Previously mentioned in the Union Budget 2021-22, the union finance minister Nirmala Sitharaman unveiled the National Monetisation Pipeline (NMP) a week ago. This multi-crore scheme is seen as a rather bold move by the government amidst an economic shock. The move has invited plenty of criticism from the opposition, while some opine that it could prove to be a master-stroke that sets the wheels of economic development in motion. Read on to find out what exactly is this ambitious plan all about!
NMP: A Brief Introduction
Basically, the National Monetisation Pipeline (NMP) aims to ‘monetise’ the ‘core infrastructure assets’ of the Central Government to generate an estimated ₹6.0 lakh crores over a period of four years (FY 2022 to 2025). In essence, through NMP, the Centre envisages tapping the private sector capital, thereby diverting it to the public sector and unlocking higher efficiencies of the languishing brownfield assets owned by the PSUs or the Centre. Further, they plan to utilise the proceeds from this scheme for developing/funding new infrastructure projects.
Now, let’s break this down.
What exactly is ‘asset monetisation’?
Asset Monetisation, at its core, refers to converting non-revenue generating or low-revenue generating assets (tangible or intangible) into cash. There are multiple ways one can monetise an infrastructure asset. For example, rent/lease it out, sell it off or build and utilise it to generate money. However, the NMP lays down monetisation plans only for ‘brown-field assets’ and excludes any selling, divestment or monetisation of non-core assets from its scope.
Green Field v/s BrownField Assets (Source: WallStreetMojo)
How will NMP work?
Broadly, this asset monetisation scheme requires the government and PSUs to part with their already-built but under-utilised core assets, like roads, airports, coal mines and others, for a period of 25-30 years, in exchange for a lump-sum payment at the beginning. The amount will be equal to the present value of expected cash-flows (for the given period), estimated at the current utilisation level. After the said period, there will be a mandatory hand-back of these assets to the government. Therefore, the government envisions NMP as a ‘structured contractual partnership’ and not a ‘slump sale of assets or privatisation.’
Currently covering only languishing brownfield assets owned by the Central Government line ministries and the Central Public Sector Enterprises (CPSEs), the NMP is also underway to collate and monetise such assets owned by the states. The centre is laying down schemes to incentivise the states, to participate in the NMP. Over the medium term, apart from creating new infrastructure through monetisation, NMP also aims to focus on increasing employment opportunities, thereby accelerating economic growth.
The Asset Monetisation Framework and Implementation
The roadmap of NMP, formulated by the Niti Aayog, in consultation with the finance and infrastructure line ministries, is launched in two volumes. While Volume I covers the ‘conceptual approaches and potential models for asset monetisation,’ Volume II dictates the ‘actual roadmap for monetisation, including the pipeline of core infrastructure assets under Central Govt.’ For smooth execution, implementation and monthly review of the Asset Monetisation Programme, the government has also constituted an empowered committee called the Core Group of Secretaries on Asset Monetization (CGAM). The Cabinet Secretary will head this committee. Additionally, the government has launched a real-time monitoring dashboard. Apart from this, the finance minister will also hold quarterly reviews of the implementation plan.
Our Finance Minister launching the NMP on August 23, 2021
In her speech, the Finance Minister emphasised that the contractual partnerships that the government will enter into, with the global private investors, will be fully guided by ‘key performance indicators and performance standards.’ These KPIs and standards need to be strictly complied with throughout the asset monetisation programme. Together, the roadmap, the committee, the KPIs and performance standards will form an essential guidebook for the execution of NMP across all sectors involved, namely- roads, railways, aviation, oil & gas, warehousing, hospitality, housing, power and telecom.
Assets covered under NMP:
NMP covers over 20-asset classes, spread across 12 line ministries. Roads, railways and power are the priority sectors. As per the roadmap, NMP estimates to raise approximately ₹1.5 lakh crores through road assets of the NHAI, ₹1 lakh crore from power transmission and generation sector assets, about ₹1.5 lakh crore from railway assets including 400 stations, about 150 trains, tracks and woodshed, and about ₹50,000 crores each from natural gas+petroleum related assets and telecommunication assets. Other assets to be monetised include airports, ports, sports stadiums, warehouses, mining and urban real estate assets.
Share of sectors as per indicative monetisation value under NMP
The roadmap lays down yearly revenue targets for the various ministries and departments involved. In the first year of NMP, the government is expecting revenue generation of approximately ₹88,000 crores.
Asset Monetisation Models
The government has identified several tools/instruments for the monetisation of infrastructure assets. Some models have already been utilised in the past and proven effective in the monetisation of brownfield assets. Broadly, there are two categories of monetisation models, as shown below:
1. Direct Contractual Approach / Brownfield PPP Model
Brownfield PPP models aim to rope in private sector partners for the complete operation and maintenance (O&M), provision of service to users and augmentation of assets as necessary. Under the direct contract approach, there can be two types of models:
Operate-Maintain-Transfer (OMT) Successfully adopted in the road sector in India, the OMT model does not suffer from volatility or unmanageable commercial risks because one can assess the future revenue potential of the assets involved with a fair degree of certainty. Between 2018-2021, NHAI has raised about ₹17,000 crores through the Toll-Operate-Transfer (TOT) model, a variant of the OMT model.
Operate-Maintain-Develop (OMD) Under the OMD structure, an asset, operational but due for augmentation, is handed over to a private party for development, operation and maintenance over the concession period. This model has been successfully deployed and has helped in the world-class development of Mumbai and Delhi airports.
Brownfield PPP Models under NMP
2. Structured Financing Models
This model constitutes structured instruments for long-term fund-generation through capital markets or a pool of investors. Under this category, the government has kept the options of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) open for investors. These vehicles can pool capital from various investor classes, which are majorly market-based. The government has previously deployed these instruments in different sectors. For example, the InvIT of Power grid has already garnered over ₹7000 crores since listing. (May 2021)
Kindly Note: The list provided above is not comprehensive, and the authorities are open to exploring new models if need be.
The Potential Challenges
Undoubtedly, the most challenging aspect of the entire scheme is the implementation. Experts have expressed major concerns over the PPP model because it comes with daunting clauses and complications. In many past instances, PPP hasn’t given the desired results on revenues. Apart from that, the success of the government to attract private participation majorly hinges on two broad factors:
Getting the valuation of assets and other details of contractual agreements right
The market environment being conducive!
To sum up, many experts have called this asset monetisation scheme ‘too ambitious to be achieved over a span of four years.’ However, only time can tell if the targets laid down in the NMP are achievable or ‘too ambitious.’ Nonetheless, if executed properly, the NMP can bring a paradigm shift in the Indian infrastructure sector - even so, that is a big ‘if.’