Asset Monetisation: Unlocking Capital for Infrastructure Development

Introduction
The Government of India's objective of making India a US$ 5 trillion-dollar economy by 2025 and the need to strengthen the economy in the aftermath of the Covid-19 outbreak, has made a large-scale and rapid investment in infrastructure significant to support economic growth. In the Union Budget 2021-22, monetization of assets has been highlighted as one of the three pillars for improved and sustainable infrastructure funding in the country. The government intends to encourage private sector investment and utilise its efficiency, as well as raise revenue through the monetisation of newly built brownfield assets. Additionally, the government argues that asset monetisation is the best alternative strategy given the scenario of constrained fiscal resources and the rising cost of welfare spending in the post-pandemic period. In FY19–20, the Government of India began a ground-breaking, cross-government operation “The National Infrastructure Pipeline (NIP)” which plans to invest US$ 1,346.18 billion (Rs. 111 lakh crores) in infrastructure during a five-year period from FY20 to FY25. While on the other hand, the government was taking several measures to accomplish the Sustainable Development Goals 2030. As a result, the Indian government has unveiled a proposal National Monetisation Pipeline (NMP) to monetise the existing public assets worth US$ 72.76 billion (Rs. 6 trillion) by leasing them to private operators for predetermined periods of time. In the below image, the assets are leased to the bidding private sector firm for operation and maintenance in accordance with contractual arrangements, and the revenue generated is reinvested by the government in the construction of new infrastructure in the asset monetisation cycle.

Infrastructure development in India
Growth and economic performance are closely related to infrastructure. The benefits of higher investment in high-quality infrastructure emerge as more employment possibilities, market access and materials, enhanced quality of life, and empowerment of vulnerable groups. Without sufficient and reliable infrastructure, the economy functions at a suboptimal level, falling short of its potential and frontier growth trajectory. The infrastructure industry encompasses power, bridges, dams, highways, and urban infrastructure development. In other words, the infrastructure sector functions as a catalyst for India's economic growth since it drives the growth of allied industries like townships, housing, built-up infrastructure and building development projects. Monetization is the key to creating value in infrastructure by unlocking the value of public infrastructure investments and taking advantage of the flexibility offered by the private sector in infrastructure management and operations. India would require infrastructure investment worth US$ 778 billion (Rs. 50 trillion) by 2022 in order to achieve sustainable development.

Asset Monetisation
Asset Monetization entails converting assets into revenue-generating assets. To put it another way, it increases the economic worth of public resources in an economy that is underutilised or underused. In this process, the Government can lease the assets to private entities to generate revenue, for a predetermined time period during which the private entity is given the right to use the asset to generate income. This is an alternative to selling the assets, such as national roads, ports, aviation, etc. to the private sector. The government retains ownership of the asset, and it uses the money it receives from leasing it for new infrastructure development. As a result, the government unlocks the investment value of public sector assets to generate funds for more public investments.

Asset Monetisation Models
The asset monetisation models use two different approaches.

A private entity is expected to maintain and operate an asset for a defined amount of time. India has implemented this for managing road maintenance. The private investors invest in the operation and maintenance of roadways and recover their investment costs through toll taxes, land value capture income, etc.

Publicly funded operational projects, such as highways, are monetised for two years and put out to bid. The investors make a one-time lump-sum investment in exchange for a 15- to 30-year right to earn an appropriation fee.

The private sector raises money based on the strength of the existing assets and/or gets project financing in addition to equity contributions. The operational asset is leased to a private party for upgrading and O&M throughout the concession period.

An existing asset should ideally be upgraded or augmented before operations and revenue collection can be resumed. The concession terms are generally identical to OMD contracts with consideration for netting off the cost of rehabilitation to the Authority.

