Infrastructure finance: Asset recycling vital to growth

It is imperative that hurdles in the way of the asset monetisation agenda are removed if NIP’s stiff target is to be achieved

Infrastructure finance: Asset recycling vital to growth
The government has further approved a plan to raise about Rs 90,000 crore this year through monetisation of assets across key sectors.

By Abhaya K Agarwal

Asset monetisation has emerged as an innovative way to finance the infrastructure sector in India over the past few years. The National Infrastructure Pipeline (NIP) envisages around Rs 111 lakh crore of investment during 2019-2025, 21% of which is expected from the private sector. There is an increasing need to find new funding options to achieve the target, particularly when the sector is struggling with shrinking of bank finances and contraction in private sector involvement in green-field assets.

State entities have a large base of assets across sectors like roads, ports, railways, power, and telecom. For instance, the railways has access to more than 40,000 hectares of empty land. Unlocking the revenue potential from such underutilised, unproductive or unutilised assets as well as from operational assets could be pivotal to future investment. Physical assets such as land and buildings, and brownfield operational assets like roads, railway stations, pipelines, mobile towers, etc. offer extensive possibilities for raising resources through asset monetisation.

The concept of asset monetisation is already being implemented in the rail sector through the station redevelopment programme and through the Toll-Operate-Transfer model in the road sector. Habibganj and Gandhinagar railway stations are being redeveloped into world-class facilities through exploitation of land assets.

The government has further approved a plan to raise about Rs 90,000 crore this year through monetisation of assets across key sectors. Apart from strategic sale of stakes in PSUs, many road projects are already in a queue while port assets including 10 berths and telecom assets such as towers owned by BSNL and MTNL are outlined for monetisation. Special assets such as stadiums and tourism railway lines are also in the pipeline. The government is planning to bring out a five-year asset monetisation pipeline in collaboration with NITI Ayog to instill confidence in investors. This will intend to provide clarity on the number, size, and type of assets that would be made available in the market.

While the idea of asset recycling seems quite promising, a few obstacles need to be cleared to achieve the intended benefits of the programme. The fundamental structure and legacy issues remain a cause for concern. For example, issues related to proper maintenance of asset register, asset titles and encroachment have affected the railways’ plan to monetise its land. Similarly, improper planning including land unavailability, delayed approvals and clearances, etc. have impacted the station redevelopment programme. While the Covid-19 crisis has severely hit toll collections, refinancing also remains an issue considering the long-term nature of TOT concessions in the road sector.

Capital unlocked from asset monetisation projects is commonly invested back into the project or sector. In the power sector, the Union Cabinet has lately approved monetisation of the transmission assets of the Power Grid Corporation of India (PGCIL) through the Infrastructure Investment Trust (InvIT) structure. In this model, PGCIL will be able to deploy the proceeds, estimated at around Rs 7,000 crore, from the first block of assets to their new and under-construction projects. Gross receipts from disinvestment of PSUs could also be channelised back in a similar fashion.

Asset recycling, or monetisation is a complex and rigorous process, involving many stakeholders and requiring detailed due diligence. Issues such as inefficient planning, policy constraints, and information gaps could hinder, or at least delay such projects. Therefore, inherent issues must be identified, along with a framework to provide overarching guidance to government entities on resolving prevailing concerns. The success of the monetisation programme will be critical for the revival of infrastructure investment and significantly contribute to the economic growth of the country.

The writer is Partner & Leader- Infrastructure, Strategy and Transaction, Government and Public Sector, EY India. With inputs from Azizul Quadir, Senior Manager

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First published on: 26-10-2020 at 03:15 IST