In a bid to push the national infrastructure pipeline (NIP), India contemplates an investment of INR 111 lakh crore over a period of five years (i.e., FY 2020 – 2025). To achieve this target, the Government of India (GoI) is tapping alternate ways which includes ways for alternate financing.
For attracting investments in the infrastructure sector and putting the investments planned under the NIP on track, GoI made provisions in the Union budget for FY 2021 -2022. The budget reflected a three branched strategy, i.e., (a) creating institutional structures; (b) pushing up asset monetization; and (c) enhancing share of capital expenditure in central and state budgets.
Against this backdrop, the National Monetisation Pipeline (NMP) was released by NITI Aayog on 23 August 2021. We have specifically touched upon the initiatives taken by the GoI for the implementation of the objectives under the NMP. The NMP aims to increase private sector participation in creation of new infrastructure and development of the existing ones, with an estimated aggregate monetisation potential of INR 6 lakh crores, over a period of four years (i.e., from FY 2022 to FY 2025).
The core brownfield infrastructure assets identified for monetisation under the NMP include roads, ports, airports, telecom, railways, warehousing, energy pipelines, power generation, power transmission, urban infrastructure, and sports stadiums. Monetisation of non-core assets such as land and building and monetisation through disinvestment have been specifically omitted from the NMP.
Below are some of the key reforms/initiatives undertaken by the GoI to facilitate monetisation of the identified assets across different sectors in line with the NMP and encourage investments by the private sector entities by inter alia relaxing several processes/restrictions and boosting investors' confidence:
- Roads: The Ministry of Road Transport and Highways has adopted primarily two methods for monetisation of roads: (a) the Toll-Operate-Transfer (ToT) model including toll securitisation; and (b) the Infrastructure Investment Trust Model for monetisation of national highways having toll collection record for a minimum period of one year, with National Highways Infra Investment Managers Private Limited as the Investment Manager. For the purpose of the implementation of NMP, the Cabinet Committee of Economic Affairs approved two major amendments to ToT model: (i) the operational period of national highways eligible for monetisation is reduced to one year as opposed to the earlier requirement of two years; and (ii) the National Highways Authority of India is granted the right to determine the concession period anywhere between fifteen to thirty years in contrast with the earlier fixed concession period of thirty years. These amendments will allow improved investments due to availability of wider set of assets and a better risk reward projection, respectively. Further, the GoI considerably downsized its fifth bundle ToT package, making it the smallest ever tender, for expanding potential investors' base.
- Railways: Considering that the Indian Railways is the fourth-largest railway network in the world, GoI's focus is on augmenting railway infrastructure to facilitate freight and passenger movement. Significant investments will be needed to address capacity constraints in this sector. For this purpose, GoI has rolled out the National Rail Plan Vision 2030 (NRP). The key objectives of the NRP (prepared on 16 March 2022) include, (a) creation of capacity ahead of demand (to cater to future growth in demand up to 2050); (b) increasing modal share of railways to 45% in freight traffic; and (c) sustained involvement of private sector for inter alia development of track infrastructure and freight/passenger terminals. Also, it is vital to mention that the Indian Railways, with the objective of boosting investments, introducing modern technology, reducing transit time and ensuring safety of passengers, introduced public private partnership (PPP) model in operation of passenger trains, through the 'New India New Railway' initiative. It is a two-stage competitive bidding process which has been envisaged for selection of private entities.
- Power Generation: The power sector books for one of the largest investments in India's infrastructure sector. India's power consumption requirement calls for huge investments which will be utilised for the installation of high capacities and upgradation of existing ones. Especially, the renewable energy sector has taken a huge leap with GoI's support in the past decade. The renewable energy sector has a strong appetite for investors. GoI's move to introduce Solar Energy Corporation of India as a nodal agency and intermediary between the private sector and distribution companies, reflects a credible counterparty to the private sector and aids in getting investments. To further boost investor confidence, GoI has approved support in the form of one-time loans from Power Finance Corporation and Rural Electrification Corporation to distribution companies. This initiative will also help distribution companies clear their overdue payments to power generating companies.
