All Things Newz
Law \ Legal

Asset Monetisation: A Step Towards Unlocking Capital For Infrastructure Development – Project Finance/PPP & PFI


Asset Monetization involves creation of new sources of revenue
by unlocking the value of the otherwise unutilized or underutilized
public assets. It is globally recognised that public assets are a
significant resource for the economy.

The Union Govt announced an asset monetisation plan in August
2021 wherein brownfield or existing public assets worth Rs. 6
trillion were to be monetised by leasing them out to private sector
partners for fixed terms with an aim to utilise the proceeds for
capital expenditure towards new infrastructure creation.

The policy framework for monetisation of core assets has three
key imperatives.

  • Monetization of ‘Rights’ not ‘Ownership’ with
    assets being handed back to the government at the end of
    transaction life

  • Brownfield de-risked assets with stable revenue streams

  • Structured partnerships under defined contractual frameworks
    with strict KPIs & performance standards

This includes selection of de-risked brownfield assets with
stable revenue streams with the transaction being structured around
revenue rights. The primary ownership of these assets under
monetisation would continue to be with the Government with the
policy envisioning a hand back of assets to the public authority at
the end of the specified transaction period.

ASSET MONETISATION MODELS

The Government is aiming to raise US$ 81billion by asset
monetisation through the National Monetisation Pipeline which was
formally expressed in the Union Budget 2022-231. The
pipeline aims to provide a pathway for global investors to invest
in the Indian infrastructure space through sovereign wealth funds
and pension funds.

An important aspect of monetisation involving existing assets,
rather than new assets like station redevelopment, is that they
carry no construction risk, which is a large initial risk in any
infrastructure project.

There are two broad structures envisaged to effect asset
monetisation, which are Toll Operate and Transfer (TOT) and the
other being InVIT (Infrastructure Investment Trusts). Additionally,
there could also be structured bonds, with limited or no recourse
to the government.

The TOT mode is essentially a contract between a public
authority and a private partner. These contracts are majorly
operated through PPP concessions. TOT structures involve
transferring asset or a group of assets, like toll roads, to a
private investor for a designated period of time in exchange of an
upfront payment. The investor then goes on to have full control
over the operations for the designated concession period and is
responsible for toll collection, operation and maintenance and
while it is a monetisation of rights, the investor bears all the
risks and gains the rewards, akin to those that come with
ownership.

In an InVIT structure, the distributable revenues from a bundle
of assets flow into an SPV and it is then distributed to investors
in the InVIT. Similar to ToT here too, the variability in the
underlying revenue stream is transferred to the investors. While
the TOT investor is expected to actively manage the assets, like to
a business owner, the InVIT investor is more sedate, like a
shareholder (who bears the risk of business). Just like ToT, InVIT
assets too may comprise of those with demand risk and those
without.

THE PROGRESS SO FAR

The government has collected Rs 96,000 crore through asset
monetisation in 2021-22 and this may reach Rs 1 lakh crore with
more data coming in, surpassing the target of Rs 88,000 crore for
the last fiscal. While roads and highways monetised assets worth Rs
23,000 crore, power sector mopped Rs 9,500 crore, coal mining
garnered Rs 40,000 crore and mining of minerals earned Rs 18,700
crore. Significant investors include Canadian Pension Plan
Investment Board, Ontario Teachers’ Pension Plan, Capital Group
and Utilico Emerging Markets Trust amongst others.In 2021-22, asset
monetization transactions in the road sector included 390 kms of
road under InvIT mode and bidding out of three toll operate
transfer (TOT) bundles.

In the power sectors, transmission assets of PowerGrid and one
operational hydel project of NHPC were monetised. Further, 22 coal
blocks and award of mining, developing and operating (MDO)
contracts by the coal ministry were monetised while 31 mineral
blocks were auctioned last year. The Ministry of Railways is yet to
gather pace, and has been able to monetise assets only worth Rs
800-900 crore against its target of Rs 17,810 crore.

The ministries that have not achieved their target for FY22
would see them being carried forward to FY23. The government has
set a target of Rs 6 lakh crore through asset monetisation in four
years (FY 2022-25) with FY’23 target pegged at Rs 1.67 lakh
crore.

CONCLUSION

The asset monetisation policy of India is a very ambitious
policy for the infrastructure sector to mobilise investments. The
sectoral specific policies provides a clear vision for investors by
utilising various models for investment. The Government has made
tried and addressing all challenges pertaining to monetisation,
however, the key to its success would lie in choosing the right
model for monetisation and its able execution. Since these are
multiple stakeholder deals including the centre, state, public and
private entities will be required to play their role in a fair and
diligent manner.

Apart from choosing the appropriate model for monetisation, the
success of monetisation also depends on the clarity and stability
of the regulatory environment. This is especially the case for
infrastructure assets since the revenue streams are dependent on
regulated tariffs in most sectors.

Footnote

1. National Asset Monetisation Plan: Centre announces
asset monetisation plan to raise Rs 6 lakh crore by 2025; Key
points | India Business News – Times of India
. (2021, August
23). The Times of India; Times of India. https://timesofindia.indiatimes.com/business/india-business/centres-rs-6-lakh-crore-plan-to-monetise-state-assets-what-it-means/articleshow/85559280.cms

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



Source link

Related posts

DB Scheme Funding – Consultation On New Funding And Investment Strategy Requirements – Investment Strategy

BOT Projects–The Path To Closure In Vietnam – Investment Strategy

The Totality Principle when sentencing offenders in New South Wales – Crime