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The government of India recently unveiled a four-year (FY 2022-25) National Monetization Pipeline (NMP) worth an estimated Rs 6 lakh crore. It aims to unlock value in brownfield 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.

The NMP has been announced to provide a clear framework for monetization and give potential investors a ready list of assets to generate investment interest.

What is monetization?

In a monetization transaction, the government is basically 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.
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are the key structures used to monetize 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 monetization models on PPP (Public Private Partnership) basis include:
1. Operate Maintain Transfer (OMT),
2. Toll Operate Transfer (TOT), and
3. Operations, Maintenance & Development (OMD).
OMT and TOT have been used in highways sector while OMD is being deployed in case of airports.

Global Instances

The monetisation of assets is not a new concept. A number of countries including the United States, Australia, Canada, France and China have effectively utilized this policy.

Indian Scenario

In India, the concept was suggested by a committee led by Vijay Kelkar on the roadmap for fiscal consolidation in 2012.
The committee had suggested that the government start monetization as a key instrument to raise resources for development.
It asked the government to use these resources for financing infrastructure needs

What is the difference between Greenfield and Brownfield projects?

Greenfield and brownfield investments are two types of foreign direct investment.
With greenfield investing, a company will build its own, brand new facilities from the ground up.
Brownfield investment happens when a company purchases or leases an existing facility.
In a greenfield investment, parent company opens a subsidiary in another country. Instead of buying an existing facility in that country, the company begins a new venture by constructing new facilities in that country.
Brownfield investments, an entity purchases or leases an existing facility to begin new production.
Companies may consider this approach a great time and money saver since there is no need to go through the motions of building a brand new building.

‘Infrastructure creation’

Unlike privatization, which seeks to sell state-owned companies to the private sector, or disinvestment, in which shares of public sector units are sold to non-state firms or individuals, the National Monetisation Pipeline seeks to do something else.
The NMP is talking about brownfield assets where investment has already been made, which are either languishing, not fully monetized or remaining underutilized.
So, by bringing in private participation, monetization gets better, and the resource can be put it into further infrastructure creation. The idea is also known as “asset recycling”.
Essentially, the government gives over operational duties and revenue rights to a private operator for assets like roads, power transmission lines, stadiums, warehouses and more.
This allows government to build an ambitious infrastructure plan, without adding to existing government debt.
A key aspect of this approach is that the government is not handing over ownership of the underlying asset.

Unlocking capital

Another difference from other privatization efforts, which often focus on loss-making public sector units, the effort here is to pick ones that aren’t necessarily struggling, on the assumption that the private sector can unlock efficiencies that the government cannot.

By keeping ownership and only transferring revenue rights for a set period of time, the government is essentially taking a fresh look at Public-Private Partnership model, commonly known as PPP.

What is the government’s plan?

Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetized.
The remaining upcoming sectors include 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 lakh crore are envisaged for rollout in the current financial year.
The NMP will run co-terminus with the National Infrastructure Pipeline of Rs 100 lakh crore announced in December 2019.

What is the National Infrastructure Pipeline (NIP)?

NIP includes economic and social infrastructure projects.
During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.
It has outlined plans to invest more than ₹102 lakh crore on infrastructure projects by 2024-25, with the Centre, States and the private sector to share the capital expenditure in a 39:39:22 formula.

The estimated amount to be raised through monetization is around 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.
NMP aims to provide a medium term roadmap of the programme for public asset owners; along with visibility on potential assets to the private sector.
An empowered committee has been constituted to implement and monitor the Asset Monetization programme. The Core Group of Secretaries on Asset Monetization (CGAM) will be headed by the Cabinet Secretary.
Real time monitoring will be undertaken through the asset monetization dashboard. The government will closely monitor the NMP progress, with yearly targets and a monthly review by an empowered committee
The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%)

What is the list of assets?

The assets on the NMP list include:
1. 26,700 km of roads, railway stations, train operations and tracks,
2. 2,8608 Ckt km worth of power transmission lines,
3. 6 GW of hydroelectric and solar power assets,
4. 2.86 lakh km of fiber assets and 14,917 towers in the telecom sector,
5. 8,154 km of natural gas pipelines and
6. 3,930 km of petroleum product pipelines.
In the roads sector, the government has already monetized 1,400 km of national highways worth Rs 17,000 crore. Another five assets have been monetised through a PowerGrid InvIT raising Rs 7,700 crore.
Also, 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 lakh MT of warehousing assets, 2 national stadiums and 2 regional centres, will be up for monetization.
Redevelopment of various government colonies and hospitality assets including ITDC hotels is expected to generate Rs 15,000 crore.

What are the merits of the NMP?

Resource Efficiency: Resources are scarce with the government. Proper and effective channelization of them is very important. NMP leads to optimum utilization of government assets.
Keeping Fiscal Deficit at check: The revenue accrued by leasing out these assets to private sector will help fund new capital expenditure without pressuring government finances.
Streamlining the Process: Monetization of assets is not new, but the government has finally organized it in baskets, set targets, identified impediments, and put in place a framework.
Mobilizing Private Capital: Since the assets are de-risked as it is brownfield projects, it will help in mobilizing private capital (both domestic & foreign). Global investors have revealed that they are keen to participate in projects to be monetized through a transparent/competitive bidding process.
Less Resistance from the opposition: The plan involves leasing to private sector without transferring ownership or resorting to fire sale of assets. Therefore, it is going to face less resistance from the opposition.

Cooperative Federalism: To encourage states to pursue monetization, the Central government has already set aside Rs 5,000 crore as incentive.
- If a state government divests its stake in a PSU, the Centre will provide a 100 per cent matching value of the divestment to the state.
- If a state lists a public sector undertaking in the stock markets, the Central government will give it 50 per cent of that amount raised through listing.
- If a state monetizes an asset, it will receive 33% of the amount raised from monetization from the Centre.
Promoting Public-Private Partnership: The end objective of NMP is to enable ‘Infrastructure Creation through Monetization’ 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.

What are the challenges associated?

(1) Lack of identifiable revenue streams in various assets and low interest among investors in national highways below four lanes.

Monetization potential of toll road assets is limited by the percentage of stretches having four-lane and above configuration.

(2) Level of capacity utilization in gas and petroleum pipeline networks and regulated tariffs in power sector assets

(3) Dispute resolution mechanism

(4) Uncertainty of proper execution of the plan

(5) Slow pace of privatization in government companies including Air India and BPCL, and less-than-encouraging bids in the recently launched PPP initiative in trains, indicate that attracting private investors’ interest is not that easy.

(6) Asset-specific challenges such as the presence of an identifiable revenue stream. This is specifically relevant to the railway sector, which has seen limited PPP success as a mode of project delivery.

Konkan Railway, for instance, has multiple stakeholders, including state governments, which own stake in the entity. Creating an effective monetization transaction structure could be a bit challenging in this case.

Way Forward

Execution is the Key: While the government has tried to address many challenges, owing to infrastructure development in the NMP framework, execution of the plan remains key to its success.
Dedicated and effective Dispute Redressal Mechanism: Looking at the track record of previous efforts of government to lure the investors and history of long pending cases in courts, there is a need for an efficient dispute resolution mechanism.
Key to success lies in Multi-stakeholder approach: The success of the infrastructure expansion plan would depend on other stakeholders playing their due role. The role of State governments is going to be very important.