Context

Recently, FM announced the National Monetisation Pipeline (NMP) to lease a slew of “brownfield” (already developed) but underutilised public sector assets to the private sector with the objective of raising Rs 6 lakh crore.

About the NMP

• The assets identified for lease include roads, railways, ports, power, mining, aviation, oil and gas pipelines, warehouses, hotels and even two sports stadia.
• The idea is to create “structured public-private partnerships” to unlock value from public sector assets and to recycle the revenues so raised into new infrastructure.
• But the move raises several concerns.

3 concerns with NMP

1) Government is preferring financial value of assets over public welfare

• The design of the NMP is out of sync with existential challenges — global warming, pandemics, geopolitical chaos and fundamentalism.
•  The assets are valued on the basis of conventional financial metrics (enterprise value, book value, net present value, the costs of comparable assets).
• The model seemingly absolves the government from the responsibility to unlock the intrinsic “social” (to include “smart” and “clean” ) value of these assets.

2) It will lead to concentration of capital

• NMP is designed to attract deep-pocketed financial institutions (PE firms) and industrial conglomerates.
• This is because the valuations are so high that few other entities will have the resources or the risk carrying capacity to respond.
• The result will be a deepening of the concentration of capital and existing inequalities.
• There will be economic and social implications.

3) Addressing the system problem

• The government should have asked itself a fundamental question before placing a substantial share of public assets on the block:
• Why have these assets been so poorly managed?
• Was it because of bad leadership, inadequate talent within the PSEs, and/or systemic and structural shortcomings?
• If the reason for low productivity was poor leadership or lack of talent, the transfer of these assets to a different, private sector-led organisational and investment structure would make sense.
• Structural issues: But if the reason had to do with structural impediments, then such a change may not be warranted, at least not in the first instance.
•  The example, gas pipelines GAIL are hugely underutilized, but this is not because of the “inefficiency” of GAIL, the PSE operator.
• It is because of structural factors such as the shortage of domestic gas supplies; the regressive taxation system; the relatively uncompetitive price of gas and the perennial tussle between the Centre and state governments over land access.
• A similar point can be made about most of the other assets identified for monetisation.
• Their low productivity is because their PSE operators have faced a combination of systemic hurdles related to weak dispute resolution mechanisms; regulatory miasma; lack of transparency in governance; pricing distortions and intrusive bureaucratic intervention.
• Way forward: So, until and unless these systemic problems are addressed, the private sector will find it difficult to harness the full value of these assets and the transfer of operatorship to them will offer at best a partial palliative.

Conclusion

Private-public investment structures make sense, but they must be modeled to also generate social value. In today’s world, there are no shortcuts to sustainable development.

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