractively structured, brownfield projects to increase the economy on public expenditure. The Finance Ministry clarified that by bringing private participation, the assets would be monetised better, and whatever resources obtained by monetisation can be put in for further investment into infrastructure building.
The Central Government has also encouraged the State Governments to monetise their public assets. To encourage states to pursue monetisation, the government has set aside Rs. 5,000 Crores as an incentive. In case the state government divests its stake in a public sector undertaking, the Centre will provide 100% matching value of the divestment of the state. Similarly, if a state lists a public sector undertaking in the stock markets, the Central Government will give it 50% of that amount raised through the listing. Finally, if a state monetises an asset, it will receive 33% of the amount raised from those assets. The state governments are encouraged because only states have control over their power generation assets, transmission and distribution, state highways, etc, among its key assets. Therefore, these efforts can increase visibility on funding of the state’s capital expenditure.
Asset monetisation models
Time-bound contracts are being done on brownfield models where the obligations remain with the public authority, but the day-to-day management is vested with the private sector, who will be responsible for operation and maintenance (O&M), a part or whole asset. On the other hand, brownfield PPP (Public-private Partnership) allows the private sector for end-to-end operation and maintenance (O&M).
Asset monetisation models will be categorised into two approaches:
- Direct Contractual Approach (PPP Model)
- Operate Maintain & Transfer (OMT): In this model, a right is transferred to the private entity to maintain and operate an asset for a definite concession period. This model is applied in India mainly for road maintenance management. The concessionaire invests an amount for operation and maintenance of road and recovers investments by various means such as through toll taxes, land value capture revenues, etc.
- Toll Operate & Transfer (TOT): Under this model, the publicly funded operational projects for two years are monetised and put for bidding. After making a one-time lump-sum payment on publicly funded highways, the investors are given a right to collect an appropriation fee for 15 to 30 years.
Example: Delhi-Noida Direct Flyway is one of the most significant examples of the success of this model.
- Structure Financing Models
- Infrastructure Investment Trusts (InvITs): InvITs are mutual funds like institutions that enable investments into the infrastructure sector by pooling small sums of money from many individual investors for directly investing in infrastructure. InvITs growth depends on the successful acquisition of concession assets through a bidding process. As per present regulations, InvIT investments are not open for small and retail investors.
- Real Estate Investment Transfers (REITs): A company owns, operates, or finances income-producing real estate. It raises funds from many investors and directly invests that sum in income-generating real estate properties. REITs are more accessible to small investors and have high liquidity due to lower unit prices. It holds land and buildings on a freehold basis or leases from a government authority.
Asset Monetisation experience : India and beyond
According to the Global Infrastructure Outlook, 2017, the total infrastructure requirement, globally, has been estimated at $94 trillion during the period 2016 to 2040. Various governments lead the initiative of meeting the massive infrastructure deficit, in which around 50% alone is required in Asia (with countries like China, India and Japan). The government’s incapacity to fund this level of infrastructure investment made them adopt the way of asset recycling to bridge this infrastructure deficit.
Many private sector investors generally avoid risks associated with the construction phase in their acquiring assets. Therefore, to exempt the construction cost in those assets, the institutional investors and funds mostly prefer to invest in mature economic infrastructures such as airports, highways, and ports in countries like Australia, Europe and North America. In India, bids for a public-private partnership (PPP) in railway stations and passenger trains show less amount of curiosity from the investors due to the risks of dis-investments. However, investors mostly prefer to invest in assets like airports, highways, telecom and power.
Australia’s Asset Recycling Initiative (ARI)
The federal government in Australia implemented the concept of asset recycling through the Asset Recycling Initiative (ARI). To facilitate ARI, the Australian Government in 2013 directed the Productivity Commission (PC) to examine infrastructure costs and financing in Australia with ways to focus on decision-making and implementing processes.
The Australian government in the 2014-15 budget announced the Infrastructure Growth Package (IGP) to initiate a ten-year vision of infrastructure investment in the country. The main components of the IGP were: Asset Recycling Initiative (ARI) and obtaining new investments. The ARI 2014 encouraged the states to recycle assets and allow private companies to fund and run those public assets and later utilise the sale proceeds for enhancing infrastructure. It was designed for five years from 2014-19, and funding was allocated on a first-come and first-serve basis.
Only three out of eight states participated in the scheme and a total of AUD 3 billion in incentive payments were paid to participating states. This scheme was a success for the government because it helped unlock over $17 billion in new infrastructure development across Australia.
Indonesia’s Limited Concession Scheme (LCS)
The government of Indonesia has introduced the Limited Concession Scheme (LCS) as an alternative to its incumbent Public-Private Partnership (PPP) Scheme. With this scheme, the government’s objective is to ensure economic growth, for which it requires a significant quantum of infrastructure financing.
Therefore, in February 2020, the Indonesian Government enacted (Presidential Regulation No. 32 of 2020) through Limited Concession Scheme (LCS) for financing public infrastructure through existing assets. The Indonesia Government is currently operating it with the support of state-owned enterprises. Under this scheme, the private sector is invited to maintain, operate and expand the existing assets, and private sectors are paying upfront to the government as a concession fee. This revenue will enable the government to complete its massive infrastructure programs and sub-financing some of its projects, such as the Trans Sumatra Highway.
LCS enables the private sector to manage and operate existing infrastructure assets such as airports, toll roads, seaports, railways, bus terminals, etc. Under the LCS, the private sectors are required to pay a premium to compensate the government or the state enterprise for a grant of the concession through which that state enterprise or government will fund that amount for the development of new infrastructure assets.
Challenges
The government under a pipeline scheme is ready to attract private concessionaires to invest in the natural assets according to their funds, but the main problem is the low revenue-generating assets. Some assets may not have the revenue streams ready or having execution and operational challenges. Therefore, the private party is ready to invest in lucrative assets except for those assets that might not generate the resources that the party is going to put in. For example, the recent PPP biddings of railway stations did not attract much attention from the private parties.
However, the initial success has been achieved in roads and power transmission assets. The government stated that the monetisation plans succeeded in roads assets with over 1400 km of road was monetised under the TOT model. Also, the power grid asset successfully carried out an invade for FY 22 for Rs. 7700 crores.
Conclusion
The accumulation of Rs. 6 lakh crore is currently a normative value released by the government. However, the real value will emerge from the bidding process until FY 2025. The government needs to receive a decent amount for the first few projects in each sector to set the ball rolling in the right direction. Therefore, smooth implementation of the first Rs. 10,000 crores will determine the fate of the targeted Rs. 6 lakh crore.
According to the experts, if the government achieves to collect the targeted money, then NMP will be marked among the biggest and boldest reforms initiated in the infrastructure sector of all times.
References
- https://www.niti.gov.in/sites/default/files/2021-08/Vol_I_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf
- https://www.niti.gov.in/sites/default/files/2021-08/Vol_2_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf
- https://indianexpress.com/article/explained/explained-what-is-the-governments-plan-with-the-national-monetisation-pipleline-7468258/
- https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1748297
- https://www.business-standard.com/article/economy-policy/fm-announces-plan-to-monetise-assets-realise-rs-6-trillion-till-2024-25-121082300923_1.html
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