Monetization pipeline: Planning and implementation are the key to success

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PRIME MINISTER Narendra Modi often urges ministers to think big and get bigger results. Scale defines its political initiatives. True to its form, the Modi government is embarking on an ambitious project: unlocking the potential value of state assets and raising around 6 lakh crore in four years. The money will finance infrastructure, create jobs and give the sluggish economy a boost.

The monetization list includes more than 26,000 kilometers of highways, around 15,000 cell towers, as well as 400 train stations and 90 trains.

The Big Ticket Plan provides for the development of new sources of income by leasing unused public assets to private actors. To better understand what it means, think of the government as a person who is struggling to maintain their property or make money from it. He decides to rent the assets for a certain number of years for an amount paid in advance. The property does not change hands, but the tenant can invest in it to generate income while also fulfilling their duty to maintain the property.

The national monetization pipeline recently unveiled by Treasury Secretary Nirmala Sitharaman takes this middle ground of monetizing public assets. It stops at the stigmatized paths of privatization and divestment, both of which involve selling assets, and instead focuses on ensuring “private participation” in more efficient and profitable asset management. This means the government is releasing control of 20 asset classes – from highways, railways and power lines to hotels, telecommunications facilities and stadiums.

The list of such assets is quite long. It comprises 25 airports, 400 train stations, 90 trains, four mountain railways, more than 26,000 kilometers of highways, around 28,000 kilometers of power lines, more than 8,000 kilometers of natural gas lines, around three lakh kilometers of fiber optic cable, cell around 15,000 telephone systems, hotels of the Indian Tourism Development Corporation, ports , Coal projects and stadiums of the Indian Sports Authority. Up to 81 percent of the total value of the monetization pipeline comes from five sectors – roads (27 percent), railways (25), electricity (15), oil and gas (8), and telecommunications (6).

The government intends to raise Rs 88,000 billion in the current fiscal year. The corpus of 6 lakh crore, to be raised over four years, will fund the national infrastructure pipeline that Modi announced in 2019 as an umbrella organization for projects that will cost 100 lakh crore together.

As predictable, the size of the pipeline will make opponents scream. The government is trying to sell the “family silver” – public assets created under successive governments over the past 70 years. After the three agrarian reform laws of 2020, which continue to generate political heat, the monetization pipeline could provide another platform for opposition parties to join forces.

On the economic front, experts have cautiously welcomed the pipeline. The execution, they say, will be the key. The fact that the government’s divestment plans for Air India and Bharat Petroleum are bureaucratic could dampen private sector enthusiasm for the monetization project.

“The monetization pipeline is a good, innovative idea; but I don’t call it brave, ”said Madan Sabnavis, chief economist at CARE Ratings. “It’s not about selling state silver, but about regular income while retaining the title. We need innovative ideas to generate resources. But we’re not sure if it would work. I am a little skeptical of the target of Rs 88,000 crore for this financial year. “

Saugata Bhattacharya, executive vice president and chief economist at Axis Bank, said analysts have long pushed for monetizing dormant and inefficiently used public assets. “The idea is to unlock the value of operational projects and use the proceeds to fund new investments. In the current phase of economic recovery, public and government funds will be the main sources of finance, while private sector investment is expected to increase only gradually. Given fiscal constraints, asset monetization will provide a source of revenue for the government, ”he said.

There have been attempts in the past to monetize public assets. The National Highways Authority of India has monetized highways. Last June, Maharashtra State Road Development Corporation granted IRB infrastructure developers the rights to collect tolls on the Mumbai-Pune Expressway and the old Mumbai-Pune Corridor (NH-48). The deal was for Rs 8,262 crore; it included an upfront payment of Rs 6.500 billion, with the balance payable over three years.

However, the monetization pipeline is largely based on Australia’s experience of running an asset recycling initiative from 2013 to 2016. “A $ 3 billion in incentives was paid out to participating states and territories over the life of the program,” NITI told Aayog during its framework Monetization Pipeline Report. “This has helped free more than $ 17 billion to develop new infrastructure across Australia. The initiative has helped increase states’ investment in new transportation infrastructure through the sale or lease of assets. ”Apparently, similar experiments have been conducted in economies such as the US and Indonesia with varying degrees of success.

Monetizing assets poses a number of challenges. “It’s not always a straightforward process,” said a 2018 report by Marsh McLennan, a professional services company Viewed success. Australia’s experience has taught other governments and private investors a number of valuable lessons. A key takeaway is that asset recycling is not always a suitable solution to a country’s infrastructure needs. The decision-making process must take into account future infrastructure needs and the government’s ability to finance those needs. “

Asset monetization can backfire if badly negotiated. Critics often cite the example of parking meters in Chicago. In 2009, authorities received $ 1.16 billion for renting parking meters in the city to a private company for 75 years. The company was able to recoup investments in just 10 years, causing a public outcry. The deal also drove up parking fees.

The success of India’s monetization pipeline will depend on how assets are packaged, valued and presented to private actors. “Designing awards and operating environments for leased infrastructure assets will be critical to successfully optimizing productivity,” said Bhattacharya. “Many of these assets are economic monopolies – roads, power lines, gas pipelines, etc. – that require effective oversight to minimize distortions in the pricing of services to consumers. Attracting a large pool of bidders will also help achieve the best value on assets. “

Opposition leaders claim the pipeline is designed to create private monopolies. “The whole idea behind this exercise is to create monopolies that will benefit three or four people,” said Congress leader Rahul Gandhi. “Young people who are looking for a job today cannot find it. This is not just a gift of India’s fortune; This also ensures that the young people will not be able to find work in the future. “

The BJP is trying hard to combat the perception that the center is on a privatization tour. “Congress is spreading the wrong story,” said BJP spokesman Gopal Krishna Agarwal. “The monetization pipeline is intended to unlock the potential of brownfield projects to finance infrastructure, fight Covid-19 and implement social programs.”

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