National Monetization Pipeline: The key to unlock untapped asset potential

November 17, 2021 1:21 PM

The Government aims to monetize assets worth approx. INR 1.6 lakh crore from the roads sector (27%), INR 1.5 lakh crore from the railway sector (25%), INR 79,000 crore from the power sector (15%), followed by assets from ports, telecom, and power transmission sectors.

NMPThe Government will have to create a robust redress system, independent regulation, and ensure renegotiation of concession agreements to enable a solid operational trajectory for the scheme’s execution.

By Anshuman Magazine,

The National Monetization Pipeline announced recently aligns with the Government’s vision of fulfilling its asset monetization mandate proposed during the Federal Budget 2021-22. The initiative aims to predominantly monetize brownfield public sector assets to raise approx. INR 6 lakh crore over four years (2022-25).

The Government aims to monetize assets worth approx. INR 1.6 lakh crore from the roads sector (27%), INR 1.5 lakh crore from the railway sector (25%), INR 79,000 crore from the power sector (15%), followed by assets from ports, telecom, and power transmission sectors. In addition, the Government plans to monetize urban real estate assets worth an estimated Rs 15,000 crore, warehousing assets worth Rs 28,900 crore and stadiums worth Rs 11,450 crore.

The National Monetization Pipeline has been created by aggregating the information provided by various line ministries and departments and the assessments of existing infrastructure assets across sectors. While monetization value under NMP is an indicative high-level estimate, the ultimate value will be based on detailed valuation at a later stage.

Over the years, the Government has been working on initiatives to create an enabling environment for the private sector to take part in nation-building. By identifying assets across 13 core sectors, including roads, railways, power, warehousing, mining and aviation, the Government has paved the way for active private sector participation across all the major sectors driving the economy.

Monetization of these assets could happen through various models. A prominent model will list the asset in the capital markets via InvIT / REITs to ensure greater transparency, accountability and wider participation from the retail investors. This route will be most suitable for assets with stabilized revenue streams with little competition, like toll roads, power transmission & distribution, etc.

Another prominent model will be the PPP route. The assets can be provided on a long lease or Operations Management Development Agreement (OMDA) or a long lease where active management & strong technical expertise is required and significant investments in the asset from time to time. Examples will include airports, railway stations, stadiums, etc.

Some of the key advantages of the National Monetization Policy that will help with the economic recovery include bringing private-sector efficiency to the public assets and new technologies and solutions that can be introduced for better management of these assets. When we look at funding and management bandwidth, the Government can focus on creating newer infrastructure assets that are essential for the nation. It will also significantly reduce various risks (approvals, development, liaising, etc.) for the private sector as the assets predominantly are brownfield in nature.

With a larger objective of creating long-term world-class infrastructure and sufficient funding options, the NMP scheme will eventually hope to create a cycle of ‘develop, commission, monetize and invest’. Planned to align with the National Investment Pipeline (NIP), NMP forms a foundation for the asset-owning ministries to unlock value while monitoring their assets’ performance and maintenance.

The imperatives to ensure success

The National Monetization Policy is currently a high-level strategy where the nuts and bolts of the exact program with specific timelines and milestones needs to be encapsulated. In addition, specifics regarding the intended use of funds generated from this exercise needs to be detailed. Accountability and alternatives need to be laid out to ensure that the Government can implement this program within the envisaged timeframe.

India aspires to be a USD 5 trillion economy. To achieve this wider objective, another significant initiative by the government is the National infrastructure pipeline (NIP) that envisages attracting investments to the tune of INR 111 lakh crores across multiple geographies and sectors in the country. Amongst the key objectives of the NMP is the idea of ‘infrastructure creation’ through monetization. With an envisaged quantum of approx. INR 6 lakh crores, the NMP’s contribution towards this objective will be significant only in specific sectors. Hence, a prioritization exercise of large/essential assets that can aid in the development of newer infrastructure assets should be undertaken.

Given the intended models of monetization, private sector response will depend on the attractiveness of specific assets. Thus, the requirement of a detailed outreach program, followed by due diligence on each asset, will be imperative. This will help to arrive at the optimal valuation and the most suited private participation model by which the monetization should happen. It is, therefore, quite imperative to work with sector experts and industry professionals to reach out to the global players to ensure time-bound and result oriented processes.

The Government will have to create a robust redress system, independent regulation, and ensure renegotiation of concession agreements to enable a solid operational trajectory for the scheme’s execution. States can help by putting forth their assets, including power generating plants, transmission networks, warehousing facilities and expressways, so that the Center can incentivize the monetization of these assets. With the coordinated efforts of the Center and the states, the funds raised from asset monetization could possibly breach the intended target under the scheme.

By virtue of being public assets, another key to success is to ensure transparency on the selection process of the private player and the performance of the asset over a sustained period of time with a view to build confidence in the public with regard to the program and its benefits.

(The author is Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)

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