Asset monetization initiative: An assignment
Asset Monetization
Asset Monetization involves the creation of new sources of revenue by unlocking the value of hitherto unutilized or underutilized public assets. Internationally, it is recognized that public assets are a significant resource for all economies. Monetizing these assets that Government’s control, including n Public corporations, is widely held to be a very important but inadequately explored public finance option for managing public resources.
Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them. The objective of the asset monetization program of the Government of India (GOI), for which this note lays down procedures and mechanisms, is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create hitherto unexplored sources of income for the company and its shareholders, and contribute to a more accurate estimation of public assets which would help in the better financial management of government/public resources over time.
Recent news
Finance Minister Nirmala Sitharaman announced the Centre’s four-year infrastructure asset monetization plan to raise Rs 6 lakh crore ($81 billion) under the National Motenisation Pipeline (NMP).
The National Monetisation Pipeline comprises a four-year pipeline from 2022–2025 of the central government’s brownfield infrastructure assets, says Niti Aayog CEO, Amitabh Kant.
The top three sectors identified for asset monetization include railways, airports, and coal mining. Under the scheme, 15 railway stadiums, 25 airports, 160 coal mining projects will be put up for asset monetization. Besides these, assets such as roads, power transmission lines, and gas pipelines will also be part of the monetization plan.
Government clarification
Only under-utilized assets will be monetized and the plan will help identify brownfield assets that need to be better monetized.
The ownership of the assets will remain with the government and there will be mandatory hand back after a certain time. The government is not selling off anything, says FM.
We feel that it is very important to bring in the private sector for better operation and maintenance, says Kant.
Use of money raised
The plan is about monetizing the existing asset base and using their proceeds for new infrastructure creation, recycling the future assets, and build a multiplier effect on growth and revive credit flow, says Kant.
Concerns
The asset-recycling craze that got underway in Australia with the 2013 leasing of Port Kembla and Port Botany near Sydney is reaching India. So is the fear that handing over control of public utilities to a small private sector will hurt the consumer.
But while New Delhi aims to replicate the fundraising success overseas, it also needs to heed the Australian Competition and Consumer Commission Chairman Rod Sims’s warning last month: ‘Privatize to increase the efficiency of the economy, or don’t privatize at all.’
Policymakers in India envisage parting with revenue-earning operating concessions in exchange for upfront payments or investments. The deals will be structured as “contractual partnerships” with the state retaining long-term public ownership. However, to maximize their profit over a limited time frame, investors would naturally want to raise prices, limit competition or cut back on upkeep. Singapore had to nationalize its suburban trains and signaling systems because the main private operator had underinvested in maintenance, leading to frequent breakdowns and stranded, angry passengers.
Similarly, it’s important to prevent today’s lump-sum gains to the government from becoming a cost tomorrow. In New South Wales, where electricity prices doubled in five years after poles and wires were privatized, the government had to step in with an Energy Affordability Package to lower the burden on consumers. The Indian taxpayer, already struggling under extortionate levies on energy, simply can’t afford such largesse.
Without bureaucratic capability and regulatory acumen, the Indian program could become a transfer of taxpayer-funded assets to a handful of business groups; Adani and Ambani's duopoly.
The other takeaway from the Australian experience is to let consumers see for themselves if they’re getting a fair shake. As the Sydney Morning Herald wrote this year, the 2018 sale of 51% of WestConnex, a controversial motorway in Australia’s largest metropolis, limits the network’s “exposure to freedom of information requests and budget estimates hearings” besides diluting “the ability of the state Auditor-General to keep the project under scrutiny.”
Basically, the problem with government infrastructure spending is that:
[a] it commandeers scarce resources into a centrally controlled vision of what the country needs, instead of being determined in a bottom-up, need-driven manner, that prioritizes village and small-town connectivity, local sanitation, roads, tap water, public transport, and schooling. Central planning has been the curse of India’s development story so far, and
[b] Spending on idle jumbo jets for the peripatetic Caesars simply means the incremental return on investment tanks further — the long shadow of an already poor ICOR stretches further — and that reduces future growth.
(Note: Information is taken from The Times of India, Business Standard, dipam.gov.in, The Wire)
