Internationally, it is recognised that public assets are a significant resource for all economies. Monetising these assets that government's control, including in public corporations, is widely held to be an important public finance option for managing public resources. Asset monetisation allows reduction of owners’ debt and also creates a suitable environment for domestic as well as foreign investors – such as sovereign wealth funds, retail investors and institutional investors – to participate for the long term, besides bringing private sector efficiencies in the management of infrastructure assets.
In India, not only is monetisation of public assets a new concept, it is also a process that involves due diligence of several aspects of the assets with proper stakeholder management and efficient coordination. That said, in India, the scope of monetisation has expanded in the past few years from Initial Public Offerings (IPOs) and Central Public Sector Enterprises (CPSEs) to a more holistic approach involving physical assets.
Source: CRISIL Infrastructure Advisory
The sectoral outlay in the NIP – roads, urban housing, power (including the RE space) and railways – all these contribute about ~70 per cent of the infrastructure pipeline. “Of this Rs 111 trillion, investments will be coming in from the private sector, the state government, and the Central Government. Yet, there is a shortfall or financing gap of about 15-17 per cent of the Capex requirement,” highlights Jagannarayan Padmanabhan, Director and Practice Leader-Transport & Logistics, CRISIL Infrastructure Advisory. “And that’s where the scope for asset monetisation will be coming in. Hence, it is an important tool to bridge this whole infrastructure pipeline funding gap,” he exclaims. Padmanabhan was speaking at the recently concluded Construction World Maharashtra virtual conference concluded on April 28. (see Event Report here)
In Union Budget 2021-22, finance minister Nirmala Sitharaman announced a National Asset Monetisation Pipeline to fund projects. The Budget envisages this as an essential way of financing infrastructure projects as well as increasing funding. As outlined in the Budget, the government is looking at monetising assets such as roads, railway stations, land, buildings, etc, at a much larger scale. Approvals are already in place for monetising assets across key sectors such as railways, aviation, highways, shipping and power to raise approximately Rs 900 billion in the current fiscal. The railway station redevelopment was among the first projects involving monetisation of physical assets. Further, the government plans to transfer five operational roads worth Rs 50 billion to the Infrastructure Investment Trust (InvIT) of the NHAI. It also plans to transfer transmission assets of Rs 70 billion to PowerGrid’s Investment Trust.
Source: CRISIL Infrastructure Advisory
Speaking about the choice of instrument, the important factor is that the transfer of operational control through PPP concession contracts or sale of portfolio of assets happens and then the private sector brings in clear improvement in the service standards, explains Padmanabhan. A couple of other aspects is also in the nature of the asset itself. He goes on to add, “The ability for the private sector to take the risk is far better off than it is on the operational assets. So, the dollar value of these assets significantly increases once it becomes operational. And hence, it becomes more important that assets get created by the government.” Operational control can be retained in other sector or assets through InvITs or REITs.
A typical structure involves proceeds of monetisation to be reinvested in new infrastructure projects. Brownfield PPP concession models are also categorisd under asset monetisation.
Sector-wise Quantum of Assets that can be Monetised
At the state level, wrt to Maharashtra, the potential sectors that can come through or the core assets would be state or urban roads, power distribution, power transmission, minor ports, warehouse assets and urban infrastructure assets. “The overall potential that we are pegging for Maharashtra in the next five years is to raise Rs 75,000-1 lakh crore through asset monetisation. Roads and power distribution assets are expected to garner maximum share,” observes Padmanabhan.
For these to come through, Padmanabhan outlines some typical preparatory steps required:
1. Sectoral investment plan and financing gap
2. Establishing the scale of monetisation envisaged
3. Asset register/inventory
4. Project screening and shortlisting
5. Transaction process
6. Project approval/sanction
7. Project studies and structuring
“Maharashtra should look at nos. 3 to 7 very closely and take it upon on an urgent basis,” he urges.
Essential elements of the monetisation plan, as Padmanabhan highlights, should be:
Secondly, another area of focus should be that of strengthening capacities to aid monetisation:
And third, reforms to drive monetisation:
Evidently, there is huge potential in asset monetization; this seems like the way forward.
- SERAPHINA D’SOUZA