India has taken rapid strides in recent years in building out its infrastructure network. Public sector or public funding has been the driving force in most of these cases. One of the key aspects of asset recycling and monetisation is the ability to tap into the private sector’s operational efficiencies in the management and operation of infrastructure. Currently, India has one of the world’s largest stocks of brownfield fixed assets. In terms of infrastructure construction and management, the private sector is widely acknowledged as being more efficient. As a result, the government is seeking more private sector collaboration. For the public and private sectors to work together effectively, public-private partnership (PPP) models are now in need of a reboot. The private sector’s and debt financiers’ appetite for greenfield infrastructure has dwindled in recent years. This necessitates the development of novel mechanisms for attracting private investment, structured around mature brownfield assets. As a result, asset monetisation aims to shift the model from greenfield to brownfield.
National Monetisation Pipeline
The total asset pipeline under the National Monetisation Pipeline (NMP) over the four-year period financial years 2022-2025, is estimated to be Rs 6 trillion. The estimated value is equal to 14 per cent of the proposed outlay under the National Infrastructure Pipeline (Rs 43 trillion). Roads, ports, airports, railways, warehousing, gas and product pipelines, power generation and transmission, mining, telecom, stadium, hospitality and housing are among the sectors covered.
Toll roads, transmission towers, pipelines and telecom towers have been monetised by the private sector using risk-managed structures, bringing in a new investor class to India’s infrastructure. Over 1,400 km of toll roads have been monetised by the National Highways Authority of India (NHAI) through toll-operate-transfer (TOT) concessions and raised Rs 170 billion private capital. A public sector infrastructure investment trust (InvIT) was launched by Powergrid, which successfully monetised its first batch of transmission assets and raised Rs 77 billion. NHAI has created its InvIT as part of the NMP (NHAI InvIT) and has offered private placement shares in its InvIT at a price of Rs 101 per unit after raising Rs 50 billion. The Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan Board have emerged as the InvIT’s anchor investors, each holding a 25 per cent interest. The InvIT will debut with a portfolio of five operational toll roads totalling 390 km in length throughout Gujarat, Karnataka, Rajasthan and Telangana with a new 30-year concession for these roads. The Airports Authority of India (AAI) successfully monetised six brownfield AAI airports through the operations, management and development agreement (OMDA) model to Adani Enterprises, raising capital for the expansion of airports. Additionally, Indian Railways made a strategic foray into PPP for station redevelopment and passenger train operations.
Monetisation opportunities
Monetising government-controlled assets is widely regarded as a critical but underexplored public finance strategy for managing public resources. The overall asset monetisation pipeline is broken down into over 20 asset classes, with toll highways, railway stations and transmission towers standing in the top three. The top three sectors in terms of value are roads (27 per cent), railways (26 per cent) and power (15 per cent), followed by oil and gas pipelines (8 per cent) and telecommunications (6 per cent). In 2021-22, 15 per cent of assets worth around Rs 1 trillion were rolled out. The estimated value of the monetisation pipeline for fiscal year 2022 is Rs 881.9, Rs 1,624.22 for fiscal year 2023, Rs 1,795.44 for fiscal year 2024, and Rs 1,673.45 for financial year 2025.
Sector-wise opportunities
The road sector is brimming with opportunities, with 26,700 km of road length available for monetisation, accounting for 20 per cent of the total potential asset base. Existing operational NH assets as well as new NH roads, four lane and above, that will be built and operationalised over the next four years, have been considered. Under the upcoming TOT Bundles 6, 7 and 8, a total of 450 km of stretches have been offered for bidding. All three bundles have been kept small in order to attract more domestic capital, along with 68 companies already involved in pre-bid discussions, including international firms such as Macquarie Cube Highways.
NHAI has identified a length of 5,500 km to be monetised in the financial year 2022-23, followed by 7,300 km in the financial year 2023-24 and 8,900 km in the financial year 2024-25.
