Asset Monetisation: The Missing Model

At a time when government finances have been hit due to Covid-19, Finance Minister Nirmala Sitharaman introduced a new mechanism of revenue mobilisation in Budget 2021- asset monetisation. It aims to unlock value from public assets and tap the private sector to fund infrastructure projects.

"Monetising operating public infrastructure assets is an important financing option for new infrastructure construction," Sitharaman said in her Budget speech. A National Monetisation Pipeline of potential brownfield infrastructure assets was announced, along with a dashboard to track the progress of identified projects. Operations and maintenance of dedicated freight corridor projects of Indian Railways, highway projects of the National Highways Authority of India (NHAI), airports in Tier-II and III cities, oil and gas pipelines of Gas Authority of India Ltd (GAIL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation (IOC), under-utilised land and other assets of central public sector enterprises (CPSEs), were zeroed in on for monetisation.

Within weeks, Prime Minister Narendra Modi announced investment opportunities worth Rs 2.5 lakh crore in the asset monetisation pipeline through sale of 100 assets of CPSEs. "Monetise and modernise," Modi said during an interaction with the private sector on February 24. "The government does not have any business to be in business."

The Problem

However, months after the announcements, the asset monetisation plan appears to be going nowhere. Arguably, with such a wide variety of sectors, there cannot be a one-size-fits-all concept. But, even though the Department of Investment and Public Asset Management (Dipam) had already set the ball rolling on asset monetisation in March 2019 as per the Cabinet directive, government departments are still groping in the dark about which assets to be put on the block.

In its meeting on February 28, 2019, the Cabinet asked NITI Aayog to identify assets and a revenue model for monetisation. But, two years down the line, the investment structure still remains elusive, and "consultations with the respective ministries on possible investment structures are being undertaken," according to NITI Aayog's annual report for 2021/22. In fact, the lack of "investment structure" has left some key ministries, including the railways and highways, and departments and CPSEs holding large chunks of lands, in a fix. In spite of deliberations, there has been no sector-specific model.

In its report, the think-tank said, "A pipeline of core assets, comprising over 100, falling in 31 broad asset classes, mapped to 10 ministries/CPSEs and tentatively valued at Rs 5 lakh crore, has been developed. NITI Aayog has sought information from ministries to create a four-year monetisation pipeline (FY21-24). Some of the potential assets that have been identified include toll road bundles, ports, cruise terminals, telecom infrastructure, oil and gas pipelines, transmission towers, railway stations, sports stadium, operational metro sections, warehouses, and commercial complexes."

While the railway ministry says it is awaiting response from the Niti Aayog on the suitable monetisation model for dedicated freight corridors, the government is yet to zero in on a specific one for other assets mentioned in the Budget, including ports and pipelines of oil marketing firms, and monetisation of land belonging to various departments and PSUs, as well.

Oil PSUs, for example, are looking to monetise assets worth Rs 17,000 crore in the current fiscal, but are yet to come up with a mechanism or specific model. IOC is willing to put a part of its 15,000-km long pipeline on the block, but hasn't identified the stretches. The company, however, has told investors about its intention to divest a minority stake in the pipeline, and is in the process of identifying others for monetisation. GAIL, too, is in the process of identifying the pipelines it plans to monetise. Both may opt for the Infrastructure Investment Trust (InVIT) model, wherein an investment vehicle holds the revenue-generating asset and distributes the returns that the asset generates - a model being used by the Ministry of Road Transport and Highways for some of its own projects.

On Fast Track? Not Exactly

"We are working towards it (asset monetisation)," says Railway Board Chairman Suneet Sharma. "Railways is looking at monetisation of dedicated freight corridors, railway residential areas, and stadiums, among others. There are some models that are being evaluated."

According to sources in the railway ministry, engineering consultancy firm Rail India Technical and Economic Services (Rites) is working on a monetisation model for dedicated freight corridors in collaboration with the NITI Aayog. A top official, however, told Business Today there has been a lot of back and forth between the ministry and the government's think tank. The dedicated freight corridor is a greenfield corridor being constructed to move freight traffic only. The over 3,000-kilometre long corridor has two routes - Delhi-Mumbai and Delhi-Kolkata. As things stand, 650 kilometres, which accounts for a shade over 20 per cent of the route, has been commissioned till now.