- Power Transmission: India's economic growth is dependent on the growth in the energy sector which offers huge opportunities for investments. Power transmission infrastructure of the Central Transmission Utility has been considered for NMP under the power transmission asset class. For increasing investor confidence in the sector, the Ministry of Power, on 11 March 2021, notified the Central Transmission Utility of lndia Limited (i.e., 100% subsidiary of Power Grid Corporation of India Limited (PGCIL)), as the 'Central Transmission Utility' and PGCIL as 'Deemed Licensee' under the Electricity Act, 2003. Such segregation was undertaken to divide the role of planning from that of development of transmission systems and further avert any conflicts of interest while awarding power transmission projects.
It is also pertinent to note that the equity lock-in period provided in the standard bidding documents for selection of a transmission service provider has been reduced to 51% percent of the share capital of concerned SPV up to a period of one year after the commercial operation date of project, as opposed to the earlier requirement of (a) 51% up to a period of two years after the commercial operation date of project; and (b) 26% for a period of three years thereafter. Such an amendment is a welcome move for investors looking for short term equity investment with greater flexibility and provision for an earlier exit.
For easing out obstacles in the transmission business, the Ministry of Environment, Forest and Climate Change removed the mandatory pre-requisite of obtaining a no-objection certificate, at the field level, from various landowning agencies regarding laying of transmission lines in the forest areas, whose land fell in the alignment of the proposed project, through its circular dated 1 January 2020.
- Telecom: The assets which are being considered for the purpose of monetisation in the telecom sector are tower assets of Bharat Sanchar Nigam Limited , Mahanagar Telephone Nigam Limited and Bharatnet optical fibre assets. To further boost investment in the sector and to generate revenue, the Department of Telecommunication amended the license norms to permit sharing of active infrastructure (such as antenna, feeder cables, transmission networks) by the telecom operators. Such amendments are likely to reduce the operational and capital expenditure of the telecom service providers and aid in faster rollout of services. Further, the Bharatnet project was approved by GoI to be implemented through the PPP model with greater leverage to the private sector for increased efficiency in operation and revenue generation.
- Airports: There has been a massive growth in this part of infrastructure in India. Private sector and GoI have been an integral part of this growth and have equally contributed to the aviation sector. India has the third largest domestic civil aviation industry in the world and has the potential to grow even further, for which, higher investments will be required. In this regard, GoI is undertaking development of major airports (including that of Delhi and Mumbai) through PPP models. GoI rolled out Airports Economic Regulatory Authority of India (Amendment) Act, 2021 (2021 Amendment Act) which amended the definition of "major airport" to include the term "a group of airports". The objective of such amendment was to present a package to the prospective bidders interested in high traffic volume airports as well as low traffic volume airports. This will make it a feasible combination for investment under the PPP model and attract reasonable competitive bids for both categories of airports.
- Ports: India comprises of a huge maritime sector, with twelve major ports and more than two hundred non major ports. This sector has vital role to play in the overall growth in India's trade capacity. The maritime sector is guided by the Sagarmala programme, which was rolled out by the Ministry of Shipping to promote port development. Also, in the recent past, GoI released Maritime India Vision 2030, which aims to boost waterways and encourage cruise tourism in India. In a bid to increase investments in ports, GoI passed the Major Port Authorities Act, 2021 (MPA). One of the significant changes brought in by the MPA is the shift from a service model to a landlord model, whereby, the private sector participants will be responsible for the operation and management of the ports while the ownership of the assets will remain with the government/concerned port authorities.
Additionally, to uplift growth in the sector, GoI, recently circulated the Indian Ports Bill, 2021. The bill provides a definitive regulatory blueprint for creation of new ports and better management of the existing ones. It also provides for formulation of national plan for development of existing and/or new major and non-major ports in the country.
- Natural Gas Pipelines: The assets under this sector are typically managed by the public sector entities. The gas infrastructure connects gas sources to gas markets to meet the existing demands of various industries (including power and fertiliser). Gas Authority of India Limited (GAIL) is one of the prominent players in the market and has contributed to its growth and development. The Petroleum and Natural Gas Regulatory Board (PNGRB), which determines the per unit tariff for natural gas pipelines, simplified the country's gas pipelines tariff structure to make fuel more affordable for distant users and attract investments for building gas infrastructure. It is also pertinent to mention that, to level up the investments, foreign direct investments in oil and gas PSUs which was earlier capped at 49% has been increased to 100% by the Department for Promotion of Industry and Internal Trade. Further, reforms were brought in by the GoI in the Hydrocarbon Exploration and Licensing Policy in February 2019, for increasing exploration activities, attracting domestic and foreign investment in unexplored/unallocated areas of sedimentary basins and enhancing domestic production of oil and gas from existing fields. The policy reforms aimed inter alia to simplify fiscal and contractual terms, streamline approval processes, promote ease of doing business and grant more freedom to national oil companies for collaboration and private sector participation for production enhancement methods in nomination fields.
