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Tuesday, September 21, 2021

Asset monetization for National infrastructure pipeline- Opportunities & challenges

National Monetisation Pipeline (NMP) has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22.

NMP estimates aggregate monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.

Roads, Transport and Highways, Railways, Power, Pipeline and Natural Gas, Civil Aviation, Shipping Ports and Waterways, Telecommunications, Food and Public Distribution, Mining, Coal and Housing and Urban Affairs are the various infrastructure sectors that are identified for the NMP.

“The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital, which can thereafter be leveraged for further public investments,” said Vice Chairman, NITI Aayog.

CEO, NITI Aayog said, “The NMP is aimed at creating a systematic and transparent mechanism for public authorities to monitor the performance of the initiative and for investors to plan their future activities”.  

As part of a multi-layer institutional mechanism for overall implementation and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted.

The framework for core asset monetisation has three key imperatives:

  • Monetization of ‘Rights’ NOT ‘ownership’. Assets handed back at the end of transaction life.
  • Brownfield de-risked assets, stable revenue streams.
  • Structured partnerships under defined contractual frameworks with strict KPIs & performance standards.

The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025 indicatively valued at Rs 6.0 lakh crore corresponds to ~14% of the proposed outlay for Centre under National Infrastructure Pipeline (NIP) estimated at Rs 43 lakh crore.

Under the NIP the total capital expenditure in infrastructure sectors in Bharat during fiscals 2020 to 2025 is projected at ~Rs 111 lakh crore with the funding pattern envisaged as under.

Centre 39%- Rs. 43.29 Lakh Crs

States  40% – Rs. 44.40 Lakh Crs

Private 21% – Rs. 23.31 Lakh Crs

Total            – Rs.111.10 Lakh Crs 

The various infrastructure sectors covered under the above proposed capital expenditure are- energy, roads, railways, ports, airports, urban infrastructure, digital communication, irrigation, rural infrastructure, agriculture and food processing, social infrastructure and industrial infrastructure.

Asset monetization is aimed at tapping private sector investment for new infrastructure creation.

Sector wise breakup of the proposed Asset Monetization of Rs. 6 Lakh Crs

(Source-https://pib.gov.in/PressReleseDetail.aspx?PRID=1748297)

The top 5 sectors (by estimated value) capture ~81% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).

Assumptions:

The aggregate as well as year on year value under NMP is only an indicative value with the actual realization for public assets depending on the timing, transaction structuring, investor interest etc.

Indicative value of the monetisation pipeline year-wise (Rs crore)

(Source-https://pib.gov.in/PressReleseDetail.aspx?PRID=1748297)

The assets and transactions identified under the NMP are expected to be rolled out through a range of financial instruments that include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment Trusts (InvIT) among others. The choice of instrument will be determined by the sector, nature of asset, timing of transactions (including market considerations), target investor profile and the level of operational/investment control envisaged to be retained by the asset owner etc.

The potential value assessed under NMP is only an indicative high level estimate based on thumb rules. The end objective of this initiative to enable ‘Infrastructure Creation through Monetizzation’ wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth and quality of life to the country’s citizens.

The report of the Task Force (Dept., of Economic Affairs, Ministry of Finance, GOI) says “It is estimated that Bharat would need to spend $4.51 trillion on infrastructure by 2030 to realize the vision of a $5 trillion economy by 2025, and to continue on an escalated trajectory until 2030.”  During the fiscals 2020 to 2025, sectors such as energy (24%), roads (18%), urban (17%) and railways (12%) amount to ~71% of the projected infrastructure investments in Bharat.

Challenges

In order to achieve the target of total capital expenditure in infrastructure sectors in Bharat during fiscals 2020 to 2025 of ~Rs 111 lakh crore the centre, states and private sectors should pump in their respective share of capital expenditure of Rs. 43.29 Lakh Crs, Rs. 44.40 Lakh Crs, and Rs. 23.31 Lakh Crs.

