Finance Minister Nirmala Sitharaman launched the National Monetization Pipeline (NMP) on August 23. She announced that from now the monetization assets will be a part of the government's asset monetization program. The NMP is an asset monetization program that comprises a four-year pipeline of the Modi government's brownfield infrastructure (when an entity purchases or leases existing production facilities to launch a new production activity) assets. The NMP will be a roadmap for the Centre's asset monetization initiative.
From FY 2022 to 2025, the government is planning to offer existing assets across sectors to private organizations in order to generate additional revenue. At the same time, it aims to maintain and manage the assets in a professional manner. The top three sectors identified for asset monetization include roads, railways, and power with a respective share of 27%, 25%, and 15% respectively in the value of the total asset.
This asset monetization is viewed not just as a mechanism for funding but also as a strategy for augmenting infrastructure under the NMP. The Modi government is finalizing Rs. 6 lakh crore worth of infrastructure assets that it plans on monetizing.
This article includes:
- Key features of the NMP program
- Major challenges
- How is it different from privatization and sales
- Expected outcome
Highlighting key points about the NMP scheme:
1. According to the government, the NMP is proposed to serve as a medium-term roadmap for identifying potential monetization-ready projects across various infrastructure sectors.
2. It aims to unlock value in brownfield projects by engaging the private sector, transferring revenue rights to them, and using the funds for infrastructure creation.
3. Asset monetization does not involve selling land and it is about monetizing brown-field assets. “Ownership of assets will remain with the government and there will be a mandatory hand-back," said Sitharaman.
4. The NMP will run a co-terminus with the Rs 100 lakh crore National Infrastructure Pipeline (NIP) which was announced in December 2019. The estimated value will correspond to 14% of the proposed expenditure under the NIP. This will be equivalent to ₹43 lakh crore.
5. For now, the government has only included the assets of central government line ministries and Central Public Sector Enterprises (CPSEs) in infrastructure sectors.
6. Roads, railways, and power sector assets will comprise over 66% of the total estimated value of the assets after monetization. The remaining 34% upcoming sectors that comprise: telecom, mining, aviation, ports, natural gas, and petroleum product pipelines, warehouses, and stadiums are also included.
7. In terms of annual phasing by value, 15% of assets with an estimated value of Rs 0.88 lakh crore are envisaged for rollout in the current financial year (FY 2021-22).
8. Sitharaman said that the NMP will create employment opportunities in the future, thereby enabling high economic growth and seamless integration of the rural and semi-urban areas for overall public welfare.
9. 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
- Capital market instruments such as Infrastructure Investment Trusts (InvIT)
10. This plan is in line with PM Modi's strategic Divestment policy, under which the government will retain a presence in only a few identified areas with the rest tapping the private sector.
What are the major challenges?
The key challenges that may affect the predicted roadmap of the NMP are:
- Lack of identifiable revenues streams in various assets
- Low Level of capacity utilization in gas and petroleum pipeline networks
- Low interest among investors in national highways below four lanes
- Regulated tariffs in power sector assets
While the government has tried to address these challenges in the NMP framework, its success depends on the execution. The slow pace of privatization in government companies including Air India and BPCL indicate that attracting private investors' interest is not that easy.
The monetization potential of toll road assets is limited by the percentage of stretches having a four-lane configuration. The total length of National Highway (NH) stretches is estimated to be about 23% of the total NH network, as per the NMP framework. The government has tried to address this with a plan to monetize assets that are four-lane and above.
How is this monetization of assets under NMP different from privatization?
“The principles of monetization of assets enumerated under NMP clarifies its clear distinction from privatization and sale”, said NITI Aayog CEO Kant. The NITI Aayog is a public policy resource centre of the Government of India, which was established with the aim to achieve sustainable development goals in India.
Explaining the major variation between the two, he said: “Under privatization of assets, the private sector is the whole-sole owner of a business or asset. The owner enjoys complete autonomy over the future sale of such assets, with no control or oversight from the government. Under sale or privatization, the private proponent owns the asset with no potential for buy-back or hand-back of assets.
But for mechanisms proposed under NMP, monetization of assets is by way of structural contractual partnerships, similar to public-private partnership projects which have now been undertaken for almost 20 years in the country. For this, well-defined contractual frameworks will be laid to ensure redressal of challenges that include protection of interests of the public and common citizens.”
What lies ahead? Will this program be a success?
While the idea of asset monetization seems quite promising, still a few obstacles need to be cleared to achieve the intended benefits of the program. The underlying structural and legacy issues might continue to be a cause of concern for the success of the plan. For example, land unavailability, delayed approvals and clearances, policy constraints, and lack of coordination among stakeholders could hinder the project's progress. These areas need attention.
Meticulous planning and coordination will be needed to address the underlying issues. It is important for the government to get the first few projects in each sector right to set the ball rolling in the right direction.
The success of the monetization plan will be critical for the revival of the infrastructure investment in India. It is expected to significantly contribute to India’s economic growth through its enormous benefits.