The Union budget 2021-22 has identified the monetization of the operation of public infrastructure facilities as a key instrument for sustainable infrastructure financing. To this end, the budget provided for the preparation of a “National Monetization Pipeline (NMP)” of potential fallow land infrastructure facilities. NITI Aayog prepared the report on NMP in consultation with the infrastructure ministries.
NMP aims to provide a medium-term roadmap of the program for public asset owners; along with the visibility of potential assets to the private sector. The report on NMP is divided into two volumes. Volume I is structured as a guide and describes the conceptual approaches and possible models for the monetization of assets. Volume II is the actual roadmap for monetization, including the pipeline of core infrastructure assets under central government.
The pipeline was created on the basis of input and consultations from the respective line ministries and departments, as well as the assessment of the total asset base available therein. Monetization through divestment and monetization of non-core assets were not included in the NMP. In addition, only assets of central government ministries and CPSEs in infrastructure sectors are currently considered. The process of coordinating and assembling the sovereign wealth pipeline is currently underway and will begin in due course.
This includes the selection of low-risk and brownfield assets with a stable income generation profile, whereby the overall transaction is structured around income rights. The primary ownership of the assets under these structures therefore remains with the government with the framework that provides for the return of the assets to the public sector at the end of the transaction period.
Since the creation of infrastructure is inextricably linked to monetization, the period for NMP has been set to coincide with the balancing period under the National Infrastructure Pipeline (NIP).
The aggregated asset pipeline under NMP over the four year period, FY 2022-2025, is indicatively rated at Rs6 lakh crore. The estimated value represents ~ 14% of the proposed spending for the center under the NIP (Rs 43 lakh crore). This includes more than 12 line ministries and more than 20 asset classes. Sectors included are roads, ports, airports, railways, warehousing, gas and product pipeline, power generation and transmission, mining, telecommunications, stadiums, hospitality and housing.
Sector monetization pipeline in FY 2022-25 (Rs crore)
The top 5 sectors (by estimated value) account for ~ 83% of total pipeline value. These top 5 sectors include: roads (27%), followed by railways (25%), energy (15%), oil and gas pipelines (8%) and telecommunications (6%).
In terms of annual gradation, 15% of the assets with an indicative value of Rs 0.88 lakh crore are expected to be imported in the current fiscal year (FY 2021-22). However, the aggregated and the annual value according to NMP is only an indicative value with the actual realization for public assets depending on the point in time, transaction structuring, investor interests, etc.
The assets and transactions identified under the NMP are expected to be introduced through a number of instruments. These include direct contractual instruments such as public-private partnership concessions and capital market instruments such as infrastructure investment trusts (InvIT). The choice of instrument is determined by the sector, the type of asset, the timing of the transactions (including market considerations), the profile of the target investor and the level of operational / investment control to be maintained by the asset owner, etc.
The monetization value that is expected to be realized through the asset monetization process by the public asset owner can either be in the form of pre-accruals or through private sector investments. The potential value assessed under the NMP is only an indicative rough estimate based on rules of thumb. This is based on various approaches such as market or cost or book or company value, etc., as far as applicable and available for the respective sectors.
Implementation and monitoring mechanism
As an overall strategy, a significant part of the asset base will remain with the state.
The program is to be supported by necessary political and regulatory interventions by the government in order to ensure an efficient and effective process of monetization of assets. These include streamlining operating procedures, encouraging investor participation and promoting commercial efficiency. Real-time monitoring takes place via the asset monetization dashboard, as provided for in the Union budget 2021-22 and will be introduced shortly.
The ultimate goal of this initiative is to enable the creation of infrastructure through monetization where the public and private sectors work together, each standing out in their core competencies, to provide socio-economic growth and quality of life to the citizens of the country.