NMP: A plan to monetise public assets

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admin November 4, 2021
Updated 2021/11/05 at 6:10 AM

The National Monetisation Pipeline (NMP) was recently established by the Union Finance Minister, with the goal of raising $81 billion over the next four years by leasing out state-owned infrastructure assets (from FY22 to FY25). Asset Monetization is the process of unlocking the value of existing unutilized or underutilised public assets in order to generate new revenue streams. Many public-sector assets are underutilised and could be better monetized by involving the private sector (leasing or selling) to get more value out of them.

The National Monetisation Plan’s Key Features

Under the ‘Asset Monetisation’ objective of the Union Budget 2021-22, the NMP roadmap was created by NITI Aayog in cooperation with infrastructure line ministries. The NITI Aayog has established a Public Private Partnership Cell and has hired transaction consultants to assist any ministry in following the monetisation agenda. Roads, ports, airports, railroads, electricity generation and transmission, telecommunications, warehousing, gas and product pipelines, mining, stadiums, hotels, and housing are among the areas where assets are being identified for monetisation. For the time being, the government has only included the assets of infrastructure line ministries and CPSEs that work in the infrastructure sector.

The NMP does not involve monetization through disinvestment or monetisation of non-core assets. Three fundamental imperatives underpin the paradigm for core asset monetisation: The assets will have to be returned at the conclusion of the transaction life due to the monetization of rights rather than ownership. The whole purchase will revolve around income rights. Brownfield assets that have been de-risked: There is no land here; this entire (NMP) is about brownfield projects in which investments have already been made and a finished asset is either languishing, underutilised, or not completely monetised. Contractual partners will be required to conform to Key Performance Indicators and Performance Standards in structured agreements with specified contractual frameworks and transparent competitive bidding.

The NMP’s assets and transactions are intended to be implemented using a variety of instruments. Direct contractual mechanisms, such as concessions in public-private partnerships, and capital market instruments, such as Infrastructure Investment Trusts (InvIT), are examples of these. For example, under the proposal, private businesses can use the InvIT route to invest in projects for a defined return and then run and develop the assets for a period of time before returning them to the government agency. The sector, asset type, and other factors will influence the instrument selection. NMP seeks to offer public asset owners with a medium-term plan of the programme, as well as insight on prospective assets to the private sector. The NMP would operate concurrently with the Rs 100 lakh billion National Infrastructure Pipeline launched in December 2019. The Asset Monetization initiative will be implemented and monitored by an authorised committee. The Cabinet Secretary will lead the Core Group of Secretaries on Asset Monetization (CGAM). The asset monetization dashboard will allow for real-time monitoring. With yearly objectives and a monthly assessment by an authorised committee, the government will rigorously monitor the NMP’s work. The top five sectors (in terms of estimated value) account for 83 percent of the total pipeline value. Roads (27 percent), railways (25 percent), power (15 percent), oil and gas pipelines (8 percent), and telecommunications (8 percent) are among them (6 percent )

The NMP’s Benefits

It leads to the most efficient use of government resources. The revenue generated from leasing these assets to the private sector will be used to fund new capital expenditures without putting the government’s finances under strain. Asset monetization is not a new concept, but the government has now organised it into baskets, set goals, identified roadblocks, and established a framework. Because the assets are low-risk due to their status as brownfield projects, they will aid in the mobilisation of private financing (both domestic & foreign). Global investors have shown an interest in participating in initiatives that would be funded in a transparent and fair manner. The strategy entails leasing assets to the private sector without changing ownership or resorting to a fire sale. As a result, it will encounter less opposition from the opposition. The central government has already set aside Rs 5,000 crore as an incentive to encourage states to explore monetisation. If a state government sells its interest in a PSU, the Centre will compensate the state 100 percent of the value of the sale. If a state lists a public sector project on the stock exchanges, the federal government will contribute half of the proceeds from the listing. If a state monetises an asset, the Centre will pay it 33 percent of the money earned from the monetisation. The ultimate goal of the NMP is to enable ‘Infrastructure Creation via Monetisation,’ in which the public and private sectors work together, each excelling in their core areas of expertise, to provide socio-economic progress and a better quality of life for the country’s inhabitants.

Major obstacles that might stymie the NMP’s progress

In different assets, there are no clear revenue sources. Gas and petroleum pipeline networks have insufficient capacity utilisation. There is no procedure for resolving disputes. Tariffs in the power industry are regulated. Investors have little interest in national highways with fewer than four lanes. There are no sectoral regulators who are independent.

Conclusion

In terms of yearly phasing by value, 15% of assets with an estimated value of Rs 88,000 crore are expected to be rolled out this fiscal year. While unlocking assets worth Rs 6 lakh crore is a lofty goal, removing the roadblocks is likely to attract investors

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