National Monetisation Plan

The Modi government’s ambitious and aggressive ₹6 trillion National Monetisation Plan (NMP), high on intent with enabling framework, holds the promise of success, notwithstanding various challenges on the ground.

Vinod Behl
Infrastructure contributes significantly to the country’s GDP and is a key to economic growth. But after the economy got a massive hit due to the Covid pandemic, finding resources for infrastructure development became a challenge. Following this, the central government came up with a road map for capital investment of ₹111 lakh crore in infrastructure under the National Investment Pipeline (NIP) over 6 years, through FY’25.

It is against this backdrop that NMP assumes significance; especially for sustainable financing of infra projects, private money with a long-term horizon is essential, and particularly as the government does not have adequate resources and fiscal space to free up the kind of money needed for such a massive initiative. NMP will help monetise existing infrastructure assets by leasing them out to private firms for a fixed tenure under a revenue-share model. It will help ease fiscal challenge, making funds available for greenfield projects.

The ₹6 lakh crore NMP will run co-terminus with the NIP, which started with 6835 projects and has now gone up to 8156 projects. The projects involving $1.9 trillion are spread over 34 sub-sectors with 1869 projects under implementation. More recently, on August 16, this year, PM Narendra Modi announced the Gati Shakti Infra Plan to build on NIP. It is aimed at creating an integrated framework for infrastructure development in the country to ensure that various eco hubs are able to better utilise the investments on the sector being made by the government and the private sector. The ₹100 lakh crore Gati Shakti initiative for transport and logistics infra, calls for robust public institutional capacity to plan, prepare and duly complete in time the big-ticket projects. This assumes significance as 483 infra projects show cost overruns of ₹4.43 lakh crore.

The estimated amount to be raised through monetisation under NMP is around 14% of the proposed outlay of ₹43 lakh crore under NIP. NMP is being seen as a timely step to unlock value and usher in investments across a plethora of sectors. The NMP will depend on 83% of total monetisation by the top five sectors- roads (27%), railways (25%), power (15%), oil & gas pipelines (8%), and telecom (6%).The assets on NMP list include 26700 kms of roads, railway stations, train operations and tracks, 28608 CKT kms worth of power transmission lines, 6 GW of hydroelectric and solar power assets, and 14917 towers in telecom sector, 8145 kms of natural gas pipelines, and 3930 kms of petroleum product pipelines. Apart from these, 15 railway stadiums, 25 airports, 160 coal mining projects, 31 projects in 9 major ports, 210 lakh MT of warehousing assets are among those to be up for monetisation.

Amitabh Kant
Niti Aayog has been involved in creating NMP. According to Amitabh Kant, NMP aims to enable a systematic approach towards recycling of capital. Monetisation is envisaged as a structured contractual partnership between public authority and a private entity. The contractual framework is based on principles of balanced, risk sharing, performance standards and safeguarding of interests of all the stakeholders.

The assets available for monetisation under NMP hold a lot of promise for investors as the projects up for monetisation are complete so they can assess the revenue potential with a fair degree of certainty. Moreover, by classifying lands and buildings as non-core assets, the government has mitigated political risks. There is an enabling environment for deploying long-term institutional investment in infra and private sector efficiencies in the management of these assets. The risks associated with greenfield investments have been removed, reducing the cost of capital. The Centre believes that it is easier to monetise than sell de-risked infra projects, and global liquidity surplus will help to achieve NMP targets. Experts are also of the opinion that long-term investors such as pension funds and insurance companies should welcome the opportunity to invest in mature infra assets, devoid of construction and other risks.

Ramesh Nair
The urban real estate assets under the monetisation plan also hold promise for investors. Warehouses accounting for 5% of the total monetisation plan with monetisation value of ₹28900 crore have immense potential, especially in view of the current spurt in e-commerce. Ramesh Nair, CEO India & MD Market Development Asia at Colliers International, opines that NMP will give investors and developers access to well-located warehouses near urban centres, providing an impetus to the last mile delivery ecosystem. “The government has also identified vacant tracks of land and housing assets in prime areas of Delhi such as Sarojini Nagar and Kasturba Nagar for monetisation. This will give developers an opportunity to develop residential and commercial complexes under the PPP model in central locations. Underutilised stadiums that were built decades ago can be reutilised by leasing them to sports and educational institutions on a time share basis,” he adds.

