Monetisation needs to be made value-accretive for entities undertaking the transactions. There is a need to explore mechanisms to plough back tax revenues in form of performance-linked incentives
By Amitabh Kant
Asset monetisation, as a concept, entails offering public infrastructure to the private sector or institutional investors through structured vehicles and mechanisms. Hence, monetisation, at its core, is a distinct shift from ‘privatisation’ to ‘structured partnerships’ with the private sector within defined contractual frameworks. It serves two critical objectives: First, it unlocks value from public investment in infrastructure, and second, it taps private sector efficiencies.
To achieve national growth targets, India needs to invest ~Rs 111 lakh crore over the next five years in infrastructure. As the pressing need for public spending gets skewed towards social priorities and economic stimuli, ramping up the pace of infrastructure investment faces an unprecedented challenge. This altered reality necessitates looking at asset monetisation as the key to value creation in infrastructure.
In July 2019, the government drew up a roadmap for asset monetisation across sectors, to raise ~Rs 3.5 lakh crore over five years. The programme covers core as well as non-core assets and is steered by a well-laid down institutional framework. While this is a step in the right direction, concerted efforts are needed to create a robust pipeline of well-structured brownfield assets.
Monetisation experience: India & elsewhere
India has steadily developed a solid track record of attracting institutional investment in infrastructure assets. The private sector has very effectively utilised risk-managed structures to monetise assets such as toll roads, transmission towers, pipelines and telecom towers, thus bringing in a new investor class into India’s infrastructure. In the public sector, NHAI has monetised hundreds of kilometres of operational toll roads through TOT concessions and has raised an impressive ~`15,000 crore. These transactions have collectively churned around ~`80,000 crore of private capital into infrastructure, which is not a small feat. However, this is a small fraction of the available appetite and capital.
There is a substantial interest from long-term investors to invest in India’s infrastructure. Given India’s massive and stable demand, operational infrastructure assets generate long-term, inflation-indexed cashflows, which are highly conducive to institutional capital deployment. An investible capital of $29 billion is believed to be committed for investing in India by pension funds, sovereign wealth funds and infrastructure funds. However, to access this global capital, we need to create a robust asset pipeline and package it with the right structures and vehicles.
Monetisation as a mechanism to finance infrastructure has been successfully employed by nations such as Australia and the US. Australia has been a frontrunner through its five-year national programme of Asset Recycling Initiative (ARI) generating $5 billion. It even has an incentive mechanism whereby states receive an additional 15% of the proceeds when an asset is monetised, and proceeds are reinvested in new infrastructure. In the US, monetisation of toll rights is undertaken at a massive scale and structured as 75-year transactions. A consortium led by Macquarie group took over the rights to operate and maintain a portfolio of operating road projects in Indiana, generating $3 billion, which funded the entire state-wide highway upgrade programme.
Lessons for India’s asset monetisation programme
In order to give the needed fillip to the monetisation initiative, the following three aspects need concerted efforts and interventions. First, monetisation needs to be repositioned as a tool to leverage institutional capital. In order to do so, structured transactions with a mandatory transfer of assets back to the government should be given priority over slump sale models, especially in case of core infrastructure assets. Structures such as TOT, InvITs bring in private-sector efficiencies in managing and operating assets under well-defined regulatory frameworks.
Second, scanning of assets needs to be a perennial exercise and the ministries must proactively create 3-5 year asset pipelines commensurate with expansion plans. We need to look beyond the traditional asset classes of highways, railways and airports. Pipeline network, operational metro lines, storage infrastructure, transmission towers and rental earning public real estate assets should be explored as potential asset classes with re-imagined structures. The government should undertake a cycle of greenfield asset creation followed by monetisation post-construction without holding on to the assets.
Lastly, there is a need to carefully manage stakeholders, regulatory and structural issues, which create formal as well as informal barriers. Monetisation needs to be made value-accretive for entities undertaking the transactions. Collective taxation, comprising capital gains, loss of 80 IA, stamp duty, GST, tax on upfront proceeds, can erode substantial value. There is a need to explore mechanisms to plough back tax revenues in the form of performance-linked incentives and ring-fence the monetisation proceeds for expansion investments of respective entities.
To conclude, asset monetisation, when undertaken effectively, can deliver infinite value from the infrastructure assets, which will not only create substantial fiscal impact but also help in creating new and world-class infrastructure in India.
(Author is CEO, NITI Aayog. Views are personal)