• Direct Contractual models: Brownfield Public-private Partnership (PPP) Concessions
  • Operate, Maintain & Transfer (OMT)-A private entity is expected to maintain and operate an asset for a defined amount of time. India has implemented this for managing road maintenance. The private investors invest in the operation and maintenance of roadways and recover their investment costs through toll taxes, land value capture income, etc.
  • Toll, Operate & Transfer (TOT)-Publicly funded operational projects, such as highways, are monetised for two years and put out to bid. The investors make a one-time lump-sum investment in exchange for a 15- to 30-year right to earn an appropriation fee.
  • Operations, Maintenance & Development (OMD)-The private sector raises money based on the strength of the existing assets and/or gets project financing in addition to equity contributions. The operational asset is leased to a private party for upgrading and O&M throughout the concession period.
  • ​​​​​​​Rehabilitate Operate Maintain Transfer (ROMT)-An existing asset should ideally be upgraded or augmented before operations and revenue collection can be resumed. The concession terms are generally identical to OMD contracts with consideration for netting off the cost of rehabilitation to the Authority.

• Structure Financing Models
  • ​​​​​​​Infrastructure Investment Trusts (InvITs)-Infrastructure Investment Trusts (InvITs) use funds gathered from various investors to make direct investments in infrastructure. Hence, they are comparable to mutual funds. InvITs grow by the acquisition of assets through a competitive bidding process.
  • ​​​​​​​Real estate Investment Trusts (REITs)-The firm owns, manages, or finances real estate and the capital is raised from investors, which is then invested.

National Monetisation Pipeline (NMP)
The National Monetization Pipeline (NMP), which the Indian government started on August 23rd, 2021, aims to generate US$ 72.76 billion (about Rs. 6 lakh crore) by leasing out public infrastructure assets over the course of four years, from 2022 to 2025. A comprehensive framework for NMP was created by the infrastructure ministries, NITI Aayog, and the Ministry of Finance. The lease earnings are anticipated to be further invested in new infrastructure creation, which would support the government's large-scale US$ 1,346.18 billion (Rs. 111 trillion) infrastructure investment plan, the National Infrastructure Pipeline (NIP). An empowered Core Group of Secretaries on Asset Monetization (CGAM) with the leadership of the Cabinet Secretary has been formed as part of a multi-layer institutional system for the overall implementation and monitoring of the Asset Monetization programme.

Basic Structure of Asset Monetisation in NMP
With a well-defined framework or structure, asset monetisation recycles capital assets by transferring them temporarily to the private sector. Asset Monetization must be regarded as a comprehensive strategy for bringing about a paradigm shift in infrastructure operations, augmentation, and maintenance rather than just as a finance tool. This is especially true when considering the potential for resource and capital efficiencies as well as the capacity for flexible adaptation to the changing political and economic landscape.

In the below diagram, the private sector firm is supposed to run and maintain the asset according to the conditions of the contract or concession, generating profits through increased operating efficiencies and improved user experience. The governmental/ public authority then invests the money it has just received in new infrastructure or uses it for other social causes. Such contracts contain clauses allowing for the return of assets to the public authority, thus retaining the rights at the end of the contract. Therefore, it’s a win-win situation for all stakeholders.

Estimated Potential
The total asset pipeline under NMP over the four-year period, 2022-2025, is estimated to be US$ 72.76 billion (Rs 6 lakh crore). The expected value is equal to 14% of the outlay proposed under the centrally sponsored initiative NIP US$ 520.20 billion (Rs 43 lakh crore). Moreover, there are more than 20 asset classes and over 12-line ministries. The industries covered include roads, ports, airports, railways, warehousing, gas and product pipelines, power generation and transmission, mining, telecommunications, stadiums, hospitality, and housing.

In the below image, NITI Aayog has represented the breakup of US$ 72.76 billion (Rs 6 lakh crore) and total indicative value sector-wise over the period of four years (FY22-25). The total indicative value over the four years (FY22-25) of roads is estimated at US$ 19.40 billion (Rs 1.60 lakh crore) and railways are estimated at US$ 18.43 billion (Rs 1.52 lakh crore), contributing 52% of the total NMP value.

