20 Oct

National Monetization Pipeline

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Content

• Details
• Progress so far
• Significance
• Key Challenges

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Background

• Asset Monetization is one of the key recommendations of National Infrastructure Pipeline (2020-25). Consequently, National Monetization Pipeline was announced in 2021. It focuses on the principle of ‘asset creation through monetization’ and thus taps private sector investment for new infrastructure creation.

Details:

• Asset monetization entails a limited period license/lease of a brownfield underutilized asset owned by government or a public agency, to a private sector entity for an upfront or periodic consideration.
  • The private sector entity is expected to operate and maintain the asset based on the terms of the contract/concession, generating returns through higher operating efficiencies and enhanced user experience.
  • Public authority, which receives the fund, will invest it in new infrastructure or deploy it for other public purposes.
• A robust asset pipeline has been prepared to provide a comprehensive view to investors and developers of the investment avenues in infrastructure.
  • It includes selection of de-risked and brownfield assets with stable revenue generation profile (or long rights) which will make for an attractive investment option.
•  Total indicative value of NMP for core assets of the Central Government has been estimated at Rs 6.0 lakh crore over 4-year period (FY22 – 25) (5.4% of the total infrastructure investment envisaged under NIP)
• National Land Monetization Corporation (NLMC): Cabinet approved the setting up of the NLMC to monetize surplus land and building assets of CPSEs and other agencies linked to government (March 2022)

Progress so far: ESI 2022-23:

• Against the monetization target of 0.9 lakh crore in FY22, Rs 0.97 lakh crore have been achieved during the period under roads, power, coal and mines.
• NMP’s 2nd year target, i.e. FY23 target is ₹ 1.6 lakh crore (27% of the overall NMP target).

Significance: Positives

• Infrastructure Upgradation and Development: The NMP aims to enhance infrastructure development in the country by leveraging the potential of existing assets.
• Unlocking of Capital and Revenue Generation: The funds generated can be used for financing new infrastructure projects without increasing the fiscal deficit.
• Efficient Asset Management: Promotes the use of complete assets which are languishing or it is not fully monetized or is under utilized.
• Job Creation and Skill Development: It will attract investment, promote entrepreneurship, and stimulate economic growth.
• Clear framework for monetization and given potential investors a ready list of assets to
  generate investment interest.
• Along with disinvestment, monetization of idle land is part of the Centre’s strategy to reduce its business presence to a bare minimum and generate resources for future asset creation.

Key challenges:

• Valuation of Assets is a complex process. There may be challenges in accurately assessing the future revenue, depreciation factors etc.
• Lack of government’s expertise in designing long term contracts:
  • Contractual disputes can pose hurdle in implementation process.
• Monetizing assets with low revenue potential may be a challenge
• Asset Management and Quality Maintenance – Poor monitoring may lead to poor quality of asset management.
• Sector Specific Challenges:
  • Level of capacity utilization in gas and petroleum pipeline networks -> lack of capacity utilization has been due to lower gas supplies
  • Regulated tariffs in power sector assets
  • Low interest of investors in national highways of less than 4 lane.

Other limitations:

• Threat of monopolization: Because of limited number of private players, bidding for assets may not be totally fair.
• Public welfare may get ignored (which should be the basic focus of public sector assets)
• Why are the assets being poorly managed at the first place. If its poor management, Asset Monetization makes sense. But if the issues are structural, even asset monetization will not solve the problem.

Way Forward:

• Set up a centralized institution with the skills and responsibility to oversee contract design, bidding and implementation, separate from, but with appropriate assistance of, the concerned line ministries.
• Robust dispute resolution mechanism
  • Government should start with sectors that offer greatest cash flow predictability and the least regulatory uncertainty before expanding the experiment.
  • Ensure that resources raised from the NMP are used to fund new asset creation.

Conclusion:

While the ideal of monetization seems great, execution of the plan remains key to its success.