Asset Monetization Pipeline: A Road To Future Developments

Infrastructure lies at the heart of the growth which by its inherent ability to support livelihood, drive businesses and generate employment determines the quality of life. It holds the key to substantial growth and job creation. A high level of infrastructure development is required to revive growth hit by COVID which took an unprecedented toll on economic activities by disrupting both the demand side and supply side of the Indian economy. The Finance Minister as part of her Budget Speech 2021 talked about Asset Monetization of operating public infrastructure assets, which is considered to be a very important financing option for new infrastructure construction.

Recently on 23rd August 2021, NITI Aayog published an Asset Monetization Pipeline in consultation with infrastructure line ministries namely Roads, Transport and Highways, Railways, Power, Pipeline and Natural Gas, Civil Aviation, Shipping Ports and Waterways, Telecommunications, Food and Public Distribution, Mining, Coal and Housing and Urban Affairs, estimating aggregate monetization potential of Rs. 6 lakh crores over a four-year time period from FY 2022 to FY 2025. Through this Asset Monetization Pipeline, the government is trying to unlock the value from public investments in infrastructure by tapping private sector efficiencies in operations, management, and new infrastructure creation which will further create employment opportunities leading to high economic growth.

The reason why there is a need for such asset monetization is because it is mostly found that though the public sector is usually able to build infrastructures, it is not efficient enough in running those infrastructures properly, and there is no reason for the government to handle the assets from which it cannot generate maximum output. This is where the government aims to collaborate with private players who are by their competitive nature good at running infrastructures and face a lot of challenges, risks, and difficulties in building them. Private sector by its nature runs on a principle of profit maximization and tries to provide all the possible services in order to generate maximum revenues. However, investing in the construction of a new infrastructure is risky for the private sector as it takes a lot of time to get approvals and is highly risky. The government will be able to use this monetization money in new infrastructure development, in which it is efficient.

A real-time monitoring will be done through an Asset Monetization dashboard which is going to be rolled out soon as stated in the Union Budget 2021. This dashboard will help the investors to streamline their operations modalities, encourage their participation, and will facilitate commercial efficiency.

The critics of the Asset Monetization Pipeline are commenting that the government is selling all the assets to the private. But, Asset Monetization is a structured partnership with the private sector within a defined contractual framework, which at its very core is very different from privatization. In this, the assets stay with the government but are run by the private sector to bring the maximum potential out of them. Monetization is not a new thing, but this announcement is important as it is monetizing assets in a structured and time-bound manner, along with that it also has multiple models and multiple assessments for different projects, as the same model can’t run efficiently in every project.

Though India has a robust Public-Private Partnership (PPP) ecosystem, over the last few years it has reduced the appetite of the private players and debt financiers for greenfield projects. An increase in the flow of private and institutional capital into road, power and telecom has been observed which indicates the increased appetite of private players in brownfield assets. This necessitated the development of an AMP through which brownfield assets can be utilized at their maximum capacity. Therefore, Asset Monetization Pipeline is trying to tilt the focus or axis from greenfield to brownfield assets. Brownfield assets come under those assets which a private producer purchases or takes as an existing production property on a lease to launch a new production activity, whereas under greenfield assets, a private producer builds a new production facility by himself. The experience and comfort level of private players in participating in such monetized investments is likely to depend upon a range of factors, such as flexibility in operations, speedy dispute resolution mechanism, efficient regulatory framework, etc.

Since the states play an equal role in India’s infrastructure, they are also required to grow at higher rates in order to make the nation grow faster. In order to get the best potential out of the state assets, the “Scheme for Special Assistance to States for Capital Expenditure” is pathbreaking. This scheme provides incentives to the states in the form of a 50-year interest-free loan. In the current year, around Rs. 5000 crore of incentive has been budgeted for states undertaking monetization and disinvestment.

The possible challenge that rises with asset monetization is that there is no clarity on what is the actual reason behind the government’s inefficiency in these assets. If the reason is only personnel-related then there may not be many problems with the plan. But, if the problems are related to pricing and bill collection, then it will be difficult for the government to reach its optimistic targets. Continuous monitoring and addressing concerns raised by private players with PPP will make this plan a success. It will be interesting to watch how the private players respond to such an opportunity and how enthusiastic they are about this pipeline.