"Asset monetisation was for creation of new sources of revenue by unlocking the value of unutilised or underutilised public assets. Are we going to treat operating sections of the freight corridor as an underutilised asset? Also, even in sale of railway assets like freight routes, who will be responsible for track safety and security? The issue is how to make security and maintenance a part of the concession contract," another ministry source told Business Today.

According to experts, apart from safety and security there has to be clarity on tariffs for operational sections of the corridor if it has to be monetised. "Once the asset starts earning, there has to be monetisation. For that, the freight rate policy of the railway ministry has to be absolutely clear," says Arindam Guha, Partner, Deloitte. It essentially means that there has to be a comparatively remunerative freight charge for using the corridor. Currently, freight rates applicable on the corridor are equal to those charged by Indian Railways on non-corridor routes, even though trains ply at least four times faster on the former. If railways' freight rates continue to be applicable for the corridor, it will be a huge disincentive for the private party willing to operate the corridor.

Guha prescribes an InVIT dedicated to railways as a monetisation model. "That way money will come to the Dedicated Freight Corridor Corporation Ltd," he adds.

On The Road

Highway assets, meanwhile, are faring better as models have evolved over the last couple of years. "Toll-Operate-Transfer (ToT)-based concessions received encouraging response from the market. Two bundles have been awarded successfully. The structure has been appreciated by the market and has seen active interest and participation from infra funds, along with developers," according to the NITI Aayog report. One bundle was awarded to Singapore-based Cube Highways for Rs Rs 5,011 crore in October 2020. MAIF Investment of Singapore (Macquarie) had clinched the maiden bundle of ToT projects for an upfront consideration of Rs 9,681.5 crore in 2018. In ToT, a highway developer pays an upfront premium to the government in lieu of a long-term tolling right through the period, during which it also maintains the project.

With record highways constructed in the country in 2020/21 for Rs 13,298 crore, the ministry is bullish on the model and it figures prominently in its asset monetisation plan for the current financial year. "The government has lined up asset monetisation worth Rs 18,000 crore in the current financial year. These include InViT, toll securitisation and ToT," says Transport Secretary Giridhar Aramane.

In addition, the NITI Aayog has proposed the value capture finance (VCF) model, which essentially aims at mobilising revenue out of the incremental benefits a road project brings to the surrounding area.

Flying High

Airports under the Airports Authority of India (AAI) have successfully monetised assets. A model is in place and has been successfully implemented in the past. "In the first phase, six AAI airports were awarded at no financial implication to the government exchequer, leading to enhanced revenues for AAI," according to the NITI Aayog report. In the current fiscal, additional airports for monetisation have been identified by the Cabinet Secretary-led panel. Bids, however, have not been called yet, but they will be based on the previously used Operation, Management Development model.

The trickiest of all, however, is monetising land belonging to various ministries and CPSEs. Dipam is in the process of studying a number of global examples of land banks and will take a call on how to put them on the selling block. Experts feel one of the challenges will be unified mapping of land which comes under administrative control of various ministries and CPSEs.

According to Vinay K Srivastava, Associate Professor, Institute of Technology and Science, Ghaziabad, "A monetisation commission needs to be set up for the entire programme on the lines of the disinvestment commission that existed earlier. There must be a team of professionals to assist the government on the initiative. For subjects such as land, a separate vertical has to be created for mapping of land assets under various ministries and public entities. It can work on various models, out of which a suitable model could be adopted after deliberations."

Several approaches to land monetisation have already been discussed. One of them is nominating the National Building Construction Corporation (NBCC) as the land management agency of sick units. NBCC can offer the land to housing, Central or state agencies. Other models that Dipam has studied for utilising the land resources include transferrable drawing rights, taxation of vacant land and development impact fees, among others.

The government is also closely studying the US and Canadian models where land belonging to the military is transferred to local bodies for development and commercial use.

It remains to be seen how the Centre puts in place a uniform plan and brings in all stakeholders to achieve its asset monetisation target.

@eco_no_money