Asset Monetization involves creation of new sources of revenue by unlocking the value of the otherwise unutilized or underutilized public assets. It is globally recognised that public assets are a significant resource for the economy.
The Union Govt announced an asset monetisation plan in August 2021 wherein brownfield or existing public assets worth Rs. 6 trillion were to be monetised by leasing them out to private sector partners for fixed terms with an aim to utilise the proceeds for capital expenditure towards new infrastructure creation.
The policy framework for monetisation of core assets has three key imperatives.
- Monetization of 'Rights' not 'Ownership' with assets being handed back to the government at the end of transaction life
- Brownfield de-risked assets with stable revenue streams
- Structured partnerships under defined contractual frameworks with strict KPIs & performance standards
This includes selection of de-risked brownfield assets with stable revenue streams with the transaction being structured around revenue rights. The primary ownership of these assets under monetisation would continue to be with the Government with the policy envisioning a hand back of assets to the public authority at the end of the specified transaction period.
ASSET MONETISATION MODELS
The Government is aiming to raise US$ 81billion by asset monetisation through the National Monetisation Pipeline which was formally expressed in the Union Budget 2022-231. The pipeline aims to provide a pathway for global investors to invest in the Indian infrastructure space through sovereign wealth funds and pension funds.
An important aspect of monetisation involving existing assets, rather than new assets like station redevelopment, is that they carry no construction risk, which is a large initial risk in any infrastructure project.
There are two broad structures envisaged to effect asset monetisation, which are Toll Operate and Transfer (TOT) and the other being InVIT (Infrastructure Investment Trusts). Additionally, there could also be structured bonds, with limited or no recourse to the government.
The TOT mode is essentially a contract between a public authority and a private partner. These contracts are majorly operated through PPP concessions. TOT structures involve transferring asset or a group of assets, like toll roads, to a private investor for a designated period of time in exchange of an upfront payment. The investor then goes on to have full control over the operations for the designated concession period and is responsible for toll collection, operation and maintenance and while it is a monetisation of rights, the investor bears all the risks and gains the rewards, akin to those that come with ownership.
In an InVIT structure, the distributable revenues from a bundle of assets flow into an SPV and it is then distributed to investors in the InVIT. Similar to ToT here too, the variability in the underlying revenue stream is transferred to the investors. While the TOT investor is expected to actively manage the assets, like to a business owner, the InVIT investor is more sedate, like a shareholder (who bears the risk of business). Just like ToT, InVIT assets too may comprise of those with demand risk and those without.
THE PROGRESS SO FAR
The government has collected Rs 96,000 crore through asset monetisation in 2021-22 and this may reach Rs 1 lakh crore with more data coming in, surpassing the target of Rs 88,000 crore for the last fiscal. While roads and highways monetised assets worth Rs 23,000 crore, power sector mopped Rs 9,500 crore, coal mining garnered Rs 40,000 crore and mining of minerals earned Rs 18,700 crore. Significant investors include Canadian Pension Plan Investment Board, Ontario Teachers' Pension Plan, Capital Group and Utilico Emerging Markets Trust amongst others.In 2021-22, asset monetization transactions in the road sector included 390 kms of road under InvIT mode and bidding out of three toll operate transfer (TOT) bundles.
In the power sectors, transmission assets of PowerGrid and one operational hydel project of NHPC were monetised. Further, 22 coal blocks and award of mining, developing and operating (MDO) contracts by the coal ministry were monetised while 31 mineral blocks were auctioned last year. The Ministry of Railways is yet to gather pace, and has been able to monetise assets only worth Rs 800-900 crore against its target of Rs 17,810 crore.
The ministries that have not achieved their target for FY22 would see them being carried forward to FY23. The government has set a target of Rs 6 lakh crore through asset monetisation in four years (FY 2022-25) with FY'23 target pegged at Rs 1.67 lakh crore.
The asset monetisation policy of India is a very ambitious policy for the infrastructure sector to mobilise investments. The sectoral specific policies provides a clear vision for investors by utilising various models for investment. The Government has made tried and addressing all challenges pertaining to monetisation, however, the key to its success would lie in choosing the right model for monetisation and its able execution. Since these are multiple stakeholder deals including the centre, state, public and private entities will be required to play their role in a fair and diligent manner.
Apart from choosing the appropriate model for monetisation, the success of monetisation also depends on the clarity and stability of the regulatory environment. This is especially the case for infrastructure assets since the revenue streams are dependent on regulated tariffs in most sectors.
1. National Asset Monetisation Plan: Centre announces asset monetisation plan to raise Rs 6 lakh crore by 2025; Key points | India Business News - Times of India. (2021, August 23). The Times of India; Times of India. https://timesofindia.indiatimes.com/business/india-business/centres-rs-6-lakh-crore-plan-to-monetise-state-assets-what-it-means/articleshow/85559280.cms
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