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National Monetisation Pipeline

Published: 18th Apr, 2022

Context

Recently, the scheme has completed a transaction of 9 lakh crore in 2021-22, surpassing the programme’s first phase targets.

About

  • The government unveiled a four-year National Monetisation Pipeline (NMP) worth an estimated Rs 6 lakh crore.
  • It aims to unlock value in Brownfield projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects, and using the funds so generated for infrastructure creation across the country.
  • The NMP has been announced to provide a clear framework for monetisation and give potential investors a ready list of assets to generate investment interest.
  • The government has stressed that these are Brownfield assets, which have been “de-risked” from execution risks, and therefore should encourage private investment.
  • Structuring the monetisation transactions, providing a balance risk profile of assets, and effective execution of the NMP will be key challenges.

What is monetisation?

  • In a monetisation transaction, the government is basically transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets.
  • Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), for instance, are the key structures used to monetise assets in the roads and power sectors.
  • These are also listed on stock exchanges, providing investors liquidity through secondary markets as well.
  • While these are a structured financing vehicle, other monetisation models on PPP (Public Private Partnership) basis include:
    • Operate Maintain Transfer (OMT)
    • Toll Operate Transfer (TOT)
    • Operations, Maintenance & Development (OMD)
  • OMT and TOT have been used in highways sector while OMD is being deployed in case of airports.

What is government’s plan?

  • Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetised, with the remaining upcoming sectors including telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums
  • In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged for rollout in the current financial year.
  • The NMP will run co-terminus with the National Infrastructure Pipeline of Rs 100 lakh crore announced in December 2019.
  • The estimated amount to be raised through monetisation is around 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.

To unlock the value

  • Eight core industrial sectors that support infrastructure such as coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity have a total weight of nearly 40% in the Index of Industrial Production (IIP).
  • According to NITI Aayog, the strategic objective of the asset monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies.
  • The NMP policy advocates unlocking idle capital from non-strategic/underperforming government owned assets and reinvesting the funds, thus received, into new infrastructure projects and augmentation of assets such as green-field infrastructure creation.
  • This reportedly first-of-its-kind initiative claims that it will boost the economy, generate better employment opportunities, and drive the competitiveness of the Indian economy.
  • Notwithstanding the merit of this decision by the government of the day, it becomes imperative for policy makers to introspect the decline of profit-making government assets in the backdrop of the Government contemplating reinvesting the funds received to create fresh assets, post the NMP exercise.
  • It is quite likely that the nation may find itself in a vicious cycle of creating new assets and then monetising the same when they become liabilities for the Government at a later stage.
  • Going by the annual report (2020-2021) of the Department of Public Enterprises, Government of India, there are 256 operationally-run central public sector undertakings (CPSUs), employing about one million people; they posted a net profit of ? 93,294 crore (FY 2019-20).
    • Out of these, 96 have been conferred the Ratna status (72, 14, and 10 are Miniratnas, Navaratnas, and Maharatna companies, respectively).

Reason for PSU’s decline

  • The primary reason for the failure of public sector enterprises is no secret.
  • Cost overruns, inter alia, is one of the major reasons.
  • In some cases, project completion time is exceeded, leading to elevated project cost so much so that either the project itself becomes unviable at the time of its launching or delays its break-even point.
  • Besides, optimum input-output ratio is seldom observed in a majority of government infrastructural projects leading to their over-capitalisation.
  • A reluctance to implement labour reforms, a lack of inter-ministerial/departmental coordination, poor decision-making, ineffective governance and excessive government control are other reasons for the failure of public infrastructural assets.

Pradhan Mantri Gati Shakti National Master Plan

  • Recently, the “Pradhan Mantri Gati Shakti National Master Plan” for multi-modal connectivity was launched by the Prime Minister with an aim ‘to synchronise the operations of different departments of 16 Ministries including railways and roadways for seamless planning and coordinated execution of infrastructure projects in a timely manner’.
  • It is essentially a digital platform for information sharing among different Ministries and departments at the Union and State levels.
  • It also entails analytical decision-making tools to disseminate project-related information and prioritise key infrastructure projects.
  • Besides, it fosters a periodical review and monitoring of the progress of cross-sectorial infrastructure projects through the GIS platform in order to intervene if there is a need.

What are the challenges?

  • Among the key challenges that may affect the NMP roadmap are:
    • lack of identifiable revenues streams in various assets
    • Low level of capacity utilization in gas and petroleum pipeline networks
    • Ineffective dispute resolution mechanism
    • Un-regulated tariffs in power sector assets
    • low interest among investors in national highways below four lanes
  • While the government has tried to address these challenges in the NMP framework, execution of the plan remains key to its success.
  • Structuring of monetisation transactions is being seen as key.
  • The slow pace of privatisation in government companies including Air India and BPCL, and less-than-encouraging bids in the recently launched PPP initiative in trains, indicate that attracting private investors interest is not that easy.

conclusion

To sum up, the NMP is an ambitious “retail” sale or lease of revenue yielding public capital projects with the potential threats of allegations of corruption and cronyism derailing the process to revive investment demand and to halt the economic decline.

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