National Monetisation Pipeline – Fueling Economic Growth

INTRODUCTION

Monetisation of assets has been identified as one of the pillars for enhanced and sustainable infrastructure financing. The Ministers of finance of India( “FM”) had, in December 2019, announced a National Infrastructure Pipeline( “NIP”) that fantasizes major investments of INR 111 lakh crore in the infrastructure sector in the period between 2019 and 2025 and delivers in many opportunities for private sector to invest in infrastructure projects including the development and operation of the same. The FM in the annual budget 2021 -2 022 announced the launch of a new national monetisation pipeline[ 1 ] to bridge the gaps in infrastructure funding projects under the NIP and to unlock ethic from the present public infrastructure investments through private sector organizations productivities in operations and management of infrastructure. The NITI Aayog has now developed the National Monetisation Pipeline( NMP Volumes I& II)( “NMP”) in matters of the brownfield core infrastructure assets. The NMP is in furtherance of the Government of India’s( “Government”) strategic divestment programme, which aims to limit Government’s presence to only a hand-picked recognized areas with the rest to be handed to private players.

ASSET MONETISATION

Asset monetisation implies “a limited period license/ loan of an resource, owned by the government or a public authority, to a private sector entity for an upfront or regular consideration”.[ 2 ] Asset monetisation is not a new theory and was introduced in India via the Toll-Operate-Transfer transaction( “TOT”) of National Roadway Authority of India( “NHAI” ). However, NMP is a big and adventurous initiative as it clearly lays down, for the first time, a’ roadmap’ for monetisation of assets in several specified areas with defined targets. For the purposes of NMP, the assets have been classified as core( roads, railways, ports, storehouses, strength, lubricant& gas pipelines, etc .) and non-core( land and build ). The NMP is currently limited to only core resources of central government line ministries and central public sector enterprises in infrastructure sectors.

The framework for core asset monetisation under the NMP has three key imperatives.

The focus is on the brownfield de-risked resources with stable revenue streams. Brownfield assets are those assets which are already in existence and can be updated and revised. The doctrine is to unlock the value of investments in existing public sphere resources that are either languishing or are underutilised by inviting private sector capital and effectiveness. The proceeds would thereafter be used to develop greenfield assets. The monetisation happens through the monetisation of human rights and not possession. Hence, the primary owned of the assets under these structures continues to be with the public authority with the agreed framework seeing hand back of resources to the public authority at the end of transaction man. Structured partnerships under translucent competitive dictate and specified contractual structures. Marriages will have to abide with strict key performance indicators and performance standards.

NMP judgments possible aggregate monetisation of INR 6 lakh crore through core resources of the Government over a four-year period from FY 2022 to FY 2025. The breakup of the overall grapevine and sphere share is depicted in the figure below.

MODELS OF ASSET MONETISATION UNDER NMP

The NMP Volume I provides for the following two modelings of asset monetisation 😛 TAGEND Lead Contractual Approach: In this framework, the asset is transferred to a single or a consortium of developers( selected after a translucent bidding process) through characterized contractual agreements with remittances manufactured either upfront or periodically. This includes:( a) Operate Maintain Transfer( OMT) agreements such as TOT agreements in arteries;( b) Operation Maintain Develop( OMD) agreements such as Operation Management Development Agreements( OMDA) in airports; and( c) other arrangements like the Design Build Finance Operate Transfer agreements entered into by the Railway Department for railway station redevelopment projects that enjoy existing brownfield infrastructure like roads and signals.

In India, there are already a number of infrastructure projects implemented through PPPs in sectors like ports, airfields, roads, railways, etc. Most of the PPP projects have issues like delay in land acquisitions, find favors or insufficient due diligence due to inaccurate/ shortcoming of information, ensuing in these projects becoming non-performing assets in the future. For example, Reliance Infrastructure-led concessionaire pulling out from the Delhi Airport Express Line project due to an exaggerated transaction jutting compiled in the beginning and it being expected to continue to meet the commitments initially did in the agreement agreement without asking for contract renegotiation. Likewise, the agreement agreements for ports are generally more favorable to the Government without much negotiating power to the investors developing in bigger developing and functional jeopardies on them. It is important that for NMP projects, the public sector have a mindset of a’ partner’ and assist the private sector partner in ensuring that capital invested construes a fair frequency of return. The contracts must include suitable danger mitigation measures for the investors.

