Ambitious asset Monetisation Programme

Last Monday, Union Finance Minister Nirmala Sitaraman unveiled an ambitious asset monetisation programme. The National Monetisation Pipeline (NMP) involves leasing out central government assets valued at around Rs 6 lakh crore over a four-year period ending in 2024-25, with the government looking to mop up Rs 88,000 crore in the ongoing financial year. At its core, the idea is to lease out brownfield projects, proceeds from which can be used to finance greenfield projects. The ownership of the assets monetised, though, will remain with the government, with the private players taking on the operational risk. While roads, railways and power account for around 65 per cent of the proceeds of the programme, the list of assets is spread across sectors such as telecom, aviation, mining and warehousing, suggesting a more wide-ranging programme.

Asset monetisation will have multiplier impact on economy

“This is not a fire sale of government assets,” NITI Aayog vice-chairman Rajiv Kumar said, emphasising that the government would not be ceding ownership. “We are only offering brownfield assets; no land is involved.”

The privatisation plan had been announced in the Union budget in February and is designed to boost the public finances of a cash-starved government.

Amitabh Kant, CEO NITI Aayog said the monetisation of assets, as laid out in the NMP, will have a multiplier impact on the economy and will give a push to growth and employment. NMP has set a target of Rs 88,000 crore for this year.

National Monetisation Pipeline (NMP), says Kant  “aims to enable a systematic approach towards recycling of capital. This has already been successfully explored in sectors such as roads and highways through models such as Toll Operate Transfer. The objective is now to systematically adopt this in all infrastructure sub-sectors so as to enable world class infrastructure creation and a paradigm shift in operations and maintenance. To this end, work on core asset monetisation has been underway over the past six months, with groundwork as also launch of transactions already complete for certain identified assets……” Various sectors such as power, natural gas pipelines, railways, ports, airports etc. are in advanced stages of approval or bidding. “All infrastructure ministries are, hence, proactively working towards achievement of expectations set under NMP.”

Structured contractual partnerships between public authority and private party: “Monetisation under NMP is envisaged as structured contractual partnerships between public authority and private party. Transfer of rights on such assets will be defined by a well-defined contractual framework based on principles of balanced risk sharing, performance standards and protection of interests of all stakeholders……

The ultimate objective of this programme is to create a win-win for all stakeholders including public authority, private investors and most of all the common citizen through universal access to high quality and affordable infrastructure. This will, hence, remain the guiding principle for structuring of all transactions.

While the targets are aggressive, a four-year roadmap, the Indian Express writes “providing in detail the assets the government intends to lease, should provide clarity to investors and generate interest. However, considering the regular shortfalls in the government’s disinvestment collections, the programme’s success will require careful and continuous monitoring, and addressing of concerns raised by private players.”

‘Transactions are likely to be structured through either public private partnerships’

The transactions are likely to be structured through either public private partnerships, concessions or instruments such as infrastructure investment trusts (InvITs). “However, considering the experience of private players with PPPs (Public Private Partnership), their comfort level in participating in these transactions is likely to depend on a host of factors, such as operational flexibility, regulatory framework, dispute resolution mechanism, etc….. The recent experience of the Indian Railways when it invited private players to run passenger trains has not been encouraging — reportedly, only two players participated in the process, one of which is a government entity…..”

States are also being incentivised to participate in this programme. After all, states, like the Centre, have assets that can be monetised, creating a lucrative revenue stream for them. And considering that states drive general government capital expenditure, this channel could provide them with the additional resources needed to sustain public investment during this period of stressed public finances.

Monetise the right way

Supporting the MNP, The Hindustan Times writes  “if implemented well, optimise the utilisation of assets, ensure their maintenance, provide a high level and quality of service, improve efficiencies of operation, and generate employment. And it will also free up the government’s own resources for critical social sector spending. By structuring the exercise as a partnership, and not divestment or privatisation, and by emphasising that the asset is not being sold, and no land is being transferred — land is the most political of issues in the country – the government has given the exercise a chance to succeed.”

Fears over handing control of public utilities to a small private sector

Andy Mukherjee, Bloomberg cautions over fears that handing over control of public utilities to a small private sector will hurt the consumer.  The government, needs to heed the Australian Competition and Consumer Commission Chairman Rod Sims’s warning last month: Privatize to increase the efficiency of the economy, or don’t privatize at all.

To maximize their profit over a limited time frame, investors would naturally want to raise prices, limit competition or cut back on upkeep. Similarly, says Mukherjee “it’s important to prevent today’s lump-sum gains to the government from becoming a cost tomorrow. In New South Wales, where electricity prices doubled in five years after poles and wires were privatized, the government had to step in with an Energy Affordability Package to lower the burden on consumers. The Indian taxpayer, already struggling under extortionate levies on energy, simply can’t afford such largesse.

“Without bureaucratic capability and regulatory acumen, the Indian program could become a transfer of taxpayer-funded assets to a handful of business groups. This is a concern because of the rising concentration of economic power in everything from transport to telecom……”

Privatization of a state-owned aluminum maker, for example,  “only causes job-loss anxieties among its workers. Once control over utilities is out of the government’s hands for years, even decades, the broader public will worry about higher user charges slapped by operators of roads, railways, airports, power grids and gas pipelines.”

The key is “finding the right balance between public and private interests…..”

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