NATIONAL ASSET MONETISATION PIPELINE
Recently, the Government of India has launched National Monetisation Pipeline(NMP). It is aiming to unlock value in Brownfield Projects by engaging the private sector and giving them only revenue rights rather than ownership rights and use the generated fund in the development of infrastructure across the territory.
This NMP is worth an estimated amount of Rs 6 lakh crores, over a four year period i.e from the financial year- FY 2022 – FY 2025.
WHAT ARE BROWNFIELD INVESTMENT
There are two types of investment
- Greenfield investment
- Brownfield investment
Greenfield investment refers to investment in new things such as manufacturing, office, new structures in an area where they don’t exist previously.
Brownfield investments are those investments where things are modified or upgraded from their prevailing outlook or in a simpler way, we can say that when a company buys or leases an existing entity, this will be called a brownfield investment.
KEY FEATURES OF NMP
- The NMP has announced to provide clarity in its framework for monetisation and give potential investors a ready list of assets to make investment interest.
- These are brownfield projects by engaging the private sector by giving only the revenue rights.
- The government has also stressed the fact that these assets have been derisked from execution risks and therefore should encourage private investment.
WHAT IS MONETISATION?
To understand more points, we need to understand monetisation.
In a monetisation transaction, the government gives revenue rights to private parties for a specified period of time, in return for revenue share, upfront money and commitment of investment in the assets.
Real Estate Investment Trusts(REITs) and Infrastructure Investment Trusts(InvITs) are to monetise assets in the road and power sectors.
There are also other monetisation models of Public-Private Partnership(PPP) such as OMT, TOT and OMD. OMT and TOT have been used in highways, OMD is for airports.
Finance Minister Nirmala Sitharaman said -“There is no land here, this entire (NMP) is talking about brownfield projects where investments have already been made, where there is a completed asset which is either languishing or it is not fully monetised or is under-utilised. So by bringing in private participation in this you will be able to monetise it better and ensure further investment in infrastructure building.”
She has claimed that land is scarce and every time new places for industry building (Greenfield Projects) might not be possible, so the government has opened brownfield projects for private players because those industries need good care as they are not successful or underutilising, she has also focused on expanding the investment for infrastructure building.
- Roads, railways and power sector assets will take over 66% of the total estimated value of the assets to be monetised, and the remaining upcoming sectors including mining, aviation, natural gas and petroleum product, warehouses and stadiums.
- The NMP will run the same project announced in December 2019 i.e National Infrastructure Pipeline (NIP).
CHALLENGES FOR NMP
- Lack of identifiable revenue streams in various assets such as road and highways, railways, infrastructure development, real estate etc.
- Slow speed of privatisation in government companies like Air India and BPCL.
- Discouraging bids in the launched PPP initiative in trains shows that attracting private investors interest is not easy.
Asset Related Challenges:
A. Under Utilised– Low capacity utilisation in gas and petroleum, which can be proved by taking a glance at past records of target and produced.
B. Regulations – Regulated tariffs in power sector assets, which is determined by the Central Electricity Regulatory Commission. It is determined by the provisions given Electricity Act, 2003 and Tariff policy notified by the Government of India.
C. Not Interested – Low interest of investors in highways below four lanes. The total length of national highway (NH) stretches with four-lane or above is estimated to be about 23% of the total NH network. And four lanes have less monetisation potential of toll road assets.
D. Multiple Stakeholding– For example – Konkan Railway has multiple stakeholders including the state government.