National Monetization Pipeline

By Koripella Mouli Sai

The National Monetization Channel (NMP) Launched in August 2021 aims to unlock the
value of investments in such public sector brownfield assets by leveraging long-term and
institutional capital. While the idea of creating “structured public-private partnerships” to
unlock the value of underutilized public assets makes a lot of sense, there are also several
underlying issues.

The National Monetization Channel (NMP) forecasts a total monetization potential of ₹6 lakh
crore from the leasing of core assets from the central government in sectors such as roads,
railways, power, oil and gas pipelines, telecommunications, civil aviation etc. for a period of
four years (fiscal year 2022-25). Necessity for NMP - Failure of Public Sector

Companies Cost Overruns In some cases, the project completion time is exceeded resulting in
high costs of the project, making the project unfeasible even by the time of its completion.

Overcapitalization In most government infrastructure projects, an optimal input-output ratio

is rarely observed, leading to overcapitalization.Other reasons for failure of PSE Reluctance
to implement labor market reforms, lack of coordination between ministries/departments,
poor decision-making, ineffective governance and excessive state control are other reasons
for failure of public infrastructure investments.

Meaning of NMP
Boosting the Economy This is the first initiative of its kind which will boost the economy,
create better job opportunities and increase the competitiveness of the Indian economy.

Use of underutilized public assets The NMP advocates the release of idle capital from
underperforming, non-strategic government assets. It also provides for the funds thus
obtained to be reinvested in new infrastructure projects and capital growth, such as greenfield
infrastructure creation. Eight key industrial sectors that support infrastructure (coal, crude oil,
natural gas, refined products, fertilizers, steel, cement and power) have a combined weight of
almost 40% in the Industrial Production Index (IIP).Challenges Associated with NMP

Taxpayer Money Problem Taxpayers have already paid for these public goods, so why would
they go back to paying a private individual to use them? cycle of asset creation and

monetization The NMP is very likely to create a vicious cycle where new assets are created
and then monetized when they later become liabilities for the government.

Asset-specific challenges low capacity utilization in gas and oil pipeline networks, regulated
tariffs in electricity sector assets, low investor interest in national highways with fewer than
four lanes, and multiple stakeholders own an interest in the company.
Monopolization A major criticism of NMP is that the transfer would ultimately lead to the
creation of monopolies, which would lead to an increase in price. With highways and
railroads, monopolization is inevitable.

Out of step with current pressures The world is in the crosshairs of existential challenges,
global warming, pandemics, geopolitical chaos and fundamentalism. India also has to deal
with endemic poverty, disappointed expectations, social polarization and the erosion of
democratic institutions. In this context, this regulation was placed in too narrow a framework.

The Way Forward

Empowering SOEs Given that India needs to invest about $1.5 trillion in infrastructure
development to become a $5 trillion economy by 2024-25, SOEs need to be at the heart of
the stand attention.

A key step would be a complete overhaul of its corporate governance structure to improve
operational autonomy, complemented by sound governance practices, including an IPO
for greater transparency and accountability.

Alternative Dispute Resolution The strengthening of judicial processes cannot be

overemphasized.
Efficient and effective dispute resolution mechanisms will arise naturally and
automatically from the design and implementation of NMPs.
Multi-stakeholder approach The success of the infrastructure development plan would
depend on other stakeholders contributing, including state governments and their public
and private companies. In this regard, the 15th Finance Committee has recommended the
establishment of a high-level intergovernmental group to review legislation on central and
state tax responsibility.

Dealing with nepotism The only way to ensure that monetization of assets does not lead to
nepotism is to design the bid conditions in such a way that the eligible bidders are not a
small, pre-determined group. However, the high capital intensity of the project itself
makes it difficult for anyone to apply, but it is important to ensure sufficient government
involvement. Address systemic issues and create social value Unless systemic issues are
addressed, and if they are not addressed, the private sector will find it difficult to realize
the full value of public assets, and the transfer of operations to it will fail in best case offer
above all a partial palliative.Public-private investment structures make sense, but they
must be designed in such a way that they also generate added value for society. There are
no shortcuts to sustainable development.

What is the National Monetization Channel (NMP)?

NITI Aayog developed the pipeline in consultation with infrastructure ministries under the
Asset Monetization mandate under the Union Budget 2021-22.

The aim is to create value in brownfield projects through private sector involvement.
Monetization
In a monetization transaction, the government essentially transfers revenue rights for a
specific transaction period to private parties in exchange for an upfront payment, a share of
the revenue, and an obligation to invest in the assets. For example, Real Estate Investment
Trusts (REITs) and Infrastructure Investment Trusts (Invits) are the main asset monetization
structures in the road and energy sectors.

These are also listed on stock exchanges and also offer investors liquidity via secondary
markets.

While these are structured financing vehicles, other monetisation models on Public-Private
Partnership (PPP) basis include

1. Operate Maintain Transfer (OMT)

2. Toll Operate Transfer (TOT)
3. Operations, Maintenance & Development (OMD)

Greenfield Project
Refers to an investment in a factory, office, or other business-related physical structure or
group of structures in an area where no previous facilities exist.

Brownfield Project
projects that are modified or improved are referred to as brownfield projects. The term is used
to buy or lease existing manufacturing facilities to start a new manufacturing activity.

Role of NITI Aayog is mentioned below

Developing Key Performance Indicators (KPIs) for partnerships and monitoring the
development and progress of these projects. Development of a coherent set of contracts
between departments to achieve alignment of contract principles.This reduces litigation and
project delays. For this purpose, real-time monitoring is performed via the asset monetization
dashboard. Provide the project and regulatory certainty sought by the private sector.
Benefits of the National Monetization Pipeline

The benefits of the National Monetization Pipeline are listed below

• Creation of capital assets and addressing the infrastructure needs of the country.
Ensures resource efficiency in infrastructure operation and maintenance.It works to
ensure a transparent mechanism for public authorities to monitor the performance of
private actors and for investors to plan their future activities.

• Reduced risk for the private sector as these are brownfield projects. Therefore, there
will be no undue delays due to land and environmental clearances.

• State-led capital raising has been a major force globally in overcoming the economic
slowdown caused by the COVID-19 pandemic.
 • NITI Aayog's efforts to achieve contract consistency will help simplify the way it
does business, particularly when it comes to contract enforcement.Support for the
creation of quality jobs in the various sectors envisaged by the programme.

NMP makes a promising start. The program currently covers only the assets of the central
government and various CPSEs operating in the infrastructure sector. This should be
streamlined to include other assets under state governments.
Real value realization can be ensured through transparent project assessments, structuring and
timing of transactions.

Conclusion
The end objective is to enable infrastructure creation through monetisation where the public
and private sectors collaborate and excel in their core areas of competence. This will deliver
socio-economic growth and quality of life to the people of the country.