As seen in the below pie chart, around 83% of the total pipeline value (US$ 72.76 billion (Rs 6 lakh crore)) is accounted for by the top 5 sectors with roads at 27% followed by railways (26%), power (15%), oil and gas pipelines (8%) and telecommunications (6%).

Moreover, as depicted in the bar chart, to accomplish the target of US$ 72.76 billion (Rs 6 lakh crore), NITI Aayog unveiled the four-year roadmap, setting an estimated annual target each year between FY22-25. The government envisions accomplishing US$ 10.69 billion (Rs 9,000 crore) in FY22, US$ 19.40 billion (Rs 1.6 lakh crore) in FY23, US$ 21.82 billion (Rs 1.8 lakh crore) in FY24, US$ 20.61 billion (Rs 1.7 lakh crore) in FY25.

Current Status

• In the fiscal year 2021-22, the government surpassed its goals of US$ 10.88 billion (Rs 90,000 crore), achieving a monetisation revenue of 67.5% more amounting to US$ 11.7 billion (Rs 97,000 crore) and is expected to reach US$ 12.12 billion (Rs 1 lakh crore). Out of which, roads accounted for 24% of the total revenue followed by power with 10%, mining made up about 61% and coal mines accounted for about 41%. Additionally, these include 22 coal blocks, 31 mineral blocks, 390 km of road in InvIT, three toll-operate-transfer (TOT) concessions, transmission assets of PowerGrid, and an operational hydel project of NHPC. 
• In the fiscal year 2022-23, the Union government is likely to meet its asset monetisation target of US$ 19.40 billion (Rs 1.62 trillion) as the mining industry is experiencing a rush of brand-new private-sector projects and is anticipated to do the heavy lifting. Compared to a target of just US$ 733.12 million (Rs 6,060 crore), the monetisation value from the mining industry, which includes coal and other minerals, is anticipated to be above US$ 7.25 billion (Rs 60,000 crore) in FY23. But, only slightly more than a third US$ 6.93 billion (Rs 57,222 crore) of the railways' monetisation target is expected to be met.

Future Prospects

• To monetize assets worth US$ 606.38 million (Rs 5,000 crore), Gas Authority Of India (GAIL) Limited, has submitted a new infrastructure investment route (InvIT) proposal.
• In accordance with the "National Monetization Pipeline (NMP)," the Ministry of Civil Aviation intends to lease out 25 airports owned by the Airports Authority of India (AAI) between 2022 and 2025. Eight airports in all have already been leased under Public Private Partnership (PPP) on a long-term lease basis for operation, management, and development. Delhi, Mumbai, Ahmedabad, Guwahati, Jaipur, Lucknow, Mangalore, and Thiruvananthapuram are the airports on this list. The airports in Delhi and Mumbai were leased out in 2006, and in 2020, the concessionaires received control of the airports in Mangalore, Lucknow, and Ahmedabad. In 2021, leases were signed for the airports in Guwahati, Jaipur, and Thiruvananthapuram.
• At least six mineral blocks, including four iron ore mines, are scheduled to be placed up for auction by the central government in 2023.
• The Ministry of Road and Transport has identified a list of 1,750 km of projects that would be monetized through ToT and InVIT in FY23. The National Highways Infra Trust of India (NHAI InVIT) intends to collect US$ 909.58-970.22 million (Rs 75-80 billion) by selling the next tranche of six road assets by March 2023.

The Road Ahead
The monetization programme is the cornerstone of the infrastructure growth vision that would boost India's economic output to US$ 5 trillion by 2025. The Government of India has recognised the difficulties of asset monetisation and established a structural framework to attract private sector investment by looking beyond the conventional methods of financing infrastructural investment. By utilising different investment models, sector-specific policies and giving investors a comprehensive picture, the government has tried to address every issue related to monetisation. However, the key to its success will rest in selecting the appropriate monetisation model and its competent execution. Furthermore, the success of monetisation depends not only on the selection of the right model but also on the stability and clarity of the legal framework. The creation of a viable model, reaching the annual goals, and involving the states in the monetization of state-owned assets by offering them incentives are all necessary for the NMP to be successful.