On August 23, 2021, the Government of India declared the National Asset Monetization Pipeline (NAMP) for the next four years. The objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies through investment in brownfield projects. What would be the modus operandi? Would it attract the private sector?
The NAMP is expected to bring in revenue estimated to be Rs 6 lakh crores over the next 4 financial years till the year 2025. The objective of this exercise for the government is to ensure that all the underutilised assets in these sectors get utilised and the government gets revenue out of it. Asset monetisation is a globally employed means of increasing revenue stream for the government. This entails a limited period transfer of performing assets and reinvesting it in other assets or projects that deliver improved or additional benefits.
Under the Union Budget 2021-22, Monetization of Assets has been identified as an essential feature for sustainable infrastructure financing in the country. In pursuance of this objective, the Budget created a conduit for investment by creating the National Monetisation Pipeline (NMP). The NMP has earmarked various brownfield infrastructure assets across a wide spectrum of critical sectors, such as, supply chain, power, telecom, and oil & gas.
The brownfield projects are those, which have already been built up. They are derisked assets and provide stable revenue streams. These are assets, which belong to the government. These assets require more investments for more productive utilization and in the process generate more revenue for the government. In this way the government intends to leverage the expertise and the technological edge of the private sector for generating revenue for itself.
The Finance Minister (FM) had clarified that the land was not under consideration. The land would remain with the government. It was only the brownfield assets where investment has already been made that would be up for investment. Those assets have been selected which were languishing for want of being utilised efficiently or were remaining under utilised. Further the FM made it explicitly clear that the asset will not change hands. The ownership of the asset will remain with the government.
The investment opportunity is also extended to global investors who would be interested in coming to India and investing in these built up units. The units up for investments are all central government owned units. The state government has not been involved as yet.
These units would be handed back to the government after a defined period of 25 to 30 years. The FM has assured that all contractual partnerships that the government will enter into with the private players in executing this pipeline would be with full KPIs and performance standards. The KPIs and the performance standards would have to be complied with for getting through the monetisation pipeline.
For the entire project to succeed, transparency would be sine qua non. A robust asset pipeline, not only enables investors to plan their fund raisings and investment timelines, but also helps asset owners to track and scan the performance of assets.
In the first Financial Year 21-22, the government was expecting Rs 88000 crores worth of revenue. The Government has laid considerable emphasis on the National Monetisation Plan, with yearly targets assigned to the various ministries and departments. The progress would be reviewed monthly by an empowered committee and would be monitored continuously through a dashboard.
The government has identified a range of public private partnership models for monetisation. These include Operate Maintain Transfer (OMT), Toll Operate Transfer (TOT), Operations Maintenance and Development (OMD), and Rehabilitate Operate Maintain and Transfer.
OMT and TOT have already been deployed in the road sector and OMD in the airport sector. National Highway Authority of India (NHAI) has already raised Rs 17000 crores from the TOT model. The government has kept the option of infrastructure investment trusts and real estate investment trusts open for the investors so that these vehicles can pool capital from the various investor classes, which are typically investor based.
If all goes well, the concept can be extended to Greenfield infrastructure creation.
In the logistics sector, the assets that have been thrown open for private investments are roads, rail, and major ports. Nine out of twelve major ports are open for private investments. The other assets are airports, warehouses Food Corporation of India, Central Warehousing Corporation & other agencies, Railway warehouses and goods shed.
Shipping assets worth Rs 12,828 crore involving 31 projects will be monetised over the next four years. The projects are for operational efficiency and capacity utilisation of existing port assets and creation of additional berths, mechanisation, development of oil jetty, container jetties, O&M of container terminal. The shipping assets monetisation pipeline projects will be implemented by the Ministry of Ports, Shipping and Waterways and potential models would be by way of grant of PPP concessions.
Out of the 31 projects, 13 projects adding up to Rs 6,924 crore is expected to be awarded during FY 2022. The monetisation pipeline phasing represents the year in which a certain project is expected to be tendered out and the actual capex investment is likely to happen in phases during the initial years of the concession period.
For FY 2023 to 2025, a total of 18 projects adding up to Rs 7,168 crore, is expected to be awarded during the period. The phasing again represents the year in which certain projects are expected to be tendered out. The actual capex investment is likely to happen in phases during the concession period.
Since the role of Tariff Authority for Major Ports (TAMP) has been abridged, it would be an added incentive for asset monetisation plans for the private sector.