The Government’s experience of monetising brownfield assets in few sectors has also not been very encouraging. For instance, the privatisation of Indian Railways did not generate interest from the private participates and there were no serious bidders for these projects. This may be because private actors are expected to invest sizable fund in the existing public assets to eventually realise revenues and the revenue structure may not be satisfactory to them stirring the project non-feasible. Another pattern is where the traffic hazards were not adequately addressed in the TOT contracts of the third and fourth round of NHAI bidding, make this rounds relatively unattractive for the investors.

Structured Financing Models: In this representation, titles over assets are given to a puddle of investors such as institutional investors, monarch property funds, domestic guarantee stores, retail investors, etc. with upfront kindness given to the Government. This includes Infrastructure Investment Trusts( “InvIT”) and Real Estate Investment Trusts( “REIT” ).

For example, PowerGrid InvIT is moved by PGCIL for its operating transfer resources. InvIT sit has also been a preferred road for superhighway, nonetheless, challenges such as lack of traffic data for arteries and liquidity controversies may need to be overcome. Likewise, world-wide private equity firm, Blackstone has two REITs that own, operate or finance income engendering real estate.

Long call leases: Another sit discussed in the NMP guidebook is long-term rentals, which align with PPP model. This prototype can be adopted in case of spheres such as telecom where the licence to provide an infrastructure service is already available with a private defendant and the unused/ sub-optimally utilised resource of public sector entity is leased out to such private sector party for providing services under its own licence.

A successful lesson of this pattern is Taj Mansingh Hotel in New Delhi, which was leased to the Tata Group after a competitive bidding in 2018.

CURRENT OPPORTUNITIES UNDER NMP

As per the NMP Pipeline, the following broad assets are being currently considered by the Government for monetisation. The above provisions massive the possibility for the private investors( both strategies of institutional investors) to consolidate their presence in the said areas. Likewise, the resource monetisation defines the stage for new age infrastructure entrepreneurs.

Roads

26, 700 km of four lane highways and above during the FY 2022 to 2025

New national highway streets which are constructed and operationalised over the next four years.

Railways

Railway station redevelopment

Private train operations on 109 duets of roads structured as 12 clusters

Hill railways and dedicated freight corridor

Power Transmission

28, 608 route km of dissemination assets

Transmission resources of PGCIL through InvIT

Telecom

Bharatnet fibre assets over 86 lakh street km

BSNL/ MTNL tower assets

Power Generation

6 GW for the FY22 to FY25; 3.5 GW for hydel assets and 2.5 GW for solar and gale assets

Natural Gas Pipelines

7928 km functional pipelines and 200 km brand-new grapevine assets

Petroleum and Petroleum Products

3, 196 km of product pipeline assets and 733 km of LPG pipeline resources during FY22 to FY25 ;P TAGEND

HPCL’s Mangalore Hassan pipeline

2 hydrogen generation plants in Gujarat, IOCL.

Mining

17 campaigns on developer and operator mannequin with a ability of 178 MTY ;P TAGEND

Coal gasification plant

Operationalization of 4 abondoned projects

Airports

For FY2 2, Bhubaneswar, Varanasi, Amritsar, Trichy, Indore and Raipur airports

Other airfields to too be monetised between FY23 to FY25

Ports

31 projects in major ports

Sports Stadia

2 national stadia( JLN and one more national field to be identified)

2 SAI regional centres( at Bangalore& Zirakpur)

Urban Real Estate Assets

Redevelopment of 7 general kitty resedential accomodation( GPRA) Province in Delhi

Development of suburban/ commercial-grade legions on 240 – acre land in Ghitorni( Delhi ).

Warehousing

Storage infra of FCI and CWC

NMP initiative is kick-starting now with IOCL inviting formulation of interest on September 30, 2021 for monetisation of its two hydrogen generation groups from Indian or a foreign bidder. The Government is also planning to set up a National Land Monetisation Corporation for fast track monetisation of land and non-core assets of Central Public Sector Enterprises.[ 3 ]