Indian Railways is the government’s second-largest sector after roads. There are 90 passenger trains, 400 stops, a 1,400 km track, 15 railway stadiums, the 741 km Konkan Railway and chosen railway colonies to be monetised during financial years 2022-25. The monetisation of stations and passenger trains is expected to produce roughly Rs 762.5 billion and Rs 216.42 billion respectively over a four-year period. In fiscal year 2021-22, Rs 178 billion will be raised, followed by Rs 572.22 billion in financial year 2022-23, Rs 449.07 billion in financial year 2023-24 and Rs 325.57 billion in financial year 2024-25. In order to monetise railway assets, the government will set up the Indian Railway Stations Development Corporation (IRSDC) as a joint venture between Ircon and the Railway Land Development Authority.
For India’s economy to develop rapidly, substantial investments in infrastructure are necessary. The federal government, states and private sector respectively contributed 38 per cent, 54 per cent, and 8 per cent of the overall length of transmission lines. The transmission infrastructure of Power Grid Corporation of India Limited (Powergrid) is the potential asset base considered for the NMP under the power transmission asset class. As many as 28,608 ckt. km are slated for monetisation during the financial years 2022-25. For financial year 2022, transmission assets worth Rs 77 billion are being considered including Powergrid InvIT issue transaction. For financial years 2023, 2024 and 2025, a total length of 23,734 ckt. km has been considered for monetisation.
The government’s telecom assets are worth Rs 351 billion, as per NITI Aayog. The NMP evaluates BSNL’s 13,567 and MTNL’s 1,350 mobile tower assets at Rs 88 billion, which may be monetised by the financial year 2024. The total approved cost of the BharatNet project is Rs 611.09 billion, which includes Rs 420.68 billion for BharatNet (Phase I and Phase II) and a maximum of Rs 190.41 billion for viability gap funding (VGF) for the PPP model of BharatNet implementation in 16 states.
The total potential asset base for the petroleum sector comprises the operational product and LPG pipelines operated by central sector entities, namely, Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and Gas Authority of India Limited (GAIL). The government will kick-start the monetisation of gas pipelines by leasing out over 2,229 km of gas pipelines of GAIL (India) Limited to the private sector through the InvIT route. By financial year 2023, the government intends to monetise two product pipelines and one LPG pipeline owned by the state-run IOC. The government’s proposal to sell 4,700 km of IOCL and HPCL pipelines is likely to comprise 3,500 km of IOCL’s pipelines and 1,200 km of HPCL’s pipelines.
NITI Aayog has estimated that state-owned power production assets are worth Rs 398.32 billion and may be monetised by 2025. There are approximately 3.5 GW of hydro assets and roughly 2.5 GW of renewable energy assets, which include solar and wind. The average realisation value of hydro assets has been assessed to be Rs 75 million per MW, while the average realisation value of solar assets has been projected at Rs 55 million per MW.
Together, the 6 GW of assets under consideration for monetisation account for around 6 per cent of the overall generating capacity under central PSUs.
According to the NMP, 25 AAI airports have been identified for asset monetisation between 2022 and 2025. The total airport assets available for monetisation represent 18 per cent of AAI’s total airport assets under management. For financial years 2022-25, the total value of assets considered for monetisation is estimated to be Rs 207.82 billion. For the year 2021-22, the AAI board approved privatisation of six major airports – in Bhubaneswar, Varanasi, Amritsar, Trichy, Indore and Raipur – along with seven smaller ones – in Jharsuguda, Gaya, Kushinagar, Kangra, Tirupati, Jabalpur and Jalgaon.
The Ministry of Ports, Shipping and Waterways will implement the shipping asset monetisation pipeline projects. This may happen through the PPP mode. The assets under consideration for monetisation are spread across nine of the country’s 12 major ports. For the NMP period from 2022 to 2025, a monetisation value of Rs 128.28 billion has been considered on account of estimated capital expenditure on 31 identified projects.
Outlook
Going forward, the success of government programmes will depend entirely on an effective governance framework, one that includes real-time progress tracking. In the long run, asset monetisation may facilitate the engagement of long-term institutional investors in the management of infrastructure and assets. The government will also need to examine all aspects of monetisation, which include value, consumer impact, monetisation of underutilised versus well-utilised assets, as well as cross-sector experience.