Smooth implementation of the projects for the first Rs 10,000 cr will determine the fate of Rs 6-lakh-cr national monetisation plan
By Abhaya Agarwal & Gunjan Jain
The National Monetisation Pipeline (NMP) is an ambitious medium-term plan for monetising brownfield assets. Through NMP, the government aims to drive up infrastructure-investment to revive economic growth, attract long-term capital at scale, and diversify infrastructure financing. The NMP provides an enabling framework for optimum utilisation of the brownfield assets. Tapping private sector efficiencies and capital to redevelop or refurbish and run world-class facilities in each of the infrastructure sub-sectors will help unlock the value of investments in the public sector assets. Getting monetary values, in terms of upfront considerations or annualised payment from the private sector for the existing assets, is aimed to provide funding for new infrastructure. The estimated value of NMP corresponds to about 5.4% of the total infrastructure investment envisaged under the National Infrastructure Pipeline (NIP). The NMP has accordingly been established as co-terminus with the NIP.
Further, the NMP provides sufficient clarity on the number, size and type of assets that would be made available in the market. It will boost confidence among investors. The NMP includes several sub-sectors and assets: roads, railways, gas pipelines, telecom, warehouses, stadia, etc. The top five infrastructure sectors by their potential of monetisation are roads, railways, power transmission, power generation and telecommunication, and capture 73% of the total value. The Infrastructure Investment Trust (InvIT) structure will be a preferred model for implementation of the NMP, particularly after initial successes in roads and power sector. Operational projects with sufficient cash-flow clarity will be packaged together to attract investors.
Road assets worth Rs 1.6 lakh crore, or 26,700 km, will be monetised, with the potential models being Toll-Operate-Transfer (TOT) and InvIT. TOT and InvIT have already been successfully introduced in the sector. However, the relative unattractiveness of tender processes for the third and fourth TOT bundles highlight the importance of structuring traffic risk considerations in the contract and project packaging. Therefore, project preparation will assume a critical role in the success of the NMP. Similarly, InvIT model has been a preferred route for road; however, challenges such as lack of traffic data for roads coupled with weak market appetite and liquidity issues may need to be overcome.
In railways, over 400 railway stations, 90 passenger trains and other assets worth Rs 1.5 lakh crore are envisaged to be monetised. The government has already started the railway station redevelopment programme. Indian Railways assets are generally located in prime locations, having high commercial value. However, they are under-utilised. The New Delhi Railway Station Redevelopment is one such project, which will generate substantial employment and transform the station into a world-class facility. Different stations will have varied level of revenue potential. Capital investment for each station would need to be meticulously derived, considering the project feasibility and maximum pay-outs to the government. In NMP, private players are expected to invest large capital in the existing public assets to eventually realise revenues. Will the future revenues justify the investment? This would need to be assessed.
Further, the government plans to monetise 8,154 km of GAIL pipelines through InvIT model, taking a cue from the InvIT-based structure in natural gas transmission sponsored by Brookfield, which took over 100% ownership of 1,375 km long East West Pipeline from Kakinada to Bharuch from a private sponsor for a period of 20 years against an upfront consideration.
It is important to ensure the foundation provided by monetising the first set of assets is strong. The valuations at this stage are essentially normative estimates and provide a reference point only. The actual monetisation value will be determined based on detailed valuation or feasibility studies at the stage of transaction structuring. Further, meticulous planning, project packaging, and coordination will be needed to address the underlying structural and legacy issues. It will require a commitment from all government entities involved, such as line ministries and state departments. Bringing in the right set of partners for carrying out the transaction and execution will be equally important. Actual realisation will depend on various factors, such as economic scenario, transaction timing, available capital and investor interest, to name a few. Though NMP provides an insight into the assets included, clarity on the contractual clauses with balanced risk-reward framework will provide a better playing field for the investors. It would be important for the government to get the first few projects in each sector right to set the ball rolling in the right direction. Smooth implementation of the first Rs 10,000 crore will determine the fate of Rs 6-lakh-crore monetisation plan. The NMP will be implemented over a period of four years, meanwhile actual benefits can be seen in the second or third year of the plan period once the implementation picks up the pace.
Respectively, partner, and manager, Infrastructure, EY India