– Prabhu Sharma
What is the National Monetisation Pipeline?
Recently, the Government of India has announced an ambitious National Monetisation Pipeline (NMP). The NMP estimates aggregate assets monetisation potential of Rs 6 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025. Through this policy the government has released a list of public assets such as roads, coal mines, etc. that will be leased to private investors for a specific period of time in exchange for a lump sum payment. After the period is over, the assets will be returned to the government and there is not any provision like the permanent sale of the assets to the private investors. The NMP is talking about brownfield assets where investment has already been made, which are either languishing, not fully monetised or remaining underutilized.
The government thinking behind asset monetisation is leasing out the government assets to private investors and to earn revenue to build more infrastructure through the National Infrastructure Pipeline (NIP). Asset monetisation will happen mainly in 3 sectors: roads, railways and power. Apart from this many airports, telecoms, stadiums, etc. will also be monetised.
Challenges on the way
The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets. But monetising the assets is quite a challenging task in itself. Like it will be very difficult and complex to calculate the valuation of assets over a very long-term horizon, in that sense the government has to find the Net Present Value (NPV) of each under-utilized asset. There will also be many chances that in future the private operator may be enjoying the windfall gains also. Apart from this, there are also many concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers. If the government merely cedes control of public utilities to private companies without taking steps to foster greater competition, it can indeed lead to poor outcomes for consumers.
The allocations of the government’s assets may also invite corruption practices as well. Like many politicians and officials can favor some business corporations, startups, etc. If we look at the past disinvestment policy of the government such as the sale of Air India, It did not catch the fancy of investors owing to the stringent conditions set by the government. The conditions that were put forth by the government for the sale of Air India was not attractive for any private player. The slow pace of privatisation in government companies including Air India and BPCL, and less-than-encouraging bids in the recently launched PPP initiative in trains, indicate that attracting private investors’ interest is not that easy. Far from a surge in consumer prices, the real risk is of business loss for the lessee, from persistent discrimination against the new private operator of leased assets and regulatory uncertainty. There is no incentive for the private players to invest in the asset towards the end of the tenure of monetisation. Most probably, the life of the asset, when it will be returned to the government, may not be long. And it may degrade the existing value of the asset.
What lies ahead?
The NMP policy has created two sections of people, the first one which supports this and the another one who does not support this. But the success of the NMP will depend on the demand for brown-field government assets among private investors. The pricing of assets and the terms of sale will thus determine the level of interest that private investors show for assets leased under the NMP. To ensure proper asset monetisation, execution is the key. For proper scrutiny, the government should set up an Asset Monetisation Monitoring Authority that should be headed by excellent professionals. The authority must cross-check all the important aspects of monetisation like fair bidding, under-utilized assets in different sectors, impact on price charged to the consumer, etc.
NMP is good in concept, but success lies in how it will be executed. For correct and exact execution of NMP, the political will is required to achieve the monetisation ambition.