Before answering the question let us understand asset monetization.
What is asset monetization?
Asset monetization is about creating wealth or revenue by using the existing unused assets belonging to the public.
Assets can range from airports, seaports, national highways, power plants and railways to houses, apartments, parks etc.
In other words, converting the assets from non-economic value to economic value.
Let me explain to you about this asset monetization in simple terms.
Consider that you own a plot of land at some hill station and you would like to convert it into a useful asset by building resorts or hotels for tourists, But you don’t have money to build it.
Then what would you do?
Either lease the plot land or sell it to some private companies for building the assets i.e Building resorts or hotels.
Leasing the plot of land involves temporary renting of land to private players and get profit in the form of rents, the private players will look after the asset and in turn give you the gained profit. The leasing of the plot of land is for a temporary basis like say for 5–10–20 years.
The National Monetization Pipeline in simple terms means Converting the underused assets into useful assets by leasing the assets owned by the government to private players and the fair share of earned revenue goes to the government.[1]
It was launched by Finance minister ‘Nirmala Sitharaman’ through which government intends to lease out government-owned assets to private players and raise Rs. 6 Trillion ($ 80 billion) from the leased out assets.[2]
The funds acquired will then be used to build new infrastructure assets, helping boost economic growth.
Some excerpts from this article.[3]
Annual targets under the four-year pipeline have been set at ₹1.62 trillion for FY23, ₹1.79 trillion for FY24 and ₹1.67 trillion in the following year.
The top five sectors by value under the government’s asset monetization programme are roads (27%), railways (25%), power (15%), oil and gas pipelines (8%) and telecom (6%).
Among projects the government plans to lease are 26,700km of roads, 90 passenger trains, 400 railway stations, 28,608 circuit km transmission lines, 286,000km of Bharatnet fibre network and 14,917 towers owned by state-run Bharat Sanchar Nigam Ltd and Mahanagar Telecom Nigam Ltd.
The government intends to raise Rs 880 Billion in the year 2021–2022, Rs 1.6 Trillion in the year 2022–2023, Rs 1.8 Trillion in the year 2023–2024 and Rs 1.6 Trillion in the year 2024–2025.
The Objective of monetization involves -
- Bringing up the scale of financing through asset monetization.
- Using the acquired capital from the assets and invest and build newer assets
- Guide for asset/project profile and methods of monetization.
- Brief operational outline of the project/asset.
The framework of monetisation involves -
- Monetization of rights, not ownership: It is a structured contract-based partnership and not privatization. The transaction should be structured around revenue rights as against transfer of full ownership. Towards this, hand back of assets to the original asset owner at the end of transaction life
- Selection of de-risked and brownfield assets with stable revenue generation profile.
- The selection of private partners should be through a transparent mechanism and the utilization of proceeds received should be towards well-defined uses such as new infrastructure creation.
The assets to be monetized is divided into different asset classes and depending upon the nature of assets, models will be created.
Some of the major assets as per the pie chart below are -
- Roadways — 27%
- Railways — 25%
- Power Transmission and generation — 15%
- Telecom — 6%
- Warehouse — 5%
- Gas Pipelines — 4%
Below is the breakup of the overall pipeline and the sectoral share -
The projects to be given on lease are -
- 26,700 KM of roads
- 400 Railway stations, 90 Passenger trains, Konkan Railway — 741 KM, 265 railway owned good sheds.
- 28608 circuit KM of transmission line,
- 2.86 lakh KM of Bharatnet Fiber 14,917 number of BSNL & MTNL towers.
- 8,154 KM of Natural Gas Pipelines
- 3,930 KM of LPG Pipelines, Petroleum product pipelines, Hydrogen generation plants, ESG assets (Effluent treatment plants, Sulphur recovery units, Flare gas recovery systems).
- 210 lakh metric tonne (LMT) of Warehousing assets.
The future plan is that capital that is acquired from the monetization pipeline will be then used for the national infrastructure pipeline worth $3 Trillion.
So, all in all, NMP is about monetizing the already existing brownfield asset which is underused to an economical value asset.
Then using the profited money acquired by the existing asset, new assets are created. Then the new assets are monetized such that it created a cycle.
In order for NMP to be successful, there should be a trial of monetizing few unused assets to check whether it would be a successful plan or not.[4]
Therefore, the smooth implementation of the first Rs 10,000 crore will determine the fate of the Rs 6 lakh crore monetization plan.
If executed well, NMP can be one of the biggest and boldest reforms initiated in the infrastructure sector for a long time.[5]
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Footnotes
[1] https://www.niti.gov.in/sites/default/files/2021-08/Vol_I_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf
[2] https://www.niti.gov.in/sites/default/files/2021-08/Vol_2_NATIONAL_MONETISATION_PIPELINE_23_Aug_2021.pdf
[3] Govt to raise ₹6 trillion by leasing infra assets
[4] FM Nirmala Sitharaman unveils Rs 6 lakh crore NMP plan to privatise govt assets
[5] Govt to raise ₹6 trillion by leasing infrastructure assets — CFO India
