India Ratings and Research (Ind-Ra) believes that National Monetisation Pipeline (NMP) will unlock capital through the monetisation of de-risked brownfield assets. Over the past decade, a sizeable inventory of infrastructure assets has been created which can now be leveraged for unlocking the value of private sector investments in brownfield assets, thus generating cash inflows required to create greenfield infrastructure assets in the form of National Infrastructure Pipeline. Ind-Ra also believes NMP will reinforce government’s focus on infrastructure spending and augment capital creation for new infrastructure development.
The government of India announced NMP on 23 August 2021 in
line with the roadmap introduced in the Union Budget 2021-22 which is further
developed in consultation with Niti Ayog. The government through NMP intends to
create a medium-term road map for line ministries and agencies for providing
medium-term visibility to investors and to bring better efficiency in public
NMP contains assets and asset classes proposed to be monetised. It aims to monetise 13 classes of core assets of estimated value of INR6,000 billion over FY22-FY25. The core assets include – roads, railways, power transmission, power generation, telecom, ware housing, mining, national gas pipelines, product pipelines/others, aviation, urban real estate, ports and stadiums. For the purpose of monetisation, revenue-generating core assets or assets which have reached significant stage of completion are considered.
Sector-wise Monetisation Plan under NMP
Framework and Key Imperatives for Successful Asset Monetisation: Following are the key imperatives for the successful implementation of asset monetisation pipeline:
• Monetisation of brownfield de-risked assets to generate stable revenue streams
• Monetisation of 'rights' not 'ownership', assets to be handed back to the government at the end of transaction life (30-60 years)
• Structured transactions with defined contractual obligations with strict key performance indicators and performance standards
• Selection of private
partners should be through a transparent mechanism and utilisation of the
proceeds received towards well-defined uses such as new infrastructure creation
Roads, Railways and Power Assets Key Focus Areas: Roads, railways and power assets are likely to unlock capital of INR3,977 billion out of the total monetisation pipeline of INR6,000 billion, this sector cumulatively accounts for 66% of NMP. Under sector-wise monetisation, as per NMP, roads are expected at unlock value of around INR1,602 billion (share 27%), railways about INR1,525 billion (25%) and power INR850 billion (14%). Ind-Ra believes the government’s strong focus on these assets is on account of the available sizeable brownfield inventory, healthy budgetary allocation to this segments and tested monetisation vehicles. Ind-Ra also believes that if NMP is implemented for these segments as envisaged, this sector could provide huge potential to unlock growth capital.
Challenges to Monetisation Plans: Ind-Ra believes that the central government could face several challenges in the successful implementation of NMP, including arriving at fair valuation of the core assets, and ensuring quality of assets offered for bidding, adequate interest and participation of bidders, technical competence of bidders to operate and develop assets, closing of transactions in timely and adherence of NMP timelines. The challenges also pertain to the transfer of public assets to private players since the government would transfer revenue rights to private players for the assets developed from tax payer’s money. Ind-Ra believes that although NMP is comprehensive in terms of covering the assets classes & types of assets, timelines for monetisation, methods of valuation, modes of valuation and modes of monetisation, the key challenge lies is towards execution where clarity is pending regarding the usage of these funds.
Additional information is available at www.indiaratings.co.in.
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