The ports sector has witnessed many policy initiatives over the last decade to revive Investor interest and facilitate asset recycling. Key actions include:
- 100% FDI permitted under the automatic route
- Central government has already taken multiple initiatives like Major Port Authorities Act 2021, which enables Major ports to move from a service model to a landlord model and bring in more private sector participation to drive operational efficiency.
- Major Port Authorities Act 2021 enables Major ports to transform effectively for the future.
- The Cabinet approved an evolved framework and MCA for PPP projects in major ports in 2018 to make investments in the ports sector more attractive.
How has the private sector taken to this announcement? A senior executive with 30 plus years in international shipping, ports and terminals with a leading company in the industry and who is currently dealing with the last mile/ first mile service through digitalisation, welcomed the government initiative. He said, ”Ports are a facilitator to trade. Efficient ports will bring costs down. Technology will usher in efficiency as well as transparency. Equally important, it will improve the safety standards multi fold. Indian ports are already behind the curve as compared to its more advanced contemporaries.”
Further he said that infusion of technology stood a better chance through privatization though that was not a given as can be seen from those running private ports already. It is not that the government is incapable of it, however it is more challenging for the government in India to do it because it needs to be counterbalanced with job creation.
He continued, “Goes without saying that the government must reserve its right to first use in order to preserve the sovereignty of the nation should such situations demand. It also goes without saying that statutory agencies such as customs and border control must remain with the government. “
He concluded by saying, “if the desire is to be a major maritime power in the region, this very desire must be defined in terms of timelines, infrastructure, technology and deliverables to the country/ trade. The definition of ports must include the approach channel, the port infrastructure and land side connectivity detailing minimum standards to cater to international tonnage.
He warned, “None of the above will make sense unless carbon emission standards are specified through this element of the supply chain detailing dates on achieving carbon neutrality and then zero emissions.”
Dr. P. R. Swarup, Director General, Construction Industry Development Council, was not particularly sanguine. Referring to similar instances where the private sector had taken over from the public sector enterprises in the logistics sector, he said that the PPP Model of Highways, and introduction of Private Railways, is two such examples, where the results have not been encouraging.
On the question regarding the expertise to upgrade and bring it to world standards, he said that we have had little or no experience, and most techniques were the borrowed ideas, without taking in cognisance the holistic picture. He was doubtful that this move would trigger augmentation and modernisation of assets.
Indian Railways manages 1,246 railway owned goods sheds. There is a proposal to monetise these 265 assets in major locations in and around major urban centres by inviting private sector participation in augmentation and Operation and Management of these good sheds as private freight terminals. A capex of about Rs. 21 crore per good shed has been derived and considered for arriving at monetisation value for the 265 good sheds. The monetization has been phased out over the NMP period starting with 75 good sheds in FY 23.
A source from the industry who did not wish to be identified said that in his opinion this “reach out by the government” would succeed. He said that since these sheds would be spread out in convenient areas, it would definitely help the operators. However, there were some riders to his guarded optimism. Currently, he said that the railway land couldn’t be leased out for more than 5 years. This needs to be extended to at least 25 to 30 years for the project to be viable.
Secondly the license fee for railway land, which is currently about 6% of the circle rate, needs to be reduced to at least 3%. Thirdly, since these are public goods shed, there should be a restriction in the type of goods coming in. A private operator will not have the bandwidth to handle multiple types of goods coming into the shed. Clarifications are required here, he said.
The Dedicated Freight Corridor is expected to be fully commissioned by June 2022. Once commissioned, Dedicated Freight Corridor Corporation of India (DFCCIL) will monetise approximately 673 km of track starting from FY 2024 onwards.
The government’s aim is that the enhanced capex investor spending and the world-class infrastructure will have a multiplier effect on growth and employment as well as revival of credit flow. The private investment will come into maintaining these assets and by optimally utilising it, will generate greater value. It will unlock resources for the economy, which is what the government was expecting.
By inviting the private sector, the government was looking to prize open the economy that would give it liquidity to move forward. Availability of a sustained and robust asset pipeline has been cited as a key concern by investors to the Government at various forums. A well laid out pipeline gives a comprehensive view to investors and developers of brown-field investment avenues in Infrastructure. The Finance Minister said that the NMP is aimed at creating a systematic and transparent mechanism for public authorities to monitor the initiatives and for investors to plan their future activities The NMP document would be a critical step towards making India’s Infrastructure truly world class.