Amit Kapoor
According to Amit Kapur, Joint Managing Partner, J Sagar Associates, NMP can be a significant source of finance of over $80 billion at nominal value for the much-needed infrastructure development, by recycling the investment in diverse operational assets over 4 years. “What is on offer is a clutch of concessional formats, permitting the concessionnaire to build/refurbish and operate the asset with defined risk and performance obligations, without any transfer of title. The government has set up a high-level monitoring and implementation mechanism under the Cabinet Secretary and the Finance Minister. However, the success of the offering would depend on adopting fair risk and reward allocation, as also the efficiency of the bid process,” he avers.

Notwithstanding this optimism, economic and investment experts say that implementation will be key to the success of asset monetisation as proper implementation would help optimise assets utilisation, facilitate high level maintenance and quality services, improve efficiencies of operations, and generate employment. There are several factors which will influence the success of monetisation drive; these range from evaluation of assets to speedy preparation of proper and detailed operational plans, especially to meet the steep first year monetisation target of ₹88000 crore. Well drafted and transparent concessionnaire agreements with force majeure clauses and built-in dispute resolution mechanism, favourable regulatory regime, well designed bids, well-structured deal models, institutional capacity, standard and continuous monitoring, will be required to ensure that licensees and concessionaires meet the targets.

Sonal Verma
Economists like Sonal Verma (Nomura’s Chief economist), believe that the appetite of the private sector will depend on factors like duration of the concessions, institutional mechanism for dispute resolution, ability to operate the projects at commercial rates, besides regulatory and taxation issues. There is a risk of meeting the challenge of not allowing a situation to develop where a few big corporates establish their monoploly by grabbing most of the assets – a fear expressed by Rahul Gandhi as well.

The states role also assume significance in successful implementation of NMP as state governments have a sizable infra asset base with significant monetisation poitential. The Centre will be creating incentive structure for states to help them to pursue monetisation. It has already set aside ₹5000 crore as incentive. If a state government divests its stake in a public sector undertaking, the Centre will provide a 100% matching value of the divestment to the state. If a state monetises an asset, it will receive 33% of the amount raised from monetisation, from the Centre. Amit kapur of Sagar Associates however talks about the credit risks where the asset is being supplied to state-owned enterprises. These risks relate to changing laws related to taxation and environment protection, force majeure, latent and patent defect issue of projected life and capacity of asset. Also, disinvestment experts point out that the government’s track record on disinvestment is not something to boast of as it consistently missed the budget estimates.

Despite all these apprehensions, NHAI since 2017, is successfully monetising its brownfield road assets through TOT-based PPP concessions. TOT is today a matured and well established model. NHAI is incrementally adding minimum of 2000-30000 kms of monetizable toll roads to its asset kitty every year. The Centre is providing about ₹57000 crore support to NHAI for road projects in FY’22, making it an attractive proposition for investors. NHAI’s about half a dozen TOTs offerings have been a success. So is the case with Power Grid Corporation’s InvIT that fetched the PSU ₹2736 crore. Investors find InvITs quite profitable as they are listed on exchanges and offer a quick exit. The more recent policy initiative of including InvITs and REITs in Nifty indices from September 30, make them further attractive to investors. The government has already kickstarted the NMP with a nod to Canadian Fairfax Financial Holdings proposal to invest ₹15000 crore in infra projects. All this is showing positive results. The infra stocks have seen a rise and experts believe that seasoned investors along with Indian EPC players, cement and power transmission companies are going to benefit from increased infra spending through NMP. In this favourable backdrop, the NMP holds a lot of promise for giving boost to infrastructure development.
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