The Government of India recently launched the National Monetisation Pipeline (NMP). The NMP projects an estimated potential revenue of Rs 6 lakh crores from the core assets of the Central Government over the FY 2022 to FY 2025 four-year period. This plan aligns with the Prime Minister’s strategic divestment strategy, where the government envisages retaining presence only in identified areas, while the rest will involve the private sector.
Understanding the National Monetisation Pipeline
The NMP aims to unlock value in brownfield projects by involving the private sector. The governmental plan transfers revenue rights to the private sector while retaining ownership, enabling the generated funds to be used for infrastructure creation across the country. The NMP framework was announced to proactively encourage investor interest. Union Budget 2021-22 has recognized monetization of operating public infrastructure assets as a sustainable infrastructure financing avenue. At present, central government line ministries and Central Public Sector Enterprises (CPSEs) in infrastructure sectors are included in the NMP.
The Importance of Brownfield Assets
The government emphasizes the efficacy of investing in brownfield assets. These are considered risk-free regarding execution, providing an encouraging environment for private investments. Major sectors that form the backbone of the NMP include roads, railways, and power, contributing to over 66% of the total estimated asset value. Other upcoming sectors comprise telecommunication, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses, and stadiums.
The Timeline and Phasing
NMP is envisioned to coincide with the Rs 100 lakh crore National Infrastructure Pipeline (NIP) announced in December 2019. For the current financial year, 15% of assets with an indicative value of Rs 0.88 lakh crore are slated for rollout. The estimated amount to be raised through monetisation constitutes near 14% of the proposed outlay for the Centre under NIP amounting to Rs 43 lakh crore.
NIP’s Objective
NIP aims to enable the creation of infrastructure projects that will stimulate job creation, improve living standards, and provide equitable access to infrastructure for all citizens.
Methods of Monetisation
In a monetisation transaction, the government transfers revenue rights to private parties for a specified period against upfront money, a share of revenue, and investments in the assets. Various structured financing vehicles such as Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (Invits), Operate Maintain Transfer (OMT), Toll Operate Transfer (TOT), and Operations, Maintenance & Development (OMD) are used for monetisation on a Public-Private Partnership basis.
Difference Between Greenfield and Brownfield Investments
Greenfield Projects refer to investments in manufacturing, office, or other physical company-related structures in an area where no previous facilities exist. In contrast, Brownfield investments involve upgrading or modifying existing production facilities to launch a new production activity.
Challenges and Way Forward
The NMP also faces several challenges, including identifying revenue streams, the slow pace of privatisation, and attracting private investors. There are also asset-specific challenges such as regulated tariffs and low investor interest in certain sectors. Execution of the plan is key to success along with an efficient dispute resolution mechanism and a multi-stakeholder approach. The Fifteenth Finance Commission has recommended establishing a High-Powered Intergovernmental Group to re-examine the fiscal responsibility legislation of the Centre and States.