- Petroleum, Petroleum Product Pipelines and Other Assets: The assets which are being considered for monetisation under this sector include operational products and LPG pipelines. In India, the LPG pipelines are operated by public sector players namely, Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and GAIL. As in the case of natural gas pipelines, PNGRB grants authorisation for development of petroleum and petroleum product pipelines as well. The tariff in this regard (other than those awarded through bidding process), is determined by PNGRB through PNGRB (Determination of Petroleum and Petroleum Products Pipeline Transportation Tariff) Regulations, 2010. In furtherance of the exercise of asset monetisation, GAIL aims to set up an infrastructure investment trust (InvIT) for monetisation of its two pipelines, followed by HPCL and IOCL setting up InvITs at a later stage.
- Mining: The coal mining assets have been considered for the purpose of monetisation in this sector. GoI recently opened up commercial mining to private sector in India and introduced auction regime to bring transparency in allocation of mineral blocks. Further, the amendments to the Mines and Minerals (Development and Regulation), 1957, eliminated restrictions on the end utilisation of captive mines (including captive coal mines) as a result of which mines can now be used for any purposes including own consumption or sale, as may be prescribed by the government. This will prove to be an extremely positive step for revamping the sector and attracting major investments. Additionally, the single window clearance system launched by GoI in January 2021 for obtaining various approvals for starting a coal mine will help in quicker operationalisation of the coal blocks.
- Urban Real Estate Assets: The Urban Real Estate Assets are regulated by the Ministry of Housing and Urban Affairs (MoUHA). The MoUHA owns and manages assets, specifically land under this category. For the purpose of increasing investor participation in this sector, projects will be undertaken on PPP model, whereby, the entire land parcel will be transferred to an SPV which will be held by the relevant authority. The statutory clearances which are typically required for such projects will be pre-obtained by such authority and will be housed in the SPV. Thereafter, the SPV will be bid out under PPP mechanism.
- Warehousing Assets: The assets considered for monetisation under this category includes storage depots and warehouses under the agencies of the Central Government (i.e., Food Corporation of India (FCI) and Central Warehousing Corporation). The Central Government, through FCI, assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the state governments and for distribution to beneficiaries, as and when required. GoI is looking at private participation for monetisation of assets in this sector. The models which are being considered for this purpose are PPP and InvITs.
- Sports Stadia: The assets regulated by the Sports Authority of India (SAI) are being considered as potential assets for monetisation under this category. These assets are largely managed by SAI and is branched into three categories which are (a) stadiums; (b) regional centres; and (c) academic institutions. The NMP is primarily focusing on monetisation of stadiums and regional centres. GoI is looking for private sector participation in this respect as well. Development of assets under this category will be undertaken in the form of augmentation and maintenance of sports facilities and private sector efficiencies in management of infrastructure will be tapped for this purpose.
Way Forward for NMP
The implementation of NMP will have to be supported through continuous regulatory interventions by the GoI which will have to roll out policies as and when required to jump across any obstacles which occur in such implementation. In addition, for effective execution of the NMP, innovative models and extensive private sector collaborations will have to be undertaken. GoI will also have to ensure ease of doing business for this purpose. In short, the NMP will: (a) serve as a roadmap for various ministries and government agencies to develop the relevant infrastructure; (b) provide visibility to the investors on the assets which are being considered for monetisation and for which the GoI will aid in development; (c) provide ministries with a platform to track asset performance; and (d) enhance the efficiency of public assets. The budget for FY 2022-23 also advances the objective of NMP, boosting investor confidence, by inter alia (a) increasing the outlay of capital expenditure to 35.4% for FY 2022-23; and (b) introducing PPP model in wider range of sectors, thereby crowding in private investments.
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