It is to be noted that the proposed NMP over the four-year period, FY 2022-2025, indicatively valued at Rs 6.0 lakh Crs is a part of the Centre’s overall share of Rs.43.29 Lakh Crs. As clearly indicated in the report of the Task Force the potential value assessed under NMP of Rs. 6 Lakh Crs is only an indicative high level estimate based on thumb rules.

Therefore, considering the down turn in the economy since 2016 in general and post Covid since April, 2020 in particular all the major stake holders in this National Infrastructure Pipeline estimated at Rs.111 Lakh Crs have a daunting task of mobilizing the funds.

Also the estimated amount of Rs. 6 Lakh Crs to be raised by monetization of the brownfield des-risked assets with stable revenue streams is only an indicative high level estimate based on thumb rules and therefore the valuation of future revenue streams may vary ( not necessarily on higher side but most probably on lower side).

The government has amply made it clear that this NMP is Monetization of Rights Not Ownership. In other words the assets so monetized will be going back to the government at the end of the monetization period which means only the management/ operation of the assets will be vested with the private players whereas the ownership of those monetized assets will continue to remain with the government. 

For the overall implementation and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted, which is part of the multi-layer institutional mechanism.

Whereas there is an equal need to have in place a similar multi-layer institutional mechanism to bring transparency and responsibility with regard to starting and operationalizing various infrastructure projects amounting to Rs. 111 Lakh Crs and more importantly ensuring that the outcomes of this mission are duly fulfilled.  

The Report of the Task Force also recommended Governance Framework with escalation matrix with a multi-layer institutional mechanism for addressing the issues like – time and cost overrun, financing of NIP Projects. The Task force has also recommended KPI Framework to set the measurable targets/outcomes for this mega exercise of Rs.111 Lakh Crs worth of infrastructure projects.

If one looks at the history since independence our country’s record in executing the mega infrastructure projects is not very impressive to say the least.

Data of stalled and delayed central infrastructure projects worth Rs. 150 Crs and above 

PeriodTotal No. of Projects (worth Rs.150 Crs and above)No. of Stalled ProjectsOriginal cost (INR)Revised Estimates (INR)Net increase in cost (INR) Percentage of upward revision
30th August, 2014    7202955488 bn6053 bn1015 bn18.5%
31 st July, 2021178150422821 bn27254 bn4433 bn19.90%
(Source- Ministry of Statistics and Project Implementation)

Major reasons for time overruns in central sector projects-

Delay in land acquisition, delay in obtaining forest and environment clearances, and lack of infrastructure support and linkages.

The Govt., has also setup standing committees in the administrative ministries for fixation of responsibility for time and cost overruns and central sector projects coordination committees in States under chief secretaries for removal of bottlenecks and for speedy implementation of major projects.

PMG (Project Monitoring Group) was set up in January, 2013 as a secretariat to the cabinet committee on investments to resolve the pending issues and to track the progress of projects of the size of Rs.10 bn and above in both public and private sector.

PMG is headed by an additional secretary and consists of several sub groups having representation from project developers and joint secretaries in the sponsoring and recipient ministries as members.   Representatives from Banks / Financial Institutions and the contractors should also be part of this PMG so that all the key stakeholders are involved in this exercise with collective responsibility and committed timelines.

The government needs to swiftly design a strategy to fast track the completion of major projects, say top 100 out of the current 1781 projects ( as per the latest data available in July, 2021) so that at least by June, 2022 some tangible results are visible leading to economic growth.  This would also give a fillip to the proposed NIP planned with a mega capital expenditure of Rs. 111 Lakh Crs to be executed during the period 2020-2025.

Now the ball is in the government’s court to mobilize the required resources of Rs. 111 Lakh Crs by roping in the other stake holders (States and Private sector), set up an institutional framework to monitor the implementation of these projects and evaluate the performance as against the set KPIs/targets/outcomes. Let us hope the government would put in place an effective mechanism to convert this dream into a reality by 2025.

References:

  1. https://pib.gov.in/PressReleseDetail.aspx?PRID=1748297
  2. http://www.niti.gov.in/national-monetisation-pipeline
  3. Report of the Task force on National Infrastructure Pipeline, Dept., of Economic Affairs, Ministry of Finance, Government of India. 

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Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]

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