SUGGESTIONS to stir NMP successful Structuring of the transactions: It necessary to’ distinguished busines structures’ for different asset castes at different levels of maturity. The Government should is removed from the one-size-fits-all approach. It is too prudent that the Government learns from its previous experiences of divestment and PPP in railways and roads( as referred to above) and resolve such issues while organizing or preparing the asset specific monetisation plan. Bankability of the contracts: The Government should ensure that the contracts are bankable and have appropriate risk mitigation measures for investors. The Government must was informed that the private investors aim to make profits out of the partnership and the contracts should have clear receipt organizations for private gatherings. Also, suitable mechanism for cost and time overruns due to Government actions or omissions will need to be provided. Since infrastructure projects span over longer terms, the contracts should have inbuilt flexibility for fair revisions/ changes to safeguard against changes in the economic or plan environment. There must also be robust mechanisms for the enforcement of contracts and resolution of disputes. Authority implementation agencies: The Government, as one of the purposes of a multi-layer institutional mechanism for overall implementation and monitoring of the asset monetisation programme, has constituted an sanctioned Core Group of Secretary on Asset Monetisation( CGAM) under the presidency of Cabinet Secretary. However, independent regulators must also be set up in sectors that are going for NMP and a specialised adjudication tribunal should be constituted. Also, a quick, efficient, and enforceable dispute resolution mechanism must be developed for such projects. The Government may prescribe the existing regulations for procedure of these projects including valuation but should also specify rational flexible to private defendants. The Government role as project partners and regulator will need to be segregated and regulations streamlined to achieve the desired outcome. This will be supported more “investors “. Buoy of State Government: The assistance of state governments is vital for NMP, even where the projects under the NMP are under central departments or public sector enterprises. Although concessions are is guaranteed by sovereignties established by the central government, the developers depend on the state government and local government authorities for procuring clearances, licences and infrastructure facilities and there is no single space clearance available for projects. The nation government should provide a conglomerate promise to corroborate and not just on a best effort basis. This will help in the proper execution of the NMP. Regulatory alters involved: Areas where there has been no or restriction private participation in operations such as the railways and gas pipelines will require regulatory deepens. Such alters will be required to be made keeping in mind ease of doing business and in a timely manner to provide a contributing environment for monetisation of these resources. Foreign administer asset: While most of the infrastructure sectors in India( like streets and freeways, electricity generation and dissemination, ports, etc .) has enabled us to 100% FDI under automatic roadway( i.e. without Government approval ), to boost the actual inflow and elevate confidence of foreign investors a transparent bidding process, strict contract imposition along with an independent dispute redressal power will be crucial. Marketer due diligence: Investors would need adequate information regarding the brownfield programmes. The Government must provide a vendor due diligence reported today the said assets to the investors and also volunteer some endorsement in mitigating the risks and issues associated with such assets. Further, a detailed due diligence of the technological, operational, and monetary the various aspects of these assets and analysis of the monetisation mannequin and the contract should be done by the private investors prior to investment for which the complete information must be provided. Transparency of process: Since public assets are planned to be monetised under the NMP, there should be an open, fair and transparent bidding process for selection of the private parties and fair valuation is achieved. Likewise, the specific characteristics of the monetisation process should be finalised with prior consultation with the stakeholders. CONCLUSION

While the long-term effect of the NMP will have to be seen, it does attempt to set a elevation athletic field to attract private actors and promote better competition and collaborations in improving and boosting the public infrastructure sector. Likewise, the state governments have been provided with a fiscal incentive under the NMP which may encourage them to also monetise their resources. Much of the success of the NMP will depend on successful executing through dedicated, sector-oriented platforms, clarity and strategic solutions.

* This is the first of our blog sequences on the National Monetisation Pipeline. We will in our next blogs analyse sector specific asset monetisation project under the NMP.

** Disclaimer

This note summarises merely the opportunities arising under the NMP and does not submerge analysis of the sector specific pipeline under the NMP. This note has been sending them to you for informational determinations simply. The information materials and/ or findings contained in this note do not constitute legal advice and should not be acted upon in any specific situation without relevant legal advice. The views expressed in this note do not undoubtedly are the final ruling of Cyril Amarchand Mangaldas.

[ 1 ] https :// www.indiabudget.gov.in/ doc/ Budget_Speech.pdf

[ 2 ] https :// www.niti.gov.in/ sites/ default/ data/ 2021 -0 8/ Vol_I_NATIONAL_MONETISATION_PIPELINE_2 3_Aug_2021. pdf

[ 3 ] https :// www.news1 8. com/ word/ india/ national-monetisation-pipeline-project-kicks-off-iocl-invites-bids-to-monetise-2-hydrogen-units- 4268120. html

Read more: corporate.cyrilamarchandblogs.com