By Satyaki Paul
On August 23, 2021 the Union Government has unveiled a four-year National Monetisation Pipeline (NMP) worth an estimated Rs. 6 lac crores. This plan seeks to unlock value in brown field projects by engaging the private sector, transferring to them revenue rights and not ownership in the projects, and using the funds so generated for infrastructure creation across the country.
Why was NMP announced?
The National Monetisation Pipeline (NMP)has been announced to provide a clear framework for monetisation and give potential investors a ready list of assets to generate investment interest. The government-of-the-day has observed that these are brown field assets, which have been “de-risked” from execution risks, and consequently should be encouraged towards private investment. So, for structuring the monetisation transactions, providing a balance risk profile of assets, and effective execution of the NMP will be key tasks in current context.
What is the context monetisation?
In a monetisation transaction, the government-of-the-day is essentially transferring revenue rights to private parties for a specified transaction period in return for upfront money, a revenue share, and commitment of investments in the assets. For example: Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), are the key structures used to monetise assets in the roads and power sectors. These are also listed on stock exchanges, providing investors liquidity through secondary markets as well. While these are a structured financing vehicle, other monetisation models on PPP (Public Private Partnership) basis include: Operate Maintain Transfer (OMT), Toll Operate Transfer (TOT), and Operations, Maintenance & Development (OMD). In this context, OMT and TOT have been used in highways sector whereas OMD is being deployed in case of airports.
What is the current plan in total?
In Indian context, the roads, railways and power sector assets mostly comprise over 66% of the total estimated value of the assets to be monetised, with the remaining upcoming sectors including telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums. In terms of annual phasing by value, 15% of assets with an indicative value of Rs. 0.88 lac crores are envisaged for rollout in the current financial year (2020-21). The National Monetisation Pipeline (NMP) will run simultaneously with the National Infrastructure Pipeline of Rs. 100 laccrores, which was announced in December, 2019. The estimated amount to be raised through monetisation is around 14% of the proposed outlay for the Centre of Rs. 43 lac crores under NIP.
What is the list of assets under NMP?
The government assets on the NMP list include: 26,700 km of roads, railway stations, train operations and tracks; 28,608 Ckt km worth of power transmission lines, 6 GW of hydroelectric and solar power assets, 2.86 lac km of fibre assets and 14,917 towers in the telecom sector, 8,154 km of natural gas pipelines and 3,930 km of petroleum product pipelines. In the roads sector, the government has already monetised 1,400 km of national highways worth Rs 17,000 crore. Another five assets have been monetised through a Power Grid InvIT raising Rs 7,700 crore. Furthermore, 15 railway stations, 25 airports and the stake of central government in existing airports and 160 coal mining projects, 31 projects in 9 major ports, 210 lac MT of warehousing assets, 2 national stadia and 2 regional centres, will be up for monetisation. Redevelopment of various government colonies and hospitality assets including ITDC hotels is expected to generate Rs 15,000 crore.
What are the key challenges for finding success in NMP?
There are numerous issues which should be addressed first then proceeded for fulfilment. These are: lack of identifiable revenues streams in various assets, level of capacity utilisation in gas and petroleum pipeline networks, dispute resolution mechanism, regulated tariffs in power sector assets, and low interest among investors in national highways below four lanes. Nonetheless, the government-of-the-day has tried to address these challenges in the NMP framework, execution of the plan remains key to its success. In this context, structuring of monetisation transactions is being seen as key challenge. The skewed pace of privatisation in Government companies such as Air India and BPCL, and less-than-encouraging bids in the recently launched Public-Private-Partnerships (PPP) initiative in railways sector, specify that enticing private investors interest is a demanding task.